MNI EUROPEAN MARKETS ANALYSIS: Antipodeans Firm In Asia

US TSYS: Curve Bear Steepens In Asia

TYZ3 deals at 107-17+, -0-05+, a 0-08+ range has been observed on volume of ~95k.

• Cash sit 1-4bps cheaper across the major benchmarks, the curve has bear steepened.
• In early dealing local participants have faded the bull flattening seen on Friday, the USD trimmed gains in early trade and US Equity futures were higher.
• The move lower didn't follow through and tsys dealt in narrow ranges for the remainder of the session. Little meaningful macro news flow crossed.
• There is a thin docket in Europe today, further out we have Empire Mfg and Fedspeak from Philadelphia Fed President Harker is due.

JGBS: Futures Holding In Positive Territory, 20Y Supply Tomorrow

JGB futures remain richer, +8 compared to the settlement levels, but well below the post-Tokyo high seen before the weekend.

• There hasn’t been much in the way of domestic drivers to flag. The local calendar has been empty so far today, with Industrial Production and Capacity Utilisation for August due later.
• Accordingly, local investors have likely monitored US tsys in today’s Asia-Pac session for guidance. Cash US tsys are holding 1-5bbps cheaper, with the curve steeper. Little meaningful macro news flow has crossed. TYZ3 deals at 107-18, -0-05 compared to NY closing levels.
• Cash JGBs are slightly mixed, with the range of yield movements bounded by -0.7bp (10-year) and +1.5bps (40-year). The benchmark 10-year yield is at 0.754%, above BOJ's YCC soft limit of 0.50% but below its hard limit of 1.0%. It is also lower than the cycle high of 0.814%.
• MT Newswire reports that the BOJ has purchased a total of 1,010 trillion yen in JGBs over the past decade, according to recent data from the central bank.
• Swap rates have slightly bear-steepened, with 0.1bp to 0.8bp higher. Swap spreads are generally wider out to the 20-year and tighter beyond.
• Tomorrow the local calendar is light, with the Tertiary Industry Index as the sole release.
• Tomorrow, the MOF plans to sell Y1.2tn of 20-year JGBs.

AUSSIE BONDS: Slightly Cheaper, RBA Minutes & NZ Q3 CPI Tomorrow

ACGBs (YM -1.0 & XM flat) are slightly cheaper, near session lows, after dealing in narrow ranges in the Sydney session.

• The local data calendar has been empty today, ahead of the RBA Minutes for the October meeting tomorrow.
• Hence, local participants have likely been on headlines and US tsys watch during today’s session after risk-off gripped the markets on Friday as investors fretted over an escalation of the Middle East conflict.
• US tsys are dealing 1-6bps cheaper in the Asia-Pac session, with the curve steeper.
• Cash ACGBs are flat, with the AU-US 10-year yield differential 1bp higher at -19bps.
• Swap rates are 1bp lower, with EFPs slightly tighter.
• The bills strip is weaker, with pricing flat to -1.
• RBA-dated OIS pricing is little changed across meetings.
• Tomorrow also sees the release of NZ Q3 CPI data. Australia’s Q3 CPI is released on October 25.
• On Friday, the AOFM announced that a new 21 June 2054 Treasury Bond is planned to be issued via syndication this week, subject to market conditions. Joint lead managers are: Barrenjoey Markets; Commonwealth Bank of Australia; J.P. Morgan Securities Australia; UBS Australia Branch and Westpac.

NZGBS: Closed Richer, Narrow Ranges, Q3 CPI Tomorrow

NZGBs closed 1-4bps richer after dealing in narrow ranges during the local session. The previously outlined Performance Services Index failed to be a market mover.

• The market also seemed to take in its stride the change of government following the weekend’s election. NZ Prime Minister-elect Christopher Luxon is in the position to negotiate with the ACT Party and the NZ First Party to form a stable government after his National Party secured the most seats in the election.
• The swaps curve closed with a twist-flattening.
• Tomorrow, the local calendar sees Q3 CPI. Bloomberg consensus expects +1.9% q/q and +5.9% y/y versus +1.1% and +6.0% in Q2. Q3 is expected to be boosted by higher accommodation and insurance prices plus increased government charges including public transport. The RBNZ is likely to look through the data if it’s in line with expectations as it forecasted a strong Q3 outcome of 2.1% q/q and 6% y/y in August, higher than the Bloomberg consensus. Also, at its October meeting, it said it was focused on the medium term.
• Nonetheless, easing inflation may spur investors to dial back their expectations for another rate hike. RBNZ dated OIS pricing is 1-2bps firmer today, with terminal OCR expectations at 5.72% (+22bps).

