MNI EUROPEAN MARKETS ANALYSIS: BoJ Delivers Tweaks, Sino-U.S. Tension Remains Evident

BOND SUMMARY: BoJ Tweaks 10-Year Yield Band, Alaska Summit Sees Combative Start

U.S. Tsys held a narrow range in Asia-Pac hours, looking through the latest BoJ decision, while participants witnessed a combative start to the Sino-U.S. summit in Alaska. T-Notes operated around their late NY levels for the duration of overnight trade, last dealing +0-05 at 131-13+. Cash trade has seen some twist flattening of the Tsy curve, with 30s richening by ~3.0bp on the day. It is also worth noting that the latest weekly release from the NY Fed revealed that primary dealers extended on the record selling of Tsys witnessed in the week to March 3, shedding a further ~16bn of Tsy holdings in the week to March 10, taking the total shed over that 2 week period to a little over $80bn (with SLR concerns and the cheapening of the space at the fore). The ongoing Sino-U.S. summit provides the major local focal point ahead of the weekend.

• JGB futures traded lower in the wake of the BoJ decision, but closed off of worst levels, -15 on the day, with some limited chop for futures after the decision proved to be in line with the well-documented Nikkei story that was run on Thursday. The highlight came in the form of the widening of the BoJ's permitted 10-Year JGB yield trading band to -/+0.25%. Cash JGBs now sit unchanged to marginally cheaper across the curve, more than unwinding the modest bid that was seen in the Tokyo morning. The BoJ stressed that it will be able to enforce the upper limit of its new trading band, while stressing that it can do more re: easing if required. The Bank also tweaked its tiered interest rate system and removed the targets for its ETF & JREIT operations (while maintaining the upper limits), in addition to committing future ETF purchases to TOPIX linked funds. BoJ Governor Kuroda's press conference provides another risk event ahead of the weekend.
• Aussie bonds chose to look through the BoJ decision, with softer than expected local retail sales data also having nothing in the way of meaningful impact on the space. YM -1.0, XM -2.0 at the bell, drawing support from some firming in Tsys into the Sydney close, with frosty Sino-U.S. relations at the fore. The weekly AOFM issuance slate provided no talking points, with a typical week of ACGB supply due (the RBA's scheduled A$4.0bn ACGB purchases will once again offset the AOFM's A$2.0bn ACGB issuance in headline nominal terms during the week). Flash PMI and trade balance data headline next week's local economic docket.

FOREX: Selling Pressure Hits AUD After Retail Sales Miss

Underwhelming data delivered a blow to the Aussie, with BBG trader sources flagging a reversal of core AUD long positions by leveraged funds. The preliminary reading suggested that Australian retail sales shrank 1.1% M/M in Feb, while expectations were for a 0.6% growth. AUD/USD lost ground but failed to consolidate under its 50-DMA.

• NZD was bought against its Antipodean cousin after the release of Australia's disappointing retail sales report. Although AUD/NZD printed a five-month high in early trade, it took a nosedive in reaction to the aforementioned data, giving away all of its weekly gains in the process.
• The yen knee-jerked lower after the BoJ announced their latest monetary policy decision, which involved widening the 10-Year JGB yield trading band to +/-0.25% & ditching the Y6tn ETF purchase target. USD/JPY registered a fresh intraday high of Y109.13 before fully retracing the reaction move.
• The PBOC fixed its USD/CNY mid-point at CNY6.5098, virtually in line with sell side estimates. USD/CNH had a look through yesterday's high, with the U.S. and China trading barbs during a bilateral summit in Alaska.
• The economic docket for the remainder of this week includes Canadian retail sales as well as comments from Norges Bank Gov Olsen, BoE's Cunliffe as well as ECB's Panetta & Vasle.

FOREX OPTIONS: Expiries for Mar19 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1825-40(E533mln), $1.1865-80(E540mln), $1.1888-1.1900(E1.2bln), $1.1925-35(E855mln-EUR puts), $1.1940-55(E1.6bln-EUR puts), $1.2000(E1.3bln), $1.2025-30(E512mln)
• USD/JPY: Y107.50($800mln), Y108.45-50($887mln), Y109.00($840mln), Y109.42-50($549mln), Y109.95-00($690mln)
• GBP/USD: $1.3900(Gbp450mln-GBP puts)
• EUR/GBP: Gbp0.8600-10(E925mln-EUR puts)
• AUD/USD: $0.7750-60(A$1.2bln)
• NZD/USD: $0.7225-40(N$510mln)
• USD/CAD: C$1.2450($547mln), C$1.2500($500mln), C$1.2550($645mln), C$1.2630-40($690mln)
• USD/CNY: Cny6.35($879mln)

ASIA FX: Ides Of March Do No Favours For EM FX

The greenback has pushed slightly higher, reversing some of the post-FOMC weakness, a fairly quiet session after wild price swings earlier in the week.

