It has been another relatively quiet session, as traders remain on the sidelines spooked by the sudden reversal in the growth/value trade following a sharp drop in tech stocks while keeping an eye on yields and currencies in the aftermath of the BOJ's half-hearted attempt to steepen the JGB yield curve even as the central bank "forward guided" to years of easy policy to come as it slashed inflation expectations. Meanwhile, the Eurozone added even more confusion after it reported that GDP unexpectedly slowed coming below expectations while inflation beat consensus, printing above 2.0% for the first time since 2012.
It all started with the BOJ, which took its time to announce just after 1pm local time that it is introducing forward guidance signaling that interest rates will stay low for an "extended period of time", even as it tweaked Yield Curve Control parameters, which however were not adjusted in same manner as sources had previously hinted, disappointing markets and leading to a sharp drop in JGB yields.
As discussed earlier, in his best attempt to imitate Draghi, BOJ governor Kuroda left the key interest rates unchanged, saying he sees no need for additional easing for now while announcing policy tweaks, including reducing the amount of bank reserves subject to its negative interest rate and forward guidance for policy rates. The BoJ said the decision on asset purchases was unanimous and decision on YCC was made by 7-2 vote with Kataoka and Harada the dissenters, while it added it will permit upward and downward moves in 10yr yields but will buy JGBs promptly in the event of a rapid increase in yields. Furthermore, the BoJ adjusted its ETF allocation to include more TOPIX inclusion and lowered the balance of reserves for which NIRP is applied.
Kuroda also kept YCC mostly unchanged, reiterating that the BOJ will keep the 10-year yield at about zero percent even as the "tolerance band" of the 10Y around 0% would be doubled from 0.1% to 0.2%. For the market, this was not enough.
In sympathy, treasuries advanced and most European government debt nudged upward, although the JGB driven rally was faded through the European morning with respective curves off the flattest levels, in part after above consensus Eurozone CPI pressured bunds and euribors further.
Meanwhile, concerns about the ongoing tech rout kept equities under pressure, with Europe's Stoxx 600 Index drifting lower even after BP and Credit Suisse reported positive earnings.
Futures on the S&P 500 and Nasdaq pointed to a slightly higher open before Apple’s results. Meanwhile, the euro climbed on positive inflation data from France and Germany, even as European GDP unexpectedly slowed and missed expectations.
- EU HICP Flash YY Jul 2.1% vs. Exp. 2.0% (Prev. 2.0%)
- EU CPI ex-Food, Energy, Alcohol & Tobacco Flash YY 1.1% vs. Exp. 1.0% (Prev. 0.9%)
Europe's softer economic data was the latest to confirm...