- Hawkish comments from BOJ's Ueda over the weekend were the main early Asia Pac focus. Ueda said it’s possible the central bank will have enough information and data by the year-end to judge if wages will continue to rise, a condition for adjusting stimulus, according to an interview with the Yomiuri newspaper. JGB benchmarks are cheaper across the curve. The benchmark 10-year yield is 5.2bp at 0.707%, a post-YCC tweak high. Yen has outperformed in the G10 FX space up over 1%. USD losses have been evident elsewhere, the BBDXY down -0.50%.
- CNH enjoyed positive spill over from yen strength, while a further leg up was provided by the PBoC vowing FX stability. Onshore equities have rallied after the break due to stronger than expected August credit data, another positive.
- Elsewhere, FAO global food prices fell 2.1% m/m in August (non-seasonally adjusted) with only sugar rising in terms of broad categories. Supply in many foodstuffs is currently ample. Food prices fell 11.8% y/y in line with July and so they continue to put downward pressure on overall inflation but that has lessened over the last few months as the trough was in May at -21.5% y/y, see below more details.
- Looking ahead, there is a thin docket in Europe today, further out the only data of note is NY Fed's 1-Year Inflation Expectations. The Fed is now in the blackout period ahead of the September 20 meeting.
MARKETS
US TSYS: Marginally Cheaper In Asia
TYZ3 deals at 109-21+, -0-08, a touch off the base of the 0-08 range observed on volume of ~82k.
- Cash tsys sit 1-3bps cheaper across the major benchmarks, light bear steepening is apparent.
- Tsys were pressured in early dealing as spillover from JGBs weighed on the wider space. BoJ Governor Kazuo Ueda said it’s possible the central bank will have enough information and data by the year-end to judge if wages will continue to rise, a condition for adjusting stimulus, according to an interview with the Yomiuri newspaper.
- TY sits a touch above support at 109-19 (low from Sep 7) and 109-09+ (low from Aug 22 and bear trigger).
- Narrow ranges were observed in recent dealing, and moves had little follow through after the initial move lower.
- There is a thin docket in Europe today, further out the only data of note is NY Fed's 1-Year Inflation Expectations.
JGBS: Futures Off Lows But Still Sharply Weaker, 5Y Supply Tomorrow
JGB futures have experienced a significant decline, dropping as much as 77 in comparison to their settlement levels. This comes after previously outlined hawkish remarks made by BoJ Governor Ueda over the weekend.
- At 146.52, JGB futures currently sit slightly above session lows after the BoJ announced that it would conduct 5-year funds-supplying operations against pooled collateral on September 14.
- Bloomberg reports that the BoJ's 5-year funds-supplying operations this week won’t put an end to sliding JGBs. There was a similar intervention in January but 5-year yields are higher now than they were at that time. (See link)
- There hasn’t been much in the way of domestic drivers to flag, outside of Ueda’s comments and the BoJ operations announcement.
- JGB benchmarks are cheaper across the curve, with yields 2.1bp (1-year) to 6.9bp (5-year) higher, amid speculation that the central bank is preparing to end its negative rate policy. The benchmark 10-year yield is 5.2bp at 0.707%, a post-YCC tweak high.
- The 5-year is at 0.291% ahead of supply tomorrow.
- Swap rates are higher across the curve, with the belly underperforming. Swap spreads are wider, apart from the belly of the curve.
- Tomorrow the local calendar is empty. However, the MoF plans to sell Y2.5tn 5-year JGBs.
GLOBAL: Ample Supplies Keeping Global Food Prices Down
The FAO global food prices fell 2.1% m/m in August (non-seasonally adjusted) with only sugar rising in terms of broad categories. Supply in many foodstuffs is currently ample. Food prices fell 11.8% y/y in line with July and so they continue to put downward pressure on overall inflation but that has lessened over the last few months as the trough was in May at -21.5% y/y.
- There has been some focus on cereals prices with Russia pulling out of the Black Sea Grain Initiative and India banning the export of non-basmati rice. Despite these events, global cereal prices fell 0.7% m/m in August to be down 14.1% y/y due to wheat and maize prices falling due to good harvests.
- The FAO All Rice Price Index rose almost 10% on the month due to India’s restrictions in an already tight market and the reaction of other suppliers. In response, they have renegotiated contracts, held onto supply and ceased to make price offers. In September to date the trend has continued with processed rice prices 5.1% m/m and 37.2% y/y higher after 8.6% and 28.1% in August and remains a concern in a number of countries.
- There was a broad-based decline in meat prices with the FAO index down 3% m/m to be down 5.4% y/y. Dairy also saw all its components fall with the index -4% m/m and -22.4% y/y. This was the eighth consecutive monthly decline due to plentiful supply.
