MNI EUROPEAN MARKETS ANALYSIS: China Imports Softer, Q2 GDP Out Monday/3rd Plenum Next Week

US TSYS: Tsys Futures Off Earlier Lows, Volumes Increase In The Front-End

• Treasury futures are slightly lower today, although we are currently trading off the intraday lows, there has been increased activity in front-end futures, TU is trading -0-01⅛ at 102-15⅛, TY is -0-05+ at 110-31+.
• Volumes are slightly above recent averages: TU 72k, FV 75k & TY 143k
• Tsys flows: Block Seller TYQ4C at 0'16 x10k
• The cash treasury curve is little changed this morning with the 10Y yield at 4.214%
• OIS market is now pricing in a 90% chance of a rate cut in September, up from 67% prior to CPI.
• Citi strategists are emphasizing the attractiveness of steepener trades heading into the US election, driven by dovish FOMC policies and weak June CPI data. They highlight that steepeners benefit from both a more accommodative Fed stance and election-related market dynamics, making them an exception among Trump trades, (per BBG)
• Looking ahead, We have PPI, U. of Mich. Sentiment while Wells Fargo, Bank Of NY Mellon, JPM & Citigroup report earnings

US POLITICS: Presidential Odds Volatile As Biden Gives Press Conference

Earlier, President Biden held a press conference where he has mistakenly referred to Zelenskiy as Putin and Kamala Harris as Trump, the odds market around his Presidential candidacy were volatile throughout the speech.

• Many reporters were questioning whether Biden was the right candidate going forward, however President Biden said he is determined to continue his reelection campaign. This comes despite further calls from the Democrats side to end his campaign. This included House Democrats making such calls after the speech.
• Outside of the gaffes outlined above, Biden spoke for just under an hour. He discussed a wide variety of geopolitical issues, from NATO/Ukraine to Israel/Hamas.
• Still, speculation around his candidacy is unlikely to diminish. The NYT reports that Biden's advisors are weighing how to convince the President not to run (see this link).
• The latest PredictIt odds have Trump as the favourite to win on 60% up 2pp this month compared with Biden on 19% down 13pp, just off earlier lows of 18%. Harris continues to swing back and fourth as the more likely candidate to lead the Democratic party, she hit a high of 55% earlier but now sits back at a 44% chance, with Biden at a 40% chance.

Source: MNI - Market News/PredictIt

STIR: Year-End Easing Expectations Firm Across The $-Bloc Led By NZ

STIR markets within the $-bloc have softened across the board over the past 10 days, with New Zealand as the standout performer.

• Year-end official rate expectations have softened by 9bps in Australia, 17bps in the US and Canada, and 27bps in New Zealand.
• Overnight, US easing expectations received a boost from softer-than-expected US CPI data.
• Of particular note, supercore (services ex-housing) inflation printed negative again, at -0.05% (-0.04% prior), vs +0.27% expected, for the first back-to-back deflations since Aug-Sep 2021. Overall core services printed just +0.13%, vs +0.32% MNI avg (and 0.22% May), the lowest since August 2021.
• On Wednesday, the RBNZ surprised the market with the final paragraph of the meeting summary: "The appropriate stance of monetary policy was discussed. The Committee agreed that monetary policy will need to remain restrictive. The extent of this restraint will be tempered over time consistent with the expected decline in inflation pressures.
• RBNZ dated OIS pricing is 17-35bps softer for meetings beyond August versus Wednesday's pre-RBNZ Decision levels.
• December 2024 expectations and the cumulative easing across the $-bloc stand at: 4.75%, -58bps (FOMC); 4.16%, -59bps (BoC); 4.39%, -5bps from an expected terminal rate of 4.43% (RBA); and 4.88%, -62bps (RBNZ).

Source: MNI – Market News / Bloomberg

JGBS: Bull-Steepener Ahead Of Long Weekend, Focus On US PPI Later Today

JGB futures are stronger but holding mid-range, +23 compared to the settlement levels.

