- NZD/USD slumped today as the RBNZ cut rates by 50bps and suggested similar moves may continue, with policy still viewed as restrictive. RBNZ-dated OIS softened by 6-10bps following today's RBNZ policy decision.
- China equities were down sharply in the first part of trade, with the CSI 300 back close to end September levels. Sentiment has improved post the lunchtime break, with headlines crossing the Ministry of Finance will hold a briefing on fiscal policy this Saturday.
- US Tsys futures are off earlier highs and now trade at session lows and back at NY closing levels.
- Later the Fed’s Jefferson, Bostic, Logan, Goolsbee, Collins and Daly appear plus the September FOMC meeting minutes are published. There is little data with August US wholesale sales/inventories and German trade the highlights.
MARKETS
US TSYS: Tsys Futures Off Earlier Highs, 10yr Holds Above 4% Ahead Of Auction
- Tsys futures are off earlier highs and now trade at session lows and back at NY closing levels, the moves look to have coincided with a bounce in equities following "CHINA MINISTRY OF FINANCE TO BRIEF ON FISCAL POLICY SATURDAY" - BBG. TU is trading +01⅛ at 103-14⅞, while TY is + 01+ at 112-16+.
- Volumes are roughly in line with recent averages, while earlier we did see a 2s10s steepener Blocked, DV01 $385k.
- Tsys curves have tbear-steepened, with yields +1.5bps to -0.5bps. The 2yr is -0.4bps at 3.955%, while the 10yr is +1.2bps at 4.024% and underperforms ahead of the 10yr auction later.
- The Fed's Jefferson spoke earlier, his comments were largely in line with recent Fed speaker. He explained the Fed's recent 50bp rate cut as a move to support the labor market while inflation continues to ease toward the 2% target. He noted that economic growth remains solid, inflation is now at 2.2%, and the labor market has cooled slightly, with unemployment rising to 4.1%. Jefferson emphasized a data-driven approach to future rate decisions.
- Traders are shifting their bets in the Tsys market, moving away from bullish positions as they expect a slower pace of Fed rate cuts following the strong September jobs report, long positions linked to the SOFR have sharply declined while new short positions are emerging ahead of key inflation data. The market is now pricing in 22bps of cuts at the November meeting, and 49bps by December, reflecting more cautious expectations for Fed policy easing.
- Focus will turn to trhe 10y Auction and Sep FOMC minutes due out later today.
JGBS: Sleepy Session Ahead Of FOMC Minutes, PPI & 5Y Supply Tomorrow
In afternoon dealings, JGB futures are weaker, -12 compared to the settlement levels.
- Today, the local calendar has been empty, with Machine Tool Orders due later. Tomorrow will see PPI data for September along with Weekly International Investment flows and Bank Lending data.
- Japanese Prime Minister Shigeru Ishiba will dissolve the lower house of parliament on Wednesday afternoon to hold a snap election on Oct. 27 before the Bank of Japan’s policy-setting meeting on Oct. 30-31.
- Cash US tsys are dealing +/-1bp, with a steepening bias, in today’s Asia-Pac session after yesterday’s modest gains. The market awaits today’s September FOMC minutes ahead of CPI/PPI data on Thursday and Friday respectively.
- The cash JGB curve is mildly cheaper, with yields flat to 2bps higher. The benchmark 10-year yield is 1bp higher at 0.937%.
- Swap rates are little changed.
- Tomorrow, the local calendar will see 5-year supply.
AUSSIE BONDS: Slightly Cheaper, Narrow Ranges, Focus On FOMC Minutes
ACGBs (YM -1.0 & XM -2.0) are slightly weaker after dealing in narrow ranges during the Sydney session. There was little positive spillover from NZGBs following the RBNZ’s 50bp cut.
- Cash ACGBs are flat to 2bps cheaper, with the AU-US 10-year yield differential at +17bps.
