It is safe to say that nobody expected the BOJ stunner announced last night, when Kuroda announced that Japan would become the latest country to unleash negative interest rates, for one simple reason: Kuroda himself said Japan would not adopt negative rates just one week ago! However, a few BIS conference calls since then clearly changed the Japanese central banker’s mind and as we wrote, and as those who are just waking up are shocked to learn, negative rates are now a reality in Japan.

The immediate reaction was to send the USDJPY surging by nearly 200 pips, back to levels seen… well, about a month ago.

“The Bank of Japan gave markets a nice surprise to end the month,” said Heinz-Gerd Sonnenschein, a strategist at Deutsche Postbank AG in Bonn, Germany. “It’s a bit too early to say whether we’ll finally get that long-lasting rebound.”

Actually no it isn’t: it is virtually certain that the BOJ action will exacerbate global currency wars as it forces China to retaliate once more, in turn accelerating capital outflows from China, depressing asset prices and not only adding to global volatility but also depress both the Japanese and global recovery as we explained earlier.

Then again, central banks really have no choice at this point: they have to keep pushing or face systemic collapse. As SocGen’s Kit Jukes points out, whether or not it works matters less than fact that “disinflationary forces in the global economy are so entrenched” that central banks feel need to “set off on this path at all” He notes that one should “feed on the symbolism” as Germany, Switzerland and Japan, “three great current account powers of the post-Bretton Woods era,” are being told “in no uncertain terms to stop saving.”

However, for now the post-BOJ euphoria still lingers, but while stocks and bonds rallied around the world, the biggest impact was on the bond market where the yield on 10Y has tumbled to a just 1.92% as Japanese institutions will clearly be forced to buy even more US paper, in the process flattening the US curve – that all important recession signal – even more.

Curiously, the stock rally, which started off strong, has lost much of its earlier spark driven by the latest episodes in the Russian-OPEC “headline” fiasco, when this time the Russian energy minister Novak admitted he may have skewed reality a little yesterday, saying there was no confirmed meeting with OPEC or non-OPEC countries, adding Russia hasn’t begun internal discussions on how any cuts would work but that it is ready to at least discuss issue of output cuts, even if it is not ready for a decision. He concluded that coordinated cuts would only be possible after detailed talks.

In other words, all Russia did was conduct a trial balloon on reaction to oil supply cut headlines. The only problem is getting the Saudis on the same page.

The result is that after spiking another 2% in overnight trade, dropped into the red before rebounding modestly, which in turn is capping gains on US equity futures.

The focus on the US calendar will be the Q4 GDP print while we will also get the quarterly ECI and PCE readings. The January Chicago PMI and ISM Milwaukee are also due before the final revision to the January University of Michigan consumer sentiment print. It’s a quieter day for earnings reports with just 18 S&P 500 companies due to give their latest quarterlies, with Chevron (pre-market) the highlight of the bunch. We’re also due to get comments from the Fed’s Williams (due at 8.30pm GMT) – the first Fedspeak since the FOMC meeting this week.

Where markets stand now:

• S&P 500 futures up 0.7% to 1894
• Stoxx 600 up 0.8% to 338
• FTSE 100 up 0.8% to 5981
• DAX up 0.5% to 9693
• German 10Yr yield down 5bps to 0.36%
• Italian 10Yr yield down 6bps to 1.45%
• Spanish 10Yr yield down 7bps to 1.55%
• MSCI Asia Pacific up 1.6% to 121
• Nikkei 225 up 2.8% to 17518
• Hang Seng up 2.5% to 19683
• Shanghai Composite up 3.1% to 2738
• US 10-yr yield down 5bps to 1.93%
• Dollar Index up 0.5% to 99.01
• WTI Crude futures up 0.4% to $33.37
• Brent Futures up 0.5% to $34.07
• Gold spot down 0.1% to $1,114
• Silver spot up 0.1% to $14.26

