The Widowmaker Strikes Again

Thoughts of the Day

Despite rising inflation and the central bank’s fear of deflation becoming unwarranted, the Bank of Japan kept monetary policy unchanged, frustrating traders expecting rational decisions and reinforcing its reputation for unpredictable moves.

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Week Ahead

Monday: ECB President Christine Lagarde is due to testify before the Committee on Economic and Monetary Affairs, in Brussels.


Wednesday: The Bank of Japan’s meeting minutes for the September meeting will be released, may explain in detail about why the BoJ chose to stick with its current monetary policy 

Thursday: The final print for the US GDP growth rate of Q2 will be released with a Quarter-on-Quarter growth of +2.2% expected

Friday: The Euro Area Consumer Price Index for September is expected to show that prices rose 4.5% Year-on-Year, down from 5.2% in August.

The US PCE Price Index, the Fed’s preferred measure of inflation, for August is expected to show that prices rose 3.5% Year-on-Year, up from 3.3% in July. The Core index, which excludes the more volatile components of energy and food, is expected to moderate to +3.9% YoY from the +4.2% previously. 

The final print for the University of Michigan Consumer sentiment is expected to come in at 67.7 while the inflation expectations for the year ahead is expected to drop to 3.1% from 3.5% previously.

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What Happened Yesterday

Market Movements as of New York Close 22 Sep 23 (24 Sep for Cryptos) 
  • The Bank of Japan kept policy unchanged by a unanimous vote citing extremely high uncertainties surrounding economies and financial markets at home and abroad as it seeks to maintain inflation above 2% in a stable manner. Despite recent expectations that there may be talk of policy exit before the year end, the BoJ stuck to being “ready to add to easing if necessary” and as a result, the JPY weakened with USDJPY back to the highs of the year above 148. 
  • The US Treasury Yield curve inversion widened slightly to 0.66% as the US 2 year bond yield fell -0.02% to 5.10% while the 10 year bond yield fell -0.05% to 4.44%.
  • The US stock market tried to rally early in the session but the optimism fizzled out towards the end of the day as the weak risk sentiment prevailed. The S&P 500 fell -0.23% (intraday high +0.6%), the Dow Jones slipped -0.31% (high +0.3%) while the Nasdaq eked out a slight gain of +0.05% (high +1.2%).
  • The crypto market also remained weak with Bitcoin falling 1.2% and Ether dropping  -0.7% over the weekend.
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Headlines & Market Impact

China central-bank adviser proposes structural reforms to revive economy

Notable Snippet: China has limited room for further monetary policy easing, and it should pursue structural reforms such as encouraging entrepreneurs rather than counting on macroeconomic policies to revive growth, a central bank adviser said on Sunday.

Liu Shijin, a member of the People’s Bank of China’s (PBOC) monetary policy committee, told a financial forum in Shanghai that Beijing’s room for monetary policy easing was limited by widening interest rate differentials with the U.S.

They include demand-side reforms with a focus on giving migrant workers access to public services enjoyed by city dwellers, as well as supply-side reforms that involve igniting entrepreneurship in emerging industries, he said.

China’s top economic planning body announced this month it would create a new department to help private businesses, as Beijing seeks to revive investor confidence hurt by government crackdowns on sectors ranging from the internet to private tutoring.

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EU does not want to decouple from China but must protect itself, says EU trade chief

Notable Snippet: The European Union has no intention to decouple from China but needs to protect itself when its openness is abused, the bloc’s Executive Vice President Valdis Dombrovskis said, as both sides look to cool rising tensions over geopolitics and trade.

Relations have become tense due to Beijing’s ties with Moscow after Russian forces swept into Ukraine, and the EU’s push to rely less on the world’s second-largest economy.

The bloc posted record bilateral trade with China last year, but it is “very unbalanced,” Dombrovskis said on Saturday in a speech at the annual Bund Summit conference in Shanghai, citing a trade deficit of almost 400 billion euros ($426.08 billion).

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Inside Vietnam’s plans to dent China’s rare earths dominance

Notable Snippet: Vietnam plans to restart its biggest rare-earths mine next year with a Western-backed project that could rival the world’s largest, according to two companies involved, as part of a broader push to dent China’s dominance in a sector that helps power advanced technologies.

As an initial step, Vietnam’s government intends to launch tenders for multiple blocks of its Dong Pao mine before the year’s end, said Tessa Kutscher, an executive at Australia’s Blackstone Minerals Ltd, which plans to bid for at least one concession.

Vietnam has the second-largest rare-earth deposits, according to the U.S. Geological Survey. But they have remained largely untapped, with investment discouraged by low prices that are effectively set by China because of its near-monopoly on the global market. Visiting Hanoi this month to upgrade bilateral relations, U.S. President Joe Biden signed an agreement to boost Vietnam’s ability to lure investors for its rare-earth reserves.

The industry executives, investors, analysts and foreign officials described plans for Vietnam, including investments they said showed how talk of derisking supply chains to reduce reliance on China is translating into action.

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Phan Vee Leung
CIO & Founder, TrackRecord