AI Tokens Outpace Record-Breaking Bitcoin

Cryptocurrency

Summary:

The artificial intelligence boom has hit the crypto market with a bang.

Coins linked to AI-focused crypto projects have jumped alongside tech stocks like Nvidia, driven by insatiable investor appetite for applications like machine-learning.

The rise of many AI crypto tokens has outpaced even that of bitcoin over the past year as the world's biggest cryptocurrency has surged to record levels.

Their combined market value has ballooned to $26.4 billion, from just $2.7 billion last April, according to CoinGecko data. Tokens linked to these projects are up between 145% and 297% in the past 30 days.

If the more optimistic industry predictions come to pass, there could be more room to run, as some market watchers say crypto and blockchain technology could help solve some of the AI industry's teething problems such as privacy and a need for computing power.

"As both AI systems and blockchain networks continue to grow, we will see more and more use cases fusing together the two industries," said Markus Levin, co-founder of blockchain data storage firm XYO Network.

The CoinDesk Indices Computing Index, which includes AI-linked tokens, has leapt over 165% over the past 12 months, outpacing even bitcoin's 151% rise to record levels.

Trading volumes in AI tokens have also risen sharply this year, Kaiko Research data showed, hitting an all-time high of $3.8 billion in late February.

"There is a significant chance that ... AI applications will be crypto's raison d'être," fund manager VanEck's Matthew Sigel and Patrick Bush said in a note.

Some of the top blockchain projects at the moment include the Render Network, a blockchain platform for peer-to-peer sharing of AI-generated graphics, Fetch.AI, a platform to build AI apps and SingularityNET, an AI services marketplace.

"Investors are starting to realize that if you want real value, you need products that are uncorrelated to the crypto market," said Ahmad Shadid, founder of AI-focused blockchain startup io.net. AI Tokens Outpace Record-Breaking Bitcoin_1

AI Tokens Outpace Record-Breaking Bitcoin_1

Winners And Losers

AI-linked blockchain products include a wide variety of services including payments, trading models, machine-generated non-fungible tokens and blockchain-based marketplaces for AI applications where users pay developers in cryptocurrency.

Investment manager VanEck has predicted that revenue from AI crypto projects could reach $10.2 billion by 2030 in their base case, and over $51 billion in their bullish scenario.

VanEck pointed to the use of crypto tokens as rewards, developing physical computation infrastructure, data verification, and transparency in proving digital ownership as primary areas where blockchain technology lends real-world value to AI development.

Offering crypto tokens as incentives allows quick scalability, said io's Shadid. His company plans to launch a token later this year.

"The reason we can scale fast is because of the token we have coming out," he added. "The token incentivizes owners of physical infrastructure to bring their computers on to our network," Shadid added.

Yet, just as with the AI boom itself, picking winners and losers could be fraught with peril.

"We're still in the very early stages of AI networks integrating with blockchain-based networks, and the utility of a lot of tokens is still very much uncertain," cautioned Levin.

Source: Yahoo

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Thomas

Central Bank

Economic

Japan's central bank raised interest rates for the first time since 2007 on Tuesday, pushing them above zero to close a chapter in its aggressive effort to stimulate an economy that has long struggled to grow.

In 2016, the Bank of Japan took the unorthodox step of bringing borrowing costs below zero, a bid to kick-start borrowing and lending and spur the country's stagnating economy. Negative interest rates — which central banks in some European economies have also applied — mean depositors pay to leave their money with a bank, an incentive for them to spend it instead.

But Japan's economy has recently begun to show signs of stronger growth: Inflation, after being low for years, has sped up, cemented by larger-than-usual increases in wages. Both are clues that the economy may be on a course for more sustained growth, allowing the central bank to tighten its interest rate policy years after other major central banks raised rates rapidly in response to a jump in inflation.

Even after Tuesday's move, interest rates in Japan are far from those in the world's other major developed economies. The Bank of Japan's target policy rate was raised to a range of zero to 0.1 percent from minus 0.1 percent.

