Steen Jakobsen
The Bank of Japan has abandoned quantitative easing and the European Central Bank may taper its bond-buying programme, so what is the role of central banks in 2017, asks Saxo Bank’s chief economist Steen Jakobsen.
Article / 28 July 2016 at 7:59 GMT

From the Floor: 'The market really has no clue'

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From the Floor
By Michael McKenna

When Japanese prime minister Shinzo Abe was re-elected with a supermajority, investors rushed to sell the yen, which was then trading down near 100.00 versus USD. Late last week, when USDJPY hit 107.50, markets apparently decided they had become overexuberant and started buying, with USDJPY dipping below 104.00 Tuesday.

Yesterday saw a bounce north of 106.50. Today has seen a dip below 104.50. So what manner or sorcery is this?

"The market really has no clue," concludes Saxo Bank head of forex strategy John J Hardy. "We have seen speculation about enormous stimulus measures and other reports indicating that new spending could be very modest".

"Look for a confused market ahead of the BoJ," adds Hardy.


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Source: Saxo Bank 

Looking at the USDJPY chart above, Hardy reports that a break of the descending Ichimoku cloud could be the key bull signal post- the meeting, as in the longer run a bigger rally may well be on the cards as Japan heads towards some form of helicopter money.

In the shorter term, though? "We'll see some strong reactions no matter what [the BoJ releases]," says Hardy, adding that one important vector to watch is the degree of cooperation between the central bank and fiscal authorities implied by tonight's statement.

Whatever the outcome, the volatility surrounding the BoJ is likely to exceed that which occured around yesterday's mildly hawkish Federal Open Market Committee upgrade, which saw consolidation in the greenback but nothing more dramatic than that.

"We're still stuck in the summer doldrums," says Hardy.

While USD and JPY traders speculate on the form and degree of central bank manoeuvres in Washington and Tokyo, Saxo bank head of equity strategy Peter Garnry feels that inflation is a more important metric for US stocks than the Fed Funds rate.

"The hawkish upgrade and even a September rate hike won't affect equities that much," he says, "unless we see gains in inflation."

Today's earnings calendar features after-hours releases from Amazon and Google parent firm Alphabet, but those seeking an oblique read on inflation might do well to check out MasterCard's earnings release at 1200 GMT, which according to Garnry could provide a good indicator for consumer spending.

As far as the earnings season goes, Facebook posted a massive beat yesterday with Q2 revenues up 59%, year-over-year, at $6.44 billion (versus a forecasted 49%) and adjusted earnings-per-share at $0.97 versus $0.82 expected.

"Facebook is a bullet train leaving the station," says Garnry, "and you want to be on that train". According to Saxo's equities head, the social media giant "dominates the mobile ad industry" and its next revenue driver appears set to be search, where the company could make devastating inroads into Google's dominance.

"We are still bullish on Facebook," confirms Garnry.

On the other end of things there is Deutsche Bank, where three consecutive quarters of more than minus 18% growth (y/y) has hugely damaged both morale and the firm's competiveness.

According to Garnry, it remains an open question whether the German banking giant can survive its overhaul, as it is pulling out of countries and industries in a cost-cutting effort that could ultimately damage its top line.

"The brand is suffering," concludes Garnry.

Perhaps Deutsche Bank should go all-in on the Facebook bullet train? Photo: iStock 

Michael McKenna is an editor at 

From the Floor takes advantage of's unique real-time access to Saxo Bank’s various trading desks around the globe to put our community in touch with the developments that matter to their portfolios.  
28 July
morning call replay link not working
28 July
Michael S. McKenna Michael S. McKenna
Hi J R, we have updated the link and apologise for the inconvenience.


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