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US Tsys futures have traded in narrows ranges throughout the APAC session today, while the USD trend has also been relatively steady against the majors.
Asian equities are trading mixed today with Chinese stocks underperforming due to growing caution ahead of a key weekend briefing that could unveil fiscal stimulus measures.
Gold has tracked higher, while oil has largely held Thursday gains. South Korea commenced its easing cycle, but a follow up cut next month may not materialize.
Looking ahead, we have UK data first up, in the US PPI & U. of Mich. Sentiment are due later, while we also have more Fed speak.
Tsys futures have traded in narrows ranges throughout the APAC session today, with a late move post NY close accounting for all of today's gains, while volumes are well down on recent averages. TU is +01⅞ at 103-14. while TY is +06 at 112-08+ post NY close.
It has been a very slow session across all asset classes here in Asia today, early weakness in China equities, however that now looks to have steadied as investors await headlines out of the MOF meeting on Saturday, while NFRA, MIIT and SAMR will hold a press briefing on Monday. The market has turned focus to tonight's US PPI & U. of Mich. Sentiment.
French bond futures gapped higher on the open following the Budget announcement with the 2025 budget featuring spending cuts and higher taxes on businesses, the wealthy and energy.
Investors preferred eight-week vs four-week bills at auction on Thursday since the issue will mature well after the Fed's November interest-rate decision and therefor be more impact by potential cuts.
Cash tsys curves are little changed with yields +0.5bps to -0.5bps, the 10yr hit a high of 4.115% overnight and trades back at 4.06% at the moment, the curve is a touch flatter with the 2s30s -0.4bps at 39.242.
Fed fund futures are steady today vs pre data highs with Nov'24 cumulative -21.4bp (-22.7bp), Dec'24 -45.6bp (-46.5bp), Jan'25 -65.4bp (-68.9bp).
Chicago Fed President Austan Goolsbee, his Dallas counterpart Lorie Logan, and Fed Governor Michelle Bowman are all due to speak later today
Year-end official rate expectations across the $-bloc have shown a mixed performance over the past week. The US has firmed by 20bps, New Zealand has softened by 10bps, while Canada and Australia have seen little change.
In the US, the market firmed noticeably across meetings following last Friday’s stronger-than-expected Non-Farm Payrolls report. Additionally, recent Fedspeak has contributed to the scaling back of easing expectations over the past week.
In New Zealand, the key event was the RBNZ's decision to cut the OCR by 50bps on Wednesday. While this move was largely priced ahead of the meeting, RBNZ-dated OIS pricing is currently 5-14bps softer across meetings out to May 2025, despite today's 2-4bps firming.
Currently, 52bps of easing is priced in for November (4.23%), with a cumulative easing of 91bps for February 2025 (3.84%) and 148bps for July 2025 (3.27%).
The BoC's next policy meeting is scheduled for October 23rd, with 38bps of easing priced.
Australia has experienced a light economic calendar over the past week, with little movement in rate expectations.
Looking ahead to July 2025, the projected official rates and cumulative easing across the $-bloc are as follows: US (FOMC): 3.61%, -127bps; Canada (BoC): 2.90%, -135bps; Australia (RBA): 3.79%, -53bps; and New Zealand (RBNZ): 3.32%, -143bps.
Figure 1: $-Bloc STIR Expectations Out To July 2025 (%)
JGB futures are stronger after a choppy Tokyo session, +16 compared to settlement levels.
Outside of the previously outlined M2 & M3 stock data, there hasn't been much by way of domestic drivers to flag.
Cash US tsys are little changed in today’s Asia-Pac session after yesterday’s bull-steepener. Focus now turns to today’s PPI and University of Michigan inflation expectations, as well as the start of the latest earning cycle with several banks reporting before the open: Wells Fargo, JP Morgan, Bank of NY Mellon and Blackrock.
Cash JGBs are 1-2bps richer across benchmarks beyond the 1-year (+2.0bps).
BoJ Rinban Operations covering 1-3-year and 5-25-year JGBs showed lower offer cover ratios and negative spreads for the longer-dated buckets.
Swap rates are 1-2bps lower out to the 30-year and 3bps higher beyond. Swap spreads are tighter out to the 30-year.
The local market is closed on Monday in observance of the Health-Sports Day.
ACGBs (YM flat & XM flat) are flat after trading in narrow ranges in today’s data light session.
The latest round of ACGB Nov-28 supply saw the weighted average yield print 1.69bps through prevailing mids (per Yieldbroker), extending the recent trend of firm pricing at ACGB auctions.
Cash US tsys are little changed in today’s Asia-Pac session after yesterday’s bull-steepener. Focus now turns to today’s PPI and University of Michigan inflation expectations, as well as the start of the latest earning cycle with several banks reporting before the open: Wells Fargo, JP Morgan, Bank of NY Mellon and Blackrock.
Cash ACGBs are flat to 1bp richer, with the AU-US 10-year yield differential at +16bps.
Swap rates are flat to 1bp lower, with the 3s10s curve steeper.
The bills strip is slightly cheaper, with pricing -1 across contracts.
RBA-dated OIS pricing is little changed across 2025 meetings. A cumulative 7bps of easing is priced by year-end.
