JPY edges higher despite earthquake in Japan

Today’s headlines

What’s happening: The Japanese yen edged higher this morning after coming under pressure overnight.

What happened: The Japanese yen fell overnight against the US dollar, following an earthquake on Japan’s northeast coast.

Weakness in the US dollar lent support to the Japanese yen this morning.

Why it matters: A strong 7.5-magnitude earthquake hit the northeast coast of Japan last night, raising risk-off sentiment ahead of the announcement of monetary-policy decisions by various central banks. The earthquake forced evacuation orders and tsunami warnings, which were later downgraded to advisories.

Markets await policy decisions from central banks worldwide, including the interest rate decision by the Federal Reserve. Investors see a high probability of the US central bank cutting its benchmark rates by 25 bps at the upcoming meeting this week. Meanwhile, markets expect the Bank of Japan to hike rates this month.

Japan’s GDP for the third quarter being revised downward had kept the Japanese yen under pressure last week. Japan’s economy contracted 2.3% on an annualised basis in the quarter, compared to an initial reading of a 1.8% decline and more came in significantly worse than market expectations of 0.5%.

Expectations of Prime Minister Sanae Takaichi going ahead with his big spending plans lend some support to the yen.

Data released on Monday showed Japan’s nominal wages surged 2.6% year-over-year in October, the strongest gain in three months and topping market estimates of 2.2%. However, growth in wages continued to lag inflation for the 10th month in a row.

Weakness in the US dollar provided some support to the Japanese yen. The US dollar index, which measures the greenback’s performance versus a basket of major peers, fell around 0.1% to 99.04 this morning.

The USD/JPY fell to 155.88 this morning, while the Nikkei 225 gained 0.17% to trade at 50,668.75.

What to watch: Investors await comments from BoJ Governor Kazuo Ueda at an event in London later today.

Data on Reuters Tankan Index (0300 UAE Time) and PPI (0350 UAE Time) will be released today. The Reuters Tankan index for Japanese manufacturers, which climbed to +17 in November from +8 in the previous month, is expected to decline to +12 in December. Japan’s producer prices, which surged 2.7% year-over-year in October easing from a 2.8% rise in September, are expected to climb by 2.6% in November.

The markets today

UK stocks in focus today ahead of a basket of major economic reports this week

Context: London’s FTSE 100 index settled lower on Monday, recording losses for the second straight session.

Details: Investors remained focused on this week’s policy decision by the US Federal Reserve, while awaiting several economic reports from the UK on Friday.

Shares of Barratt Redrow fell around 3.8% on Monday after analysts at Citigroup slashed the target price from 530 pence to 506 pence. Berkeley’s stock also lost more than 2.5% ahead of the company’s financial results on Wednesday.

Shares of Unilever fell more than 6% on Monday after the company announced the completion of the demerger of its Magnum ice cream segment, which is now listed as The Magnum Ice Cream Company to become the world’s largest standalone ice cream stock.

Data released this morning showed that UK’s retail sales grew by 1.2% year-over-year in November. This marked the slowest pace in six months. Food sales growth slowed to 3.0% from 3.5% in the previous month, but remained above the 2.2% growth recorded in the year-ago period. Non-food sales rose 0.1%, compared to the 7.9% plunge recorded in the year-ago month.

UK’s FTSE 100 fell 0.23% to close at 9,645.09 on Monday, while the domestically focused FTSE 250 dipped 0.65% to settle at 21,921.28.

What to watch: With no major economic data scheduled for today, investors await reports on GDP industrial production and balance of trade from the UK on Friday. The UK’s monthly real GDP, which contracted by 0.1% in September, is expected to rise by 0.1% in October.

Industrial production in the UK, which declined by 2% in September following 0.3% growth in the previous month, is expected to climb 0.7% in October. Analysts expect UK’s trade deficit to widen to $1.9 billion in October from £1.09 billion in the previous month.

Other Markets: US trading indices closed lower on Monday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 0.45%, 0.35% and 0.25%, respectively.

The news shaping the markets

Ukraine’s troops launched drone attacks on the Russia-occupied Zaporizhzhia region. The news sent the RUB/USD pair lower in forex trading this morning.

Germany’s industrial production surged 1.8% in October, accelerating from 1.1% in the previous month, which lent support to the EUR/USD forex pair.

Brazil’s new car sales declined 8.5% to 238,600 units in November. Meanwhile, cumulative registrations from January to November rose 1.4% year-over-year to 2.41 million units, which sent the BRL/USD pair higher in forex trading this morning.

Mexico’s car production dipped 8.4% year-over-year to 322,205 units in November, after a 3.7% decline in October, which exerted pressure on the MXN/USD forex pair.

Australia’s NAB Business Confidence Index fell to 1 in November from 6 in October, reaching the lowest reading since April. However, the AUD/USD pair rose in forex trading this morning.

What else to watch today

South Africa’s consumer confidence (1200 UAE Time), Spain’s 3-month Letras auction (1340 UAE Time) and 9-month Letras auction (1340 UAE Time), US NFIB business optimism index (1500 UAE Time), Mexico’s inflation rate (1600 UAE Time), US ADP employment change (1715 UAE Time), Redbook (1755 UAE Time), JOLTs job openings (1900 UAE Time), JOLTs job quits (1900 UAE Time), 6-week Bill auction (2030 UAE Time), WASDE report (2100 UAE Time) and 10-year Note auction (2000 UAE Time), as well as Argentina’s industrial production (2300 UAE Time).