- China has cut its 1yr MLF rate while net withdrawing liquidity via the lending facility, as the monetary authority shifts toward a short-term tool in an overhaul of its policy framework.
- China equities have surged again with the CSI 300 almost erasing the year's losses, while HS Tech Index opened up 20% from recent lows made in August.
- Australia's headline CPI fell in August to 2.7% y/y from 3.5%, as expected, but as the RBA said in its September statement it is currently impacted by temporary factors.
- Gold has continued it stellar run and made new all time highs, hitting $2,670 before reversing back to $2,658.
MARKETS / UP TODAY (TIMES GMT/LOCAL)
US TSYS: Tsys Futures Steady, Ranges Tight Ahead Of More Fed Speak
- Tsys futures have done very little throughout the session, ranges have been tight and we hold near the overnight highs. Investors will be focused on a speech from Fed Gov Kugler later today. TU is unch at 104-12¾, while TY is -0-01 at 114-26.
- Cash tsys curves have seen selling through the belly of the curve, yields are 0.5-1.5bps higher with the 2yr trading +0.6bps at 3.544%, while the 10yr +1.1bps at 3.739%. The 2s10s curve continues to make new highs climbing to intraday high of 21.884.
- Projected rate cuts into early 2025 gain traction, latest vs. Tuesday morning levels (*) as follows: Nov'24 cumulative -39.8bp (-38.5bp), Dec'24 -79.7bp (-74.4bp), Jan'25 -114.0bp (-108.0bp).
- Looking ahead to Wednesday's session: MBA Mortgage apps, New Home Sales. Auctions $28B 2Y FRN, $62B 17W bill & $70B 5Y.
JGBS: Cash Bonds Dealing Mixed, BoJ July MPM Minutes & 40Y Supply Tomorrow
JGB futures are weaker, -8 compared to settlement levels.
- Outside of the previously outlined PPI Services, there hasn't been much by way of domestic drivers to flag.Nationwide Dept Sales data is due later today.
- Cash US tsys are ~1bp cheaper in today’s Asia-Pac session after yesterday’s bull-steepener. Today's US calendar will see MBA Mortgage apps, New Home Sales, $28B 2Y FRN, $62B 17W bill auctions and $70B 5Y.
- Cash JGBs are dealing mixed across benchmarks with yield swings bounded by +2.4bps (1-year) and -2.9bps (40-year). The benchmark 10-year yield is 0.1bp lower at 0.815% versus the cycle high of 1.108%.
- Swap rates are little changed out to the 10-year and 2bps higher beyond. Swap spreads are mixed.
- Tomorrow, the local calendar will see BoJ Minutes of the July Meeting alongside 40-year supply. Machine Tool Orders data is also due.
ACGBS: Post-RBA Rally Pared After CPI Data
ACGBs (YM -4.0 & XM -3.0) are cheaper and at/near Sydney session lows following the release of CPI data for August.
- Headline CPI eased in August to 2.7% y/y from 3.5%, in line with expectations, though the RBA noted in its September statement that temporary factors are influencing the current figures.
- The moderation in the underlying measure should offer some reassurance to the RBA, although the decline in services inflation was modest, and it remains elevated. As Governor Bullock emphasized yesterday, services inflation remains the “crux of the matter”.
- The RBA continues to prioritise the more comprehensive quarterly CPI data, with the Q3 report set for release on October 30.
- Cash US tsys are ~1bp cheaper in today’s Asia-Pac session after yesterday’s bull-steepener.
- Cash ACGBs are 3bps cheaper, with the AU-US 10-year yield differential +18bps. ACGBs remain 4-6bps richer than yesterday’s pre-RBA levels.
- Swap rates are 2-3bps higher.
- The bills strip has bear-steepened, with pricing -2 to -5.
- RBA-dated OIS pricing is firmer after the data but remains 5-9bps softer than pre-RBA levels yesterday for 2025 meetings. A cumulative 16bps of easing is priced by year-end.
- Tomorrow, the local calendar will see Job Vacancies data and the release of the RBA's Financial Stability Review.
