Krantech Market Analysis 2023.2.6

February 6, 2023

【Last week's market trends】

Last week, policy rates were announced by the FOMC, the BOE, and the ECB, and the results were in line with market expectations in all cases. Market attention shifted to the press conferences after the policy rate announcements. Firstly, although Chair Powell of the Fed made somewhat hawkish remarks, the market had already priced them in. More notably, his reference to "disinflation" led the market to interpret a shift toward a more dovish stance, and the dollar declined as a result. Next, BOE Governor Bailey spoke of signs that inflation may have reached a turning point. The market had already been skeptical about further rate hikes from the BOE, so the moves were not substantial. The pound continued its downward trend. Then ECB President Lagarde signaled a 0.5% rate hike in March, but after that, she spoke in terms of "data-dependent." This caused the euro to fall significantly.

In the United States, employment data were released on Friday, beating market expectations by a wide margin and delivering a surprise result. Moreover, January ISM Non-Manufacturing Index also exceeded expectations, which pushed expectations for rate cuts back and caused the dollar to rise sharply.

The stock market showed a modest rise in the Nikkei Stock Average with little substantive news. The Dow moved up and down sharply right after the FOMC but lacked a clear direction, tending to hover near the highs. In contrast, the S&P 500 and Nasdaq-100 rose after the FOMC. They edged lower toward the weekend, but closed the week higher. (All figures are CFD data.)

【This week's market outlook】

This week, there will be remarks from Powell, but unless they are surprisingly unexpected, the market is unlikely to move dramatically. There are no other major indicators to watch. Given last week's U.S. indicators that surpassed expectations and confirmed a strong economy, expectations for rate cuts have diminished, and the dollar is likely to remain strong while the stock market tends to stay weak. Accordingly, the approach in the currency market is to focus on selling the dollar against the euro and the pound. In equities, the Nasdaq-100, which is relatively sensitive to interest rates, will be the main short target.

Additionally, there is market-moving news from Japan this week: the appointment of the next Bank of Japan governor. Yesterday, reports indicated that the new BOJ governor may be the dovish Amamiya, and since this suggests continued easing, the yen weakened from early Monday, and the Nikkei rose. However, the Japanese government currently denies this report. If Amamiya were to become the next BOJ governor, would the current easing policy truly continue? It is likely some policy review will occur. If that happens, the Nikkei may drop sharply in the short term, and cross-yen pairs may fall as well. In the short term, there could be a rally, but at least I would refrain from long positions in the Nikkei or long cross-yen positions (except USD/JPY).

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