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Asian equities are broadly lower today as Chinese shares lost momentum after a strong open. The market downturn was driven by disappointment over the lack of fresh stimulus from China’s National Development and Reform Commission. Investors had expected more action to support China’s growth, but officials reiterated existing policies without introducing new measures.
This weighed on broader risk appetite, with the AUD underperforming in the G10 FX space. Aussie Bonds were also higher after the RBA minutes.
US Tsys futures have ticked higher throughout the session with the front-end outperforming. There has been multiple Fed speakers through the session, while multiple block steepener trades have also occurred throughout the day which has supported the move.
Later the Fed’s Kugler, Bostic and Collins and ECB’s de Guindos, Schnabel and McCaul speak. In terms of data, US August trade and German August IP print.
Tsys futures have ticked higher throughout the session with the front-end outperforming. There has been multiple Fed speakers through the session, while multiple block steepener trades have also occurred throughout the day which has supported the move. TU is +03⅛ at 103-15⅝, while TY is trading +06+ at 112-22
The cash tsys curve has bull-steepened with the 2yr yield -4.3bps at 3.952%, while the 10yr is -2.3bps at 4.002%. The 2s10s has crept slightly off session highs of 5.856 to trade +2.040 at 4.869 now
In August, Japanese investors made a record purchase of ¥5.59t in US tsys, as shown by the latest balance-of-payments data from Japan's Ministry of Finance.
The Fed's Musalem supported the decision last month to cut interest rates by 50bps but prefers future reductions to be gradual. He emphasized the need for caution, noting that easing too much too soon carries more risk than easing too little. Musalem expects inflation to converge to the Fed’s 2% target over the next few quarters and supports further gradual rate cuts.
The Fed's Williams expressed confidence that the US central bank is "well positioned" to achieve a soft landing for the economy. He believes current monetary policy supports both economic and labor market strength while guiding inflation toward the 2% target.
Fed funds futures are steady this morning, with Nov futures pricing in 22bps of cuts, and 50.4bps of cuts now priced in by the December meeting.
Today we have Trade Balance while focus will turn to Wednesday's minutes for the September FOMC, CPI on Thursday and PPI Friday
In Tokyo morning trade, JGB futures are holding a downtick, -2 compared to settlement levels, after initial post-30Y-supply strength was reversed.
Today’s 30-year supply was well absorbed, with the low price beating dealer expectations, the cover ratio steady and the auction tail shortening.
Outside of the previously outlined labour cash earnings and current account balance data, there hasn't been much by way of domestic drivers to flag.
Cash US tsys are 2-4bps richer, with a steepening bias, in today’s Asia-Pac session after Fed's Musalem stated that the current monetary policy path remains appropriate despite recent jobs data.
We have limited US data today, with the focus on the minutes for the September FOMC tomorrow, CPI on Thursday and PPI on Friday.
Cash JGBs are mixed across benchmarks beyond the 1-year (+1.9bps), with yield swings bounded by +/- 1bp. The belly of the curve has outperformed with the benchmark 7-year yield ~1bp lower at 0.656%. The 30-year yield is unchanged at 2.126% versus a pre-auction high of 2.1430%.
The swaps curve has twist-steepened, with rates 1bp lower to 1bp higher.
Tomorrow, the local calendar will see Machine Tool Orders.
Japan labour cash earnings for August were reasonably close to expectations. The headline nominal measure rose 3.0%y/y against a 2.9% forecast and a 3.4% July outcome. In real terms we were -0.6%y/y, against a 0.5% forecast and prior 0.3%.
Same sample base cash earnings were 3.1% y/y, against a 4.7% prior outcome (the consensus was 3.2%). On scheduled full-time pay, we were 2.9%y/y in same base terms, against a 3.0% forecast, which was also the prior outcome.
In terms of the detail, contracted earnings were 3.0%y/y, while bonus payments were 2.7% y/y, down from the 6.6% pace seen in July.
On the same sample basis, part time payments picked up to 4.1% y/y, 3.1%, while full time edged down.
Employment was 1.2% y/y, same as July. Hours worked were -0.6% y/y, against a 0.3% July outcome.
Real household spending was down -1.9% y/y, not as much as forecast (-2.6%). The chart below plots spending (white line) and real cash earnings in y/y terms. Note spending was up 2.0% in m/m terms. Real incomes rose 2% y/y, nominal income was up 5.6%y/y.
The trends around labour cash earnings and spending still appear positive, albeit somewhat volatile in y/y terms. It's unlikely to shift near term BoJ thinking, while the new Japanese government remains focused on driving positive real wage gains.
Fig 1: Japan Labour Earnings & Spending Pulled Back In August
RBA Governor Bullock said in September that the discussion format had changed to reflect that the Board isn’t ruling “anything in or out” and so it focussed on scenarios that could shift rates in either direction. The minutes give further details on these scenarios. The RBA was firmly on hold and a rate cut before February seems unlikely.
“Not enough had changed” since the last meeting to warrant altering the level of restrictiveness. The current rate “best balanced the risks to inflation and the labour market”. As a result, policy “would need to be sufficiently restrictive” until the Board was “confident” that “inflation was moving sustainably” towards target.
In terms of scenarios, the Board considered stronger consumption growth due to more robust household disposable income. This would strengthen the labour market resulting in inflation returning to target slower than expected, requiring policy to remain restrictive or tighten further.
More constrained capacity was also discussed and would need rates to be “noticeably higher” than assumed in August to reduce inflation.