The bank, in a statement Tuesday, said it had concluded that the economy was in a “virtuous cycle” between wages and prices, meaning that wages were rising enough to cover increasing prices but not so much as to cut into business profits. The main inflation reading in Japan was 2.2 percent in January, the most recent data available.

The central bank also scrapped a policy in which it bought Japanese government bonds to keep a lid on how high market rates can go, encouraging businesses and households to borrow cheaply. The bank had been slowly relaxing the policy over the past year, resulting in higher yields on debt as the country's growth prospects improved.

The bank said that negative interest rates and the other steps it had taken to stimulate the economy “have fulfilled their roles.”

In many countries, a surge in inflation has tormented consumers and policymakers, but in Japan, which more often grappled with growth-sapping deflation, the recent rise in prices has been welcomed by most economists. The Japanese stock market, bolstered by bullishness in the economy and corporate reforms that favor shareholders, has attracted vast sums of money from investors around the world, recently helping the Nikkei 225 index break a record high that had stood since 1989. The Nikkei rose slightly on Tuesday after the Bank of Japan announcement.

The move away from negative interest rates, which should help strengthen the country's weak currency, is viewed by investors as another important step in Japan's turnaround.

“It's another milestone in the normalization of monetary policy in Japan,” said Arnout van Rijn, a portfolio manager at Robeco, who set up and ran the Dutch fund manager's Asia office for more than a decade. “As a long-term Japan follower, this is very significant.”

Bets on a rise in interest rates were boosted this month after the Japanese Trade Union Confederation, the country's largest association of labor unions, said its seven million members would receive wage increases that averaged over 5 percent this year, the largest annual negotiated increase since 1991. That added to an average wage increase of around 3.6 percent in 2023.

Before the results of the wage negotiations were announced, investors had expected the Bank of Japan to wait longer to raise interest rates.

A supermarket in Tokyo. Annual inflation has been at or above the Bank of Japan's target rate of 2 percent for nearly two years. Credit…Kimimasa Mayama/EPA, via Shutterstock

Accelerating wage growth is a crucial sign for policymakers that the economy is strong enough to generate some inflation and is able to withstand higher interest rates. Like other major central banks, the Bank of Japan aims for annual inflation of 2 percent; the rate has been at or above that for nearly two years.

The rise in wages signals that companies and workers expect higher prices to stick around, Mr. van Rijn said. “People no longer believe prices will fall so that percolates into wage demands.”

The Bank of Japan, in its statement, concluded that “it is highly likely that wages will continue to increase steadily this year, following the firm wage increase last year.”

Shizuka Nakamura, 32, a resident of Yokohama, a port city south of Tokyo, said she had noticed prices going up. “I do feel the rising cost of living,” said Ms. Nakamura, who works in an administrative job at a construction company. She recently had a child.

“My friends who are around the same age as me and who have also had children all say that things like diapers and baby formula are getting more expensive,” she said.

The Bank of Japan's rate move was also significant because it was the last major central bank to exit its negative-rate policy. It and central banks in Denmark, Sweden, Switzerland and the eurozone broke monetary policy taboos by pushing rates below zero — which essentially means depositors pay banks to hold their money and creditors get less back than they lend out — in an effort to ignite economic growth after the 2008 financial crisis. (Sweden ended negative rates in 2019, and the other European central banks followed in 2022.)

Negative central bank policy rates upended global bond markets, with more than $18 trillion of debt trading at a negative yield at the peak in 2020. As inflation and economic growth has returned, and central banks have raised their policy rates — most far more aggressively than Japan's — hardly any debt now has a negative yield.

Rising rates in Japan make investing in the country relatively more rewarding for investors, but the Federal Reserve's target rate is still about five percentage points higher and the European Central Bank's is four points higher. While foreign investors have begun to funnel cash into the country, for Japanese investors the returns abroad are still attractive, even as the Fed and E.C.B. are expected to begin cutting rates, stymieing a rapid repatriation of cash to Japan.

The Bank of Japan also suggested it would make a gradual shift in policy. Raising rates too quickly could stamp out growth before it has taken hold.

