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The Australian Q3 CPI showed sticky services prices pressures, suggesting little reason for the RBA to cut before year end. RBA-dated OIS pricing is 1-3bps firmer on the day.
This has done little to support the AUD though, which along with NZD, has made multi month lows. A softer tone to both China/Hong Kong equities has weighed.
Looking ahead, the October European commission survey, preliminary Q3 German/French GDP, October German unemployment and October German/Spain CPIs print. The ECB’s Schnabel and BoC’s Macklem speak, and the UK budget is announced. In the US, focus turns to ADP employment data, GDP and Pending Home Sales.
Tsys futures are slightly off session highs, however ranges have been narrow. TU +01⅜ at 103-04⅞, while TY is +06+ at 110-30+ with initial resistance at 111-14 (Oct 25 high)
There was an earlier block buy of UXY, DV01 $405k, and a large TY 113 call, x30,000, delta 21%
Overall, Investors remain bearish ahead of the US presidential election, betting on further bond losses and increased volatility. Yields have already surged, with options traders targeting a potential 4.5% yield on the 10-year note. Elevated open interest in 10yr December 109.5 put options reflects hedging against a deeper bond selloff.
Overnight In tsys options there was demand during US morning for volatility hedging, with stand-out flows including a $5m premium strangle position via TY Week 1 options. The BofA move Index has now reached it's highest in 12 month, as traders expected volatility to increase heading into the election.
Cash tsys yields are flat to 1bps lower today, with the curve slightly flatter. The 2yr is -0.4bps at 4.092%, while the 10yr is -0.8bps at 4.246%.
Focus turns to ADP employment data, GDP and Pending Home Sales.
The Bank of Japan (BoJ) Policy Board is meeting on October 30-31, with an anticipated unanimous decision to maintain its current policy rate at 0.25%. A hold is also expected by all, but one of the 53 analysts surveyed by Bloomberg, with market pricing aligning with this expectation.
Since April, the BoJ’s guidance has indicated a gradual rate increase if economic activity and inflation trends align with the central bank’s projections, stating that the real policy rate is currently too low relative to neutral levels.
However, an additional precondition for future rate hikes has emerged, emphasising stability in overseas economies and financial markets, especially the US. Given these factors, the BoJ appears inclined to monitor US economic stability and market volatility a bit longer before making further policy adjustments.
Looking ahead, consensus forecasts suggest a rate increase to around 0.5% in either December or January, assuming a stable US economy. January may be optimal for a rate move, as it coincides with the next Outlook Report and provides time to evaluate underlying price trends following October’s price revisions. However, a rate hike in December remains plausible if the yen weakens further after the US presidential election.
FOR THE FULL PUBLICATION PLEASE USE THE FOLLOWING LINK:
JGB futures are stronger and at session highs, +11 compared to settlement levels.
Today, the local calendar has been light.
Tomorrow, the BoJ will hand down its policy decision after its two-day MPM. All, but one of the 53 analysts surveyed by Bloomberg expect the current policy rate of 0.25% to be maintained, with market pricing aligning with this expectation.
Since April, the BoJ’s guidance has indicated a gradual rate increase if economic activity and inflation trends align with the central bank’s projections.
However, an additional precondition for future rate hikes has emerged, emphasising stability in overseas economies and financial markets. Given these factors, the BoJ appears inclined to monitor US economic stability and market volatility a bit longer before making further policy adjustments. (See MNI BoJ Preview here)
Cash US tsys are little changed in today’s Asia-Pac session. The focus is now on today's ADP employment and GDP data.
Cash JGBs are slightly mixed across benchmarks, with yields 1-2bps richer apart from the 1-year and 20-year+, which are 1-2bps cheaper. The benchmark 10-year yield is 1.5bps lower at 0.966%.
Swap rates are 1-3bps lower, with the belly of the curve leading.
Tomorrow, the local calendar will also see Retail Sales, International Investment Flow, IP and Housing Starts data.
ACGBs (YM -1.0 & XM -1.5) are weaker and little changed after today’s Q3/September CPI release.
Q3 trimmed mean CPI printed in line with expectations at 0.8% q/q and 3.5% y/y after an upwardly revised Q2 at 0.9% and 4.0%. This is consistent with the RBA’s Q4 forecast but the tick-up in services inflation is likely to mean the Board remains cautious and stays on hold over the rest of 2024.
Problematically, services rose 1.1% q/q and 4.6% y/y up from Q2’s 1.0% and 4.5%, in line with Q4 2023, driven by rents, insurance and child care. Core services were also strong rising 1.3% q/q and 4.1% y/y after 1.0% and 4.1% y/y.
Cash US tsys are little changed in today’s Asia-Pac session. The focus is now on today's ADP employment data, GDP and Pending Home Sales.
Cash ACGBs are 1bp cheaper on the day. The AU-US 10-year yield differential is at +21bps.
Swap rates are 1bp lower on the day.
The bills strip is weaker, with pricing -1 to -3.
RBA-dated OIS pricing is 1-3bps firmer on the day. A cumulative 3bps of easing is priced by year-end.
Tomorrow, the local calendar will see Retail Sales, Terms of Trade, Building Approvals and Private Sector Credit data.
Q3 trimmed mean CPI printed in line with expectations at 0.8% q/q and 3.5% y/y after an upwardly-revised Q2 at 0.9% and 4.0%. This is consistent with the RBA’s Q4 forecast but the tick up in services inflation is likely to mean the Board remains cautious and stays on hold over the rest of 2024. It is likely to want another quarter of data (Q4 CPI due January 29) before considering a rate cut.
Australia CPI y/y% vs target
Source: MNI - Market News/Refinitiv
The rebate-impacted headline came in 0.1pp below consensus at 0.2% q/q and 2.8% y/y down from Q2’s 3.8%. The ABS said that electricity prices fell 17.3% q/q and without government rebates would have risen 0.7% q/q. Petrol prices also weighed with lower global oil driving a 6.7% q/q drop in auto fuel prices.
Food rose 0.6% q/q driven by meals out, meat and fruit & veg.
