MNI US OPEN - BOJ Takes Flexible Approach to Yields

NEWS:

BOJ (MNI): BOJ On Hold; Makes 10-Yr Rate Moves More Flexible
The Bank of Japan board on Friday decided to increase the flexibility of the 10-year long-term policy interest rate, but kept yield curve control without changing both the short- and long-term policy interest rate targets, a statement released by the BOJ said on Friday. “The BOJ will continue to allow 10-year JGB yields to fluctuate in the range of around plus and mins 0.5% point from the target level, while it will conduct yield curve control with greater flexibility, regarding the upper and lower bounds of the range as reference, not as rigid limits, in its market operations,” the Bank said. “The BOJ will offer to purchase 10-year JGBs at 1.0% every business day through fixed-rate purchase operations.”

BOJ (MNI): BOJ Ueda Doesn’t See 10-Yr Rate Rising To 1%
Bank of Japan Governor Kazuo Ueda said on Friday he does not expect the 10-year interest rate to rise to 1%, despite the Bank board today deciding to tolerate the rate to rise to that level if caused by stronger economic and price views. “When I saw recent movements of the 10-year rate, the rate stayed below 0.50%," Ueda told reporters. "But looking ahead, the 10-year interest rate will be influenced by future economic and price developments." He indicated that the BOJ preemptively took action to cope with future upside and downside risks caused by economic and price developments.

BOJ (MNI): FY25 Core CPI +1.6%, 2% May Come Into Sight
The Bank of Japan board predicted it will not achieve its 2% price target out to March 2026 but the 2% price stability target in fiscal 2025 may be possible as early as October, the Outlook Report released by the BOJ showed on Friday. The board’s median forecast for the core consumer price index in fiscal 2025 was unrevised from April’s 1.6%, still below the 2% target, reflecting the low confidence among policymakers of a strengthening virtuous cycle. However, the BOJ may revise up its view as early as October, depending on economic and price developments.

ECB (BBG): ECB Should Take ‘a Firm Step Further’ to Rate Peak, Kazimir Says
The European Central Bank’s inflation-fighting mission hasn’t been fulfilled yet, Governing Council member Peter Kazimir said after policymakers raised borrowing costs by another quarter-point this week.

ECB (BBG): ECB’s Simkus Says September Pause Wouldn’t Mean Hikes Over
European Central Bank Governing Council member Gediminas Simkus said a potential pause in monetary tightening in September wouldn’t indicate that interest-rate hiking is over. “A pause in September doesn’t mean there won’t be hikes going forward,” Simkus told reporters on Friday in Vilnius. “Perhaps there will be a pause in September, but we may need to hike again in October.”

ECB (Delo): ECB’s Next Meeting Could Bring Hike or Pause, Vasle Tells Delo
The European Central Bank can either continue to raise interest rates at its next meeting in September, should data be “relatively bad,” or temporarily halt hikes in case of positive surprises, Governing Council member Bostjan Vasle told Slovenian newspaper Delo.

ECB (Capital.gr): ECB’s Stournaras Says a September Move Would Be Last Hike
European Central Bank Governing Council member Yannis Stournaras said any interest-rate increase in September would be the last one in this tightening cycle, according to an interview with Capital.gr.

RUSSIA/UKRAINE (MNI): Kyiv Claims Village Taken As Southern Counteroffensive Intensifies
Ukrainian President Volodymyr Zelenskyy claimed late on 27 July that his country's forces have retaken the village of Staromaiorske in the Donetsk oblast as its counteroffensive against Russian troops continues in the south and east of Ukraine. The village sits in a strategically important position, 5km from the village of Staromlynivka to the south that military analysts identify as a Russian stronghold in the region. If Staromlynivka can be taken it would mark a breach of the Russian's second defensive line, potentially allowing Ukrainian troops to break through in their efforts to reach the Sea of Azov and cut off Russian troops to the west in the Kherson and Zaporizhzhia oblasts, as well as the Crimea.

RBA (MNI): Sticky Services Put Rate Hike In Consideration
The Reserve Bank of Australia will consider raising the cash rate by 25 basis points to 4.35% when it meets Aug 1, to soften the labour market, contain domestic price rises and ensure inflation continues to fall back to its target 2-3% band within its forecasted timeline by mid-2025.

