• BoJ sources around YCC spark marked dovish reaction in JPY and JGBs, which has filtered through to broader assets
• DXY back above 101.00 with USD/JPY testing 142.00; action which eroded GBP’s retail-driven upside
• European/US equity benchmarks relatively contained, Tech hit by SAP while NQ benefits from yield action
• JGB upside briefly lifts peers with EGBs/USTs struggling for direction while Gilts slip on data
• Crude largely resilient to the USD’s upside with base metals underpinned on Chinese stimulus, XAU pressured
• Looking ahead, highlights include Canadian Retail Sales. Earnings from American Express & Schlumberger

BOJ

• BoJ is reportedly leaning towards keeping its yield control policy unchanged at the upcoming meeting, via Reuters citing sources. No consensus within the BoJ on how soon it should begin phasing out stimulus; many policymakers see no imminent need for fresh steps given the 10yr yield is trading stably within the 0.50% cap. Adding, BoJ can wait until there is more clarity on whether a hard landing can be avoided and allow for further wage increases next year. Sources add, YCC needs to end at some point. Though, the timing is not now. Another source said even if tweaks were made, likely be a minor fine-tuning to make YCC sustainable. Expected to revise up core inflation forecasts for FY23, via source; though, FY23 & FY25 expected to be largely in-line with current projections.
• Subsequently, BoJ reportedly sees little need to act on YCC for now, via Bloomberg.
• Reports which sparked a marked dovish reaction in the JPY and BoJ, click here for details and analysis. A reaction that has also had an influence on the USD, lifting the DXY above 101.00 to the detriment of FX peers and the commodity space across the European morning.
• Most recently, Japanese Top Currency Diplomat Kanda says excessive FX moves are undesirable and watching FX markets with a sense of urgency, according to JiJi; Considering all options from the standpoint that excessive moves are undesirable. Will not comment on the current situation.
• An update which sparked a brief pullback in USD/JPY, to circa. 141.40 before the move largely reversed.
• Japanese Top Currency Diplomat Kanda says he is not in a position to comment on monetary policy; says expectations are spreading in the market of possible monetary policy changes. Expects the BoJ to make appropriate judgement taking account of price conditions and its outlook at every meeting. Signs of changes in corporate price-setting behaviours are emerging.

EUROPEAN TRADE

EQUITIES

• European bourses are relatively steady after mixed APAC performance as Chinese support offset the subdued handover, Euro Stoxx 50 -0.1%; in Europe, Tech lags with SAP -3.9%.
• Sectors are somewhat mixed with Energy seeing upside on benchmark pricing, though off best as the USD picks up, while Tech and the DAX 40 -0.5% lag after SAP missed on top & bottom.
• Stateside, futures are little changed amid a sparse US-specific docket ahead, ES +0.1%; NQ +0.3% is the incremental outperformer after Thursday's marked pressure and as the dovish-BoJ reports lend support via lower yields.
• Click here for more detail.
• Click here and here for a recap of the main European equity updates.

FX

• Yen slides as UST/JGB spreads blow out amidst BoJ sources saying no inclination to tweak YCC next week.
• USD/JPY close to 142.00 after breach of Fib and psych levels on the way up from sub-140.00 low; subsequent remarks from Kanda pressured it back to 141.40 briefly.
• DXY boosted by Yen collapse as index tops 101.00 within 100.710-101.080 range.
• Kiwi and Aussie undermined by a downturn in risk sentiment and Greenback gains, with NZD/USD and AUD/USD under 0.6200 and 0.6750 respectively, while AUD/NZD cross eyes expiry at 1.0900.
• Sterling unable to appreciate better than forecast UK retail sales as Cable retreats from just over 1.2900 towards 21 DMA not far below 1.2850 in face of broad Buck strength.
• Euro clings to 1.1100 handle and Loonie underpinned by decent expiry interest around 1.3150 ahead of Canadian retail sales.
• PBoC set USD/CNY mid-point at 7.1456 vs exp. 7.1965 (prev. 7.1466)
• China's FX regulator said yuan flexibility is increasing and market understanding of two-way fluctuation and risk-neutral also increased. China will prevent sharp volatility in the exchange rate and will keep the yuan basically stable at balanced levels in a forceful manner, as well as comprehensively use policy measures to stabilise expectations.
• Turkey introduced a 15% reserve requirement for FX-protected Lira deposits and is to withdraw TRY 450bln-500bln liquidity from the market through the change in reserves, according to Reuters.
• Click here for more detail.
• Click here for the notable option expiries, NY cut.

FIXED INCOME

• Bonds see-saw in aimless fashion, beyond Gilts and JGBs that have a clearer sense of direction.
• Bunds volatile either side of 133.00 and T-note pivoting parity within 112-02/08+ confines.
• Gilts retrace more post-UK CPU upside between 96.70-11 parameters and JGBs rebound firmly from 147.73 to 148.74 at best on the back of dovish BoJ sources
• Click here for more detail.

