GGMA Morning Brief: Nikkei rallies on election outcome, Japan’s real wages, Bessent on Fed balance sheet, China injects liquidity, Starmer under pressure, AU household spending,Today: ECB & Fed speak
Good morning,
I hope all is well.
Here are the main overnight news and market movers:
Markets: Nikkei rallies on election outcome
Japan equities hit fresh highs Monday after Prime Minister Sanae Takaichi won a landmark election victory. Nikkei’s intraday surge of 5.7% is the largest single-session move for a major developed-market index in years. Broad-based Asian rally signals genuine shift in risk sentiment. JGB yields also rose. The price action in USDJPY is also interesting. The recent pattern in the currency pair to political and fiscal news coming from Japan led to an increase in USDJPY, but not this time around. The US dollar index is also down.
We think yesterday’s story that Japan must take a "professional" approach in tapping its huge foreign reserves to fund spending and tax cuts was significant and could mean some repatriation flows back to Japan, which would be positive for the yen. Reuters notes that the focus on the $1.4 trillion stockpile, far larger than the annual state budget, underscores intense pressure on Tokyo to identify alternative funding sources for an estimated 5 trillion yen ($31.99 billion) annual revenue shortfall, a prospect that has unsettled financial markets.
Additionally, Japan’s senior currency official stated that the government continues to monitor the foreign exchange market closely and remains vigilant amid renewed pressure on the yen following Prime Minister Sanae Takaichi’s historic victory in Sunday’s snap election. “As always, we are watching market developments with a high sense of urgency,” Atsushi Mimura, the Finance Ministry’s vice minister for international affairs, told reporters on Monday. “We remain in close communication with the market,” he added. (BBG)
Bond yields in Australia are higher across the curve, despite the weaker-than-expected household spending data.
Oil prices fell as Middle East tensions eased, reducing the likelihood of supply disruptions. Iran and the US held talks on nuclear issues, which Tehran described as a step forward. Bloomberg also noted that traders are watching India's oil imports after President Trump claimed India agreed to stop buying Russian crude as part of a trade deal. US natural gas fell for a second straight session as forecasts for warmer weather are expected to lower heating and power demand. (BBG)
Gold rose more than 1% to above $5,020 per ounce on Monday, the highest level in over a week, and silver surged almost 5%. Copper prices edged higher. Bitcoin rose over the weekend and is holding above the 70,000 level.
Takaichi achieves an overwhelming victory in Japan’s election gamble
Japanese Prime Minister Sanae Takaichi secured a decisive victory in parliamentary elections, gaining a strong mandate to strengthen U.S. relations and boost Japan's economy. The win confirms her leadership after calling a snap election just three months into her term, aiming to address economic stagnation and strained ties with Beijing. (WSJ)
Japan’s real wages fall for a full year as prices rise
Japanese real wages declined every month in 2025, reflecting ongoing inflation. In December, real wages fell 0.1% year over year, while nominal wages rose 2.4%. Economists anticipate real wages will improve as inflation slows, especially for food, with the Bank of Japan expecting inflation to drop below 2% in the next fiscal year. (BBG)
US Treasury's Bessent says Fed will take its time on balance sheet moves
U.S. Treasury Secretary Scott Bessent said on Sunday he would not expect the Federal Reserve to move quickly to shrink its balance sheet, even under Fed chief nominee Kevin Warsh, who has criticised the U.S. central bank's bond purchases. Bessent said on Fox News Channel's "Sunday Morning Futures" program that the Fed could take up to a year to make decisions on its balance sheet, adding that Warsh will be a very independent Fed chief. (RTRS)
Job hunters are so desperate that they’re paying to get recruited
Landing a white-collar job is getting so tough that candidates—not companies—are paying recruiters to match them with positions. (WSJ)
China injects capital to address $456 billion liquidity gap
The People’s Bank of China is boosting the supply of money available to banks to ensure they can meet the surge in demand for cash during the Lunar New Year holidays. The central bank injected a total of 600 billion yuan via 14-day repurchase agreements late last week to address a roughly 3.2 trillion yuan liquidity gap. Industrial Securities forecasts that the PBOC will add as much as 3.5 trillion yuan via similar tools before the holidays begin on Sunday, according to Bloomberg.
