Not my typical weekly roundup at all ↑

Markets Reviewed / Examined & Explained

In this note- market related matters from the week:

•Global Central Banks

•Geopolitical Risk

•”The Dollar” / the yen, FX

•UST yields

•Gold & crypto

•June quarterly options expiry/meme calls

I was going to discuss markets on RVDB Thurs but didn’t make it on. Not every day is a markets discussion day- but day after FOMC certainly was. We saw some major moves that had left many puzzled. So here are some points below, covering cross asset market observations, explanations, and what to look for going forward.

I’m writing a separate post for this following up on Japan: The World’s Biggest COVID Failure but given the US COVID risk discussion, will quickly mention the FAR more pressing COVID catastrophe looming with an exact date slapped on it: Tokyo Summer Olympics. Japan currently 5% vaccinated - yes, FIVE PERCENT have at least ONE SHOT, lowest per capita among developed AND developing nations, trailing even Brazil & India), less than one month away from people from every single country coming into Tokyo for two weeks in the worlds largest and one of most densely populated metropolitan areas, and then returning back to their respective countries in every corner of the world. And as far as I can tell, NONE of this is on anyone’s radar, so if you want to talk COVID, this is prob the discussion that matters most right now. Just my view.

And as always,... (More)

BOJ June ‘21 Monetary Policy Meeting out:

https://www.boj.or.jp/en/announcements/release_2021/k210618a.pdf

No change in YCC framework: policy rate -0.1%, JGB 10Y Yield at “around zero” - however, the “around zero” caveat of “around zero as we define it- no ceiling“ that they snuck in from April policy meeting remains ↓

“without setting an upper limit” + “SO THAT the 10y JGB yield will remain around 0%” ← this makes no sense. Essentially saying “by removing the cap on yields, yields will remain capped and stay at around zero.”

May sound benign- but frankly, removing the upper limit of where 10y JGB yields will be pinned is NOT controlling the yield curve. It’s giving itself an out should yields surge and BOJ finds they somehow can’t mechanically cap yields after all.

BOJ’ YCC on the 10y JGB yield upper bound- the level where BOJ would step in and conduct a fixed rate operation to buy an unlimited amount of JGBs at a fixed level, went from 0.1% → 0.2% → 0.25% → no upper limit. Had they not incrementally nudged up the upper limit over the years, perhaps one might be able to read “no upper limit” as “they have that much control over the long end of the curve.“ But up, up, up, gone = you didn’t have a grasp on it this whole time and now admitting yield curves cannot be effectively controlled.

This was the language that was in place from YCC inception in Sept ‘16 until the last time... (More)