• BoJ kept monetary policy settings unchanged but announced it will guide YCC more flexibly with fixed rate operations for 10yr JGB to be conducted at 1.0% (prev. 50bps).
• APAC stocks are mixed with underperformance in the Nikkei 225 as markets digest the fallout from the BoJ.
• European equity futures are indicative of a lower open with the Euro Stoxx 50 -0.4% after the cash market closed up by 2.3% yesterday.
• JPY is the standout outperformer in the FX space with USD/JPY whipsawing amid the confusion in the aftermath of the BoJ.
• Looking ahead, highlights include Eurozone Economic Sentiment, German HICP (Prelim.), US Personal Income, Consumption, PCE & Employment Costs, Earnings from Air France, BBVA, Intesa Sanpaolo, Sanofi, Vinci, Exxon, Chevron, P&G. 

US TRADE

EQUITIES

• US stocks declined and bonds sold off throughout the US session after a hot Q2 GDP report and tumbling jobless claims catalysed a reversal lower, while the selling was exacerbated on new US bank capital proposals that look set to impact the largest lenders and after a Nikkei sources piece said that the BoJ is to discuss a yield curve control tweak to allow rates to move over 0.5% in what would be a shift to a more flexible approach.
• SPX -0.64% at 4,537, NDX -0.22% at 15,465, DJIA -0.67% at 35,283, RUT -1.29% at 1,955.
• Click here for a detailed summary.

NOTABLE HEADLINES

• Federal Reserve unveiled proposed technical changes to the global systemically important bank surcharge and Fed staff estimate proposed GSIB surcharge changes would result in a USD 13bln aggregate increase in capital requirements. Fed Chair Powell said regulators must consider benefits as well as costs of higher capital, while he added that the proposal exceeds what is required of the Basel agreement and must ensure the proposed approach outweighs costs. It was later reported that the Fed approved the proposals to raise bank capital requirements and modify the global bank surcharge.
• US House passed the spending bill for military construction and veterans affairs which is the first of 12 measures to fund the US government.

APAC TRADE

BOJ

• BoJ maintained its key monetary policy settings with rates at -0.10% and 10yr JGB yield target at 0% with a +/-50bps range but will guide YCC more flexibly with fixed rate operations for 10yr JGBs to be conducted at 1.0% (prev. 50bps). BoJ said it is appropriate to heighten the sustainability of monetary easing and it will operate yield curve control more flexibly to respond nimbly to upside and downside risks, while it widened the range of 5yr-10yr JGB purchases to JPY 900bln from JPY 875bln. In terms of the Outlook Report, there was an upgrade to the FY23 Core CPI forecast to above the BoJ's target at 2.5% from 1.8% but the FY24 Core CPI view was downgraded to 1.8% from 2.0% and FY23 GDP projection was also lowered to 1.3% from 1.4%.
• Ahead of the release, the BoJ was reportedly to discuss tweaking its YCC policy at the policy board meeting on Friday to let long-term interest rates rise beyond its cap of 0.5% by a certain degree in what would be a shift towards a more flexible policy approach, according to Nikkei. Furthermore, the report noted that the central bank is likely to keep the current cap while taking a flexible approach and that under the more flexible policy being considered, the BoJ would permit gradual increases above the 0.5% threshold, but still clamp down on any sudden spikes.

EQUITIES

• APAC stocks traded mixed with the region cautious as all attention was on the BoJ policy decision in which the central bank kept monetary policy settings unchanged but announced to guide YCC more flexibly with fixed rate operations for 10yr JGB to be conducted at 1.0% (prev. 50bps).
• ASX 200 was pressured amid weakness in the property sector and miners, with sentiment also not helped by the surprise contraction in Retail Sales.
• Nikkei 225 underperformed with yields higher and markets spooked by the latest BoJ developments.
• Hang Seng and Shanghai Comp shrugged off early weakness and gained after further calls and efforts for China to support the housing market and tech industry.
• US equity futures were rangebound overnight although slumped during US trade as markets faltered stateside following source reporting by the Nikkei on the BoJ.
• European equity futures are indicative of a lower open with the Euro Stoxx 50 -0.4% after the cash market closed up by 2.3% yesterday.

