BoJ surprise rate hike highlights global policy divergence

EU mid-market update: BOJ surpise rate hike highlights global policy divergence as markets wait for Fed and BOE that are starting to look 'late to the party'.

Notes/observations

- Bank of Japan (BoJ) shocks market with 15bps rate hike and plans to cut JGB purchases by ¥400B a quarter. Cut FY24/25 GDP and inflation forecasts in quarterly staff projections. Yen (JPY) firmed up, with assistance from BOJ Gov Ueda hawkish comments on further hikes and that neutral rate is still some distance away. USD/JPY >1.5% lower, with other side of the pair moving from dovish outlook for USD and Fed. FOMC decision looms at 14:00 ET, although widely expected to be uneventful, with eyes on Sept meeting.

- Iran Revolutionary Guards announced Hamas Politburo Chief Ismail Haniyeh ‘assassinated’ in raid on residence in Tehran, Iran; Iran blamed Israel for the assassination of the most senior Hamas leader since the Oct 7th, while Iran Supreme Leader Khamenei said Israel provided the grounds for "harsh punishment" for itself.

- Microsoft during its earnings call said its consumption business, inclusive of AI, is growing faster than total Azure and that, despite the miss this quarter, it expects Azure growth to accelerate in H2; It also expects FY25 Capex to be higher than FY24 ‘s ~$55B.

- EU major bourses trade higher after French CPI moderates further to target and EU earnings. Chip names given a boost, specifically ASML after US looks to expand export ban of chip manufacturing equipment from foreign countries to China but excluding Netherlands. US listed chip names AMD, Nvidia and Super Micro rise after AMD raises FY24 guidance in afterhours Q2 results.

- Other EU earnings of note, GSK with top line beat and guidance raise. Industrials Airbus and Safran with H1 results. Telefonica, Adidas, Danone, Lufthansa and BBVA also reported.

- Upcoming earnings before open: Boeing, Norwegian Cruise Line, Kraft Heinz, Humana, Mastercard, Teva, Cameco.

- Notable earnings after close: Meta, Arm, Qualcomm, Carvana, Western Digital, Riot, Agnico Eagle, Albemarle, Paycom.

- Asia closed higher with Shanghai composite outperforming +2.1%. EU indices are +1.3% to -1.1%. US futures are +0.4% to +1.5%. Gold +0.5%, DXY -0.3%; Commodity: Brent +2.6%, WTI +2.8%; Crypto: BTC -0.6%, ETH -0.7%.

Asia

- BOJ raised its Target Rate by 15bps to 0.25% (note expected) to resume its tightening cycle; made decision on bond buying taper and To cut JGB purchases by ¥400B yen each quarter to ~¥3T by Q1 2026.

- Japan Jun Retail Sales M/M: 0.6% v 0.2%e; Y/Y: 3.7% v 3.2%e.

- Japan Jun Preliminary Industrial Production M/M: -3.6% v -4.5%e Y/Y: -7.3% v -6.4%e.

- New Zealand July ANZ Business Confidence: 27.1 v 6.1 prior.

- China July Manufacturing PMI (Govt Official): 49.4 v 49.

- Australia Jun CPI Y/Y: 3.8% v 3.8%e.

- Australia Q2 CPI Q/Q: 1.0% v 1.0%e; Y/Y: 3.8% v 3.8%e; downside surprise in core inflation led markets to abandon all thought of further rate hikes.

- Australia Jun Retail Sales M/M: 0.5% v 0.2%e.

- Australia Q2 Retail Sales (ex-inflation) Q/Q:-0.3% v -0.2%e.

Global conflict/tensions

- Hamas leader Haniyeh assassinated in Tehran.

- Israel military stated they kill Hezbollah’s most senior commander Fuad Shukr in an airstrike on Beirut.

Europe

- Shadow MPC urge Bank of England (BOE) to keep interest rates unchanged at 5.25% on Thurs, Aug 1st.

Energy

- Weekly API Crude Oil Inventories: -4.5M v -3.9M prior.

Speakers/fixed income/fx/commodities/erratum

Equities

Indices [Stoxx600 +0.80% at 518.20, FTSE +1.37% at 8,387.51, DAX +0.33% at 18,486.85, CAC-40 +1.15% at 7,560.95, IBEX-35 -0.98% at 11,092.45, FTSE MIB +0.02% at 33,916.00, SMI +0.43% at 12,331.00, S&P 500 Futures +0.90%].