• May industrial production was revised up to +3.6% m/m (1.1% y/y) versus +2.8% m/m (+0.3% y/y) prior. Meanwhile, the May Operating Ratio rose 4.1% m/m to 103.8.
• (Bloomberg) Japan’s finance ministry will need to broaden its pool of bond buyers beyond banks as they won’t be able to fill the vacuum left by the Bank of Japan, according to an economist on a finance ministry panel. (See link)
• (RTRS) Nearly 90% of Japanese households expect prices to rise a year from now, a quarterly central bank survey showed on Friday.
• Cash US tsys are slightly cheaper in today’s Asia-Pac session. In the absence of news flow, this weakening in US tsys most likely reflects some profit-taking after yesterday’s solid rally.
• The US market’s focus now turns to today’s June PPI and UofM Sentiment and the start of the latest equity earnings cycle: Wells Fargo, Bank of NY Mellon, JP Morgan and Citigroup headlining.
• The cash JGB curve has bull-flattened, with yields 1-3bps lower. The benchmark 10-year yield is 2.4bps lower at 1.066% versus the cycle high of 1.108%.
• Swap rates are flat to 1bp lower. Swap spreads are mostly wider.
• The local market is closed on Monday in observance of the Marine Day holiday.

AUSSIE BONDS: Holding Richer But Off Best Levels, Light Local Calendar Ahead Of Thursday’s Jobs Data

ACGBs (YM +3.0 & XM +3.0) remain richer but are off Sydney session highs.

• With the domestic calendar empty, the local market has drifted lower with the slight cheapening in cash US tsys in today’s Asia-Pac session. In the absence of news flow, this weakening most likely reflects some profit-taking after yesterday’s solid rally.
• The market’s focus now turns to today’s June PPI and UofM Sentiment and the start of the latest equity earnings cycle: Wells Fargo, Bank of NY Mellon, JP Morgan and Citigroup headlining.
• Cash ACGBs are 3-4bps richer, with the AU-US 10-year yield differential at +13bps.
• Today’s ACGB Nov-29 supply was priced comfortably through mids, but the cover ratio declined to 3.100x from 3.2286x prior.
• Swap rates are 2-4bps lower, with the 3s10s curve steeper.
• The bills strip has bull-flattened, with pricing +2 to +5.
• RBA-dated OIS pricing is 3-6bps softer for meetings beyond August. Terminal rate expectations sit at 4.44%.
• The local calendar is light ahead of Thursday’s release of the June Employment Report.
• Tomorrow, the AOFM plans to sell A$300mn of the 1.75% 21 June 2051 bond on Monday, A$500mn of the 3.00% 21 November 2033 bond on Wednesday and A$700mn of the 2.75% 21 November 2027 bond on Friday.

NZGBS: Richer, Closed Mid-Range, Q2 CPI Next Wednesday

NZGBs closed richer, but off the session's bests, 6-9bps richer. Nevertheless, today’s move brings the cumulative rally since the RBNZ’s surprising dovish tilt on Wednesday to 14-25bps, with the 2/10 curve 11bps steeper.

• On a relative basis, the NZGB 10-year has seen a mixed performance, with the NZ-US 10-year differential 1bp wider but the NZ-AU 3bps narrower.
• At +16bps, the NZ-AU 10-year differential sits at its lowest level since August 2022.
• Swap rates closed 5-7bps lower, with the 2s10s curve steeper.
• RBNZ dated OIS pricing closed little changed today, but 18-36bps softer for meetings beyond August versus Wednesday's pre-RBNZ Decision levels. A cumulative 62bps of easing is priced by year-end.
• Next week, the local calendar will see the Performance Services Index and REINZ House Sales data on Monday, Non-Resident Bond Holdings on Tuesday and the all-important Q2 CPI data on Wednesday.
• In the accompanying statement to this week’s Policy Decision, the RBNZ anticipated that CPI will fall within the 1-3% target range in the second half of 2024. Currently, it sits at 3.5% y/y.
• The US calendar later today will see June PPI and UofM Sentiment data alongside the start of the latest equity earnings cycle: Wells Fargo, Bank of NY Mellon, JP Morgan and Citigroup headlining.

