• Asian equity markets traded cautiously following an uninspiring lead from Wall St
• BoJ kept monetary policy settings unchanged as expected but tweaked forward guidance and lowered GDP and CPI forecasts
• UK PM May is reportedly planning a Withdrawal Agreement Bill vote for as early as next week
• Looking ahead, highlights include US Durable Goods & Initial Jobless Claims, New Zealand Trade Balance, Riksbank Rate Decision & Press Conference, ECB’s de Guindos Speaking, Supply from the US
• Earnings: Bristol-Myers Squib, 3M, Intel, Southwest Airlines, Amazon, UPS, Ford, Bayer, Barclays, UBS

ASIA-PAC

Asian equity markets traded cautiously following an uninspiring lead from Wall St where the major indices consolidated albeit near record levels. In addition, holiday closures in Australia and New Zealand, the BoJ policy announcement, weak South Korean GDP and a slew of earnings provided much for participants to ponder over. Nikkei 225 (+0.6%) traded higher with price action dominated by corporate results, while KOSPI (-0.4%) was subdued following abysmal growth data for Q1 in which GDP Q/Q unexpectedly contracted by 0.3% which was the worst reading since Q4 2008 and GDP Y/Y expanded at the slowest pace in almost a decade. Hang Seng (-0.1%) andShanghai Comp. (-0.7%) were downbeat as earnings season also started to pick up in the region and after the PBoC refrained again from liquidity operations which resulted to a net CNY 80bln drain. In addition, there were state media reports the PBoC will set up policy framework to implement relatively low RRR for small and medium banks, although this failed to spur a recovery given the absence of an actual RRR cut announcement and as PBoC officials reaffirmed a preference for prudent monetary policy. Finally, 10yr JGBs were choppy amid the cautious risk sentiment in the region and after the BoJ policy announcement which initially lifted 10yr JGBs at the open due to the dovish aspects from the statement and downgrades in the Outlook Report. However, prices then returned to pre-announcement levels as the lower projections were not much of a surprise given the recent data, while the BoJ slightly adjusted its modified forward guidance in which it stated that it will keep very low interest rate levels for an extended period of time at least through around Spring 2020.

PBoC skipped open market operations for a net daily drain of CNY 80bln. (Newswires) PBoC set CNY mid-point at 6.7307 (Prev. 6.7205)

PBoC will set up policy framework to implement relatively low RRR for small and medium banks, in which the extra funds will be used to support private and small companies, according to state media. However, there were later comments from the PBoC that China's prudent monetary policy is overall appropriate and neither tight nor loose and that the use of repos and MLFs does not signal loosening bias. (Newswires)

BoJ kept monetary policy settings unchanged as expected with NIRP held at -0.1% and 10yr JGB yield target at around 0%, but slightly modified forward guidance in which it stated that it will keep very low interest rate levels for an extended period of time at least through around Spring 2020 (added at least through around Spring 2020). BoJ also stated that it will take longer than intended to achieve 2% target and that both risks to economic and price outlooks are skewed to the downside, while it noted it will relax terms and conditions for securities lending as well as consider introduction of ETF lending facility. In terms of the Outlook Report, the BoJ lowered its forecasts for Real GDP in FY19 and FY20 as well as Core CPI forecast for FY20. (Newswires)

South Korean GDP (Q1) Q/Q -0.3% vs. Exp. 0.3% (Prev. 1.0%); worst reading since Q4 2008. (Newswires)

South Korean GDP (Q1) Y/Y 1.8% vs. Exp. 2.5% (Prev. 3.1%); slowest pace of growth since Q3 2009.

UK/EU

UK PM May is reportedly planning a Withdrawal Agreement Bill vote for as early as next week. (Sky News) This news came after the 1922 Executive Committee rejected the leadership rule change but reportedly want a clearer timetable for PM May's departure, according to Sky's Beth Rigby. (Twitter)

FX

The DXY held on to the most the prior day’s gains after having rallied to above 98.00 and its best levels since Q2 2017 amid recent weakness across its major counterparts including EUR/USD which slipped below 1.1200 in the aftermath of weaker than expected German IFO data. GBP/USD also succumbed to the broad USD strength and briefly retreated to a 1.2800 handle, despite some relief for UK PM May after the 1922 Executive Committee rejected the leadership rule change but were said to want a clearer timetable for PM May's departure, while recent reports suggested PM May plans a Withdrawal Agreement Bill vote for as early as next week. CAD remained weak after the BoC removed its reference to future rate hikes at yesterday’s policy statement, while antipodeans were kept subdued amid holiday closures for ANZAC Day and on increased expectations for an RBA rate cut next month in which ASX 30-Day Interbank Cash Rate Futures priced in a 67% chance of a 25bps cut at the next meeting vs. 13% prior to the CPI miss. Elsewhere, USD/JPY was indecisive due to the mixed risk tone and as the BoJ announcement proved to be a non-event, while KRW weakened to its lowest since 2017 due to the GDP miss which spurred speculation of FX intervention to stem the losses for the currency.

BoC Governor Poloz said there would be a discussion whether the BoC would cut rates or not if there was a negative disturbance while he noted conflicts in data with GDP positive and labour market releases less impressive. Poloz also said setting of rates will give us positive outlook and that growth will pick up in Q2 as well as improve further in Q3, while he suggested that will be no rush to start hiking again if everything turns out perfectly and that BoC should take time to look at data. (Newswires)

 COMMODITIES

Commodities traded mostly sideways amid the cautious risk tone in which WTI crude futures were rangebound back below the USD 66.00/bbl level following yesterday’s larger then expected build in headline DoE inventories, while there were comments from Iran’s foreign minister which suggested confidence in eluding US sanctions. Elsewhere, gold price action was restricted as the greenback held on to the majority of its recent gains, while the cautious risk tone also stalled copper overnight.

GEOPOLITICS

Iran Foreign Minister Zarif said US Navy ships can pass through Strait of Hormuz and stressed commitment to freedom of navigation, while he suggested confidence Iran can evade US sanctions and that they 'have a PHD in that area'. Furthermore, Zarif said the US blacklisting of Iran's Revolutionary Guard is absurd but Iran will exercise prudence. (Newswires)

North Korea warned of a response to US-South Korea drills, while there were also reports that North Korea leader Kim removed Kim Yong Chol as head of United Front Department which overseas foreign ties as he blames Kim Yong Chol for the failed summit with US in Vietnam. (Newswires) 

US

Treasuries rallied on Wednesday, stoked by a soft Aussie CPI report overnight, while there was chatter that some of the buying was a result of real money accounts adding longs ahead of Japan’s Golden Week holiday. Weak IFO helped the complex. A large block buy in the five year space helped the rally continue in US hours, though the T-Note has been horizontal since late morning trade. The 5-year auction was decent, stopping on the screws (as did yesterday’s sale of 2s), though today’s auction internals were far more encouraging, with indirect participation rising, and cover slightly higher. The US Treasury will top off the week’s supply tomorrow with a sale of 7s: analysts at Societe Generale say the 7-year sector appears fair versus 5s and 10s, and is also trading fair in asset swap versus older 5s. The bank also notes that the WI for the 7-year yield trades above the previous stop-out rate, which is a positive for the auction. Additionally, dealer positioning seems elevated in the sector (highest in four weeks) and that could be a negative going into the auction. SocGen itself holds a neutral bias. At settlement, major curve spreads were relatively unchanged. US T-note futures (M9) settled 13 ticks higher at 123-17.

NEC Director Kudlow said we will nominate Stephen Moore to the Fed if he passes the FBI vetting process. (Newswires)