Source: New York Times

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Devin

Economic

Commodity

Statistics Canada is set to release its February consumer price index report on Tuesday. The consensus expectation among forecasters is that prices rose 3.1 per cent from a year ago.

That would reverse some of the progress made in January, when the annual inflation rate slowed to 2.9 per cent.

"We're looking for inflation to re-accelerate as a result of higher energy prices during the month. It looks like for the next few months, inflation will probably be bouncing around the three per cent range," said Royce Mendes, managing director and head of macro strategy at Desjardins.

A rise in inflation will slightly complicate things for the Bank of Canada, which is widely expected to begin cutting its policy interest rate in the coming months.

But Mendes says what will be more important to watch on Tuesday are measures of underlying price pressures, which help economists gauge where inflation is headed.

"The real question is what's going on underneath the surface," Mendes said.

At the Bank of Canada's interest rate decision earlier this month, governor Tiff Macklem noted that almost half of the consumer price index components are currently rising at a pace above three per cent. In more normal inflationary times, only about a quarter of CPI components will rise that quickly.

The central bank has also emphasized trends in the economy and inflation over monthly reports.

At the same time, Macklem has stressed that the central bank does not want to cut interest rates prematurely and therefore will wait until there's clearer evidence that inflation is headed back toward the bank's two-per-cent target soon.

"This would be exhibit A from the (central) bank's library as to why we have to be cautious," said BMO chief economist Douglas Porter.

The Bank of Canada has held its key interest rate steady at five per cent since July, waiting for more evidence that inflation is getting closer to two per cent.

Its last projection suggested inflation would reach that target in 2025, a forecast many economists share.

Porter says one source of uncertainty in these forecasts comes from energy prices, which typically have a significant effect on overall inflation.

"Oil prices can move mightily rapidly, and make a lot of inflation forecasts look pretty foolish," he said.

Tuesday's report will be the last inflation reading ahead of the Bank of Canada's April interest rate announcement, which Porter called a "critical decision."

Although the central bank is not expected to change its policy rate next month, many forecasters anticipate it will do so at the following decision meeting in June.

"I think if the bank is going to cut in June, they would have to deliver a fairly heavy signal in the April meeting," said Porter.

However, the chief economist said the central bank can't guarantee anything, since a lot can happen in two months.

The federal government is set to present its budget a week after the rate decision in April, which could affect the outlook for inflation. There will be two more months of economic data for the Bank of Canada to evaluate before its June decision.

"I think they would be very cautious in the language they use," he said.

Source: The Canadian Press

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Thomas

Stocks

US stock market: Wall Street's main indexes closed higher on Monday, with megacap growth stocks such as Alphabet and Tesla supporting a rebound in technology-heavy Nasdaq while investors also waited anxiously for the US Federal Reserve's meeting this week.

Google's parent Alphabet provided a sizeable boost to the market after a media report that Apple is in talks to build Google's Gemini AI engine into the iPhone.

This supported the communication services sector, which ended up almost 3 per cent, leading gains among the 11 major S&P 500 sectors after hitting its highest level since Sept. 2021. Tesla shares finished up 6.3 per cent, leading S&P 500 percentage gains, after the electric carmaker said it would soon increase the price of its Model Y EVs in parts of Europe.

Nvidia shares added 0.7 per cent but closed well below its session high. The artificial intelligence poster-child kicked off its annual developer conference as investors waited for new chip announcements from Chief Executive Jensen Huang.

Investors were torn between enthusiasm about the prospects for AI on the technology sector and worries ahead to the Federal Reserve's policy update on Wednesday, according to Lindsey Bell, chief strategist at 248 Ventures in Charlotte, North Carolina.

"This is a market that really wants to hold onto the momentum trade but what's really weighing on investors' minds is what happens with the Fed this week," said Bell.

"The market is sitting comfortably with the first cut coming in June or July but not entirely confident it'll be the case. The question is if it gets pushed out further." The Dow Jones Industrial Average rose 75.66 points, or 0.20 per cent , to 38,790.43, the S&P 500 gained 32.33 points, or 0.63 per cent, to 5,149.42 and the Nasdaq Composite gained 130.27 points, or 0.82 per cent, to 16,103.45. The Nasdaq snapped three straight days of losses.