The local calendar is empty on Monday apart from the AOFM’s planned sale of A$300mn of the 1.75% 21 June 2051 bond. The AOFM also plans to sell A$700mn of the 3.75% 21 May 2034 bond on Wednesday and A$500mn of the 4.75% 21 April 2027 bond on Friday.
NZGBs closed on a weak note, with benchmark yields 4-6bps higher.
NZGBs underperformed compared to their $-bloc counterparts, with the NZ-US and NZ-AU 10-year yield spreads widening by 4-5bps.
This underperformance likely stems from a combination of factors, including a rebound in the PMI, the largest annual increase in food prices since February, and continued selling pressure following yesterday's announcement of a larger-than-expected budget deficit.
“New Zealand's annual inflation is poised to return to the central bank's target band for the first time in nearly three years in the September quarter, but the so-called "disinflation progress" is more driven by global factors than by recent domestic monetary tightening, ANZ Research said in a Friday report.” (per MT Newswires)
Swap rates closed 5-6bps higher.
RBNZ-dated OIS pricing closed 5-14bps softer across meetings out to Apr- 2025 versus pre-RBNZ levels, despite today's 2-5bps firming. 52bps of easing is priced in for November (4.23%), with a cumulative easing of 90bps for February 2025 (3.85%) and 147bps for July 2025 (3.28%).
On Monday, the local calendar will see the Performance Services Index and Card Spending Total data as well as a speech by RBNZ Governor Orr on Maori Access to Capital.
G10 FX markets have had a relatively muted start to Friday trade. The USD BBDXY index is down slightly, last near 1243.25.
US yields are closed to unchanged as markets await PPI & U. of Mich. Sentiment later, while we also have more Fed speak. US equity futures are slightly higher, but we also have key earnings kicking off later.
Regional equity sentiment is mixed, with China markets down ahead of tomorrow's MOF fiscal briefing. We also hear from other authorities in China on Monday.
Still, this hasn't stopped AUD and NZD nudging a little higher. AUD/USD was last near 0.6745/50, still down for the week (-0.70%). NZD/USD has tracked back above 0.6100, still trying to recoup post RBNZ losses. Earlier data showed manufacturing in NZ stayed in contraction, while annual migration continued to slow. Food prices rose in September but this is ahead of next week's Q3 CPI print. Inflation is expected to fall back inside the RBNZ's target band (1-3%).
USD/JPY has drifted a little higher, the pair last near 148.70/75 but Thursday highs at 149.55 remain comfortably intact.
Outside of the US data outcomes, we also have UK data coming up, headlined by monthly GDP.
The weaker yen is once again in focus. Yen has lost around 6.5% against the USD since mid September (the USD/JPY trough point). Late yesterday ex BoJ executive official Momma stated that a push in USD//JPY above 150.00 would bring forward the next BoJ rate hike. He added that the July hike was 80-90% driven by the weaker yen trend (per BBG).
USD/JPY y/y shifts have a reasonable correlation with Japan import price momentum. The first chart below presents the two series. Note we extrapolate y/y shifts in USD/JPY to the end of this year by assuming that USD/JPY rises just above 150 by the end of this month and holds there. Such a backdrop would imply y/y import prices would start turning positive again by year end (currently at -2.6%).
The historical correlation back to 2014 between the two series is 56%. If we use the Japan TWI it is slightly higher at 59% (obviously using inverse changes in the TWI index).
Fig 1: USD/JPY And Japan Import Prices Y/Y
Source: MNI - Market News/Bloomberg
The second chart below plots the rolling 3 month change in USD/JPY against the 3 month change in the 10yr JGB yield. The positive correlation between the two series certainly appears to have strengthened recently. A weaker yen, all else equal, should drive a more hawkish BOJ backdrop.
Of course, there are lots of moving parts to this relationship. Higher US yields for instance will weaken yen and also cause spillover to Japan's JGB markets.
Still, further upside in USD/JPY may start to come under greater BoJ focus. If they feel comfortable with the domestic/services inflation backdrop higher imported price risks may prompt a policy response. The end October BOJ meeting is seen as no change though, with the central bank still likely to be monitoring mode for such trends (along with other key variables - wages/consumer spending trends etc).
Asian equity are trading mixed today with Chinese stocks underperforming due to growing caution ahead of a key weekend briefing that could unveil fiscal stimulus measures. The CSI 300 Index is -1.90%, reversing Thursday's gains. In contrast, Japan and South Korea saw share price increases, sidestepping losses from Wall Street following stronger-than-expected U.S. core inflation data.
All eyes are on China's weekend briefing, where up to 2t yuan in stimulus may be announced to support the economy. Hong Kong markets were closed for a holiday.
US equity futures edge slightly higher with Nasdaq 100 (+0.16%) outperforming S&P 500 (+0.05%). Elon musk presented at Tesla's Robotaxi event, where he has unveiled a "Cybercab" & "Robovan" which looks to have gained positive reactions.