- Cash US tsys are dealing +/-1bp, with a steepening bias, in today’s Asia-Pac session after yesterday’s modest gains. The market awaits today’s September FOMC minutes ahead of CPI/PPI data on Thursday and Friday respectively.
- The latest round of ACGB Jun-39 supply saw the weighted average yield print 0.63bps through prevailing mids, extending the recent trend of firm pricing at ACGB auctions. A sale of A$1.0bn of the 2.75% 21 November 2028 bond is due on Friday.
- Assistant Governor Christopher Kent said the RBA spent AU$9bn on its term funding facility that was implemented at the height of the COVID-19 pandemic to lower borrowing costs.
- The bills strip has twist-flattened, with pricing -2 to +2.
- RBA-dated OIS year-end pricing is unchanged after today’s RBNZ decision, with a cumulative 8bps of easing priced by year-end.
- Tomorrow, the local calendar will see Consumer Inflation Expectation data and panel participation by Sarah Hunter, RBA Assistant Governor (Economic), at Macquarie University.
STIR: RBA Dated OIS Pricing Looks Past RBNZ’s 50bp Cut
RBA-dated OIS pricing remains 10-18bps firmer than Friday’s closing levels for 2025 meetings despite the RBNZ’s decision to cut 50bps today.
- RBNZ-dated OIS softened by 6-10bps following today's RBNZ policy decision.
- Before the decision, markets had priced in a 72% probability (43bps) of a 50bp rate cut, with 88bps of total easing expected by year-end and 127bps by February 2025. Those figures have now shifted to 98bps by year-end and 137bps by February (including today’s 50bps).
- RBA-dated OIS year-end pricing is unchanged following today’s RBNZ decision, with a cumulative 8bps of easing priced by year-end.
Figure 1: Official Rate: Current Vs. Year-End Market Expectations
Source: MNI – Market News / Bloomberg
RBNZ: Pace Of Easing Picks Up To “Avoid Unnecessary Instability”
The RBNZ increased its pace of easing by cutting the OCR 50bp to 4.75% today, as expected, after starting the easing cycle with 25bp in August. The MPC felt that “restraint” could be lessened as inflation is “within” the 1-3% target range and approaching the mid-point. It seemed to opt for an increase in the pace of easing to “avoid unnecessary instability” in the economy and markets. It noted that policy is still restrictive though.
- The discussion was around whether to cut rates 25bp or 50bp but the MPC unanimously decided on the latter as that was “most consistent” with its mandate to maintain “low and stable inflation”. This suggests that it may have been concerned that 25bp increments may not be enough to stop inflation falling towards the bottom of the band.
- In August, the MPC said that further easing would be dependent on its confidence that “pricing behaviour” would be consistent with low inflation and anchored expectations. This conditionality was dropped this month and future easing is now dependent on the “assessment of the economy” signalling that it is currently confident that inflation is sustainably within the band.
- The MPC recognised the weak inflation outcomes of the QSBO survey but also mentioned its own enquiries which “suggest that weak demand is restricting the pass through” of higher costs to customers. As a result “price-setting behaviour is now more consistent” with the “inflation remit”, the RBNZ’s goal. There are still risks though to both the upside and downside.
- The RBNZ said that growth is weak, excess capacity is rising and “employment conditions continue to soften” due to weak consumption and investment but also low productivity growth. Slowing housing, government spending and immigration are going to weigh on demand going forward.
NZGBS: Rates Lower After RBNZ Goes By 50bps
NZGBs closed slightly off session bests, with benchmark bonds 1-2bps richer.
- The RBNZ increased its pace of easing by cutting the OCR 50bp to 4.75% today, as expected, after starting the easing cycle with 25bp in August. The MPC felt that “restraint” could be lessened as inflation is “within” the 1-3% target range and approaching the mid-point. It seemed to opt for an increase in the pace of easing to “avoid unnecessary instability” in the economy and markets. It noted that policy is still restrictive though.
