MNI EUROPEAN MARKETS ANALYSIS: Asian FX Lags Better US/Regional Equity Tone

US DATA PREVIEW: US Payrolls Preview: Can The Recent Goldilocks Theme Continue?

We have published and e-mailed to subscribers the MNI Payrolls Preview for tomorrow's release. Find the full report here including MNI analysis and previews from fifteen sell side analysts: https://marketnews.com/mni-payrolls-preview-can-the-recent-goldilocks-theme-continue

US TSYS: Curve Marginally Flatter In Asia

TYU3 deals at 110-09+, +0-02, a 0-06 range has been observed on volume of 72k.

• Cash tsys sits 2bps cheaper to 2bps richer across the major benchmarks, the curve has twist flattened pivoting on 7s.
• Tsys firmed off session lows as risk sentiment improved in Asia, regional equities followed US equity futures higher after Amazon rose ~10% in post market trade. However, there was little follow through on the move and tsys ticked away from session highs dealing in narrow ranges for the remainder of Friday's Asian session.
• Earlier, tsys had ticked lower in early dealing despite the absence of any macro headline driver. Pressure in ACGBs, ahead of the RBA's SoMP, perhaps weighed on the wider space.
• FOMC dated OIS remain stable, a terminal rate of 5.40% is seen in November with ~60bps of cuts by June 2024.
• There is a thin docket in Europe today. Further out we have the July NFP report which headlines Friday's session, the MNI preview is here.

JGBS: Futures Slide Back Into Negative Territory

JGB futures have slid back into negative territory, -6 compared to settlement levels, in the Tokyo afternoon session. The session range has been relatively narrow today ahead of US payrolls later today.

• There have been no economic releases today.
• (Bloomberg) “A rise to 0.7% is possible and the BoJ may continue to slow the pace of yield gains if it reaches that level too soon,” said Hideo Shimomura, senior portfolio manager at Fivestar Asset Management Co. in Tokyo. “The BoJ doesn’t want a sharp, one-way move close to 1%. Operations so far have seen more ‘smoothing’ actions rather than efforts to stop gains. They may tighten their grip more if the 10-year yield rises near 0.8%”. (See link)
• Cash JGBs are flat to 4.7bp cheaper (30-year zone) across the curve. The benchmark 10-year yield is unchanged at 0.653%, above BoJ's YCC old limit of 0.50% but below its new hard limit of 1.0%.
• The swaps curve has twist steepened, pivoting at the 7-year, with rates 0.1bp lower to 2.9bp higher (30-year). Swap spreads are tighter out to the 5-year and mixed beyond.
• On Monday, the local calendar sees the release the BoJ Summary of Opinions for the July MPM along with the Leading and Coincident Indices for June (preliminary).

AUSSIE BONDS: Cheaper After RBA Forecast Update, Eyeing US Tsys Ahead Of Payrolls

ACGBs (YM -8.0 & XM -8.0) are 1-3bp cheaper after the RBA released updated forecasts in the latest Statement on Monetary Policy (SoMP). The forecasts show inflation returning to within its 2-3% target band at the end of 2025. In May, the RBA predicted inflation will hit 3% by mid-2025 but that has now edged up to 3.1%.

• Cash ACGBs are 7-8bp cheaper on the day with the AU-US 10-year yield differential +5bp at +1bp.
• Swap rates are 4-5bp higher on the day with EFPs tighter.
• The bills strip has bear flattened with pricing flat to -7.
• RBA-dated OIS pricing is 1-3bp firmer across meetings after the SoMP release.
• (AFR) China has agreed to lift tariffs on imports of Australian barley from Saturday in a key concession to more than $20 billion worth of sanctions on exports imposed at the height of political tensions between Canberra and Beijing.
• On Monday the local calendar sees ANZ-Indeed Job Ads. It is worth noting that NSW has a bank holiday on Monday.
• Later today sees the release of US Non-Farm Payrolls, with +200k consensus versus +209k prior. (See MNI NFP Preview here)
• The AOFM announced plans to sell A$700mn of the 2.75% 21 June 2035 bond on Wednesday, 9 August 2023.