Earlier, BOK cut interest rates, signaling the start of a gradual easing cycle to support South Korea's economy, which has been impacted by sluggish domestic demand and export reliance. Despite inflation stabilizing below 2%, BOK remains cautious about future risks, including household debt and geopolitical developments. Foreign investors continue the trend of selling Korean equities with a net outflow of $230m so far today. The Kospi is trading +0.20% with its largest weighting Samsung (+1.20%) contributing the most to the gains today although is only trading just above key support of 59,000 after yesterday making new yearly lows, while the small-cap focused KOSDAQ is trading 0.10% lower
Taiwan's Taiex is +1.40% with TSMC +2.45% & Hon Hai +0.25% contributing most to the gains. There has been little in the way of headlines out of the region, local equities are benefitting from the move higher in Nvidia overnight.
Japan equities continue to benefit from the weaker yen, after it slid to 149.60 on Thursday while strong results from Fast Retailing (Uniqlo) have helped support the market and the outperformance in the Nikkei (+0.70%) vs Topix which trades flat.
Australia's ASX200 has closed the session little changed today with Miners down following a drop in commodity prices. New Zealand equities closed 0.70% higher after Infratil (Owners of Wellington Airport) jumped 1.60% following the announcement that the Wellington city council wont sell its 34% stake in the airport.
Equity flows were muted on Thursday as investors await further details from China's MOF on Saturday.
South Korea: Saw inflows of $51m yesterday, with the past 5 sessions netting -373m, while YTD flows are +10.19B. The 5-day average is -75m, below both the 20-day average of -263m and the 100-day average of -48m.
Taiwan: Market closed for Public Holiday. The past 5 sessions netted -1.24B, while YTD flows are -13.23B. The 5-day average is -248m, below the 20-day average of +19m, and the 100-day average of -151m.
India: Saw outflows of -438m yesterday, with the past 5 sessions totaling -5.04B, while YTD flows are +5.37B. The 5-day average is -1.01B, below the 20-day average of -54m but above the 100-day average of +75m.
Indonesia: Saw outflows of -62m yesterday, with the past 5 sessions netting -318m, while YTD flows are +2.85B. The 5-day average is -64m, below the 20-day average of +37m but above the 100-day average of +29m.
Thailand: Saw outflows of -48m yesterday, with the past 5 sessions totaling -185m, while YTD flows are -3.07B. The 5-day average is -37m, below the 20-day average of -15m and the 100-day average of -12m.
Malaysia: Saw inflows of +13m yesterday, with the past 5 sessions netting -71m, while YTD flows are +609m. The 5-day average is -14m, below both the 20-day average of -16m but above the 100-day average of +6m.
Philippines: Saw outflows of -1m yesterday, with the past 5 sessions netting +34m, while YTD flows are +79m. The 5-day average is +7m, below both the 20-day average of +17m but above the 100-day average of +4m.
Brent crude sits slightly off end US Thursday levels, last near $79.10/bbl in terms of the active contract. We are still tracking up close to 1.5% for the week. WTI was last near $75.65/bbl, up around 1.75% for the past week. This follows the +9% gain for the benchmarks last week. For Brent, recent highs just above the $81/bbl remain intact. The benchmark sits above all key EMAs except the 200-day day. The 50-day day is back at $76.58/bbl.
Oil gains from Thursday trade are largely being held, as uncertainty over Israel's retaliation against Iran lingers. The Israeli cabinet met on Thursday and oil traders may be nervous ahead of the weekend around any potential Israel action.
US President Biden and Gulf states continue to call for Israel not to target Iran's oil assets.
In the cross asset space, the front end yield pull back on Thursday, coupled with a more mixed USD backdrop, likely helped oil at the margins.
Note tomorrow we also have the China fiscal briefing from the MOF, with any fresh stimulus measures eyed for the China outlook.
Gold is 0.5% higher in today’s Asia-Pac session, after closing 0.8% higher at $2629.74 on Thursday.
After six consecutive days of losses, bullion steadied after upside surprises in US CPI and jobless claims and mixed Fedspeak imparted conflicting signals over the size of the Federal Reserve’s expected rate cut next month.
In the US, easing expectations have been pared noticeably over the past week, with last Friday’s stronger-than-expected Non-Farm Payrolls report as the primary catalyst. Recent Fedspeak has assisted the move.
Yesterday, Atlanta Fed Bostic said the door is open to skip a rate cut in November. However, NY Fed Williams said policymakers should reduce rates to a more neutral level ‘over time’.
Lower rates are typically positive for gold, which doesn’t pay interest.
According to MNI’s technicals team, the yellow metal has pierced firm support at $2,615.9, the 20-day EMA, this week and a clear break would signal scope for a deeper retracement to $2,584.9, the Sep 20 low. On the upside, a continuation of gains would refocus attention on $2,690.2, a Fibonacci projection.
The BoK commenced its easing cycle today, cutting rates 25bps to 3.25%. The move was widely expected by the economic consensus and market pricing had also shifted towards an easing.
The BoK statement and rhetoric from Governor Rhee doesn't suggest this is the start of an aggressive easing cycle though. Rhee noted in the press conference that it is fine to see this as a hawkish cut.
In the BoK statement it noted: "it is still important to remain cautious of the associated risks such as the impact of the Base Rate cut on household debt. Therefore, the Board will thoroughly assess the trade-offs among policy variables such as inflation, growth, and financial stability, and carefully determine the pace of further cuts of the Base Rate."