With headline artificially low, the focus is on underlying and domestically-driven measures. While Q3 trimmed mean remains above the top of the RBA’s band, it was the lowest since Q4 2021, which should reassure them. It will likely need more data though to determine if it looks sustainable.
Problematically, the Q3 moderation was driven by the goods/tradeables components, while services picked up although non-tradeables moderated to 4.1% y/y from 5%.
Services rose 1.1% q/q and 4.6% y/y up from Q2’s 1.0% and 4.5%, in line with Q4 2023, driven by rents, insurance and child care. Core services were also strong rising 1.3% q/q and 4.1% y/y after 1.0% and 4.1% y/y. The lack of progress will likely continue to worry the RBA.
Goods prices fell 0.6% q/q to be up 1.4% y/y down from 3.2% due to electricity and fuel. Tradeables fell 0.2% q/q to be 0.6% y/y after 1.5% y/y in Q2.
September monthly CPI data were also released today and showed further moderation from August but there was an increase in services inflation bringing the annual rate to its highest since May. The pickup at the end of the quarter may worry the RBA that sticky services inflation could have continued into Q4, although 3-month momentum eased it remains high.
Australia services vs trimmed mean CPI y/y% monthly
Source: MNI - Market News/ABS
The September trimmed mean moderated 0.2pp to 3.2% y/y. With disinflation stalling in H1 2024, this is the lowest since January 2022. CPI ex volatile items and holidays was flat in September and eased 0.3pp to 2.7% y/y, approaching the mid-point of the RBA’s 2-3% band.
Services inflation picked up to 4.4% y/y from 4.2%, while non-tradeables moderated to 3.5% from 3.8%, the lowest since January 2022.
September headline CPI moderated to 2.1% y/y from 2.7% with government energy rebates and lower petrol prices bringing it to its lowest since the pandemic-impacted March 2021.
Like with the quarterly data, the moderation in September inflation was due to goods and tradeables which printed at 0.3% y/y and -0.4% y/y respectively, after 1.4% and 0.5% in August.
Food & non-alcoholic beverages (+3.3% y/y), alcohol & tobacco (+6.3%) and housing (+1.6%) were the main contributors to annual inflation, according to the ABS.
NZGBs closed slightly cheaper but in the middle of today’s range, with benchmark yields flat to 1bp higher. With the local calendar domestic today, local participants sought directional from US tsys. However, that was not forthcoming, with US tsys little changed in today’s Asia-Pac session, ahead of today’s ADP employment data, GDP and Pending Home Sales data.
On a relative basis, the NZGB 10-year underperformed its US counterpart with the NZ-US yield differential 4bps wider at +20bps. Yesterday, the differential tightened to +16bps, just above July's low of +13bps, the narrowest level since mid-2021.
Early modest USD softness has given away to dollar gains as the Asia PAC Wednesday session unfolds. Weakness is being led by AUD and NZD, both off around 0.25% at this stage, slightly up from session lows. The USD BDXY index is little changed, last near 1263. Earlier we were at lows of 1261.37, as US yields softened.
The weaker backdrop for HK and China equities is likely not helping AUD and NZD. The HSI off 1.86% at the lunchtime break. Lack of any positive follow through from fresh stimulus rumours from late yesterday, is notable today.
Earlier we had Q3 CPI print in Australia, the main release today. We saw further improvement in headline y/y momentum, but service inflation remains stick. This suggests no reason for the RBA to cut rates in the near term, but this has provided only fleeting AUD support.
The currency got to highs of 0.6571, before turning lower to hit fresh multi month lows of 0.6537. Metal prices are also down modestly for copper and iron ore.
NZD/USD is down by a similar amount, last near 0.5955/60. Earlier lows were at 0.5951.
USD/JPY was lower earlier, but sits back at 153.30/35 now, unchanged. US equity futures are off earlier highs, while US yields have largely reversed earlier weakness, another USD support point.
Looking ahead, the October European commission survey, preliminary Q3 German/French GDP, October German unemployment and October German/Spain CPIs print. The ECB’s Schnabel and BoC’s Macklem speak, and the UK budget is announced. In the US, focus turns to ADP employment data, GDP and Pending Home Sales.
Chinese stocks are lower today, with the CSI 300 falling as much as 1.1% and the HS China Enterprises Index down 1.95%, led by tech giants like Meituan, Alibaba, and JD.com. Investor sentiment was weighed down by concerns that China’s recent stimulus announcements may not be enough to sustain a lasting recovery. While China is reportedly considering a 10t yuan fiscal package, market participants remain cautious due to a series of underwhelming follow-ups to earlier announcements and concerns over broader structural issues like debt and demographics.
Earnings reports also contributed to the negative market sentiment, with China Merchants Bank and Haier Smart Home reporting weaker-than-expected results. Investors are now focusing on the upcoming National People's Congress Standing Committee meeting, where additional fiscal stimulus could be confirmed.
Equities in Hong Kong are performing worse than their mainland peers, tech stocks are the worst preforming with HSTech Index down 2.60% followed by HS Mainland Banking Index which is down 1.85%, while the benchmark HSI is 1.80% lower.
Asian markets are mixed today as investors exercised caution ahead of key US events, including next week’s presidential election and the Federal Reserve’s rate decision. Japan’s Topix Index gained around 1%, led by tech stocks following a strong performance from the Nasdaq. Mainland China, Hong Kong, and Australia saw declines. Chinese stocks faced pressure amid economic concerns, though property developers gained on reports of potential government stimulus.
Japanese stocks are higher with the Topix Index rising about 1%, supported by gains in the tech sector after a strong performance from the Nasdaq in the U.S. Investors were also optimistic ahead of earnings from Hitachi, the 2nd largest component of the TOPIX. Financial stocks contributed to the gains, marking a third consecutive day of advances for the sector. Looking at index options, traders are positioned for further upside in both the Nikkei & Topix but see more upside in the TOPIX with the $2,900 strike calls having the most open interest for the Nov. 8 maturity, a 7% upside from current levels.