Market focal points/key themes: European indices open generally higher and stayed upbeat through the early part of the session; among sectors leading into the green are industrials and consumer discretionary; while communication services and telecom sectors lag; press report that Biden Admin may exclude Japan, South Korea and Netherlands from its China chip equipment export curbs helping ASML, which shares trade over 5% higher; Telefonica to sell its stake in Coltel to Millicom; Veolia sells its sulfuric acid regeneration unit in North America; focus on Fed rate decision later in the day; earnings expected in the upcoming US session include Boeing, Meta, Mastercard, T-Mobile and Qualcomm.

Equities

- Consumer discretionary: Adidas [ADS.DE] +1.5% (final earnings) - Consumer staples: Danone [BN.FR] +4.5% (earnings; positive comments on EU economy) - Energy: OMV [OMV.AT] +0.5% (earnings) - Financials: HSBC [HSBA.UK] +3.5% (earnings; buyback; interim CFO), BBVA [BBVA.ES] -2.5% (earnings) - Healthcare: GSK [GSK.UK] -1.5% (earnings; trims vaccine revenue outlook, but raises overall guidance) - Industrials: Safran [SAF.FR] -1.0% (earnings; comments on supply chain).

- Technology: ASML [ASML.NL] +6.5% (AMD and Samsung results; US to unveil a new rule next month to expand US powers to stop exports of chip manufacturing equipment from foreign countries to China, but would exclude shipments from Japan, Netherlands and South Korea) - Telecom: Telefonica [TEF.ES] -1.5% (earnings; JV with Vodafone).

Speakers

- BOJ Gov Ueda post rate decision press conference noted that upside risks to prices required attention; would continue to raise rates if economic and price outlook were realized. Real interest rates likely to remain significantly negative. Long-term yields should be formed in financial markets in principle but would respond in sharp rise nimble. Reiterated overall assessment that domestic economy was recovering moderately and needed to pay due attention to financial and FX impact on economy. Did not consider 0.50% Target Rate as a particular limit.

- Iran Supreme Leader Khamenei stated that Israel had provided the grounds for "harsh punishment" for itself.

Currencies/fixed income

- Most major pairs were range bound with focus on upcoming FOMC rate decision and major US data in the coming days. Fed was widely expected to leave its policy setting unchanged with focus on potential cuts later this year.

- USD/JPY probed the 150 handle after BOJ unexpectedly hiked its Target Rate for the 2nd time this year. Dealers noted that the BOJ emphasized that real interest rates adjusted for inflation were at significantly low levels and believe it had the bias to tighten again. Pair test a 16-week low of 150.30 after the rate decision.

- EUR/USD steady around the 1.0820 area despite continued EU CPI and growth data.

- GBP/USD at 1.2825 with focus on Thurs BOE rate decision and a move into easing territory.

- Australia 3-year bond yield dropped by over 10bps after softer Q2 trimmed mean inflation likely provided RBA to focus on potential easing. The downside surprise in core inflation led markets to abandon all thought of further rate hikes.

Economic data

- (NL) Netherlands July Preliminary CPI Y/Y: 3.7% v 3.2% prior.

- (NL) Netherlands July Preliminary CPI EU Harmonized M/M: 1.3% v 0.2% prior; Y/Y: 3.5% v 3.2%e.

- (DE) Germany Jun Import Price Index M/M: 0.4% v 0.1%e; Y/Y: 0.7% v 0.5%e

- (DK) Denmark Jun Unemployment Rate: 2.5%v 2.5% prior; Gross Unemployment Rate: 2.9% v 2.9% prior

- (HU) Hungary Jun PPI M/M: 1.5% v 0.2% prior; Y/Y: +2.7% v -0.2% prior.

- (FR) France July Preliminary CPI M/M: 0.2% v 0.3%e; Y/Y: 2.3% v 2.4%e.

- (FR) France July Preliminary CPI EU Harmonized M/M: 0.2% v 0.3%e; Y/Y: 2.6% v 2.7%e.

- (FR) France Jun PPI M/M: -0.3% v -1.6% prior; Y/Y: -6.0% v -6.7% prior.