FOREX: Japan Officials Don't Confirm Intervention Or Rate Check, NZD Recoups Early Losses

Yen volatility has dominated the first part of Friday G10 FX trade. The BBDXY sits little changed for the session, last near 1254. We remain above post US CPI lows from Thursday US trade (just under 1250).

• USD/JPY had an earlier low of 157.76, after drifting to highs of 159.45 in the first part of trade. The sharp correction may have been driven by a reported EUR/JPY rate check (per onshore Japan media). USD/JPY has stabilized this afternoon, mostly holding above 159.00.
• We have had a host of comments from Japan officials, with FX Chief Kanda speaking first, along with Chief Cabinet Secretary Hayashi and finally FinMin Suzuki.
• The comments were largely in line with on-going FX rhetoric around excessive FX moves, which are one-sided, and a desire for FX moves to be stable and to reflect fundamentals etc. Officials wouldn't comment on whether intervention had take place through Thursday's US session, nor would they discuss the reported rate check.
• Elsewhere, NZD/USD was weaker in early trade, following a very weak PMI update (to multi year lows). Card spending figures also showed a decline in June. We got to lows of 0.6076, but have recouped losses to sit back at 0.6100 in latest dealings. The AUD/NZD cross got to fresh highs of 1.1118, but is now back under the 1.1100 level.
• AUD/USD has drifted higher, last around 0.6770, but hasn't tested Thursday intra-session highs close to 0.6800. China commodity import volumes slowed in June, with iron ore off over 4% but this hasn't impacted sentiment today.
• Looking ahead, US PPI and prelim UMich sentiment and inflation expectations data round off the week’s calendar.

ASIA STOCKS: HK Stocks Higher, China Trade Surplus Grows, Third Plenum Next Week

China & Hong Kong's equity markets are mixed today, HK markets are out-performing as investors reacted to the latest U.S. inflation data, which indicated a slowdown and raised hopes for a rate cuts from the Federal Reserve. Chinese markets are slightly lower today as investors await the start of the Third Plenum policy meetings, property stocks have surged higher as investors expect China to announce additional support for the struggle sector at the meeting. Earlier, China's trade surplus grew to the highest levels since at least 1990.

• Hong Kong equities are higher today with the HSTech Index up 1.75% and now trades up 4.55% for the past week. Property indices have surged higher with the Mainland Property Index up 4.10% and now trades off just 1.10% for the week after being down as much as 8% at one stage, the HS Property Index is 4.80% higher today and now 5.30% higher on the week, while the wider HSI is 2% higher.
• China equity markets are mixed today with the CSI 300 down 0.20%, small-cap indices the CSI 1000 down 0.60% and the CSI 2000 up 0.55%, while the growth focused ChiNext is 0.10% lower.
• The CSRC clamped down on short selling to support the sliding stock market, leading to concerns about further deterioration in liquidity, as trading volumes were already at an 18-month low. Despite this, analysts suggest that such restrictions may ultimately impair liquidity and fail to support asset prices, particularly affecting small-cap stocks, as per BBG.

ASIA PAC STOCKS: Equities Mixed As Tech Sells Off, Yen Surges, US Rate Cuts

Asian equity markets are mixed today with Japanese equities facing pressure as the yen strengthened over 2% overnight amid speculation the BoJ intervened which impacting export stocks negatively. The market is now pricing about a 90% chance of a US rate cut in September following subdued US inflation data, this saw front-end US yields move about 10bps lower and we saw a rotation out of Mega cap tech stocks into more beaten up stocks which are more sensitive to interest rates. Meanwhile, Australian and New Zealand markets saw gains, supported by optimism around potential rate cuts and strong performances in banking sectors amid global economic uncertainties. Overall, market movements reflected a cautious stance amid fluctuating currency dynamics and expectations of central bank actions.