Taiwan's TAIEX is slightly higher today, with TSMC up 0.50% contributing to the majority of the index's gains today, this follows an almost 4% drop in their shares after reports surfaced that the company may have violated US trade restrictions with China. TSMC reportedly suspended shipments to China's chip designer Sophgo after a chip it made was found in a Huawei AI processor, which is subject to U.S. export controls. South Korea's KOSPI is 0.70% lower today, the largest weighting in hte KOSPI is Samsung, the company has struggled since June, dropping over 30% from highs vs Apple which is trading little changed.
Australian equities are lower, with the ASX 200 falling 0.70%, despite a decline in inflation to 2.8%, which brought headline inflation back within the RBA's target range. Investors were not impressed by the inflation drop as core inflation remained elevated at 3.5%, suggesting continued price pressures in areas like recreation, food, and insurance. Mining stocks saw gains supported by a climb in iron ore prices. However, financials and retail sectors were weaker. Supermarket giant Woolworths fell sharply by 5.8% after issuing a profit warning for FY25. Star Entertainment shares plunged 11.3% following a reported $1.6 billion loss for FY24 due to challenging trading conditions and regulatory issues. New Zealand's NZX50 is 0.40% lower, with the three largest weighting (WBC, ANZ, Fisher & Paykel) dropping roughly 1% each.
Taiwan saw large outflow on Tuesday as TSMC sold off a touch. Thailand & India have seen just a single day of inflows for the past 20 plus sessions, with a total outflows of almost $11b from India over that time.
South Korea: Recorded outflows of -$93m yesterday, bringing the 5-day total to -$627m. Year-to-date (YTD) flows remain positive at +$7.961b. The 5-day average is -$125m, better than the 20-day average of -$163m and worse than the 100-day average of -$61m.
Taiwan: Experienced outflows of -$873m yesterday, totaling -$578m over the past 5 days. YTD flows are negative at -$10.760b. The 5-day average is -$116m, worse than the 20-day average of +$19m and the 100-day average of -$134m.
India: Saw outflows of -$251m yesterday, with a total outflow of -$2.235b over the past 5 days. YTD inflows stand at +$973m. The 5-day average is -$447m, worse than the 20-day average of -$541m but better than the 100-day average of +$37m.
Indonesia: Posted outflows of -$32m yesterday, bringing the 5-day total to -$291m. YTD flows remain positive at +$2.643b. The 5-day average is -$58m, worse than the 20-day average of -$32m but better than the 100-day average of +$31m.
Thailand: Recorded outflows of -$51m yesterday, totaling -$136m over the past 5 days. YTD flows are negative at -$3.286b. The 5-day average is -$27m, better than the 20-day average of -$37m but worse than the 100-day average of -$9m.
Malaysia: Experienced outflows of -$79m yesterday, contributing to a 5-day outflow of -$185m. YTD flows stand at +$502m. The 5-day average is -$37m, worse than the 20-day average of -$14m but better than the 100-day average of +$6m.
Philippines: Saw outflows of -$16m yesterday, with net outflows of -$23m over the past 5 days. YTD flows are positive at +$77m. The 5-day average is -$5m, worse than the 20-day average of +$2m and the 100-day average of +$5m.
Oil has posted modest gains during APAC trading today. Brent is 0.4% higher at $71.40/bbl, close to the intraday high, and WTI is up 0.6% to $67.60/bbl after a low of around $67.30. The USD has recovered to be down only slightly now.
OPEC is due to meet on December 1 which will be monitored closely to see if the group delays its current plans to begin a gradual increase in output from December, which would push prices lower. Bloomberg says that traders are divided as to whether the current plan will go ahead.
Westpac believes that Brent will trade in the high $60s in the not-too-distant future now that most of the geopolitical risk premium has unwound.
Bloomberg reported that US oil inventories fell 600k barrels last week, according to people familiar with the API data. Gasoline stocks fell -300k and distillate 1.5mn. The official EIA data is out later today.
Later the advanced release of US Q3 GDP and October ADP employment are out. GDP is forecast to rise 2.9% q/q saar, in line with Q2.
The October European commission survey, preliminary Q3 German/French GDP, October German unemployment and October German/Spain CPIs print. The ECB’s Schnabel and BoC’s Macklem speak, and the UK budget is announced.
Spot gold rose to a fresh record high of $2,782/oz today amid on-going safe haven demand ahead of the US election, with polls continuing to point to a close outcome and betting putting Trump well ahead. Upcoming key US data is also driving bullion higher. The USD index is flat.
The yellow metal is currently up by 0.1% on the day to $2777.50, just below the intraday high and above resistance at $2,767.1, a Fibonacci projection point. Above here, sights are on the $2,800.0 handle next.
Analysts at Saxo Bank note that gold trades are up given prospects of Trump 2.0, which may bring greater policy disruption, trade tariffs and increased geopolitical risk.
Later the advanced release of US Q3 GDP and October ADP employment are out. GDP is forecast to rise 2.9% q/q saar, in line with Q2. Payrolls on Friday are a focus but are likely to be impacted by recent hurricanes. The Fed is expected to cut rates 25bp on November 7 and gold has rallied on expectations of further easing.
The October European commission survey, preliminary Q3 German/French GDP and October German/Spain CPIs print. The ECB’s Schnabel and BoC’s Macklem speak, and the UK budget is announced.
Each major data release in China at present is watched carefully as economists pour over the numbers looking for impact from the various stimulus measures announced.
Tomorrow sees the release of manufacturing and non-manufacturing PMI’s for October.
It is possibly too much to expect to see the stimulus impact yet as October had a week long National Holiday from October 1-7.
Whilst there have been some signs of an improvement in data with new home sales up and steel output rising, it remains too soon to expect to see material improvement in the PMI’s.
Market consensus is for manufacturing PMI’s to remain in modest contraction at 49.9 and for non-manufacturing in modest expansion at 50.3.
Following on from tomorrow’s PMI's will the Caixin Manufacturing PMI released on Friday where market consensus is for a similar outcome.
The BOK’s Governor Rhee has indicated publicly and to Parliament of his intent to reduce the Central Bank’s forecast for GDP Growth for 2024 and beyond.
The BOK’s forecast for 2024 GDP of 2.4% has been put on notice to be revised down with Rhee speculating it could be either 2.2% or 2.3%.
He also noted that 2025 is becoming more concerning given growing geopolitical risks and slowing exports for Korea.