Hence today's cut will be monitored in terms of its impact on household debt and Seoul property prices.
1 BoK board member also wanted to hold rates steady today. 5 members see the rate at 3.25% in 3 months (i.e. so no change at the next policy meeting), while 1 member sees scope for a rate cut over this time period. The next BoK policy meeting is on Nov 28.
The central bank appears comfortable with the inflation backdrop, expecting inflation for 2025 to be close to the 2% target. Uncertainties persist though, as they do for the growth outlook, which was expected to remain positive, albeit at a moderate pace.
The MAS is expected to remain on hold at Monday's policy meeting. The local inflation backdrop has seen further improvement in headline momentum, which is now down to 2.2%y/y, the softest pace since the first part of 2021. Still, the core measure has proven to be stickier. It sits at 2.7%y/y, which is comfortably off early 2023 cycle highs at 5.5%, but the slowdown process has been drawn out. Since the core measure hit 3.0%y/y in Sep last year further downside momentum has proven to be modest.
Up until the end of Sep the SGD NEER y/y change was running at 1.8% , so below both the headline and the core inflation measures in y/y terms. Hence an MAS easing now might jeopardize the efforts to bring core inflation sustainably under control.
In terms of the growth backdrop, there are meaningful uncertainties surrounding the outlook, but external demand appears to be holding up ok at this stage. Recent export growth has been in the double digit pace. Data out at the same time as the MAS decision on Monday, Q3 GDP, is predicted to show +2.0% q/q growth (versus +0.4% in Q2).
Only a few sell-side economists see an easing chance at this meeting, with most penciling in 2025 for when the MAS will reduced its tightening bias.
Market pricing, in terms of the SGD NEER deviation from the top-end of the trading band, also isn't suggesting an easing shift on Monday. Per Goldman Sachs estimates, we still sit close to top-end end of the trading band (see the chart below). We would expect lower NEER levels if easing risks were viewed as stronger by the market.
Fig 1: SGD NEER Deviation From Top End Of The Policy Band - Goldman Sachs
North East Asia currencies are firmer against the USD, although the standout is the KRW. This followed a hawkish start to the BoK easing cycle.
USD/CNH is down a touch, last near 7.0800. This leaves the pair comfortably within recent ranges. Onshore equities struggled in the first part of trade, with the CSI 300 down nearly 1.9%, as stimulus uncertainty continues. All eyes are on tomorrow's MOF fiscal briefing. Some sell-side analysts expect more meaningful measures to be introduced later this month when the NPC meets. Also note we get Sep inflation data on Sunday, while more China authorities meet on Monday to help the firm outlook.
Spot USD/KRW sits back under 1347 in latest dealings, after closing Thursday trade at 1354. This closing level was fresh highs back to mid August for the pair. The BoK cut rates by 25bps as widely expected, although only one board member sees rates lower in the next 3 months. Governor Rhee noted that financial stability in terms of household borrowing trends and property prices will be watch points for the central bank in terms of reaction to this cut. Local equities are higher, but the Kospi index remains close to the 2600 level.
Spot USD/TWD has remained relatively steady, the pair last at 32.17, so still within striking distance of recent highs. Local equities are up around 1% so far today.
In South East Asia FX we have mostly seen a paring of recent USD gains, amid follow through from Thursday's US session. Lower front end US yields have helped, while equity sentiment has been mixed. THB has been the standout, up over 1% at one stage, before losing some momentum.
USD/THB got to lows of 33.22, but sits back above 33.30 in latest dealings, still up 0.80%. These lows were very close to the 20-day EMA. The rise in gold prices, coupled with lower US front end yields from Thursday trade has aided THB sentiment. Next week we have the BoT meeting, but the consensus doesn't expect a change at this stage (policy rate currently 2.50%).
USD/MYR is only off a touch unable to find much traction sub 4.2900. Earlier data showed manufacturing IP up 4.1%y/y for August, but this was below the consensus estimate of 5.5%. USD/PHP is off around 0.20% last near 57.20/25.
USD/SGD has been very steady, currently near 1.3060. Next Monday delivers the MAS policy meeting, although no change is expected in the central bank's policy setting.
USD/IDR is down around 0.50%, last under 15590. The pair is playing catch up to softer USD trends, lower front end yields from Thursday. Local equities are also higher, helping sentiment at the margins.
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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)
US Tsys futures have traded in narrows ranges throughout the APAC session today, while the USD trend has also been relatively steady against the majors.
Asian equities are trading mixed today with Chinese stocks underperforming due to growing caution ahead of a key weekend briefing that could unveil fiscal stimulus measures.
Gold has tracked higher, while oil has largely held Thursday gains. South Korea commenced its easing cycle, but a follow up cut next month may not materialize.
Looking ahead, we have UK data first up, in the US PPI & U. of Mich. Sentiment are due later, while we also have more Fed speak.
Tsys futures have traded in narrows ranges throughout the APAC session today, with a late move post NY close accounting for all of today's gains, while volumes are well down on recent averages. TU is +01⅞ at 103-14. while TY is +06 at 112-08+ post NY close.