If financial conditions prove not restrictive enough to bring inflation to target, then tighter policy may be needed. This was “plausible” due to recent easing in markets and increased credit growth.
Policy could be “less restrictive” though if the economy was “significantly weaker than expected” from higher household saving and significant uncertainty, or if “inflation proved less persistent than assumed” due to a sharper fall in rents and commodities reducing costs.
The RBA was clear that it doesn’t need to follow other central banks as Australian inflation is higher, labour market stronger and policy less restrictive. The AUD can also adjust.
ACGBs (YM +5.0 & XM +3.0) are stronger after today’s release of the RBA Minutes for the September meeting.
RBA Governor Bullock said in September that the discussion format had changed to reflect that the Board isn’t ruling “anything in or out” and so it focussed on scenarios that could shift rates in either direction.
“Not enough had changed” since the last meeting to warrant altering the level of restrictiveness. Policy “would need to be sufficiently restrictive” until the Board was “confident” that “inflation was moving sustainably” towards target.
Cash US tsys are 2-5bps richer, with a steepening bias, in today’s Asia-Pac session after Fed's Musalem stated that the current monetary policy path remains appropriate despite recent jobs data.
Cash ACGBs are 2-3bps richer after today’s releases but remain sharply cheaper versus Friday’s close.
Swap rates are 10-15bps higher than Friday’s closing levels.
The bills strip is richer, with pricing flat to +5.
RBA-dated OIS pricing is 2-3bps softer after the Minutes but remain 10-21bps firmer than Friday’s closing levels for 2025 meetings.
Tomorrow, the local calendar will see a speech from RBA's Kent alongside the AOFM’s planned sale of A$500mn of the 3.25% 21 June 2039 bond.
NAB business confidence and conditions improved in September. Confidence was -1.9 up from -4.5, but it has been close to zero for around two years. Conditions have been slowing for around the same time but may have stabilised. They rose over 3 points to 6.9 in September, in line with the historical average. The good news was that price and cost components all eased.
The improvement in business conditions was driven by trading, profitability and employment, which appears to have also stabilised above zero.
The outlook remains soft with orders low at only -4.7 but Q3 improved to -4.6 from -7.1 in Q2. Inventories rose in September though which may reduce future purchasing. Exports also deteriorated last month.
Australia NAB business conditions vs orders
Source: MNI - Market News/Refinitiv
Only labour costs remained above the series average in September rising 1.7% 3m/3m but down from 1.8%, while the other inflation measures are now in line or below. Purchase costs rose 1.2% down 0.4pp and the lowest increase since February 2021.
Lower cost pressures are helping to bring price increases down but softer demand also seems to be helping, as NAB price measures rose less than costs. Final product prices rose 0.5% down from 0.7%, also the lowest since February 2021, while retail prices were up 0.5% after 1.2% in August, to be the slowest rate since the Covid-impacted October 2020.
Westpac consumer confidence for October rose 6.2% m/m to 89.8, the highest level since May 2022 when RBA tightening began, but it remains pessimistic. The improvement was driven by a better economic outlook helped by falling rate hike expectations and easing price pressures. Westpac expects the RBA to soften its tone in the November 5 statement.
The Westpac-Melbourne Institute mortgage rate expectations index fell 14.1% in October and is now at its lowest since Covid when rates were cut. “Just over half of consumers” believe that rates will be steady or down over the year ahead up from around a quarter 3 months ago. The RBA last hiked in November last year and the survey showed that stable mortgage rates are supporting households.
The “economic outlook, next 12 months” rose 14.3% and is now moderately above its historical average. As a result, unemployment expectations fell 6.2% m/m to their average.
Family finances improved modestly as cost-of-living pressures are only gradually easing. Compared to a year ago they have improved 16.8% since May but are still well into negative territory implying that fiscal measures are only having a moderate impact. The outlook though is more positive with the index close to the neutral 100-mark.
The “time to buy a major household item” increased 3% m/m but is still significantly below the average signalling continued soft consumer expenditure.
Home buyers remain pessimistic as affordability is very weak but the “time to buy a dwelling” improved 2.5% m/m helped by government first-time buyer assistance. Price expectations increased 1.8% m/m.
The RBNZ meets on Wednesday October 9 and is widely expected to cut rates 50bp to 4.75% but with inflation and labour market data not due until after the meeting, it is a close call. Four of the 23 analysts on Bloomberg expect a 25bp reduction and the NZIER is split 5 to 4 between 50bp and 25bp.
Inflation indicators are pointing to Q3 CPI coming in below the top of the RBNZ’s target band of 1-3%, while activity data confirmed that currently the economy is in the “darkest period”.
The timing of the upcoming meetings is also likely to be important. There are 7 weeks between the two meetings and the RBNZ may feel that it cannot wait that long as the economy needs monetary “restraint” reduced at a faster pace than implied in August’s OCR profile. The other consideration is that there are only two meetings before mid-February.
NZGBs closed flat to 2bps richer across benchmarks after dealing in narrow ranges in today’s local session. With the domestic calendar empty today, local participants largely sat on the sideline ahead of Wednesday’s RBNZ Policy Decision.
However, swap rates closed 1-5bps higher with a flatter 2s10s curve.
RBNZ dated OIS pricing closed 4-20bps firmer across 2025 meetings.
For Wednesday's RBNZ Policy Decision, the market is pricing in a 74% chance (44bps) of a 50bp cut, with 88bps of easing by year-end.