Looking back at recent history for rate cuts, it is not unusual for the KTB 2-year starting point to be inside that of base rates.
During the rate cutting cycle of 2019, the starting point when rate cuts began for the 2-year KTB was c. 25bps lower than base rates (see figure 1) with yields moving lower as the rate cutting cycle began.
Today, following the BOK’s cut last month and the recent period of higher US yields, the 2-year KTB yield is 35bps below base rates.
In 2019 as rate cuts occurred, the 2-year traded down to 1.15%, to be 35 bps at the start of rate cuts, only to sell off and see yields in line with the base rate by the end of the year.
Yield moves lately in Korea have highly correlated to the US so the question is what happens next?
Using the MIPR function on BBG we observe that the Korean market currently has two rate cuts priced in before year end next year with multiple drivers challenging it.
From global Central Banks cutting rates, to geopolitical turmoil and the push pull factor of the attempts to kick start the spluttering China economy.
All of this is occurring as the BOK Governor is talking down domestic growth.
Ultimately we see risks South Korean yields being more driven by domestic rather US factors. Additionally, the 2yr KTB yield didn't trough in 2020 until the BoK had finished easing.
Figure 1. South Korea 2yr Government Yield Versus The Policy Rate
Thai September manufacturing production growth was significantly weaker than expected deteriorating to -3.5% y/y from -1.9%, the slowest since March. Capacity utilisation fell to 57.5 from 58.3. September business confidence, orders books and manufacturing PMI all fell signalling weaker activity. October data is due on November 1. Thai growth continues to underperform ASEAN. Bank of Thailand deputy governor Piti said today that the central will bank will use numerous tools to support the economy. It cut rates 25bp this month but said in its minutes that its rate should be “neutral” and not too low. The THB NEER is up 7.7% y/y in October, which is tightening financial conditions.
North East Asia FX trends have been mixed so far in Wednesday trade. CNH is a little weaker, while KRW and TWD have ticked up a touch.
USD/CNH has risen back above 7.1500, but remains comfortably back within Tuesday's ranges. CNH is around 0.10% weaker, while onshore spot is off by around the same amount. We saw the USD/CNY fixing come in slightly below market expectations, but not large by historical standards. Onshore equities have struggled, off a little over 1% at the break for the CSI 300. Latest reports of potential stimulus measures, including large fiscal stimulus (per Rtrs reports late yesterday), haven't generated a positive market reaction at this stage.
Spot USD/KRW is lower, but at 1383/84, remains comfortably within recent ranges. We are up around 0.20% for the won versus end Tuesday levels. Onshore equities are off over 0.90%, but remain within recent ranges from an index standpoint (the Kospi just under 2600). Offshore investors continue to sell local equities, off a further $317mn today, to bring Oct to date outflows to nearly $3bn. North Korea is reportedly preparing an ICBM launch per Yonhap.
Spot USD/TWD is down a touch, but remains above the 32.00 level for now, continuing to display quite low volatility.
In South East Asian markets, the MYR is notably weaker, while trends elsewhere are steadier. The recovery in USD/CNH has likely been a ringgit headwind, while higher beta FX in the G10 space continues to weaken as well. Regional equity markets are also down, with China/HK markets off the most.
USD/MYR is around 0.35% higher, the pair last near 4.3940. Highs for the session rest at 4.3975, levels last seen around mid August. This keeps the ringgit broadly in line with other currencies in the region, which have weakened back to similar levels from an historical standpoint in recent sessions.
The ringgit is tracking as the weakest EM Asia currency for October though, off a little over 6%. Revised Fed expectations, US election risks and uncertainty around China stimulus all likely factors. The ringgit was up 4.8% in Sep as well.
USD/IDR is down slightly, bucking the trend of weaker higher beta FX trends so far today. We were last near 15740, with recent highs at 15778 remaining intact.
USD/THB has drifted a little higher, but in latest dealings remained under 33.80. The Bot Mins suggested the recent rate cut was to put rates around neutral. The FinMin and BoT also agreed to next year's inflation target being 1-3% (so no change). The BoT also stated it was closely monitoring THB moves (per BBG).
USD/PHP has been quite steady, the pair last near 58.31.
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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)
The Australian Q3 CPI showed sticky services prices pressures, suggesting little reason for the RBA to cut before year end. RBA-dated OIS pricing is 1-3bps firmer on the day.
This has done little to support the AUD though, which along with NZD, has made multi month lows. A softer tone to both China/Hong Kong equities has weighed.
Looking ahead, the October European commission survey, preliminary Q3 German/French GDP, October German unemployment and October German/Spain CPIs print. The ECB’s Schnabel and BoC’s Macklem speak, and the UK budget is announced. In the US, focus turns to ADP employment data, GDP and Pending Home Sales.
Tsys futures are slightly off session highs, however ranges have been narrow. TU +01⅜ at 103-04⅞, while TY is +06+ at 110-30+ with initial resistance at 111-14 (Oct 25 high)
There was an earlier block buy of UXY, DV01 $405k, and a large TY 113 call, x30,000, delta 21%
Overall, Investors remain bearish ahead of the US presidential election, betting on further bond losses and increased volatility. Yields have already surged, with options traders targeting a potential 4.5% yield on the 10-year note. Elevated open interest in 10yr December 109.5 put options reflects hedging against a deeper bond selloff.
Overnight In tsys options there was demand during US morning for volatility hedging, with stand-out flows including a $5m premium strangle position via TY Week 1 options. The BofA move Index has now reached it's highest in 12 month, as traders expected volatility to increase heading into the election.
Cash tsys yields are flat to 1bps lower today, with the curve slightly flatter. The 2yr is -0.4bps at 4.092%, while the 10yr is -0.8bps at 4.246%.
Focus turns to ADP employment data, GDP and Pending Home Sales.
The Bank of Japan (BoJ) Policy Board is meeting on October 30-31, with an anticipated unanimous decision to maintain its current policy rate at 0.25%. A hold is also expected by all, but one of the 53 analysts surveyed by Bloomberg, with market pricing aligning with this expectation.