The Philadelphia Semiconductor index gave up gains to end the day virtually unchanged while the S&P 500 technology index finished up 0.5 per cent. Of the S&P's 11 major sectors the weakest were rate sensitive real estate and healthcare , with both off 0.02 per cent.

Stronger-than-expected inflation figures have prompted traders to rethink when and by how much policymakers will lower rates this year, with traders pulling back the probability for a June rate cut to around 51 per cent from about 71 per cent just a week ago, according to the CME FedWatch Tool.

If the Fed were to take a hawkish tone when its policy meeting concludes on Wednesday, this could pressure stocks. "The fact we're up today provides investors with an opportunity to take profits ahead of the Fed which is more likely to disappoint than to support the recent rally in risk assets," said Sameer Samana, Senior Global Market Strategist at Wells Fargo Investment Institute in Charlotte.

Goldman Sachs on Monday said they now expect three interest rate cuts in 2024, compared with four expected earlier, after inflation came in a bit firmer than expected. "With the market near recent highs it's very difficult to see what could provide an upside spark from here. It's not hard to imagine the things that could cause disappointment," said Samana citing the Fed and high valuations for tech stocks.

Exchange operator Nasdaq said it resolved an issue related to connectivity and stock orders that had affected early trading for more than two hours on Monday. US-listed shares of Xpeng added 1.9 per cent on its plans to launch a cheaper EV brand amid fierce price competition.

Boeing finished down 1.5 per cent after a media report that a federal grand jury in Seattle issued a subpoena to the planemaker over the Jan. 5 midair blowout of a Boeing door plug on an Alaska Airlines flight.

Super Micro Computer, which joined the S&P 500 on Monday, gave up earlier gains to close down 6.4 per cent, making it the biggest percentage decliner on the day in the benchmark index.

However, the stock, which has rallied furiously recently on bets it would benefit from AI, is still up more than 252 per cent for the year-to-date. Advancing issues outnumbered decliners by a 1.17-to-1 ratio on the NYSE where there were 224 new highs and 58 new lows. On the Nasdaq 1,905 stocks rose and 2,400 fell as declining issues outnumbered advancers by about a 1.26-to-1 ratio.

The S&P 500 posted 41 new 52-week highs and one new low while the Nasdaq recorded 102 new highs and 131 new lows. On US exchanges 11.16 billion shares changed hands compared with the 12.41 billion average for the last 20 sessions.

Source: Reuters

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FOREX.com

Stocks

Bond

Central Bank

Economic

A historic day for Japanese markets with the Bank of Japan (BOJ) hiking interest rates for the first time since 2007, doing away with negative interest rates in the process. However, having been priced in for months, and leaked to the media prior to Tuesday’s decision, the market reaction was negligible. It’s now over to the Fed to drive the price action over the remainder of the week.

What changes did the BOJ make?

It lifted its key overnight interest rate from -0.1% to a range of between 0 to 0.1%, doing away with negative interest rates in place since 2016. It also announced it will end purchases of ETFs and Japanese real estate investment trusts. Corporate bond purchases will be reduced before concluding the program in around one year.

But it will continue to buy Japanese bonds

The bank officially scrapped yield curve control, the mechanism of artificially suppressing 10-year Japanese bond yields around 0%. However, it will continue to purchase around the same amount of Japanese government bonds as before. It said it would nimbly respond to a rapid rise in yields. The statement provides a powerful reminder the BOJ is unwilling to provide full control to market forces.

One and done or more to come?

Later, BOJ Governor Kazuo Ueda's will host a news conference where the question will surely be whether the BOJ will hike interest rates again. The answer may deliver more volatility than what was seen around the official announcement, which wasn’t a lot. The lack of surprise in today’s decision points to Ueda being non-committal.

Today’s outcomes had been priced for months; a fact underlined by almost zero movement in Japanese one-year overnight index swaps which indicate where markets see the BOJ’s overnight rate sitting in 12 months. After today's rate hike to a range of 0-0.1%, markets are not fully convinced the BOJ will follow through with another over the next year. A partial risk is priced.

