Morning Bid: Bank of Japan excites, Dow unlucky, Intel jumps

A look at the day ahead in U.S. and global markets from Mike Dolan

The Bank of Japan added its own twist to a week of rising central bank interest rates on Friday, and it proved an unlucky 13 for Dow Jones bluechips (.DJI) on Wall St.

The BOJ’s long-awaited tweak of its ultra-easy bond-buying monetary policy caused as much confusion as shock, sending long-term Japanese government bond (JGB) yields about 13 basis points higher but weakening the yen against a pumped up dollar – after some wild initial swings. The Nikkei stock benchmark (.N225) fell back marginally.

Specifically, the central bank said it would offer to buy 10-year JGBs at 1.0% in fixed-rate operations, instead of the previous rate of 0.5% – tolerating the wider band for bond market borrowing rates.

But it seemed loth to indicate a major change of tack, preferring to characterise the move as a desire for more flexibility. With July core inflation in Tokyo falling back to a 10-month low, the need for tightening may be ebbing anyway.

After a week in which the Federal Reserve and the European Central Bank delivered quarter-point interest rate hikes – while signalling those could be the last of the cycle – the market mood remained relatively upbeat.

As press speculation of the BOJ’s policy tinkering seeped around markets late on Thursday, Treasury yields popped high and Wall St stocks pulled back – ending the Dow’s hopes of a longest winning streak in more than a century. It settled for 13 straight gains through Wednesday instead – the most since 1987.

The stock market stalling came after the ECB decision and an impressive array of U.S. economic updates that revealed an unexpected acceleration of U.S. gross domestic product in the second quarter even as inflation gauges subsided – and another strong weekly reading of the jobs market.

Friday’s data is expected to show another drop in the Fed’s favoured core PCE inflation gauge in June.

Deep in the weeds of a forecast-beating corporate earnings season, shares in chipmaker Intel (INTC.O) surged 7% after the bell after the firm reported a surprise profit and third-quarter guidance well ahead of Wall St estimates. Chip stocks were lifted across the board.

With “Big Oil” topping the earnings diary on Friday, some 78% of S&P500 firms have beaten estimates so far – giving an aggregate 6.8% drop in year-over-year profits and steady revenue.

For markets more broadly, Friday seems a little scattergun so far after a heavy week of macro policy and corporate news.

S&P500 futures were back higher ahead of the open, with European bourses down a touch and China’s indexes outperforming in Asia. The VIX volatility gauge (.VIX) settled below 14 after some outsize swings on Thursday.

U.S. Treasury yields fell back from two-week highs hit after the punchy U.S. economy readouts and central bank moves, with the 2-to-10 year yield curve steepening as recession fears abate.

The dollar (.DXY) climbed to its highest level in more than a fortnight, with euro/dollar diving back under $1.10 on dovish ECB signals about the end of the rate rise campaign following its latest hike on Thursday.

Events to watch for on Friday:

* U.S. corp earnings: Exxon Mobil, Chevron, Proctor & Gamble, Colgate Palmolive, T Rowe Price, Aon, Centene, Franklin Resources, Newell Brands, Church & Dwight, Charter Communications

* U.S. June personal income/consumption and PCE inflation gauges, Q2 employment cost index, Dallas Fed issues June Trimmed Mean PCE Price Index, University of Michigan final July sentiment readings

By Mike Dolan, editing by Nick Macfie <a href=”mailto:mike.dolan@thomsonreuters.com” target=”_blank”>mike.dolan@thomsonreuters.com</a>. Twitter: @reutersMikeD

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