Tomorrow, the local calendar is empty.
We have limited US data today, with the focus on the minutes for the September FOMC tomorrow, CPI on Thursday and PPI on Friday. Note, that Friday also sees the start of the latest earnings cycle with Bank of NY Mellon, Wells Fargo, JP Morgan and Blackrock announcing.
Cash US tsys are 2-5bps richer, with a steepening bias, in today’s Asia-Pac session after Fed's Musalem stated that the current monetary policy path remains appropriate despite recent jobs data.
On Thursday, the NZ Treasury plans to sell NZ$200mn of the 0.25% May-28 bond, NZ$250mn of the 4.25% May-34 bond and NZ$50mn of the 1.75% May-41 bond.
RBNZ-dated OIS pricing closed 4-20bps firmer across 2025 meetings compared to Friday’s closing levels, with the more distant seeing the greatest movement.
For Wednesday's RBNZ policy decision, the market is pricing a 74% probability (44bps) of a 50bp rate cut, with expectations of 88bps in total easing by year-end.
Current year-end pricing is similar to late December levels; however, it's important to note that the OCR is now 25bps lower at 5.25%.
Figure 1: RBNZ Dated OIS Expected End-24 OCR Vs. Current OCR (%)
Outside of modest yen gains and a further pullback in AUD, G10 FX moves have been fairly muted so far in Tuesday trade. The BBDXY USD index is little changed, last near 1238.15.
There was some early USD weakness, as front end US yields fell. We had comments from the Fed's Musalem that Friday's jobs report doesn't alter the Fed outlook. This coupled with some flows helped push yields lower. At this stage, the 2yr yield is down 4.5bps to 3.95%.
USD/JPY sits back under 148.00, around 0.15% stronger in yen terms. There hasn't been much follow through to the downside though. Earlier data showed August labour earnings and household spending close to expectations. Both real wages and household spending are back in negative territory in y/y terms.
AUD/USD has faltered to 0.6730/35, off a further 0.35%. Disappointment around lack of further stimulus details from the NDRC onshore in China (as these markets have returned) has weighed on sentiment. Metal prices are lower, iron ore and copper down by 3% and 2% respectively. Survey data showed improving consumer and business sentiment while the RBA minutes were fairly neutral relative to expectations.
AUD/USD is back under its 50-day EMA, with the 100-day near 0.6700 the next potential downside target. AUD/JPY is back to 99.55, back sub its simple 200-day MA.
Looking ahead, we have more central bank speak from the Fed and the ECB. On the data front, the US NFIB small business survey prints.
Asian equities are broadly lower today as Chinese shares lost momentum after a strong open. The market downturn was driven by disappointment over the lack of fresh stimulus from China’s National Development and Reform Commission. Investors had expected more action to support China’s growth, but officials reiterated existing policies without introducing new measures. Chinese officials stressed their confidence in meeting economic targets but acknowledged increasing downward pressures. Market participants remain cautious, awaiting further policy follow-through to solidify China's recovery.
The MSCI Asia Pacific Index fell by up to 2.7%, led by declines in Chinese tech companies like Tencent and Alibaba.
Japanese stocks slipped as the yen strengthened to 147.82, reversing its recent weakening trend however this weighed on exporters, particularly automakers and tech companies. The Topix fell 1.5%, with Toyota leading losses, while the Nikkei 225 is trading down 1.1%. Concerns over escalating tensions in the Middle East also dampened sentiment, particularly regarding potential Israeli retaliation against Iran.
Major benchmarks in Taiwan & South Korea are trading 0.60%-0.80% lower, tech stocks are underperforming with Samsung now on trading back at March 2023 lows. Elsewhere most other regional markets trade +/-0.50%.
India continues to see heavy outflows with the Nifty 50 falling 5.65%, since China announced its stimulus. Elsewhere flows were muted on Monday.
South Korea: Saw inflows of $80m yesterday, with the past 5 sessions reaching -$731m, while YTD flows are +$10.49b. The 5-day average is -$146m, below both the 20-day average of -$297m and the 100-day average of -$47m.
Taiwan: Saw inflows of $304m yesterday, with the past 5 sessions netting -$1.43b, while YTD flows are -$12.57b. The 5-day average is -$285m, below the 20-day average of +$10m, and the 100-day average of -$133m.
India: Saw outflows of -$1.15b Friday, with the past 5 sessions netting -$4.34b, while YTD flows are +$20.42b. The 5-day average is -$1.10b, below both the 20-day average of +$57m and the 100-day average of +$87m.
Indonesia: Saw outflows of -$51m yesterday, with the past 5 sessions netting -$165m, while YTD flows are +$3.08b. The 5-day average is -$33m, below the 20-day average of +$52m, but above the 100-day average of +$31m.
Thailand: Saw outflows of -$35m yesterday, with the past 5 sessions totaling -$365m, while YTD flows are -$2.95b. The 5-day average is -$73m, below the 20-day average of -$3m and the 100-day average of -$10m.
Malaysia: Saw outflows of -$35m yesterday, with the past 5 sessions netting -$236m, while YTD flows are +$570m. The 5-day average is -$47m, below both the 20-day average of -$15m and the 100-day average of +$7m.
Philippines: Saw inflows of $24m yesterday, with the past 5 sessions totaling +$57m, while YTD flows are +$80m. The 5-day average is +$11m, below both the 20-day average of +$18m and the 100-day average of +$3m.
