BoJ leaves negative rates with 1st hike since 2007

Notes/observations

- BOJ hiked interest rates by 10bps and out of NIRP, following weeklong speculation, and ended yield curve control and ETF buying. However, left the door open for some easing with continued JGB buying and stating that all accommodative tools remain at disposal. The timing of the pivot to tightening cycle, is once again a stark contrast to the rest of the world, where major central banks like Fed, ECB and BoE are expected to cut rates in the coming months.

- Australia Central Bank (RBA) left rates unchanged (as expected) with the language tweaked to the dovish side.

- Aftermath of Nvidia’s GTC event, considered as most important tech event of the year in the current AI climate, saw new ‘Blackwell’ chip announced and an abundance of corporate collaborations with tech firms, specifically around generative AI and robotics.

- Crypto collapses with Bitcoin down ~7% and Ethereum down ~10%. Analysts attributing decline due to profit taking and some liquidations.

- Asia closed mixed with Hang Seng under-performing -1.2%. EU indices are -0.5% to +0.2%. US futures are -0.1%. Gold -0.4%, DXY +0.5%; Commodity: Brent -0.4%, WTI -0.3%; Crypto: BTC -6.1%, ETH -9.0%.

Asia

- RBA left the Cash Rate Target unchanged at 4.35% (as expected) for its 3rd straight pause in the current phase of it tightening cycle Board expected that it would be some time yet before inflation was sustainably in the target range. Tweaked language on forward guidance to read that rate path that best ensured CPI hits target was uncertain [**Note: viewed as a dovish tilt as Its prior reference noted that further increases in rates could not be ruled out.].

- BOJ raised its Interest Rate on Excess Reserves (IOER) by 10bps to range between 0.0-0.10%. 1st rate hike since Feb 2007 and exited negative rate policy. BOJ also ended its Yield Curve Control (YCC) policy.

- New Zealand Treasury Fortnightly Economic Update noted that the domestic economy was in a 'severe slowdown'.

Europe

- UK PM Sunak said to consider to call a general election earlier if rebels force a leadership contest (would sooner call vote than be ousted). Stressed that the UK economy had turned the corner, govt economic plan w0061s working.

Americas

- Congressional leaders and the White House reached an informal deal to fund the government until Sept. 30th (would avert Friday shutdown).

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.03% at 503.80, FTSE -0.05% at 7,718.49, DAX +0.12% at 17,960.85, CAC-40 +0.06% at 8,153.29, IBEX-35 +0.17% at 10,614.60, FTSE MIB +0.02% at 33,949.00, SMI -0.41% at 11,576.30, S&P 500 Futures -0.03%].

Market Focal Points/Key Themes: European indices open mixed and took on a positive bias through the early part of the session; Malta closed for holiday; sectors inclined to the upside include energy and financials; among sectors trending lower include technology and consumer discretionary; oil & gas subsector supported after oil accumulated a week of gains; consumer staples sector supported following Unilever announcement to spin off ice cream unit; AstraZeneca to acquire Fusion Pharma; Saturn raises offer for Shanta Gold; thyssenkrupp working with Carlyle on separation of marine unit; Airbus will not proceed with takeover of Atos’ BDS unit; no major earnings expected in the upcoming US session.

Equities

- Consumer staples: Unilever [ULVR.UK] +5.5% (to separate ice cream unit; cut costs).

- Financials: Crest Nicholson [CRST.UK] -5.5% (trading update).

- Healthcare: Astrazeneca [AZN.UK] -1.0% (to acquire Fusion Pharmaceuticals at $21.00/shr in cash).

- Industrials: Continental [CON.DE] +1.0% (reportedly Samsung mulls partial acquisition of Continental’s electronics business), ThyssenKrupp [TKA.DE] -0.5% (confirm to evaluate cooperation on the planned separation of the marine business with Carlyle), Fraport [FRA.DE] -2.0% (results), Amadeus Fire [AAD.DE] +6.5% (results).

- Technology: STMicroelectronics [STM.FR] -1.0% (Nvidia presentation), Atos [ATO.FR] -21.5% (talks with Airbus ended; delays results).

Speakers

- ECB’s De Guindos (Spain) reiterated stance that ECB was data-dependent not calendar- based on rate decisions. Services inflation remained sticky and must be monitored. To have updated Staff Projections in Jun to assess situation.

- ECB’s De Cos (Spain) stated that risk to growth projections were clearly to the downside. Reiterated rate cuts could start in June but would depend on data.

- Swiss Mar SECO Economic Forecasts maintained 2024 GDP growth forecast at 1.1% and 2025 GDP growth forecast at 1.7%. Projections cut the 2024 CPI forecast from 1.9% to 1.5% (*Note: below SNB's 2.0% inflation target) and maintained 2025 CPI forecast at 1.1%.

- German Debt Agency (DFA) Q2 debt issuance saw it maintained overall 2024 borrowing at €440B.

- South Africa Q1 BER Inflation Expectation Survey saw 2024 CPI at 5.4%.

- BOJ Gov Ueda post rate decision press conference confirmed achieved its virtuous cycle of wages and prices; Policy framework of QE with YCC and negative rates had fulfilled their roles. Stressed that accommodative financial conditions would be maintained for a while. Believed it was appropriate to slowly proceed with possible rate hikes; expected further rises in price trends to lead to more rate hikes. No comment on FX price movements but would consider response if FX caused big impact on economy. Would consider options for easing broadly including ones used in past if needed.

- Japan Fin Min Suzuki stated that would closely monitoring economy and financing markets including FX after BOJ decision; Japan govt's view on domestic economy was the same as that of the BOJ.

- Japan Chief Cabinet Sec Hayashi reiterated stance that expected BOJ to work closely with govt. BOJ expected to conduct monetary policy appropriately to achieve the 2% price target sustainably and stably.

