• The BoJ defied some market bets and stuck with its ultra-easy policy settings and reaffirmed its dovish guidance.
• APAC stocks were positive albeit with price action mostly kept rangebound after the weak lead from Wall Street.
• European equity futures are indicative of a higher open with the Euro Stoxx 50 +0.3% after the cash market closed up 0.4% yesterday.
• JPY is the standout laggard in G10 FX with USD/JPY venturing as high as 131.57 overnight vs. a weekly low of 127.21.
• Looking ahead, highlights include UK CPI, EZ CPI (Final), US Retail Sales, PPI & Industrial Production, Speeches from Fed's Bostic, Bullard, Harker & Logan, Supply from Germany & US, Earnings from Burberry, Charles Schwab, Prologis & Kinder Morgan.

US TRADE

• US stocks finished mostly lower despite early support from dovish ECB source reporting. This initially spurred a dovish reaction across markets, although the momentum failed to sustain with the DJIA the underperformer after disappointing earnings from Goldman Sachs and as participants also braced for the BoJ policy announcement.
  • SPX -0.20% at 3,990, NDX +0.14% at 11, 557, DJIA -1.14% at 33,911, RUT -0.15% at 1,884.
  • Click here for a detailed summary.

NOTABLE HEADLINES

• Fed's Barkin (non-voter) said he hopes that they have seen the peak in inflation but reiterated that median CPI is still too high, while he added that they need inflation to convincingly return to the target to pause and he is not in favour of backing off too soon. Furthermore, Barkin said the terminal rate will depend on the path of inflation and that they need to hike as long as inflation stays elevated.
• White House said Congress must deal with the debt limit without conditions and that the Republican debt ceiling plan is a recipe for economic catastrophe. Furthermore, White House Press Secretary Jean-Pierre said the debt ceiling should not be political brinksmanship and should be dealt with without conditions, while the White House called on Congress to act and said it won't be negotiating over it.
• US House Speaker McCarthy urged President Biden and Democrats to discuss the debt ceiling and said there is no need to go to the brink on the debt ceiling.
• US OCC is considering measures to improve transparency in its escalation framework used to address concerns at big banks and suggested measures that would lead to regulators splitting up big banks if conditions are not met.

APAC TRADE

BOJ

• BoJ kept its policy settings unchanged with rates at -0.10% and YCC maintained to target 10yr JGBs at 0% via unanimous vote, while it kept the yield band and yield target unchanged. BoJ stuck with its forward guidance on interest rates and guidance that it will continue large-scale JGB buying and make nimble responses for each maturity, while it reiterated that it will not hesitate to take additional easing measures as necessary. Furthermore, the BoJ extended the fund operation to support financial lending by one year and the Outlook Report contained cuts to Real GDP growth forecasts and mostly upward revisions to Core CPI estimates, although fiscal 2023 and fiscal 2024 Core CPI forecasts remained below the 2% price goal.

EQUITIES

• APAC stocks were positive albeit with price action mostly kept rangebound after the weak lead from Wall Street, while focus overnight centred on the BoJ policy announcement in which the central bank defied the increased speculation for a policy tweak.
• ASX 200 was flat with strength in the tech and consumer sectors offset by losses in commodity-related stocks.
• Nikkei 225 was boosted after the BoJ stuck with its ultra-easy policy settings and reaffirmed its dovish guidance.
• Hang Seng and Shanghai Comp were choppy but with strength in key tech names after China approved licences for 88 new games including titles from Tencent and NetEase in a further sign of an end to its tech crackdown.
• US equity futures are relatively flat (ES +0.1%) with only brief support seen from the BoJ's dovish resolve.
• European equity futures are indicative of a higher open with the Euro Stoxx 50 +0.3% after the cash market closed up 0.4% yesterday.

FX

• USD/JPY surged above 131.00 after the BoJ defied the increased speculation for a hawkish tweak and instead maintained the parameters of its YCC policy and enhanced its fund supply operation against pooled capital.
• DXY was initially contained amid the mixed performance of its major counterparts, although the greenback later strengthened alongside a surge in USD/JPY after the BoJ stuck with its ultra-easy policy
• EUR/USD extended on the prior day’s losses beneath 1.0800 after sources recently noted that ECB policymakers are considering slowing the pace of rate hikes to 25bps in March following a touted 50bps move in February.
• GBP/USD was steady after having benefitted from firmer-than-expected UK wage data which resulted in traders increasing their bets for a 50bp hike next month to 75%.
• Antipodeans lacked pertinent catalysts although NZD marginally outperformed its trans-Tasman counterpart.
• PBoC set USD/CNY mid-point at 6.7602 vs exp. 6.7644 (prev. 6.7222)

FIXED INCOME

• 10yr JGB futures jumped on reopening from the lunch break after the BoJ maintained its ultra-easy policy settings which saw the 10yr JGB yield drop by more than 13 bps to briefly below 0.370%, after having initially breached the BoJ's ceiling for a 4th consecutive trading day prior to the BoJ's announcement.
• 10yr UST futures were initially contained after having steepened during the prior session after the weak NY Fed manufacturing data and dovish ECB-related report, although eventually gained after the BoJ maintained its policy.
• Bund futures were buoyed post-BoJ and extended on the advances that were spurred by a Bloomberg source report which suggested ECB officials were mulling a slowdown in the pace of rate hikes for March.

COMMODITIES

• Crude futures remained underpinned by hopes of recovery in Chinese demand but with gains in WTI crude capped by a firmer dollar and resistance at USD 81/bbl, while attention turns to the holiday-delayed private sector inventories.
• New CEO of Venezuela's PDVSA suspended most contracts to export crude and fuel until revisions of contracts are completed, according to Reuters citing a document. The freeze is leading to port delays as vessels that were loading have been sent away and are waiting for new directions, while it is not clear how long the freeze would last.
• Spot gold retreated beneath the psychological USD 1900/oz level as the greenback gradually strengthened.
• Copper futures were steady overnight but held on to the prior day's gains amid supply-side disruptions with a Glencore mine in Peru operating at restricted capacity owing to protests.
• Glencore's (GLEN LN) Antapaccay copper mine in Peru is operating at restricted capacity amid anti-government protests which have prevented the transport of copper concentrate for export, according to Reuters sources.
• China's NDRC warned iron ore trading companies and iron ore futures companies against price gouging and speculation, while it will step up supervision on iron ore's spot and futures markets, according to Reuters.

CRYPTO

• Bitcoin extended on its rebound to briefly above 21,300 with prices up around 28% so far this month.

NOTABLE ASIA-PAC HEADLINES

• PBoC injected CNY 133bln via 7-day reverse repos with the rate kept at 2.00% and injects CNY 447bln via 14-day reverse repos with the rate kept at 2.15% for a CNY 515bln net injection.
• China's NDRC's said the economic development situation this year is still complicated, external environment is turbulent and pressure is still large, but it is confident and capable of promoting the continuous recovery and overall improvement of China's economy, according to Reuters.

DATA RECAP

• Japanese Machinery Orders MM (Nov) -8.3% vs. Exp. -0.9% (Prev. 5.4%)
• Japanese Machinery Orders YY (Nov) -3.7% vs. Exp. 2.4% (Prev. 0.4%)

GEOPOLITICS

• US reportedly sends Ukraine US arms which were stored in Israel, according to NYT.

EU/UK

NOTABLE HEADLINES

• ECB's Villeroy said a resilient economy in the face of the energy crisis makes hiking rates less complicated, according to Bloomberg.