Asian equity markets traded higher following the gains on Wall St., where strong earnings coupled with a rally in crude boosted risk sentiment, while volatility was observed with the BoJ initially jolting markets after unexpectedly announcing negative rates. This saw volatile trade in the Nikkei 225 (+2.8%) while the ASX 200 (+0.6%) was supported by outperformance in energy names. Shanghai Comp (+3.1 %) outperformed after the PBoC announced to conduct OMO every working day around the new year holiday as it seeks to avoid a liquidity crunch while also today injecting CNY 80bIn via 28-day reverse repos and CNY 20bIn via 7-day reverse repos. 10yr JGBs soared by over a point as Japanese bond yields fell to record lows following the BoJ announcement of negative rates with tenure declining to as low as 0.09%

Asian Top News

• Sony Profit Beats Estimates as PlayStation Trumps Sensor Slump: 3Q oper. profit 202.1b yen vs est. 173.6b yen
• Japan Bonds Biggest Winners as Stocks Soar, Yen Tumbles on BOJ: Benchmark 10-year yields plunge to record low of 0.09%, yen heading for its biggest decline in more than a year
• Mizuho Quarterly Profit Falls on Loan Income, Bond Trading: Net falls to 135.3b yen from 167.9b yen y/y, est. 137b yen
• Docomo to Buy Back $4.1b in Shares as Profit Climbs: To repurchase as many as 220m shares, or 5.7% of non-treasury stock outstanding, from Feb. 1 to Dec. 31
• PetroChina Sees 2015 Profit Falling as Much as 70% on Oil Slump: Net profit will fall because of the slump in oil and drop in domestic natural gas prices, co. said
• China Life Expects FY Net Income to Rise About 5%-10% on Year: Co. cites rising investment return for the net income increase
• Alibaba’s Reliance on China Spooks Investors as Economy Cools: Jack Ma seeking out new businesses from cloud to services
• Paper Trail of Fraud Shows Flaws in Booming China Funding System: China’s bank regulator pushing lenders to tighten controls
• Waiting for Ambani Tests Patience of Billionaire’s Bondholders: No major asset sales completed since September announcement

European equities (Eurostoxx 600 +0.7%) gapped higher taking their lead from Asia whose indices closed firmly in the green following the shock decision by the BoJ to introduce negative rates . Consequently, financials outperform in Europe as a result of more monetary easing. Energy is the second best performing sector, with speculation of production cuts doing the rounds as Brent and WTI hold the USD 33.00 level, which is not demonstrative of overtly bearish sentiment given this weeks lows.

Gains are broad based however in the Eurostoxx 600, with the majority of all 20 subsectors trading higher. The Italian FTSE MIB continues to be extremely choppy, as are its counterparts, with Banco Populare and Monte Pashe swinging wildly in European trade.

European Top News

• Euro-Area Inflation Accelerates in Temporary Reprieve for ECB: Consumer prices rose annual 0.4% in Jan., most since 2014
• James Murdoch Returns as Sky Chairman After Four Years: James Murdoch, 43, Rupert Murdoch’s son, replaces Nicholas Ferguson, who is stepping down after 12 years on the board
• Monte Paschi Posts Yearly Profit After Restating Accounts: Without restatement, bank would have suffered loss for 2015
• Gamesa Jumps as Siemens Said to Talk to Iberdrola on Making Bid: Siemens has hired Deutsche Bank to explore a purchase of Gamesa and has discussed options with Iberdrola, the Spanish utility that owns a 19.7% stake, El Confidencial reported
• Spain Maintained Growth in Fourth Quarter, Showing Momentum: Spanish economy grew 3.2% in 2015 with 10 quarters of growth
• French Growth Slows at Year End as Terrorism Hurts Spending: GDP grew 0.2% in the final three months of 2015, vs 0.3& in the previous qtr
• Norway to Buy Record Amount of Kroner as Oil Price Crash Stings: Will buy NOK900m ($104m) a day in Feb. as it converts its oil income into local currency to cover budget needs

In FX, all the action this morning as centred on the JPY pairs, after the BoJ surprised the markets by cutting the deposit rate to a negative 0.10%. Spot and cross/JPY rallied hard, with USD/JPY tearing through 120.00 to hit a high of 121.35. The yen fell 1.6 percent versus the dollar, its biggest loss since December 2014. Against the euro, it dropped 1.1 percent.

“They previously rejected taking rates to negative, so that was the surprise element in the announcement,” said Imre Speizer, a markets strategist at Westpac Banking Corp. in Auckland. “It weakened the yen, as it should.”