NZGBS: Played Catch-Up To Post-RBA ACGB Rally
NZGBs ended the day stronger, with benchmark yields down 1-4bps, though slightly above their intraday lows.
- With an empty domestic calendar and cash US tsys ~1bp cheaper in today’s Asia-Pac session, today’s rally appeared to be a delayed spillover from yesterday’s post-RBA rally in ACGBs. The local market was closed when the RBA delivered its policy decision yesterday.
- Nevertheless, the NZ-AU 10-year yield differential finds itself 3bps wider than yesterday’s close, despite a paring of yesterday’s rally by ACGBs.
- Swap rates closed 2-5bps lower, with the 2s10s curve steeper.
- RBNZ dated OIS pricing closed 5-7bps softer across 2025 meetings. A cumulative 87bps of easing is priced by year-end.
- The local calendar is again empty tomorrow, with ANZ Consumer Confidence on Friday and ANZ Business Confidence on Monday.
- Tomorrow, the NZ Treasury plans to sell NZ$250mn of the 3.00% Apr-29 bond, NZ$225mn of the 4.50% May-35 bond and NZ$25mn of the 2.75% Apr-37 bond.
GOLD: Buoyed By Weak US Data & China Stimulus
Gold is 0.2% higher in today’s Asia-Pac session, after closing 1.1% at $2657.10, a fresh all-time closing high, on Tuesday.
- Bullion was buoyed by Chinese stimulus measures announced yesterday, which created an optimistic backdrop for risk sentiment and a favourable reaction across the commodities complex.
- Weak US data bolstered the case for deeper rate cuts. Lower rates are typically positive for gold, which doesn’t pay interest.
- US Consumer confidence fell to 98.7 (cons 104.0), a sizeable slip after an upward revised 105.6 (initial 103.3) in Aug. Declines were seen in both the present situation and expectations components. The difference between those saying jobs were plentiful and those saying jobs were hard to get narrowed for an eighth month.
- According to MNI’s technicals team, gold has pierced resistance at $2,642.7, with attention on $2,660.9 next, a Fibonacci projection. After that, focus will shift to the $2,700 level.
OIL: Crude Holds Onto Most Of Tuesday’s Gains, Focus On Middle East & China
After rising strongly on Tuesday, oil prices are moderately lower during APAC trading. Continued tensions in Israel/Lebanon and China’ monetary easing as well as hurricane activity in the Gulf of Mexico are currently supporting prices. The softer greenback has also helped (BBDXY USD index -0.1%).
- WTI is down 0.3% today to $71.32/bbl off the intraday low of $71.15. It rose to $71.72 following the 30bp cut in China’s MTLF rate. Brent has also traded in a narrow range and is currently 0.2% lower at around $75.00/bbl after a low of $74.82 and a high of $75.35.
- Israel reported today a missile from Lebanon over Tel Aviv was intercepted. Israel continued its major strike on Hezbollah targets in Lebanon on Tuesday, killing a commander, and until now Hezbollah hasn’t used its longer range missiles on Israel. The UN has called for de-escalation, while Iran’s President Pezeshkian has said the attacks “cannot go unanswered”.
- Bloomberg reported a 4.34mn barrel drawdown US crude inventories, according to people familiar with the API data. Gasoline fell 3.44mn and distillate 1.12mn barrels. The official EIA data is released today.
- Later the Fed’s Kugler speaks on the economic outlook and US August new home sales and French September consumer confidence print. BoE’s Greene also appears.
ASIA STOCKS: China & Hong Kong Equities Surge Again On Stimulus Hopes
- Asian markets rallied for a second consecutive day, driven by optimism over China’s wide-ranging stimulus package aimed at revitalizing its sluggish economy. The onshore CSI 300 Index rose by 3.2% at one point, nearly erasing its year-to-date losses, while the offshore yuan strengthened past 7 against the dollar for the first time since May 2023. Investors are betting that the People’s Bank of China’s latest measures, which include liquidity support and interest rate cuts, will stabilize China’s stock market and boost regional equities. The stimulus has also bolstered emerging Asian currencies, with the Malaysian ringgit and Thai baht leading gains.
