• BoJ governor Kuroda says "Japan is on right path with QE"; backs Abe's election call• Kuroda's approval of Abe delay on sales tax "adds to yen weakness," says Hardy
• Tepco continues to rise as Abe campaign makes nuclear pledge• Speculation mounting that nuclear plant manufacturer Areva faces downgrade• Oil benchmarks settle in range ahead of pivotal Opec meeting, says Hansen
Brittle yen
Whatever Shinzo Abe hoped to achieve with yesterday's snap election call, buttressing the yen was certainly not one of them as it continued to wilt against the dollar.
Bank of Japan governor Haruhiko Kuroda affirmed the government's strategy on QE after last month's shock injection of cash, and also backed Abe's delay on the sales tax. "It's exacerbating yen weakness," says Saxo Bank's head of forex strategy John Hardy.
Dollar direction looks dependent on the Federal Open Market Committee Meeting minutes later today which could be negative if there is a big discussion about inflation, says Hardy, speaking live from the Copenhagen trading floor. But, the dollar view is "pretty flat neutral at the moment," he says and adds "the whole market is simply about risk appetite and the yen."
Vols in USDJPY were stable overnight, says Saxo Bank trader Dan Juhl Larsen, but points to some offers in the spot market at around 117.45-50 and highlights 118 and then 124 as the next big resistance level. "The vols in dollar/yen are still relatively cheap," he says "and there could be a lot more volatility."
Bank of England minutes are also up today, adds Hardy, which could turn the spotlight on sterling.
Abe boosts Tepco
Japanese equities may be slipping, says Saxo Bank's head of equity strategy Peter Garnry, but Tokyo Electricity Power Company is bucking the trend.
Tepco has risen 45% since its October lows helped initially by a parliament vote that has moved for the use of nuclear power again in Japan and from Abe's affirmation yesterday that nuclear power "is a major part of his nuclear platform leading to a major breakout in this stock," says Garnry. Garnry adds "it is difficult to have any anchor in which to manage your trading strategy but that it is interesting when a stock breaks out by that much."
Tepco's shares plummeted after the March 2011 Japanese earthquake and tsunami.
Tepco's share price plummeted after the earthquake in 2011 but
has staged a 45% recovery since October. Photo: Thinkstock
DAX rising
Dax has gone through the 9,500 level after the boost from Mario Draghi two days ago and the ZEW report yesterday beating expectations. "This is psychologically key so we are in new territory," says Garnry.
Beleaguered Areva
French nuclear plant manufacturer Areva is suspending its 2015 and 2016 outlook. "They are down 15%, pre-market," says Garnry. "There will be a lot of attention on Areva today and that will be the big trading topic in Europe."
Simpn Fasdal from the bonds desk in Copenhagen adds that speculation is mounting that Areva could "face a downgrade".
Areva bonds have opened down more than five full points, says Fasdal. "Remember these are investment grade tripple B so there will be uncertainty on the rating."
Calm before storm
Crude markets have settled into a "calm before a storm," says Saxo Bank head of commodities Ole Hansen in the run-up to next week's pivotal Opec meeting. "They are trying to strike a deal before the actual meeting to avoid mud throwing so that will be quite interesting," says Hansen.
WTI is in a $73.25-76.30/b range and Brent is in a $76.75-80/b range, he says. "This will cap the market," he adds. The weekly US inventory report today could "also add some focus his afternoon".
China hits industrial metals
Chinese PMI data tomorrow will be pivotal as weakening demand continues to impact the industrial metals sector, says Copenhagen-based Hansen. "High grade copper is in a 2.95-3.05 range and if it goes below 2.95, then there could be quite a few speculative longs getting out."
Switzerland decision looms
An official poll today on the Swiss gold referendum is out today which "Could create some attention," says Hansen. Gold was unable to make the $1,208/oz level, but there "could be a bit of upside if we make it through the 1,195 level today."
Bonds ride ZEW wave
It was a positive day yesterday for bonds after the better-than-expected ZEW report and "hints on QE at a later stage from the the ECB," says Simon Fasdal, head of fixed income trading at Saxo Bank. PMIs tomorrow could give bonds a boost.
"Dovish ECB and lower commodity prices are supportive for corporate bonds," he says.
Disclosure: To subscribe to the Daily Shot letter by e-mail please enter your e-mail address here: Subscribe to the Daily Shot