It has been a very slow session across all asset classes here in Asia today, early weakness in China equities, however that now looks to have steadied as investors await headlines out of the MOF meeting on Saturday, while NFRA, MIIT and SAMR will hold a press briefing on Monday. The market has turned focus to tonight's US PPI & U. of Mich. Sentiment.
French bond futures gapped higher on the open following the Budget announcement with the 2025 budget featuring spending cuts and higher taxes on businesses, the wealthy and energy.
Investors preferred eight-week vs four-week bills at auction on Thursday since the issue will mature well after the Fed's November interest-rate decision and therefor be more impact by potential cuts.
Cash tsys curves are little changed with yields +0.5bps to -0.5bps, the 10yr hit a high of 4.115% overnight and trades back at 4.06% at the moment, the curve is a touch flatter with the 2s30s -0.4bps at 39.242.
Fed fund futures are steady today vs pre data highs with Nov'24 cumulative -21.4bp (-22.7bp), Dec'24 -45.6bp (-46.5bp), Jan'25 -65.4bp (-68.9bp).
Chicago Fed President Austan Goolsbee, his Dallas counterpart Lorie Logan, and Fed Governor Michelle Bowman are all due to speak later today
Year-end official rate expectations across the $-bloc have shown a mixed performance over the past week. The US has firmed by 20bps, New Zealand has softened by 10bps, while Canada and Australia have seen little change.
In the US, the market firmed noticeably across meetings following last Friday’s stronger-than-expected Non-Farm Payrolls report. Additionally, recent Fedspeak has contributed to the scaling back of easing expectations over the past week.
In New Zealand, the key event was the RBNZ's decision to cut the OCR by 50bps on Wednesday. While this move was largely priced ahead of the meeting, RBNZ-dated OIS pricing is currently 5-14bps softer across meetings out to May 2025, despite today's 2-4bps firming.
Currently, 52bps of easing is priced in for November (4.23%), with a cumulative easing of 91bps for February 2025 (3.84%) and 148bps for July 2025 (3.27%).
The BoC's next policy meeting is scheduled for October 23rd, with 38bps of easing priced.
Australia has experienced a light economic calendar over the past week, with little movement in rate expectations.
Looking ahead to July 2025, the projected official rates and cumulative easing across the $-bloc are as follows: US (FOMC): 3.61%, -127bps; Canada (BoC): 2.90%, -135bps; Australia (RBA): 3.79%, -53bps; and New Zealand (RBNZ): 3.32%, -143bps.
Figure 1: $-Bloc STIR Expectations Out To July 2025 (%)
JGB futures are stronger after a choppy Tokyo session, +16 compared to settlement levels.
Outside of the previously outlined M2 & M3 stock data, there hasn't been much by way of domestic drivers to flag.
Cash US tsys are little changed in today’s Asia-Pac session after yesterday’s bull-steepener. Focus now turns to today’s PPI and University of Michigan inflation expectations, as well as the start of the latest earning cycle with several banks reporting before the open: Wells Fargo, JP Morgan, Bank of NY Mellon and Blackrock.
Cash JGBs are 1-2bps richer across benchmarks beyond the 1-year (+2.0bps).
BoJ Rinban Operations covering 1-3-year and 5-25-year JGBs showed lower offer cover ratios and negative spreads for the longer-dated buckets.
Swap rates are 1-2bps lower out to the 30-year and 3bps higher beyond. Swap spreads are tighter out to the 30-year.
The local market is closed on Monday in observance of the Health-Sports Day.
ACGBs (YM flat & XM flat) are flat after trading in narrow ranges in today’s data light session.
The latest round of ACGB Nov-28 supply saw the weighted average yield print 1.69bps through prevailing mids (per Yieldbroker), extending the recent trend of firm pricing at ACGB auctions.
Cash US tsys are little changed in today’s Asia-Pac session after yesterday’s bull-steepener. Focus now turns to today’s PPI and University of Michigan inflation expectations, as well as the start of the latest earning cycle with several banks reporting before the open: Wells Fargo, JP Morgan, Bank of NY Mellon and Blackrock.
Cash ACGBs are flat to 1bp richer, with the AU-US 10-year yield differential at +16bps.
Swap rates are flat to 1bp lower, with the 3s10s curve steeper.
The bills strip is slightly cheaper, with pricing -1 across contracts.
RBA-dated OIS pricing is little changed across 2025 meetings. A cumulative 7bps of easing is priced by year-end.
The local calendar is empty on Monday apart from the AOFM’s planned sale of A$300mn of the 1.75% 21 June 2051 bond. The AOFM also plans to sell A$700mn of the 3.75% 21 May 2034 bond on Wednesday and A$500mn of the 4.75% 21 April 2027 bond on Friday.
NZGBs closed on a weak note, with benchmark yields 4-6bps higher.
NZGBs underperformed compared to their $-bloc counterparts, with the NZ-US and NZ-AU 10-year yield spreads widening by 4-5bps.
This underperformance likely stems from a combination of factors, including a rebound in the PMI, the largest annual increase in food prices since February, and continued selling pressure following yesterday's announcement of a larger-than-expected budget deficit.