- Vegetable oils fell 3.1% m/m and 23% y/y while sugar rose 1.3% m/m and 34.1% y/y, due to concerns re the impact of El Nino in Asia.
Cereal vs rice prices y/y%
Source: MNI - Market News/FAO/Refinitiv
AUSSIE BONDS: Cheaper At Sydney Session Lows As Higher JGB Yields Pressure
In roll-impacted trading, ACGBs (YM -7.0 & XM -9.3) are weaker and at Sydney session lows as spillover from JGBs continues to weigh on the local market.
- In recent dealings the JGB 10-year yield is just shy of the post-YCC adjustment high of 0.705%, 4.7bp cheaper on the day. The catalyst for the JGB move has been remarks from BoJ Governor Ueda over the weekend that it’s possible the central bank will have enough information and data by the year-end to judge if wages will continue to rise, a condition for adjusting stimulus.
- With the domestic calendar empty today, local participants were largely guided by offshore events. US tsys are 1-3bp cheaper across benchmarks in Asia-Pac trade, with the belly of the curve underperforming.
- Cash ACGBs are 6-9bp cheaper, with the AU-US 10-year yield differential 2bp wider at -12bp.
- Swap rates are 5-9bps higher, with the 3s10s curve steeper.
- The bills strip has bear-steepened, with pricing -1 to -6.
- RBA-dated OIS pricing is little changed across meetings out to May’24 and 2-3bp firmer beyond.
- Tomorrow the local calendar sees Westpac Consumer Confidence and NAB Business Confidence.
AU/NZ RATES: AU-NZ 10Y Yield Differential Mispricing Lessens
Further to our previous discussion of the drivers of the AU-NZ 10-year yield differential, a simple regression of the AU/NZ 10-year yield differential versus the AU-NZ 3-month swap rate 1-year forward (1y3m) differential suggests fair value is around -67bp versus the 10-year differential’s current level of around -82bp.
- The current regression error of -16bp compares with -24bp seen in late August.
- The widening in the regression error in late August appeared to align with speculation that NZ’s fiscal situation was deteriorating beyond what was anticipated in the recent NZ budget.
- Therefore, the recent narrowing in the regression error over the past week may reflect position adjustments or investors capitalising on more favourable entry points ahead of tomorrow’s release of the Pre-Election Economic and Fiscal Update.
Figure 1: AU/NZ Regression Error - 10-Year Yield Differential Vs. 1Y3M Swap Differential
Source: MNI – Market News / Bloomberg
NZGBS: Closed On A Weak Note, Pressured by JGB Spillover
NZGBs closed on a weak note, with benchmark yields 4-5bp higher and the 2/10 curve steeper. With the domestic calendar light today, the key driver for the local market was spillover selling as JGB yields pushed to their highest levels since 2014. The catalyst for the JGB move was hawkish remarks from BoJ Governor Ueda over the weekend.
- US tsys and ACGBs are also cheaper on the day. However, NZGBs have slightly outperformed, with the NZ-US and NZ-AU 10-year yield differentials 1bp and 2bp tighter, respectively.
- Swap rates are 5-8bp higher, with the 2s10s curve steeper.
- RBNZ dated OIS pricing is flat to 4bp firmer across meetings, with terminal OCR expectations at 5.62%.
- Tomorrow the local calendar sees Retail Card Spending and Net Migration data.
- Nevertheless, the market’s focus is likely to be on the release of the Pre-Election Economic and Fiscal Update. It is worth noting that economic conditions have taken a downturn since the Treasury's Budget publication in May. Consequently, the Treasury is expected to unveil around a NZ$15bn cumulative deficit increase out to 2026/27, with a substantial surge in the government's projected borrowing program.
FOREX: Yen Firms In Asia
The Yen is outperforming the G-10 space in Asia today after comments from BOJ's Ueda over the weekend. He said it’s possible the central bank will have enough information and data by the year-end to judge if wages will continue to rise, a condition for adjusting stimulus, according to an interview with the Yomiuri newspaper. The move lower in USD/JPY has spilled over into wider greenback weakness.
- USD/JPY is down ~1% and last prints at ¥146.40/50 sitting at session lows. Support comes in at ¥145.88 the 20-Day EMA and 144.45, low from Sep 1 and key support.
- Kiwi is ~0.5% firmer and has breached the $0.59 handle, benefitting from the broader move lower in the USD. The 20-Day EMA ($0.5942) is now in sight for bulls, a break through here opens which opens the high from 10 Aug ($0.6118) and the 200-Day EMA ($0.6157).
