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Markets Commentary


Less than one week after the BOJ floated a trial balloon using Bloomberg, that it would reduce the rate it charged some banks which set off the biggest USDJPY rally since October 2014, we are back where we started following last night’s “completely unexpected”

The yen surged the most in 8 months, or since August’s market meltdown and Japanese equities plunged after the Bank of Japan refrained from adding to its monetary stimulus. Bonds jumped around the world and gold rallied as the Federal Reserve signaled no hurry to raise interest rates. The staggering move as seemingly everyone was caught wrong-footed is shown in the chart below.

As Bloomberg puts it, “the BOJ’s decision was a surprise because a majority of economists surveyed by Bloomberg had predicted some action to counter a strengthening yen that had cast a shadow over the outlook for wage gains and investment spending. That the market’s reaction was so violent shows the weight financial markets are attaching to shifts in monetary policy.”

Andrew Clarke, Hong Kong-based director of trading at Mirabaud Asia Ltd. “Guessing what governments do next at this moment in time is not a good way to play these markets. Hoping that there will be more stimulus will lead to disappointment, because hope isn’t a very good strategy.

Yes, hope is not a very good strategy, especially when you are betting it all on what an irrational central planner may or may not do.

Of course, Kuroda’s inaction doesn’t just matter to investors. Japan’s economy is struggling to break out of a funk, with consumer prices dropping in March by the most since 2013 and company profits getting hurt by the stronger yen. In refraining from adding to stimulus, officials are betting that their success in bringing down borrowing costs since unveiling a negative-rate policy in January will generate an acceleration in lending. Perhaps this is just Kuroda’s way of saying Abenomics (and the BOJ’s policies) have failed and it’s time to pack it up?

And while Japan’s troubling future just got even more nebulous, stocks around the world tumbled, with European and Asian stocks, and U.S. index futures all falling after the BOJ “shock.” The drop is so big that not even last night’s blowout earnings by Facebook appear to be able to make much of a dent.


Global bonds rallied, with German 10-year yields falling the most in more than a month, after the Fed left interest rates unchanged on Wednesday. The yield on the Treasury 10-year note slipped to the lowest in a week while Japanese bonds advanced.

“It’s hard to get yields higher when central banks are keeping a dovish bias and rates are extremely low,” said Allan von Mehren, chief analyst at Danske Bank A/S in Copenhagen. “The BOJ will have to move sooner or later and the market will start pricing that in again.”

Market Standings

  • S&P 500 futures down 0.8% to 2074
  • Stoxx 600 down 1.2% to 344
  • FTSE 100 down 1.1% to 6248
  • DAX down 1.3% to 10165
  • German 10Yr yield down 6bps to 0.23%
  • Italian 10Yr yield down 5bps to 1.47%
  • Spanish 10Yr yield down 3bps to 1.6%
  • S&P GSCI Index up 0.2% to 356.7
  • MSCI Asia Pacific down 0.3% to 131
  • Nikkei 225 down 3.6% to 16666
  • Hang Seng up 0.1% to 21388
  • Shanghai Composite down 0.3% to 2946
  • S&P/ASX 200 up 0.7% to 5225
  • US 10-yr yield down 3bps to 1.82%
  • Dollar Index down 0.67% to 93.75
  • WTI Crude futures down less than 0.1% to $45.32
  • Brent Futures up less than 0.1% to $47.22
  • Gold spot up 1% to $1,258
  • Silver spot up 0.8% to $17.38

Top Global News

  • Facebook’s Zuckerberg Wants Right to Be Bold After Revenue Beat: Proposed new share class to give CEO more freedom for big bets; 1Q adj. EPS 77c vs est. 63c; 1Q rev. $5.38b vs est. $5.27b; Zuckerberg Borrows Google Tactic in Splitting Stock for Control
  • Sanofi Pursues Medivation for $9.3 Billion After Being Spurned: Offers $52.50 per share in cash, a premium of >50% to the 2-month volume-weighted avg. price prior to takeover rumors
  • BOJ Holds Off More Stimulus to Gauge Impact of Negative Rate: Keeps three key tools unchanged; majority forecast some action
  • Deutsche Bank Profit Beats Estimates as Legal Costs Drop: 1Q net attributable EU214m vs EU544m y/y; est. loss EU484.3m; debt trading revenue falls less than analysts had expected; Cryan, Fitschen call financial markets outlook “uncertain”
  • Texas Instruments Forecast Shows Rising Auto-Industry Demand: Sees 2Q rev. $3.07b-$3.33b, est. $3.17b; sees 2Q EPS 67c-77c, GAAP est. 71c; 1Q GAAP EPS 65c, est. 62c
  • First Cash Said to Be in Advanced Merger Talks With Cash America: Discussing an all-stock merger of equals and an agreement could be announced as soon as this week
  • Valeant’s ‘Mistakes’ Raised Profit, Destroyed Value, Ackman Says: Drugmaker’s price strategy reassessed at Washington hearing
  • PayPal Goes Mobile to Lure Customers, Fend Off Competitors: 1Q net rev. $2.54b vs est. $2.50b, adj. pro forma EPS 37c, est. 35c
  • Hanesbrands Offers $835 Million for Aussie Underwear Firm: Agreed to buy Australia’s Pacific Brands Ltd. for A$1.15 per share in cash, 22% more than the target’s closing price on Wed., gaining iconic underwear labels including Bonds and Jockey
  • Marriott 1Q Adj. EPS, Rev. Beat; Starwood Deal ‘On Track’: 1Q adj. EPS 87c, est. 84c, 1Q rev. $3.77b, est. $3.71b
  • VW’s Biggest Brand Stumbles to Loss on Emissions Crisis: VW brand posted a loss of EU127m in the final three months of 2015, compared with a profit of EU780m a yr earlier
  • House Panel Approves $610.5B Defense Policy Bill For FY 2017: House Armed Services Committee approves the $610.5b defense authorization bill by a vote of 60-2
  • Qlik Tech Said to Draw Bids From Thoma Bravo, Bain, Permira: First-round offers said submitted by Tuesday deadline
  • Puerto Rico Risks Historic Default as Congress Chooses Inaction: Island may impose moratorium if GDB payment isn’t delayed
  • Suncor Takes Majority Syncrude Stake After Murphy Oil Deal: Additionanal Syncrude stake will provide 17,500 barrels
  • Monsanto Says New Technology to Help GMOs Fight Pest Resistance: Technique may allow GMO plants to beat weed, insect resistance
  • DreamWorks Said to Explore Sale Advised by Centerview: Reuters

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