JGBS: Market Cheaper After BoJ Policy Announcement

• China's bond futures are up in this morning's trade after a fourth straight day of liquidity injection during the OMO.
• The 10-year is up +0.05 at 107.985, but remains well below all major moving averages.  The nearest above is the 20-day EMA at 108.30.
• The 2-year bond future is up +0.01 to 102.34 nearing the 20-day EMA of 102.35.

• This morning's OMO injected CNY497bn of liquidity via 7-day reverse repo taking the four day tally of injections to CNY1.2bn.  
• Bonds yields are edging lower with the CGB10yr at 1.76% (from yesterday's close of 1.77%)

Some of the key Asian equity benchmarks are down sharply today, particularly those with a tech focus. This follows sharp US losses in this space during cash Tuesday trade. Tuesday saw some profit-taking after stalling around 6500 for the main US benchmark, as the market awaits Powell's Jackson Hole speech. Big Tech was hardest hit, having the largest concentration of positioning. We have also seen follow on US equity futures weakness, led by the tech side so far today. Nasdaq futures were last down a little over 0.50%, while Eminis were off close to 0.30%. 

• There are some outperformers within Asia Pac so far today, with New Zealand up over 1.6% after the dovish RBNZ 25bps rate cut. The NZX 50 was last around Jan highs.
• Conversely, Taiwan's Taiex is down around 2.5%, while the Kospi is off close to 2%, as these markets feel the brunt of tech related sell-off. Offshore investors have turned net sellers of these markets in recent sessions as well.
• The NKY225 is down by around 1.8% in Japan, while the Topix is down by 0.75%.
• China's CSI 300 is down a modest 0.1%, while the HSI is down by nearly 0.6% at the lunch time break. The HSI tech sub index is off by 1.26% though.
• In South East Asia, Indonesia is outperforming modestly, up +0.55%, while most other markets are down a touch. 

Governor Hawkesby reiterated that Q2 growth had disappointed and MPC member Silk clarified it was due to an “uncertainty shock”. This lower starting point then drove the downward revision to the OCR path as there was more spare capacity than previously estimated and needed to keep inflation sustainably in the band. Whether the MPC follows its OCR profile will be determined by developments.

• While views over the risks were diverse, the MPC was unanimous over the central profile for the OCR. This range of opinions reflects current heightened uncertainty.
• Chief Economist Conway noted that policy is now “around neutral” which means that it’s about the effect on the economy rather than exactly where it is relative to neutral. The concept is more important when rates are clearly above or below it.
• The MPC expected the NZD to decline following its decision given the vote and OCR path and is happy that the market moves will help to ease monetary conditions.
• The focus remains on the medium-term, which Hawkesby stated the RBNZ can influence. He noted that there is a 50% chance that inflation will exceed the 3% band ceiling in the short term, but that is a time frame they can’t control. He advised economic participants to make decisions based on “low and stable” inflation.
• The worst is over for the economy with the “uncertainty shock” now waning. It is estimated that around 50% of the 250bp of monetary easing has been transmitted and so there is a lot to come which is expected to boost consumption and dwelling investment.
• It appears that the replacement for external MPC member Buckle will be made by October but Hawkesby gave little away regarding when there will be a new Governor or who. He has applied but Chief Economist Conway and Assistant Governor Silk have not.