- AUD/USD is ~0.6% higher and has breached $0.64 handle, last printing at $0.6415/20. Resistance comes in at $0.6456, 20-Day EMA, then $0.6522, high from Aug 30.
- Elsewhere in G-10; EUR and GBP are both ~0.2% firmer.
- Cross asset wise; BBDXY is ~0.4% lower and WTI is down ~0.5%. E-minis are up ~0.1% and US Tsy Yields are a touch firmer across the curve.
- There is a thin docket on Monday in Europe.
NZD: 2-Yr Rate Differentials, Commodities & Equities Main Drivers Last Week
NZD/USD correlations with 2-Year rate differentials, global equities and commodities have strengthened over the past week, standing out as a key macro driver in recent dealings. The table below presents levels of correlations between NZD and key macro drivers (note the yield differential reflects swap rates).
- Recent strength in NZD/USD, down ~1% last week, looks to be associated with the recent weakness in 2-Year rate differentials, global equities and commodities.
- The Kiwi looked through strength in Milk Futures last week.
- Over the longer timeframe there is no stand out macro driver, with 2-Year Rate Differentials showing the strongest correlation.
Fig 1: NZD/USD Correlation with Global Macro Drivers:
Source: MNI/Bloomberg
EQUITIES: Mixed Regional Trends, HK Markets Return Weaker, Japan Markets Down Modestly
Asia Pac equities are mixed in Monday trade. Hong Kong markets have returned and are down on multiple headwinds. Other major regional markets are painting more of a mixed picture. US equity futures are a touch higher at this stage. Eminis last near 4518, +0.15%, while Nasdaq futures are around 0.25% higher.
- The HSI is down 1.68% at the break. Alibaba has tracked down sharply, with the unexcepted exit of a senior executive weighing on sentiment. Hong Kong builders have tracked lower amid weaker earnings and plans for banks to raise rates. The HS China Enterprise index is also tracking lower, down 1.42%.
- On the mainland, the CSI 300 is faring better, up 0.3% at this stage. This follows a recent pledge by the regulator to boost market confidence, while over the weekend it was announced that insurance companies would have easier avenues to purchase stocks.
- Elsewhere, Japan stocks are down modestly, the Topix last ~0.20% off. Mixed trends are evident, as local yields and the yen have surged following hawkish weekend comments by BoJ Governor Ueda. Banks are higher, but property sector names are off.
- The Taiex is off by 0.80%, weighed by the weaker SOX trend in US trade late last week, while the Kospi is marginally higher (+0.25%).
- Trends in SEA are mixed, with most bourses lower, but only modestly at this stage, while Indonesian shares are a touch higher.
OIL: Crude Falls Moderately As Indicators Signal Market Overbought
Oil prices are down slightly during APAC trading today but Brent has held above $90/bbl. After rising over 2% last week, technical indicators are suggesting that crude is overbought and it has responded today but still in a tight range. WTI is down 0.6% to $87.00/bbl off the intraday low of $86.71. Brent is down only 0.2% to $90.44 after a low of $90.11. The USD index is down 0.4%.
- The relative strength index, stochastic oscillators and Bollinger bands are suggesting that oil is overbought and thus there could be a correction, according to Bloomberg. CFTC net oil positions rose to 299.3k from 240.9k in the latest week.
- Futures timespreads are still signalling that the market is tight. While there was some increased supply in August, Iran’s output is now close to pre-sanction levels and so there is unlikely to be much more from there. There has also been no breakthrough between Turkey and Iraq on the six month dispute over flows from Iraqi Kurdistan to the Turkish port of Ceyhan. This issue continues to hold up around 500kbd. On the demand side, China’s trade data showed strong crude imports.
- The Fed is now in the blackout period ahead of the September 20 meeting and there isn’t any US data. Europe is also quiet. The focus is likely to be on Wednesday’s US CPI.
GOLD: Higher In Asia-Pac Trade Despite Higher Global Bonds Yields
Gold has registered a modest 0.2% uptick during the Asia-Pac session despite higher bond yields in early Monday trading, led by JGBs.
- In recent dealings the JGB 10-year yield is at a post-YCC adjustment high of 0.702%, 4.7bps higher on the day. The catalyst for the JGB move has been remarks from BoJ Governor Ueda over the weekend that it’s possible the central bank will have enough information and data by the year-end to judge if wages will continue to rise, a condition for adjusting stimulus.
- Today’s small gain follows an unchanged closing price of $1919.08 ahead of the weekend, which came after reaching a peak of $1929.71.
- It's worth noting that Friday's high approached resistance at the 50-day EMA at 1931.4, beyond which a significant resistance point looms notably higher at $1953.0, as per the insights from MNI's technicals team.
