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Focus at the start of this week has been reaction to China's weekend MOF briefing. After a volatile start to trading onshore equities are higher, although HK gains are more modest. The MOF was strong on rhetoric particularly around housing and local government debt. The market may have been looking for more concrete details around the fiscal outlook though.
The USD is firmer but away from session best levels. Commodities are mixed, with iron ore higher with China property stocks, while oil is softer.
It has been a quiet start to the week for fixed income markets with Japan out today and a US holiday later.
Looking ahead, the Fed’s Kashkari and Waller appear but there are no US data due to a holiday. BoE’s Dhingra also speaks.
It has been a very slow day in US tsys, with Japan out and no cash trading. Ranges have been narrow in tsys futures, although there has been some, although small weakness in the short-end over the past hour or so. TU is trading at 103-13⅝, while TY underperformed post the NY close on Friday and is trading unchanged during the APAC session at 112-01+. Volumes are less than 50% of recent averages.
Focus in the region was on China with some disappointing headlines out over the weekend. Equities were initially slightly weaker on the open before recovering throughout China's business briefings today, with property & banking stocks outperforming.
In the week leading up to Oct. 8, hedge funds significantly reduced their net long position in SOFR futures by $5.6m in DV01, though they still held nearly 500,000 contracts. They also covered $8.2m in DV01 of their 10yr short positions while adding to net longs in ultra 10yrand ultra-long bond futures. Asset managers were bullish on ultra 10yr futures, increasing net longs by $6m in DV01, while unwinding $5.9m in DV01 in long-bond and ultra-long bond futures according to CFTC data.
Calendar is empty tonight with the US out for Columbus day, focus will turn to retail sales & jobless claims on Thursday.
ACGBs (YM -5.0 & XM -5) are cheaper today and trade at session's worst. There was limited data out in the region today, while Japan was also out for a public holiday. Focus was largely on China where they held further business briefing surrounding measures to support the market, equities saw heightened volatility with markets swinging 1-3% both ways. Iron ore saw decent moves also and now trades 2.90% higher.
US cash tsys trading has been closed today with Japan out, we also saw limited trading in Tsys futures with ranges narrow.
Cash ACGBs are trading 4-6bps cheaper, with the curve beat-steepening. The 2yr is +3.2bps at 3.855%, while the 10yr is +4.1bps at 4.267% and now trades back at July 30 levels. The 2s10s made new highs earlier of 42.18, levels not seen since April 30th, we trade just off those levels at 40.10 now.
Earlier there was decent demand for the 2051 at the auction, although bid/cover was slightly down on the July auction at 3.15x, with average yield of 4.8254%, we trade little changed at 4.8253% now.
Swaps are trading 2-4bps higher
The bills strip -1 to -4 across contracts
RBA-dated OIS pricing has continued to cool with just 8.8bps of cuts priced in through to year-end now, down from 10bps this morning. There is 22bps of cuts priced for Feb, down 2bps. While pricing continues to cool further out the curve with 66bps, down 4bps priced through to Sept 2025.
The local calendar is light on until Thursday when we have employment data due.
NZGBs closed 3-6.5bps cheaper, with the belly of the curve underperforming. Bonds yields are trading off session highs with the 2yr +3.5bps at 3.969% vs session highs of 4.01%, while the 10yr is +5.1bps at 4.436% vs 4.469%
New Zealand's consumer spending remained weak in Q3, with card purchases falling 0.7%, following a 2.8% decline in Q2. The economy contracted in Q2 with subdued spending adding to risks that the contraction will extend into the 3Q even as modest income tax cuts took effect at the end of July.
Swaps rates closed 2-7bps higher
RBNZ dated OIS was little changed today, the market expects 50bps of cuts at the next meeting, and 88bps of cut by Feb. Looking further out the curve there is 164bps priced to October, which would take it to 264bps of cuts through this easing cycle.
Cross asset: The NZ50 closed 0.50% lower, after Fisher & Pykel and Infratil dropped over 1% each, offsetting gains in ANZ & WBC. The NZD fell 0.30% following disappointing headlines out of China.
Looking ahead, tomorrow REINZ House Sales is due out, although this should have little impact on the market, with focus turning to CPI on Wednesday.
Total card transactions rose 0.3% m/m in September to be down 0.7% y/y, up from -1.8%. Retail appears to have stabilised helped by tax and rate cuts but remains weak posting a flat outcome to be down 3.7% y/y but up from 4.3%. 3-month momentum is also gradually improving but remains negative. This data adds to surveys indicating that weak growth continued in Q3 but that it may improve next year, as the RBNZ expects.
