MNI EUROPEAN MARKETS ANALYSIS: DXY Nudges Higher, Chinese Stocks Move Off Early Highs

US TSYS: Under Pressure On Chinese Stimulus & As Waller Echoes Powell

Cash Tsys run 5-8bp cheaper across the curve after their elongated weekend, bear flattening. Meanwhile, TYZ2 deals around the midpoint of its 0-09+ range, printing -0-09+ at 112-00+ on healthy volume of just under 125K into London hours. Note that all of the major benchmarks operate comfortably within their recent respective ranges.

• News of a notable round of support for the Chinese property space, coupled with some hawkish Fedspeak from Waller (who echoed tones from Chair Powell’s post-meeting press conference, while conceding that the Fed could step the pace of hikes down to 50bp in December) applied some pressure in early Asia-Pac trade.
• Note that an FT interview with San Francisco Fed President Daly got far less attention, with the piece seeing Daly stress focus on the level of terminal interest rates, as opposed to the pace it will take to reach the peak of the current cycle, while she also highlighted the increased level of difficulty that will become evident during the upcoming stage of tightening.
• A reversal of the early bid in Chinese equities may have helped limit Tsy losses in Asia.
• Communique surrounding the impending Biden-Xi meeting will now be eyed ahead of NY hours. Further out, Monday will see Fedspeak from Brainard and Williams, with the latter’s comments set to cross in the NY-Asia crossover.

JGBS: Steeper To Start The Week

JGBs were pressured by the global matters that we have touched on elsewhere, while familiar tones re: policy direction and inputs from BoJ Governor Kishida, alongside continued headwinds for Japanese PM Kishida’s cabinet approval ratings, provided little in the way of meaningful market reaction.

• JGB futures came under some secondary pressure during the Tokyo afternoon, with the contract printing -22 into the close, while the bearish steepening of the curve extended as the day wore on, leaving the major cash JGB benchmarks running little changed to 8bp cheaper ahead of the bell. 10-Year yields were capped by their proximity to the upper end of the BoJ’s permitted trading band.
• The latest round of BoJ Rinban operations (covering 1- to 3-, 5- to 10- & 25+-Year JGBs) failed to provide any meaningful support, with the breakdown of the results somewhat unremarkable in offer/cover terms.
• Looking ahead, preliminary GDP data and 5-Year JGB supply headline domestic matters on Tuesday.

AUSSIE BONDS: Cheapening Evident On Monday, Global & Domestic Factors At Work

The impetus from hawkish Fedspeak and a meaningful round of support for the Chinese property sector biased ACGBs lower from the off on Monday.

• The launch and subsequent pricing of A$1.7bn of the new NSWTC Fed-35 bond then provided a local source of weight for the space.
• There wasn’t much else to go off in terms of domestic headline flow, which left the major cash ACGBS running 9-11bp cheaper at the bell, with the intermediate area of the curve leading the way lower. YM & XM hovered at/just above their respective session bases at the close, finishing 10.0 & 11.0 lower on the day, respectively.
• EFPs were marginally narrower on the day.
• Bills were 1-12bp cheaper through the reds, bear steepening.
• RBA dated OIS ticked higher on the day, with a terminal cash rate pricing of ~3.90% observed come the bell (10bp or so higher vs. Friday).
• Looking ahead, Tuesday’s domestic docket includes the release of the minutes from the latest RBA monetary policy meeting, with the Bank’s review of its forward guidance scheme set to cross at the same time.

NZGBS: NZGBs Hold Cheaper On The Day, With Local Issuance & Global Matters At Work

NZGBs meandered through the second half of Monday trade, after an early round of cheapening centring on some hawkish Fedspeak, meaningful support for the Chinese property sector and confirmation of the launch of the green NZGB May-34, which will price tomorrow.

• The lack of a lasting bid in the global equity space, despite the presence of the aforementioned Chinese support package for the property sphere, likely limited the weakness witnessed.
• That left the major NZGBs 4-6bp cheaper at the bell, with some light bear flattening in play.
• Meanwhile, swap rates were little changed to ~9bp higher, resulting in mixed swap spread performance as shorter dated spreads narrowed and longer dated spreads widened.
• RBNZ dated OIS pricing was incrementally higher on the day, leaving terminal OCR pricing just below 5.10%.
• Looking ahead, the pricing of the aforementioned green NZGB syndication and REINZ house price data headline the local docket on Tuesday.

FOREX: Hawkish Fedspeak Bolsters USD, China Real Estate Support Package Aids Risk

Hawkish Fedspeak set the tone of the Asia-Pac session, with U.S. Tsy yields rising 5.6-8.8bp across the curve after Fed Governor Waller played down the significance of the recent below-forecast U.S. CPI reading when interpreted in isolation, casting doubt on expectations of an imminent peak in the rate-hike cycle. The BBDXY index crept higher, adding 0.38% through the session.