Starmer's UK leadership at risk after top aide resigns
Keir Starmer’s position is uncertain after the controversy over appointing Peter Mandelson as ambassador to Washington prompted chief of staff Morgan McSweeney to resign, Bloomberg reports. McSweeney accepted responsibility for recommending Mandelson, despite his links to Jeffrey Epstein. Notably, the person who officially appointed Mandelson has not resigned.
Recruiters report stabilisation in the UK job market
A survey monitored by Bank of England rate-setters indicates the UK jobs market is stabilising, with permanent hiring still declining in January but at its slowest rate in 18 months. For the first time since October, firms increased temporary staff placements, according to the Recruitment and Employment Confederation. (BBG)
China urges banks to curb U.S. Treasury exposures on market risk
Chinese regulators have told banks to decrease their holdings of U.S. Treasuries due to concerns about risk and volatility, Bloomberg reports. Banks were advised to limit purchases and reduce high exposure, though this directive does not affect China’s state-held U.S. Treasuries.
Australia's household spending unexpectedly fell in December
In Australia, household spending fell 0.4% in December compared with the previous month, missing economists’ expectations for a 0.1% gain. It was the first decline since mid-2024, following two solid months of gains. Q4 still delivered a strong 2.2% quarterly rise. Volumes rose 0.9%qtr/2.4%yr, pointing to an ongoing recovery in per capita terms, according to Westpac. All four major segments recorded declines for the first time since March 2024, with pull-forward effects from sales events weighing on goods categories such as clothing & footwear and furnishings & household equipment. The real spending gain was broadly based across categories (excl. health) and states in Q4, with all states posting positive volume growth – WA, NSW and Qld leading. The indicator has tracked the national accounts closely in recent quarters. Wesptac maintains a 1.0%qtr/3.0%yr forecast for Q4 consumption (due March 4).
Hedge funds boost Aussie long positions as RBA keeps tightening
Leveraged money managers raised bullish bets on the Australian dollar to an eight-year high, expecting bond yields to offset volatility. Hedge funds and large speculators increased net-long positions by 43% to 57,115 contracts as of Feb. 3—the highest level since late 2017, according to CFTC data. (BBG)
Today’s Macro Roadmap: Swiss sight deposits, ECB, BOE & Fed speak
The SNB will release its update on sight deposits for last week at 10:00 CET. They are far from a perfect proxy for SNB interventions in foreign exchange markets and are influenced by other factors, yet they remain worth monitoring. In its latest statement, the central bank reiterated its willingness to intervene as necessary.
Several central bank policymakers are also scheduled to speak. Here is an overview of their last speeches or comments.
In a February 5, 2026, podcast, ECB President Christine Lagarde talks about how the Governing Council decided to keep all three key ECB interest rates unchanged, reaffirming that inflation should stabilise at the 2% target in the medium term. She notes that the euro area economy remains resilient in a challenging global environment, supported by low unemployment, solid private sector balance sheets, public spending on defence and infrastructure, and past rate cuts. However, uncertainty persists due to trade policy concerns and geopolitical tensions. Lagarde emphasises the ECB's data-dependent, meeting-by-meeting approach, stating that future rate decisions will be based on the inflation outlook, incoming economic data, underlying inflation dynamics, and the strength of monetary policy transmission, with no pre-commitment to any specific rate path.
In this January 30, 2026 dissent statement, Fed Governor Christopher Waller explains his vote to cut the policy rate by 25 basis points, arguing that monetary policy remains too restrictive despite three 2025 rate cuts. He highlights severe labour market weakness, noting that 2025 payroll growth was just 600,000 jobs—versus a 1.9 million ten-year average—and that the figure will likely be revised to near-zero job growth, while unemployment has risen and employers are planning layoffs for 2026. Though inflation is elevated due to tariffs, Waller contends the Fed should "look through" these temporary effects since inflation expectations are anchored. Core inflation runs close to the 2% target, making the current policy rate (50-75 basis points above the 3% neutral estimate) inappropriately high given labour market risks.
On February 3, 2026, Fed Governor Miran gave an interview to Fox Business Network reiterating his support for substantial rate cuts, stating he anticipates "more than just a single percentage point in rate cuts throughout the year" and characterising existing monetary policy as excessively restrictive. Notably, Miran's term as a Fed governor expired at the end of January 2026, but he continues serving in a holdover capacity until a successor is confirmed. President Trump announced former central banker Kevin Warsh as his selection to lead the Federal Reserve.
Good luck today, and feel free to ping me in the chat to discuss markets and views!