- The discussion was around whether to cut rates 25bp or 50bp but the MPC unanimously decided on the latter as that was “most consistent” with its mandate to maintain “low and stable inflation”.
- RBNZ-dated OIS softened by 6-10bps following today's RBNZ policy decision.
- Before the decision, markets had priced in a 72% probability (43bps) of a 50bp rate cut, with 88bps of total easing expected by year-end and 127bps by February 2025. Those figures have shifted to 98bps by year-end and 137bps by February (including today’s 50bps).
- Tomorrow, the local calendar will see the NZ Government's 12-month Financial Statements alongside the NZ Treasury’s planned sale of NZ$200mn of the 0.25% May-28 bond, NZ$250mn of the 4.25% May-34 bond and NZ$50mn of the 1.75% May-41 bond.
FOREX: NZD Slumps On RBNZ 50bps Cut, With Similar Moves Expected Going Forward
NZD weakness has been the theme of the Wednesday so far in the G10 space. This follows the 50bps cut by the RBNZ earlier, while the commentary pointed to similar moves going forward. The BBDXY USD index is marginally higher, last near 1240. The USD is slightly stronger against other currencies in the G10 space.
- NZD/USD tracks near 0.6080/85 in latest dealings, off around 0.90% versus end Tuesday levels in NY. We were closer to 0.6130/35 prior to the RBNZ announcement.
- RBNZ-dated OIS softened by 6-10bps following today's RBNZ policy decision, with the central bank viewing policy as still restrictive. Our sense had been the market would react more if we saw a hawkish surprise today, but the RBNZ has arguably given the NZD bears fresh ammunition. Further weakness could see declines towards 0.6046 and 0.6000 (Aug 14 lows).
- AUD/USD is also weaker, but only off by 0.25%, last under 0.6730. Further retracement in China and Hong Kong equities is likely weighing on sentiment (as well as an additional NZD headwind). The AUD/NZD cross is at 1.1055, just off session highs of 1.1076.
- USD/JPY has been relatively range bound. The pair last near 148.30/35. Dips remain supported.
- US equity futures sit lower, while US yields are slightly down at the front end.
- Later the Fed’s Jefferson, Bostic, Logan, Goolsbee, Collins and Daly appear plus the September FOMC meeting minutes are published.
NZD Falls Following 50bps Cut, Citi Sees 75bps Cut Next
The RBNZ cut its OCR by 50bps to 4.75%, accelerating its easing cycle to counter the country's economic slowdown. This move, anticipated by most economists, follows a 25bp cut in August. The RBNZ cited weak economic growth, rising unemployment, and falling house prices as reasons for the cut, while inflation is slowing and could undershoot its target. RBNZ dated OIS is pricing in 51.3bps of cuts at the next meeting in November, while Citi now expect a 75bps cut.
- The NZD has weakened against all G10 currencies, with the NZD/USD falling 0.75% to 0.6093. The pair has now fallen below all key moving averages, and below major support at 0.6100 (50% retracement of July 25 to Sep 30 rally), with next support now seen at 0.6057 (61.8% retracement).
- The AUD/NZD is 0.63% higher at 1.1055 making new cycle higher although further upside could be capped by the large sell-off in Chinese equities, with major benchmarks trading 5-10% lower. The cross has broken above the Aug 15 highs, with next resistance seen at 1.1100.
The NZ-US 2yr swap is trading 3bps lower at -19.5bps, back at March 2020 levels, while the AU-NZ 2yr spread is 2bps higher at 28bps, the highest levels since March 2013 highs, see chart.