NZ card spending y/y%
Source: MNI - Market News/Refinitiv
Q3 CPI is forecast to rise 0.7% q/q and tradeables fall 0.1% q/q when data is released on Wednesday. Either result, or something in between, indicates that real retail sales fell again in Q3 as retail card spending fell 0.7% q/q and core retail -0.5% q/q. Q2 retail volumes contracted 1.2% q/q and 3.5% y/y.
NZ quarterly retail sales y/y%
Source: MNI - Market News/Refinitiv
Retail expenditure was driven by hospitality (+1% m/m), consumables (+0.2%), apparel (+1.1%) and motor vehicles (+0.8%), but was dragged down by durables (-0.5%) and fuel (-3.1% as prices fell).
Non-retail ex services rose 1.4% m/m and services increased 1.3% m/m in September and 2.7% q/q and 0.6% q/q in Q3 respectively. Total Q3 card spending was flat.
The USD BBDXY index sits higher in the first part of Monday trade. We were last near 1244.1, off earlier highs near 1245.05 though. Sentiment has largely focused on China stimulus plans following the weekend MOF briefing. There were lots of pledges from the briefing, but the market was arguably looking for more concrete details around fresh stimulus size. That may have to wait for the next China NPC meeting due later this month/early November.
Both China and HK equity sentiment has been volatile, but at the break China onshore bourses are higher (CSI 300 up around 1.5%). HK markets are lower, but away from worst levels.
This has helped AUD and NZD push away from session lows. AUD/USD was last 0.6740 (earlier lows were at 0.6722), while NZD/USD was tracking near 0.6090/95 (lows printed at 0.6083).
Helping the A$ at the margins has been higher iron ore prices, as China real estate equity has outperformed. Less positive trends have been evident for gold and oil though.
Elsewhere, trends are leaning towards USD gains, but shifts are fairly modest at this stage. Japan markets are out today reducing JPY liquidity. USD/JPY was slightly higher in latest dealings, last near 149.30/35.
US TSY futures sit weaker but have largely tracked sideways since the open. US equity futures sit modestly in the red.
Looking ahead, the Fed’s Kashkari and Waller appear but there are no US data due to a holiday. BoE’s Dhingra also speaks.
Friday's CFTC positioning update in FX provided mixed trends between leveraged funds and asset managers (for the week ending Oct 8).
Outside of adding to CAD shorts, leveraged funds mostly sold USDs, see the table below. Indeed leveraged longs in AUD were at their highest since 2021. For yen it presents a similar backdrop in the leveraged space, while EUR net longs also returned.
In contrast, asset managers moved the opposite way for JPY, EUR and GBP, with longs against these currencies cut in the week ending Oct 8.
AUD stands out though in terms of fresh longs being added for asset managers. Indeed this segment was net long last week for the first time since early 2023.
This may have reflected hopes around China stimulus measures, which have been curtailed somewhat in the past week or so. The prior week's hawkish RBA backdrop, at least relative to other major cetnral banks may have also helped.
Table 1: CFTC Positioning (Week Ending Oct 8 2024)
Equity markets are mostly higher today with Taiwan, South Korea & Australian benchmarks all trading higher, while NZ, China & Hong Kong equities struggle. Japan is out for a public holiday while China equities have seen increased volatility as China briefing kicks off.
South Korean equities have seen mixed flows from foreign investors, there has been better buying seen in tech & banking stocks while healthcare, Services & Transport names seeing outflows. The large-cap KOSPI is trading +0.65%, while the small-cap KOSDAQ is down 0.65%.
Australian equities are higher today with the ASX200 up 0.55%. Mining stocks led gains, with Fortescue up 2.3% and BHP adding 0.9%, while the big four banks also traded higher. Web travel group has plummeted 33% following weak guidance.
New Zealand equities are lower today after Fisher & Pykel & Infratil both fell over 1%, offsetting gains in WBC & ANZ. The NZ50 is 0.60% lower.
The local APAC calendar is light on today, with focus largely just on China. The US will be out today for Columbus day which is having an impact on trading ranges, investors also remain cautious surrounding escalations in the middle east.
Asian equity flows were mixed on Friday, South Korea saw outflows largely linked to the recent under performance of Samsung. Elsewhere Malaysia saw a large $40m outflow, while Thailand marked 13 straight sessions of selling by foreign investors.