“New Zealand's annual inflation is poised to return to the central bank's target band for the first time in nearly three years in the September quarter, but the so-called "disinflation progress" is more driven by global factors than by recent domestic monetary tightening, ANZ Research said in a Friday report.” (per MT Newswires)
Swap rates closed 5-6bps higher.
RBNZ-dated OIS pricing closed 5-14bps softer across meetings out to Apr- 2025 versus pre-RBNZ levels, despite today's 2-5bps firming. 52bps of easing is priced in for November (4.23%), with a cumulative easing of 90bps for February 2025 (3.85%) and 147bps for July 2025 (3.28%).
On Monday, the local calendar will see the Performance Services Index and Card Spending Total data as well as a speech by RBNZ Governor Orr on Maori Access to Capital.
G10 FX markets have had a relatively muted start to Friday trade. The USD BBDXY index is down slightly, last near 1243.25.
US yields are closed to unchanged as markets await PPI & U. of Mich. Sentiment later, while we also have more Fed speak. US equity futures are slightly higher, but we also have key earnings kicking off later.
Regional equity sentiment is mixed, with China markets down ahead of tomorrow's MOF fiscal briefing. We also hear from other authorities in China on Monday.
Still, this hasn't stopped AUD and NZD nudging a little higher. AUD/USD was last near 0.6745/50, still down for the week (-0.70%). NZD/USD has tracked back above 0.6100, still trying to recoup post RBNZ losses. Earlier data showed manufacturing in NZ stayed in contraction, while annual migration continued to slow. Food prices rose in September but this is ahead of next week's Q3 CPI print. Inflation is expected to fall back inside the RBNZ's target band (1-3%).
USD/JPY has drifted a little higher, the pair last near 148.70/75 but Thursday highs at 149.55 remain comfortably intact.
Outside of the US data outcomes, we also have UK data coming up, headlined by monthly GDP.
The weaker yen is once again in focus. Yen has lost around 6.5% against the USD since mid September (the USD/JPY trough point). Late yesterday ex BoJ executive official Momma stated that a push in USD//JPY above 150.00 would bring forward the next BoJ rate hike. He added that the July hike was 80-90% driven by the weaker yen trend (per BBG).
USD/JPY y/y shifts have a reasonable correlation with Japan import price momentum. The first chart below presents the two series. Note we extrapolate y/y shifts in USD/JPY to the end of this year by assuming that USD/JPY rises just above 150 by the end of this month and holds there. Such a backdrop would imply y/y import prices would start turning positive again by year end (currently at -2.6%).
The historical correlation back to 2014 between the two series is 56%. If we use the Japan TWI it is slightly higher at 59% (obviously using inverse changes in the TWI index).
Fig 1: USD/JPY And Japan Import Prices Y/Y
Source: MNI - Market News/Bloomberg
The second chart below plots the rolling 3 month change in USD/JPY against the 3 month change in the 10yr JGB yield. The positive correlation between the two series certainly appears to have strengthened recently. A weaker yen, all else equal, should drive a more hawkish BOJ backdrop.
Of course, there are lots of moving parts to this relationship. Higher US yields for instance will weaken yen and also cause spillover to Japan's JGB markets.
Still, further upside in USD/JPY may start to come under greater BoJ focus. If they feel comfortable with the domestic/services inflation backdrop higher imported price risks may prompt a policy response. The end October BOJ meeting is seen as no change though, with the central bank still likely to be monitoring mode for such trends (along with other key variables - wages/consumer spending trends etc).
Asian equity are trading mixed today with Chinese stocks underperforming due to growing caution ahead of a key weekend briefing that could unveil fiscal stimulus measures. The CSI 300 Index is -1.90%, reversing Thursday's gains. In contrast, Japan and South Korea saw share price increases, sidestepping losses from Wall Street following stronger-than-expected U.S. core inflation data.
All eyes are on China's weekend briefing, where up to 2t yuan in stimulus may be announced to support the economy. Hong Kong markets were closed for a holiday.
US equity futures edge slightly higher with Nasdaq 100 (+0.16%) outperforming S&P 500 (+0.05%). Elon musk presented at Tesla's Robotaxi event, where he has unveiled a "Cybercab" & "Robovan" which looks to have gained positive reactions.
Earlier, BOK cut interest rates, signaling the start of a gradual easing cycle to support South Korea's economy, which has been impacted by sluggish domestic demand and export reliance. Despite inflation stabilizing below 2%, BOK remains cautious about future risks, including household debt and geopolitical developments. Foreign investors continue the trend of selling Korean equities with a net outflow of $230m so far today. The Kospi is trading +0.20% with its largest weighting Samsung (+1.20%) contributing the most to the gains today although is only trading just above key support of 59,000 after yesterday making new yearly lows, while the small-cap focused KOSDAQ is trading 0.10% lower
Taiwan's Taiex is +1.40% with TSMC +2.45% & Hon Hai +0.25% contributing most to the gains. There has been little in the way of headlines out of the region, local equities are benefitting from the move higher in Nvidia overnight.
