Morning Reads


Todays Open Interest Change




It's already been a big week for the world's biggest central banks, but the Bank of Japan had to get in on the action after a further round of rate hikes in the U.S. and Europe. The BOJ has remained an outlier on the world stage in the face of historic inflation, maintaining an easy monetary policy stance with its so-called Yield Curve Control. In fact, it's the only prominent central bank to still keep rates in negative territory, but signs of creeping price pressures, impacts on its balance sheet, and side effects of prolonged easing - like the weakening of the yen - mean the institution cannot continue down this path indefinitely.

Path toward normalization: The BOJ already widened its bands last December, allowing Japan's 10-year bond yields to rise to around 0.5%, or double the previous upper limit. Building on the steps, the central bank today kept the target for 10-year JGB yields at around 0%, but said its 0.5% ceiling on yield movements was now a "reference" and "not a rigid limit." It will also offer to purchase Japanese government bonds in fixed-rate operations, effectively setting a new hard cap for the 10-year yield at 1%.

"Yield curve control is a dangerous policy which needs to be retired as soon as possible," said Kit Juckes, chief FX strategist at Societe Generale. "By anchoring JGB yields at a time when other major central banks have been raising rates, it has been a major factor in the yen reaching its lowest level, in real terms, since the 1970s. So, the BOJ wants to very carefully dismantle YCC, and the yen will rally as slowly as they do so. For the moment, that means there is little upside to USD/JPY, but the fall from here is also likely to be very slow, until the global trend in bond yields turns decisively lower."

Market movement: The timing of the tweak makes sense as things stabilize following the regional banking crisis in the U.S., while the end of an aggressive hiking cycle can also be seen on the horizon. Markets still had a hard time deciding on direction overnight, with the Nikkei 225 Index (NKY:IND) slumping to a session low of as much as 2.6%, before finishing the day down 0.5%. The yen (USD:JPY) was also volatile on the news, fluctuating between ¥138.6 and ¥140.4 against the dollar, while the benchmark 10-year JGB bond yield jumped to 0.575% - the highest level since September 2014 - before easing back.

Doing just fine

The U.S. economy is showing further resilience as GDP grew at a 2.4% annualized rate in Q2, almost a full percentage point stronger than the 1.5% expected. The growth was driven by robust consumer and business spending, while durable goods orders separately showed the fourth straight month of growth. A soft landing may be turning into the base case for strategists, but for those looking to hedge stock longs, BofA explains why it’s never been cheaper to buy protection. Meanwhile, BofA’s quant team detailed how every one of its stock screens has performed so far in 2023. See the list of five best and worst strategies. (214 comments)

More capital

U.S. regulators have jointly proposed to increase capital requirements for banks with more than $100B of assets, in the so-called "Basel III endgame." The changes will likely result in a 16% increase in common equity tier 1 capital requirements for the affected companies, with the increase principally affecting the largest and most complex banks. Global systemically important institutions including Bank of America (BAC) and JPMorgan (JPM) would still be subject to the strictest standards, while the new proposal aims to strengthen regulation of large regional lenders such as KeyCorp (KEY), Huntington Bancshares (HBAN), and Regions Financial (RF). (77 comments)

Cold reception

While the IPO market has staged a comeback after a downturn that lasted more than a year, Surf Air Mobility's (SRFMweak trading debut showed that investors are picky about the companies they are willing to back. After setting a reference price at $20, shares of Surf Air started trading yesterday at $5, before ending the session 37% lower at $3.15 per share. Investors were likely wary of buying into the first direct listing of 2023 as Surf Air previously flagged substantial doubt about its ability to continue as a going concern, while Investing Group Leader Donovan Jones also cautioned against investing in the electric aviation and regional air travel company.

Today's Markets

In Asia, Japan -0.5%. Hong Kong +1.3%. China +1.8%. India -0.2%.
In Europe, at midday, London +0.1%. Paris -0.2%. Frankfurt -0.1%.
Futures at 7:00, Dow +0.2%. S&P +0.4%. Nasdaq +0.8%. Crude -0.4% to $79.80. Gold +2.3% to $1,991.20. Bitcoin -0.9% to $29,212.
Ten-year Treasury Yield -5 bps to 3.97%.

Today's Economic Calendar

8:30 Personal Income and Outlays
8:30 Employment Cost Index
10:00 Consumer Sentiment
1:00 PM Baker Hughes Rig Count
3:00 PM Farm Prices

Companies reporting earnings today »

What else is happening...

Ford (F) rallies after hiking guidance, setting lofty EV targets.

Airline turbulence: Southwest's (LUV) cost outlook rattles traders.

AB InBev (BUD) fires U.S. corporate staff as Bud Light sales slump.

McDonald's (MCD) easily tops comparable sales estimates in all regions.

... will also launch new store format based on the CosMc character.

Inside Intel (INTC): Revenue decline halts in key consumer, AI segments.

Enphase Energy (ENPH) takes a tumble on weak sales guidance.

Vale (VALE) to sell 13% of base metals unit in two deals totaling $3.4B.

Roku (ROKU) soars with Q2 revenue, losses beating expectations.

Earnings watch: Exxon Mobil (XOM), Chevron (CVX) to report today

Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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