Chart. AU-NZ 2yr Spread vs AUDNZD
EQUITIES: Asian Equities Mixed, As China Equities Struggle
Asian markets experienced mixed trading on Wednesday, with Chinese equities leading losses as weak economic data and limited stimulus from Beijing weighed on sentiment. The CSI 300 Index dropped as much as 7.4%, its biggest fall since 2020, as concerns grew about the sustainability of China's recent market rally. In contrast, Japanese stocks rose, with the Nikkei 225 gaining 0.9%, led by technology and growth shares following a rebound in US equities. Meanwhile, New Zealand's /NZX 50 rose 1.5% after the central bank's 50bps rate cut, and Australia's S&P/ASX 200 gained 0.6%, lifted by banks and consumer discretionary stocks. However, Australian iron ore miners fell amid China's lack of new stimulus measures.
- It's a sea of red in China today as investors dump stocks following a lack of further stimulus measures. China onshore real estate names have been the worst hit, the CSI 300 Real Estate Index is down 9.60%, while Tech stocks are have been the top performing with teh CSI 300 Tech Index flat for the day. However there has been a late bounce in China equities following these headlines " *CHINA MINISTRY OF FINANCE TO BRIEF ON FISCAL POLICY SATURDAY" - BBG.
- South Korea has been out today, while Taiwan's TAIEX is trading 0.85% higher with TSMC up 2.50% largely benefitting from the rally in tech stocks during the US session overnight.
- Japanese equities are higher today, with the Nikkei outperforming and trading 0.75% higher although the market remains rangebound that with further upside limited unless we see further weakness in the Yen. The Topix is 0.15% higher.
- New Zealand equities have rallied following the 50bps rate cut, with the market pricing in another 50bps cut at the next meeting, the NZX50 closed +1.75%, while Australia's ASX200 closed up 0.13%.
ASIA STOCKS: Foreign Investors Continue to Sell Asian Equities
Foreign investors have continued their selling of Asian equities with majority of the outflows coming from Taiwan & South Korean tech stocks, with Samsung now trading near 2023 lows.
- South Korea: Saw outflows of -$348m yesterday, with the past 5 sessions reaching -$1.22b, while YTD flows are +$10.14b. The 5-day average is -$245m, below both the 20-day average of -$302m and the 100-day average of -$48m.
- Taiwan: Saw outflows of -$860m yesterday, with the past 5 sessions netting -$2.83b, while YTD flows are -$13.43b. The 5-day average is -$567m, below the 20-day average of +$8m, and the 100-day average of -$147m.
- India: Saw outflows of -$968m yesterday, with the past 5 sessions netting -$5.35b, while YTD flows are +$19.45b. The 5-day average is -$1.15b, below both the 20-day average of +$12m and the 100-day average of +$85m.
- Indonesia: Saw outflows of -$11m yesterday, with the past 5 sessions netting -$209m, while YTD flows are +$3.07b. The 5-day average is -$42m, below the 20-day average of +$51m, but above the 100-day average of +$31m.
- Thailand: Saw outflows of -$10m yesterday, with the past 5 sessions totaling -$322m, while YTD flows are -$2.96b. The 5-day average is -$64m, below the 20-day average of -$5m and the 100-day average of -$11m.
- Malaysia: Saw inflows of $10m yesterday, with the past 5 sessions netting -$211m, while YTD flows are +$580m. The 5-day average is -$42m, below both the 20-day average of -$16m and the 100-day average of +$7m.
- Philippines: Saw inflows of $8m yesterday, with the past 5 sessions totaling +$57m, while YTD flows are +$87m. The 5-day average is +$11m, below both the 20-day average of +$18m and the 100-day average of +$4m.
Table 1: EM Asia Equity Flows
OIL: Markets Watching Geopolitics, Currently Not Too Troubled By China Equities
Oil prices are moderately higher during APAC trading after Tuesday’s sharp sell off and despite the severe drop in China equities today. Geopolitical risks in the Middle East remain a concern for energy markets though. WTI is up 0.2% to $73.74/bbl off the intraday low of $73.53. It rose to $74.19 earlier in the session. Brent is 0.3% higher at $77.43/bbl after falling to $77.21. The USD index is slightly higher.