Japan equities continue to benefit from the weaker yen, after it slid to 149.60 on Thursday while strong results from Fast Retailing (Uniqlo) have helped support the market and the outperformance in the Nikkei (+0.70%) vs Topix which trades flat.
Australia's ASX200 has closed the session little changed today with Miners down following a drop in commodity prices. New Zealand equities closed 0.70% higher after Infratil (Owners of Wellington Airport) jumped 1.60% following the announcement that the Wellington city council wont sell its 34% stake in the airport.
Equity flows were muted on Thursday as investors await further details from China's MOF on Saturday.
South Korea: Saw inflows of $51m yesterday, with the past 5 sessions netting -373m, while YTD flows are +10.19B. The 5-day average is -75m, below both the 20-day average of -263m and the 100-day average of -48m.
Taiwan: Market closed for Public Holiday. The past 5 sessions netted -1.24B, while YTD flows are -13.23B. The 5-day average is -248m, below the 20-day average of +19m, and the 100-day average of -151m.
India: Saw outflows of -438m yesterday, with the past 5 sessions totaling -5.04B, while YTD flows are +5.37B. The 5-day average is -1.01B, below the 20-day average of -54m but above the 100-day average of +75m.
Indonesia: Saw outflows of -62m yesterday, with the past 5 sessions netting -318m, while YTD flows are +2.85B. The 5-day average is -64m, below the 20-day average of +37m but above the 100-day average of +29m.
Thailand: Saw outflows of -48m yesterday, with the past 5 sessions totaling -185m, while YTD flows are -3.07B. The 5-day average is -37m, below the 20-day average of -15m and the 100-day average of -12m.
Malaysia: Saw inflows of +13m yesterday, with the past 5 sessions netting -71m, while YTD flows are +609m. The 5-day average is -14m, below both the 20-day average of -16m but above the 100-day average of +6m.
Philippines: Saw outflows of -1m yesterday, with the past 5 sessions netting +34m, while YTD flows are +79m. The 5-day average is +7m, below both the 20-day average of +17m but above the 100-day average of +4m.
Brent crude sits slightly off end US Thursday levels, last near $79.10/bbl in terms of the active contract. We are still tracking up close to 1.5% for the week. WTI was last near $75.65/bbl, up around 1.75% for the past week. This follows the +9% gain for the benchmarks last week. For Brent, recent highs just above the $81/bbl remain intact. The benchmark sits above all key EMAs except the 200-day day. The 50-day day is back at $76.58/bbl.
Oil gains from Thursday trade are largely being held, as uncertainty over Israel's retaliation against Iran lingers. The Israeli cabinet met on Thursday and oil traders may be nervous ahead of the weekend around any potential Israel action.
US President Biden and Gulf states continue to call for Israel not to target Iran's oil assets.
In the cross asset space, the front end yield pull back on Thursday, coupled with a more mixed USD backdrop, likely helped oil at the margins.
Note tomorrow we also have the China fiscal briefing from the MOF, with any fresh stimulus measures eyed for the China outlook.
Gold is 0.5% higher in today’s Asia-Pac session, after closing 0.8% higher at $2629.74 on Thursday.
After six consecutive days of losses, bullion steadied after upside surprises in US CPI and jobless claims and mixed Fedspeak imparted conflicting signals over the size of the Federal Reserve’s expected rate cut next month.
In the US, easing expectations have been pared noticeably over the past week, with last Friday’s stronger-than-expected Non-Farm Payrolls report as the primary catalyst. Recent Fedspeak has assisted the move.
Yesterday, Atlanta Fed Bostic said the door is open to skip a rate cut in November. However, NY Fed Williams said policymakers should reduce rates to a more neutral level ‘over time’.
Lower rates are typically positive for gold, which doesn’t pay interest.
According to MNI’s technicals team, the yellow metal has pierced firm support at $2,615.9, the 20-day EMA, this week and a clear break would signal scope for a deeper retracement to $2,584.9, the Sep 20 low. On the upside, a continuation of gains would refocus attention on $2,690.2, a Fibonacci projection.
The BoK commenced its easing cycle today, cutting rates 25bps to 3.25%. The move was widely expected by the economic consensus and market pricing had also shifted towards an easing.
The BoK statement and rhetoric from Governor Rhee doesn't suggest this is the start of an aggressive easing cycle though. Rhee noted in the press conference that it is fine to see this as a hawkish cut.
In the BoK statement it noted: "it is still important to remain cautious of the associated risks such as the impact of the Base Rate cut on household debt. Therefore, the Board will thoroughly assess the trade-offs among policy variables such as inflation, growth, and financial stability, and carefully determine the pace of further cuts of the Base Rate."
Hence today's cut will be monitored in terms of its impact on household debt and Seoul property prices.
1 BoK board member also wanted to hold rates steady today. 5 members see the rate at 3.25% in 3 months (i.e. so no change at the next policy meeting), while 1 member sees scope for a rate cut over this time period. The next BoK policy meeting is on Nov 28.
The central bank appears comfortable with the inflation backdrop, expecting inflation for 2025 to be close to the 2% target. Uncertainties persist though, as they do for the growth outlook, which was expected to remain positive, albeit at a moderate pace.