South Korea: Saw outflows of -$395m Friday, with the past 5 sessions netting -$522m, while YTD flows are +$9.79b. The 5-day average is -$104m, below both the 20-day average of -$260m and the 100-day average of -$51m.
Taiwan: Saw inflows of +$818m Friday, with the past 5 sessions netting -$209m, while YTD flows are -$12.42b. The 5-day average is -$42m, below the 20-day average of +$133m, and the 100-day average of -$151m.
India: Saw outflows of -$564m Thursday, with the past 5 sessions totaling -$3.76b, while YTD flows are +$4.81b. The 5-day average is -$752m, below the 20-day average of -$89m but above the 100-day average of +$75m.
Indonesia: Saw outflows of -$6m Friday, with the past 5 sessions netting -$291m, while YTD flows are +$2.84b. The 5-day average is -$58m, below the 20-day average of +$32m but above the 100-day average of +$28m.
Thailand: Saw outflows of -$35m Friday, with the past 5 sessions totaling -$190m, while YTD flows are -$3.10b. The 5-day average is -$38m, below the 20-day average of -$20m and the 100-day average of -$13m.
Malaysia: Saw outflows of -$51m Friday, with the past 5 sessions netting -$46m, while YTD flows are +$559m. The 5-day average is -$9m, below both the 20-day average of -$18m but above the 100-day average of +$6m.
Philippines: Saw no flows Friday, with the past 5 sessions netting +$23m, while YTD flows are +$78m. The 5-day average is +$5m, below both the 20-day average of +$17m but above the 100-day average of +$4m.
Over the weekend, China’s Ministry of Finance provided guidance as to areas of its focus in the coming months.
The Finance Minister Lan Fo’An kept the government’s 5% growth target highlighting local government’s challenges in identifying, financing and executing on development projects that meeting specific criteria set by the Central Government.
Local governments had budgeted significant amounts for these projects and official estimates are that only 50% of the budgeted amount has been utilized.
Lan provided guidance on available budget headroom for further fiscal stimulus and that his ministry is considering new policies and new policy tools.
Additionally, Lan indicated that the Central Government would allow a one-off rise in regional government debt limits to allow local governments to refinance existing debt, similar to the policy implemented in 2015 aimed at bringing on balance sheet the hidden debts so endemic in the system then.
Although Lan did not announce new measures for the housing sector, he did reaffirm a desire and intention to continue to stabilize the sector. He discussed the potential for reducing mortgage costs and a focus on developers delivering pre-sold homes to buyers.
Global markets have interpreted this as a disappointing ‘announcement’ from the MOF, with the Hang Seng down 0.41% at the break, whilst onshore equities are higher (CSI 300 +1.52% at the break).
What it appears to be is simply a re-attestation of what has been announced thus far and likely points investors focus to the next party meeting.
Oil prices are down today following Saturday’s disappointing China MOF fiscal announcement, with commodities generally weaker. Crude is off its intraday lows though. Brent is down 1.1% to $78.20/bbl after a low of $77.50 and WTI is 1.1% lower at $74.76/bbl after falling to $74.08. The USD index is up 0.1%.
Soft demand from China, the world’s largest crude importer, has worried markets for some time. Recent fiscal announcements have been sparse on details, including the size of the stimulus, and seem not to include support for consumption and so have resulted in drops in the oil price at times when the situation in the Middle East isn’t deteriorating further.
Israel is yet to retaliate for Iran’s October 1 missile barrage. The US thinks that Israel looks likely to target military and energy sites in Iran, according to an NBC report. The timing of the response remains unknown. Iran has said that it will hit back forcefully.
The Fed’s Kashkari and Waller appear but there are no US data due to a holiday. BoE’s Dhingra also speaks.
Gold prices were steady in Asian trading time today given traders pricing in a slower Fed rate cutting cycle and China’s Ministry of Finance release failing to provide new stimulus measures.
Having slipped to $2,645 in the morning session, gold firmed back to Friday’s close at $2,655.
Typically benefiting from rate cuts, Gold has performed well this year up over 20%.
Following the stronger than expected September jobs report, the number of rate cuts for the remainder of the year has been questioned, with markets now pricing in less than two.
Any further stronger than expected data could further challenge this and put a cap on gold’s upside into year end.