• Japanese equities are lower today, with the Nikkei falling by 2.20% and the broader Topix Index dropping about 1%. This downturn was primarily driven by a surge in the yen's value overnight, which adversely affected exporters. Tokyo Electron was notably impacted, contributing heavily to the Topix's decline with a 4.1% decrease. The market sentiment was further dampened by concerns over potential Federal Reserve rate cuts following recent US inflation data, leading to cautious trading and increased volatility, especially among mega cap tech stocks.
• South Korean stocks are lower today, mirroring overnight losses on Wall Street where major tech shares faced significant sell-offs. The Kospi is 1.30% lower with the decline heavily influenced by profit-taking in major tech stocks, despite signs of cooling U.S. inflation that sparked hopes for a Federal Reserve rate cut later this year.
• Taiwanese stocks are lower today following a global trend of sell-offs in major tech shares amid hopes for a potential Federal Reserve rate cut later this year due to signs of cooling U.S. inflation. The Taiex is 2.1% lower, influenced by declines in the tech sector with semiconductor companies such as TSMC which is down 3.7% and MediaTek down 3.50% as investors look to profit-take after strong gains earlier in the year.
• Australian equities are higher today, and the ASX200 has made new all time highs and is up 0.80% and New Zealand equities are 0.35% higher. The positive sentiment was driven by data showing that U.S. inflation cooled broadly in June, bolstering the case for potential Federal Reserve rate cuts. Most sectors saw gains, with banks contributing the most to the gains.
• Elsewhere, EM Asian markets are benefitting from lower US yields and expectation of a rate cut in September with Singapore equities are 0.66% higher, Indian equities up 0.25%, Philippines equities are 0.20% higher, Indonesian equities are 0.50% higher, while Malaysian equities are the only market in the red and trade 0.30% lower

ASIA EQUITY FLOWS: Asian Equities Higher, As Inflows Increase

• South Korea: South Korean equities saw inflows of $441m yesterday, contributing to a net inflow of $2.4b over the past five trading days. We have marked seven straight sessions of inflows, with tech stocks seeing the majority of those flows, the Kospi is up 2.78% over the past week while the Kosdaq is 1.81% higher. The 5-day average inflow is $481m, higher than the 20-day average of $213m and the 100-day average of $132m. Year-to-date, South Korea has experienced substantial inflows totaling $19.85b.
• Taiwan: Taiwanese equities had inflows of $61m yesterday, resulting in a net outflow of $909m over the past five trading days. Taiwan ended a 3-day run of outflows on Thursday with the 5-day average outflow currently -$182m, compared to the 20-day average inflow of $19m and the 100-day average outflow of -$8m. Year-to-date, Taiwan has accumulated inflows of $3.66b.
• India: Indian equities experienced inflows of $262m yesterday, contributing to a net inflow of $1.5b over the past five trading days. Recently, Indian equity flows have shown significant volatility, with large inflows and outflows, but have generally been positive since the election. The 5-day average inflow is $301m, higher than the 20-day average of $288m and the 100-day average outflow of $-33m. Year-to-date, India has seen net inflows of $1.96b.
• Indonesia: Indonesian equities recorded inflows of $37m yesterday, resulting in a net inflow of $54m over the past five trading days. Recently, Indonesian equity flows have shown a mixed but generally negative trend, with significant outflows towards the end of June, which could have been link to month end profit taking, the overall pattern suggests persistent investor caution although the JCI is 9% off cycle lows. The 5-day average outflow is -$11m, close to the 20-day average inflow of $16m and the 100-day average outflow of -$6m. Year-to-date, Indonesia has experienced outflows totaling -$246m.
• Thailand: Thai equities saw outflows of -$16m yesterday, resulting in a net outflow of -$41m over the past five trading days. Thailand's equity flows have exhibited a predominantly negative trend, with consistent outflows observed over several weeks, indicating sustained investor caution and reduced confidence in the market. The SET is up 3% over the past week with tech stocks the largest contributor. The 5-day average outflow is -$8m, close to the 20-day average outflow of -$33m and the 100-day average outflow of -$26m. Year-to-date, Thailand has seen significant outflows amounting to -$3.34b.
• Malaysia: Malaysian equities experienced inflows of $83m yesterday, contributing to a 5-day net inflow of $122m. Malaysia's equity flows have shown a mixed trend recently, with fluctuating flows. Notably, there was a significant downturn observed around mid-March to early April where the KLCI traded sideways. However, positive momentum has been seen in May and June, large inflows in May and June, suggesting renewed investor interest and confidence in the market. The 5-day average inflow is $24m, higher than the 20-day average inflow of $1m and the 100-day average outflow of $-2m. Year-to-date, Malaysia has experienced inflows totaling $13m.
• Philippines: Philippine equities saw inflows of $1m yesterday, with a 5-day net outflow of -$0.3m. Recent equity flows have shown volatility with notable fluctuations in daily movements. Overall, the market has exhibited mixed sentiment, reflecting both cautious investor behavior and occasional bursts of optimism amid global economic shifts. The 5-day average inflow is $0m, better than the 20-day average outflow of -$2m and the 100-day average outflow of -$7m. Year-to-date, the Philippines has seen outflows totaling -$523m.

