Market Drivers July 11, 2016

Abe announces more stimulus
Cable tests 1.2850
Nikkei 3.98% Dax 1.01%
Oil $44/bbl
Gold $1360/oz.

Europe and Asia:
AUD Home Loans -1.0% vs. -2.0%

North America:
CAD Housing Starts 8:30

USD/JPY soared today in Asian and early European trade taking out two big figures so far as it traded above the 102.00 level in morning London dealing after Prime Minister Abe announced new stimulus measures by the government.

Coming off an impressive electoral win this weekend that is likely to provide him with a supermajority of 2/3 in the upper house of the Diet, Mr. Abe quickly turned his attention to economic matters. Mr. Abe announced that he will inform his economics minister Ishihara to compile and economic package for further stimulus of domestic demand.

Mr. Abe noted that he would use construction bonds for the first time in 4 years to pay for the new program, stating that the government should make the “most of the zero interest rate environment.”

The size and scope of the project was not yet known, but it will infrastructure based and as result is likely to be both stimulative to investment as well as jobs.

It is clear that Japanese officials are growing increasingly frustrated with the recent strength of the yen which hit parity against the buck on Friday despite much better than expected US NFPs. The drop in the exchange rate is being driven global collapse in sovereign debt yields and Mr. Abe likely recognizes the futility of fighting this trend with exchange rate intervention which typically has only a fleeting impact on the market. Therefore the expansion of fiscal policy which will have immediate impact on final demand and may have some positive impact on yields could prove to be a much more durable solution towards exchange rate stabilization.

Ahead of the North American USD/JPY has plowed through offers at the 102.00 level and is likely to push towards the 102.50 zone as the day proceeds. Today’s announcement as well as the release of specific details tomorrow will likely keep USD/JPY bid for the time being with Mr. Abe triggering a major sentiment shift in the market.

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