- Israel is yet to retaliate for Iran’s missile attack on October 1. A response was expected this week and US President Biden urged Israel to avoid Iran’s oil infrastructure, but the conflict has remained between Israel and Iran-backed Hezbollah and Hamas. Options remain skewed towards calls, according to Bloomberg.
- Morgan Stanley has revised up its Brent forecast by $5 to $80/bbl due to current geopolitical issues, according to Bloomberg. It still expects an increasing surplus in 2025 as OPEC looks set to increase output from December.
- Concerns over the strength of China’s economy persist though, especially following Tuesday’s disappointing NDRC press conference. It is the world’s largest crude importer.
- Bloomberg reported an 11mn barrel crude stock build in the US last week, according to people familiar with the API data. Product inventories fell with gasoline down 557k barrels and distillate 2.6mn. The official EIA data is released later today.
- Later the Fed’s Jefferson, Bostic, Logan, Goolsbee, Collins and Daly appear plus the September FOMC meeting minutes are published. There is little data with August US wholesale sales/inventories and German trade the highlights.
GOLD: Down For A Fifth Straight Day
Gold is steady in today’s Asia-Pac session, after closing 0.8% lower at $2621.83 on Tuesday.
- Tuesday’s move was the fifth consecutive daily loss, bringing the yellow metal to its lowest since Sept 20.
- Analysts at Saxo Bank said the move mostly reflected an unravelling of geopolitical risk premium following the lack of an escalation in Middle East tensions this week.
- That said, bullion has also likely been pressured by recent comments from Federal Reserve policymakers that suggest US rate cuts won’t be as aggressive as previously thought.
- Lower rates are typically positive for gold, which doesn’t pay interest.
- According to MNI’s technicals team, yesterday’s move in gold saw it pierce support at $2615.0, the 20-day EMA. A clear break of this would open $2,584.9, Sep 20 low.
RBI: Bias Shifts To Neutral But December Rate Cut Not A Done Deal
The RBI kept rates on hold as widely expected, with the key rate held at 6.50%. The central bank did shift its long held policy stance from 'withdrawal of accommodation' to neutral. This is seen as the first step towards the central bank ultimately cutting the policy rate.
- It was a vote of 5 out of 6 board members to keep the policy rate unchanged (presumably the dissenter was looking for a policy rate cut). The shift to the neutral stance was unanimous.
- No doubt this shift will see increased speculation of a rate cut at the next RBI meeting, which is due on Dec 6 later this year.
- Still, RBI Governor Das was at pains to stress the central bank is mindful of inflation risks. It expects Sep inflation to bounce due to base effects and is mindful of upside risks from the recent uptick in food and metals prices, while geopolitics also play a risk.
- The 2025 financial year forecast for inflation was retained at 4.5% (so still above the mid point of the 2-6% target range). Core inflation pressures are expected to remain contained though, while food price pressures may also ease but this remains contingent on the weather outlook.
- Das painted a mostly positive growth backdrop, with the current financial year forecast at 7.2% maintained for real GDP.
- Investment activity was described as buoyant, while manufacturing sentiment was improving. Overall, domestic demand was described as steady.
- Today's outcome clears the way for a rate cut, but Dec is by no means a done deal. The RBI is seeking flexibility amid an evolving global outlook. This backdrop, coupled with domestic inflation conditions, and growth resilience will likely be monitored between now and the Dec meeting.
MNI Bank of Korea Preview-Oct 2024: Door Now Ajar For Easing
EXECUTIVE SUMMARY:
- Expectations for a rate cut have moved swiftly in recent days following various data releases, particularly in terms of the CPI, with headline now below the central bank's target.
- The long-held concerns about the rapid rise in the housing market in Seoul have been the main driver for the BoK’s reticence to cut. The authorities recently announced curbs to mortgage limits in Seoul starting from September 1 though.