FX

• DXY was rangebound overnight but held onto the prior day’s gains after climbing alongside yields on the back of a slew of hot US data and following a hawkish BoJ sources piece, as well as on the bank capital proposals.
• EUR/USD languished beneath 1.1000 after the strong US data and dovish ECB meeting guidance tweak.
• GBP/USD extended on the prior day’s lows after its recent slide from near the 1.3000 handle to trade sub-1.2800.
• USD/JPY whipsawed amid confusion in the aftermath of the BoJ announcement and had slumped during US hours after the hawkish report that flagged that BoJ could switch to a more flexible approach on yields.
• Antipodeans declined amid the subdued risk tone, weak Aussie Retail Sales and softer PPI data.
• PBoC set USD/CNY mid-point at 7.1338 vs exp. 7.1665 (prev. 7.1265)
• Turkish President Erdogan appointed 3 central bank deputy governors, according to Official Gazette.

FIXED INCOME

• 10yr UST futures remained subdued after yesterday's heavy selling pressure with the US 10yr yield back above 4% due to hot US economic data, bank regulation proposals, a weak 7yr auction and recent BoJ developments.
• Bund futures suffered spillover selling from counterparts which overshadowed the ECB’s guidance tweak.
• 10yr JGB futures slumped on the hawkish BoJ report and with further selling as yields climbed following the BoJ's purchases tweak.

COMMODITIES

• Crude futures were rangebound owing to the mixed risk mood and lack of energy-specific catalysts.
• Russia is to meet OPEC+ output cut obligations in full in August, according to TASS.
• Spot Gold nursed some of its recent losses but with the rebound contained by a firm dollar.
• Copper futures were lacklustre amid the BoJ-related caution and confusion.

CRYPTO

• Bitcoin lacked direction with trade kept to within a tight range around USD 29,200.
• US SEC Chair Gensler said crypto is rife with fraud and hucksters, according to Bloomberg.
• Sequoia cut the size of its cryptocurrency fund to USD 200mln from USD 585mln, according to WSJ.
• Binance filed a motion to dismiss the complaint filed by US CFTC.

NOTABLE ASIA-PAC HEADLINES

• Italian PM Meloni said she plans to go to China in one of her next diplomatic missions and the decision on leaving China's Belt and Road Initiative will be made by December.
• China reportedly urges improved mortgage rules to support the housing market, while it also asked tech giants to showcase investments in a sign of easing, according to Bloomberg.
• US is to ban Hong Kong Chief Executive Lee from the APEC Economic Summit, according to Washington Post.

DATA RECAP

• Tokyo CPI YY (Jul) 3.2% vs. Exp. 2.9% (Prev. 3.1%)
• Tokyo CPI Ex. Fresh Food YY (Jul) 3.0% vs. Exp. 2.9% (Prev. 3.2%)
• Tokyo CPI Ex. Fresh Food & Energy YY (Jul) 4.0% vs. Exp. 3.7% (Prev. 3.8%)
• Australian Retail Sales MM Final * (Jun) -0.8% vs. Exp. 0.0% (Prev. 0..4%)
• Australian PPI QQ (Q2) 0.5% (Prev. 1.0%)
• Australian PPI YY (Q2) 3.9% (Prev. 5.2%)

GEOPOLITICS

• Russia prevented a Ukrainian drone attack on targets in Moscow, according to RIA citing the Defence Ministry.
• US President Biden and Italian PM Meloni's joint statement said the US and Italy will continue to provide political, military, financial and humanitarian assistance to Ukraine for as long as it takes. US and Italy are firmly committed to a free, open, prosperous, inclusive and secure Indo-Pacific, while they reiterated the vital importance of maintaining peace and stability across the Taiwan Strait. Furthermore, they commit to strengthening the bilateral and multilateral consultation on the opportunities and challenges posed by China.
• US is expected to announce a weapons package for Taiwan worth more than USD 300mln, according to US officials cited by Reuters.
• Chinese defence ministry opposes the US intensifying military ties with the Taiwan region, while the PLA will take decisive and effective measures to protect China's sovereignty and territorial integrity, according to Xinhua.
• North Korea staged a military parade in celebration of the 70th anniversary of the end of the Korean War, while the Chinese delegation attended the parade and North Korea displayed an ICBM at the parade, according to KCNA.
• North Korean leader Kim had a formal lunch with Russian Defence Minister Shoigu and exchanged views on the political situation around the Korean peninsula, as well as discussed issues to advance strategic cooperation on military and security. Furthermore, North Korea said it will fight on the side of countries challenging US hegemony, according to KCNA.
• Russian President Putin said North Korea's support for the military operation against Ukraine emboldens the two countries' determination to cope with Western organisations, according to KCNA
• WH National Security Adviser Sullivan arrived in Saudi Arabia for talks with Crown Prince MBS with the trip aimed at continuing the talks over a possible deal on upgrading US-Saudi relations that would also include a normalization agreement between Saudi Arabia and Israel, according to Axios citing US sources.