- (AT) Austria July Preliminary CPI M/M: 0.0% v 0.2% prior; Y/Y: 2.9% v 3.0% prior.

- (TR) Turkey Jun Preliminary Trade Balance: -$5.9B v -$6.5B prior.

- (TH) Thailand Jun Current Account Balance: $2.0B v $0.3Be; Overall Balance of Payments (BoP): $0.6 v $0.6B prior; Trade Account Balance: $2.5B v $2.8B prior; Exports Y/Y: 0.3% v 7.8% prior; Imports Y/Y: -0.1% v -2.3% prior.

- (DE) Germany July Net Unemployment Change: +18.0K v +15.0Ke; Unemployment Claims Rate: 6.0% v 6.0%e.

- (TW) Taiwan Q2 Advance GDP Y/Y: 5.1% v 4.8%e.

- (CH) Swiss July Expectations Survey: 9.4 v 17.5 prior.

- (ES) Spain May Current Account Balance: €5.6B v €2.8B prior.

- (IT) Italy May Industrial Sales M/M: -0.9% v +0.7% prior; Y/Y: -4.8% v -2.2% prior.

- (NO) Norway Central Bank (Norges) Aug Daily FX Purchases: 400M v 400M prior.

- (PL) Poland July Preliminary CPI M/M: 1.4% v 1.6%e; Y/Y: 4.2% v 4.4%e.

- (CZ) Czech Jun M2 Money Supply Y/Y: 6.4%v 6.7% prior.

- (TR) Turkey Jun Foreign Tourist Arrivals Y/Y: 5.0% v 14.0% prior.

- (PT) Portugal July Preliminary CPI M/M: -0.6% v 0.0% prior; Y/Y: 2.5% v 2.8% prior.

- (PT) Portugal July Preliminary CPI EU Harmonized M/M: -0.8% v -0.3% prior; Y/Y: 2.7% v 3.1% prior.

- (HK) Hong Kong Q2 Advance GDP Q/Q: 0.4% v 0.3%e; Y/Y: 3.3% v 2.7%e.

- (HK) Hong Kong Jun M3 Money Supply Y/Y: 1.5% v 1.5% prior; M2 Money Supply Y/Y: 1.5% v 1.5% prior; M1 Money Supply Y/Y: -5.9% v -8.4% prior.

- (IT) Italy July Preliminary CPI M/M: 0.5% v 0.3%e; Y/Y: 1.3% v 1.1%e.

- (IT) Italy July Preliminary CPI EU Harmonized M/M: -0.8% v -1.2%e; Y/Y: 1.7% v 1.2%e.

- (EU) Euro Zone July Advance CPI Estimate Y/Y: 2.6% v 2.5%e; Core Y/Y: 2.9% v 2.8%e; CPI M/M: 0.0% v -0.1%e.

- (GR) Greece Jun Unemployment Rate: 9.6% v 10.3% prior.

- (GR) Greece May Retail Sales Value Y/Y: +10.5% v -6.2% prior; Retail Sales Volume Y/Y: +14.3% v -1.3% prior.

Fixed income issuance

- (IN) India sold total INR200B vs. INR200B indicated in 3-month, 6-month and 12-month bills.

Looking ahead

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (DE) Germany to sell €3.0B in 2.4% Nov 2030 bunds.

- 05:30 (ZA) South Africa announces details of next bond auction (held on Tuesdays).

- 06:00 (IE) Ireland July Unemployment Rate: No est v 4.2% prior.

- 06:00 (IT) Italy Jun PPI M/M: No est v 0.3% prior; Y/Y: No est v -4.9% prior.

- 06:30 (IN) India Jun YTD Fiscal Deficit (INR): No est v 506.2B prior.

- 07:00 (US) MBA Mortgage Applications w/e July 26th: No est v -2.2% prior.

- 07:00 (RU) Russia to sell OFZ Bonds.

- 07:30 (IN) India Jun Eight Infrastructure (key) Industries: No est v 6.3% prior.

- 08:00 (ZA) South Africa Jun Trade Balance (ZAR): 22.3Be v 20.1B prior.

- 08:00 (BR) Brazil Jun National Unemployment Rate: 6.9%e v 7.1% prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:01 (NZ) New Zealand July CoreLogic House Prices M/M: No est v -0.5% prior.