- Japan PM Kishida commented after meeting BOJ Gov that companies were raising wages constructively; Appropriate to maintain easy policy. Govt not considering changing policy with BOJ. Did not discuss FX issues with BOJ Gov.

Currencies/fixed income

- USD maintained a positive tone against the major pairs. Focus on the FOMC rate decision on Wed.

- USD/JPY moved to test above the 150.50 level despite BoJ ending the world’s last negative interest rate policy. Dealers viewed BOJ decision and statement as a dovish hike noting that the central bank stressed its policy would remain accommodative for some time. BOJ also added a dovish tone that while they would no longer operate YCC, they would continue to buy JGB’s in approximately the same amounts as before, Lastly its pledged to respond to any rapid rise in yields. Dealers noted that the decision likely to keep pressure on the yen currency as interest rate differentials between Japan and the United States remained stark. Focus on the 152 area where intervention fears were last raised.

- EUR/USD at 1.0850 area by mid-session.

- GBP/USD staying below the 1.27 level with BOE rate decision on Thurs.

Economic data

- (CH) Swiss Feb Trade Balance (CHF): 3.7B v 4.7B prior; Real Exports M/M: +0.2% v -0.5% prior; Real Imports M/M: +3.8% v -3.9% prior; Watch Exports Y/Y: -3.8% v +3.2% prior.

Fixed income issuance

- (EU) European Union opened book to sell EUR-denominated Feb 2050 green NGEU bonds; guidance seen +82bps to mid-swaps.

- (IT) Italy Debt Agency (Tesoro) opened its book to sell EUR-denominated May 2036 inflation-linked BTP bond (BTPei); guidance seen +25bps to May 2033 BTPei.

- (ID) Indonesia sold IDR12.0T vs. IDR12.0T target in Islamic bills and bonds (sukuk).

Looking ahead

- (CO) Colombia Feb Retail Confidence: No est v 14.5 prior; Industrial Confidence: No est v 0.2 prior.

- 06:00 (DE) Germany Mar ZEW Current Situation Survey: -82.3e v -81.7 prior; Expectations Survey: 20.2e v 19.9 prior.

- 06:00 (EU) Euro Zone Mar ZEW Survey Expectations: No est v 25.0 prior.

- 06:00 (EU) Euro Zone Q4 Labour Costs Y/Y: No est v 5.3% prior.

- 06:00 (EU) Daily Euribor Fixing.

- 06:00 (UK) DMO to sell £2.0B in 4.75% Oct 2043 Gilts.

- 06:00 (PL) Poland to sell Bonds.

- 06:25 (EU) Daily ECB Liquidity Stats.

- 06:30 (CH) Switzerland to sell 3-month Bills.

- 06:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills.

- 06:30 (TR) Turkey to sell Bonds.

- 06:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO).

- 07:00 (PT) Portugal Feb PPI M/M: No est v 0.3% prior; Y/Y: No est v -4.3% prior.

- 07:00 (FI) Finland to sell €1.5B in 2029 and 2033 RFGB Bonds.

- 07:25 (BR) Brazil Central Bank Weekly Economists Survey.

- 07:30 (EU) ESM to sell €1.1B in 6-month Bills.

- 08:00 (MX) Mexico Q4 Aggregate Supply and Demand: 2.5%e v 2.7% prior.

- 08:00 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed).

- 08:30 (US) Feb Housing Starts: 1.430Me v 1.331M prior; Building Permits 1.500Me v 1.489M prior (revised from 1.470M).

- 08:30 (US) Feb Housing Starts M/M: 7.4%e v -14.8% prior; Building Permits M/M: +2.0%e v -0.3% prior (revised from -1.5%).

- 08:30 (CA) Canada Feb CPI M/M: 0.6%e v 0.0% prior; Y/Y: 3.1%e v 2.9% prior; CPI Core-Trim Y/Y: 3.5%e v 3.4% prior; CPI Core-Median Y/Y: 3.4%e v 3.3% prior; Consumer Price Index: 159.2e v 158.3 prior.

- 08:55 (US) Weekly Redbook LFL Sales data.

- 09:00 (UK) Daily Baltic Dry Bulk Index.

- 11:30 (UK) DMO Minutes from GEMM/Investor meeting.

- 11:30 (US) Treasury to sell 352-Week Bills.

- 13:00 (US) Treasury to sell 20-Year Bond Reopening.

- 15:00 (AR) Argentina Feb Trade Balance: $0.9Be v $0.8B prior.

- 16:00 (US) Jan Net Long-term TIC Flows: No est v $160.2B prior; Total Net TIC Flows: No est v $139.8B prior.

- 16:00 (NZ) New Zealand Q1 Consumer Confidence: No est v 88.9 prior.

- 16:30 (US) Weekly API Oil Inventories.

- 17:45 (NZ) New Zealand Q4 Current Account (NZD): -7.8Be v -11.5B prior; Current Account to GDP Ratio YTD: -7.0%e v -7.6% prior.

- 21:15 (CN) China PBOC Monthly Loan Prime Rate (LPR) Setting: Expected to leave 1-year and 5-year LPR unchanged at 3.45% and 3.95% respectively.

- 21:30 (KR) Bank of Korea to sell KRW1.2T in 3-year Bonds.

- 22:35 (CN) China to sell 1-year and 5-year Upsized Bonds.

- (US) Arizona Democratic Primary and GOP Primary.

- (US) Florida Democratic Primary and GOP Primary.

- (US) Illinois Democratic Primary and GOP Primary.

- (US) Kansas Democratic Primary and GOP Primary.

- (US) Ohio Democratic Primary and GOP Primary.