Following yesterday’s Fed decision and ahead of tonight’s far more important BOJ announcement, European stocks have posted modest declines, Asian shares rise toward 9-month highs, while U.S. equity index futures are fractionally in the green in the aftermath of Facebook’s blowout earnings. The dollar has extended on losses after Yellen reiterated a gradual approach to raising interest rates, with the BBDXY down 0.5% in early trading after slipping 0.4% over the previous two sessions.

A re-read of the Fed statement by traders, initially seen a hawkish, suggested no guidance for a September hike and as such the US currency weakened against all but two of its 16 major peers as bets on a rate hike in 2016 first rose but ultimately dropped below 50%. “We’re seeing broad dollar weakness,” said Yuji Kameoka, chief foreign exchange strategist at Daiwa. “Even though the Fed did note some improvements in the economy, a rate hike in September still isn’t certain.”

“The Fed detailed that they see near-term risks diminished, but read between the lines and they still see medium- and long-term risks,” said Chris Weston, chief market strategist at IG. Japan has “the fiscal spending package out of the way and that seems to be in line with the sort of upper end of expectations, but we don’t see it being a huge catalyst for markets to move materially higher.”

Janet Yellen has repeatedly stated that the Fed is likely to raise borrowing costs gradually, though market volatility and an unexpected dip in job gains have delayed such plans. In Japan, traders are looking ahead to Friday’s monetary policy review, after Prime Minister Shinzo Abe announced a fiscal-stimulus package exceeding 28 trillion yen ($267 billion) on Wednesday in a bid to jump-start the economy.

And with the Fed now off the table, all eyes turn to Kuroda in anticipation of just what stimulus program the BOJ will announce tonight, and whether it will unveil the first case of helicopter money – in whatever form – in recent history. “The Fed’s decisions were expected,” said Mitsushige Akino of Ichiyoshi Asset Management Co. “There’ll be a tug of war between selling on expectations the BOJ will disappoint, and short covering for individual shares that will push the market up.” That indeed about sums up the market action over the past 6 months: central banks on one side, and short covering on the other.

Elsewhere, Facebook soared to new all time highs after reporting a 59% jump in sales, and miners led gains in European equities after Anglo American’s first half revenue and profit surpassed analysts forecasts.  As Bloomberg once again reminds us, positive corporate earnings and signs central banks will step in to support economic growth have helped lift global equities to their biggest monthly gain since March. While admitting risks to the U.S. economy had subsided, the Fed left interest rates unchanged on Wednesday as policy makers take stock in the wake of the U.K.’s vote to leave the European Union.

Oil continues to trade near the lowest close in more than 3 months as data showed U.S. crude stockpiles unexpectedly rose, despite the following brilliant piece of insight by Citi’s Ed Morse this morning on Bloomberg TV: “We’re going to rebound, the question is timing”.  Nickel led base metals higher.

Rates on Japanese notes climbed by two basis points to minus 0.275 percent. Ten-year U.S. Treasuries were little changed following last session’s six basis-point slide. And moments ago the yield British 10Y Gilts dropped to a new record low below 0.7%.

Today sees another busy session in terms of US earnings, with the likes of Mastercard and Ford announcing pre market, while after the Wall St. close, large caps Amazon and Alphabet take centre stage as another 65 S&P companies report results.

Market Snapshot

• S&P 500 futures up 0.2% to 2165
• Stoxx 600 down 0.4% to 342
• FTSE 100 down 0.1% to 6742
• DAX up less than 0.1% to 10322
• German 10Yr yield down less than 1bp to -0.08%
• Italian 10Yr yield up less than 1bp to 1.21%
• Spanish 10Yr yield up less than 1bp to 1.11%
• S&P GSCI Index up 0.3% to 340.3
• MSCI Asia Pacific up 0.1% to 135
• Nikkei 225 down 1.1% to 16477
• Hang Seng down 0.2% to 22174
• Shanghai Composite up less than 0.1% to 2994
• S&P/ASX 200 up 0.3% to 5557
• U.S. 10-yr yield up less than 1bp to 1.5%
• Dollar Index down 0.63% to 96.44
• WTI Crude futures up 0.3% to $42.03
• Brent Futures down 0.2% to $43.40
• Gold spot up 0.1% to $1,342
• Silver spot down less than 0.1% to $20.35