Metals are mixed in the first part of Monday trade. Iron ore is generally tracking positively, up nearly 1.75% for the active SGX contract. This puts us back to $108.05/bbl. Earlier October highs were at $155/ton. Copper is not rallying though, down around 1%, back to $445 on a CMX basis (but this is still above earlier Oct lows).
China equities have been volatile since the open but since modestly firmer at this stage, although the property sub index on the CSI 300 is outperforming. There was disappointment around the lack of details from the MOF briefing over the weekend, but commitment to stabilize housing sentiment may be aiding related equities.
This could be driving positive spill over to iron ore, also note steel futures are up close to 2% so far in China today.
On the inventory side, we edged down a little bit last week in terms of total inventories at China ports. The trend is right for inventories, but the rate of decline is very modest at this stage.
For North East Asia currencies the USD is firmer, albeit against CNH and KRW, with TWD displaying some resilience. Focus has largely rested on China stimulus hopes, with positive onshore bourse gains helping push CNH and KRW from session lows.
USD/CNH hoped higher and has tested above 7.0900 today, but sits back near 7.0830 in latest dealings. This is 0.20% weaker in CNH terms. Onshore equities have been volatile, but the CSI 300 sits up around 1.5% at the lunch break. The weekend MOF briefing was firm on rhetoric, particularly on reducing the local government debt burden and stabilizing housing, but the market was arguably looking for greater detail on the numbers. The USD/CNY fixing was close to neutral. We are still awaiting China Sep trade figures as well.
Spot USD/KRW got to fresh highs above 1359, levels last seen back in mid August, but we sit back near 1356 in latest dealings. This is still around 0.40% weaker versus end levels from last week. The Kospi is close to session highs, up nearly 0.90%. However, this hasn't helped KRW sentiment much.
Comments have crossed from BoK Governor Rhee, who stated the central bank will carefully consider the pace of rate cuts, due to financial stability concerns. This reiterates what the Governor stated on Friday after the BoK cut rates.
USD/TWD spot is down slightly outperforming the won and CNH. the pair was last at 32.16, so still close to recent highs. We have seen a better equity inflow backdrop for Taiwan relative to South Korea in recent weeks, which may helping TWD at the margins.
Singapore’s GDP growth accelerated in the third quarter, possibly suggesting that economic recovery is building and that sentiment in the region is bottoming.
At 2.1% QoQ the expansion was greater than surveys (2.0%) and a big increase from the previous quarter’s expansion of just 0.4%.
This sees the Singapore GDP expansion for the year at 4.1%, suggesting that there is more strength in the economy and likely to outperform the country’s forecast.
Manufacturing led the expansion growing 7.5% year-on-year, up from the 1.1% contraction in the prior quarter and construction was up 3.1%.
Prime Minister Wong had noted in his October 2 video message that the government forecast an easing of inflation in the months ahead, but with the chance it may remain sticky.
As widely expected, the MAS left Singapore's monetary policy levers unchanged. The slope, the width and the level at which the currency band is centred were all left unchanged. This was both the sell-side consensus and our own firm bias.
The MAS painted a fairly resilient picture for the growth backdrop, which was also underpinned by the advance estimates for Q3 GDP (+2.1%q/q growth and +4.1%y/y, both slightly above consensus forecasts). The central bank expects 2024 growth to be in the upper half of the projected 2-3% range. It also projects the output gap to have closed in H2 of this year.
Next year growth is forecast to be around potential, but with considerable uncertainty facing the outlook, largely due to the external backdrop.
Given this has helped fuel stronger than expected growth, particularly on the tech side, offshore developments will be a close watch point for the MAS.
On inflation, the central bank noted the continued slowdown in core inflation pressures and that we should end the year around 2% (versus 4.2% in 2023) (avg for this year 2.7%). For 2025 core inflation is expected to average 1.5-2.5%. The MAS noted inflation risks are more balanced compared to 3 months ago (the July meeting). It had a slightly higher projection for average inflation in 2024 (2.5-3.5%) at the July policy meeting.
Overall, it feels like the central bank is slowly getting more comfortable with the inflation backdrop. This could result in easier policy settings in 2025, although much is likely depend on the growth backdrop and whether the current positive momentum slows.
In terms of market reaction, USD/SGD sits off its highs for the session. We got to 1.3077 prior to the meeting, but now sit back under 1.3060. Broader USD sentiment has softened though, so that has likely helped.
The SGD NEER, per Goldman Sach estimates, was around -0.45% from the top end of the band prior to the announcement. We now sit higher, last near -0.27% from the top end of the band.