Oil prices have fallen today after rallying close to 4% on Monday driven by concern over a possible Israeli attack on Iranian oil infrastructure. Today commodities weakened as comments from China’s NDRC disappointed as they were short on details, although it will quicken fiscal spending. WTI is down 1.6% to $75.93/bbl, off the intraday low of $75.36, while Brent is back below $80 at $79.71/bbl (-1.5%) after a low of $79.18. The USD index is down slightly.
The situation in the Middle East could easily reverse today’s losses though. There were no signs of a reduction in fighting yesterday with rocket attacks on Israel from Iran-backed Hamas, Hizbullah and Yemen’s Houthis, while Israel struck southern Lebanon and Gaza.
Markets are concerned that following Iran’s attack on Israel last week, that the OPEC member will become more involved in the conflict thus risking supplies. A third of global oil output comes from the Middle East.
Later the Fed’s Kugler, Bostic and Collins and ECB’s de Guindos, Schnabel and McCaul speak. In terms of data, US August trade and German August IP print. There is also industry-based US oil inventory data.
Gold has extended Monday’s weakness in today’s Asia-Pac session.
Bullion closed 0.4% lower on Monday as market participants continued to adjust to Friday's strong September jobs report and price out aggressive rate cut expectations.
Fed funds futures have not only taken out risks for a 50bp cut next month but now reflect the chance of no action. The implied November contract shows -19bps in easing, with December at -44bps.
Lower rates are typically positive for gold, which doesn’t pay interest.
There was limited reaction to Fed speakers yesterday. MN Fed President Kashkari said risks of higher inflation are waning as he defended his 50bp rate cut decision, seeing a neutral rate at around 3%.
We have limited US data today, with the focus on the minutes for the September FOMC tomorrow, CPI on Thursday and PPI on Friday.
According to MNI’s technicals team, gold remains in consolidation mode, although the trend condition is also unchanged, and bulls are still in the driver’s seat. The focus remains on $2,690.2 next, a Fibonacci projection. Firm support lies at $2,615.4, the 20-day EMA.
Only four economists surveyed by Bloomberg expect a cut at tomorrow’s policy meeting. The other surveyed (just under 40) expect a steady policy outcome. This is also our firm bias, which would leave the policy rate at 6.50%. Greater focus is likely to rest with the RBI’s policy bias and the look ahead given global volatility, some rebound in oil prices and the growing interest rate differential given the US Federal Reserve’s cut in interest rates.
The growth outlook remains sufficiently resilient to remain on hold but carefully watching the outlook for Global geo-politics, the impact of the cut from the Federal Reserve, the flow on effect of the recently announced China stimulus and the currency.
Given how large food prices are in terms of the CPI basket, the RBI may also want to see a more encouraging trend on this front before gaining confidence in sustaining its inflation target.
USD/Asia pairs are mixed in North East Asia. Onshore China markets have returned, with focus this morning on the NDRC briefing. Hopes were for fresh fiscal stimulus measures, along with details on how recently announced measures would be implemented. However, the detail was fairly light, while no meaningful new stimulus measures were announced.
This helped push USD/CNH higher, from the low 7.0400 region, back to 7.0800. Onshore equities dipped from earlier double digit gains, while Hong Kong equities retraced sharply as well. USD/CNH is off these intra session highs, last near 7.0630, as onshore equity sentiment has stabilized. The CSI 300 is still up +6% for the session. Onshore USD/CNY spot has gapped higher, last above 7.0600. We closed just under 7.0200 just prior to the National Holiday period.
Spot USD/KRW has mostly tracked higher, although post US NFP highs from last Friday remain intact. The pair got to 1351.15, but we sit slightly lower now, last near 1349, still 0.35% weaker in spot terms. Onshore equities are weaker, the Kospi off by 0.45%, weaker Samsung earnings results not helping sentiment.
Spot USD/TWD was last near 32.17, very close to recent highs. Onshore equities are down around 0.65% at this stage.
UP TODAY (TIMES GMT/LOCAL)
Date
GMT/Local
Impact
Country
Event
08/10/2024
0600/0800
**
DE
Industrial Production
08/10/2024
0600/0800
SE
Flash CPI
08/10/2024
0645/0845
*
FR
Foreign Trade
08/10/2024
0700/0900
EU
ECB's Schnabel chairing ECB MonPol session
08/10/2024
0700/0300
US
Fed Governor Adriana Kugler
08/10/2024
0900/1000
*
GB
Index Linked Gilt Outright Auction Result
08/10/2024
1000/0600
**
US
NFIB Small Business Optimism Index
08/10/2024
-
EU
ECB's de Guindos at ECOFIN meeting
08/10/2024
1230/0830
**
US
Trade Balance
08/10/2024
1230/0830
**
CA
International Merchandise Trade (Trade Balance)
08/10/2024
1255/0855
**
US
Redbook Retail Sales Index
08/10/2024
1530/1130
*
US
US Treasury Auction Result for Cash Management Bill
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Please enter your details below.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.
Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
MNI (SYDNEY)
Asian equities are broadly lower today as Chinese shares lost momentum after a strong open. The market downturn was driven by disappointment over the lack of fresh stimulus from China’s National Development and Reform Commission. Investors had expected more action to support China’s growth, but officials reiterated existing policies without introducing new measures.
This weighed on broader risk appetite, with the AUD underperforming in the G10 FX space. Aussie Bonds were also higher after the RBA minutes.
US Tsys futures have ticked higher throughout the session with the front-end outperforming. There has been multiple Fed speakers through the session, while multiple block steepener trades have also occurred throughout the day which has supported the move.