Since April, the BoJ’s guidance has indicated a gradual rate increase if economic activity and inflation trends align with the central bank’s projections, stating that the real policy rate is currently too low relative to neutral levels.
However, an additional precondition for future rate hikes has emerged, emphasising stability in overseas economies and financial markets, especially the US. Given these factors, the BoJ appears inclined to monitor US economic stability and market volatility a bit longer before making further policy adjustments.
Looking ahead, consensus forecasts suggest a rate increase to around 0.5% in either December or January, assuming a stable US economy. January may be optimal for a rate move, as it coincides with the next Outlook Report and provides time to evaluate underlying price trends following October’s price revisions. However, a rate hike in December remains plausible if the yen weakens further after the US presidential election.
FOR THE FULL PUBLICATION PLEASE USE THE FOLLOWING LINK:
JGB futures are stronger and at session highs, +11 compared to settlement levels.
Today, the local calendar has been light.
Tomorrow, the BoJ will hand down its policy decision after its two-day MPM. All, but one of the 53 analysts surveyed by Bloomberg expect the current policy rate of 0.25% to be maintained, with market pricing aligning with this expectation.
Since April, the BoJ’s guidance has indicated a gradual rate increase if economic activity and inflation trends align with the central bank’s projections.
However, an additional precondition for future rate hikes has emerged, emphasising stability in overseas economies and financial markets. Given these factors, the BoJ appears inclined to monitor US economic stability and market volatility a bit longer before making further policy adjustments. (See MNI BoJ Preview here)
Cash US tsys are little changed in today’s Asia-Pac session. The focus is now on today's ADP employment and GDP data.
Cash JGBs are slightly mixed across benchmarks, with yields 1-2bps richer apart from the 1-year and 20-year+, which are 1-2bps cheaper. The benchmark 10-year yield is 1.5bps lower at 0.966%.
Swap rates are 1-3bps lower, with the belly of the curve leading.
Tomorrow, the local calendar will also see Retail Sales, International Investment Flow, IP and Housing Starts data.
ACGBs (YM -1.0 & XM -1.5) are weaker and little changed after today’s Q3/September CPI release.
Q3 trimmed mean CPI printed in line with expectations at 0.8% q/q and 3.5% y/y after an upwardly revised Q2 at 0.9% and 4.0%. This is consistent with the RBA’s Q4 forecast but the tick-up in services inflation is likely to mean the Board remains cautious and stays on hold over the rest of 2024.
Problematically, services rose 1.1% q/q and 4.6% y/y up from Q2’s 1.0% and 4.5%, in line with Q4 2023, driven by rents, insurance and child care. Core services were also strong rising 1.3% q/q and 4.1% y/y after 1.0% and 4.1% y/y.
Cash US tsys are little changed in today’s Asia-Pac session. The focus is now on today's ADP employment data, GDP and Pending Home Sales.
Cash ACGBs are 1bp cheaper on the day. The AU-US 10-year yield differential is at +21bps.
Swap rates are 1bp lower on the day.
The bills strip is weaker, with pricing -1 to -3.
RBA-dated OIS pricing is 1-3bps firmer on the day. A cumulative 3bps of easing is priced by year-end.
Tomorrow, the local calendar will see Retail Sales, Terms of Trade, Building Approvals and Private Sector Credit data.
Q3 trimmed mean CPI printed in line with expectations at 0.8% q/q and 3.5% y/y after an upwardly-revised Q2 at 0.9% and 4.0%. This is consistent with the RBA’s Q4 forecast but the tick up in services inflation is likely to mean the Board remains cautious and stays on hold over the rest of 2024. It is likely to want another quarter of data (Q4 CPI due January 29) before considering a rate cut.
Australia CPI y/y% vs target
Source: MNI - Market News/Refinitiv
The rebate-impacted headline came in 0.1pp below consensus at 0.2% q/q and 2.8% y/y down from Q2’s 3.8%. The ABS said that electricity prices fell 17.3% q/q and without government rebates would have risen 0.7% q/q. Petrol prices also weighed with lower global oil driving a 6.7% q/q drop in auto fuel prices.
Food rose 0.6% q/q driven by meals out, meat and fruit & veg.
With headline artificially low, the focus is on underlying and domestically-driven measures. While Q3 trimmed mean remains above the top of the RBA’s band, it was the lowest since Q4 2021, which should reassure them. It will likely need more data though to determine if it looks sustainable.
Problematically, the Q3 moderation was driven by the goods/tradeables components, while services picked up although non-tradeables moderated to 4.1% y/y from 5%.
Services rose 1.1% q/q and 4.6% y/y up from Q2’s 1.0% and 4.5%, in line with Q4 2023, driven by rents, insurance and child care. Core services were also strong rising 1.3% q/q and 4.1% y/y after 1.0% and 4.1% y/y. The lack of progress will likely continue to worry the RBA.
Goods prices fell 0.6% q/q to be up 1.4% y/y down from 3.2% due to electricity and fuel. Tradeables fell 0.2% q/q to be 0.6% y/y after 1.5% y/y in Q2.
September monthly CPI data were also released today and showed further moderation from August but there was an increase in services inflation bringing the annual rate to its highest since May. The pickup at the end of the quarter may worry the RBA that sticky services inflation could have continued into Q4, although 3-month momentum eased it remains high.
Australia services vs trimmed mean CPI y/y% monthly
Source: MNI - Market News/ABS
The September trimmed mean moderated 0.2pp to 3.2% y/y. With disinflation stalling in H1 2024, this is the lowest since January 2022. CPI ex volatile items and holidays was flat in September and eased 0.3pp to 2.7% y/y, approaching the mid-point of the RBA’s 2-3% band.
Services inflation picked up to 4.4% y/y from 4.2%, while non-tradeables moderated to 3.5% from 3.8%, the lowest since January 2022.
September headline CPI moderated to 2.1% y/y from 2.7% with government energy rebates and lower petrol prices bringing it to its lowest since the pandemic-impacted March 2021.
Like with the quarterly data, the moderation in September inflation was due to goods and tradeables which printed at 0.3% y/y and -0.4% y/y respectively, after 1.4% and 0.5% in August.