• CNH: Offshore yuan is weaker. . Early signs from the US-China summit are not encouraging with both sides choosing to apportion blame in opening remarks.
• SGD: Singapore dollar is stronger, reversing earlier losses. Rocketing yields after a sell off are being adduced as drawing flows to SGD. Singapore now has the highest real yields among AAA countries.
• TWD: Taiwan dollar is weaker; markets digest the CBC rate announcement yesterday. The bank kept rates on hold and said it would maintain easy policy but upgraded growth forecasts.
• INR: Rupee is marginally weaker but has already closed the opening gap. INR is currently the only EM Asia currency holding on to net gains in March. Some analysts are adducing IPOs with high foreign participation as partly behind strength.
• KRW: The won has weakened, wiping out yesterday's gains. The rate remains sandwiched between its 50-day moving average as support and 200-day moving average as resistance, at 1113.32 and 1148.88, respectively.3.034%
• IDR: Rupiah is weaker, on track for a fifth straight weekly loss. Yesterday the BI kept rates on hold and pledged to maintain easy policy, but also said it intends to support IDR.
• MYR: Ringgit is lower, hurt by sharp declines in oil. FinMin Zafrul promised that there will be no more taxes or changes to the existing tax regime any time soon, as the economy goes through the recovery phase.
• PHP: Peso has declined, the gov't will impose limits on restaurants' dine-in capacity and order cinemas, museums, driving schools and some other facilities to shut down for two weeks under new pandemic restrictions.
• THB: Baht is weaker, the government has delayed a decision on restrictions for vaccinated travelers.

ASIA RATES: Central Banks Raid Toolboxes

Central bank actions dictated price action in EM Asia, even as markets digest the FOMC and BoJ rate announcements.

• INDIA: Yields lower, curve mixed. Markets await the results of the INR 290bn bond sale later. The RBI sold less than half the planned amount of INR 100bn at operation twist yesterday, a move that supported markets and saw yields retreat, the bank kept purchases unchanged at INR 100bn and once again concentrated on the 10-year sector, allocating 50.2%. The RBI said it will conduct another twist operation for INR 100bn next week.
• INDONESIA: Yields higher, curve steeper, tracking moves in USTs. Bonds have come under pressure again as global funds continue to sell, bringing net outflows for March to $1.4bn. Yesterday the BI kept rates on hold and pledged to maintain easy policy, but also said it intends to purchase bonds this year to support IDR.
• CHINA: The PBOC matched liquidity injections with maturities again, now the tenth day of matching maturities, liquidity was last added to the system on Feb 25. Repo rates have been subdued in reaction, the overnight repo rate is 13bps higher at 2.1319, but is still within yesterday's range, and the rate typically drops through the session, while the 7-day repo rate is 3bps lower at 2.1702%. Cash yields lower after a decent 50-year auction.
• SOUTH KOREA: Bonds initially lower but moved into positive territory after reports that South Korea is considering reducing issuance of shorter dated bonds, as well as considering an additional 30-year auction next week in the wake of 10/30-year yield inversion. Curve flattens.

EQUITIES: In The Red

Indices are in negative territory in the Asia-Pac region, taking a negative lead from the US and grinding lower through the session. Markets in mainland China are the worst performers, the CSI 300 losing around 3.0%. Early indications from Alaska is that the US-China talks are off to a rocky start. The Nikkei 225 underperforms after the BoJ commits to buying only TOPIX linked ETFs going forwards, Nikkei 225 -1.4%, while the Topix lodged marginal gains.

• Futures in Europe are lower, while US futures are mixed. The Nasdaq is the laggard, tech stocks continuing to struggle – the index has now wiped out all of its 2021 gains in the last two weeks.

GOLD: Familiar Territory

Gold has consolidated in Asia-Pac hours, with spot last trading a handful of dollars higher at $1,739/oz, drawing support from a round of risk-off flows. U.S. real yields and the broader USD impetus will remain the key drivers for bullion for the foreseeable.

OIL: Crude Treads Water After Decline

WTI & Brent sit ~$0.45 lower on the day. WTI is on track for its worst week since October.

• The sell off yesterday took WTI from above $65/bbl to around $60/bbl. The decline was attributed to a confluence of bearish factors such as the halt of vaccination programmes in Europe and broad risk off moves in cross asset correlations.

UP TODAY (Times GMT/Local)