• BoJ hiked and announced changes to its bond purchases; during but mainly post-Ueda marked JPY appreciation occurred with USD/JPY as low as 150.07
• Stocks in Europe opened mostly firmer as the optimism from Asia-Pac reverberated into Europe; US futures bid pre-FOMC; MSFT -3%, AMD +9%
• DXY lower on account of JPY strength, EUR supported post-HICP, GBP contained, AUD hit on its own CPI print
• Fixed initially followed JGBs higher before paring on the hotter-than-expected EZ/Italian CPI prints, though Bunds remain above the overnight base
• Crude and precious metals underpinned by the escalating geopolitical backdrop, base metals supported by better-than-feared Chinese PMIs
• Israel struck targets in both the Lebanese and the Iranian capitals overnight, taking out a Hezbollah commander and the leader of Hamas Haniyeh
• Looking ahead, highlights include US ADP & Chicago PMI, FOMC & BCB Policy Announcements, Fed Chair Powell's Press Conference, Supply from Germany & US Quarterly Refunding Announcement. Earnings: ADP, Boeing, Mastercard, ARM, Meta, Qualcomm & T-Mobile US.

BOJ

• BoJ raised its short-term interest rate to 0.25% (prev. 0.00-0.10%) and announced a change in bond purchases in which it will no longer provide a range but will instead specify amounts, while the BoJ is to reduce scheduled monthly bond buying by around JPY 400bln each quarter and with bond purchases to be JPY 3tln a month as of Q1 2026. BoJ said the decision on rates was made by a 7-2 vote with Nakamura and Noguchi the dissenters, while the decision on bond buying made unanimously. Furthermore, it stated that it may modify the bond-taper plan upon mid-term view as appropriate, if deemed necessary for functioning of JGB market, and at the June 2025 meeting, the BoJ will discuss the guideline for its JGB buying from April 2026 and announce results.
• BoJ’s Ueda: Upside risks to prices require attention; Will continue to lift rates and adj. the degree of easing, if the current economic/price outlook is realised; "We don't have a 0.5% policy rate in mind as a ceiling."; Main issue is where to stop raising rates, when approaching the neutral rate; Policy response this time was made considering the upward risks to prices as being considerably large.

EUROPEAN TRADE

EQUITIES

• Stocks in Europe opened mostly firmer as the optimism from Asia-Pac reverberated into Europe, Euro Stoxx 50 +1.1%.
• Modest downside in the European bourses was seen on the hotter-than-expected EZ Flash HICP numbers, though this was within ranges and only modest in nature.
• Sectors mostly positive, outperformance in Tech as AMD and US exemption reports lift constituents in the sector; Basic Resources benefit from the rise in base metals following Chinese PMIs; Energy names following the underlying benchmarks.
• DAX 40 +0.6% firmer, but lagging peers given the inflation metrics, though strength in Airbus’ German listing is providing support alongside strength in Infineon.
• FTSE 100 1.3% outperformers with mining names outperforming and supporting with post-earnings strength in HSBC and the housing sector with Taylor Wimpey supporting.
• Note, technical issues are ongoing at SIX which is impacting on equity trade in Spain and Switzerland.
• Stateside, futures are firmer across the board into the FOMC with ES +0.8%, NQ +1.3%; Microsoft -3% pressured pre-market after it missed on Cloud Revenue while AMD +9% leads on AI demand. Ahead, Meta dominates the after-hours docket.
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FX

• DXY lower on account of JPY strength; index down to a 104.17 base. Focus on the FOMC, for that the 50 and 100DMAs @ 104.87 and 104.91 respectively provide resistance.
• USD pressure comes amid marked JPY gains; reaction to the BoJ announcement itself was pronounced and two-way but settled shortly after. Thereafter, JPY began strengthening during Ueda’s presser but really picked up on its conclusion and USD/JPY is down to a 150.07 base, with little of note after 150.00 until essentially 149.00.
• EUR picking up after hawkish pan-EZ/Italian inflation data, which offset the earlier dovish French print, though no real follow through for ECB pricing. EUR/USD is currently contained within yesterday's 1.0798-1.0835 parameters
• Cable contained ahead of Thursday’s BoE and as such is within Tuesday’s 1.2820-86 range.
• Aussie lags post-CPI which saw the RBA's preferred core measures come in softer-than-expected and bolster odds of an unchanged rate next week from circa 80% to around 95%; AUD/USD as low as 0.6480.
• PBoC set USD/CNY mid-point at 7.1346 vs exp. 7.2419 (prev. 7.1364).
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FIXED INCOME