The recovery settled in the mid 120.00’s at the start of London trade, but has been trying to push higher since. The crosses have been tempered by their respective spot rates easing off — Cable underperforming, but the CAD not too far behind as Oil prices tail off. More from the Russian energy minister, but this time saying no scheduled meetings between OPEC and non OPEC nations. CHF still on the back foot as equities buoyant all round — healthy KoF (100.3 vs 96.6 prey) ignored. EU CPI marginally higher at 1 %, but EUR/USD sticking close to 1.0900.

A gauge of 20 developing-nation currencies rose 0.3 percent in its
fourth day of gains. It’s 1.1 percent advance this week has help trim
January’s loss to 1.7 percent.   Russia’s ruble added 0.4 percent,
paring earlier gains with a pullback in oil. The central bank kept rates
on hold, in line with analysts estimates.

In commodities, the on-going will-they-won’t-they saga surrounding an OPEC meeting to decide upon production cuts, continues to dictate price action in oil markets. The latest headline to this effect has been two OPEC delegates commenting that no decision has been made on whether to hold a meeting between OPEC and non-OPEC countries . They added that if such a meeting were to happen, it would occur February or March. They went onto say that any meeting should be on an expert level, as oppose to a ministerial one.

OPEC nations, with a few notable exceptions, are reluctant to make any production cuts without their non-OPEC counterparts. Furthermore, Russian Energy Minister Novak stated earlier there are no confirmed meetings between OPEC and non-OPEC nations, after the latest comments both WTI and Brent have drifted lower, Brent breaking the USD 34.00 level to the downside.

Gold was volatile in Europe overnight with the safe-haven initially declining as stocks surged following the BoJ’s decision to unexpectedly introduce negative rates. Price action reversed however, once the 1110.00 level was hit, and the market rejected a move lower . Of note, the 1110.00 level seems to have emerged as a significant level of support over the past week. Furthermore, spot gold is still on course for its best month in a year, having benefited from stock market volatility in January and expectations of a shallower fed hike path. However some analysts have noted that the BoJ’s move to stoke inflation may strengthen the USD, and therefore diminish golds potential gains in coming months.

Global Top News:

• Xerox Said to Split in Two; Icahn Gets Board Seats, WSJ Says: Will divide itself into a co. grouping its hardware operations and another that will house its services business, Carl Icahn will be given 3 board seats on the services company’s board
• Japan Adopts Negative-Rate Strategy to Aid Weakening Economy: Central bank continues its record asset-purchase program. Bank of Japan’s Negative Interest Rate Decision Explained
• Microsoft’s Cloud-Fueled Revival Persists as Azure Sales Jump: Results bolstered by Web-based services, Office 365 software; FY2Q adj. EPS 78c vs est. 71c, up 6% post-mkt on >1m shares
• Amazon’s Jeff Bezos Steps Up Spending Again to Chase Growth: 4Q EPS $1.00 vs est. $1.55, 4Q net rev. $35.7b vs est. $35.9b; sees 1Q oper. income $100m-$700m vs est. $731.7m
• Honda Profit Misses Estimates as Takata Air Bag Recalls Mount: 3Q net income 124.2b yen vs est. 149.3b yen
• Takata CEO Said Prepared to Resign Amid Crisis; Shares Rise
• Russia Sees Decision on Oil Cut Only If All Exporters Agree: A decision on cutting oil production is possible only if all crude exporting nations are in consensus, and there is no timing for talks yet: Russia’s Energy Minister Alexander Novak
• Visa Profit Tops Estimates as Customer Card Spending Rises: 1Q adj. EPS 69c, est. 68c, shrs up ~3.9% post-mkt
• Apple Said Developing Wireless-Charged Phone for as Soon as 2017: Said trying to overcome technical challenge of distance
• GE Said to Plan More Than $760m of Investment in Italy: The deals may be signed as soon as this weekend or early next week when GE Chairman Jeff Immelt visits the country
• Merck Prices Hepatitis C Drug Lower Than Rivals in Crowded Field: FDA says Merck drug is approved for genotypes 1 and 4
• Carlyle Sweetens Lending Terms for Banks Funding Veritas Buyout: Under the changes, the banks will have more flexibility to boost yields and offer discounts on the loans when they try to sell them to capital-market investors
• Freeport’s Grasberg Mine Still Working as Export Permit Expires
• Stock Investors Mind the Bounce as S&P 500 Rebounds Take Longer: Benchmark gauge posts weakest rebound of the bull market
• Congress Juniper Probe to Cover Possible NSA Involvement: Rtrs

