European Stocks Rebound As BOJ Leaves Rates Unchanged

 

European stock markets bounced back following Thursday’s sell off, with the DAX back above 12700. Investors, who were spooked by less dovish than expected Fed and BoE announcements welcomed reassurance from the BoJ that it will maintain its stimulus despite mounting pressure to talk about exit. The Nikkei closed 0.56% as the Yen headed south, while Hang Seng and ASX 200 managed gains of around 0.2%. The CSI underperformed and closed lower on the day, but U.S. stock futures are also moving higher and markets are set to end the week on a slightly more positive note.

WTI crude prices are up 0.6% at $44.75, rebounding after declining by 4.3% over the two previous sessions. This puts in a little space from yesterday’s six-week low at $44.22. Crude is still down 2.4% week over week and by 8.9% month over month. Prices are also down by some 13% from the levels prevailing in May at the time when the 1.8 million barrels a day OPEC-led supply reduction was announced to have been extended by nine months.

Eurozone Inflation declined in May

Eurozone May HICP inflation was confirmed at 1.4% year over year as expected. The detailed breakdown confirmed that the deceleration from 1.9% year over year was mainly due to the fall back in prices for holiday related prices after the end of the Easter break, which left services price inflation at 1.3 %year over year, down from 1.8% year over year in April and core at 0.9% year over year, versus 1.2% year over year in April. Lower oil prices also saw energy price inflation dropping to 4.5% year over year from 7.6% year over year in the previous month. No real surprises then and after the ECB already cut back its inflation projections on the back of a lower than anticipated oil price trajectory, the final May numbers don’t change the ECB outlook, even though the weak numbers will back Draghi’s very cautious approach to exit steps.

Bank of Japan held the policy balance rate at -0.100%. They left the 10-year JGB yield target at around 0%. The meeting matched expectations that the BoJ would not alter its stimulus plan, as underlying inflation remains stuck at around zero percent growth. USD-JPY is little changed, holding just above 111.0.

U.S. TIC flows showed that foreigners bought a net $65.8 billion in U.S. assets in April, after picking up $9.3 billion in March. Overseas accounts also purchased $1.8 billion in net long term assets in April too, after buying $59.7 billion previously which was revised from $59.8 billion. Strength was in corporate stocks at $10.8 billion, bonds at $6.7 billion, and agencies at $4.2 billion, which overshadowed sales of $22.5 billion in Treasury coupons. Brazil was the biggest buyer of Treasury coupons on the month, picking up $8.2 billion, followed by India at $7.0 billion, and the Cayman Islands with $6.0 billion, while Ireland was the largest seller at -$15.9 billion, followed by Belgium at -$13.5 billion and Japan at -$12.4 billion.