BoJ Hikes, Yen Falls — The Lines Held, Chips Over $505

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What

The criterion we set on Wednesday was a close, not a print, and Thursday delivered one on every line but one. The S&P 500 ETF closed +1.1% at $762.60, its first close above Thursday-a-week-ago’s $757.83 since Monday’s $760.88, after $757.39 on Tuesday and $754.05 on Wednesday. The Nasdaq-100 fund closed +1.7% at $716.92, above $708.69 and eight dollars clear of the 704 shelf on which it had sat for three sessions. The semiconductor ETF closed +3.4% at $519.10 — above the $505 it lost on Monday, reclaimed at midday on Wednesday and lost again at the bell, and above the $517.43 it closed at last Thursday before the sort began; the 50-day average is about $531, some 2.3% higher. The Magnificent Seven fund closed $70.78, above its 69.5 weekly line. The one line still owed is the memory ETF at $57.78, +4.4% on the day and twenty-two cents under the $58 it lost on Monday. Breadth was narrower than the cap-weighted index: the equal-weight S&P +0.5% to $213.31, the Dow +0.6% to $518.35, the Russell 2000 +0.5% to $285.43, the ex-tech Nasdaq flat — a chip-led day, which is what the resolution month was always going to be led by if it resolved upward. The VIX fell 13% to 15.44. Overnight the futures are +0.3% and the after-hours prints of the three ETFs sit above their closes; those are extended-trading prints and we record them as such.

If

The four lines at Friday’s close, an expiry close — held through the expiry with the memory ETF over $58 is the month’s first event booked in the direction the tape chose on Thursday; a give-back through $757.83 or $505 on the expiry itself is the pin, not the trend, and Monday’s close is the print that counts.

Why

A reclaim on the day after a hike is the tape saying the hike was the news and not the sequence; a reclaim that holds through an expiry Friday is the tape saying it without the help of the strikes — and two closes above a line are a fact where one was a print.

Then

We book Thursday as the first held reclaim of the resolution month and change nothing on the lines: 757.83, 704 and 708.69, 505, 69.5, and 58 on the memory ETF, the one still open; we read Friday’s close through the expiry and Monday’s without it.

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What

The second hike of the week came from Tokyo on Friday morning: the Bank of Japan raised its policy rate a quarter point to 1.25%, the highest since the mid-1990s, and the wires had it to the basis point — Reuters’ live blog counted it a 31-year high, FXStreet ‘as expected’, CNBC added that the bank ‘flags concerns over inflation’. The currency did the opposite of what a hike is supposed to do to it. The yen was 156.0 into the decision and is 157.2 at 06:00 UTC, 0.8% weaker on the day; Reuters’ headline was ‘Yen slumps after BOJ hikes rates as expected’. The equity market in Tokyo bought the decision — the Nikkei +1.6% at 65,159, Tokyo Electron +4.2% to ¥53,130, SoftBank +1.7% to ¥6,351 — and the rest of Asia bought the American chip close: the Kospi +2.8% at 6,903 with SK Hynix +6.0% to ₩1,850,000 and Samsung +3.5% to ₩261,250, following Micron +5.5% and SanDisk +6.2% in New York; the Taiex closed +1.9% at 47,181 with TSMC +1.4% to NT$2,460; the Hang Seng +0.8%. The dollar index is 100.3, flat on the day, so the yen’s move is the yen’s, not the dollar’s. Our Rubin index’s 25 Japanese constituents had fallen 0.9% on Thursday — Sumco −3.7%, Resonac −4.0%, Kokusai Electric −2.7%, Ibiden −2.5% — so Friday’s Tokyo session is the first the Japanese half of the build-out has spent on the right side of the sort this week.

If

The yen at the London and New York opens — 157 held or extended with the Nikkei’s gain kept is a hike the currency market has decided not to price, the carry trade paying into the weekend; a reversal back through 156 on Governor Ueda’s press conference is the market deciding this was the first of several, and the carry question reopens.

Why

A central bank that hikes and whose currency weakens has told you where the market thinks the rate differential is going, and the differential is what the carry trade is paid on: the 5-year Treasury at 4.80% against a Japanese policy rate of 1.25% is a spread that a quarter point did not close, and a spread that stays open does not unwind.

Then

We read the yen, not the Nikkei, as Friday’s Tokyo signal; we hold 156 as the level it carried into the meeting and 160 as the level at which Japan’s finance ministry has intervened before, and we note for Line 11 that a Japanese hike absorbed by a weaker yen is the opposite of August 2024.

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What

Wednesday’s curve was a bear flattener — the belly sold, the long end bought — and Thursday’s was a parallel shift lower, which is a different sentence. The 10-year fell to 4.947% from 5.006%, the 5-year to 4.801% from 4.859%, the 30-year to 5.296% from 5.349%: six basis points across the curve, the shape unchanged. The long bond ETF closed +1.1% at $81.78, the high-yield ETF +0.4% at $78.72 — duration was bought, credit did not move, which is the same reading as Wednesday in the other direction. Gold was bought back, the gold ETF +1.7% to $398.36 after −0.6% on the hike and −1.2% overnight; gold futures are $4,412 this morning, +0.3%. Brent is $103.52, −1.2%, a fourth day under $107.63 and heading for the $100 handle the wires have been writing about. The dollar index closed near 100.2 and is 100.3 this morning. On the inflation side, the desk’s reading of the August prints is the frame for what a market can absorb: core CPI at 2.4%, the lowest core reading since 2021 as new cars and goods cool; the Atlanta Fed’s sticky-price core — the items that are slow to reprice — at 2.7%; services excluding energy and shelter, the measure the Fed watches closest, hovering around 3.0% on healthcare and technical labour. Month on month the core did firm moderately — 0.29% in August after 0.22% in July, reported as 0.3% after 0.2% because the rounding threshold sits at 0.05% — a firming, not a break, and the annual rate still fell. Structural inflation excluding energy and tariffs sits, on our reading, around 2.4% to 2.5% — and that, not the headline, is the number the desk keys on.

If

The 5-year against 4.80% and the 10-year against 5.00% at Friday’s close — a second parallel day lower with gold bid is the market pricing a hike into a 2.4% core, which is the absorbable version; a belly that sells again with the 30-year falling is Wednesday’s sequence read returning.

Why

The level a market can absorb is a function of what the rate is rising against: a 5% 10-year against 2.4% core inflation is a real yield of roughly two and a half points paid by a growing economy with rising earnings and a firm dollar, and that is a different regime from a 5% 10-year against a 4% core — the first is a discount rate, the second is a policy error.

Then

We keep 5.00% on the 10-year as the line and 2.4% core as the number it is measured against; we treat gold bought back on a lower curve as the hedge returning to its job, and we do not read a parallel day as the end of the sequence — only as the market saying the level was enough, for now.

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