Bulletin Headline Summary from RanSquawk and Bloomberg

• European equities (Eurostoxx 600 +0.7%) gapped higher, taking their lead from Asia whose indices closed firmly in the green following the shock decision by the BoJ to introduce negative rates
• All the FX action this morning has centred on the JPY pairs, after the BoJ surprised the markets
• Looking ahead, highlights include US and Canadian GDP, Chicago PMI, University of Michigan sentiment and comments from ECB’s Costa and Fed’s Williams
• Treasuries higher overnight as the Bank of Japan sprung another surprise on investors, adopting a negative interest-rate strategy to spur banks to lend, sparking demand for USD assets; economic data today includes 4Q GDP and Core PCE.
• Decision to charge Japanese banks to park cash at the central bank will put pressure on loan profitability that’s already among the weakest in the world
• In the event of “further nasty global financial or economic shocks,” expect more central banks, “perhaps even the Fed,” to consider negative policy rates, Oxford Economics economists wrote in note yesterday
• Lloyds Banking Group and other big U.K. retail lenders face higher capital requirements as the Bank of England moves to bolster the industry’s ability to withstand shocks without hurting the economy
• The Federal Reserve said it will analyze in its annual stress tests how 33 large banks, including Bank of America and JPMorgan, would withstand a severe global recession, a doubling of the U.S. unemployment rate to 10% and moderate deflation
• Russia’s central bank left its benchmark interest rate unchanged for a fourth consecutive meeting, warning it may tighten policy if inflation risks intensify
• A decision on cutting oil production is possible only if all crude-exporting nations are in agreement and there’s no timing for talks, Russia’s Energy Minister Alexander Novak said
• Two years after it was formed by Marxist university professors and student activists, anti-austerity group Podemos is making most of the running in Spain’s search for a government, shaping the policy process before they’ve even got a hand on the reins of power
• Sovereign 10Y bond yields lower led by Japan. Asian, European stocks rise; U.S. equity-index futures rise. Crude oil and copper rise, gold drops

• • )

DB’s Jim Reid concludes the overnight wrap

It’s straight to Japan this morning where the BoJ have given the plates another spin after the announcement that the Bank is to adopt negative interest rates. The benchmark rate has been slashed by 20bps to -0.1% having last been cut in 2010. Details are still coming through but it appears to be in the form a three-tier system with negative rates to be applied on deposits over a certain amount. There was no change in the current level of BoJ asset purchases of ¥80tn per year. Headlines are suggesting it was a close call after being passed by a majority vote of 5-4. It’s caught the market by surprise however with only 6 of 42 economists forecasting for any sort of easing (all 6 economists forecasting for more QE and just 1 expecting a rate cut).

At the same time, the BoJ has delayed its target date of reaching its 2% inflation goal by six months, aiming for the first half of fiscal 2017 now (March to October 2017) while also downgrading current year forecasts. Markets have been super volatile in the aftermath and by the time you read this may have moved even more. The Yen initially plummeted over 2% only to then rally back to close to unchanged on the day (around ¥119), but has since resumed a sell off past ¥120 (-1.47% weaker). There’s been similar price action for equity markets where the Topix and Nikkei were up over +3% initially, then tumbled to losses of -1.6% and -1% respectively, but have now bounced back with strong gains (+2.49% and +2.58%). Other Asian bourses have rallied with gains of 2-3% across the region. The JGB market appears to be the only asset class moving in one direction with yields heading south in a hurry. 2y, 5y and 10y JGB yields have all struck record all-time lows of -0.050%, -0.066% and 0.100% respectively.

This morning’s announcement also came post some softer than expected data in Japan overnight. Headline CPI during the December fell one-tenth to +0.2% yoy (as expected) with the ex food and energy reading down one-tenth but unexpectedly to +0.8% yoy (vs. +0.9% expected). The significant miss came in last month’s industrial production number which fell -1.4% mom in December (vs. -0.3% expected).