- Despite positive sentiment, investors remain somewhat cautious warning that the measures may not fully address China’s structural economic challenges.
- Key Hong Kong & China benchmarks are trading 1-3% higher, with HSI +2%, CSI 300 +2.30%. In Japan, the Nikkei is +0.30%, while the broader Topix trade flat with Banks offsetting gains In Materials & Industrials stocks. South Korean equities are lower today as foreign investors continue to offload local stocks, predominately tech stocks although large -cap names Samsung & SK Hynix trade higher on the day, banks have weighed on the wider market.
ASIA STOCKS: Foreign Investors Continue Buying Asian Equities
Philippines saw its largest inflow since May, while Thailand continues to see above average flows.
- South Korea: Saw outflows of $213m yesterday, with the past 5 sessions reaching -$2.26b, while YTD flows are +$11.12b. The 5-day average is -$452m, below both the 20-day average of -$339m and the 100-day average of -$21m.
- Taiwan: Saw inflows of $294m yesterday, with the past 5 sessions netting +$1.84b, while YTD flows are -$13.01b. The 5-day average is +$367m, above the 20-day average of -$247m but below the 100-day average of -$129m.
- India: Saw inflows of $243m Monday, with the past 5 sessions netting +$2.76b, while YTD flows are +$23.99b. The 5-day average is +$599m, above both the 20-day average of +$444m and the 100-day average of +$108m.
- Indonesia: Saw inflows of $1m yesterday, with the past 5 sessions netting +$347m, while YTD flows are +$3.76b. The 5-day average is +$69m, below the 20-day average of +$142m but above the 100-day average of +$31m.
- Thailand: Saw inflows of $78m yesterday, with the past 5 sessions totaling +$270m, while YTD flows are -$2.44b. The 5-day average is +$54m, above the 20-day average of +$50m and the 100-day average of -$6m.
- Malaysia: Saw outflows of $14m yesterday, with the past 5 sessions netting -$17m, while YTD flows are +$952m. The 5-day average is -$3m, below both the 20-day average of +$30m and the 100-day average of +$15m.
- Philippines: Saw inflows of $53m yesterday, with the past 5 sessions totaling +$152m, while YTD flows are -$85m. The 5-day average is +$30m, above both the 20-day average of +$13m and the 100-day average of -$1m.
Table 1: EM Asia Equity Flows
G10 FX: USD Moderately Lower, European FX Outperforming
Movements in G10 currencies during APAC trading have been limited with little new information. The BBDXY USD index is down 0.1% but has been range trading through the session after Tuesday’s 0.5% drop. European currencies are around 0.1% stronger while Aussie and Kiwi are about 0.1% weaker.
- USDJPY is little changed after falling briefly below 143.0 and then testing 143.50. It is currently around 143.27.
- AUDUSD is down 0.1% to 0.6889, close to the intraday low that followed underlying CPI printing close to the top of the band. It rose above 69c early in the session peaking at 0.6908 as the rally following China’s monetary easing continued. AUDJPY is down slightly to 98.70 even though iron ore prices are higher again.
- NZDUSD is also 0.1% lower at 0.6334 despite stronger HK/China equities. It rose to a high of 0.6356 earlier. AUDNZD is off its post-Aussie CPI low of 1.0850 to be up slightly at 1.0877.
- USDCHF is down 0.1% to 0.8422 and EURUSD is up 0.1% to 1.1196 leaving EURCHF at 0.9429. GBPUSD is little changed at 1.3417.
- Later the Fed’s Kugler speaks on the economic outlook and US August new home sales and French September consumer confidence print. BoE’s Greene also appears.
ASIA FX: Asian Currencies Rally on Further China Stimulus.
- Following on from yesterday’s RRR cuts and various policy measures, China cut their Medium Term Lending Rate 30bp today, providing further support to already strong markets.
- All major currencies performed well with the outperformers on the day being the Malaysian Ringgit and Indonesia Rupiah.