COMMODITIES

• WTI and Brent September futures are firmer in the early European hours of Friday and hold onto the APAC gains which emanated from further Chinese economic support measures.
• Spot gold is pressured by the Yen-induced Dollar strength and dips from its intraday peak of USD 1,973.40/oz closer to its 100 DMA which resides around USD 1,960.55/oz today.
• Base metals meanwhile are broadly underpinned by the aforementioned Chinese stimulus measures.
• Russian Deputy PM Novak says Russia is not ruling out introducing oil export products quotas; says some domestic refineries postponed maintenance to a later date, via IFX.
• Asian refiners have booked near-record volumes of August crude for August shipping, replacing Middle Eastern oil, via Reuters citing sources; amid competitive prices and large supplies attracting substantial purchases. Source adds that recently US crude is being aggressively pushed to Asia.
• Russian missiles have hit the grain terminal of an agricultural enterprise in Ukraine's Odessa region, with two people injured, according to the Governor of the region cited by Reuters.
• Click here for more detail.

NOTABLE US HEADLINES

• US President Biden launched a working group aimed at ending debt-limit standoffs and the White House will explore all legal and policy options to prevent a future debt-ceiling standoff, while it will examine potential actions Congress could take to make default risk a thing of the past, according to a White House official.
• US President Biden's admin. says it has come to a deal with large tech names to place more safeguards around AI, via WSJ; reminder, Biden will meet with the CEO's of the Cos on Friday at the White House. Cos include Amazon (AMZN), Alphabet's (GOOGL) Google, Meta (META) and Microsoft (MSFT).

NOTABLE EUROPEAN HEADLINES

• UK PM Sunak's ruling Conservative party won Boris Johnson's former parliamentary seat of Uxbridge and South Ruislip but lost the seat of Somerton and Frome, as well as the Selby and Ainsty seat in the by-elections, while the Selby loss broke the record for the largest Tory majority overturned at a byelection by Labour since 1945, according to The Guardian's Pippa Crerar.
• UK-India trade talks have gained momentum in the latest rounds, though there is still a long way to go, according to Reuters citing sources.
• VCI, German Chemical Industry Association's H1 update: Production -10.5% YY; Revenue -11.5% YY; Producer Prices +5% YY. 2023 guidance: Production -8% (prev. -5%); Revenue -14% (prev. -7%).

DATA RECAP

• UK Retail Sales MM (Jun) 0.7% vs. Exp. 0.2% (Prev. 0.3%); YY (Jun) -1.0% vs. Exp. -1.5% (Prev. -2.1%)
• UK Retail Sales Ex-Fuel MM (Jun) 0.8% vs. Exp. 0.2% (Prev. 0.1%); YY (Jun) -1.0% vs. Exp. -1.5% (Prev. -2.1%)
• UK GfK Consumer Confidence (Jul) -30.0 vs. Exp. -26.0 (Prev. -24.0)

GEOPOLITICS

• US Central Command said the US is to deploy a marine unit following Iran's recent attempts to seize ships.
• Poland is to move military formations from the west to the east of the nation due to possible threats from Russia's Wagner group, according to PAP.
• Russian navy carried out live fire 'exercise' in Black Sea: defence ministry, according to AFP.
• Russia's Black Sea Fleet practices firing rockets at surface targets following a warning to Ukraine on ships, via the Defence Ministry. Warships and planes practised sealing off areas temporarily closed to shipping and seizing ships.

CRYPTO

• US House Republicans introduced a new digital assets oversight bill that aims to establish a regulatory framework to protect crypto investors, according to CoinDesk.
• FTX sues Sam Bankman-Fried and other former executives to recoup hundreds of millions of dollars of alleged fraudulent transfers, according to Reuters.

APAC TRADE

• APAC stocks were mixed as further support efforts from China partially offset the headwinds from Wall St where the Nasdaq 100 suffered its second-worst day of the year on tech disappointment and amid a rising yield environment.
• ASX 200 was subdued amid losses in tech, financials and the mining-related sectors, albeit with downside limited amid the lack of catalysts from Australia.
• Nikkei 225 slumped at the open but was well off its lows amid currency swings and somewhat ambiguous CPI data which printed mostly in line with expectations but showed a slight acceleration for the headline and core inflation.
• Hang Seng and Shanghai Comp were underpinned by further supportive efforts from China in which the NDRC released policies to boost electronics products consumption and measures to promote automobile consumption.

NOTABLE ASIA-PAC HEADLINES

• China's NDRC released policies to boost electronic product consumption and encourages scientific research institutes and market entities to apply domestic AI technology to improve the intelligence level of electronic products.
• NDRC also issued measures to promote automobile consumption and are to encourage regions with purchase restrictions to issue annual purchase targets as soon as possible, according to Reuters.
• China is to explain anti-espionage law and mineral export restrictions to Japanese, US, South Korean and EU company executives on Friday, according to Jiji.
• China's state planner NDRC is to hold a press conference on Monday at 10am local time (03:00BST) on private investments.

DATA RECAP

• Japanese National CPI YY (Jun) 3.3% vs. Exp. 3.5% (Prev. 3.2%); Ex. Fresh Food YY (Jun) 3.3% vs. Exp. 3.3% (Prev. 3.2%)
• Japanese National CPI Ex. Fresh Food & Energy YY (Jun) 4.2% vs. Exp. 4.2% (Prev. 4.3%)