• Pronounced two-way action in JGBs on the BoJ announcement; initial reaction to the hike saw JGBs slump to a 142.63 base. However, this pared instantly and shot to a 143.16 peak given the ‘slow’ taper.
• EGBs derived a positive lead from the above, extended by cooler-than-expected French CPI to a 133.76 peak for Bunds. Thereafter, the early release of Italy’s prelim. metrics were hotter-than-expected and trimmed Bunds into the pan-EZ figure which sparked a further pullback but still clear of the earlier 133.36 base.
• USTs near the unchanged mark, action this morning dictated by the above into Quarterly Refunding, ADP, Chicago PMI and then the FOMC/Powell.
• Germany sells EUR 2.472bln vs exp. EUR 3.0bln 2.40% 2030 Bund: b/c 2.2x (prev. 2.60x), average yield 2.25% (prev. 2.55%) & retention 17.6% (prev. 18.6%)
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COMMODITIES

• Crude benchmarks firmer across the board, underpinned by the escalating geopolitical backdrop; WTI Sep & Brent Oct at highs USD 76.86/bbl and USD 80.15/bbl.
• In short, Israel struck targets in both the Lebanese and the Iranian capitals overnight, taking out a Hezbollah commander and the leader of Hamas Ismail Haniyeh. This has stoked fears of an expansion of the conflict in the region.
• Precious metals are higher across the board, given the geopolitical risk premia; XAU is back above USD 2400/oz to a USD 2425/oz peak. Base peers are also supported, by the better-than-feared Chinese PMIs overnight which have shown some signs of a stabilising manufacturing sector.
• US Private Inventory (bbls): Crude -4.5mln (exp. -1.1mln), Distillate -0.3mln (exp. -1.2mln), Gasoline -1.9mln (exp. -1mln), Cushing -0.9mln.
• India's Steel Ministry has reportedly sought a probe into cheaper imports, via Reuters citing Indian gov't sources; remarking that China and Vietnam are shipping cheaper steel to India.
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NOTABLE DATA RECAP

• EU HICP Flash YY (Jul) 2.6% vs. Exp. 2.5% (Prev. 2.5%); Ex-Food & Energy 2.8% vs. Exp. 2.7% (Prev. 2.8%); Ex-Food, Energy, Alcohol & Tobacco 2.9% vs. Exp. 2.8% (Prev. 2.9%)
• French CPI Prelim YY NSA (Jul) 2.3% vs. Exp. 2.4% (Prev. 2.2%); MM 0.1% vs. Exp. 0.3% (Prev. 0.1%)
• French CPI (EU Norm) Prelim YY (Jul) 2.6% vs. Exp. 2.7% (Prev. 2.5%)
• Italian Consumer Price Prelim YY * (Jul) 1.3% vs. Exp. 1.2% (Prev. 0.8%); MM 0.5% vs. Exp. 0.2% (Prev. 0.1%)
• German Import Prices MM (Jun) 0.4% vs. Exp. 0.1%; YY 0.7% vs. Exp. 0.5% (Prev. -0.4%)
• German Unemployment Chg SA (Jul) 18.0k vs. Exp. 15.0k (Prev. 19.0k)

NOTABLE EUROPEAN HEADLINES

• L'Oreal (OR FP) CEO says the China market turned negative in Q2, do not see any pick up in consumer confidence. Expect growth in China to remain "slightly negative"

NOTABLE US HEADLINES

• US VP Harris is expected to announce her VP pick as soon as Monday, according to sources cited by Reuters. It was also reported that Harris will hold her first rally with her running mate next Tuesday in Philadelphia, according to Politico.
• US VP Harris wiped out Republican Presidential Candidate Trump's swing-state lead in the latest election poll, according to Bloomberg. Furthermore, the poll showed Harris gained ground versus Trump in each of the seven swing states since Biden dropped out of the race.
• Microsoft Corp (MSFT) Q4 2024 (USD): EPS 2.95 (exp. 2.93), Revenue 64.73bln (exp. 64.39bln), Intelligent Cloud rev. 28.52bln (exp. 28.72bln). -2.5% in pre-market trade
• Advanced Micro Devices Inc (AMD) Q2 2024 (USD): Adj. EPS 0.69 (exp. 0.68), Revenue 5.84bln (exp. 5.72bln). +8.5% in pre-market trade
• Nvidia (NVDA) has been added to the Top Pick list at Morgan Stanley

