• Asian equities traded lower overnight amid spill-over selling from global counterparts. BoJ took action on rising Japanese yields
• USD-index was contained below 96.00. Precious metals pressured by a flash crash in silver (said to be caused by a fat finger)
• Looking ahead, highlights include UK mfg and industrial production, US and Canadian jobs, ECB’s Mersch

ASIA

Asia stock markets traded negative across the board amid spill-over selling after global central banks continued strike a hawkish tone. ASX 200 (-0.8%) and Nikkei 225 (-0.5%) were pressured from the open with energy among the laggards after oil prices failed to maintain post-DoE gains, while miners were also spooked following a flash crash in silver, and to a much lesser extent gold, which was speculated to have been caused by a fat finger early in the session. Shanghai Comp. (-0.2%) and Hang Seng (-0.5%) conformed to the downbeat tone after the PBoC refrained from OMOs for the 11th consecutive day which resulted to a net liquidity drain of CNY 250bln for the week and was shortly followed by surges in money market rates, with the CNH overnight HIBOR up by over 70bps and at a 1-month high. 10yr JGBs were supported following the Rinban operation in which the BoJ increased its purchases in the 5yr-10yr by JPY 50bln and offered to buy an unlimited amount at a fixed yield of 0.11%. This measure was in response to an increase in 10yr yields which initially rose to their highest since February, alongside gains across global yields. However, upside in 10yr JGBs then petered out as the BoJ’s fixed rate operation received no bids, considering that market prices were above the BoJ’s offer.

BoJ offered to buy unlimited amount of 10yr JGBs at yield of 0.110%. (Newswires)

PBoC skipped open market operations for the 11th consecutive session, which resulted to a net weekly drain of CNY 250bln vs. last week's CNY 335bln drain. (Newswires)

PBoC set CNY mid-point at 6.7914 (Prev. 6.7953).

EUROPE

ECB's Weidmann (hawk) said ongoing economic recovery now raises the prospect of monetary policy normalization. (Newswires)

ECB’s Nowotny (soft hawk) said it is right to take a critical view of government bond purchases. (Newswires)

UK

BoE's McCafferty (hawk) said the pick-up in inflation not something we can ignore. McCafferty added that it was clear there has been some modest loss of momentum in UK economy. (LBC)

UK Brexit Secretary Davis will be confronted by business leaders on Friday demanding an indefinite delay in Britain’s departure from the Single Market and the Customs Union. (Telegraph)

BDO stated UK LFL at mid-market retailers rose 1.3% in June, which was the highest reading in 6 years. (Newswires)

FX

The USD-index was contained below 96.00 as the greenback only managed a slight recovery from the losses suffered yesterday against the EUR. Commodity-linked currencies remained pressured by a pullback in WTI below USD 45/bbl, while JPY also suffered after the BoJ announced to purchase an unlimited amount of 10yr JGBs in a fixed-rate bond auction, which effectively caps Japanese yields and was the first defence of the 10yr yield target of about 0% since February.

COMMODITIES

Gold (-0.3%) was pressured in early trade alongside a flash crash in silver, which fell around 11% within a minute before it recovered moments after and was speculated to have been caused by a fat finger. Elsewhere, a negative risk tone kept demand for copper subdued, while WTI crude futures continued to pare post-DoE gains and slipped over 1% overnight to below USD 45/bbl.

US

USTs declined with the 10-year yield up 4bps, however, much of the move was led by European paper. The German 10-year yield topped 0.50% for the first time in 18 months with cautiously hawkish ECB minutes and a soft-French bond auction the major culprits. The soft ADP number provided some temporary respite to the sell-off in bonds with attention turning to Friday’s payrolls report. Sep’17 10y T-note futures settled at 124.31+, down 7+ ticks.

Fed's Mester (Non-voter, Hawk) stated that the Fed should launch portfolio run-off sooner rather than later. (Newswires)