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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)
Focus at the start of this week has been reaction to China's weekend MOF briefing. After a volatile start to trading onshore equities are higher, although HK gains are more modest. The MOF was strong on rhetoric particularly around housing and local government debt. The market may have been looking for more concrete details around the fiscal outlook though.
The USD is firmer but away from session best levels. Commodities are mixed, with iron ore higher with China property stocks, while oil is softer.
It has been a quiet start to the week for fixed income markets with Japan out today and a US holiday later.
Looking ahead, the Fed’s Kashkari and Waller appear but there are no US data due to a holiday. BoE’s Dhingra also speaks.
It has been a very slow day in US tsys, with Japan out and no cash trading. Ranges have been narrow in tsys futures, although there has been some, although small weakness in the short-end over the past hour or so. TU is trading at 103-13⅝, while TY underperformed post the NY close on Friday and is trading unchanged during the APAC session at 112-01+. Volumes are less than 50% of recent averages.
Focus in the region was on China with some disappointing headlines out over the weekend. Equities were initially slightly weaker on the open before recovering throughout China's business briefings today, with property & banking stocks outperforming.
In the week leading up to Oct. 8, hedge funds significantly reduced their net long position in SOFR futures by $5.6m in DV01, though they still held nearly 500,000 contracts. They also covered $8.2m in DV01 of their 10yr short positions while adding to net longs in ultra 10yrand ultra-long bond futures. Asset managers were bullish on ultra 10yr futures, increasing net longs by $6m in DV01, while unwinding $5.9m in DV01 in long-bond and ultra-long bond futures according to CFTC data.
Calendar is empty tonight with the US out for Columbus day, focus will turn to retail sales & jobless claims on Thursday.
ACGBs (YM -5.0 & XM -5) are cheaper today and trade at session's worst. There was limited data out in the region today, while Japan was also out for a public holiday. Focus was largely on China where they held further business briefing surrounding measures to support the market, equities saw heightened volatility with markets swinging 1-3% both ways. Iron ore saw decent moves also and now trades 2.90% higher.
US cash tsys trading has been closed today with Japan out, we also saw limited trading in Tsys futures with ranges narrow.
Cash ACGBs are trading 4-6bps cheaper, with the curve beat-steepening. The 2yr is +3.2bps at 3.855%, while the 10yr is +4.1bps at 4.267% and now trades back at July 30 levels. The 2s10s made new highs earlier of 42.18, levels not seen since April 30th, we trade just off those levels at 40.10 now.
Earlier there was decent demand for the 2051 at the auction, although bid/cover was slightly down on the July auction at 3.15x, with average yield of 4.8254%, we trade little changed at 4.8253% now.
Swaps are trading 2-4bps higher
The bills strip -1 to -4 across contracts
RBA-dated OIS pricing has continued to cool with just 8.8bps of cuts priced in through to year-end now, down from 10bps this morning. There is 22bps of cuts priced for Feb, down 2bps. While pricing continues to cool further out the curve with 66bps, down 4bps priced through to Sept 2025.
The local calendar is light on until Thursday when we have employment data due.
NZGBs closed 3-6.5bps cheaper, with the belly of the curve underperforming. Bonds yields are trading off session highs with the 2yr +3.5bps at 3.969% vs session highs of 4.01%, while the 10yr is +5.1bps at 4.436% vs 4.469%
New Zealand's consumer spending remained weak in Q3, with card purchases falling 0.7%, following a 2.8% decline in Q2. The economy contracted in Q2 with subdued spending adding to risks that the contraction will extend into the 3Q even as modest income tax cuts took effect at the end of July.
Swaps rates closed 2-7bps higher
RBNZ dated OIS was little changed today, the market expects 50bps of cuts at the next meeting, and 88bps of cut by Feb. Looking further out the curve there is 164bps priced to October, which would take it to 264bps of cuts through this easing cycle.
Cross asset: The NZ50 closed 0.50% lower, after Fisher & Pykel and Infratil dropped over 1% each, offsetting gains in ANZ & WBC. The NZD fell 0.30% following disappointing headlines out of China.
Looking ahead, tomorrow REINZ House Sales is due out, although this should have little impact on the market, with focus turning to CPI on Wednesday.
Total card transactions rose 0.3% m/m in September to be down 0.7% y/y, up from -1.8%. Retail appears to have stabilised helped by tax and rate cuts but remains weak posting a flat outcome to be down 3.7% y/y but up from 4.3%. 3-month momentum is also gradually improving but remains negative. This data adds to surveys indicating that weak growth continued in Q3 but that it may improve next year, as the RBNZ expects.
