Early Morning Call: JPY drops as BoJ keeps Yield Curve Control unchanged

Equity market overview

Equity markets in the Asia-Pacific region rose overnight.

The Nikkei was a clear outperformer, boosted by a Bank of Japan (BoJ) decision that sent the yen down against all major currencies.

As expected, the BoJ maintained its short-term interest rate at -0.1% at its last meeting by unanimous vote. The shock came from the cap for bond buying, the so-called yield curve control, which was maintained at 0.50%. Over the last few days, there had been growing speculation that the central bank would further tweak its YCC, one month after having raised the cap from 0.25% to 0.50%.

The Bank of Japan also published its quarterly outlook report: the board cut its 2022 GDP growth forecast to 1.9% from 2.0%, for full-year (FY) 2023. The GDP growth forecast was also cut to 1.7% from 1.9%.

Meanwhile, the CPI readings are more or less unchanged, standing around 3% in FY 2022 and 1.6% in the following year.

In the UK, inflation eased to 10.5% in December - remaining close to that 40-year high we saw at the end of 2022 - still far above the Bank of England's (BoE) 2% target. A drop in petrol prices at the pump and the falling cost of clothing have been highlighted as the main reason for the small decline.

This is the second month in a row where we have seen a drop although the drop has not been as marked as it has been in some other countries. Still, wages are rising at the fastest rate since records began in 2001, however they are undershooting this level of inflation.

Quite a few market indicators are expected this afternoon in the US: producer price index; retail sales at 1.30pm; industrial production at 2.15; and business inventories at 3pm.

Corporate news

Elsewhere on the corporate front, WH Smith's total group revenue for the 20 weeks to 14 January increased 41% compared to the prior year and had risen 20% versus 2019.

Currys kept its guidance unchanged despite posting a UK and Ireland like-for-like (LfL) revenue down 5%.

Burberry LfL store sales increased 1% impacted by Covid-19-related disruption in mainland China. Excluding mainland China, comparable store sales grew 11%.

In the US, Moderna shares rose in extended hours, after it announced to the market that its experimental messenger RNA vaccine for RSV was 83.7% effective in a late-stage trial in adults aged 60 and older.

RSV, which produces symptoms similar to a cold but can be fatal for young children and older adults, causes about 14,000 deaths annually in adults aged 65 and older. There is currently no vaccine for the virus in adults, and Moderna competes with Pfizer and GlaxoSmithKline to get their RSV vaccines to market first. Analysts estimate that the RSV vaccine market could be worth more than $10 billion globally.

United Airlines, another all-session stock on the IG platform, rose in extended hours after the airline company said it forecast at least a fourfold jump in full-year profit for this year.

United Airlines reported better-than-expected earnings and revenue for the fourth quarter (Q4) earnings. The group posted earnings of $2.46 per share on revenue of $12.40 billion. The market had anticipated $2.11 and $12.23bn respectively.

United Airlines expects an adjusted profit of $10 to $12 per share for 2023, up from $2.52 per share last year, well above analysts' estimates of $6.54 a share.

Commodities

Oil prices continue to react to yesterday's OPEC optimism. The organisation believes that Chinese oil demand will rebound this year due to the relaxation of the country's Covid-19 curbs. OPEC expects Chinese demand to grow by 510,000 barrels per day in 2023.

Last year, the country's oil use posted its first contraction in years. As for 2023 world demand, OPEC forecasts a 2.22 million barrels per day increase, confirming last month's expectations.