NZGBS: Weaker, Outperforms ACGBs, Awaits US Payrolls Data

NZGBs closed 5-7bp weaker but off session cheaps. Without a domestic catalyst, local participants have likely sought direction from US tsys ahead of non-farm payrolls. NZ/US 10-year yield differential closed unchanged on the day. NZGBs did however outperform ACGBs with the 10-year yield differential 3bp tighter at +64bp.

• US tsys have twist flattened, pivoting at the 7-year, in Asia-Pac trade with rates +2bp to -2bp.
• Swap rates closed 6bp higher.
• RBNZ-dated OIS pricing closed little changed across meetings with terminal rate expectations at 5.65%.
• The local calendar has no economic data on Monday. The next key release is Retail Card Spending for July on Wednesday.
• Later today sees the release of US Non-Farm Payrolls, with +200k expected versus +209k prior. The unemployment rate is forecast to remain unchanged at 3.6%. AHE is seen moderating to 0.3% m/m, although it doesn’t take much from an unrounded 0.36% m/m. No change is expected in average hours worked. (See MNI NFP Preview here)

FOREX: Greenback Marginally Pressured, NFP In View

The greenback is marginally pressured in the Asian session on Friday, higher US equity futures and firmer regional equities have seen risk sentiment firm and the USD tick marginally lower.

• The AUD is the strongest performer in the G-10 space at the margins. AUD/USD sits at $0.6570/75, ~0.3% higher. China scrapped tariffs on Australian barley facilitating a brief extension of gains before ticking away from session highs. Resistance is at $0.6630, the high from Aug 2, support comes in at $0.6514 (Aug 3 low).
• Kiwi is ~0.2% firmer, NZD/USD sits at $0.6090/95. The pair has not yet been able to breach the $0.61 handle as it consolidates early gains on Friday.
• Yen is a touch firmer however USD/JPY has observed narrow ranges for the most part of today's session.
• Elsewhere in G-10 GBP is ~0.2% firmer and EUR is up ~0.1%.
• Cross asset wise; US equity futures are firmer after Amazon gained 10% in post market trade following a bullish revenue forecast. E-minis are up ~0.3% and NASDAQ futures are up ~0.5%. The Hang Seng is up ~1%. BBDXY is down ~0.1% and the US Tsy curve is marginally flatter.
• The highlight of today's session is the July NFP print, the MNI preview is here.

EQUITIES: US Futures Tracking Higher, China/HK Markets Firm

A number of the major regional indices have tracked higher today, btu gains aren't strong, as the market awaits the NFP outcome later in the US. US equity futures are higher, buoyed by strength in Amazon in after-hours trading. The company presented a better-than-expected earnings backdrop. Eminis were last around 4537, +0.34%, with the active contract unable to sustain moves above 4540. Nasdaq futures are slightly firmer, last +0.49%.

• The other focus point has been HK/China shares, which opened strongly but now sit away from session highs. At the break, the HSI is up 0.99%. The CSI 300 is up 0.64%, the Shanghai Composite +0.47%.
• Early sentiment was buoyed by reports from late yesterday of the PBoC meeting with property developers and pledging to support finance to the private sector. The CSI 300 real estate index is around flat at this stage, but was 2.17% higher in Thursday trade.
• Officials from the PBoC, NDRC and MOF have spoken again today. Tax breaks for small businesses is being proposed, while the PBoC will utilize its full policy suite to ensure stable credit supply for the economy.
• Elsewhere, Japan stocks are a touch higher, the Topix last +0.25%. Tech sensitive plays like South Korea (Kospi flat) and Taiwan (Taiex -0.20%) have struggled though. Global tech indices have been under pressure in recent sessions maid the resurgent US yield backdrop. Offshore investors have also sold close to $1bn South Korean shares this week.
• In SEA, trends are mixed. Indian shares have opened higher, tracking +0.40% firmer at this stage.

