Yen: Speculative Bets Reach Record Highs

Daily Analysis - 25/04/2016

Speculative Bets on the Japanese Yen Rise to $8.2 billion

For the week ending Tuesday, April 19^th, speculators were long on the yen, posting a record high at $8.2 billion, leaving investors vulnerable to a short squeeze. On Friday, rumors that the Bank of Japan was planning to introduce new stimulus measures at its meeting this week sent USDJPY rallying to a 3-week high on Friday, closing at 111.79

Yen drops on BoJ rumors

The Japanese yen posted strong gains early Friday as USDJPY jumped nearly 80 pips initially in the early hours of the European trading session and closed with over 2.0% gains by closing time on rumors that the BoJ was considering adopting negative rates in its lending programs for banks. A report from Bloomberg showed that people familiar with the BoJ noted that the central bank was considering negative rates through the BoJ's Stimulating Bank Lending facility, which currently offers loans to banks at zero percent interest. The new policy would mean that the BoJ would pay commercial banks that borrow money from the central bank in order to lend to businesses and that is in addition to the policy already in place which charges banks for excess reserves parked with the BoJ. The yen slipped across the board following the reports. The Bank of Japan will be meeting on April 27-28 to decide on its next monetary policy moves.

Growth in German Private Sector Slows

Germany's composite output index fell to a 9-month low at 53.8 in April, down from 54.0 in March, underlining the slow pace of growth in Germany's private sector, data from Markit showed on Friday. Germany's services activity index was at 54.6, posting a 6-month low compared to March's print of 55.1. The data missed analyst expectations of an unchanged print at 55.1. Germany's manufacturing PMI however improved rising to 51.9, from 50.7 a month ago. The flash PMI data is merely an initial estimate and is subject to revisions when the final PMI data is released next month for April. Earlier last week, the German government released its 2016 forecasts and maintained its optimistic outlook noting that Germany's economy would grow at a pace of 1.70% this year and 1.50% in 2017, noting that strong domestic demand and private consumption would offset a slowdown in exports due to the weakness in emerging markets.

ECB Analysts Survey: Inflation and Growth to Remain Weak

The European Central Bank published the results from its Survey of Professional Forecasters report on Friday. The survey results showed that analysts expect inflation and growth in the euro area to remain weak into 2016 and early 2017. Analysts forecast inflation to average around 0.30% in 2016, well below the previous forecasts of 0.70% in January, while inflation is expected to average 1.30% next year, down from previous forecasts of 1.40%. The data also showed that the ECB could face challenges in reviving inflation in the region. Real GDP growth in the eurozone is expected to average 1.50% in 2016 down from the previous forecasts of 1.70%, while growth in GDP is expected to rise modestly to 1.60% in 2018.

Canada: Core Inflation Heating up, Retail Sales Strong

Canada's inflation grew at a slower pace in March with declines in gasoline prices being made up by increases in food and shelter. The CPI, measured year over year, rose 1.30% in March, down from 1.40% in February, according to data released by Statistics Canada on Friday. The annual core inflation rate which excludes the volatile components such as food and energy jumped 2.10% in March, extending the 1.90% increase in February. Retail sales figures for February were stronger across the board, rising for the second consecutive month. The auto sector continued to be the main driving force. Retail sales increased 0.40% in February beating market expectations calling for a 0.80% decline. Excluding autos, retail sales were up 0.20% in February, indicating that the GDP data for March was likely to maintain the momentum.