Top Global News

• Credit Suisse Returns to Surprise Profit in 2Q: CET1 ratio rises 40 basis points to 11.8% from 1Q
• GoPro Beats Estimates and Forecasts Return to Profitability: co. benefited from renewed demand for action cameras ahead of introduction of a new model later this year
• Obama, Biden Say Hillary Clinton Is Only Choice: party heavyweights draw contrast between Clinton, Trump
• Obama Passes Torch to Clinton and Prepares to Run for Legacy
• Facebook Revenue, Users Top Estimates as Mobile Ads Surge: sales climb 59%, with mobile bringing in 84% of ad revenue
• Lloyds to Cut 3,000 Jobs in Expense Push After Brexit Vote: bank’s 1H underlying profit topped analyst estimates
• Suncor Swings to Loss as Alberta Wildfires Lower Production: wildfires prompted shutdown of as much as 40% of Canada supply
• Euro-Area Economic Confidence Unexpectedly Improves After Brexit:
• China Said to Legalize Uber, Didi Ride-Hailing as War Rages: Regulations to take effect November
• Adidas Raises Full-Year Forecast Amid Chelsea Payment Boost: CEO Hainer points to momentum in 2H and beyond
• AstraZeneca Profit Drops as Focus Shifts to Newer Medicines: co. reiterates 2016 forecast with minimal currency impact
• Shell Earnings Tumble to 11-Year Low on Oil, Weaker Refining: profit misses analyst estimates by more than $1b
• Cnooc Expects 1H Net Loss of About 8b Yuan
• BHP to Book Charge of as Much as $1.3b on Samarco: restart of Samarco operations now seen unlikely in 2016

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Looking at regional markets, Asia stocks traded mostly lower following a mildly cautious Fed and as participants look ahead to the BOJ decision. Nikkei 225 (-1.1%) was the laggard amid profit taking and a firmer JPY as the BoJ kick-started its 2-day policy meeting in which there are mixed calls on further easing. ASX 200 (+0.3%) outperformed as continued gains in iron ore underpinned the materials sector, while Shanghai Comp (+0.1%) pared its losses despite the securities regulator tightened rules for major shareholders regarding purchasing additional stakes in an attempt to restrict hostile takeovers. 10yr JGBs traded lower with a lack of demand seen ahead of the BoJ meeting, while today’s 2yr auction was also uninspiring with the lowest expected price missing expectations, while tail in price widened and bid/cover declined from prior.

Top Asian News

• Abe Fiscal Plan Is Said to Include About $67b in Spending: A further 6t yen seen as funds for state-run firms
• Nomura’s 1Q Profit Declines Less-Than-Estimated 32%: Higher trading income tempers slump in brokerage commissions
• Nissan Profit Declines on Yen, Mitsubishi Motors Posts Loss: Mitsubishi selling stake to Nissan after mileage scandal
• SoftBank Profit Climbs on Proceeds From Alibaba Stake Sale: 1Q profit rises 19%
• Samsung Profit Tops Estimates on S7, Lower Marketing Costs: Co. to buy back, cancel 1.79t won of shares
• GIC Warns of Muted Market Returns as Fund Performance Slumps: 20-year annualized real rate of return falls to 4%
• OCBC Profit Slumps 15% as Loans, Insurance Income Decline: Smaller rival UOB separately reports 5% gain in net income

In Europe, today sees yet another session dictated by the latest slate of earnings, with most European equities in the red, albeit with no significant losses (Eurostoxx 50: -0.11 %). This also follows suit from US and Asian bourses which were subdued post the FOMC meeting in which the central bank highlighted that although near term risks have diminished, inflation expectations remain low. In terms of the breakdown for individual indices, the CAC 40 outperforms (+0.2%) with earnings from banking heavyweight BNP Paribas (+0.9%) helping to support the index. Elsewhere, the FTSE 100 (-0.2%) has been dragged lower by likes of Lloyds (-3%) and Shell (-4%). In credit markets, Bunds have spent the morning trading in a tight range, residing below 167.50 heading into the North American open, while the yield curve has seen some notable flattening.