NZ card spending y/y%
Source: MNI - Market News/Refinitiv
Q3 CPI is forecast to rise 0.7% q/q and tradeables fall 0.1% q/q when data is released on Wednesday. Either result, or something in between, indicates that real retail sales fell again in Q3 as retail card spending fell 0.7% q/q and core retail -0.5% q/q. Q2 retail volumes contracted 1.2% q/q and 3.5% y/y.
NZ quarterly retail sales y/y%
Source: MNI - Market News/Refinitiv
Retail expenditure was driven by hospitality (+1% m/m), consumables (+0.2%), apparel (+1.1%) and motor vehicles (+0.8%), but was dragged down by durables (-0.5%) and fuel (-3.1% as prices fell).
Non-retail ex services rose 1.4% m/m and services increased 1.3% m/m in September and 2.7% q/q and 0.6% q/q in Q3 respectively. Total Q3 card spending was flat.
The USD BBDXY index sits higher in the first part of Monday trade. We were last near 1244.1, off earlier highs near 1245.05 though. Sentiment has largely focused on China stimulus plans following the weekend MOF briefing. There were lots of pledges from the briefing, but the market was arguably looking for more concrete details around fresh stimulus size. That may have to wait for the next China NPC meeting due later this month/early November.
Both China and HK equity sentiment has been volatile, but at the break China onshore bourses are higher (CSI 300 up around 1.5%). HK markets are lower, but away from worst levels.
This has helped AUD and NZD push away from session lows. AUD/USD was last 0.6740 (earlier lows were at 0.6722), while NZD/USD was tracking near 0.6090/95 (lows printed at 0.6083).
Helping the A$ at the margins has been higher iron ore prices, as China real estate equity has outperformed. Less positive trends have been evident for gold and oil though.
Elsewhere, trends are leaning towards USD gains, but shifts are fairly modest at this stage. Japan markets are out today reducing JPY liquidity. USD/JPY was slightly higher in latest dealings, last near 149.30/35.
US TSY futures sit weaker but have largely tracked sideways since the open. US equity futures sit modestly in the red.
Looking ahead, the Fed’s Kashkari and Waller appear but there are no US data due to a holiday. BoE’s Dhingra also speaks.
Friday's CFTC positioning update in FX provided mixed trends between leveraged funds and asset managers (for the week ending Oct 8).
Outside of adding to CAD shorts, leveraged funds mostly sold USDs, see the table below. Indeed leveraged longs in AUD were at their highest since 2021. For yen it presents a similar backdrop in the leveraged space, while EUR net longs also returned.
In contrast, asset managers moved the opposite way for JPY, EUR and GBP, with longs against these currencies cut in the week ending Oct 8.
AUD stands out though in terms of fresh longs being added for asset managers. Indeed this segment was net long last week for the first time since early 2023.
This may have reflected hopes around China stimulus measures, which have been curtailed somewhat in the past week or so. The prior week's hawkish RBA backdrop, at least relative to other major cetnral banks may have also helped.
Table 1: CFTC Positioning (Week Ending Oct 8 2024)
Equity markets are mostly higher today with Taiwan, South Korea & Australian benchmarks all trading higher, while NZ, China & Hong Kong equities struggle. Japan is out for a public holiday while China equities have seen increased volatility as China briefing kicks off.
South Korean equities have seen mixed flows from foreign investors, there has been better buying seen in tech & banking stocks while healthcare, Services & Transport names seeing outflows. The large-cap KOSPI is trading +0.65%, while the small-cap KOSDAQ is down 0.65%.
Australian equities are higher today with the ASX200 up 0.55%. Mining stocks led gains, with Fortescue up 2.3% and BHP adding 0.9%, while the big four banks also traded higher. Web travel group has plummeted 33% following weak guidance.
New Zealand equities are lower today after Fisher & Pykel & Infratil both fell over 1%, offsetting gains in WBC & ANZ. The NZ50 is 0.60% lower.
The local APAC calendar is light on today, with focus largely just on China. The US will be out today for Columbus day which is having an impact on trading ranges, investors also remain cautious surrounding escalations in the middle east.
Asian equity flows were mixed on Friday, South Korea saw outflows largely linked to the recent under performance of Samsung. Elsewhere Malaysia saw a large $40m outflow, while Thailand marked 13 straight sessions of selling by foreign investors.