• Thin morning liquidity accentuated the upswing in USD/JPY in reaction to Waller's comments, with the yen taking a hit due to its sensitivity to relative U.S./Japan yield dynamics. Spot USD/JPY ran as high as to Y139.94 before trimming gains into the Tokyo fix. Positive risk tone helped keep the yen in check, along its safe-haven peer CHF.
• Sentiment was buoyed by China's announcement of new support measures for the domestic property sector. Spot USD/CNH went offered, lodging fresh multi-week lows in the process, with the rate bottoming out at CNH7.0211. The in-line PBOC fix briefly limited selling pressure, but the pair's weakness resumed promptly thereafter.
• Commodity-tied FX were bolstered by China's real estate rescue package, despite hawkish Fed comments. Antipodean cross AUD/NZD faltered, even as Australia/New Zealand 2-year swap spread reversed initial losses.
• Sterling lagged its G10 peers. Over the weekend, UK C'llr Hunt said his new financial plan will seek to make any recession "as short and shallow as possible."
• EZ industrial output headlines the thin data docket for the remainder of the day. Comments are due from Fed's Brainard & Williams, as well as ECB's de Guindos, Panetta, Centeno & Nagel.

FX OPTIONS: Expiries for Nov14 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0000(E1.2bln), $1.0025-30(E568mln)
• GBP/USD: $1.1715(Gbp557mln)
• AUD/USD: $0.6920-30(A$903mln)
• EUR/JPY: Y146.00(E1.4bln)

GLOBAL: House Price Correction Underway, On Central Banks’ Radar

The Economist recently identified the riskiest housing markets across the OECD. Canada ranked as the most vulnerable with Australia and New Zealand equal 3^rd and the US equal 7^th.

• The chart below shows recent house price developments in each of those markets and that the correction in North America has a lot further to go in comparison with the Antipodeans.
• Housing is another variable on the central bank watch list. For instance, the RBA has voiced concerns regarding the slump in the housing market in terms of a possible negative wealth effect weighing on household consumption and the impact of monetary tightening on activity in the housing sector.
• The RBNZ was one of the first central banks to begin hiking rates and NZ saw house price inflation peak at 28.8% y/y in October 2021. So it is not surprising that NZ has seen one of the sharpest corrections so far with prices down 7.6% from their March 2022 peak (using CoreLogic data). Australian CoreLogic house price inflation peaked at 21.2% in November 2021 and is now down 6.6% from the peak.
• In contrast, Teranet house prices in Canada, after rising 45% from the 2019 low, and the FHFA in the US peaked in June 2022. Canadian house prices are now 3.9% below their peak but in the US they’re only 1.3% below. Given the monetary tightening seen this year, both of these housing markets appear to have only just begun to correct.

Source: MNI - Market News/Refinitv/Bloomberg

ASIA FX: USD/CNH Continues To Correct Lower, Mixed Trends Elsewhere

USD/Asia pairs are mixed, despite a softer USD/CNH tone. Some consolidation following strong gains last week, looks to be at play, while equity trends have also been mixed throughout the region. Still to come is the meeting between China President Xi Jinping and US President Biden in Bali (9:30am BST). India inflation also prints later, expected to come in at 6.70% from 7.41%. Tomorrow the focus will be on the China MLF, no change in rate expected, along with October monthly activity data for China.

• USD/CNH has been sold on rallies. The pair got to 7.1130 in early trade before dipping close to 7.0200 this afternoon. This is just above early October lows (near 7.0100). We are now back around 7.0500. China equities are higher, but down from best levels. Fresh stimulus/support for the property sector is aiding sentiment, which is coming on the heels of changes to some Covid restrictions. This suggests the authorities are getting more serious about improving the growth backdrop.
• USD/KRW 1 month couldn't sustain levels sub 1310 and was last near 1323/24. Onshore equities are higher, but only at the margin. Last week's 6.4% rally in the won was the best since late 2008, so we may be seeing some consolidation today, particularly with the USD firmer against the majors post some hawkish Fed comments at the start of the session.
• USD/INR is higher in the first part of trading, last just shy of 81.10. The pair is wedged between the simple 50-day MA (81.31) and 100-day (80.32) for now. Inflation is expected to have eased in October, with RBI Governor Das expecting a move sub 7% y/y, following weekend comments.
• USD/IDR last sits unchanged in spot terms, 15495, with the pair recovering from an earlier dip. Later this week, Bank Indonesia will announce its monetary policy decision Thursday. Most economists expect a 50bp hike to the 7-Day Reverse Repo Rate, but 8/28 in a Bloomberg survey have pencilled in a 25bp move.
• Spot USD/PHP last changes hands +0.10 at 57.36. Bulls look for a return towards the 59 all-time high, while bears eye the 100-DMA at 56.915 for initial support. Bangko Sentral ng Pilipinas is due to announce its monetary policy decision this Thursday. The Monetary Board is expected to deliver the promised 75bp rate hike, matching the latest move by the Fed.
• Spot USD/THB has remained heavy after the largest drop in years seen last Friday. The pair last deals -0.16 at 35.79, with bears looking for a sell-off past the 200-DMA at 35.120, albeit the RSI has now moved into oversold territory. BoT Gov Sethaput said the economy is expected to continue its gradual recovery, despite global slowdown and market volatility. The central bank intends to maintain a measured and gradual pace of rate hikes, while the next rate decision will depend on the overall economic situation.

