June 11, 2024
CURRENCIES
Potential BoJ Bond Tapering:
- Speculation about BoJ cutting back bond purchases during Friday’s policy meeting.
- BoJ currently purchases around Yen 6 trillion a month of Japanes Government Bonds (JGBs) to keep rates low.
- If BoJ reduces purchases, Japanese Yen is expected to appreciate.
Market Expectations:
- USD/JPY traders should watch US data and Wednesday’s FOMC meeting.
- Interest rate hike expectations for Japan have been growing, with a 10 basis point move priced in for September and a strong possibility for end-of-July.
- Markets forecast over 24 basis points of rate hikes this year.
USD/JPY Movement:
- USD/JPY is close to trading at highs last seen in early May, driven by Yen weakness and US dollar strength.
- US consumer price inflation data and the Federal Reserve’s monetary policy decision on Wednesday are key events.
- FOMC decision will include the latest Summary of Economic Projections and the dot plot visualization.
- Current dot plot suggests varied expectations for US interest rates in 2024.
Technical Analysis:
- USD/JPY chart remains bullish with the pair trading above all three simple moving averages.
- Ongoing series of higher lows supports a bullish outlook, but fundamentals will determine the next move.
Retail Trader Data:
- 24.88% of traders are net-long, with a short to long ratio of 3.02 to 1.
- Net-long positions are slightly higher than yesterday but significantly lower than last week.
- Net-short positions are higher than both yesterday and last week.
- Contrarian view suggests USD/JPY prices may continue to rise.
STOCK MARKET
AI Trade Pattern:
- Follows the familiar tech pattern: a few winners dominate.
- Historical context: similar trends seen in computers, phones, and search providers.
- Current leaders: chip companies and AI engines.
- Example: Nvidia’s 10-for-1 split.
Market Concentration:
- High concentration in the S&P 500, with top companies driving record highs.
AI Market Dynamics:
- Tech Moonshots:
- Hardware and chips lead, followed by productivity AI software providers like Google and Microsoft.
- Broadening Impact:
- Bank of America’s Savita Subramanian highlights potential widespread productivity gains from generative AI.
- Sectoral Impact:
- Utilities benefiting from AI-driven demand for electrical power.
- AI’s demand side may unlock significant productivity improvements.
Productivity Gains:
- Stagnation since mid-2000s due to globalization and leveraged buybacks.
- Renewed focus on efficiency due to high inflation.
- Post-COVID productivity improvements.
Potential AI Impact:
- Transformative potential for labor-intensive sectors and large banks.
- Belief in AI’s ability to transform society, technology, and the economy is crucial.
Efficiency Paradigm Shift:
- Corporate America’s decade of underinvestment leading to inefficient capital stock.
- New tools and incentives for efficiency growth.
- Positive outlook: “unequivocally bullish.”
Click here to open account and start trading.