Food & non-alcoholic beverages (+3.3% y/y), alcohol & tobacco (+6.3%) and housing (+1.6%) were the main contributors to annual inflation, according to the ABS.
NZGBs closed slightly cheaper but in the middle of today’s range, with benchmark yields flat to 1bp higher. With the local calendar domestic today, local participants sought directional from US tsys. However, that was not forthcoming, with US tsys little changed in today’s Asia-Pac session, ahead of today’s ADP employment data, GDP and Pending Home Sales data.
On a relative basis, the NZGB 10-year underperformed its US counterpart with the NZ-US yield differential 4bps wider at +20bps. Yesterday, the differential tightened to +16bps, just above July's low of +13bps, the narrowest level since mid-2021.
Early modest USD softness has given away to dollar gains as the Asia PAC Wednesday session unfolds. Weakness is being led by AUD and NZD, both off around 0.25% at this stage, slightly up from session lows. The USD BDXY index is little changed, last near 1263. Earlier we were at lows of 1261.37, as US yields softened.
The weaker backdrop for HK and China equities is likely not helping AUD and NZD. The HSI off 1.86% at the lunchtime break. Lack of any positive follow through from fresh stimulus rumours from late yesterday, is notable today.
Earlier we had Q3 CPI print in Australia, the main release today. We saw further improvement in headline y/y momentum, but service inflation remains stick. This suggests no reason for the RBA to cut rates in the near term, but this has provided only fleeting AUD support.
The currency got to highs of 0.6571, before turning lower to hit fresh multi month lows of 0.6537. Metal prices are also down modestly for copper and iron ore.
NZD/USD is down by a similar amount, last near 0.5955/60. Earlier lows were at 0.5951.
USD/JPY was lower earlier, but sits back at 153.30/35 now, unchanged. US equity futures are off earlier highs, while US yields have largely reversed earlier weakness, another USD support point.
Looking ahead, the October European commission survey, preliminary Q3 German/French GDP, October German unemployment and October German/Spain CPIs print. The ECB’s Schnabel and BoC’s Macklem speak, and the UK budget is announced. In the US, focus turns to ADP employment data, GDP and Pending Home Sales.
Chinese stocks are lower today, with the CSI 300 falling as much as 1.1% and the HS China Enterprises Index down 1.95%, led by tech giants like Meituan, Alibaba, and JD.com. Investor sentiment was weighed down by concerns that China’s recent stimulus announcements may not be enough to sustain a lasting recovery. While China is reportedly considering a 10t yuan fiscal package, market participants remain cautious due to a series of underwhelming follow-ups to earlier announcements and concerns over broader structural issues like debt and demographics.
Earnings reports also contributed to the negative market sentiment, with China Merchants Bank and Haier Smart Home reporting weaker-than-expected results. Investors are now focusing on the upcoming National People's Congress Standing Committee meeting, where additional fiscal stimulus could be confirmed.
Equities in Hong Kong are performing worse than their mainland peers, tech stocks are the worst preforming with HSTech Index down 2.60% followed by HS Mainland Banking Index which is down 1.85%, while the benchmark HSI is 1.80% lower.
Asian markets are mixed today as investors exercised caution ahead of key US events, including next week’s presidential election and the Federal Reserve’s rate decision. Japan’s Topix Index gained around 1%, led by tech stocks following a strong performance from the Nasdaq. Mainland China, Hong Kong, and Australia saw declines. Chinese stocks faced pressure amid economic concerns, though property developers gained on reports of potential government stimulus.
Japanese stocks are higher with the Topix Index rising about 1%, supported by gains in the tech sector after a strong performance from the Nasdaq in the U.S. Investors were also optimistic ahead of earnings from Hitachi, the 2nd largest component of the TOPIX. Financial stocks contributed to the gains, marking a third consecutive day of advances for the sector. Looking at index options, traders are positioned for further upside in both the Nikkei & Topix but see more upside in the TOPIX with the $2,900 strike calls having the most open interest for the Nov. 8 maturity, a 7% upside from current levels.
Taiwan's TAIEX is slightly higher today, with TSMC up 0.50% contributing to the majority of the index's gains today, this follows an almost 4% drop in their shares after reports surfaced that the company may have violated US trade restrictions with China. TSMC reportedly suspended shipments to China's chip designer Sophgo after a chip it made was found in a Huawei AI processor, which is subject to U.S. export controls. South Korea's KOSPI is 0.70% lower today, the largest weighting in hte KOSPI is Samsung, the company has struggled since June, dropping over 30% from highs vs Apple which is trading little changed.
Australian equities are lower, with the ASX 200 falling 0.70%, despite a decline in inflation to 2.8%, which brought headline inflation back within the RBA's target range. Investors were not impressed by the inflation drop as core inflation remained elevated at 3.5%, suggesting continued price pressures in areas like recreation, food, and insurance. Mining stocks saw gains supported by a climb in iron ore prices. However, financials and retail sectors were weaker. Supermarket giant Woolworths fell sharply by 5.8% after issuing a profit warning for FY25. Star Entertainment shares plunged 11.3% following a reported $1.6 billion loss for FY24 due to challenging trading conditions and regulatory issues. New Zealand's NZX50 is 0.40% lower, with the three largest weighting (WBC, ANZ, Fisher & Paykel) dropping roughly 1% each.
Taiwan saw large outflow on Tuesday as TSMC sold off a touch. Thailand & India have seen just a single day of inflows for the past 20 plus sessions, with a total outflows of almost $11b from India over that time.
South Korea: Recorded outflows of -$93m yesterday, bringing the 5-day total to -$627m. Year-to-date (YTD) flows remain positive at +$7.961b. The 5-day average is -$125m, better than the 20-day average of -$163m and worse than the 100-day average of -$61m.
Taiwan: Experienced outflows of -$873m yesterday, totaling -$578m over the past 5 days. YTD flows are negative at -$10.760b. The 5-day average is -$116m, worse than the 20-day average of +$19m and the 100-day average of -$134m.
India: Saw outflows of -$251m yesterday, with a total outflow of -$2.235b over the past 5 days. YTD inflows stand at +$973m. The 5-day average is -$447m, worse than the 20-day average of -$541m but better than the 100-day average of +$37m.
