• 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. 0.5%).
• At the post-meeting presser, BoJ Governor Ueda emphasised the need for continued monetary easing, stating that the bank is prepared to further ease policy if required.
• European equities are a mixed bag as the dust settles on yesterday’s ECB announcement and the overnight BoJ release.
• US equity futures are trading on the front foot, as positivity seemingly returns following a sell-off in stocks yesterday, after the hot data prints yesterday and ahead of today's top-tier data.
• DXY briefly topped 102.00 earlier in the European morning, JPY whipsawed during the BoJ release and now trades with mild gains, and AUD lags ahead of next week’s RBA.
• 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.

28th July 2023

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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.
• At the presser, BoJ Governor Ueda emphasised the need for continued monetary easing, stating that the bank is prepared to further ease policy if required. The focus is on enhancing the sustainability of Yield Curve Control (YCC), with the bank ready to conduct fixed rate purchases if long-term yields exceed 1.0%. The bank has created a 0.5-1.0% frame to respond to future risks, with 1.0% defined as a 'just-in-case cap'. Despite some progress towards inflation goals, Ueda expressed uncertainty about future price rebounds, citing risks from a weaker global economy. He added the bank is not targeting FX levels, but is including currency market volatility in its measures. Economic uncertainty remains high, and the bank is prepared to respond flexibly to any materialised risks. Ueda denied any bias towards policy tightening, stating that the aim is to make YCC more sustainable, not to normalise policy. Click here for more detail.

EUROPEAN TRADE

EQUITIES

• European equities are a mixed bag as the dust settles on yesterday’s ECB announcement and the overnight BoJ release. The Stoxx 600 index is on track to close the week out with gains over just over 1% with discrepancies between regional bourses stemming from various heavyweight earnings releases.
• Equity sectors in Europe have a negative tilt with Tech, Real Estate and Travel & Leisure names lagging peers.
• US equity futures are trading on the front foot, as positivity seemingly returns following a sell-off in stocks yesterday, after a slew of hot data prints ahead of today's top-tier data.
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• Click here and here for a recap of the main European equity updates.

FX

• DXY briefly topped 102.00 earlier in the European morning. Dollar paused for breath after Thursday’s sharp rebound on bullish US data and Euro depreciation on the back of a dovish ECB hike, but retained a firm underlying bid.
• The Buck faced strong competition from the Yen following the BoJ’s hawkish "surprise" as this hammered USD/JPY down to within single digit pips of 138.00 at one stage from 141.05
• Antipodeans lag with the Aussie underperforming as Australian Retail Sales were downwardly revised, while market pricing was already tilting heavily in favour of no change in rates from the RBA next week.
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FIXED INCOME

• Debt futures have settled down following several bouts of fast market moves and high volatility amidst somewhat mixed data and further reaction to or reflection on Central Bank meetings that threw several surprises.
• Bunds and Gilts have regained poise within wider 132.96-81 and 95.62-11 respective ranges, while OATs and Bonos lag in wake of French and Spain inflation data.
• The T-note remains above parity between 110-10+/110-25+ parameters in consolidative trade after yesterday’s mostly stellar US macro releases and turning attention to another busy agenda to end a hectic week.
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COMMODITIES

• WTI and Brent front-month futures continue with the choppy but horizontal performance seen overnight with prices moving in tandem with the broader risk sentiment. Complex-specific newsflow has been light this morning aside from the release of overall mixed GDP from various EZ nations.
• Spot gold was dragged back under its 100 DMA (USD 1,966.76/oz) to levels near USD 1,950/oz yesterday following the hot US economic data, with prices today meandering around the half-round figure and on both sides of the 50 DMA and 21 DMA.
• Base metals meanwhile are mostly firmer despite the stronger Dollar amid continued tailwinds from Chinese stimulus.
• Click here for more detail.

NOTABLE US HEADLINES

• Facebook (META) bowed to White House Pressure and removed content related to Covid-19, according to WSJ.

NOTABLE EUROPEAN HEADLINES

• ECB's Simkus says the choice for September is between 25bps hike and unchanged rate; rate cut unlikely in H1'24; would not call a situation a recession, it is more a soft landing scenario, according to Reuters.
• ECB's Villeroy says French data showing inflation is falling without a recession; Pragmatism also needed as decisions at upcoming rate meetings will be open and entirely data drivenPerseverance is now the prime key virtue given the time needed for full transmission of monetary policy. Our growing confidence in the fall in inflation towards 2% is based on the good transmission of monetary policy, according to Reuters.
• ECB's Kazimir says ECB is nearing the completion of policy tightening; he is still waiting for an answer for what is coming in September; says ECB's mission is still not fulfilled and "we should take firm step further". He noted if ECB was to take a break in September, it would be premature to consider it the end, and added the ECB looking for the right place to stay for a large part of next year, according to Reuters.
• ECB Survey of Professional Forecasters (SBF): expectations for headline HICP inflation were broadly unchanged compared to the previous survey. Click here for more detail.

DATA RECAP

• German state CPIs were largely mixed vs. the expectations for the Mainland figure, which expects the MM to be unchanged whilst the Y/Y is seen cooling slightly from the prior month.
• German GDP Flash QQ SA* (Q2 ) 0.0% vs. Exp. 0.1%
• German GDP Flash YY SA (Q2) -0.2% vs. Exp. -0.3% (Prev. -0.5%)
• French Prelim CPI M/M 0.0% (Exp. 0.2%, Prev. 0.2%)
• French Prelim CPI Y/Y 4.3% (Exp. 4.3%, Prev. 4.5%)
• French Prelim CPI (EU Norm) Y/Y 5.0% (Exp. 5.1%. Prev. 5.3%)
• French GDP Preliminary QQ (Q2) 0.5% (Exp. 0.1%)
• Spanish HICP Flash MM (Jul) -0.1% vs. Exp. -0.5% (Prev. 0.6%)
• Spanish CPI YY Flash NSA (Jul) 2.3% vs. Exp. 1.6% (Prev. 1.9%)
• Spanish Estimated GDP YY (Q2) 1.8% vs. Exp. 2.0% (Prev. 4.2%)
• EU Services Sentiment (Jul 2023) 5.7 vs. Exp. 5.2 (Prev. 5.7)
• EU Selling Price Expec (Jul 2023) 3.4 (Prev. 4.4)
• EU Economic Sentiment * (Jul 2023) 94.5 vs. Exp. 95.0 (Prev. 95.3)
• EU Consumer Confid. Final (Jul 2023) -15.1 vs. Exp. -15.3 (Prev. -15.1)
• EU Cons Infl Expec (Jul 2023) 4.8 (Prev. 6.1)
• EU Industrial Sentiment (Jul 2023) -9.4 vs. Exp. -7.6 (Prev. -7.2)

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.
• 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.
• Russia's Putin says we will discuss peace plan today, according ot Reuters.
• China declares a large no-sail zone in the South China Sea for military exercises from July 29 to August 2nd, according to a journalist on Twitter.

CRYPTO

• Bitcoin prices are relatively stable just above the USD 29,000 level.

APAC TRADE

• 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.

NOTABLE ASIA-PAC HEADLINES

• Chinese market watchdog has reportedly asked brokers for advice to boost stocks, according to Bloomberg; brokers reportedly proposed stamp duty reduction.
• 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%)