- Overall, our bias now shifts to a 25 bp cut at the BOK’s next meeting on October 11, but do not expect language to accompany the cut that suggests significant cuts to follow. Rather, the language is likely to suggest a cautious approach to see how the regional economy reacts to the China stimulus and the global economy to the US Federal Reserve’s recent cut in rates.
FOR THE FULL PUBLICATION PLEASE USE THE FOLLOWING LINK: BoK Preview - OCTOBER 2024.pdf
PHP: USD/PHP Back Above All Key EMAs, PHP Seasonality Positive Into Year End
USD/PHP is now back above all of its key EMAs, the pair last at 57.04, around 0.20% weaker in spot terms so far today. The 100-day EMA is nearby at 56.97. Current levels are back to mid August highs. PHP weakness so far today is bucking the broader trend in South East Asia FX, where most currencies have ticked higher against the USD.
- It's difficult to pinpoint the source of PHP weakness in recent sessions, although the peso isn't the worst performer in the past week or in October to date. So we may be seeing some catch up with weakness elsewhere over this period (MYR, THB, IDR and KRW have all fallen more than PHP for October).
- Cross asset trends have been supportive from an equity market standpoint, although up until recent sessions, with local equities moving off recent highs. Offshore equity inflows have been positive as well. Oil prices are off recent highs as well, a positive for the country's terms of trade backdrop, if sustained.
- Aug 16 highs in USD/PHP were near 57.30. Note that seasonality turns more positive for PHP into year end, with PHP gaining on average for Oct, Nov, Dec against the USD over the past 10yrs. This may help curb further upside, as remittances tend to improve into year end.
- On the data front, tomorrow we have August trade figures. Next week is the BSP decision.
UP TODAY (TIMES GMT/LOCAL)
| Date | GMT/Local | Impact | Country | Event |
| 09/10/2024 | 0600/0800 | ** |  DE | Trade Balance |
| 09/10/2024 | 0830/1030 |  EU | ECB's Elderson in 'true cost of green...' session | |
| 09/10/2024 | 0900/1000 | ** |  GB | Gilt Outright Auction Result |
| 09/10/2024 | 1100/0700 | ** |  US | MBA Weekly Applications Index |
| 09/10/2024 | 1200/0800 |  US | Atlanta Fed's Raphael Bostic | |
| 09/10/2024 | 1315/0915 |  US | Dallas Fed's Lorie Logan | |
| 09/10/2024 | 1400/1000 | ** |  US | Wholesale Trade |
| 09/10/2024 | 1430/1030 | ** |  US | DOE Weekly Crude Oil Stocks |
| 09/10/2024 | 1630/1230 |  US | Fed Vice Chair Philip Jefferson | |
| 09/10/2024 | 1700/1300 | ** |  US | US Note 10 Year Treasury Auction Result |
| 09/10/2024 | 1800/1400 | *** |  US | FOMC Minutes |
| 09/10/2024 | 2100/1700 |  US | Boston Fed's Susan Collins | |
| 09/10/2024 | 2200/1800 |  US | San Francisco Fed's Mary Daly | |
| 10/10/2024 | 0600/0800 | *** |  NO | CPI Norway |
| 10/10/2024 | 0600/0800 | ** |  SE | Private Sector Production m/m |
| 10/10/2024 | 0600/0800 | ** |  DE | Retail Sales |
| 10/10/2024 | 0800/1000 | * |  IT | Industrial Production |
| 10/10/2024 | - | *** |  CN | Money Supply |
| 10/10/2024 | - | *** |  CN | New Loans |
| 10/10/2024 | - | *** |  CN | Social Financing |
| 10/10/2024 | 1230/0830 | *** |  US | Jobless Claims |
| 10/10/2024 | 1230/0830 | ** |  US | WASDE Weekly Import/Export |
| 10/10/2024 | 1230/0830 | *** |  US | CPI |
| 10/10/2024 | 1315/0915 |  US | Fed Governor Lisa Cook |