Indonesia: Posted outflows of -$32m yesterday, bringing the 5-day total to -$291m. YTD flows remain positive at +$2.643b. The 5-day average is -$58m, worse than the 20-day average of -$32m but better than the 100-day average of +$31m.
Thailand: Recorded outflows of -$51m yesterday, totaling -$136m over the past 5 days. YTD flows are negative at -$3.286b. The 5-day average is -$27m, better than the 20-day average of -$37m but worse than the 100-day average of -$9m.
Malaysia: Experienced outflows of -$79m yesterday, contributing to a 5-day outflow of -$185m. YTD flows stand at +$502m. The 5-day average is -$37m, worse than the 20-day average of -$14m but better than the 100-day average of +$6m.
Philippines: Saw outflows of -$16m yesterday, with net outflows of -$23m over the past 5 days. YTD flows are positive at +$77m. The 5-day average is -$5m, worse than the 20-day average of +$2m and the 100-day average of +$5m.
Oil has posted modest gains during APAC trading today. Brent is 0.4% higher at $71.40/bbl, close to the intraday high, and WTI is up 0.6% to $67.60/bbl after a low of around $67.30. The USD has recovered to be down only slightly now.
OPEC is due to meet on December 1 which will be monitored closely to see if the group delays its current plans to begin a gradual increase in output from December, which would push prices lower. Bloomberg says that traders are divided as to whether the current plan will go ahead.
Westpac believes that Brent will trade in the high $60s in the not-too-distant future now that most of the geopolitical risk premium has unwound.
Bloomberg reported that US oil inventories fell 600k barrels last week, according to people familiar with the API data. Gasoline stocks fell -300k and distillate 1.5mn. The official EIA data is out later today.
Later the advanced release of US Q3 GDP and October ADP employment are out. GDP is forecast to rise 2.9% q/q saar, in line with Q2.
The October European commission survey, preliminary Q3 German/French GDP, October German unemployment and October German/Spain CPIs print. The ECB’s Schnabel and BoC’s Macklem speak, and the UK budget is announced.
Spot gold rose to a fresh record high of $2,782/oz today amid on-going safe haven demand ahead of the US election, with polls continuing to point to a close outcome and betting putting Trump well ahead. Upcoming key US data is also driving bullion higher. The USD index is flat.
The yellow metal is currently up by 0.1% on the day to $2777.50, just below the intraday high and above resistance at $2,767.1, a Fibonacci projection point. Above here, sights are on the $2,800.0 handle next.
Analysts at Saxo Bank note that gold trades are up given prospects of Trump 2.0, which may bring greater policy disruption, trade tariffs and increased geopolitical risk.
Later the advanced release of US Q3 GDP and October ADP employment are out. GDP is forecast to rise 2.9% q/q saar, in line with Q2. Payrolls on Friday are a focus but are likely to be impacted by recent hurricanes. The Fed is expected to cut rates 25bp on November 7 and gold has rallied on expectations of further easing.
The October European commission survey, preliminary Q3 German/French GDP and October German/Spain CPIs print. The ECB’s Schnabel and BoC’s Macklem speak, and the UK budget is announced.
Each major data release in China at present is watched carefully as economists pour over the numbers looking for impact from the various stimulus measures announced.
Tomorrow sees the release of manufacturing and non-manufacturing PMI’s for October.
It is possibly too much to expect to see the stimulus impact yet as October had a week long National Holiday from October 1-7.
Whilst there have been some signs of an improvement in data with new home sales up and steel output rising, it remains too soon to expect to see material improvement in the PMI’s.
Market consensus is for manufacturing PMI’s to remain in modest contraction at 49.9 and for non-manufacturing in modest expansion at 50.3.
Following on from tomorrow’s PMI's will the Caixin Manufacturing PMI released on Friday where market consensus is for a similar outcome.
The BOK’s Governor Rhee has indicated publicly and to Parliament of his intent to reduce the Central Bank’s forecast for GDP Growth for 2024 and beyond.
The BOK’s forecast for 2024 GDP of 2.4% has been put on notice to be revised down with Rhee speculating it could be either 2.2% or 2.3%.
He also noted that 2025 is becoming more concerning given growing geopolitical risks and slowing exports for Korea.
Looking back at recent history for rate cuts, it is not unusual for the KTB 2-year starting point to be inside that of base rates.
During the rate cutting cycle of 2019, the starting point when rate cuts began for the 2-year KTB was c. 25bps lower than base rates (see figure 1) with yields moving lower as the rate cutting cycle began.
Today, following the BOK’s cut last month and the recent period of higher US yields, the 2-year KTB yield is 35bps below base rates.
In 2019 as rate cuts occurred, the 2-year traded down to 1.15%, to be 35 bps at the start of rate cuts, only to sell off and see yields in line with the base rate by the end of the year.
Yield moves lately in Korea have highly correlated to the US so the question is what happens next?
Using the MIPR function on BBG we observe that the Korean market currently has two rate cuts priced in before year end next year with multiple drivers challenging it.
From global Central Banks cutting rates, to geopolitical turmoil and the push pull factor of the attempts to kick start the spluttering China economy.
All of this is occurring as the BOK Governor is talking down domestic growth.
Ultimately we see risks South Korean yields being more driven by domestic rather US factors. Additionally, the 2yr KTB yield didn't trough in 2020 until the BoK had finished easing.
Figure 1. South Korea 2yr Government Yield Versus The Policy Rate
Thai September manufacturing production growth was significantly weaker than expected deteriorating to -3.5% y/y from -1.9%, the slowest since March. Capacity utilisation fell to 57.5 from 58.3. September business confidence, orders books and manufacturing PMI all fell signalling weaker activity. October data is due on November 1. Thai growth continues to underperform ASEAN. Bank of Thailand deputy governor Piti said today that the central will bank will use numerous tools to support the economy. It cut rates 25bp this month but said in its minutes that its rate should be “neutral” and not too low. The THB NEER is up 7.7% y/y in October, which is tightening financial conditions.
North East Asia FX trends have been mixed so far in Wednesday trade. CNH is a little weaker, while KRW and TWD have ticked up a touch.