CHINA (BBG): Top China Housing Official Urges Fresh Property Aid Efforts
China’s top housing official urged financial regulators and lenders to strengthen efforts to revive the country’s ailing property sector. In a recent meeting with property developers and builders, Minister of Housing and Urban-Rural Development Ni Hong called for homebuyers who had paid off previous mortgages to be considered as first-time purchasers, the official Xinhua news agency reported Thursday. Up to now, many buyers in big cities who have a mortgage history but don’t currently own a property are subject to higher down-payment rules.

NORTH KOREA (BBG): Kim Jong Un Shows Nuclear Missiles to Russia, China at Parade
Kim Jong Un was joined by high-level delegations from Russia and China at a military parade in Pyongyang where North Korea showed off its newest missile designed to deliver a nuclear warhead to the US.

BRICS (BBG): China’s Bid to Expand BRICS Said to Get India, Brazil Pushback
India and Brazil are pushing back against a Chinese bid to rapidly expand the BRICS group of emerging markets to grow its political clout and counter the US, officials with knowledge of the matter said.

DATA:

**MNI: GERMANY Q1 GDP 0.0% Q/Q, -0.2% Y/Y WDA
BAVARIA JUL CPI +0.4% M/M, +6.1% Y/Y
BADEN WUERT JUL CPI +0.2% M/M, +6.8% Y/Y
NRW JUL CPI +0.2% M/M, +5.8% Y/Y

** MNI: SPAIN JUL FLASH HICP -0.1% M/M, +2.1% Y/Y
SPAIN JUL FLASH CORE CPI +6.2% Y/Y
SPAIN JUL FLASH CPI +0.1% M/M, +2.3% Y/Y
SPAIN Q2 FLASH GDP +0.4% Q/Q, +1.8% Y/Y

** MNI: FRANCE Q2 FLASH GDP +0.5% Q/Q, +0.9% Y/Y
FRANCE JUL HICP +0% M/M, +5% Y/Y
FRANCE JUL CPI +0% M/M, +4.3% Y/Y
FRANCE JUN PPI -1.1% M/M, +3% Y/Y
FRANCE JUN CONSUMER SPENDING +0.9% M/M, -2.8% Y/Y

MNI: SWISS JUN RETAIL SALES +1.8% M/M, +1.8% Y/Y

MNI: SWEDEN JUN UNEMPLOYMENT 9.2%
JUN RETAIL SALES -4.4% Y/Y

EGBS: CPI Readings & BoJ YCC Tweak Result In Steeper Curves, EGBs Off Session Cheaps

The mixed CPI readings on the German regional front and out of Spain have provided further intraday vol. for EGBs after the BoJ-induced moves witnessed in Asia-Pac hours.

• Elsewhere, ECB speak has been mixed, with Stournaras anchoring himself to the dovish side of the debate, while some Governing Council members with a hawkish lean have suggested that the terminal rate hasn’t necessarily been reached, even if the Bank decides to leave rates unchanged in September.
• Cash German benchmarks run little changed to 6bp cheaper as a result, after recovering from cheapest levels of the session, with the curve steepening noted. Bund futures are -30,~90 off lows.
• Wider core/semi-core EGB trade has seen twist steepening of curves, with some focus on the sizable Japanese holdings of OATs post-BoJ YCC tweak, although sell-side names don’t seem worried re: the likelihood of a meaningful Japanese OAT disposal. Core/semi-core spreads vs. 10-Year Bunds are little changed, with early widening pressure for OATs vs. Bunds now reversed.
• Peripherals are mixed vs. Bunds, with Portuguese paper outperforming, tightening by 1.5bp, while GGBs widen by the same amount vs. Bunds.
• The German national CPI release provides the scheduled European highlight into the weekend, with participants also on the lookout for impromptu ECB speak.

GILTS: Early Move Lower Consolidates, Curve Twist Steepens On Global Impulses

Gilt futures haven’t got anywhere close to unwinding the opening gap lower, last printing -60 or so after recovering from session cheaps ahead of the 95.00 level. The move lower breached initial technical support. Today’s low (95.11) now provides initial downside focus, while resistance is seen at the July 27/19 highs (96.81/97.84).

• The cash curve sees some twist steepening pressure on read through from the BoJ & various inflation releases out of Europe, leaving the major benchmarks running 2.5bp richer to 6.5bp cheaper.
• SONIA futures are left 5.5bp richer to 5.5bp cheaper through the golds, with twist steepening in play on the strip.
• Local headline flow remains limited, while the domestic docket is essentially empty into the weekend, leaving local focus on next week’s BoE monetary policy decision.