Table 1: EM Asia Equity Flows

OIL: Benchmarks Firming, But Still Down For The Week

Front month Brent tracks near $85.60/bbl, up modestly in the first part of Friday trade (+0.2%). This follows gains from Thursday's session, although at this stage Brent is still tracking lower for the week (-1.1%). For WTI we were last around $82.90/bbl, up 0.35% so far today and with a more modest loss in the past week compared to Brent.

• Broader macro trends have aided oil benchmarks, with lower US yields/USD apparent in the aftermath of Thursday's CPI miss.
• Brent prompt spreads are mostly pointing to a tighter market, while earlier data in the week showed US stockpiles continued to decline. Hurricane activity hasn't disrupted gulf coast activity as much as feared though.
• Data today showed an easing in China crude import volumes for June, although we are still elevated from a levels standpoint.
• For Brent, we remain above key EMAs (the 20-day near $85/bbl), while earlier July highs rest at $88/bbl.

GOLD: Moved Sharply Higher After US CPI Miss

Gold is 0.3% lower in the Asia-Pac session, after closing 1.9% higher at $2415.48 on Thursday, its highest level since May 22.

• The yellow metal rallied following yesterday’s soft US June CPI data, which showed back-to-back declines for "supercore" prices, increasing prospects for an earlier Fed rate cut.
• Supercore (services ex-housing) inflation printed negative again, at -0.05% (-0.04% prior), vs +0.27% expected, for the first back-to-back deflations since Aug-Sep 2021. Overall core services printed just +0.13%, vs +0.32% MNI avg (and 0.22% May), the lowest since August 2021.
• The US calendar will see PPI data later today.
• Lower rates are typically positive for gold, which doesn’t pay interest.
• According to MNI’s technicals team, yesterday’s gains reinforce short-term bullish conditions, resulting in a breach of $2,387.8, the Jun 7 high. This has opened key resistance at $2,450.1, the May 20 high.

CHINA DATA: Imports Back Negative Y/Y, Exports Stay Elevated, Trade Surplus Fresh Cycle Highs

China June trade data was mixed, with exports up 8.6% y/y, versus 8.0% forecast and 7.6% prior. Imports fell though, down 2.3% y/y, against the +2.5% forecast and 1.8% prior. The trade surplus, as a result of the import miss surged to $99.05bn, well above expectations and surpassing previous cycle highs seen in mid 2022.

• Export growth, which has been a bright spot in recent months, sits close to 2024 y/y highs. Base effects from 2023 were favorable. By country, exports rose in m/m terms to the US, EU, Japan and South Korea, while falling to ASEAN economies.
• Exports to US were just above $45.5bn, well below 2021/22 highs but likely to be a focus point in the lead up to the US election in November.
• The CNY NEER gains, in y/y terms, is still broadly in line with export growth, see the first chart below. The NEER may be running a little ahead but is within historical norms.

Fig 1: China Export Growth & CNY NEER Y/Y

Source: MNI - Market News/Bloomberg

• On the import side, y/y growth at -2.3% is above 2024 lows, but has largely displayed a sideways trends since Q4 last year from a growth standpoint. Base effects are favorable in coming months but the data may keep domestic demand concerns still in play.
• In terms of commodity import volumes, we were generally down in m/m terms. Crude oil (-1.1% m/m), refined oil products, iron ore (-4.3%m/m) and natural gas were down. The only notable rise came from coal.
• The second chart below shows the reasonable link between China's import growth and spot global commodity prices.
• Note on Monday we get June activity figures and Q2 GDP growth. Net exports looking to be a positive for the quarter.