OIL: Aiming For A 6th Straight Week Of Gains

Brent crude has largely tracked sideways in Friday trade to date. We were last near $85.25/bbl, against an earlier high of $85.60/bbl and low of $85.06/bbl. This keeps us comfortably in ranges seen this past week. At this stage we are tracking modestly higher for the week (~0.30%), which if maintained would be the 6th straight week of positive gains. WTI is near $81.75/bbl currently, but sits comfortably above closing levels from the end of last week (+1.45% at this stage).

• For Brent, bulls will target mid April highs around $87.50/bbl. Support was evident yesterday on the pull back to $82.50, which also coincides with the 200-day EMA.
• Thursday's rebound was driven by Saudi Arabia announcing it will extend its 1mbpd voluntary production cut until end-September, while leaving the door open to “extend” and/or “deepen” them. Following this announcement, Russia’s Novak has said Russia will cut oil exports by 300kbpd in September, down from a voluntary cut commitment of 500kbpd in August.
• These developments are likely to overshadow the OPEC+ meeting later, which is due to “assess market conditions” in an online meeting Friday 2pm Vienna time.
• The other focus point will be the NFP report from a broader macro standpoint.
• Russia reported today the Novorossiysk Port halted traffic after a Ukrainian drone attack. However, oil loadings for moored tankers continues and there hasn't been any reported damage to key infrastructure.

GOLD: Heading For The Worst Week In Six

Gold is +0.1% in the Asia-Pac session, after closing little changed at 1934.06 on Thursday. The day low was $1929.65. The precious metal experienced conflicting influences, with a softer USD index providing support, while a significant bear steepening in the Treasury curve posed challenges.

• The rise in longer-term global bond yields was the significant development observed on Thursday. Yields for the 10-year US Treasury benchmark and beyond were 10-12bp higher. The 10-year finished at 4.17%, the highest level since Nov’22. The US Treasury yield curve steepened for the eighth straight day. 10-year EGBs also rose around 10bp. JGB futures were slightly cheaper after 10-year JGBs were pressured on Thursday, taking its yield to 0.653%.
• Bullion is on track for its worst week in six, primarily due to the surge in US bond yields, which came in response to signs of unexpected economic strength in the nation and concerns about its widening budget deficit.
• According to the MNI technicals team, support remains at $1924.5 (Jul 11 low) after which lies $1902.8 (Jul 6 low).

ASIA FX: USD/CNH Supported On Dips, USD/KRW Breaks Above 1300

USD/Asia pairs are mostly higher, bucking the slightly softer dollar bias seen against the majors. USD/CNH dipped sharply this morning, but recovered just as quickly. 1 Month USD/KRW has broken higher, while PHP and THB have seen further losses. MYR and INR have outperformed at the margins. On Monday next week we get Q2 Indonesia GDP, along with Thailand CPI and China FX reserves.