US TSYS: Curve Twist Steepens, TY In Top Half Of Session Range

A relatively volatile start for EGBs post-BoJ & German regional, Spanish & French CPI releases leaves TYU3 a little above the middle of its 0-17 range, last +0-04+ with ~516K lots of the contract changing hands thus far, comfortably above the recent average for this time of day. Cash trade sees 4bp of richening to 2bp of cheapening as the curve twist steepens, pivoting around 10s.

• A quick reminder that the Nikkei sources piece flagging the potential for a BoJ policy move factored into late NY price action on Thursday, which skews the cross-market optics vs. EGBs when looking at net change on the day.
• The post-FOMC blackout is now lifted, but we don’t see much in the way of Fedspeak on the slate.
• FOMC-dated OIS indicate a terminal rate of just under 5.42% come November, before ~63bp of cuts show through June 24.
• NY hours will see the release of PCE data, the Q2 ECI print, final UoM sentiment readings and Kansas City Fed services survey.

FOREX: JPY Volatility Surges as BoJ Adapt Yield Approach

• JPY volatility surged overnight on the BoJ decision, at which the Bank surprised markets by tweaking yield curve control. The Bank are now to see the 0.5% ceiling for 10y rates as a reference point, and not a rigid limit - thereby signalling a change to the long-standing stance. The move had been trailled by a Nikkei news story late on Thursday, however significant market volatility still followed, with USD/JPY over 200 pips before fading into the European crossover.
• JPY is left mixed against most others headed into NY hours, however has been the currency in the spotlight so far Friday.
• GBP is firmer against all others in G10, allowing GBP/USD to recover off the overnight low. Nonetheless, most of G10 remains weaker against the USD after yesterday's sharp greenback rally. AUD and NZD are the poorest performers, with AUD/USD breaking a series of key supports to hit the lowest levels since early July.
• Focus for the coming session rests on the national prelim German CPI release, followed by Canadian GDP and US personal income/spending data. The final reading for University of Michigan sentiment rounds off the week, with markets focusing on any inflation expectations revisions as they begin to capture the soft July CPI.

Stock Futures Off Highs into Friday Close

The E-mini S&P contract traded to a high of 4634.50 yesterday before reversing. This highlights a possible short-term bearish signal. Price has found resistance at the top of a bull channel drawn from the Mar 13 low - the channel top is at 4638.27 today. Eurostoxx 50 futures rallied Thursday. This resulted in a break of key resistance at 4447.00, the Jul 3 high and a bull trigger. A continuation higher would confirm a resumption of the uptrend and mark the end of a broad sideways move that started May 19.

• Japan's NIKKEI closed lower by 131.93 pts or -0.4% at 32759.23 and the TOPIX ended 4.53 pts lower or -0.2% at 2290.61.
• Elsewhere, in China the SHANGHAI closed higher by 59.255 pts or +1.84% at 3275.926 and the HANG SENG ended 277.45 pts higher or +1.41% at 19916.56.
• Across Europe, Germany's DAX trades lower by 38.68 pts or -0.24% at 16367.27, FTSE 100 higher by 21.54 pts or +0.28% at 7714.4, CAC 40 down 29.41 pts or -0.39% at 7435.83 and Euro Stoxx 50 down 12.33 pts or -0.28% at 4435.11.
• Dow Jones mini up 48 pts or +0.14% at 35481, S&P 500 mini up 13.75 pts or +0.3% at 4580.75, NASDAQ mini up 93.5 pts or +0.6% at 15664.25.

COMMODITIES: Gold Breaks Key Support on Move Lower

Gold traded sharply lower yesterday. The move down resulted in a break of support at the 50-day EMA - at $1951.1. A continuation lower would threaten the recent bullish theme and instead expose support at $1924.5, the Jul 11 low. The uptrend in WTI futures remains intact and this week’s climb confirmed a resumption of the bull cycle. The break above $77.15, the Jul 13 high signals scope for an extension towards the next key resistance at $81.44, the high on Apr 12 / 13.

• WTI Crude down $0.07 or -0.09% at $79.96
• Natural Gas up $0.01 or +0.31% at $2.602
• Gold spot up $3 or +0.15% at $1949.12
• Copper up $1.55 or +0.4% at $388.85
• Silver up $0.03 or +0.11% at $24.1613
• Platinum up $2.61 or +0.28% at $939.66