Arguably the biggest event overnight was yesterday’s BOJ announcement which was widely expected to be non-event, yet ended up being anything but, when, as expected, the Bank of Japan did announce it would keep overall JPY80 trillion monthly QE unchanged, as forecast by 41 of 42 economists, however it also announced it would extend the average maturity of JGB holdings to 7-12 yrs, would establish a new program for ETF purchases targeting the stocks issued by companies “proactively making investment in physical and human capital”, and lastly would boost the maximum issue amount of each J-Reit to be bought from current 5% to 10%.

And so the market was suddenly wrong footed assuming the BOJ was actually launching another episode of easing, sending the USD/JPY soaring, until suddenly the realization swept the market that not only was the incremental action not really material, but even Kuroda spoke shortly after the announcement, confirming that “today’s decision wasn’t additional easing.”

The result was one of the biggest FX head-fakes in recent days, perhaps on par with that from December 4 when EUR shorts were crushed, as the biggest carry pair first soared then tumbled…

… and since the Yen correlation drives so many risk assets, also pulled down not only Japanese stocks but US equity futures. Specifically, the Nikkei initially surged as much as +2.50% immediately post the headlines, but has actually faded since and closed down 1.90%. The Yen was also nearly 1% weaker but it is actually a touch firmer on the day now as we go to print, while 10y JGB yields are down 1bp

The second most important overnight event was the release of the latest Chinese “Beige Book”, which revealed that China’s economic conditions deteriorated across the board in the fourth quarter, raising doubts over “whether it’s successfully transitioning from manufacturing to services-led growth, according to a private survey from a New York-based research group.”

As Bloomberg reports, “national sales revenue, volumes, output, prices, profits, hiring, borrowing, and capital expenditure were all weaker than the prior three months, according to the fourth-quarter China Beige Book, published by CBB International and modeled on the survey compiled by the Federal Reserve on the U.S. economy.”

The profit reading is “particularly disturbing,” with the share of firms reporting profit gains slipping to the lowest level recorded, CBB President Leland Miller wrote in the report. While retail and real estate held up reasonably well, manufacturing and services performed poorly, with revenues, employment, capital expenditure and profits weakening.

And then, the cherry on top of a turbulent pre quad-witching session, was the announcement by Ukraine that it would default on a $3 billion bond to Russia, largely as expected.

What was not expected was the continuing tremors in commodities, which contrary to endless calls that this dip is to be bought, continued sliding:

And while it’s not news as we have been warning about it for the past two weeks (and again last night), today’s quad-witching with the biggest S&P options expiration in years (mostly puts) will assure a violently volatile, illiquid session.

Looking closer at regional markets, Asian stocks traded mostly lower following the weak close on Wall St. amid continued weakness in the commodities complex coupled with a reversal of the post¬FOMC rally, while volatility was observed among Japanese asset classes after the BoJ decided to stand pat on policy but announced new ETF asset measures. As a result, the Nikkei 225 (-1.9%) swung between gains and losses before ultimately trading in negative territory as some viewed the measures as not that significant, while large mining names capped gains in the ASX 200 (+0.1%). Elsewhere, Chinese bourses pared their commodity triggered slump with the Shanghai Comp. (0.0%) relatively flat after gains in developers, who benefitted on the back of better than prior Chinese property prices, offset material weakness in the index. Finally 10yr JGBs tracked USTs higher, while the risk off sentiment in the region also supported inflows into the safe asset.