It’s hard to pinpoint the huge swings in risk post the BoJ announcement as we digest the headlines but with Governor Kuroda due to speak as we go to print its worth keeping a close eye on the price action.

Ahead of the US GDP data today, yesterday’s very soft durable and capital goods order numbers raised the prospects of further downside risk to activity levels in the quarter. Headline durable goods orders for December printed at -5.1% mom which was well below expectations for a more modest -0.7% decline. The ex-transportation reading was also weak (-1.2% mom vs. -0.1% expected) while core capex orders fell -4.3% mom (vs. -0.2% expected) which was the largest monthly decline since October 2014. On the surface of it, the data shows that there is significant downward momentum in private domestic demand. DB’s Joe Lavorgna warned yesterday that while durable goods data are notoriously volatile and it is possible business spending will rebound this quarter, the ongoing weakness in oil prices and sharp plunge in CEO confidence makes him doubt that this will occur. Importantly the data wasn’t in isolation with the November data also revised down. The nondefense capital goods shipments ex aircraft are the important data used to estimate GDP output and post yesterday’s numbers, the -5.8% annualized drop last quarter was the lowest since Q3 2013. This implies significant pullback in Q4 capital spending which we should see in today’s data.

Along with the data, Oil once again dominated the newsflow as headlines (which appeared to be eventually played down) reverberated suggesting that Russia and OPEC were looking at setting up talks to discuss production cuts (up to 5% according to the WSJ). WTI peaked at just shy of $35/bbl (and up 7% on the day) following the news before settling down to close at $33.22/bbl (+2.85% on the day). That now makes it 22% off last Wednesday’s intraday low and so technically speaking in a bull market. In any case, the leg up for oil helped the S&P 500 (+0.55%) close in positive territory after a fairly rocky early session post a mixed batch of earnings releases (more below). US credit had a slightly better day too while US Treasuries chopped around before eventually finishing a smidgen lower (10y -2bps to 1.979%). Prior to this we’d seen European risk assets shrug off the moves in oil and instead focus on some weaker than expected earnings reports in the region. The Stoxx 600 closed yesterday -1.57%.

In terms of the rest of the data yesterday, in the US we saw initial jobless claims decline 16k last week to 278k which was slightly better than expected (281k expected). The latest housing market data was less supportive however with pending home sales only up +0.1% mom last month (vs. +0.9% expected) while the only other release of note was the Kansas City Fed manufacturing activity index which was unchanged at a still lowly -9. In Europe we saw the preliminary CPI print for Germany come in line at -0.8% mom, with the YoY rate nudging up a couple of tenths to +0.5%. Euro area confidence indicators all generally surprised to the downside while in the UK there were no surprises in the Q4 GDP print of +0.5% qoq (and +1.9% yoy) which met market expectations.

Back to the earnings, yesterday saw 51 S&P 500 companies report with just 22 beating sales expectations (43%) but 42 coming ahead of earnings forecasts (82%) – albeit estimates that have been beaten down in recent weeks. The latter was in-line with what we’ve seen so far this quarter but the number of revenue misses was weaker (averaged 50% so far). Aside from the market digesting those contrasting numbers from tech giants Facebook and eBay which we touched on yesterday, Caterpillar numbers also garnered some attention and more so as an indicator for what looks set to be another bleak year ahead for industrials. The latest quarterly earnings came in ahead of expectations (thanks to impressive cost control) but the company highlighted that they expect sales in the resource industries to fall between 15 to 20% this year, while sales in construction are expected to fall 5 to 10%.

Looking now at what’s set to be a busy day ahead. In the European session this morning, the main highlights are French Q4 GDP, CPI and PPI data along with German retail sales numbers for December. This will be closely followed by the Euro area advanced CPI core reading for January along with an estimate of the headline number. The focus this afternoon in the US will of course be on the Q4 GDP print while we will also get the quarterly ECI and PCE readings. The January Chicago PMI and ISM Milwaukee are also due before the final revision to the January University of Michigan consumer sentiment print. It’s a quieter day for earnings reports with just 18 S&P 500 companies due to give their latest quarterlies, with Chevron (pre-market) the highlight of the bunch. We’re also due to get comments from the Fed’s Williams (due at 8.30pm GMT) – the first Fedspeak since the FOMC meeting this week.