USD/JPY, Nikkei 225: BOJ Scraps Negative Rates But Not Bond Buys, Pressuring Yen_1

USD/JPY, Nikkei rally as certainty restored

USD/JPY rallied following the BOJ announcement, pushing above resistance at 148.80 in the process. Should it gain a foothold above this level, a retest of resistance at 150.90 could be on the cards.

USD/JPY, Nikkei 225: BOJ Scraps Negative Rates But Not Bond Buys, Pressuring Yen_2

With the yen weakening against a basket of major currencies, Nikkei 225 futures performed an abrupt about face, rebounding to trade around breakeven for the session after momentarily testing the intersection of horizontal resistance at 39620 and former uptrend support. A break higher from these levels would put a retest of the record highs in play. Given the relationship with USD/JPY, the weaker yen should provide tailwinds for Japanese equity market. Below, support is located at 38855 and 38250.

USD/JPY, Nikkei 225: BOJ Scraps Negative Rates But Not Bond Buys, Pressuring Yen_3

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SAXO

Economic

Biden and Trump as Presumptive Nominees for the November Election

Biden's recent victory in Georgia solidified his position as the presumptive Democratic nominee, set to be formally declared at the party's convention in August. Meanwhile, Trump's accumulation of delegates from victories in Georgia, Mississippi, Hawaii, and Washington cements his status as the presumptive Republican nominee. Despite the dominance of the two major parties, independent candidates such as Robert F. Kennedy Jr. and the emerging no-label movement present a potential wildcard in the election. However, with the electoral landscape still predominantly shaped by Biden and Trump, the likelihood remains that one of them will clinch the presidency in the upcoming US presidential election in November 2024.

Trump's Tariff Threats Cast Shadow Over Chinese Markets

Trump's recent pronouncement of a potential 60% tariff on Chinese exports, along with a threatened 10% tariff on goods from the rest of the world entering the US, has stirred apprehension among investors. While campaign promises often differ from actual policy implementation, the potential impact of such a plan warrants careful consideration.

Although the power to regulate commerce with foreign countries primarily lies with Congress, a portion of this authority is delegated to the White House. Trump's previous utilization of retaliatory authority under the Trade Act of 1974 during his presidency from 2017 to 2021, which allowed him to impose tariffs of up to 25% on many Chinese products, underscores the potential for further tariff increases under his leadership. President Biden's decision to retain Trump’s China tariffs after assuming office in 2021 further suggests the possibility of such measures not facing challenges. Thus, it appears plausible that Trump, if re-elected, may resort to retaliatory measures to increase tariffs across a broader range of products, despite potentially the tariff rate and scope being somewhat reduced.

Regarding the proposed 10% tariffs on goods from other countries, the situation is more complex. It may be challenging to justify retaliation against the entire world, requiring resorting to the more generalized power of regulating international commerce delegated by Congress to the administration. In his previous term, Trump withdrew from the Trans-Pacific Partnership as he had pledged to do during the campaign but did not follow through on his election rhetoric to withdraw from the WTO.

As ludicrous as the hypothetical scenario depicted in French economist Frédéric Bastiat's renowned satirical masterpiece, where candlemakers petition the government to block sunlight to shield their business from cheaper competition, protectionism frequently prevails in political arenas. Protectionism, as outlined by Mancur Olson in his influential work, "The Rise and Decline of Nations," favours organized interest groups to the detriment of a broader population of consumers. It often leads politicians to advocate for protectionist measures, such as tariffs, despite their adverse effects on overall economic welfare.

An increasing probability of a return of Trump to the White House is likely to weigh on the Chinese equity market and potentially favour the supply-chain reshoring beneficiary markets, such as Southeast Asian countries, India, Mexico and so on, elevating the trends of China exporting more intermediate goods and capital goods to these countries while the latter are exporting more consumer goods to the U.S.