Fig 2: China Imports & Global Spot Commodity Prices - Y/Y

Source: MNI - Market News/Bloomberg

ASIA FX: South East FX Outperforming North East Asia As Fed Expectations Shift

USD/Asia pairs are mixed, with some spot levels still firmer against the USD, but this likely reflects catch up to USD losses post the CPI print on Thursday. 1 month USD/Asia NDFs have mostly climbed though, as USD losses from Thursday have been pared somewhat. KRW, IDR and TWD NDF's are around 0.25-0.45% weaker against the USD. Weaker yen trends (albeit with large volatility) and some softer equity tones have contributed to some USD gains, at the margin today.

• More broadly though, South East Asia FX has more USD/Asia pairs sub key EMAs relative to North East Asia FX. This is likely reflective of greater sensitive in SEA FX to the changing US Fed outlook, along with less sensitivity to still weak yen levels. THB, MYR, IDR and PHP have been the best EM Asia FX performers in the past month, while TWD, CNH and KRW are still lower against the USD over this period.
• USD/CNH is back to 7.2760, against intra-session Thursday lows 7.2580. The USD/CNY fix was only set lower modestly, remaining above the 7.1300 handle, with the fixing having a very low beta to the recent USD sell off. USD/JPY supported on dips today has likely weighed on the yuan at the margin, after Thursday's suspected intervention driven dip in the pair aided North East Asia FX. June trade showed export growth close to expectations, but imports weaker, which may raise domestic demand concerns. The trade surplus was a fresh cycle high, but hasn't benefited the yuan of late.
• USD/KRW spot is back to 1378/79, unable to sustain the sub 50-day EMA breach. Recent lows rest at 1370.65. Similar factors will be in play to CNH, in terms of some yen weakness and the equity pull back. The Kospi is off 1.5% so far today.
• 1 month USD/TWD is up 0.25%, last back near 32.47, while spot is relatively steady, around 32.53. The Taiex is down nearly 2.5%, following sharp tech losses in Thursday US trade.
• Spot USD/IDR has gapped lower to 16145/50, fresh lows in the pair back to late May. The 1 month NDF has lost around 0.30% though. Spot USD/THB is back under 36.20, also fresh lows back to mid-May. This leaves the pair sub all key EMAs except the 200-day (near 36.08).
• USD/MYR has broken lower, last near 4.6700, levels not seen since January this year. Late yesterday the central bank in Malaysia held rates steady at 3.0% as expected.
• USD/PHP has been relatively steady though last near 58.35, not seeing much downside.

ASIA RATES: Asia Sovs Track US Yields Lower, BI Rate Decision Next Week

Asian EM Sovs yields are lower today, although have underperformed moves made in UST. The softer-than-expected US CPI saw front-end US treasury yields fall 10bps, and chances of a September rate cut jumped to 90% from about 65% prior to the data. Next week we have the BI rate decision, where it's widely expected they'll keep rate on hold at 6.25%.

• The INDON/PHILIP curves have seen most demand through the belly of their curves, INDON is out-performing with yields 4-8bps lower, while PHILIP curve is 3-5bps lower.
• The front-end PHILIP curve continues to trade 5bps tighter than INDON but flattens out and trades 3-5bps wider out the curve.
• Cross-asset: Local currencies have edged higher over the past two weeks, with the USD/IDR trading at 16,158 vs 16,478 highs, a 1.95% move, while the USD/PHP is 58.341 vs 58.930 representing a 1% move. Equities have performed well recently with the JCI up 9.27% and the PSEi is up 7.36% from recent monthly lows although equity flows into both markets have been muted with slightly more money heading into Indonesian equities.
• The Philippines will issue about $500m of the 6.25% 2034 bond on Tuesday,
• Looking ahead, Bank Indonesia rate decision on Wednesday