Morning Update – 29/01/16 – by Arjun Lakhanpal

Morning all.. After a choppy session Wall St managed to carve out a close in the positive with the S&P up 0.55% as oil rallied on rumours of talks on production cuts. But overnight the big news was the cut to negative in Japanese rates which was a shock and sent the Nikkei higher to close up 2.8%. The vote to go negative was a close call 5-4 and considering Kuroda just a month ago said negative rates were not a consideration, this was something of a shock. USDJPY after a choppy reaction initially, shot higher to make a high of 121.40 but has since retreated. Couple of reasons why USD/JPY follow through is rather limited: (1) 3-tier system weakening the initial “negative rate” announcement, and (2) Nikkei pared gain because of no ETF purchase and negative rate impact on bank stocks. However, I think it is important that the BOJ clearly stated the possibility of even lower interest rates. At the same time, the BOJ revised its inflation forecast for fiscal 2016 down to 0.8% from a previous level of 1.4%. The question now is whether this policy shift will help revive the economy and spark inflation but some we speak to are very doubtful of that. The rally in Asia stocks saw EUR move lower but risk trades like AUD rally.. That 2% yield in Australia looking attractive to Japanese investors now. A busy day today with French PPI and CPI along with CPI from Spain and Norway unemployment data.. The big one this afternoon is US and Canadian GDP data.. Good luck..