MNI EUROPEAN MARKETS ANALYSIS: ECB Members Signal June Rate Cut
- JGB futures are weaker and near session lows, -8 compared to the settlement levels after comments from BoJ Governor Ueda and Deputy Governor Uchida at the BoJ-IMES Conference.
- ECB board members Lane, Cipollone and Panetta all signal that the central bank is ready to cut rates in June but will keep policy restrictive.
- Asia markets have tacked US equities higher on Monday, as an easing in US consumer inflation expectations bolstered the case for the Federal Reserve to cut rates this year.
- Looking ahead ECB’s Lane speaks and German Ifo survey for May prints. The US and UK are closed for holidays.
MARKETS
US TSYS: Treasury Futures Have Edged Higher Ahead Of Memorial Day
- Treasury futures have edged higher throughout the day, volumes are also above average. TU is (+ 00.375) at 101-15 while TY is trading up (+ 03) at 108-25+. The 2y10y closed at new ytd lows after breaking below the 200-day EMA and now trades at -48.546, while the Dec lows are -56bp. Cash trading will be closed today for Memorial day.
- Volumes: TU 38k, FV 43k, TY 60k
- Regionally: ACGBs are 1-4bps lower, NZGBs are flat to 1bps lower, while JGBs are1-2bps higher with the 10Y back above 1%.
JGBS: Fresh Cycle High For 10YY, 10Y Climate Transition Bond Supply Tomorrow
JGB futures are weaker and near session lows, -8 compared to the settlement levels after comments from BoJ Governor Ueda and Deputy Governor Uchida at the BoJ-IMES Conference.
- Ueda said the central bank will move cautiously to anchor inflation expectations at 2%, adding that some challenges are uniquely difficult for the BoJ (eg) assessing natural interest rates, given the prolonged period of near-zero short-term interest rates over the past three decades.
- Meanwhile, Uchida said the end of the battle with deflation is in sight, while the big challenge ahead is anchoring of inflation expectations at 2%. He added that Japan could resolve the original causes of deflation as labour market conditions have changed structurally and irreversibly.
- Leading & Coincident Indices are due later.
- The US market is closed for the Memorial Day holiday today.
- Cash JGBs are little changed, apart from the benchmark 10-year yield which is 1.8bp higher at 1.023%, a new cycle high.
- Swaps rates are little changed out to the 10-year and 1-4bps higher beyond, with the 20-year leading. Swap spreads are mixed.
- Tomorrow, the local calendar will see PPI Services data alongside 10-Year Climate Transition Bond Supply.
AUSSIE BONDS: Slightly Richer, Retail Sales Tomorrow, CPI Monthly On Wednesday
ACGBs (YM +1.0 & XM +3.5) are richer and at/near Sydney session highs. With the domestic calendar light and cash US tsys closed for observance of the Memorial Day holiday, volumes have been light.
- Cash ACGBs are 2-3bps richer.
- Swap rates are 2-3bps lower, with the 3s10s curve flatter.
- The bills strip has bull-flattened, with pricing flat to +3.
- RBA-dated OIS pricing is flat to 2bps softer across meetings. 6bps of easing is priced by year-end.
- Tomorrow, the local calendar will see Retail Sales ahead of Wednesday’s CPI for April.
- After the RBA revised up its 2024 headline and trimmed mean CPI forecasts, there is likely to be even more scrutiny of inflation data. Bloomberg consensus expects it to ease 0.1pp to 3.4% but it is worth noting that the first month of the quarter does not include updated services components, the sector the RBA is principally concerned about.
- The AOFM also plans to sell A$150 million of 0.25% Nov-32 inflation-linked bond tomorrow.
AUSTRALIA DATA: SEEK Salary Growth Slowing But Still Elevated
SEEK’s advertised salary index rose 0.3% m/m in April to be up 4.3% y/y, unchanged from March and above inflation. April CPI is forecast to rise 3.4% y/y when it is released on Wednesday. The annual rate is off its September 2023 peak of 4.9% but remains elevated and well above the series average from 2017 of 2.75%. In its statement, the RBA said that wages growth is still “above the level that can be sustained given trend productivity growth”.
- The monthly salary increase was in the range it has been in for the last seven months but 3-month momentum at 3.1% annualised is its lowest since the Covid-impacted March 2021.
- SEEK notes that while advertised salaries are growing strongly in Tasmania, they are above inflation across all states and territories.