- 08:15 (US) July ADP Employment Change: +150Ke v 150K prior.

- 08:30 (US) Q2 Employment Cost Index (ECI) 1.0%e v 1.2% prior.

- 08:30 (CA) Canada May GDP M/M: 0.1%e v 0.3% prior; Y/Y: 1.0%e v 1.1% prior.

- 08:30 (US) Treasury Quarterly Refunding Announcement.

- 09:00 (CL) Chile Jun Unemployment Rate: 8.3%e v 8.3% prior.

- 09:00 (CL) Chile Jun Retail Sales Y/Y: 4.0%e v 1.5% prior; Commercial Activity Y/Y: No est v 0.7% prior.

- 09:00 (CL) Chile Jun Industrial Production Y/Y: -0.8%e v +2.3% prior; Manufacturing Production Y/Y: -1.6%e v -2.2% prior; Total Copper Production: No est v 444.6K prior.

- 09:45 (US) July Chicago Purchase Manager’s Index (PMI): 45.0e v 47.4 prior.

- 10:00 (US) Jun Pending Home Sales M/M: 1.4%e v -2.1% prior; Y/Y: -7.4%e v -6.6% prior.

- 10:01 (AU) Australia July CoreLogic House Prices M/M: No est v 0.7% prior.

- 10:30 (US) Weekly DOE Oil Inventories.

- 11:00 (MX) Mexico Jun Net Outstanding Loans (MXN): No est v 6.260T prior.

- 11:00 (CO) Colombia Jun National Unemployment Rate: No est v 10.3% prior; Urban Unemployment Rate 10.4%e v 10.3% prior.

- 11:30 (US) Treasury to sell 17-Week Bills.

- 12:00 (RU) Russia Jun Real Retail Sales Y/Y: 6.1%e v 7.5% prior.

- 12:00 (RU) Russia Jun Unemployment Rate: 2.6%e v 2.6% prior; May Real Wages Y/Y: No est v 8.5% prior.

- 14:00 (US) FOMC Interest Rate Decision: Expected to leave Target Range unchanged between 5.25-5.50%.

- 14:00 (CO) Colombia Central Bank Interest Rate Decision: Expected to cut Overnight Lending Rate by 50bps to 10.75%.

- 14:30 (US) Fed Chair Powell post rate decision press conference.

- 17:30 (BR) Brazil Central Bank (BCB) Interest Rate Decision: Expected to leave Selic Target Rate unchanged at 10.50%.

- 18:00 (CL) Chile Central Bank (BCCh) Interest Rate Decision: Expected to cut Overnight Rate Target by 25bps to 5.50%.

- 19:00 (AU) Australia July Final Manufacturing PMI: No est v 47.4 prelim.

- 20:00 (KR) South Korea July Trade Balance: $5.0Be v $8.0B prior; Exports Y/Y: 18.4%e v 5.1% prior; Imports Y/Y: 13.4%e v -7.5% prior.

- 20:01 (IE) Ireland July PMI Manufacturing: No est v 47.4 prior.

- 20:30 (JP) Japan July Final Manufacturing PMI: No est v 49.2 prelim.

- 20:30 (KR) South Korea July PMI Manufacturing: No est v 52.0 prior.

- 20:30 (TW) Taiwan July PMI Manufacturing: No est v 53.2 prior.

- 20:30 (PH) Philippines July PMI Manufacturing: No est v 51.3 prior.

- 20:30 (TH) Thailand July PMI Manufacturing: No est v 51.7 prior.

- 20:30 (ID) Indonesia July PMI Manufacturing: No est v 50.7 prior.

- 20:30 (MY) Malaysia July PMI Manufacturing: No est v 49.9 prior.

- 20:30 (VN) Vietnam July PMI Manufacturing: No est v 54.7 prior.

- 21:30 (AU) Australia Jun Trade Balance (A$): 5.0Be v 5.8B prior; Exports M/M: No est v 2.8% prior; Imports M/M: No est v 3.9% prior.

- 21:30 (AU) Australia Q2 Import Price Index Q/Q: -0.7%e v -1.8% prior; Export Price Index Q/Q: -5.3%e v -2.1% prior.

- 21:45 (CN) China July Caixin PMI Manufacturing: 51.5e v 51.8 prior.