Alright as we noted yesterday, the expected BOJ rate hike was fulfilled today as the BOJ ended negative interest rate policy and abandoned YCC, It will guide the overnight call rate in the range of 0%-0.1% and apply 0.1% interest to all excess reserves parked at the central bank. They will also end their ETF purchases and reduce their commercial and corp. paper and expect to cut purchases completely a year from now. It will continue to support JGBs if it has too.
The Nikkei was higher and the Yen ended lower by the end of day’s trading and US bonds were bid led by the front end today. Here is a look at the US yield curve settles today steepening out prior to the FOMC tomorrow:
We also wanted to highlight the fact that Goldman Economists put out a paper noting the higher terminal inflation rate which rests somewhere over 3%. This is what we have been saying for quite sometime, that the FOMC 2% target is nothing more than rhetoric and it has always been higher than this level. It is good to see that Goldman is onboard here and a link to the Zhedge article on this is here, Goldman on Zhedge Higher Terminal Rate
Here is the Apollo chart that was referenced as well, we expect this to be the case for some time here, but as an anchor even at 3% we know that a Fed Funds of 5.5% is still 250bp to high given the negative carry that it implies:
Alright so we have the FOMC tomorrow, as a non event, it is possible that some new rhetoric may come about and as always we have to be ready for the pressor for any real news. So stay vigilant and see if we are getting hints of any increasing softness in the broader economy, which would tell us the FOMC is getting closer to cutting despite the sticky inflation, but with Goldman putting this piece out about a higher terminal rate, maybe the FOMC is looking for the perception that 3% is an ok rate and hoping the market excepts this fact! Well you guys know we have stated inflation has been 3% for over 25 years and thus this is now surprise by us.
Ok onto the Settlements page:
The Futures model tracker took a little hit with the extra long Yen, but this position sentiment will remain here unless Yen futures trade below 65.00:
As far as the MEGA8s, another new market cap high, but overall Nasdaq unimpressed today as the SP500 outperformed:
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