Will they or won’t they?

Thoughts of the Day

Persistent weakness in the Japanese Yen has brought USDJPY back close to 160 level again and the Japanese authorities have been increasingly vocal about “excessive currency volatility” being undesirable. So, the question is will they intervene by selling USD as they did at the end of April when USDJPY touched 160.20 briefly or will they just stay on the sidelines and keep jawboning?

Back in April, when USDJPY broke above 160, they sold USD and bought JPY aggressively and pushed it down to 152 over 5 days. Then, US 10-year government bond yield was 0.40% higher, and the 10-year Japanese Government Bond yield was about 0.10% lower. Based on interest rates, the “fundamentals” for a higher USDJPY was stronger then. As such, if they could intervene so strongly then, there should be less reasons for them to hold back on intervention now given that the fundamentals for a stronger USDJPY is now weaker.

So, what’s stopping them? Likely, it’s comments from the US Treasury Secretary, a few days after the April intervention, that she expected interventions “to be rare and consultations to take place” before such action. If the USDJPY should grind slowly higher, the case for aggressively selling USD by the Japanese authorities may not be strong as they are warning against “excessive volatility” and not extreme Yen weakness.

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Tradertainment

JULIAN ASSANGE IS FREE
Julian Assange is free (Julian Assange is an Australian editor, publisher, and activist who is best known as the founder of WikiLeaks, a non-profit organisation that publishes news leaks and classified media provided by anonymous sources.). He left Belmarsh maximum security prison on the morning of 24 June, after having spent 1901 days there. He was granted bail by the High Court in London and was released at Stansted airport during the afternoon, where he boarded a plane and departed the UK.

This is the result of a global campaign that spanned grass-roots organisers, press freedom campaigners, legislators and leaders from across the political spectrum, all the way to the United Nations. This created the space for a long period of negotiations with the US Department of Justice, leading to a deal that has not yet been formally finalised.

After more than five years in a 2×3 metre cell, isolated 23 hours a day, he will soon reunite with his wife Stella Assange, and their children, who have only known their father from behind bars.

WikiLeaks published groundbreaking stories of government corruption and human rights abuses, holding the powerful accountable for their actions. As editor-in-chief, Julian paid severely for these principles, and for the people’s right to know.

Day Ahead

  • Canadian Inflation (Headline Consumer Price Index: +2.6% Year-on-Year expected vs +2.7% prev)
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What Happened Yesterday

Market Movements as of New York Close 24 Jun 24
  • [Fedspeak]
    Daly (current voter, slight hawk): “We must continue the work of fully restoring price stability without a painful disruption to the economy. While there is still “more work to do” on bringing inflation down, inflation is not the only risk we face.”
  • Goolsbee (2024 voter, known dove): “If unemployment claims are going up, the unemployment rate is inching up, many of the other measures have cooled down to something like what they were before the pandemic and you start to see weakness in consumer spending. If you’re going to be extra restrictive for too long, you’re going to have to start worrying about what’s happening to the real economy and whether that policy setting is slowing the economy down too much.”
  • Mester (current voter, known hawk): “If the economy performs as expected, then it is reasonable to have policy begin to move back the interest rate, the Fed funds rate, back to a more normal level. I’d like to see a few more months of data before gaining confidence that easier policy is warranted. Monetary policy is in a good place to deal with how the economy might perform.”
  • [Daly is starting to note weakness in other sectors of the economy despite being uncertain about inflation previously. Goolsbee is also starting to be aware of the weakness in the labour market after noting that inflation is slowing previously. Mester continues to note that rate cuts are likely.]
  • The US stock market opened lower from Friday.  It tried to make a move higher in the opening hours before experiencing a reversal at midday and erasing the gains made earlier. The S&P 500 was down -0.31% on the day (high: +0.48%, low: -0.31%), the Dow Jones rose +0.67% (high: +1.08%, low: +0.09%) while the Nasdaq slid -1.15% (high: +0.12%, low: -1.16%).
  • Nvidia fell -6.68% yesterday, dragging the semiconductor stocks down with it. TSMC fell -3.54% while Super Micro Computer fell -8.65%. The selloff in Nvidia is thought to be caused by massive stock sales from Nvidia Jensen Huang. He reportedly sold 240,000 worth of Nvidia shares and sold nearly $95 million of stock in June alone.
  • The crypto market remained weak as pessimism in the tech sector continues. Bitcoin fell -4.48% while Ether fell -2.01% as a result.
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Headlines & Market Impact

U.S. probing China Telecom, China Mobile over internet and cloud risks, Reuters reports citing sources

Notable Snippet:  The Biden administration is investigating China Mobile, China Telecom and China Unicom over concerns the firms could exploit access to American data through their U.S. cloud and internet businesses by providing it to Beijing, three sources familiar with the matter said.

Authorities at the Commerce Department are running the investigation, which has not been previously reported. They have subpoenaed the state-backed companies and have completed “risk-based analyses” of China Mobile and China Telecom, but are not as advanced in their probe of China Unicom, the people said, declining to be named because the probe is not public.

The companies still have a small presence in the United States, for example, providing cloud services and routing wholesale U.S. internet traffic. That gives them access to Americans’ data even after telecom regulators barred them from providing telephone and retail internet services in the United States.

The investigation is the latest effort by Washington to prevent Beijing from exploiting Chinese firms’ access to U.S. data to harm companies, Americans or national security, as part of a deepening tech war between the geopolitical rivals. It shows the administration is trying to shut down all remaining avenues for Chinese companies already targeted by Washington to obtain U.S. data.

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Japan to respond appropriately to excessive yen volatility, official says

Notable Snippet:  Japanese Chief Cabinet Secretary Yoshimasa Hayashi said on Tuesday authorities would respond appropriately to excessive currency volatility, in a fresh warning as the yen has fallen close to the key 160 per dollar level.

Speaking at a regular press conference, Hayashi, the country’s top government spokesperson, said excessive volatility in foreign exchange is undesirable as it negatively affects economic activities of companies and households.

“We are closely watching currency moves and will respond appropriately to excessive volatility,” he said.

Earlier on Tuesday, Japanese Finance Minister Shunichi Suzuki told broadcaster TBS that it is most important for currency rates to move in a stable manner reflecting economic fundamentals.

“We would respond appropriately to excessive currency moves,” Suzuki told TBS at the Tokyo Haneda airport. Suzuki was flying to Seoul to attend a bilateral meeting with his South Korean counterpart on Tuesday.

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Bank of Canada: economy can add jobs and growth even as inflation slows

Notable Snippet: There is enough slack in the Canadian labour market to allow for growth and the creation of more jobs even as the inflation rate continues to decline, Bank of Canada Governor Tiff Macklem said on Monday.

Earlier this month the central bank trimmed its key policy rate for the first time in more than four years and said more cuts were likely if inflation continued to show it was on a sustainable path back down to the 2% target.

Macklem told the Winnipeg Chamber of Commerce that some people, in particular younger workers and newcomers, were finding it harder to obtain employment.

“With some slack in the economy, there is room for the Canadian economy to grow and add more jobs even as inflation continues to move closer to the target,” he said.

Macklem said the bank did not think a large rise in the jobless rate was needed to hit the 2% inflation target, a combination of factors he called a soft-landing scenario.

“It has always been a narrow path and we have yet to fully stick the landing,” he said

The fact that some newcomers are finding it harder to get a job could help the federal government, which is cutting back the number of people allowed in after levels spiked during the pandemic, driving up accommodation costs and population growth.

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Phan Vee Leung
CIO & Founder, TrackRecord