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A lack of economic releases didn’t stop Asian session players from being all over the place, as they turn cautious ahead of this week’s top catalysts.

  • Japan’s retail sales (y/y) jumps by 1.8% vs. 1.7% increase expected, 0.6% previous
  • BOJ tested as JGB 10-year yield jumps to 1 1/2-year high

Major Events/Reports:

Asian equities hit by yuan devaluation

Earlier today the People’s Bank of China (PBoC) set the onshore yuan mid-point at 6.8131, which is not only above the significant 6.8 mark but is also higher than last Friday’s 6.7942 setting.

For newbies out there, you should know that sharp currency devaluations can cause imbalances for the world’s second largest economy, and it could even lead to an escalation of the ongoing U.S.-China trade war.

Of course, it also doesn’t help that major central banks like the BOJ, BOE, and the Fed are all scheduled to share their monetary policy decisions over the next couple of days.

In any case, it was the equity markets that took the brunt of all the investors’ worries:

  • Nikkei is down by 0.65% to 22,565.9
  • A SX 300 is down by 0.10% to 6,271.6
  • Shanghai index is down by 0.16% to 28,610.1
  • Hang Seng is down by 0.67% to 2,961.0

Commodity prices didn’t fare much better, with gold bowing down to dollar strength while high-yielding oil benchmarks also took some hits.

  • Gold is down by 0.33% to $1,219.72
  • Brent crude oil is down by 0.11% to $74.25
  • U.S. WTI is down by 0.14% to $68.87

Markets test BOJ’s resolve

What better way to bring the get clues from the central bank than to test its resolve?

Earlier today Japan’s 10-year government bond yields hit a high of 0.110%, something that the Bank of Japan (BOJ) is REALLY uncomfortable with given that it’s aiming for “around zero” levels.

The central bank ended up offering to buy 10-year JGBs at a yield of 0.100% for a second day in a row today. This comes after it already broke a ceiling doing twice-a-week operations last week.

Will moves like these force Governor Kuroda and his team to adjust their policies and operations to allow a wider trading band on the 10-year yields?

Major Market Mover(s):

AUD

Forex traders used the Aussie as a substitute for the yuan and responded to the latter’s onshore moves accordingly.

AUD/USD is down by 11 pips (-0.15%) to .7390; AUD/NZD is down by 15 pips (-0.14%) to 1.0876; GBP/AUD is up by 39 pips (+0.22%) to 1.7730; EUR/AUD is up by 24 pips (+0.15%) to 1.5769, and AUD/JPY is down by 2 pips (-0.02%) to 81.14.

JPY

Markets tested the BOJ and the central bank rose to the occasion. Thanks to the BOJ’s operation, yen crosses edged higher across the board.

EUR/JPY is up by 19 pips (+0.14%) to 129.52; GBP/JPY is up by 25 pips (+0.17%) to 145.63; CHF/JPY is up by 14 pips (+0.12%) to 111.70, and NZD/JPY is up by 13 pips (+0.17%) to 75.52.

USD

There were no direct catalysts for the Greenback’s strength, though some of the Asian session traders could have been playing catch-up from last Friday’s strong U.S. GDP report.

USD/JPY is up by 17 pips (+0.15%) to 111.14, USD/CHF is up by 12 pips (+0.12%) to .9949, and USD/CAD is up by 15 pips (+0.12%) to 1.3074.

Watch Out For:

  • 7:00 am GMT: Switzerland’s KOF economic barometer (101.6 expected, 101.7 previous)
  • 7:00 am GMT: Spain’s flash CPI (y/y) to remain at 2.3?
  • 8:30 am GMT: U.K.’s net individual lending (5.3B GBP expected and previous)
  • 8:30 am GMT: U.K.’s mortgage approvals (66K expected, 65K previous)