Trump or Biden, More Fragmentation Beyond Tariff

Regardless of whether Biden or Trump occupies the White House, a complex fragmentation dynamic has been underway between China and the U.S., showing no signs of abating. It's imperative to recognize the trend of dual convergence in US-China policies since 2016, as noted by Medeiros (2023). This convergence refers to the alignment of both the executive and congressional branches, as well as the Democratic and Republican Parties, in their approach towards China.

Moreover, three significant developments have unfolded over the past decade, irrespective of the presidential occupant. Initially, China wasn't a focal point in election campaigns until 2016, when it emerged as a prominent issue in both presidential and congressional elections. Candidates competed to demonstrate toughness on China to bolster their credentials as guardians of US economic and security interests, often accusing opponents of being weak on China.

Congress has also become a pivotal actor in shaping US-China policies, with legislative activity, hearings, and investigations related to China surging, reflecting bipartisan concern. Despite shifts in party control, Congressional activism on China remains consistent. For instance, data compiled by Medeiros shows a tripling of US Congress’s legislative activity, hearings, and investigations related to China, from around 100 in prior decades to over 450 in the 117th Congress from Jan 2021 to Jan 2023.

The securitization of economic policies has become prevalent in both China and the US, with economic issues increasingly viewed through a national security lens. This reflects a broader geopolitical strategy aimed at safeguarding US interests, particularly concerning China.

Most notably, on October 7, 2022, under the Biden administration, the Bureau of Industry and Security (BIS) rolled out additional export controls on advanced computing and semiconductor manufacturing items to restrict China’s access to advanced semiconductors. Subsequently, the BIS implemented additional rules on October 17, 2023, broadening the control’s technical parameters, extending the licensing requirement to more countries, imposing end-use control, and extending restrictions on activities of U.S. persons.

Prohibiting foreign countries from obtaining state-of-the-art critical technology has been a recurring theme throughout economic history. For instance, in the 18th century, while the textile industry held a position similar to today's semiconductor industry, Britain prohibited the export of any "machine, engine, tool, press, paper, utensil or implement" and any "model or plan…part of parts thereof" used in the cotton, linen, woolen, or silk manufactures of the kingdom”. Additionally, woolen workers faced severe penalties, including confiscation of property and loss of citizenship, for leaving the country (David J. Jeremy, 1973).

Increasing Data Security Concerns Have Significant Economic and Market Impact

The tightening of control based on national security extends beyond semiconductors. Woes in the contract research organization (CRO) sector have persisted for months. More recently, the Chairman and a Ranking Member of the US House of Representatives Select Committee on the Strategic Competition between the United States and the Chinese Communist Party introduced the BIOSECURE Act in January 2024. This act aims to restrict federally funded medical providers from using biotech companies from foreign adversary countries of concern, including BGI Group and its subsidiaries, MGI, and Complete Genomics and “WuXi Apptec. In February 2024, these lawmakers, accompanied by a couple of senators, called for the Biden administration to investigate WuXi AppTec and its subsidiaries for their alleged ties to the Chinese military. In March, the Senate’s Homeland Security Committee approved The Prohibiting Foreign Access to American Genetic Information Act of 2024 which would ban BGI, MGI, Complete Genomics, WuXi AppTec, as well as their subsidiaries given their alleged ties to the Chinese Communist Party.

The national security concerns go beyond semiconductors and human genetic data. Last month, Biden issued an executive order titled "Preventing Access to Americans' Bulk Sensitive Personal Data and United States Government-Related Data by Countries of Concern," which covers not only personal data such as genomic, biometric, and health data but also financial and geolocation data. Furthermore, the Biden administration established the Office of Information and Communications Technology and Services (OICTS), to implement the Information and Communications Technology Supply Chain Rule. This rule, which began during the Trump administration and expanded during the Biden administration, aims to address the risk of supply chains controlled by a ‘foreign adversary’. The OICTS conducted a probe into connected vehicles and their related supply chains for data security. The term ‘connected vehicles’ encompasses vehicles equipped with sensors, cameras, battery systems, onboard computers, or even as simple as GPS systems that can collect, process, and transmit data.