Later the Fed’s Kugler, Bostic and Collins and ECB’s de Guindos, Schnabel and McCaul speak. In terms of data, US August trade and German August IP print.
Tsys futures have ticked higher throughout the session with the front-end outperforming. There has been multiple Fed speakers through the session, while multiple block steepener trades have also occurred throughout the day which has supported the move. TU is +03⅛ at 103-15⅝, while TY is trading +06+ at 112-22
The cash tsys curve has bull-steepened with the 2yr yield -4.3bps at 3.952%, while the 10yr is -2.3bps at 4.002%. The 2s10s has crept slightly off session highs of 5.856 to trade +2.040 at 4.869 now
In August, Japanese investors made a record purchase of ¥5.59t in US tsys, as shown by the latest balance-of-payments data from Japan's Ministry of Finance.
The Fed's Musalem supported the decision last month to cut interest rates by 50bps but prefers future reductions to be gradual. He emphasized the need for caution, noting that easing too much too soon carries more risk than easing too little. Musalem expects inflation to converge to the Fed’s 2% target over the next few quarters and supports further gradual rate cuts.
The Fed's Williams expressed confidence that the US central bank is "well positioned" to achieve a soft landing for the economy. He believes current monetary policy supports both economic and labor market strength while guiding inflation toward the 2% target.
Fed funds futures are steady this morning, with Nov futures pricing in 22bps of cuts, and 50.4bps of cuts now priced in by the December meeting.
Today we have Trade Balance while focus will turn to Wednesday's minutes for the September FOMC, CPI on Thursday and PPI Friday
In Tokyo morning trade, JGB futures are holding a downtick, -2 compared to settlement levels, after initial post-30Y-supply strength was reversed.
Today’s 30-year supply was well absorbed, with the low price beating dealer expectations, the cover ratio steady and the auction tail shortening.
Outside of the previously outlined labour cash earnings and current account balance data, there hasn't been much by way of domestic drivers to flag.
Cash US tsys are 2-4bps richer, with a steepening bias, in today’s Asia-Pac session after Fed's Musalem stated that the current monetary policy path remains appropriate despite recent jobs data.
We have limited US data today, with the focus on the minutes for the September FOMC tomorrow, CPI on Thursday and PPI on Friday.
Cash JGBs are mixed across benchmarks beyond the 1-year (+1.9bps), with yield swings bounded by +/- 1bp. The belly of the curve has outperformed with the benchmark 7-year yield ~1bp lower at 0.656%. The 30-year yield is unchanged at 2.126% versus a pre-auction high of 2.1430%.
The swaps curve has twist-steepened, with rates 1bp lower to 1bp higher.
Tomorrow, the local calendar will see Machine Tool Orders.
Japan labour cash earnings for August were reasonably close to expectations. The headline nominal measure rose 3.0%y/y against a 2.9% forecast and a 3.4% July outcome. In real terms we were -0.6%y/y, against a 0.5% forecast and prior 0.3%.
Same sample base cash earnings were 3.1% y/y, against a 4.7% prior outcome (the consensus was 3.2%). On scheduled full-time pay, we were 2.9%y/y in same base terms, against a 3.0% forecast, which was also the prior outcome.
In terms of the detail, contracted earnings were 3.0%y/y, while bonus payments were 2.7% y/y, down from the 6.6% pace seen in July.
On the same sample basis, part time payments picked up to 4.1% y/y, 3.1%, while full time edged down.
Employment was 1.2% y/y, same as July. Hours worked were -0.6% y/y, against a 0.3% July outcome.
Real household spending was down -1.9% y/y, not as much as forecast (-2.6%). The chart below plots spending (white line) and real cash earnings in y/y terms. Note spending was up 2.0% in m/m terms. Real incomes rose 2% y/y, nominal income was up 5.6%y/y.
The trends around labour cash earnings and spending still appear positive, albeit somewhat volatile in y/y terms. It's unlikely to shift near term BoJ thinking, while the new Japanese government remains focused on driving positive real wage gains.
Fig 1: Japan Labour Earnings & Spending Pulled Back In August
RBA Governor Bullock said in September that the discussion format had changed to reflect that the Board isn’t ruling “anything in or out” and so it focussed on scenarios that could shift rates in either direction. The minutes give further details on these scenarios. The RBA was firmly on hold and a rate cut before February seems unlikely.
“Not enough had changed” since the last meeting to warrant altering the level of restrictiveness. The current rate “best balanced the risks to inflation and the labour market”. As a result, policy “would need to be sufficiently restrictive” until the Board was “confident” that “inflation was moving sustainably” towards target.
In terms of scenarios, the Board considered stronger consumption growth due to more robust household disposable income. This would strengthen the labour market resulting in inflation returning to target slower than expected, requiring policy to remain restrictive or tighten further.
More constrained capacity was also discussed and would need rates to be “noticeably higher” than assumed in August to reduce inflation.
If financial conditions prove not restrictive enough to bring inflation to target, then tighter policy may be needed. This was “plausible” due to recent easing in markets and increased credit growth.
Policy could be “less restrictive” though if the economy was “significantly weaker than expected” from higher household saving and significant uncertainty, or if “inflation proved less persistent than assumed” due to a sharper fall in rents and commodities reducing costs.
The RBA was clear that it doesn’t need to follow other central banks as Australian inflation is higher, labour market stronger and policy less restrictive. The AUD can also adjust.