• USD/CNH dipped sharply in the first part of trade, getting close to 7.1550, but then rebounded just as quickly. This afternoon we got back above 7.1900, but now sit slightly lower. Early impetus came from a strong equity market open, but sit away from best levels now, albeit with major indices still comfortably in positive territory. Comments from officials at the PBoC, NDRC and MOF didn't break any major new ground from a policy stimulus standpoint.
• Spot USD/HKD spent much of yesterday trending higher. We got to highs above 7.8080 late in NY trade, but sit closer to 7.8070 in current dealings, little changed for the session. This is highs in the pair back to July 26. Note the 20-day EMA comes in close to 7.8100, while the 50-day is higher at ~7.8200. The USD/HKD 1 month risk reversal is firming. We were last at -0.32, which is highs in this metric back to February of this year. In the forward space, USD/HKD 12 month outright sits only a touch above recent lows, last in the 7.7660/70 region. Shorter dated tenors have seen more upside in line with spot moves, the 6 month back to 7.7870, the 3 month tracking near 7.8000.
• 1 month USD/KRW has broken higher today. We last sat at 1305/06, with early July highs around 1312.50 not too far away. Local equities are mixed, but have largely tracked sideways since the open. The Kospi is trying to push higher, but offshore investors are net sellers of local equities so far today, -$216.1mn, which brings week to date outflows close to $1bn at this stage.
• USD/INR has opened dealing little changed from Thursday's closing levels in a muted start to today's session. The pair printed its highest level since late May yesterday before paring gains. Reuters have reported that the RBI sold USD on Thursday to cap gains in the pair. Looking ahead, the latest RBI monetary policy decision is due next week, no change to policy is expected.
• The Ringgit sits ~0.2 firmer on Friday, trimming some of the losses seen through the week as broader USD trends continue to dominate flows. USD/MYR prints at 4.5450/90, and remains well within the monthly range, gains have been capped by the 20-Day EMA (4.5642) and the 200-Day EMA (4.5031) has provided support to the pair. Palm Oil sits a touch above the MYR3800 handle, pressure continues on the contract and we now sit ~9% below late July highs. Stockpiles expanded to the largest level in 5 months and production sits at a 7-month high.
• The SGD NEER (per Goldman Sachs estimates) is little changed in early dealing, the measure was pressured yesterday and sits a touch off the base of the recent ranges. We sit ~0.5% below the top of the band. USD/SGD sits a touch above the $1.34 handle and is see-sawing around the handle in narrow ranges this morning, the pair printed its highest level since 11 July yesterday before paring gains. Retail Sales in June printed at 1.1% Y/Y below the 2.1% increase which had been expected.
• USD/PHP is higher today, but the rate of ascent is down on recent sessions. The pair last sat at 55.70, +0.30% higher for the session so far. We did get to 55.75 earlier, but found selling interest around this region. This is very close to the simple 200-day MA (55.76), and a touch above July highs. The pair is already above all key EMAs. Earlier we had weaker than expected July CPI data, although the BSP still sounded cautious around the inflation backdrop. Next week we get June trade figures and Q2 GDP, ahead of the next BSP decision on the 17th of August.
• USD/THB has continued to track higher, the pair last around the 34.75 region. This +0.30% firmer and builds on yesterday's +1.1% gain. The simple 200-day MA sits above 34.80, so isn't too far away from current spot levels.

PHILIPPINES DATA: July CPI Shows Decent Core Y/Y Downshift, But BSP Sees Risks To The Outlook Leaning To The Upside

July headline inflation came in slightly softer than the market consensus, printing at 4.7%y/y (4.9% projected and 5.4% prior). It was within the BSP's range estimate as well, albeit slightly at the upper end of the projected range (4.1% -4.9%).

• The m/m print was 0.1%, versus 0.2% in June, with food +0.5% the highest m/m gain, while housing/utilities continue to fall (-0.8%).
• From a y/y momentum standpoint, only one category saw stronger y/y pace, which was education (+3.7% y/y from 3.6%). The rest of the sub-components saw either the same y/y momentum or a further deceleration. Transport fell to -4.7%, which remains a noticeable drag.
• Core inflation was 6.7% y/y, versus 7.4% prior. Base effects are favorable as we progress further into H2. Likewise for headline inflation.
• The BSP stated after the data that the balance of risks to the inflation outlook lean towards the upside. Citing transport fare hikes, minimum wage adjustments and food supply constraints. The central bank is ready to adjust policy if needed (see this link). This echoes comments from BSP head Remolona (see this link)
• Finance Secretary Diokno was a little more dovish in comments, stating that the Philippines is over the inflation hump and the July data supports a return to the inflation target in Q4.