- Growth in advertised salaries is slowing in sectors seeing a reduction in labour demand, such as IT, but continues to exceed inflation across industries and is strong in areas where demand is strong, such as education, or where there are government mandated rises, such as aged care.
Source: MNI - Market News/SEEK
NZGBS: Subdued Session With The Local Calendar Light & US Tsys Closed
NZGBs closed little changed after dealing in narrow ranges in today’s session. Local participants were content to stay on the sidelines with the domestic calendar empty and cash US tsys closed for Memorial Day.
- The swap curve bear-flattened, with rates flat to 2bps higher.
- RBNZ dated OIS pricing is little changed today across meetings but 23-36bps firmer for meetings beyond October compared to levels before last week’s RBNZ Policy Decision. At that Policy Meeting, the RBNZ said it expected to keep monetary policy tight for longer due to domestic inflation pressures.
- The projected terminal OCR is around 5.50%, with a cumulative easing expected by year-end at 20bps. It was around 45bps before RBNZ Decision.
- Tomorrow, the local calendar will Filled Jobs data.
STIR: RBNZ Dated OIS Priced For Less Than One 25bp Cut By Year-End
RBNZ dated OIS pricing is little changed today but 22-28bps firmer for meetings beyond October compared to levels before last week’s RBNZ Decision. At that policy meeting, the RBNZ said it expected to keep monetary policy tight for longer due to domestic inflation pressures.
- The projected terminal OCR is around 5.50%, with a cumulative easing expected by year-end at 20bps. It was around 45bps before RBNZ Decision.
- For context, it's noteworthy that in late December, the market had anticipated over 100bps of easing by year-end, driven by expectations of a terminal OCR of 5.53%.
Figure 1: RBNZ Dated OIS Today Versus Pre-RBNZ Levels (%)
Source: MNI – Market News / Bloomberg
FOREX: APAC Currencies Stronger Against The Dollar
The US dollar is moderately weaker during APAC trading today with the BBDXY index at 1248.97 after closing at 1249.77 on Friday. There has been a better risk tone with commodities and equities moderately higher.
- USDJPY has traded lower through the session and is currently down 0.2% to 156.72, close to the intraday low. BoJ’s Ueda and Uchida said that they are moving towards the 2% target but inflation expectations need to be anchored at this rate.
- Aussie and kiwi have been supported by the improved risk appetite. AUDUSD is 0.1% higher at 0.6637, close to the intraday high, and NZDUSD is +0.2% to 0.6131. AUDNZD is down slightly to 1.0825.
- The USDCNY fix at 7.1091 was slightly below Friday’s but remains near recent highs. USDCNH dropped to 7.2542 following the fixing but is currently down slightly to 7.2588. Industrial profits rose 4.3% y/y YTD to April in line with the previous month.
- USDSEK is down 0.2% to 10.654 while EURUSD is little changed at 1.0849.
- The largest movers in Asia have been USDKRW -0.3% to 1365.20, USDTWD -0.3% to 32.181 and USDTHB -0.3% 36.57. The Thai government announced an increase in the expected deficit and debt ratio due to the digital wallet scheme.
- The US and UK are closed today for holidays. ECB’s Lane speaks and German Ifo survey for May prints.
ASIA-PAC EQUITIES: Equity Edged Higher As Tech Stocks Rise On Lower Inflation Pressures
Asia markets have tacked US equities higher on Monday, as an easing in US consumer inflation expectations bolstered the case for the Federal Reserve to cut rates this year. Tech stock are the top performing sector, with the MSCI Asia Pacific trading 0.60% higher. It has been a quiet session today with little in the way of headlines or economic data, while the UK and US will be out for public holidays.
- Japanese equities have opened higher today, the yen is a touch stronger at 156.74 after initially trading above 157 as the BoJ Governor Ueda said the central bank will move cautiously to anchor inflation expectations at 2%. The BoJ-IMES conference is being held in Japan today with both Ueda and Uchida speaking, later today we have the Leading & Coincident Index. The Topix is up 0.35%, while the Nikkei is up 0.20%.
- Taiwan equities opened higher today, however has given up some of those early gains. Semiconductor names are benefitting from a visit from Nvidia boss Jensen Huang, with TSMC leading the way again. The Taiex is up 1%
- South Korean equities are higher today, there is little in the way of news out of the region today. Equity flows have started to slow, with just $152m of inflows over the past 5 sessions. The kospi is 0.49% higher today and bounced off the 50-day EMA on Friday, with the next target the 20-day EMA at 2,708.
