Weekly Market Update - 1 April 2024
Yen Rises
The risk of Japan intervening in the foreign exchange market will increase if the USD/JPY climbs to the 152 to 155 zone or if one-month implied volatility rises above 10 from around 8 now, according to Bank of America strategists Shusuke Yamada and Meghan Swiber. The yen was little changed at around 151.45 per dollar, and hasn’t traded weaker than 152 since 1990. While a large-scale intervention cannot be ruled out, the nature of USD/JPY’s recent rise suggests Japanese authorities would likely conduct a “smoothing” type of intervention to slow the yen’s weakening, they wrote. Last Monday, Japan’s top currency official delivered his most robust salvo of warnings in months. “We will take appropriate action against excessive fluctuations, without ruling out any options,” vice finance minister for international affairs Masato Kanda said. The yen will extend its drop if the Federal Reserve cuts rates by less than priced in by markets.
Source: Bloomberg
Boeing Shakeup
Boeing Chief Executive Officer Dave Calhoun is stepping down at the end of the year, part of a sweeping leadership overhaul as the planemaker struggles to get a handle on a spiraling crisis. Stan Deal, the chief of Boeing’s commercial airplane division, is departing immediately and will be replaced by Chief Operating Officer Stephanie Pope. Chairman Larry Kellner will not stand for re-election. The shakeup reflects growing customer frustration as the crisis centering on the company’s manufacturing quality and safety shows no signs of receding. The Alaska Air incident exposed lapses in manufacturing controls, drew the attention of regulators, and brought pressure from US airline CEOs to make a change.
Source: Bloomberg
Warning Signs
Junk-rated US companies have seen their interest costs rise after the Fed’s rate-hike campaign, but profits haven’t kept up, putting a squeeze on finances and underscoring a key risk for investors in high-yield debt as the trend persists. The ratio between companies’ earnings and their interest expense has fallen to the lowest level since the pandemic, signaling they have less income to service their debt. The so-called debt-service coverage ratio averaged just 3.5 times for the median company in the leveraged-loan universe at the end of September, said Torsten Slok, chief economist at Apollo Global Management, down from more than five times a year earlier. The deterioration is a knock-on effect of the Fed’s campaign to combat inflation. Higher-for-longer rates mean borrowers will continue to feel the pinch long after the rate-hike cycle is over.
Source: Bloomberg