Top European News

• VW Brand Profit Falls as Cost Cuts Can’t Outweigh Crisis Fallout: 2Q VW brand profit margin drops to 2.9% of sales
• BNP Rises After Beating Estimates Amid Surge in Bond Trading: CFO says investment bank to grab share from retreating rivals
• German Unemployment Declines as Companies Shrug Off Brexit Woes: jobless rate unchanged at 6.1%, lowest since reunification
• Spanish Jobless Falls to Almost 6-Year Low Amid Recovery: unemployment rate drops to 20% as economy pushes ahead
• Total Profit Beats Estimates as Cost Cuts Deepen Amid Slump: co. will surpass $2.4b cost-reduction target
• Anglo’s Year of the Turnaround Puts Debt Targets Within Reach: Anglo is selling assets and focusing on copper, diamonds; shares gain 5.9% in London, adding to a 183% rally this year
• Danone 1H Earnings Top Estimates on Price Increases: higher prices drove revenue advance as volume misses consensus
• Telefonica Earnings Drop as Currencies Hurt Latin America Sales: Spain sales recovering, South America revenue declining

In FX, the Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, lost 0.5% in early trading after slipping 0.4 percent over the previous two sessions. South Korea’s won rose to a nine-month high, leading the charge along with Malaysia’s ringgit and the New Zealand dollar.“We’re seeing broad dollar weakness,” said Yuji Kameoka, the chief foreign exchange strategist at Daiwa Securities Co. in Tokyo. “Even though the Fed did note some improvements in the economy, a rate hike in September still isn’t certain.” The yen climbed 0.6 percent to 104.73 per dollar after dropping 0.7 percent on Wednesday. A majority of economists polled by Bloomberg predict Bank of Japan Governor Haruhiko Kuroda will boost asset purchases on Friday and lower the already negative key rate. The pound slipped 0.1 percent to $1.3207 as swaps trading indicates the Bank of England is certain to cut its key rate on Aug. 4.

In commodities, WTI rose 0.1% to $41.95 a barrel after sinking almost 7 percent over the past five sessions and reaching its lowest settlement price since April 19. Crude inventories climbed by 1.67 million barrels last week as production increased, the Energy Information Administration reported, after analysts surveyed by Bloomberg had forecast a 2 million-barrel decline. Gasoline stockpiles also expanded amid the U.S. summer driving season, which is set to end Sept. 5 on Labor Day. “There is still a surplus and the oil price is going to have difficulty sustaining any rally because of that,” David Lennox, an analyst at Fat Prophets in Sydney, said by phone. “We’re now heading toward the end of the drive season and the market is probably going to weaken further. The $40 a barrel level looks like the base at the moment.” Gold for immediate delivery rose 0.1 percent to $1,341.28 an ounce after gaining 1.9 percent over the previous two sessions. Nickel rose 1.8 percent in London, while copper in New York rebounded
1.1 percent from the lowest close in more than two weeks. A weakening
dollar lends support to commodities priced in the greenback.

Looking at today’s calendar, today we get the June advance goods trade balance reading, initial jobless claims and finally the Kansas City Fed’s manufacturing survey. The US Census Bureau is also due to release a new ‘advance economic indicators report’ this afternoon which will combine the advance goods trades balance data with new estimates of retail and wholesale inventories for June. This means that forecasters will now have more complete information on the Bureau of Economic Analysis’ inventories assumptions for the final month of the quarter prior to tomorrow’s Q2 real GDP release. Away from the data it’s another busy day on the earnings front. 68 S&P companies are due to report including Alphabet. ConocoPhillips, Amazon and Ford Motor. A number of European banks also report today including Credit Suisse, BNP Paribas and Lloyds.