South Korea: Saw outflows of -$395m Friday, with the past 5 sessions netting -$522m, while YTD flows are +$9.79b. The 5-day average is -$104m, below both the 20-day average of -$260m and the 100-day average of -$51m.
Taiwan: Saw inflows of +$818m Friday, with the past 5 sessions netting -$209m, while YTD flows are -$12.42b. The 5-day average is -$42m, below the 20-day average of +$133m, and the 100-day average of -$151m.
India: Saw outflows of -$564m Thursday, with the past 5 sessions totaling -$3.76b, while YTD flows are +$4.81b. The 5-day average is -$752m, below the 20-day average of -$89m but above the 100-day average of +$75m.
Indonesia: Saw outflows of -$6m Friday, with the past 5 sessions netting -$291m, while YTD flows are +$2.84b. The 5-day average is -$58m, below the 20-day average of +$32m but above the 100-day average of +$28m.
Thailand: Saw outflows of -$35m Friday, with the past 5 sessions totaling -$190m, while YTD flows are -$3.10b. The 5-day average is -$38m, below the 20-day average of -$20m and the 100-day average of -$13m.
Malaysia: Saw outflows of -$51m Friday, with the past 5 sessions netting -$46m, while YTD flows are +$559m. The 5-day average is -$9m, below both the 20-day average of -$18m but above the 100-day average of +$6m.
Philippines: Saw no flows Friday, with the past 5 sessions netting +$23m, while YTD flows are +$78m. The 5-day average is +$5m, below both the 20-day average of +$17m but above the 100-day average of +$4m.
Over the weekend, China’s Ministry of Finance provided guidance as to areas of its focus in the coming months.
The Finance Minister Lan Fo’An kept the government’s 5% growth target highlighting local government’s challenges in identifying, financing and executing on development projects that meeting specific criteria set by the Central Government.
Local governments had budgeted significant amounts for these projects and official estimates are that only 50% of the budgeted amount has been utilized.
Lan provided guidance on available budget headroom for further fiscal stimulus and that his ministry is considering new policies and new policy tools.
Additionally, Lan indicated that the Central Government would allow a one-off rise in regional government debt limits to allow local governments to refinance existing debt, similar to the policy implemented in 2015 aimed at bringing on balance sheet the hidden debts so endemic in the system then.
Although Lan did not announce new measures for the housing sector, he did reaffirm a desire and intention to continue to stabilize the sector. He discussed the potential for reducing mortgage costs and a focus on developers delivering pre-sold homes to buyers.
Global markets have interpreted this as a disappointing ‘announcement’ from the MOF, with the Hang Seng down 0.41% at the break, whilst onshore equities are higher (CSI 300 +1.52% at the break).
What it appears to be is simply a re-attestation of what has been announced thus far and likely points investors focus to the next party meeting.
Oil prices are down today following Saturday’s disappointing China MOF fiscal announcement, with commodities generally weaker. Crude is off its intraday lows though. Brent is down 1.1% to $78.20/bbl after a low of $77.50 and WTI is 1.1% lower at $74.76/bbl after falling to $74.08. The USD index is up 0.1%.
Soft demand from China, the world’s largest crude importer, has worried markets for some time. Recent fiscal announcements have been sparse on details, including the size of the stimulus, and seem not to include support for consumption and so have resulted in drops in the oil price at times when the situation in the Middle East isn’t deteriorating further.
Israel is yet to retaliate for Iran’s October 1 missile barrage. The US thinks that Israel looks likely to target military and energy sites in Iran, according to an NBC report. The timing of the response remains unknown. Iran has said that it will hit back forcefully.
The Fed’s Kashkari and Waller appear but there are no US data due to a holiday. BoE’s Dhingra also speaks.
Gold prices were steady in Asian trading time today given traders pricing in a slower Fed rate cutting cycle and China’s Ministry of Finance release failing to provide new stimulus measures.
Having slipped to $2,645 in the morning session, gold firmed back to Friday’s close at $2,655.
Typically benefiting from rate cuts, Gold has performed well this year up over 20%.
Following the stronger than expected September jobs report, the number of rate cuts for the remainder of the year has been questioned, with markets now pricing in less than two.
Any further stronger than expected data could further challenge this and put a cap on gold’s upside into year end.