USD/CNH has risen back above 7.1500, but remains comfortably back within Tuesday's ranges. CNH is around 0.10% weaker, while onshore spot is off by around the same amount. We saw the USD/CNY fixing come in slightly below market expectations, but not large by historical standards. Onshore equities have struggled, off a little over 1% at the break for the CSI 300. Latest reports of potential stimulus measures, including large fiscal stimulus (per Rtrs reports late yesterday), haven't generated a positive market reaction at this stage.
Spot USD/KRW is lower, but at 1383/84, remains comfortably within recent ranges. We are up around 0.20% for the won versus end Tuesday levels. Onshore equities are off over 0.90%, but remain within recent ranges from an index standpoint (the Kospi just under 2600). Offshore investors continue to sell local equities, off a further $317mn today, to bring Oct to date outflows to nearly $3bn. North Korea is reportedly preparing an ICBM launch per Yonhap.
Spot USD/TWD is down a touch, but remains above the 32.00 level for now, continuing to display quite low volatility.
In South East Asian markets, the MYR is notably weaker, while trends elsewhere are steadier. The recovery in USD/CNH has likely been a ringgit headwind, while higher beta FX in the G10 space continues to weaken as well. Regional equity markets are also down, with China/HK markets off the most.
USD/MYR is around 0.35% higher, the pair last near 4.3940. Highs for the session rest at 4.3975, levels last seen around mid August. This keeps the ringgit broadly in line with other currencies in the region, which have weakened back to similar levels from an historical standpoint in recent sessions.
The ringgit is tracking as the weakest EM Asia currency for October though, off a little over 6%. Revised Fed expectations, US election risks and uncertainty around China stimulus all likely factors. The ringgit was up 4.8% in Sep as well.
USD/IDR is down slightly, bucking the trend of weaker higher beta FX trends so far today. We were last near 15740, with recent highs at 15778 remaining intact.
USD/THB has drifted a little higher, but in latest dealings remained under 33.80. The Bot Mins suggested the recent rate cut was to put rates around neutral. The FinMin and BoT also agreed to next year's inflation target being 1-3% (so no change). The BoT also stated it was closely monitoring THB moves (per BBG).
USD/PHP has been quite steady, the pair last near 58.31.
UP TODAY (TIMES GMT/LOCAL)
Date
GMT/Local
Impact
Country
Event
30/10/2024
0600/1400
**
CN
MNI China Money Market Index (MMI)
30/10/2024
0630/0730
**
FR
Consumer Spending
30/10/2024
0630/0730
***
FR
GDP (p)
30/10/2024
0700/0800
***
DE
GDP (p)
30/10/2024
0800/0900
***
ES
HICP (p)
30/10/2024
0800/0900
***
ES
GDP (p)
30/10/2024
0800/0900
**
CH
KOF Economic Barometer
30/10/2024
0800/0900
**
SE
Economic Tendency Indicator
30/10/2024
0855/0955
**
DE
Unemployment
30/10/2024
0900/1000
***
IT
GDP (p)
30/10/2024
0900/1000
**
IT
PPI
30/10/2024
0900/1000
***
DE
North Rhine Westphalia CPI
30/10/2024
0900/1000
***
DE
Bavaria CPI
30/10/2024
1000/1100
***
EU
EMU Preliminary Flash GDP Q/Q
30/10/2024
1000/1100
***
EU
EMU Preliminary Flash GDP Y/Y
30/10/2024
1000/1100
**
EU
EZ Economic Sentiment Indicator
30/10/2024
1000/1100
*
EU
Consumer Confidence, Industrial Sentiment
30/10/2024
1100/0700
**
US
MBA Weekly Applications Index
30/10/2024
-
GB
UK Budget
30/10/2024
1215/0815
***
US
ADP Employment Report
30/10/2024
1230/0830
***
US
GDP
30/10/2024
1230/0830
**
US
Advance Trade, Advance Business Inventories
30/10/2024
1230/0830
***
US
Treasury Quarterly Refunding
30/10/2024
1300/1400
***
DE
HICP (p)
30/10/2024
1400/1000
**
US
NAR Pending Home Sales
30/10/2024
1430/1030
**
US
DOE Weekly Crude Oil Stocks
30/10/2024
1500/1600
EU
ECB's Schnabel speech at SAFE-CEPR conference
30/10/2024
1800/1400
US
Fed Beige Book
30/10/2024
2015/1615
CA
BOC Governor Macklem at Senate banking committee
31/10/2024
2350/0850
*
JP
Retail Sales (p)
31/10/2024
2350/0850
**
JP
Industrial Production
31/10/2024
0030/1130
***
AU
Retail trade quarterly
31/10/2024
0030/1130
**
AU
Retail Trade
31/10/2024
0030/1130
**
AU
Trade price indexes
31/10/2024
0030/1130
*
AU
Building Approvals
31/10/2024
0130/0930
***
CN
CFLP Manufacturing PMI
31/10/2024
0130/0930
**
CN
CFLP Non-Manufacturing PMI
31/10/2024
0300/1200
***
JP
BOJ Policy Rate Announcement
31/10/2024
0700/0800
**
DE
Retail Sales
31/10/2024
0700/0800
**
DE
Import/Export Prices
31/10/2024
0745/0845
***
FR
HICP (p)
31/10/2024
0745/0845
**
FR
PPI
31/10/2024
1000/1100
***
EU
HICP (p)
31/10/2024
1000/1100
**
EU
Unemployment
31/10/2024
1000/1100
***
IT
HICP (p)
31/10/2024
1000/1000
GB
BOE's Breeden speech on emerging technologies
31/10/2024
1230/0830
***
US
Jobless Claims
31/10/2024
1230/0830
***
US
Personal Income and Consumption
31/10/2024
1230/0830
***
US
Employment Cost Index
31/10/2024
1230/0830
***
CA
Gross Domestic Product by Industry
31/10/2024
1230/0830
*
CA
Payroll employment
31/10/2024
1230/0830
**
US
WASDE Weekly Import/Export
31/10/2024
1230/0830
***
CA
Gross Domestic Product by Industry
31/10/2024
1345/0945
***
US
MNI Chicago PMI
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