• BoJ kept rates at -0.1% and long-term yield target held at around 0.0%. Announced more flexibility in yields and adopted forward guidance on rates which it will maintain at very low levels for an extended period
• Asian equity markets traded mostly subdued after the continued tech sell-off in the US where all majors declined and the Nasdaq posted its worst 3-day performance in 4 months
• USD/JPY was choppy around the 111.00 handle but then saw late support after the BoJ decision proved to be less hawkish than some had feared
• Looking ahead, highlights include Eurozone CPI & GDP, US PCE, Personal Spending, Canadian GDP, Chicago PMI and a slew of large cap earnings

ASIA

Asian equity markets traded mostly subdued after the continued tech sell-off in US where all majors declined and the Nasdaq posted its worst 3-day performance in 4 months, while disappointing Chinese PMI data and tightening concerns heading into the BoJ policy announcement added to the cautiousness. ASX 200 (+0.1%) and Nikkei 225 (-0.1%) were mixed with Australia just about kept afloat amid outperformance in telecoms and gains in commodity-related sectors, while the Japanese benchmark was weighed alongside widespread uncertainty regarding potential BoJ policy tweaks which proved to be less hawkish than some had feared as the central bank maintained its long-term yield target at 0% and provided forward guidance that rates will be maintained at very low levels for an extended period. Elsewhere, Hang Seng (-0.5%) and Shanghai Comp. (Unch.) were downbeat after the PBoC skipped repo operations for an 8th consecutive occasion and as participants digested Chinese Official Manufacturing and Non-Manufacturing PMI missed expectations in which the latter fell to its weakest in nearly a year. Finally, 10yr JGBs initially began on the back-foot as yields continued to gain heading into the BoJ but then recovered after the central bank kept its long-term yield at 0.0% and although it announced more flexibility in allowing yields to move higher and lower, it also signalled to act if there is a rapid increase in yields.

PBoC skipped open market operations for a net daily drain of CNY 30bln. (Newswires)

PBoC set CNY mid-point at 6.8165 (Prev. 6.8131)

Chinese Manufacturing PMI (Jul) 51.2 vs. Exp. 51.3 (Prev. 51.5). (Newswires)

Chinese Non-Manufacturing PMI (Jul) 54.0 vs. Exp. 54.9 (Prev. 55.0); weakest since August 2017.

Chinese Composite PMI (Jul) 53.6 (Prev. 54.4)

BoJ kept policy unchanged with the bank rate kept at -0.1% and long-term yield target held at around 0.0% but announced more flexibility in yields and adopted forward guidance on rates which it will maintain at very low levels for an extended period. The BoJ said the decision on asset purchases was unanimous and decision on YCC was made by 7-2 vote with Kataoka and Harada the dissenters, while it added it will permit upward and downward moves in 10yr yields but will buy JGBs promptly in the event of a rapid increase in yields. Furthermore, the BoJ adjusted its ETF allocation to include more TOPIX inclusion and lowered the balance of reserves for which NIRP is applied. (Newswires)

Outlook Report:

Real GDP

- Fiscal 2018 forecast cut to 1.5% from 1.6%.

- Fiscal 2019 forecast maintained at 0.8%.

- Fiscal 2020 forecast maintained at 0.8%.

Core CPI

- Fiscal 2018 forecast cut to 1.1% from 1.3%.

- Fiscal 2019 forecast cut to 1.5% from 1.8% (excluding effects of sales tax hike)

- Fiscal 2020 forecast cut to 1.6% from 1.8% (excluding effects of sales tax hike).

UK/EU

UK PM May is reportedly worried the "humble address" could be used to extend the Article 50 process and has warned senior Conservative lawmakers that the Labour party could use the old procedure to stop the UK leaving the EU without a deal if MPs vote to oppose her plans this Autumn. (FT)

Downing Street has announced that no second Brexit referendum will be held "in any circumstances", after a Sky Data poll showed most people would like to see another vote on Britain's exit from the EU. (Sky)

Italian PM Conte said they feel very comfortable as a member of EU and that there is no future for Italy in the direction the UK is proceeding in. (Newswires)

UK GfK Consumer Confidence* Jul -10 vs. Exp. -9.0 (Prev. -9.0). (Newswires)
UK Lloyds Business Barometer (Jul) 29 (Prev. 29)

FX

In FX markets, major currencies were varied amid a non-committal tone ahead of the key risk events with the DXY flat and its major counterparts across the bond also kept range-bound in which EUR/USD held onto the recently reclaimed 1.1700 handle. Data releases were the main catalyst for antipodeans with AUD/USD underpinned by better than expected Building Approvals data and with NZD/USD less inspired after a further deterioration in Business Confidence data. Elsewhere, CAD weakened on news that Canada was rejected from high level NAFTA talks between US and Mexico, while USD/JPY was choppy around the 111.00 handle on uncertainty heading into one of the most anticipated and highly-rumoured BoJ policy announcements in almost 2 years, but then saw late support after the BoJ decision proved to be less hawkish than some had feared.

Australian Building Approvals (Jun) M/M 6.4% vs. Exp. 1.0% (Prev. -3.2%). (Newswires)
Australian Building Approvals (Jun) Y/Y 1.6% vs. Exp. -6.0% (Prev. 3.1%)

New Zealand ANZ Business Confidence (Jul) -44.9% (Prev. -39.0%). (Newswires)
New Zealand ANZ Activity Outlook (Jul) 3.8% (Prev. 9.4%)
 

COMMODITIES

Commodities were mixed with a mild pullback seen in WTI crude futures as it gave up the USD 70/bbl level, while the metals complex fared slightly better with gold flat amid an uneventful greenback and with copper extending on gains to reclaim USD 2.80/lb on what was range-bound session for commodities as focus centred on other asset classes.

GEOPOLITICAL

North Korea is said to have been building new missiles following summit with President Trump, according to reports citing US intelligence agencies. (Washington Post)

US President Trump, when asked if he would meet with Iran's Rouhani, said that he will meet with anybody and that there are no preconditions on any meeting with Iran. Elsewhere, there were also comments Iranian President Rouhani’s aide that respecting Iran's rights, lowering hostilities and returning to nuclear agreement are actions to pave the bumpy road of talks. (Newswires)

US

The Treasury curve steepened on Monday, though trade was thin ahead of this week’s central bank risk events (BOJ overnight, Fed Wednesday, BOE Thursday). Selling action today was being attributed to expectations that the BOJ would adjust its yield curve control parameters, with speculation that the BOJ might raise the target, or widen its tolerance band. Elsewhere, of note, the US Treasury sold 3-month paper at 2% on Monday, the highest since June 2008. Later, the US Treasury announced its quarterly financing estimates, where it estimates it will borrow $329bln in the Jul-Sep quarter (raising its estimate from $273bln), and estimates $769bln in net borrowing in H2 2018. US 10YR T-notes settled 2 ticks lower at 119-12.

US and Mexico plan to conduct ministerial-level NAFTA talks on Thursday in Washington. In related news, Canada was reported to have been rejected by the US to join high-level NAFTA talks between US and Mexico, with US Trade Representative Lighthizer’s office said to have ignored Canada’s request. (National Post)

US President Trump is said to put off possible government shutdown until after the mid-term election. (WSJ)

US President Trump lawyer Giuliani stated that a Trump interview by Special Counsel Mueller is highly unlikely. (Newswires)

White House is reported to consider a unilateral tax cut of USD 100bln for the wealthy. (NYT)