Dovish BoJ spurs rally in Asia

Bank of Japan deputy governor Uchida said that the central bank would not raise rates if markets continue to be “extremely volatile”. The comments have spurred a rally in Asia this morning, as the yen weakened 1.3% to 146.75/ USD as of this writing.

German factory orders rose by more than forecast in June, up 3.9% m/m, after declining -1.7% m/m in June. The June reading was the first monthly increase in factory orders since January. Autos and auto parts orders rose 9.5% m/m in June, with metal production and engineering also contributing to the better than expected outcome. Orders for computers and electronics declined -4.1% m/m in June.

The UK’s construction sector PMI rose sharply to 55.3 in July from 52.2 in June and was well above the median forecast. This was the highest reading since May 2022.

Saudi Aramco reported USD 56.1bn in profits for H1 2024, down 9% y/y. The company remains optimistic on demand growth in H2 and noted that global inventories are “at the lower end of their five-year range”. The company will pay USD 20.3bn in dividends in Q2 as well as a performance linked dividend of USD 10.8bn.

Key Economic Data and events

10:00 Germany industrial production (Jun) forecast 1.0% m/m and -4.2% y/y

21:30 Minutes from Bank of Canada meeting

Fixed Income

• 2y treasury yields rose +6bp to 3.98% on Tuesday as markets stablised and expectations for an emergency rate cut from the Fed receded. The 2y yield moved back above 4% this morning in Asian trade. The 10y yield rose +10bp to 3.89% yesterday.
• European benchmark bond yields were mixed on Tuesday, with gilts rising +5bp to 3.92% and bunds up +1bp to 2.20% while Eurozone periphery bond yields declined.

FX

• The US dollar index rose 0.3% on Tuesday as markets recalibrated their expectations for Fed rate cuts. Most major currencies were weaker against the dollar, with GBP down -1.6% to 1.2688 and EUR down -0.4% to 1.0908. The yen lost -1.8% on Tuesday and is down another -1.3% this morning after the BoJ deputy governor’s dovish comments.
• Commodity currencies were mixed yesterday with AUD and CAD strengthening while NZD weakened for the second consecutive session.

Equities

• US equity markets recovered somewhat from their recent rout with the Nasdaq100 and the S&P500 both gaining 1% overnight. The Eurostoxx50 was largely unchanged on Tuesday while the FTSE100 rose 0.2%. The Nikkei has rallied 2.3% this morning on yen weakness following BoJ deputy governor’s indication that the bank would not raise rates if markets remained unstable.
• Local markets rebounded yesterday with the DFMGI up 2.3% and ADXGI gaining 1.2%. The TASI rose 1.5% on Tuesday.

Commodities

• Oil prices also recovered on Tuesday with Brent and WTI gaining 0.2% and 0.4% respectively. Both benchmarks are trading higher in Asia this morning, benefitting from the risk-on tone despite the EIA revising its forecast for demand growth lower in 2025. The Agency now expects global crude consumption will be 104.5mn b/d next year, 200k lower than its previous forecast with concerns about China’s demand driving the downgrade. The EIA has also revised down its estimates for US production growth slightly both this year and in 2025, although US output is still expected to rise.