ACGBs (YM +5.0 & XM +3.0) are stronger after today’s release of the RBA Minutes for the September meeting.
RBA Governor Bullock said in September that the discussion format had changed to reflect that the Board isn’t ruling “anything in or out” and so it focussed on scenarios that could shift rates in either direction.
“Not enough had changed” since the last meeting to warrant altering the level of restrictiveness. Policy “would need to be sufficiently restrictive” until the Board was “confident” that “inflation was moving sustainably” towards target.
Cash US tsys are 2-5bps richer, with a steepening bias, in today’s Asia-Pac session after Fed's Musalem stated that the current monetary policy path remains appropriate despite recent jobs data.
Cash ACGBs are 2-3bps richer after today’s releases but remain sharply cheaper versus Friday’s close.
Swap rates are 10-15bps higher than Friday’s closing levels.
The bills strip is richer, with pricing flat to +5.
RBA-dated OIS pricing is 2-3bps softer after the Minutes but remain 10-21bps firmer than Friday’s closing levels for 2025 meetings.
Tomorrow, the local calendar will see a speech from RBA's Kent alongside the AOFM’s planned sale of A$500mn of the 3.25% 21 June 2039 bond.
NAB business confidence and conditions improved in September. Confidence was -1.9 up from -4.5, but it has been close to zero for around two years. Conditions have been slowing for around the same time but may have stabilised. They rose over 3 points to 6.9 in September, in line with the historical average. The good news was that price and cost components all eased.
The improvement in business conditions was driven by trading, profitability and employment, which appears to have also stabilised above zero.
The outlook remains soft with orders low at only -4.7 but Q3 improved to -4.6 from -7.1 in Q2. Inventories rose in September though which may reduce future purchasing. Exports also deteriorated last month.
Australia NAB business conditions vs orders
Source: MNI - Market News/Refinitiv
Only labour costs remained above the series average in September rising 1.7% 3m/3m but down from 1.8%, while the other inflation measures are now in line or below. Purchase costs rose 1.2% down 0.4pp and the lowest increase since February 2021.
Lower cost pressures are helping to bring price increases down but softer demand also seems to be helping, as NAB price measures rose less than costs. Final product prices rose 0.5% down from 0.7%, also the lowest since February 2021, while retail prices were up 0.5% after 1.2% in August, to be the slowest rate since the Covid-impacted October 2020.
Westpac consumer confidence for October rose 6.2% m/m to 89.8, the highest level since May 2022 when RBA tightening began, but it remains pessimistic. The improvement was driven by a better economic outlook helped by falling rate hike expectations and easing price pressures. Westpac expects the RBA to soften its tone in the November 5 statement.
The Westpac-Melbourne Institute mortgage rate expectations index fell 14.1% in October and is now at its lowest since Covid when rates were cut. “Just over half of consumers” believe that rates will be steady or down over the year ahead up from around a quarter 3 months ago. The RBA last hiked in November last year and the survey showed that stable mortgage rates are supporting households.
The “economic outlook, next 12 months” rose 14.3% and is now moderately above its historical average. As a result, unemployment expectations fell 6.2% m/m to their average.
Family finances improved modestly as cost-of-living pressures are only gradually easing. Compared to a year ago they have improved 16.8% since May but are still well into negative territory implying that fiscal measures are only having a moderate impact. The outlook though is more positive with the index close to the neutral 100-mark.
The “time to buy a major household item” increased 3% m/m but is still significantly below the average signalling continued soft consumer expenditure.
Home buyers remain pessimistic as affordability is very weak but the “time to buy a dwelling” improved 2.5% m/m helped by government first-time buyer assistance. Price expectations increased 1.8% m/m.
The RBNZ meets on Wednesday October 9 and is widely expected to cut rates 50bp to 4.75% but with inflation and labour market data not due until after the meeting, it is a close call. Four of the 23 analysts on Bloomberg expect a 25bp reduction and the NZIER is split 5 to 4 between 50bp and 25bp.
Inflation indicators are pointing to Q3 CPI coming in below the top of the RBNZ’s target band of 1-3%, while activity data confirmed that currently the economy is in the “darkest period”.
The timing of the upcoming meetings is also likely to be important. There are 7 weeks between the two meetings and the RBNZ may feel that it cannot wait that long as the economy needs monetary “restraint” reduced at a faster pace than implied in August’s OCR profile. The other consideration is that there are only two meetings before mid-February.
NZGBs closed flat to 2bps richer across benchmarks after dealing in narrow ranges in today’s local session. With the domestic calendar empty today, local participants largely sat on the sideline ahead of Wednesday’s RBNZ Policy Decision.
However, swap rates closed 1-5bps higher with a flatter 2s10s curve.
RBNZ dated OIS pricing closed 4-20bps firmer across 2025 meetings.
For Wednesday's RBNZ Policy Decision, the market is pricing in a 74% chance (44bps) of a 50bp cut, with 88bps of easing by year-end.
Tomorrow, the local calendar is empty.
We have limited US data today, with the focus on the minutes for the September FOMC tomorrow, CPI on Thursday and PPI on Friday. Note, that Friday also sees the start of the latest earnings cycle with Bank of NY Mellon, Wells Fargo, JP Morgan and Blackrock announcing.
Cash US tsys are 2-5bps richer, with a steepening bias, in today’s Asia-Pac session after Fed's Musalem stated that the current monetary policy path remains appropriate despite recent jobs data.