CHINA DATA: Market May Look Through Any Modest Downside Data Surprises Tomorrow

Tomorrow China activity data prints for October. Also out is the 1yr MLF rate along with MLF volumes. The MLF rate is expected to be unchanged at 2.75%, while volumes are forecast to rise to 1000bn yuan, matching maturities for the month.

• Not surprisingly, market expectations for activity data outcomes are generally softer, as lockdowns impact activity/sentiment during the month.
• Industrial production growth is expected to pullback to 5.2% y/y from 6.3% y/y last month. Retail sales forecast to moderate to 0.7% y/y from 2.5% y/y in September. The dip in the non-manufacturing PMI back into contractionary territory is consistent with this slowing.
• Fixed asset investment is expected at 5.9% y/y, unchanged from the previous month, but property investment is forecast to remain a decent drag (-8.3 y/y from -8.0%). The unemployment rate is expected to hold steady at 5.5%.
• Still, there may be less impact on China asset sentiment from modest downside surprises tomorrow, given recent policy initiatives announced around CZS and the property market through the tail end of last week/over the weekend.

EQUITIES: China Property Stocks Surge On Fresh Policy Support

HK/China stocks have continued to rally, following further support measures announced for the property sector. Trends elsewhere in the region are more mixed though, with lower US futures likely weighing at the margin. The main US indices are off by around -0.20-0.40% at this stage. Hawkish Fed speak at the start of the Asia session has been a likely headwind.

• The HSI shot higher at the open, but run into resistance around the 18000 level. The index is still 2.9% higher for the session and is moving back towards this resistance level. The tech sub index is +3.3% higher.
• The CSI 300 is up 1.15%, while the Shanghai Composite Index is +0.7%, led by the property sub-index, +4.5%. This follows China's release of a 16 point plan around addressing issues in the housing sector. This came straight after the 20-point plan around adjusting CZS. Coming up later is a meeting between China President and US President Biden ahead of the G20 meetings in Bali (the meeting takes place at 5:30pm Bali time, which is 9:30am BST).
• The NIkkei 225 is down around 0.80% at this stage, led by the tech sector, while the Kospi has struggled to stay in positive territory. The Taiex has done better, up by 1.35% at this stage.
• The ASX 200 is down slightly, despite generally positive commodity price gains. Weakness in consumer/finance names has outweighed gains from resource stocks.

GOLD: Edges Down From Last Week's Multi-Month Highs

Gold is down slightly from closing levels at the end of last week. We were last around $1763.50, -0.45% for the session. This is line with a slightly firmer USD picture against the majors. $1771.24 was last week's closing level.

• US yields have re-opened to a firmer tone, aided by hawkish Fed speak at the start of today's session. This has weighed on gold via the firmer USD backdrop.
• The precious metal has been supported on dips back towards $1760 today, but like elsewhere may be seeing some modest consolidation post last week's +5.31% rally.
• On the topside the simple 200-day MA sits at $1804.13, while pre-US CPI print levels from last Thursday come in just under $1710, which presumably should act as a support point.
• Gold ETF holdings have also started to stabilize, after being in a sharp downtrend since mid-June.

OIL: Optimism On China Supports Prices

Oil prices are up slightly on the day with WTI trading around $89.15/bbl +0.2% and Brent around $96.30 +0.3%, boosted by expectations of increased Chinese demand in a persistently tight market. However, prices are still below the early November highs.

• China eased some Covid restrictions while providing a package to support its troubled property sector. Since China is the world’s largest importer of crude, these developments are seen as potentially increasing global oil demand. Given the tightness of supply heading into the Northern Hemisphere winter, these expectations could support prices going forward as global growth slows.
• WTI prices are around their 10-day simple moving average, but remain above the 20- and 50- day MA.
• Tonight there are a number of Fed speakers, who may take the opportunity to remind markets that rates are still rising. Hawkish comments could boost the USD and weigh on oil prices.