On the Congressional side, last week, the House of Representatives passed a bill to force ByteDance to divest TikTok with an overwhelming vote of 352-65, with 90% of Republicans and 75% of Democrats assenting, reflecting widespread support across the political aisles.

Therefore, while a status quo Biden administration may offer some positivity in the arena of trade and tariffs, broader geopolitical trends and bipartisan consensus on China policy suggest continued challenges in many aspects of the economic relationship between the U.S. and China. The rising emphasis on data security in the U.S. is likely to persist under both a Biden and Trump administration, posing significant risks to the Chinese equity market.

Investing in China Ahead of the US Presidential Election

The securitization of economic policies has expanded beyond trade and semiconductors. The emerging focus on data security brings the front line of conflicts to electric vehicles and their entire supply chains, encompassing batteries, sensors, and numerous other industries and products where China currently holds significant global market shares, anticipating robust growth in the coming years. These sectors now face challenges that extend beyond the US market to global markets. US laws potentially possess extraterritorial capabilities, denying access to the US market for European and other automakers using Chinese-supplied parts or Chinese automakers’ subsidiaries elsewhere. Additionally, data security concerns regarding TikTok could readily extend to Chinese company-controlled e-commerce platforms operating in the US, such as PDD’s Temu and Nanjing Lingtian Information Technology’s Shein.

Businesses worldwide, including those from China, the US, Europe, and Japan, are reevaluating their risk exposure by rerouting production and supply chains to countries with better trade relations with the US, such as Southeast Asian countries, India, Mexico, and Eastern European nations. This trend is evidenced by the increase in Chinese exports to countries like Vietnam and India for intermediate products, while these countries export more consumer goods to the US. Investors may find diversification opportunities in some of these markets.

In the Chinese market, investors may discover opportunities in companies benefiting from import substitution, particularly those involved in producing parts and equipment for tech products. Moreover, China's industrial policies aimed at promoting innovation and self-reliance are likely to benefit companies in technology hardware and advanced manufacturing. Investors should explore this space. These shifts will unfold gradually, both leading up to and following the election. Investors should conduct thorough research and remain vigilant as developments unfold.

Furthermore, as the likelihood of a Trump presidency increases, the renminbi may weaken, particularly if tariffs on China are raised. Experienced foreign exchange traders may consider positioning themselves for this scenario by betting on a weaker renminbi against the US dollar or Japanese yen through spot or options trades.

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Samantha Luan

Forex

Central Bank

Economic

Yen declines broadly in a classic "sell-on-news" reaction following BoJ's landmark decision to exit its eight-year negative interest rate policy and announce its first rate hike in 17 years. Although the immediate economic impact of this move is considered minimal, its psychological and symbolic significance cannot be understated. This policy shift was largely anticipated by investors, as evidenced by Nikkei's stability post-announcement, which saw only brief initial buying before stabilizing.

In parallel, Australian Dollar faces some downward pressure after RBA keeps interest rates on hold as widely expected. The statement left the possibility of further rate hikes open, yet some market participants interpreted the central bank's language as less hawkish than anticipated. The notion that RBA is "not ruling anything in or out" has led some to speculate that a rate cut could be the next course of action.

As of now, Euro is trading as the day's strongest currency, followed by Dollar and Swiss Franc. Yen finds itself at the bottom of the performance list, with Australian Dollar and New Zealand Dollar also weak. Sterling and Canadian Dollar occupy the middle ground.

The markets have just begun to unravel the day's volatility, with significant economic indicators such as German ZEW economic sentiment and Canadian CPI on the agenda. Furthermore, the week promises even more fluctuations with impending meetings from Fed, SNB, and BoE still to come.