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Bulletin Headline Summary from RanSquawk and Bloomberg

• Newsflow remains dicated by earnings in Europe, with large caps such as Shell, Total and Credit Suisse all reporting today
• Elsewhere, markets remain relatively subdued ahead of the key risk event in the form of BoJ rate decision
• Highlights today include German national CPI, US Initial Jobless Claims, ECB’s Coeure and Earnings from Alphabet and Amazon
• Treasuries little changed in overnight trading after rallying 4bp-7bp post-FOMC decision yday, global equities mostly lower; week’s auctions conclude with $28b 7Y notes, WI yield 1.35%, compares with 1.497% awarded in June, lowest 7Y auction stop since 1.496% in May 2013
• About one quarter of Japanese Prime Minister Shinzo Abe’s new 28 trillion yen ($267 billion) economic stimulus includes actual spending, according to a person familiar with the matter
• Credit Suisse unexpectedly returned to profit in the second quarter, with all operating units contributing to earnings, as Chief Executive Officer Tidjane Thiam eliminated hundreds of jobs and cut costs
• Lloyds Banking Group will cut a further 3,000 jobs as it warned Britain’s vote to leave the European Union would hurt its ability to boost dividend payments
• Nomura first-quarter profit fell less than analysts estimated as an increase in trading income and a rebound abroad damped the impact of a slump in brokerage commissions
• Euro-area economic confidence unexpectedly improved in July in a sign that the immediate impact on growth of Britain’s surprise vote to leave the European Union may be muted
• German unemployment extended its decline in July, in a sign that Europe’s largest economy is showing resilience to uncertainty unleashed by Britain’s vote to leave the European Union
• Spanish unemployment fell to the lowest in almost six years in a fresh sign the economy is pushing ahead even as lawmakers struggle to form a government that can end an unprecedented seven-month political deadlock
• When all else fails, lend. That’s the strategy of some of the biggest U.S. insurers as they seek higher returns in an investment universe where buying bonds sometimes means guaranteed losses
• Turkey’s post-putsch purge of dissent reached deeper into the economy as authorities shuttered scores of media outlets, detained the head of a major company and banned the chief strategist of a leading brokerage

DB’s Jim Reid concludes the overnight wrap

There is also an element of torture to the FOMC cycle in recent years. The pattern for the Fed is that you slowly talk up the prospects of an imminent hike, you then get closer to it, build it up even more and then just before you pull the trigger something invariably happens in this broken global financial system to force you to pull back and start from scratch. Last night’s statement from the Fed hinted that they are starting this process again though. As we expected it was slightly more hawkish (i.e. leaving the door ajar for September) but it’s clear that there’s a way to go yet before they feel they can safely pull the trigger.

The big takeaway from the statement was the observation that ‘near term risks to the economic outlook have diminished’. Much of that will likely reflect much calmer markets post Brexit and also the bounce back in employment data since that weak May payrolls print. On that the statement showed that committee members viewed recent job gains as being ‘strong’ and also that labour utilization has shown ‘some increase’. Also noted was the observation that household spending has ‘been growing strongly’. On the inflation side of things, there wasn’t really much of a change in view with the statement revealing that ‘market-based measures of inflation compensation remain low’ and that ‘most survey-based measures of longer-term inflation expectations are little changed, on balance in recent months’.

Unsurprisingly there was no guidance as to when the Fed might next hike and market probabilities based on futures pricing were actually fairly little moved. The odds of a September hike are hovering around 26% this morning, while December is at 45%. That compares to 28% and 49% prior to the statement. The biggest reaction in markets has probably come in FX where interestingly the US Dollar is down -0.75% or so relative to just prior to the statement release. Treasury yields also dipped lower although were given a helping hand by the soft durable goods orders data earlier in the day (more on that shortly). The benchmark 10y yield ended 6bps lower at 1.498% while 2y yields were nearly 4bps lower. Credit was slightly stronger, with CDX IG closing 1.1bps tighter while equity markets ended up little changed. The S&P 500 closed -0.12%, notwithstanding a very modest post statement bounce, before retreating again into the close. The Dow (-0.01%) was also close to unchanged although the Nasdaq was +0.58%. Gold rallied +1.50% and WTI Oil (-2.33%) extended its slide below $42/bbl. More bearish inventory data didn’t help matters there.