- These observations underscore the considerable drop in gold's value observed last week, driven by DXY's concurrent increase of approximately +0.8%.
ASIA FX: CNH Surges On Multiple Support Points, More Modest Gains Elsewhere
USD/Asia pairs are mostly lower today, with CNH the clear standout, aided by a firmer yen, record fixing relative to expectations, PBoC rhetoric and stronger than expected August credit data. Trends are more mixed elsewhere, albeit with a generally softer USD tone. TWD and IDR are lagging somewhat. Tomorrow, Indian CPI for August will be the main focus point.
- USD/CNH sits slightly above session lows, last around 7.3000. Earlier lows were at 7.2932. The pair has mostly been tracking lower since the open, thanks to lower USD/JPY levels and a stronger than expected CNY fix. This afternoon, the PBOC stated it has confidence in maintaining a stable yuan. It has also resolutely put an end to speculation in the FX market and that it will prevent 'over-adjustment' risk in FX markets as well. This drove us to fresh lows for the session. Better than expected August lending figures have also aided onshore equities after the break.
- Spot USD/HKD is back sub 7.8400. We got to lows of 7.8365, but sit slightly higher now, last near 7.8370. Sep 4 lows near 7.8320 remain intact for now. Through the second half of last week, we couldn't sustain moves above 7.8400.• Onshore markets were closed on Friday due to weather disruptions. The Hibor fix today has seen the 3 month yield rise 7bps to 4.65%, while the 1 month 6bps to 4.29%.• US-HK 3 month yield differentials are comfortably off recent highs, with spot USD/HKD generally tracking lower since this peak was made.
- Spot USD/TWD is not seeing much downside today from the softer USD trends seen elsewhere, particularly in terms of USD/JPY and USD/CNH. In recent sessions dips in the pair back towards 32.00 have been supported, with the pair last near fresh recent highs, tracking at 32.04. The softer equity tone remains a notable downside weight for TWD. At this stage, the Taiex is off by over 0.70% to be among the worst performers in the region so far today. The SOX fell sharply last week in US trade, while offshore investors continue to sell local equities with close to $1.4bn in outflows last week (-$498mn on Friday).
- The Rupee is marginally firmer than Friday's closing levels in a muted start to the week's trade. On Friday the Rupee was ~0.3% firmer as USD/INR fell below the 83 handle, the pair trimmed its weekly gain to finish up ~0.3% its strongest week since mid-August. August's CPI print on Tuesday headlines this week's docket, CPI is expected to tick lower to 7.10% Y/Y remaining above the RBIs inflation band for the 2nd consecutive month.
- USD/IDR sits down off session highs, last under 15350, We were threatening to break above 15360 earlier, which would be through August highs. A firmer core yield backdrop, today being led by Japan, is not an IDR positive, insofar as it reduces the appeal of holding onshore debt. US real 10yr yields remain a little below recent highs (closing at +193bps on Friday).• September is also the worst seasonal month of the year for IDR. In the last 10yrs, the currency has lost 2.0% on average in September, gaining only in one September, which was in 2016.
- The SGD NEER (per Goldman Sachs estimates) is little changed in early dealing on Monday, the measure sits well within recent ranges and is ~0.6% below the top of the band. Broader greenback trends are dominating on Monday, USD/SGD is down ~0.4% and last prints at $1.3600/05. The local data docket is empty this week.
- USD/MYR prints at 4.6730/55, the pair is ~0.1% lower in early dealing. The Ringgit is marginally lagging the broader USD/Asia move on Monday and has pared some of its early gains. Last week USD/MYR rose ~0.7%, its strongest week since mid-August as wider greenback flows dominated. July Industrial Production printed at 0.7% Y/Y, stronger than the expected -0.2% Y/Y.
UP TODAY (TIMES GMT/LOCAL)
| Date | GMT/Local | Impact | Flag | Country | Event |
| 11/09/2023 | 0600/0800 | * |  | NO | CPI Norway |
| 11/09/2023 | 0800/1000 | * |  | IT | Industrial Production |
| 11/09/2023 | 1500/1100 | ** |  | US | NY Fed Survey of Consumer Expectations |
| 11/09/2023 | 1530/1130 | * | | US | US Treasury Auction Result for 13 Week Bill |
| 11/09/2023 | 1530/1130 | * | | US | US Treasury Auction Result for 26 Week Bill |
| 11/09/2023 | 1700/1300 | *** | | US | US Note 03 Year Treasury Auction Result |
| 12/09/2023 | 2300/0000 |  | UK | BOE's Mann to Speak in Canada |
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