Stocks Advance Again, Oil Majors Dent FTSE, BoJ Fiddles

European Stock Market Update

European stock markets advanced for a second day on Tuesday. London lagged peers though as BP scrubbed some 18pts off the index after its earnings missed expectations. The FTSE 100 rose about 0.3% to add to Monday’s +0.5% rise as risk appetite returned over the weekend. Shares in Frankfurt and Paris rose by more than half a percent. Wall Street rallied having closed at the lows on Friday – no new news of note to worry investors helped lift the S&P 500 and Nasdaq up by about 1.2%, whilst the Dow rallied more than 1.5%. Tech rallied as bond yields held to the lows, though Tesla ditched almost 5%. Fed meeting kicks off today. Oil broke out of the lower end of last week’s range to its lowest in two weeks, whilst gold remains well support close to $2k. US futs looking up.

BP Earnings

BP shares had a target on their back as the company reported underwhelming profits for the third quarter. Underlying replacement cost profit of $3.3bn was short of the $4bn expected. Looks like BP has been hit by a weaker pricing environment and tough gas trading operations. Looney gone but strategy unchanged – buybacks continue. Shares tumbled 5% in early trade – read across for Shell, which erased another 10 or so points off the FTSE 100.

BoJ's Yield Curve Adjustments

Yesterday the yen jumped as the BoJ floated a test balloon via Nikkei – which reported Japan’s central bank was considering allowing the 10yr JGB yield to exceed 1%. Now what of the meeting? Well, they kinda tweaked the yield curve control policy...kinda. More like fiddling whilst the yen burns. The BoJ redefined the 1% cap as a loose “upper bound” rather than an absolute cap. Its strategy is interesting. The BoJ had raised the ceiling from 0.5% to 1% in July and markets have been waiting for the next move.

Policy Updates for Japan

It wasn’t enough for the yen to extend its gains and USDJPY has reversed course and jumped back above 150 this morning. Governor Ueda offered up a dovish press conference, saying the central bank hadn’t “seen enough evidence” to feel confident trend inflation will return to 2% sustainably, and the BoJ stressed that it would patient about maintaining accommodative policy. Today’s policy tweak was underwhelming, and the market had moved a bit ahead in expectation of more. But the key point is that the BoJ is slowly getting rid of YCC.

Currency and Inflation Trends

The dollar was offered yesterday as risk was bid. EURUSD advanced to its best in a week as inflation came down in Germany. German inflation fell faster than expected to 3 per cent, its lowest annual rate since June 2021. Eurozone inflation and GDP data is due at 10am, with the headline CPI seen at +3.1% and core at +4.2%. Inflation is also showing signs of slowing down in the UK – another reason to assume the Bank of England will leave rates unchanged this week. BRC’s shop price inflation fell to +5.2% in October from +6.2% in September. Bill Gross says not to buy US regional banks yet. “Regional banks falling knife hasn’t hit ground yet. Extraordinary long-term value but I’m waiting just a little bit more to own some of these at 60% book and 7% yields. Interesting that Jamie Dimon sold 100 million-plus of his own stock,” he tweeted.