Technically, EUR/AUD's break of 1.6606 resistance indicates that corrective pullback from 1.6742 has completed at 1.6439, after drawing support from 1.6450. More importantly, rise from 1.1627 low is still in progress. Further rise is now in favor to retest 1.6742 resistance first. Decisive break there will confirm rally resumption. BoJ's Historic Hike Fails to Lift Yen, RBA's Cautious Stance Weighs on Aussie_1

BoJ's Historic Hike Fails to Lift Yen, RBA's Cautious Stance Weighs on Aussie_1

In Asia, at the time of writing, Nikkei is up 0.03%. Hong Kong HSI is down -1.11%. China Shanghai SSE is down -0.39%. Singapore Strait Times is up 0.04%. Japan 10-year JGB yield is down -0.0323 at 0.731. Overnight, DOW rose 0.20%. S&P 500 rose 0.63%. NASDAQ rose 0.82%. 10-year yield rose 0.036 to 4.340.

BoJ ends YCC and negative rates as they have fulfilled their roles

In a landmark decision that marks a significant shift in Japan's monetary policy, BoJ announced the termination of its Yield Curve Control framework and negative interest rate policy, signifying that these measures "have fulfilled their roles."

This pivotal move is underpinned by BoJ's assessment that a "virtuous cycle between wages and prices" has come in sight and that the long-standing 2% inflation target is on track to be "achieved in a sustainable and stable manner."

Setting the overnight call rate to a range of 0-0.1%, the decision was reached with a majority vote of 7-2.

BoJ will continue its purchase of JGBs at "broadly the same amount as before," ensuring a measure of stability in the bond market. This part of the decision was made with an 8-1 vote. Meanwhile, BoJ has pledged to "respond nimbly" in the event of a rapid rise in long-term interest rates

Additionally, BoJ has outlined plans to discontinue the purchase of ETFs and J-REITs, while the procurement of commercial paper and corporate bonds will be gradually reduced, aiming for discontinuation within approximately one year. BoJ's Historic Hike Fails to Lift Yen, RBA's Cautious Stance Weighs on Aussie_2

BoJ's Historic Hike Fails to Lift Yen, RBA's Cautious Stance Weighs on Aussie_2

RBA stands pat, not ruling anything in or out

RBA has opted to maintain cash rate target unchanged at 4.35% today, aligning with broad market expectations. The central bank's stance reflects a cautious approach, emphasizing the prevailing uncertainty in both the global and domestic economic environments. RBA's declaration that the path of interest rates remains "uncertain" and that it is "not ruling anything in or out" underscores a flexible policy outlook, leaving the door open for rate adjustments in the future, including the possibility of further hikes.

On the inflation front, RBA acknowledges a moderating trend, consistent with its latest forecasts. This moderation is attributed primarily to slowdown in goods inflation. However, services inflation remains stubbornly high, and ism ode rating at a slower pace. Wages growth, a critical factor in the inflation equation, appears to have peaked.

Addressing the economic outlook, RBA paints a picture of significant uncertainty. Internationally, questions loom over China's economic outlook and the broader impacts of geopolitical conflicts in Ukraine and the Middle East. Domestically, uncertainties pertain to the lag effects of monetary policy adjustments, firms' pricing decisions, wages dynamics, and household consumption patterns.

Looking ahead

Swiss trade balance and SECO economic forecasts will be released in European session. Germany will publish ZEW economic sentiment. Later in the day, Canada CPI is the main focus while US will release building permits and housing starts.

USD/JPY Daily Outlook

USD/JPY's rally from 146.47 continues today and intraday bias stays on the upside for retesting 150.87/89 key resistance. Decisive break there will confirm larger up trend resumption. Next near term target will be 61.8% projection of 140.25 to 150.87 from 146.47 at 153.03. On the downside, below 148.90 minor support will delay the bullish case and turn intraday bias neutral first. But outlook will now remain bullish as long as 146.47 support holds. BoJ's Historic Hike Fails to Lift Yen, RBA's Cautious Stance Weighs on Aussie_3

BoJ's Historic Hike Fails to Lift Yen, RBA's Cautious Stance Weighs on Aussie_3

In the bigger picture, correction from 151.87 (2023) high could have completed at 140.25 already. Rise from 127.20 (2023 low), as part of the long term up trend, is probably ready to resume. Decisive break of 151.93 resistance (2022 high) will confirm this bullish case. Also, this will remain the favored case as long as 140.25 support holds, in case of another fall.

Source: ActionForex

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Source: ActionForex

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