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US stocks and bonds declined after hot data, bank capital proposals and hawkish BoJ report - Newsquawk Asia-Pac Market Open

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Thursday, Jul 27, 2023 - 09:28 PM
  • US stocks declined and bonds sold off throughout the US session after a hot Q2 GDP report and tumbling jobless claims catalysed a reversal lower, while the selling was exacerbated on new US bank capital proposals that look set to impact the largest lenders and after a Nikkei sources piece said that the BoJ is to discuss a yield curve control tweak to allow rates to move over 0.5% in what would be a shift to a more flexible approach.
  • USD reversed post-FOMC weakness with the buck supported by rising UST yields after a slew of hot US data and with 10yr yields back above 4% in the wake of a hawkish BoJ sources piece, as well as on the bank capital proposals.
  • Highlights include South Korean Industrial Production & Retail Sales, Tokyo CPI, Australian PPI & Retail Sales, BoJ Policy Decision, Supply from Australia.

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LOOKING AHEAD

  • Highlights include South Korean Industrial Production & Retail Sales, Tokyo CPI, Australian PPI & Retail Sales, BoJ Policy Decision, Supply from Australia.

US TRADE

  • US stocks declined and bonds sold off throughout the US session after a hot Q2 GDP report and tumbling jobless claims catalysed a reversal lower, while the selling was exacerbated on new US bank capital proposals that look set to impact the largest lenders and after a Nikkei sources piece said that the BoJ is to discuss a yield curve control tweak to allow rates to move over 0.5% in what would be a shift to a more flexible approach.
  • SPX -0.64% at 4,537, NDX -0.22% at 15,465, DJIA -0.67% at 35,283, RUT -1.29% at 1,955.
  • Click here for a detailed summary.

NOTABLE HEADLINES

  • Federal Reserve unveiled proposed technical changes to the global systemically important bank surcharge and Fed staff estimate proposed GSIB surcharge changes would result in a USD 13bln aggregate increase in capital requirements. Fed Chair Powell said regulators must consider benefits as well as costs of higher capital, while he added that the proposal exceeds what is required of the Basel agreement and must ensure the proposed approach outweighs costs. It was later reported that the Fed approved the proposals to raise bank capital requirements and modify the global bank surcharge.
  • US House passed the spending bill for military construction and veterans affairs which is the first of 12 measures to fund the US government.

DATA RECAP

  • US GDP Advance (Q2) 2.4% vs. Exp. 1.8% (Prev. 2.0%)
  • US GDP Sales Advance (Q2) 2.3% vs. Exp. 1.4% (Prev. 4.2%)
  • US Core PCE Prices Advance (Q2) 3.8% vs. Exp. 4.0% (Prev. 4.9%)
  • US Durable Goods (Jun) 4.7% vs. Exp. 1.0% (Prev. 1.8%)
  • US Pending Sales Change MM (Jun) 0.3% vs. Exp. -0.5% (Prev. -2.7%)
  • US Initial Jobless Claims w/e 221.0k vs. Exp. 235.0k (Prev. 228.0k)
  • US Continued Jobless Claims w/e 1.69M vs. Exp. 1.75M (Prev. 1.754M; Rev. 1.749M)
  • US KC Fed Manufacturing (Jul) -20.0 (Prev. -10.0)
  • US KC Fed Composite Index (Jul) -11.0 (Prev. -12.0)

FIXED INCOME

  • US Treasuries saw heavy selling, led by the belly after hot US economic data, bank regulation proposals, a weak 7yr auction and hawkish BoJ sources.

FX

  • USD reversed post-FOMC weakness with the buck supported by rising UST yields after a slew of hot US data and with 10yr yields back above 4% in the wake of a hawkish BoJ sources piece, as well as on the bank capital proposals.
  • EUR slipped beneath the 1.1000 handle against the dollar after the ECB meeting where the central bank hiked rates as expected although the statement saw a dovish tweak to guidance and Lagarde also stressed data dependency.
  • GBP was pressured with GBP/USD declining from near 1.3000 to a sub-1.2800 level.
  • JPY notably strengthened after a report in Nikkei that the BoJ are to discuss a YCC tweak at tonight's meeting which saw USD/JPY slide briefly beneath 139.00.

COMMODITIES

  • Crude prices were firmer with hot US economic data providing tailwinds despite the reversal higher in the Dollar.
  • Kuwait’s Oil Minister said they will commence drilling and production within the Durra field without waiting for border demarcation with Iran, according to Sky News Arabia.
  • Russian Energy Minister Shulginov said Russia is to supply 18mln-20mln tonnes of oil products to Africa this year, according to TASS.
  • US Supreme Court removed an obstacle to the long-delayed Mountain Valley natgas pipeline, granting the request to lift stays imposed by a lower court that had halted construction of a final short section through the federally owned Jefferson National Forest.

GEOPOLITICAL

  • US intelligence report said China is helping Russia evade sanctions.
  • Chinese defence ministry opposes the US intensifying military ties with the Taiwan region, while the PLA will take decisive and effective measures to protect China's sovereignty and territorial integrity, according to Xinhua.

ASIA-PAC

NOTABLE APAC HEADLINES

  • BoJ will reportedly discuss tweaking its YCC policy at the policy board meeting on Friday to let long-term interest rates rise beyond its cap of 0.5% by a certain degree in what would be a shift towards a more flexible policy approach, according to Nikkei. Furthermore, the report noted that the central bank is likely to keep current the cap while taking a flexible approach and that under the more flexible policy being considered, the BoJ would permit gradual increases above the 0.5% threshold, but still clamp down on any sudden spikes.
  • Chinese President Xi said China is willing to continue to expand imports of Indonesia's bulk commodities and high-quality agricultural products.
  • China reportedly urges improved mortgage rules to support the housing market, according to Bloomberg.
  • China's National Financial Regulatory Administration said people’s consumption ability is not sufficient and the willingness for consumption is not strong.
  • PBoC official said China is to build a high-yield bond market in order to meet the financing needs of smaller tech firms, according to Reuters.

EU/UK

  • UK declined an EU offer for formal collaboration on global issues despite warming relations since February’s diplomatic breakthrough on post-Brexit trading arrangements in Northern Ireland, according to FT sources.
  • ECB hiked rates by 25bps to lift the Deposit Rate to 3.75%, as expected, while it stated that future decisions will ensure that the key ECB interest rates will be set at (vs. prev. brought to) sufficiently restrictive levels for as long as necessary to achieve a timely return of inflation to the 2% medium-term target. Furthermore, the Governing Council will continue to follow a data-dependent approach to determine the appropriate level and duration of restriction.
  • ECB President Lagarde reiterated that inflation remains too high and said the economic outlook is deteriorating, while she repeated the statement language that rates will be "set at" sufficiently restrictive levels to work towards the inflation goal and reiterated that policy will be data-dependent. Lagarde said the rate decision was unanimous and assessment of data will let the ECB know how much further it has to go, while she added the Governing Council has not discussed a balance sheet reduction yet and responded that the ECB is moving to a stage where it will be data dependent when asked if the ECB is thinking about pausing on rates. Furthermore, she said they will take staff projections and more data into account in determining if they hike or pause and responded that at this point she would not say so when asked if the ECB has more ground to cover.
  • ECB debated raising banks' mandatory reserves to 2% from 1% and some ECB policymakers currently favour a September rate hike while others eye a pause and are expecting a recession, according to Reuters sources.
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