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Market Commentary

Following some very substantial misses yesterday by the likes of Google, Microsoft, Starbucks and a plunge in Visa shares, overnight who came to the markets’ rescue but the BOJ, when shortly after midnight Bloomberg reported that “according to people familiar with talks at the BOJ” which is the traditional keyword for a BOJ source testing out the market’s reaction, Japan’s central bank may “help” local banks to lend by offering a negative rate on some loans.

This happens just months after the BOJ unleashed negative rates thereby “penalizing” banks who hold too much excess reserves. So just four months after the BOJ went nuclear on its own banks, now it has had a 180 degree change of heart.

The result was immediate: the Yen tumbled, USDJPY spiked and the Nikkei soared by 200 points in the blink of an eye.

More from Bloomberg:

The officials said that adding this to the central bank’s arsenal could have a positive impact on the economy, but would also raise questions about giving subsidies to commercial lenders. Financial institutions, who already feel penalized by the existing negative rate, could face demands from borrowers to cut their lending margins further, said the people.

This coupled with rising speculation that the BOJ may announce that it will double the pace of its ETF purchases next week, was enough to send the USDJPY soaring by more than 130 pips, as right after the Bloomberg “market trial balloon” was released, USDJPY spike to 110, at which point it took out all the stops and is now trading about 110.50. Japanese bank shares promptly rallied on optimism the measure could be adopted, with the Nikkei closing up 1.2% on nothing but another rumor of central bank intervention.

CARmakers emissions scandal growing…:

However, the BOJ’s trial balloon has not been enough to push European (or global) stocks notably higher and in Europe stocks fell led by carmakers as emission probes loomed over Daimler AG and PSA Group, while Asian equities slid from a four-month high.

Daimler fell 5.3 percent, dragging a gauge of automakers to the biggest drop of the 19 industry groups on the gauge. The Mercedes-Benz maker was asked by the U.S. Department of Justice to investigate the certification process of its cars.

Meanwhile PSA Peugeot Citroen fell 3.3 percent after the group’s premises in France were searched by government fraud investigators as part of a probe into vehicle emissions.

Raw materials fell as steel futures slumped in China after exchanges announced measures to cool speculation and Goldman Sachs Group Inc. cut price outlooks metals and crops. “Our expectation is the oversupply in the iron ore market will return,” Christian Lelong, an analyst at Goldman Sachs, said on Thursday. “It’s going to be very hard to have strong enough demand growth in the Chinese steel sector to keep things in balance.”

Initially in the overnight session, commodities trimmed this week’s gains in steel reinforcement bars to soy beans and cotton that had stoked the outlook for inflation around the world. Carmakers are under renewed scrutiny after Volkswagen AG cheated on emissions tests.

But the biggest driver was the major earnings disappointment out of Google and Microsoft on Thursday which dimmed the outlook
for earnings after results from American companies’ suggesting that the disappointing earnings season was not going to any “better” than had been earlier expected.

Caterpillar Inc., McDonald’s Corp., General Electric Co. and American Airlines Group Inc. are scheduled to report earnings on Friday. Analysts are projecting a 9.5 percent decline in first-quarter profit for S&P 500 members, compared with forecasts for flat growth at the start of the year.

Global market summary

  • S&P 500 futures little changed at 2081
  • Stoxx 600 down 0.7% to 347
  • FTSE 100 down 1% to 6321
  • DAX down 0.9% to 10339
  • German 10Yr yield down 2bps to 0.22%
  • Italian 10Yr yield down 1bp to 1.45%
  • Spanish 10Yr yield down 2bps to 1.58%
  • S&P GSCI Index down 0.2% to 347.6
  • MSCI Asia Pacific down 0.4% to 134
  • Nikkei 225 up 1.2% to 17572
  • Hang Seng down 0.7% to 21467
  • Shanghai Composite up 0.2% to 2959
  • S&P/ASX 200 down 0.7% to 5236
  • US 10-yr yield down less than 1bp to 1.85%
  • Dollar Index up 0.25% to 94.84
  • WTI Crude futures up 0.4% to $43.35
  • Brent Futures up 0.2% to $44.61
  • Gold spot down 0.2% to $1,246
  • Silver spot up 0.9% to $17.15

Global Top News

  • BOJ Officials Said to Eye Possible Negative Rate on Loan Program: BOJ may consider offering a negative rate on some loans
  • Schlumberger Cuts More Jobs as CEO Sees Industry Cash Crisis: net income declined to $501 million from $975 million year ago
  • Daimler Probes Diesel Emissions as Quarterly Profit Slumps: carmaker probes emissions at request of U.S. authorities
  • Blackstone Said to Weigh Buyout of Canada’s Concordia Healthcare: Other bidders may also be interested in company
  • Alphabet Profit and Sales Hit Speed Bump on Mobile Costs Traffic Acquisition Costs rise as more searches go mobile
  • Microsoft’s Turnaround Skids as Software Sales Lag Behind Cloud: Nadella’s transition to cloud, subscriptions to take time
  • Obama Praises EU in U.K. Op-Ed Aimed at Swaying Brexit Vote: U.S. president accused of hypocrisy by ‘Leave’ campaigners
  • Starbucks Sales Trail Estimates as Growth Slows in Americas: co. reaffirms annual sales and store-addition targets
  • Visa Alters Terms of Europe Deal and Warns of Delay; Shares Fall: purchase may not be completed until after June
  • Valeant Is Seeking Perrigo’s Papa as New CEO, WSJ Reports: co. had been aiming to announce move as early as next week: WSJ
  • Apple Says ITunes Movies, Book Services Closed Down in China: closings ordered by Chinese regulator, New York Times reports
  • SunEdison Seeking Equity Partners for Operations in India: SunEdison won projects in India with record-low bids
  • SecureWorks Prices IPO of 8 Mln Shares at $14.00/Shr: Shares to begin trading on NASDAQ today
  • Uber Drivers’ $100 Million Deal May Set Pace for Gig Economy: biggest ride-share firm avoids risk of costly trial verdict; Companies reporting earnings today include GE, Honeywell, Caterpillar, McDonald’s

 

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