On Thursday, the NZ Treasury plans to sell NZ$200mn of the 0.25% May-28 bond, NZ$250mn of the 4.25% May-34 bond and NZ$50mn of the 1.75% May-41 bond.
RBNZ-dated OIS pricing closed 4-20bps firmer across 2025 meetings compared to Friday’s closing levels, with the more distant seeing the greatest movement.
For Wednesday's RBNZ policy decision, the market is pricing a 74% probability (44bps) of a 50bp rate cut, with expectations of 88bps in total easing by year-end.
Current year-end pricing is similar to late December levels; however, it's important to note that the OCR is now 25bps lower at 5.25%.
Figure 1: RBNZ Dated OIS Expected End-24 OCR Vs. Current OCR (%)
Outside of modest yen gains and a further pullback in AUD, G10 FX moves have been fairly muted so far in Tuesday trade. The BBDXY USD index is little changed, last near 1238.15.
There was some early USD weakness, as front end US yields fell. We had comments from the Fed's Musalem that Friday's jobs report doesn't alter the Fed outlook. This coupled with some flows helped push yields lower. At this stage, the 2yr yield is down 4.5bps to 3.95%.
USD/JPY sits back under 148.00, around 0.15% stronger in yen terms. There hasn't been much follow through to the downside though. Earlier data showed August labour earnings and household spending close to expectations. Both real wages and household spending are back in negative territory in y/y terms.
AUD/USD has faltered to 0.6730/35, off a further 0.35%. Disappointment around lack of further stimulus details from the NDRC onshore in China (as these markets have returned) has weighed on sentiment. Metal prices are lower, iron ore and copper down by 3% and 2% respectively. Survey data showed improving consumer and business sentiment while the RBA minutes were fairly neutral relative to expectations.
AUD/USD is back under its 50-day EMA, with the 100-day near 0.6700 the next potential downside target. AUD/JPY is back to 99.55, back sub its simple 200-day MA.
Looking ahead, we have more central bank speak from the Fed and the ECB. On the data front, the US NFIB small business survey prints.
Asian equities are broadly lower today as Chinese shares lost momentum after a strong open. The market downturn was driven by disappointment over the lack of fresh stimulus from China’s National Development and Reform Commission. Investors had expected more action to support China’s growth, but officials reiterated existing policies without introducing new measures. Chinese officials stressed their confidence in meeting economic targets but acknowledged increasing downward pressures. Market participants remain cautious, awaiting further policy follow-through to solidify China's recovery.
The MSCI Asia Pacific Index fell by up to 2.7%, led by declines in Chinese tech companies like Tencent and Alibaba.
Japanese stocks slipped as the yen strengthened to 147.82, reversing its recent weakening trend however this weighed on exporters, particularly automakers and tech companies. The Topix fell 1.5%, with Toyota leading losses, while the Nikkei 225 is trading down 1.1%. Concerns over escalating tensions in the Middle East also dampened sentiment, particularly regarding potential Israeli retaliation against Iran.
Major benchmarks in Taiwan & South Korea are trading 0.60%-0.80% lower, tech stocks are underperforming with Samsung now on trading back at March 2023 lows. Elsewhere most other regional markets trade +/-0.50%.
India continues to see heavy outflows with the Nifty 50 falling 5.65%, since China announced its stimulus. Elsewhere flows were muted on Monday.
South Korea: Saw inflows of $80m yesterday, with the past 5 sessions reaching -$731m, while YTD flows are +$10.49b. The 5-day average is -$146m, below both the 20-day average of -$297m and the 100-day average of -$47m.
Taiwan: Saw inflows of $304m yesterday, with the past 5 sessions netting -$1.43b, while YTD flows are -$12.57b. The 5-day average is -$285m, below the 20-day average of +$10m, and the 100-day average of -$133m.
India: Saw outflows of -$1.15b Friday, with the past 5 sessions netting -$4.34b, while YTD flows are +$20.42b. The 5-day average is -$1.10b, below both the 20-day average of +$57m and the 100-day average of +$87m.
Indonesia: Saw outflows of -$51m yesterday, with the past 5 sessions netting -$165m, while YTD flows are +$3.08b. The 5-day average is -$33m, below the 20-day average of +$52m, but above the 100-day average of +$31m.
Thailand: Saw outflows of -$35m yesterday, with the past 5 sessions totaling -$365m, while YTD flows are -$2.95b. The 5-day average is -$73m, below the 20-day average of -$3m and the 100-day average of -$10m.
Malaysia: Saw outflows of -$35m yesterday, with the past 5 sessions netting -$236m, while YTD flows are +$570m. The 5-day average is -$47m, below both the 20-day average of -$15m and the 100-day average of +$7m.
Philippines: Saw inflows of $24m yesterday, with the past 5 sessions totaling +$57m, while YTD flows are +$80m. The 5-day average is +$11m, below both the 20-day average of +$18m and the 100-day average of +$3m.
Oil prices have fallen today after rallying close to 4% on Monday driven by concern over a possible Israeli attack on Iranian oil infrastructure. Today commodities weakened as comments from China’s NDRC disappointed as they were short on details, although it will quicken fiscal spending. WTI is down 1.6% to $75.93/bbl, off the intraday low of $75.36, while Brent is back below $80 at $79.71/bbl (-1.5%) after a low of $79.18. The USD index is down slightly.
The situation in the Middle East could easily reverse today’s losses though. There were no signs of a reduction in fighting yesterday with rocket attacks on Israel from Iran-backed Hamas, Hizbullah and Yemen’s Houthis, while Israel struck southern Lebanon and Gaza.