GEOPOLITICS

MIDDLE EAST

• Hamas stated that its political bureau chief Haniyeh was killed in Iran by an Israeli air strike on his house in Tehran, while a Hamas official said the assassination is a cowardly act that will not go unpunished, according to Al-Aqsa TV. It was also reported that Iran said it is investigating the assassination of Haniyeh with the results to be published soon, according to Tasnim.
• UN special coordinator for Lebanon said they are deeply concerned about Israel's strike in a densely populated southern suburb of Beirut which resulted in multiple civilian casualties, while they underscored there is no such thing as a military solution and called for diplomacy to end hostilities.
• Russia said that strikes on Lebanon are a flagrant violation of international law, according to TASS.
• Explosions were reported inside an Iraqi PMF base south of Baghdad causing casualties, according to Reuters sources, while the US later carried out a self-defence strike in Iraq because of a threat to coalition forces, according to an official cited by Reuters
• "Iran's Supreme Leader: Iran sees as a duty to avenge Haniyeh’s assassination", according to IRNA. Thereafter, Hezbollah MP Ammar says Israel "demands war, and we are up for it".
• Sources involved in the Hamas-Israel hostage deal talks suggests "the killing of the Haniyeh will have an impact on the negotiations, since the Haniyeh was a significant figure in the negotiations", via Kann's Stein.

OTHER

• Russian Foreign Ministry spokeswoman said any basis for dialogue with US arms control can come only after Washington refuses confrontation with Russia, according to RIA.

CRYPTO

• Bitcoin is a touch softer but is yet to deviate significantly from the unchanged mark, holding around the USD 66k handle which keeps it toward the mid-point of parameters.

APAC TRADE

• APAC stocks gained heading into month-end as participants digested a slew of data releases and the BoJ policy decision.
• ASX 200 was led by strength in energy and tech, while domestic yields were pressured after mostly softer inflation data.
• Nikkei 225 declined heading into the BoJ policy decision after rate hike bets were boosted following several local press reports that the central bank is to consider a 15bps rate increase and although the hike materialised, the Bank's taper plan was less aggressive than many had called for.
• Hang Seng and Shanghai Comp. gained as participants digested the latest Chinese PMI data in which headline Manufacturing PMI topped forecasts despite remaining in contraction territory, while Non-Manufacturing PMI matched estimates.

NOTABLE ASIA-PAC HEADLINES

• Chinese Vice Finance Minister said will strengthen fiscal policy adjustments and deepen fiscal and tax reforms, while they will steadily implement consumption tax reform in a step-by-step way and standardise the management of local governments' non-tax revenues. Furthermore, China will step up fiscal policy implementation to promote economic recovery.

DATA RECAP

• Chinese Manufacturing PMI (Jul) 49.4 vs Exp. 49.3 (Prev. 49.5); Non-Manufacturing PMI 50.2 vs Exp. 50.2 (Prev. 50.5)
• Chinese Composite PMI (Jul) 50.2 (Prev. 50.5)
• Australian Weighted CPI YY (Jun) 3.8% vs. Exp. 3.8% (Prev. 4.0%)
• Australian CPI QQ (Q2) 1.0% vs. Exp. 1.0% (Prev. 1.0%); YY 3.8% vs. Exp. 3.8% (Prev. 3.6%)
• Australian RBA Trimmed Mean CPI QQ (Q2) 0.8% vs. Exp. 1.0% (Prev. 1.0%); YY 3.9% vs. Exp. 4.0% (Prev. 4.0%)
• Australian RBA Weighted Median CPI QQ (Q2) 0.8% vs. Exp. 1.0% (Prev. 1.1%); YY 4.1% vs. Exp. 4.3% (Prev. 4.4%)
• New Zealand ANZ Business Outlook (Jul) 27.1% (Prev. 6.1%)
• New Zealand ANZ Own Activity (Jul) 16.3% (Prev. 12.2%)