FOREX: Antipodeans Firm In Asia

The Antipodeans are firmer in Asia today, the Kiwi is the best performer in the G-10 space with the AUD also outperforming. US Equity Futures are higher and US Tsys have trimmed Fridays gains. BBDXY is ~0.1% lower

• Kiwi has held onto its early gains and is now consolidating above the $0.59 handle. The majority of Friday's losses have been erased. Bulls focus on the 20-Day EMA ($0.5952). The impending change of government in New Zealand has boosted sentiment today.
• AUD/USD is up ~0.4% and is consolidating above $0.63 after being supported ahead of $0.6287 2.00 projection of the Jun 16-Jun 29-Jul 13 price swing. Resistance in the pair comes in at $0.6445, high from Oct 11.
• Yen is a touch firmer, USD/JPY has observed narrow ranges with little follow through on moves. Technically the pair remains in an uptrend, resistance comes in at ¥15016, high from Oct 3 and bull trigger.
• Elsewhere in G-10 the Scandies are firmer however liquidity is generally poor in Asia.
• The data docket is thin on Monday in Europe.

EQUITIES: Asia Pac Markets Weaker, Potential Fresh US Tech Curbs Weigh

Regional Asia Pac equities are tracking lower across the board. Losses have been prominent for Japan and South Korea stocks. This follows a generally poor end for global equity market sentiment at the end of last week. This has carried over into early trade this week, although US futures have stayed in positive territory in the first part of Monday trade. Eminis were last near 4367, around 0.22% higher, while Nasdaq futures are nearly 0.30% higher.

• Broader focus remains on escalation risks around the Israel/Hamas conflict, with Bloomberg reporting that the US has been talking with other countries in the region in an attempt to prevent the conflict spreading.
• Japan's Topix is down 1.50%, the Topix off by -1.8%. Tech sensitive plays are underperforming. At the margin reports of further US restrictions on China access to semiconductors is likely weighing (see this BBG link).
• The Kospi is off over 1.3%, while the Taiex is down nearly 1.3%, with similar factors at play.
• The HSI is off 0.43% at the break, while the CSI 300 is down 0.69%. A larger than expected MLF liquidity boost has done little to aid sentiment. The 1yr MLF rate was held steady at 2.50%, as expected. Prospects of fresh tech curbs will be weighing.
• The ASX 200 is off 0.35%, while NZ's market is down by 1%.in NZ a change of government to the centre-right National Party has taken place after the weekend's general election.
• SEA markets are weaker, with Thailand markets playing catch up to the downside (-1.50%), after being out last Friday.

OIL: Prices Hold Friday’s Gains As Middle East Uncertainty Persists

Oil prices are off their intraday lows to be steady during the APAC session after rising almost 6% on Friday driven by heightened geopolitical risks. Brent is flat but broke above $91 earlier and is currently around $90.91/bbl following a low of $90.18 earlier. WTI is also flat at $87.70 after falling to $87.07. The USD index is down 0.1%.

• ANZ estimated that increased geopolitical tensions in the Middle East have added a $5-10/bbl risk premium to oil. Bloomberg is reporting that the US has been talking with other countries in the region in an attempt to prevent the conflict spreading. Such an outcome would drive oil prices higher but the move is only likely to be sustained if there is a disruption to supply. A trip by US President Biden to Israel is being explored.
• Brent timespreads are wider than a month ago signalling that the market remains tight, according to Bloomberg. Saudi Arabia will be watched closely if there are supply disruptions to see if it will increase its output again after announcing its cuts will continue to end 2023.
• Later the Fed’s Harker speaks on the economic outlook and the ECB’s Lagarde and Panetta attend the Eurogroup meeting and Enria and Tuominen speak. In terms of data, there is only US October Empire manufacturing.

GOLD: Friday’s Large Middle East Conflict-Induced Gain Pared Slightly

Gold is 0.7% lower in the Asia-Pac session, after closing 3.4% higher at $1,932.82 on Friday.