In fairness equity markets also had to contend with a raft of earnings reports. Coca-Cola shares weakened 3% or so after just beating on earnings, but missing sales expectations and also guiding towards further earnings declines in the rest of the year ahead with management citing a tougher environment outside the US. Boeing shares were a shade higher after the company reported a smaller than expected loss, although guidance for the full year was trimmed following a write-down. Facebook then reported after the close and saw a decent beat relative to both earnings and revenue consensus forecasts on surging advertising revenues (jumping a fairly incredible 63% yoy). This sent shares up 5% in extended trading.

This morning in Asia the tone for the most part is slightly weaker. Japanese bourses in particular have retreated following those big gains yesterday post the fiscal stimulus news below. The Nikkei and Topic are -0.81% and -0.69% respectively. In China the Shanghai Comp is -0.62%, while the Hang Seng (-0.34%) and Kospi (-0.41%) are both in the red. Only the ASX (+0.40%) is up this morning.
After we went to print yesterday Japan’s PM Shinzo Abe unveiled the government’s plans for an economic stimulus package worth over ¥28tn. The Cabinet is expected to approve the package on August 2nd. The PM highlighted that the package would include ¥13tn in fiscal measures. Our Japan economists estimate that the fiscal measures include about ¥6tn in national and regional fiscal spending and ¥6tn for the Fiscal Investment and Loan Program (FILP). The remaining ¥15tn, in conjunction with government subsidies, is expected to include lending by the private sector as well as loans provided by government financial institutions unrelated to FILP, and would not likely provide much of a direct boost to GDP.

It’ll be interesting to see how that impacts the BoJ tomorrow which alongside the results of the EBA Stress Test results tomorrow night at 9pm BST will make for a high impact end to the week. These tests are widely considered to be a catalyst for at least some action to address the NPL problem for Italian banks. At the very least, it is expected that a solution for Monte Paschi (which publishes its half-yearly report on the same day) will be known before next week.

In terms of yesterday’s data, headline durable goods orders in the US in June were a fair bit weaker than expected at -4.0% mom (vs. -1.4% expected) which is the biggest fall since August 2014, weighed down primarily by a big decline for aircraft and parts. Core capex orders did however rise +0.2% mom as expected, while core shipments (-0.4% mom vs. +0.4% expected) declined unexpectedly. As a result of all that the Atlanta Fed trimmed their Q2 GDP forecast to 2.3% from 2.4%. It’s worth noting that the street is at 2.6% for tomorrow’s GDP report. Pending home sales data yesterday covering June did little to move the dial (+0.3% mom vs. +3.0%) despite sales increasing less than expected.

Prior to this in Europe we learned that both Germany (-0.1pts to 10.0; 9.9 expected) and France (-1pt to 96; 96 expected) consumer confidence readings for August and July remained resilient post Brexit. In the UK Q2 GDP printed at a slightly above market +0.6% qoq (vs. +0.5% expected) which had the effect of lifting the YoY rate by two-tenths to +2.2% yoy which is the highest since Q2 last year. Clearly though the post Brexit PMI’s paint the UK in a slightly different light. Finally the ECB released its M3 money supply growth data which showed the growth rate as rising one-tenth to +5.0% yoy. Our European economists also highlighted that lending to households grew in June, along with lending to corporates. They highlight that credit to households and corporate is currently growing at +1.7% yoy. European equity markets edged higher yesterday (+0.43%) with Banco Santander, LVMH and Telecom Italia earnings reports all helping matters.

Looking at today’s calendar, we’re kicking off this morning in Europe with UK house price data for July shortly after this hits your emails, closely followed by the unemployment rate print for Germany, confidence indicators for the Euro area in July and the flash July CPI for Germany. This afternoon in the US we’ve got the June advance goods trade balance reading, initial jobless claims and finally the Kansas City Fed’s manufacturing survey. The US Census Bureau is also due to release a new ‘advance economic indicators report’ this afternoon which will combine the advance goods trades balance data with new estimates of retail and wholesale inventories for June. As our US economists note, this means that forecasters will now have more complete information on the Bureau of Economic Analysis’ inventories assumptions for the final month of the quarter prior to tomorrow’s Q2 real GDP release. Away from the data it’s another busy day on the earnings front. 68 S&P companies are due to report including Alphabet. ConocoPhillips, Amazon and Ford Motor. A number of European banks also report today including Credit Suisse, BNP Paribas and Lloyds.