Metals are mixed in the first part of Monday trade. Iron ore is generally tracking positively, up nearly 1.75% for the active SGX contract. This puts us back to $108.05/bbl. Earlier October highs were at $155/ton. Copper is not rallying though, down around 1%, back to $445 on a CMX basis (but this is still above earlier Oct lows).
China equities have been volatile since the open but since modestly firmer at this stage, although the property sub index on the CSI 300 is outperforming. There was disappointment around the lack of details from the MOF briefing over the weekend, but commitment to stabilize housing sentiment may be aiding related equities.
This could be driving positive spill over to iron ore, also note steel futures are up close to 2% so far in China today.
On the inventory side, we edged down a little bit last week in terms of total inventories at China ports. The trend is right for inventories, but the rate of decline is very modest at this stage.
For North East Asia currencies the USD is firmer, albeit against CNH and KRW, with TWD displaying some resilience. Focus has largely rested on China stimulus hopes, with positive onshore bourse gains helping push CNH and KRW from session lows.
USD/CNH hoped higher and has tested above 7.0900 today, but sits back near 7.0830 in latest dealings. This is 0.20% weaker in CNH terms. Onshore equities have been volatile, but the CSI 300 sits up around 1.5% at the lunch break. The weekend MOF briefing was firm on rhetoric, particularly on reducing the local government debt burden and stabilizing housing, but the market was arguably looking for greater detail on the numbers. The USD/CNY fixing was close to neutral. We are still awaiting China Sep trade figures as well.
Spot USD/KRW got to fresh highs above 1359, levels last seen back in mid August, but we sit back near 1356 in latest dealings. This is still around 0.40% weaker versus end levels from last week. The Kospi is close to session highs, up nearly 0.90%. However, this hasn't helped KRW sentiment much.
Comments have crossed from BoK Governor Rhee, who stated the central bank will carefully consider the pace of rate cuts, due to financial stability concerns. This reiterates what the Governor stated on Friday after the BoK cut rates.
USD/TWD spot is down slightly outperforming the won and CNH. the pair was last at 32.16, so still close to recent highs. We have seen a better equity inflow backdrop for Taiwan relative to South Korea in recent weeks, which may helping TWD at the margins.
Singapore’s GDP growth accelerated in the third quarter, possibly suggesting that economic recovery is building and that sentiment in the region is bottoming.
At 2.1% QoQ the expansion was greater than surveys (2.0%) and a big increase from the previous quarter’s expansion of just 0.4%.
This sees the Singapore GDP expansion for the year at 4.1%, suggesting that there is more strength in the economy and likely to outperform the country’s forecast.
Manufacturing led the expansion growing 7.5% year-on-year, up from the 1.1% contraction in the prior quarter and construction was up 3.1%.
Prime Minister Wong had noted in his October 2 video message that the government forecast an easing of inflation in the months ahead, but with the chance it may remain sticky.
As widely expected, the MAS left Singapore's monetary policy levers unchanged. The slope, the width and the level at which the currency band is centred were all left unchanged. This was both the sell-side consensus and our own firm bias.
The MAS painted a fairly resilient picture for the growth backdrop, which was also underpinned by the advance estimates for Q3 GDP (+2.1%q/q growth and +4.1%y/y, both slightly above consensus forecasts). The central bank expects 2024 growth to be in the upper half of the projected 2-3% range. It also projects the output gap to have closed in H2 of this year.
Next year growth is forecast to be around potential, but with considerable uncertainty facing the outlook, largely due to the external backdrop.
Given this has helped fuel stronger than expected growth, particularly on the tech side, offshore developments will be a close watch point for the MAS.
On inflation, the central bank noted the continued slowdown in core inflation pressures and that we should end the year around 2% (versus 4.2% in 2023) (avg for this year 2.7%). For 2025 core inflation is expected to average 1.5-2.5%. The MAS noted inflation risks are more balanced compared to 3 months ago (the July meeting). It had a slightly higher projection for average inflation in 2024 (2.5-3.5%) at the July policy meeting.
Overall, it feels like the central bank is slowly getting more comfortable with the inflation backdrop. This could result in easier policy settings in 2025, although much is likely depend on the growth backdrop and whether the current positive momentum slows.
In terms of market reaction, USD/SGD sits off its highs for the session. We got to 1.3077 prior to the meeting, but now sit back under 1.3060. Broader USD sentiment has softened though, so that has likely helped.
The SGD NEER, per Goldman Sach estimates, was around -0.45% from the top end of the band prior to the announcement. We now sit higher, last near -0.27% from the top end of the band.
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