- MYR is up +0.82% intra day and IDR +0.72% with KRW, TWD and THB all up over 0.50% today.
- MYR has strengthened to levels not seen since 2021 as the economic outlook remains strong, providing the Central Bank with ample ability to not be rushing to cut rates.
- IDR too has continued to strengthen and has hit new highs for the year at 15,088.
- The Chinese Yuan tested USDCNY7.00 today and the currency’s strength, and how the PBOC reacts, will be the next phase for market observers as Chinese authorities seek to stimulate their economy.
- With much of Asia correlated to firstly the US and now China’s easing, it is likely that in the near term the ongoing strength in Asian currencies will continue.
STIR: RBA Dated OIS Holding A Post-RBA Softening After CPI
RBA-dated OIS pricing firmed after today’s CPI data but remains 4-7bps lower for the 2025 meetings compared to pre-RBA levels from yesterday.
- A cumulative 16bps of easing is priced by year-end.
Figure 1: RBA-Dated OIS – Today Vs. Pre-CPI
Source: MNI – Market News / Bloomberg
AUSTRALIA DATA: Underlying Inflation Pressures Ease, Services Inflation Elevated
Headline CPI fell in August to 2.7% y/y from 3.5%, as expected, but as the RBA said in its September statement it is currently impacted by temporary factors. It should be reassured though by the moderation in the underlying measures but the drop in services inflation was limited and it remains elevated. Governor Bullock said yesterday that services are the “crux of the matter”.
- The RBA still prefers the quarterly CPI data as it has more complete coverage. Q3 is published on October 30. Despite this, AUDUSD dropped on the August data to 0.6882 from 0.6897 and is currently trading around 0.6890.
- Trimmed mean inflation moderated to 3.4% from 3.8% y/y, its lowest since February 2022.
- CPI excluding volatile items & holiday travel moderated to the top of the band at 3% down from 3.7%, base effects were favourable. It fell 0.1% m/m, seasonally adjusted, but that was the first monthly fall since February 2021.
- The important domestically- driven services component, which included few updates in July, eased only 0.2pp to 4.2% y/y and is still above March’s 3.9%. Goods prices moderated to 1.4% y/y from 2.8%.
- Headline CPI fell 0.1% m/m, seasonally adjusted, to be 2.7% y/y, within the band. A 1.1% y/y decline in transport partially offset housing (+2.6%), food (+3.4%) and alcohol & tobacco (+6.6%).
- Energy drove the decline in headline inflation with fuel down 7.6% y/y and state and federal government rebates drove a 17.9% y/y decline in electricity prices, the largest on record. The rebates themselves resulted in a 14.6% y/y drop in electricity and the ABS calculates that without them it would have risen 0.1% y/y.
Australia CPI y/y%
Source: MNI - Market News/ABS
WEDNESDAY DATA CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 25/09/2024 | 0600/0800 | ** |  SE | PPI |
| 25/09/2024 | 0600/1400 | ** |  CN | MNI China Liquidity Index (CLI) |
| 25/09/2024 | 0645/0845 | ** |  FR | Consumer Sentiment |
| 25/09/2024 | 0700/0900 | ** |  ES | PPI |
| 25/09/2024 | 0730/0930 | *** | SE | Riksbank Interest Rate Decison |
| 25/09/2024 | 0800/0900 |  GB | BOE's Greene Speech on Consumption | |
| 25/09/2024 | 0900/1000 | ** | GB | Gilt Outright Auction Result |
| 25/09/2024 | 1100/0700 | ** |  US | MBA Weekly Applications Index |
| 25/09/2024 | 1300/1500 |  EU | MNI Connect Video Conference on ‘The EU and Global Trade Challenges’ | |
| 25/09/2024 | 1400/1000 | *** | US | New Home Sales |
| 25/09/2024 | 1430/1030 | ** | US | DOE Weekly Crude Oil Stocks |
| 25/09/2024 | 1530/1130 | ** | US | US Treasury Auction Result for 2 Year Floating Rate Note |
| 25/09/2024 | 1700/1300 | * | US | US Treasury Auction Result for 5 Year Note |
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