• Friday's surge marked the most significant increase in seven months, spurred by rising concerns about an escalation in the Israeli-Palestinian conflict, which drove a surge in demand for safe-haven assets.
• Today's market downturn may be attributed to reports of US President Joe Biden's potential visit to Israel in the coming days, coinciding with his administration's discussions with Iran through back channels aimed at containing the conflict.
• According to MNI's technical analysis team, a sustained breach above the $1,900 per ounce mark would expose a notable technical gap, with few significant resistance levels in sight until we reach the critical resistance point set at the September 1st high of $1,953.0 per ounce.
• It's worth noting that ongoing central bank purchases have continued to provide consistent support to the market, while holdings of gold in known ETFs recently rebounded from cyclical lows as the price of bullion rallied.

ASIA: Inflation Could Ease Further As Rice & Oil Prices Have Stabilised

Most of non-Japan Asia has reported September inflation and the region as a whole is showing a further moderation in headline inflation with core within or below the target band of most central banks.

• Non-Japan Asia headline inflation moderated to 1.7% y/y in September from 2.2% with only the Philippines, Korea and Taiwan seeing an increase. The Philippines saw the CPI rise to 6.1% from 5.3% which may drive another rate hike but it was due to higher rice, despite the price cap, and fuel prices. Korea’s increase was also due to higher food and fuel prices but also services.
• Headline CPI ex China eased 1pp in September to be back below 4% at 3.8%, and has returned to the May/June 2023 low helped by some government intervention in food and fuel markets. It is down 2.6pp since the peak in September last year. This is likely to keep the region’s central banks on hold, except possibly the Philippines, but FX developments are likely to mean cuts are delayed to 2024.
• Core inflation was steady at 1.4% in September and excluding China moderated to 2.8% from 3%. While underlying inflation has been slower to come down it also didn’t rise as much as headline last year and continues to suggest that there are yet to be any second-round effects from higher food and fuel prices.
• Rice prices remain elevated but are down 0.8% m/m in October so far. While oil prices are up over 8% since October 6, they are down 3.3% m/m so far. If these trends continue we could see a further moderation in headline inflation going into year end.
• September inflation is assumed to be in line with August for those countries which are yet to report (Singapore, HK, Malaysia).

Source: MNI - Market News/Refinitiv/IMF

NEW ZEALAND: Change Of Government, Negotiations Begin

Elections on Saturday have resulted in a change of government. Voters turned from the incumbent Labour government of 6 years with its support almost halving and a National/ACT coalition will take over with National leader Luxon as the new PM. But he has 61 seats in a 121 seat parliament and with final results not until November 3, it won’t be known until then if Luxon will need support from NZ First. But discussions are going to start before then with both ACT and NZ First.

• Nationals received 39% of the vote up from 25.6% in 2020 giving it 50 seats. Its partner ACT won 9% and 11 seats up from 10. Labour’s support fell to 26.9% from 50% and has 34 seats. The Greens won 10.8% and 14 seats. NZ First with 6.5% of the vote has 8 seats and Te Pati Maori has 4 seats. The centre-right has 61 seats, which was better than suggested by recent polls, and 68 with NZ First compared with the centre-left’s 52. Some seats are yet to be called.
• The new government plans to cut taxes, decrease the size of the public sector, increase the retirement age to 67 and reduce crime. NZ First’s Peters doesn’t believe tax cuts are affordable but his comments have been positive in supporting a National/ACT government. PM Luxon has said that negotiations will be done away from the media.
• Former Air NZ CEO Luxon became leader of the Nationals in 2021 and has turned the party around after significant infighting. Labour leader Hipkins is likely to resign after the weekend’s defeat.

NEW ZEALAND: RBNZ Dated OIS Closed Slightly Firmer Ahead Of Q3 CPI Tomorrow

Tomorrow, the local calendar sees Q3 CPI. Bloomberg consensus expects +1.9% q/q and +5.9% y/y versus +1.1% and +6.0% in Q2. Q3 is expected to be boosted by higher accommodation and insurance prices plus increased government charges including public transport.

• The RBNZ is likely to look through the data if it’s in line with expectations as it forecasted a strong Q3 outcome of 2.1% q/q and 6% y/y in August, higher than the Bloomberg consensus. Also, at its October meeting, it said it was focused on the medium term.
• Nonetheless, easing inflation may spur investors to dial back their expectations for another rate hike. RBNZ dated OIS pricing is 1-2bps firmer today, with terminal OCR expectations at 5.72% (+22bps).

Figure 1: RBNZ Dated OIS Terminal Rate Pricing (%)

Source: MNI – Market News / Bloomberg