Well, it was a tough day for some Asian markets.
Between Jerome Powell’s “hawkish” testimony on Capitol Hill and some not-so-inspiring data out of Japan and China, conditions were ripe for a lackluster session to close out what was a truly tumultuous month.
You can’t depend on this Chinese data because it’s likely distorted by the Lunar New Year holiday, but to the extent, you can depend on it, the following numbers weren’t great
That manufacturing print was down from 51.3 in January so that m/m drop is the largest in half a decade – obviously, that’s not ideal. The internals weren’t great either – a further deterioration in new export orders was particularly vexing.
And then there was Japan where industrial production missed everything. “Wednesday’s big miss on Japanese industrial production data spells trouble on several fronts for the nation’s equities,” Bloomberg’s Yoshiaki Nohara wrote, before clarifying as follows:
The steeper than forecast drop in factory output prompted the government to cut its assessments for production. Every single sector suffered, with the key auto sector particularly hard hit. Furthermore, the outcome adds to volatility, something equity investors are very wary of just now.
Right and then on top of that, the BoJ did this:
BOJ Cuts Purchases of Bonds Due in More Than 25 Years by 10b Yen
— Walter White (@heisenbergrpt) February 28, 2018
If you recall, one of the factors that contributed to the bond selloff in January (and thus helped set the stage for the turmoil in February) was the BoJ cutting purchases of 10-25Y JGBs. The FX market reacted rather violently to that, forcing the bank to step up purchases of shorter-dated JGBs later in the month. So that news was sure to reverberate in USD/JPY and it did:
