• APAC stocks traded lower across the board with the broader risk profile hit by the BoJ's unexpected tweak to its Yield Curve Control
• BoJ tweaked YCC in which it widened the 10yr yield band to +/- 0.5% (prev. +/-0.25%) and unexpectedly announced it is to increase bond purchases to JPY 9tln/m (prev. JPY 7.3tln/m) in Q1; Kuroda presser due at 06:30GMT/01:30EST
• JPY soared on the BoJ decision to tweak its YCC, with USD/JPY slumping from levels around 137.00 to lows below 133.00, Nikkei 225 closed lower by 2.5%, and JGB yields spiked higher
• US and European equity futures were hit by the BoJ's unexpected move; ES Mar'23 -0.9% and Euro Stoxx 50 Mar'23 -1.4%
• Looking ahead, highlights include Canadian Retail Sales, US Building Permits, EZ Consumer Confidence, speech from ECB's Kazimir, supply from the UK

US TRADE

• US stocks sold off on Monday with several key risk events in the rearview mirror and as liquidity dwindles on the final full trading week of the year.
• SPX -0.9% at 3,818, NDX -1.42% at 11,085, DJIA -0.49% at 32,758, RUT -1.41% at 1,739
• Click here for a detailed summary.

NOTABLE HEADLINES

• The drafting of the government funding bill is reportedly done, according to WaPo citing sources; there are no tax provisions, no tax extenders and no child tax credit.
• Senate GOP Leader McConnell said the omnibus bill has a real increase in defense spending, via Reuters.
• Steel Dynamics (STLD) is to replace ABIOMED (ABMD) in the S&P 500 effective prior to the market open on December 22nd, according to S&P Dow Jones Indices.

CENTRAL BANKS

BOJ

• BoJ unexpectedly tweaked its Yield Curve Control (YCC) in which it widened the 10yr yield band to +/-0.5% (prev. +/-0.25%) and unexpectedly announced it is to increase bond purchases to JPY 9tln/m (prev. JPY 7.3tln/m) in Q1. The BoJ kept its rate unchanged at -0.10% and maintained 10yr JGB yield target of around 0% as expected. The decision on the YCC was unanimous. The adjustment is intended to “improve market functioning and encourage a smoother formation of the entire yield curve while maintaining accommodative financial conditions,” the central bank said. BoJ said it is to make nimble responses for each maturity by increasing the amount of purchases even more and conducting fixed-rate purchases operations when deemed necessary. BoJ maintained its rate guidance. Governor Kuroda will conduct a press conference at 06:30GMT/01:30EST. Click here for the detailed headline
• BoJ announced an unscheduled bond operation: BoJ offered to buy JPY 100bln in up to 1-3yr JGBs, JPY 100bln in 3-5yr JGBs, JPY 300bln in 5-10yr JGBs and JPY 100bln in 10-25yr, according to Reuters. BoJ to conduct unlimited bond buying in the 1-5yr tenors, according to Bloomberg.
• Japanese Finance Minister Suzuki said it is not true that the government and the BoJ have decided on a policy to revise its joint statement, according to Reuters.
• Japanese Economy, Trade, and Industry Ministry Nishimura said it is important to continue carrying out economic revitalisation based on the joint statement with the BoJ, according to Reuters.
• Japan Securities Clearing Corporation has issued an emergency margin call re. JGB futures.

OTHER CENTRAL BANKS

• RBA Minutes (Dec): Board considered several options for the cash rate decision at the December meeting: a 50bps increase; a 25bps increase; or no change in the cash; members also noted the importance of acting consistently. The Board did not rule out returning to larger increases if the situation warranted. Click here for the detailed headline
• PBoC maintained the 1yr and 5yr Loan Prime Rates (LPRs) at 3.65% and 4.30% respectively, as expected, according to Bloomberg.
• BoK Governor said the board believes it is premature to cut rates. BoK said consumer inflation is to gradually slow after hovering around 5% for some time; uncertainty is high over how swiftly consumer inflation will slow, according to Reuters. BoK Governor said the risk of USD/KRW rate surging at an unusual pace has decreased.

APAC TRADE

EQUITIES

• APAC stocks traded lower across the board with the broader risk profile hit by the BoJ's unexpected tweak to its Yield Curve Control.
• Nikkei 225 fell over 2.5% as it reacted to the BoJ's move, with the index briefly dipping under 26,500, although bank stocks soared.
• ASX 200 was dragged lower by its Tech and IT sectors whilst Banks and Utilities were the better performers.
• Hang Seng and Shanghai Comp conformed to the downbeat tone across the equity market, with the former seeing its housing stocks slip after the PBoC opted to maintain its 5yr LPR unchanged vs some expectations for a cut.
• US equity futures declined after the BoJ's unexpected tweak reverberated across the markets, with the yield-sensitive tech-laden NQ hit the hardest.
• European equity futures also fell in the BoJ's aftermath with Euro Stoxx 50 futures -1.3% after cash markets closed +0.2%.

FX

• JPY soared on the BoJ decision to tweak its YCC, with USD/JPY slumping from levels around 137.00 to a sub-133.00 low.
• DXY, as a result, was pushed lower from 104.66 to a 103.94 low.
• EUR/USD eventually fell under 1.0600 whilst GBP/USD later gave up 1.2100 as JPY-pairs kept the EUR and GBP under pressure.
• Antipodeans suffered as a function of a JPY and an overall risk-averse mood.
• CNH saw no notable reaction to the PBoC LPR decision.
• PBoC sets USD/CNY mid-point at 6.9861 vs exp. 6.9862 (prev. 6.9746)

FIXED INCOME

• 10yr UST futures slipped from around 114'05 to 113'11+ low following the BoJ YCC tweak, with the 10yr cash yield rising from 3.5846% to 3.7110%.
• Bund futures also slumped on the BoJ, with the March contract falling from 137.15 to a 135.85 low over the same period.
• Following the BoJ decision, the Japanese 10yr yield soared by 20.5bps to 0.455%; the highest since 2015. 10yr JGB futures tumbled by 200 ticks to a 6-month low.

COMMODITIES

• Crude futures resumed trade on a firmer footing but waned off best levels as the risk environment deteriorated.
• Spot gold benefitted from the post-BoJ declines in the USD but the yellow metal waned off overnight highs after failing to test USD 1,800/oz to the upside.
• Base metal futures were mostly lower as sentiment sullied the complex, 3M LME copper fell back under USD 8,250/t.
• USTR Chief Tai said the WTO is getting "on thin ice" with the metals ruling, according to Reuters.
• ICE said the EU gas price cap risks financial stability and ICE will review details of the EU's gas price cap and its feasibility, according to Reuters.
• German Economy Minister Habeck said he and Germany are still sceptical about the gas price mechanism, according to Reuters.

CRYPTO

• Bitcoin posted modest gains above USD 16,500 as the Dollar slipped.

NOTABLE ASIA-PAC HEADLINES

• China reports five COVID-related deaths in the mainland on Dec 19 vs two a day earlier, according to Reuters.
• Hong Kong Chief Executive Lee said Hong Kong will further ease social distancing measures, according to Bloomberg.
• Japan is reportedly mulling issuing JPY 500bln of green transformation economic transition bonds (GX bonds) in FY23, according to Japanese press Yomiuri.
• Japanese government reportedly looking to issue around JPY 35.5tln of new JGBs for FY23/24, according to Reuters sources.
• PBoC injected CNY 5bln via 7-day reverse repos with the rate maintained at 2.00%; injects CNY 141bln via 14-day reverse repos with the rate maintained at 2.15%; daily net injection CNY 144bln.

DATA RECAP

• New Zealand ANZ Business Outlook* (Dec) -70.2% (Prev. -57.1%)
• New Zealand ANZ Own Activity* (Dec) -25.6% (Prev. -13.7%)

GEOPOLITICS

RUSSIA-UKRAINE

• Russian President Putin said Russia and Belarus agreed to continue military drills, according to Reuters. US State Department said the US will pay close attention on whether Belarus provides additional support to Russian President Putin and will respond appropriately if it does.
• Kremlin said the EU gas price cap is an attack on market pricing and is unacceptable, according to Reuters.

OTHER

• North Korea said Japan's counterattack capabilities are effectively pre-emptive strike capabilities; said Japan's new security strategy is bringing security crisis in the region. North Korea said it has the right to take "decisive" military measures to protect its rights in response to the changing security environment, via KCNA.
• US State Department said the toll of the virus in China is of concern to the world given the size of its economy and hopes the Chinese are able to address the current COVID outbreak there.

EU/UK

NOTABLE HEADLINES

• ECB's Nagel said it will take some time to return to 2% inflation, according to Reuters.
• UK is to freeze alcohol duty until August 2023. Treasury said end date aligns with new alcohol tax system taking effect. Chancellor is reserving the decision on future duty rates for the Spring Budget in 2023.