Daily Pulse · · 08:20 NY · 9 min read · macro · EWJ
In this edition
Money Temperature 55 on Thursday’s closes, from 45 — mixed, low confidence; risk appetite +15, tech premium +6, duration −12, de-dollarisation −20.5: risk bought back with the dollar still bid
Index moves
| Index | 1D | 1W |
|---|---|---|
| Rubin 100 | +1.53% | -2.16% |
| HALO 100 | +0.89% | -0.71% |
| Euro-AI 50 | +1.73% | +0.93% |
| AW40 | +0.43% | +2.14% |
| Agentic Ecosystem | +2.45% | +7.01% |
Pattern alerts
- EWJ boj-hikes-to-1.25-yen-falls-to-157.2-through-156-carry-trade-still-paid NEUTRAL
- UUP dollar-index-100.3-flat-the-yen-move-is-the-yens-not-the-dollars NEUTRAL
- TLT parallel-minus-6bp-day-10y-4.947-5y-4.801-30y-5.296-level-enough-for-now BULLISH
- SPY 762.60-first-close-above-757.83-since-monday-the-first-held-reclaim-of-the-month BULLISH
- SOXX 519.10-plus-3.4-above-505-and-517.43-design-bought-equipment-paused BULLISH
- GLD 398.36-plus-1.7-bought-back-on-a-lower-curve-hedge-returning NEUTRAL
- VIX 15.44-minus-13-lowest-close-of-the-week-hike-unpriced-by-options BULLISH
Cointegration
1 active pair, 5 breaks.
Two central banks raised rates this week. The Federal Reserve hiked on Wednesday and the belly of the curve sold, the 10-year closed above 5% for the first time in the cycle, and the equity lines were lost at the bell. The Bank of Japan hiked on Friday morning, a quarter point to 1.25%, the highest policy rate in Japan since the mid-1990s and exactly what the wires expected — and the yen fell. It was 156.0 into the decision and 157.2 at 06:00 UTC, 0.8% weaker on the day; Reuters’ headline was ‘Yen slumps after BOJ hikes rates as expected’. The dollar index did not move, 100.3, so the yen’s move is the yen’s. Tokyo bought the decision, the Nikkei +1.6% at 65,159 with Tokyo Electron +4.2%; Seoul bought harder, the Kospi +2.8% with SK Hynix +6.0%.
Yesterday’s Pulse was about the fraction: cash flows over a discount rate, and why the direction of the expected rate path matters more than the level. Today is about the variable that sits outside the fraction and can break it from the side. The currency in which the world’s leverage is funded. And a thought from the desk’s diary that we want to write down while the tape is still behaving as if it were true.
A hike the currency market declined to price
A central bank hikes and its currency weakens when the market has looked at the rate differential and decided the hike did not change it. The 5-year Treasury closed Thursday at 4.80%. The Japanese policy rate is now 1.25%. That is a spread of three and a half percentage points, and a quarter point in Tokyo, flagged for weeks and delivered on schedule, did not close it. The carry trade — borrow the low-rate currency, own the high-rate assets, pocket the difference — is paid on that spread. A spread that stays open keeps paying, and people who keep getting paid do not unwind.
That is the whole of Friday morning in one sentence, and it is the opposite of what happened the last time the Bank of Japan hiked into a nervous market. Which is why the desk’s diary entry from this week deserves a full airing.
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