The MAS is expected to remain on hold at Monday's policy meeting. The local inflation backdrop has seen further improvement in headline momentum, which is now down to 2.2%y/y, the softest pace since the first part of 2021. Still, the core measure has proven to be stickier. It sits at 2.7%y/y, which is comfortably off early 2023 cycle highs at 5.5%, but the slowdown process has been drawn out. Since the core measure hit 3.0%y/y in Sep last year further downside momentum has proven to be modest.
Up until the end of Sep the SGD NEER y/y change was running at 1.8% , so below both the headline and the core inflation measures in y/y terms. Hence an MAS easing now might jeopardize the efforts to bring core inflation sustainably under control.
In terms of the growth backdrop, there are meaningful uncertainties surrounding the outlook, but external demand appears to be holding up ok at this stage. Recent export growth has been in the double digit pace. Data out at the same time as the MAS decision on Monday, Q3 GDP, is predicted to show +2.0% q/q growth (versus +0.4% in Q2).
Only a few sell-side economists see an easing chance at this meeting, with most penciling in 2025 for when the MAS will reduced its tightening bias.
Market pricing, in terms of the SGD NEER deviation from the top-end of the trading band, also isn't suggesting an easing shift on Monday. Per Goldman Sachs estimates, we still sit close to top-end end of the trading band (see the chart below). We would expect lower NEER levels if easing risks were viewed as stronger by the market.
Fig 1: SGD NEER Deviation From Top End Of The Policy Band - Goldman Sachs
North East Asia currencies are firmer against the USD, although the standout is the KRW. This followed a hawkish start to the BoK easing cycle.
USD/CNH is down a touch, last near 7.0800. This leaves the pair comfortably within recent ranges. Onshore equities struggled in the first part of trade, with the CSI 300 down nearly 1.9%, as stimulus uncertainty continues. All eyes are on tomorrow's MOF fiscal briefing. Some sell-side analysts expect more meaningful measures to be introduced later this month when the NPC meets. Also note we get Sep inflation data on Sunday, while more China authorities meet on Monday to help the firm outlook.
Spot USD/KRW sits back under 1347 in latest dealings, after closing Thursday trade at 1354. This closing level was fresh highs back to mid August for the pair. The BoK cut rates by 25bps as widely expected, although only one board member sees rates lower in the next 3 months. Governor Rhee noted that financial stability in terms of household borrowing trends and property prices will be watch points for the central bank in terms of reaction to this cut. Local equities are higher, but the Kospi index remains close to the 2600 level.
Spot USD/TWD has remained relatively steady, the pair last at 32.17, so still within striking distance of recent highs. Local equities are up around 1% so far today.
In South East Asia FX we have mostly seen a paring of recent USD gains, amid follow through from Thursday's US session. Lower front end US yields have helped, while equity sentiment has been mixed. THB has been the standout, up over 1% at one stage, before losing some momentum.
USD/THB got to lows of 33.22, but sits back above 33.30 in latest dealings, still up 0.80%. These lows were very close to the 20-day EMA. The rise in gold prices, coupled with lower US front end yields from Thursday trade has aided THB sentiment. Next week we have the BoT meeting, but the consensus doesn't expect a change at this stage (policy rate currently 2.50%).
USD/MYR is only off a touch unable to find much traction sub 4.2900. Earlier data showed manufacturing IP up 4.1%y/y for August, but this was below the consensus estimate of 5.5%. USD/PHP is off around 0.20% last near 57.20/25.
USD/SGD has been very steady, currently near 1.3060. Next Monday delivers the MAS policy meeting, although no change is expected in the central bank's policy setting.
USD/IDR is down around 0.50%, last under 15590. The pair is playing catch up to softer USD trends, lower front end yields from Thursday. Local equities are also higher, helping sentiment at the margins.
UP TODAY (TIMES GMT/LOCAL)
Date
GMT/Local
Impact
Country
Event
11/10/2024
0600/0700
**
GB
UK Monthly GDP
11/10/2024
0600/0700
**
GB
Trade Balance
11/10/2024
0600/0700
**
GB
Index of Services
11/10/2024
0600/0700
***
GB
Index of Production
11/10/2024
0600/0700
**
GB
Output in the Construction Industry
11/10/2024
0600/0800
***
DE
HICP (f)
11/10/2024
-
***
CN
Money Supply
11/10/2024
-
***
CN
New Loans
11/10/2024
-
***
CN
Social Financing
11/10/2024
1230/0830
***
US
PPI
11/10/2024
1230/0830
*
CA
Building Permits
11/10/2024
1230/0830
***
CA
Labour Force Survey
11/10/2024
1345/0945
US
Chicago Fed's Austan Goolsbee
11/10/2024
1400/1000
**
US
U. Mich. Survey of Consumers
11/10/2024
1430/1030
**
CA
BOC Business Outlook Survey
11/10/2024
1445/1045
US
Dallas Fed's Lorie Logan
11/10/2024
1600/1200
***
US
USDA Crop Estimates - WASDE
11/10/2024
1710/1310
US
Fed Governor Michelle Bowman
13/10/2024
0130/0930
***
CN
CPI
13/10/2024
0130/0930
***
CN
Producer Price Index
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