Markets are concerned that following Iran’s attack on Israel last week, that the OPEC member will become more involved in the conflict thus risking supplies. A third of global oil output comes from the Middle East.
Later the Fed’s Kugler, Bostic and Collins and ECB’s de Guindos, Schnabel and McCaul speak. In terms of data, US August trade and German August IP print. There is also industry-based US oil inventory data.
Gold has extended Monday’s weakness in today’s Asia-Pac session.
Bullion closed 0.4% lower on Monday as market participants continued to adjust to Friday's strong September jobs report and price out aggressive rate cut expectations.
Fed funds futures have not only taken out risks for a 50bp cut next month but now reflect the chance of no action. The implied November contract shows -19bps in easing, with December at -44bps.
Lower rates are typically positive for gold, which doesn’t pay interest.
There was limited reaction to Fed speakers yesterday. MN Fed President Kashkari said risks of higher inflation are waning as he defended his 50bp rate cut decision, seeing a neutral rate at around 3%.
We have limited US data today, with the focus on the minutes for the September FOMC tomorrow, CPI on Thursday and PPI on Friday.
According to MNI’s technicals team, gold remains in consolidation mode, although the trend condition is also unchanged, and bulls are still in the driver’s seat. The focus remains on $2,690.2 next, a Fibonacci projection. Firm support lies at $2,615.4, the 20-day EMA.
Only four economists surveyed by Bloomberg expect a cut at tomorrow’s policy meeting. The other surveyed (just under 40) expect a steady policy outcome. This is also our firm bias, which would leave the policy rate at 6.50%. Greater focus is likely to rest with the RBI’s policy bias and the look ahead given global volatility, some rebound in oil prices and the growing interest rate differential given the US Federal Reserve’s cut in interest rates.
The growth outlook remains sufficiently resilient to remain on hold but carefully watching the outlook for Global geo-politics, the impact of the cut from the Federal Reserve, the flow on effect of the recently announced China stimulus and the currency.
Given how large food prices are in terms of the CPI basket, the RBI may also want to see a more encouraging trend on this front before gaining confidence in sustaining its inflation target.
USD/Asia pairs are mixed in North East Asia. Onshore China markets have returned, with focus this morning on the NDRC briefing. Hopes were for fresh fiscal stimulus measures, along with details on how recently announced measures would be implemented. However, the detail was fairly light, while no meaningful new stimulus measures were announced.
This helped push USD/CNH higher, from the low 7.0400 region, back to 7.0800. Onshore equities dipped from earlier double digit gains, while Hong Kong equities retraced sharply as well. USD/CNH is off these intra session highs, last near 7.0630, as onshore equity sentiment has stabilized. The CSI 300 is still up +6% for the session. Onshore USD/CNY spot has gapped higher, last above 7.0600. We closed just under 7.0200 just prior to the National Holiday period.
Spot USD/KRW has mostly tracked higher, although post US NFP highs from last Friday remain intact. The pair got to 1351.15, but we sit slightly lower now, last near 1349, still 0.35% weaker in spot terms. Onshore equities are weaker, the Kospi off by 0.45%, weaker Samsung earnings results not helping sentiment.
Spot USD/TWD was last near 32.17, very close to recent highs. Onshore equities are down around 0.65% at this stage.
UP TODAY (TIMES GMT/LOCAL)
Date
GMT/Local
Impact
Country
Event
08/10/2024
0600/0800
**
DE
Industrial Production
08/10/2024
0600/0800
SE
Flash CPI
08/10/2024
0645/0845
*
FR
Foreign Trade
08/10/2024
0700/0900
EU
ECB's Schnabel chairing ECB MonPol session
08/10/2024
0700/0300
US
Fed Governor Adriana Kugler
08/10/2024
0900/1000
*
GB
Index Linked Gilt Outright Auction Result
08/10/2024
1000/0600
**
US
NFIB Small Business Optimism Index
08/10/2024
-
EU
ECB's de Guindos at ECOFIN meeting
08/10/2024
1230/0830
**
US
Trade Balance
08/10/2024
1230/0830
**
CA
International Merchandise Trade (Trade Balance)
08/10/2024
1255/0855
**
US
Redbook Retail Sales Index
08/10/2024
1530/1130
*
US
US Treasury Auction Result for Cash Management Bill
08/10/2024
1645/1245
US
Atlanta Fed's Raphael Bostic
08/10/2024
1700/1300
***
US
US Note 03 Year Treasury Auction Result
08/10/2024
2000/1600
US
Boston Fed's Susan Collins
09/10/2024
-
NZ
Reserve Bank of New Zealand Meeting
08/10/2024
2330/1930
US
Fed Vice Chair Philip Jefferson
09/10/2024
0030/1130
*
AU
Building Approvals
09/10/2024
0100/1400
***
NZ
RBNZ official cash rate decision
09/10/2024
0600/0800
**
DE
Trade Balance
09/10/2024
0830/1030
EU
ECB's Elderson in 'true cost of green...' session
09/10/2024
0900/1000
**
GB
Gilt Outright Auction Result
09/10/2024
1100/0700
**
US
MBA Weekly Applications Index
09/10/2024
1200/0800
US
Atlanta Fed's Raphael Bostic
09/10/2024
1315/0915
US
Dallas Fed's Lorie Logan
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DE
SE
FR
EU
US
GB
CA
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