By Teeuwe Mevissen, senior macro strategist at Rabobank
Don’t throw away a nest egg!
As this week made clear once more, it is always important to keep a nest egg for a rainy day. Being able to whether storms is crucial when one is invested in risky assets so one is not forced to sell risky positions when it hurts most i.e. during sharp corrections as we saw very recently. This is all the more true when people with modest means who try to make some money on the stock market start losing their jobs due to a cooling labour market. Moreover it also teaches us to not put all your eggs in one basket. People who had a concentrated stock portfolio in tech surely must have panicked briefly seeing their stocks tank with double digit percentages.
The same goes for playing a hand in a game like poker. A Chinese variant of poker called throwing eggs has become so popular that China called on officials to stop playing the widely popular poker game because it’s hurting their work. The game has gone viral in the past two years and China now fears that the addictive game is “corrupting the work style of cadres” according to the Beijing Youth Daily earlier this week. Since Xi already urged officials to not misinterpret or procrastinate the party’s orders, it is questionable if party cadres playing guandan are playing the right cards. Indeed, participating in throwing eggs, one would expect to end up egg faced sooner rather than later!
Yesterday, the Bank of Japan (BOJ) showed that it might have scared itself with its previous hawkish tone of less than a week ago. The BoJ raised its interest rate from 0.10% to 0.25% in a surprise hike and initially did not exclude further hikes. Furthermore the BoJ also unveiled plans to halve the pace of its monthly bond buying by the first quarter of 2026.
In an attempt to calm nervous market participants, BoJ Deputy Governor Shinichi Uchida pledged yesterday to refrain from hiking interest rates as long as markets are unstable. Still, these signals from central banks make one question again if central banks are there to protect market participants and to what extent this goes hand in hand with true capitalism. Regardless, markets received the news with enthusiasm and continued recovering from the sharp correction earlier this week.
At the same time US yields have been climbing a bit, which resulted in some support for USD/JPY towards a level of slightly higher than 147. However, markets have still significantly reassessed the Fed’s policy stance and are still expecting more rate cuts than at the start of last month. But as our head of G-10 currency forecasting rightfully mentioned last Tuesday, much remains unclear and next week’s US PPI and CPI data and Jackson hole will likely provide more clarity regarding the Fed’s future path. That has not prohibited her from reviewing our USD/JPY forecast which she now believes will reach a level of about 145 in about three months from now.
This morning important data came in from Japan. As the unwinding of yen carry trades have rattled markets, August saw foreign selling of Japanese bonds and Japan buying foreign bonds. However, there was no noticeable change regarding the volumes traded. In contrast, Japan’s buying of foreign stocks did show a sharp spike and came in at the highest figure since the data is being published.
We also received leading indicators via Japan’s economic watchers surveys that showed that the surveyed managers asses the current situation with a value of 47.5 (as expected) while the outlook came in at 48.3 (slightly lower than expected.) Both still indicate slowing activity but the values were better than the previous month of June
