Is Japan finally going to stop printing money?

Thoughts of the Day

The market reacted aggressively to the Bank of Japan governor’s discussion of ending the negative interest rate policy. This led to a more than 2% strengthening of JPY against USD and a 10-basis point spike in the 10-year JGB yield. If the BoJ ends its ultra-easy policy, JPY may start recovering after years of weakening.

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Day Ahead

The US Nonfarm Payrolls is expected to show +180k jobs added to the economy in November, up from +150k previously. The unemployment rate is expected to remain at 3.9%. 

The preliminary print for the University of Michigan Consumer Sentiment (61.8 exp, 61.3 prev) and inflation expectations for the year ahead (4.5% prev) will be released.

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What Happened Yesterday

Market Movements as of New York Close 7 Dec 23
  • The weekly jobless claims for the week ending on 2 Nov rose to 220k (vs 222k expected) from 219k the week before (revised from 218k). Continuing claims for the week ending on 25 Nov slid to 1,861k from 1,925k (revised from 1,927k).
  • The US Treasury Yield curve inversion narrowed to 0.44% as the US 2-year bond yield fell -0.02% to 4.58% while the 10-year bond yield rose +0.02% to 4.14%.
  • Trading of the US stock futures was relatively quiet during the Asian and London trading hours. However, some optimism started to seep into the market as the US trading session approached as US investors digested the new developments in the Artificial Intelligence space from AMD (new AI chip) and Google (Gemini Demo).
  • The US stock market opened higher from the day before with the S&P 500 gapping +0.42% stronger with the optimism holding on through the US trading hours Consequently, the S&P 500 closed +0.80% higher (high: +0.91%, low: +0.35%), the Dow Jones eked out a +0.17% gain (high: +0.30%, low: -0.09%) while the Nasdaq jumped +1.48% (high: +1.61%, low: +0.55%).
  • Bitcoin fell -1.07% on the day as it continues to consolidate after the recent rally. Ether on the other hand gained +5.53% on the day and the increase may be a result of outflows of Bitcoin to Ether due to the less extended price action in the latter.
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Headlines & Market Impact

Temu, the Chinese e-commerce platform, is drawing shoppers from U.S. dollar stores, data shows

Notable Snippet: Temu, the fast-growing Chinese e-commerce platform selling $4 home decor and $10 shirts, is successfully taking on U.S. dollar stores including industry leader Dollar General, according to the latest market share data.

As of last month, Temu accounted for nearly 17% of market share in the United States within the discount stores categories, according to data analytics firm Earnest Analytics. That compares to 8% for the dollar chain Five Below, 43% for Dollar General and 28% for Dollar Tree.

Temu launched in the United States in September 2022 and quickly became popular through its use of social-media influencers to tout its merchandise as better and more affordable than traditional stores.

Temu is benefiting from shopper fatigue with high prices and inflation, said Peter Earle, an economist at the American Institute for Economic Research, a libertarian, free-market think tank. Temu’s parent company PDD Group said revenue rose by 94% to 68.84 billion yuan ($9.62 billion) in the quarter ended Sept. 30 from a year ago.

Temu uses a network of China-based manufacturers of cheap personal electronics, clothes and home goods. Factories and merchants on Temu send merchandise directly to Temu shoppers, using a trade exemption that allows shipments under $800 to enter the U.S. duty-free.

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BOJ chief meets premier Kishida, explains focus on wages, demand

Notable Snippet: “I explained that the BOJ hopes to check whether wages will rise sustainably including next year, whether higher wages will push up service prices, and the strength of domestic demand,” Ueda told reporters after the meeting with Kishida, when asked whether he spoke about the BOJ’s exit strategy.

Prior to the meeting, Ueda told parliament the BOJ will face an “even more challenging” situation in the year-end and the start of next year, when asked by a lawmaker about the economy and monetary policy guidance.

He also said the central bank has several options on which interest rates to target once it pulls short-term borrowing costs out of negative territory.

“We could either keep the interest rate applied to reserves (financial institutions park with the central bank), or revert to a policy targeting the overnight call rate,” Ueda said.

“There are various options. But we have not made a decision yet on which interest rate to target once we end our negative interest rate policy,” he told parliament.

The remarks came in the wake of those by Deputy Governor Ryozo Himino on Wednesday elaborating on the potential impact an exit from ultra-loose monetary policy could have on the economy.

“Whether we keep short-term rates at zero or move them to 0.1%, and at what speed we will push up rates to 0.25% or 0.50%, would depend on economic and financial conditions at the time,” Ueda said on the rate path.

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Microsoft’s president meets with the Chinese government to discuss AI co-operation

Notable Snippet: Microsoft President Brad Smith met with China’s Minister of Commerce Wang Wentao on Wednesday to discuss topics ranging from artificial intelligence to trade relations between Washington and Beijing, according to a Youdao-translated Chinese government announcement.

The meeting underscores China’s attempt to show it remains favourable to American businesses amid continued tensions with the U.S., as it looks to reinvigorate its economy.

Notably, Smith and Wang’s engagement comes after U.S. President Joe Biden and Chinese President Xi Jinping met last month — a gesture that commentators said showed China and the U.S. are trying to co-operate in areas with potential. It also signalled a desire to improve the environment for foreign businesses.

During the meeting, Wang said that China is committed to providing better services for foreign enterprises, according to a statement from the country’s commerce ministry. The readout said that the Ministry of Commerce hopes Microsoft will play a “constructive role” in co-operation on artificial intelligence between China and the U.S.

Smith said that Microsoft is willing to “actively participate in the digital transformation of China’s economy” and remains committed to promoting economic and trade cooperation between China and the U.S., according to the Chinese Ministry of Commerce.

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Best,
Phan Vee Leung
CIO & Founder, TrackRecord