What's behind the sudden yen jump? | Morning Bid

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[00:00:02]Today, >> [music] >> the yen jumps hours after Japan steps in to support the currency. Plus, major central banks signal rate hikes are nearing.

[00:00:09]>> [music] >> And Apple shares climb as iPhone sales boost forecasts.

[00:00:14]This is Reuters Morning Bid, bringing you unfiltered market news and analysis straight [music] from the Reuters newsroom 7 days a week. I'm Amanda Cooper in London. And I'm Elena Casas.

[00:00:23]It's Friday, May the 1st.

[00:00:27]So, Amanda, we've seen another sudden jump in the yen this morning. We knew Japanese officials were on edge for potential speculative attacks on the yen, especially with low liquidity given that it's a May the 1st public holiday today and more public holidays in Japan next week. But, what happened this morning? Well, I suppose it's not surprising. What we have seen Okay, to be clear, for today's big move in the yen, we haven't had confirmation yet that it was indeed official buying. All right, so this is just sort of uh um pretty reputable and solid talk that we're we're gathering to sources on it.

[00:00:59]So, yeah, we had the yen jump suddenly this morning after having rallied as much as 3% yesterday in what we now believe to be uh the first official buying in now a little under 2 years um from Tokyo. People are on edge, as you say, liquidity is thin, and in thin liquidity thin markets, moves can be exaggerated. But, I you know, it with as everybody looking for signs of intervention, um this kind of got alarm bells ringing straight away. Japan is under a lot of pressure from rising energy prices, isn't it? It's a key importer, its trade deficit is likely to soar because of the oil crisis in the Gulf. Where does that put Japanese officials looking forward? Well, they're not happy about it. I mean, the Prime Minister Sanae Takaichi has been uh you know, she's she's keen to kind of keep the economy growing, to contain inflation, and so on. The Finance Minister has she's has sort of repeated her concern about high energy prices and the damage already being done to the economy. So, intervention The thing with intervention is always is it effective? Is it going to do what the officials want it to do? Yes, it strengthened the yen, but in the grand scheme of things, the yen is still, whether you look at it on a trade-weighted basis, whether you look at it against the dollar, um it's still close to its weakest in decades or indeed on a trade-weighted basis like, you know, almost almost on record. So, it kind of acts as a bit of a stopgap, and that's what we've seen in the past as well. So, I don't think this kind of solves the problem, but it would certainly anybody tempted to short the yen and hit it over the coming week might want to think twice about that.

[00:02:30]And where does this leave the Bank of Japan? Does it mean this hike that traders have been waiting for is coming down the line at the next meeting? Well, you have to look at it for that probably more at things like government bond yields, which determine the cost of borrowing and availability of credit in the economy, and so on.

[00:02:46]I mean, the Bank of Japan they they signaled that a hike was underway, much like other central bankers have done this week as well, which we'll get into in a minute. I'm not sure that it changes an awful lot for them. The yen is still weak, even if it's looking a lot perkier than it was, say, on uh Wednesday. Well, as you said, the Bank of England and the ECB both signaled this week that the next move is likely to be a hike. ECB officials, including Joachim Nagel, were sounding quite hawkish this morning about needing to move as soon as June. But, the ECB is in a tricky position, isn't it, given that it looks like those higher oil prices already quite substantially hitting growth across Europe. Definitely, and we're seeing indications that it's uh you know, it's affecting uh consumer expectations for inflation, market-based expectations for inflation. And the ECB issued a I think I think it's its monthly survey of consumer inflation expectations a couple days ago. This isn't the kind of thing that moves markets. It's normally something that's there, it's informative, it's interesting. But, we saw bonds sell off on the back of it because it showed how nervous consumers are about price pressures at a time when growth is, you know, even in somewhere like a economic powerhouse like Germany, is let's call it moderate. It's, you know, it's not a a good position for I think any central banker to be in. But, to be clear, Christine Lagarde did say during yesterday's press conference when asked about the risk of stagflation, she said, "That is a term best parked in the 1970s." And I think that's what we're hearing, whether it's from economists or fund managers or, you know, traders now is that slowing growth and high inflation that they're not a good combination, but it is a far cry from the kind of extremes that we did see uh a few decades ago. The Bank of England is, if anything, in a worse position, isn't it, given the impact of higher energy prices on the British economy and the government bond yields on UK gilts already. They sounded slightly less hawkish though than the market was perhaps anticipating yesterday. The bank set out three different scenarios, the worst of which would see oil going at over $130 a barrel and CPI at more than 6%. But, that market has nonetheless reduced its odds on how much the bank might need to hike this year, hasn't it? That's absolutely right, but I think that's perhaps coming from the fact that markets they often go too much the other way, right? So, I think perhaps markets were pricing a little too aggressively for the BOE this year. And everyone was saying that into the run-up to uh the meeting this week that this was too much with almost at one point three hikes priced in for the BOE. I mean, there are some houses that are still calling for cuts from the BOE because, you know, on the grounds that while it energy prices create a problem for inflation, the growth simply isn't there to kind of help ride that out, as it were. So, it's not surprising to see some of that come off the table. Well, with all the central bank news, we shouldn't forget this has also been a really busy week for earnings. We had Apple last night.

[00:05:31]That went down well with shareholders.

[00:05:32]The company announced a $100 billion buyback and strong sales for the iPhone, more than $57 billion in the last quarter. So, how is the market feeling about Apple's future direction, given, of course, that those iPhone sales could be hit? Tim Cook said that they could be, those prices could have to rise over the next couple of quarters because of the memory chip shortage. That's right, and I thought that was quite interesting, you know, I mean, I think the news around the big hyperscalers, the megacap stocks, this it almost invariably seems to be ultimately positive, even if uh you know, you sometimes see the shares slide. There'll be some bright spot to take away. I uh chip shortages and so on. Again, I suppose not not hugely surprising. I think the shares rose after-hours trading yesterday, but not by a huge amount, you know, a couple of percent here and there, which says that that says to me that the investors are taking this as a positive, but not a super soaraway 6% like we saw in shares of Alphabet, Google parent, earlier this week after it delivered earnings, or the opposite, the 7% slide in Meta shares after uh they reported earnings as well.

[00:06:32]We're flying a little bit blind going into premarket this morning cuz our usual indicator, which is US big stocks that trade in Frankfurt, are not trading today on account of European public holidays. So, I guess we'll wait to see how things kick off when premarket trading gets underway in earnest. Well, Tim Cook did say he couldn't predict the price of memory chips beyond June, but with the iPhone 17 Pro already going at $1,099 for a basic model in the US, consumers might not be willing to pay more for an upgrade.

[00:07:05]And for today's recommended read, check out Clyde Russell's column on why the UAE dumping OPEC might not affect crude as anticipated. We'll drop that link in the description. And for more on any of today's stories, head to reuters.com or the Reuters [music] app. Follow us on your favorite podcast player, and if you're on a smart speaker, just ask for the latest market news from Reuters 7 days a week.

[00:07:24]>> [music] >> And we'll be back tomorrow.