- Australian equities are higher today, there isn't much happening locally today with markets largely just tracking global markets. BHP has contributed the most to index gains today, while Lendlease is 9.8% higher after announcing they would be abandoning their global plans and list 4b of assets. The ASX200 is up 0.80%
- Elsewhere in SEA, New Zealand equities are down 0.20%, Singapore equities are 0.15% higher, Malaysian equities are unchanged, Philippines equities are down 0.75% while Indonesia has returned from their break and trade down 0.15%
ASIA EQUITIES: China & Hong Kong Equities Mostly Higher, Property Underperforms
Hong Kong & Chinese equities are off earlier lows and now trade in the green, tech stocks are higher as US inflation expectations ease, Asia shipping stocks are higher on red sea disruptions. China Property names are the worst performing sector, following a large sell-off on Friday as investors concerns grow over whether the recent policy announcements will be enough.
- Hong Kong equities are mixed today with property the worst performing sector again. The Mainland Property Index is down 0.80%, while the HS Property Index is down 0.66%, HStech Index is up 0.70%, while the wider HSI is up 0.60%. In China, the CSI300 is up 0.35%, while the small-cap CSI1000 and CSI2000 Indices underperforming down 0.40% and 0.90% respectively, while the growth focus ChiNext Index is down 0.65%
- MNI China Press Digest May 27: Local Bond, CSRC, Multinational - (See link)
- In the China property space CIFI plans to include long-term and CNY-denominated loan options in its offshore debt restructuring proposals to lower financial costs, leveraging potential support from the "real estate project white list" program, and has progressed to the next negotiation stage with a committee representing 59% of its offshore loan lenders. Kaisa has been granted more time for a restructure by a Hong Kong court, while China Vanke has has told investors it has remitted funds to pay an onshore bond.
- The US will reimpose tariffs on hundreds of Chinese goods, allowing tariff exclusions on about half of 400 products to expire as part of a strategy to protect American manufacturing. The US Trade Representative announced that 164 exclusions will be extended through May next year, with all exemptions extended through June 14 for a transition period. Continued exclusions include motors and medical equipment, while exclusions for over 100 products, with no public comment, will end. This move follows Biden's plan to increase tariffs on electric vehicles and other imports due to alleged intellectual property theft by China.
- Looking ahead: China PMI on Friday, for Hong Kong we have Trade Balance later today, and Retail Sales of Friday
CREDIT APAC Credit Little Changed, CBA Upgraded By Moody's
- It was a positive session for Asia rates today, US tsys futures wedged higher, ACBG curve flatter, yields are 2-3bps lower, NZGBs steeper, yields are about 1bp higher, while JGB curve mixed, yields are 1-2bps higher, with the 10Y trading back above 1%
- Regional Asian equities are mostly higher today, getting a boost after US inflation expectations fell on Friday, leading to rate cut expectations coming forward, US equity futures are little changed today.
- Aus Corps & Fins 1-2bps tighter. China Credit is 1-2bps wider, with Fins underperforming.
- Aus iTraxx CDS unchanged at 63bps & Asia Ex-J iTraxx is up 1bp at 92.50bps
- CBA was upgraded to Aa2 by Moody's, while Lendlease announced they will be selling international assets as they look to divest from international operations.
- Primary Deals: NAB announced a A$ 15NC10 T2, Auckland Airport announced 7.5Y A$ Bonds & Wuxi Communications announced a 3Y fixed EUR Bond
OIL: Crude Holds Onto Friday’s Gains As Markets Awaits OPEC Decision
Oil prices are moderately higher supported by today’s better risk tone and a slightly weaker US dollar . WTI is up 0.3% to $77.97 after a high of $78.03. The benchmark is struggling to hold breaks above $78. Brent is 0.2% higher at $82.28 after an intraday high of $82.36.
- The focus this week is on the weekend’s OPEC+ meeting which will now be held online and on June 2 – one day later than the original schedule. The group is widely expected to extend its 2mbd of output cuts into H2 but until when and any changes to the details are unclear.
- The current long weekend marks the start of the US driving season and gasoline demand will be monitored closely, but many Americans may choose to fly with the American Automobile Association expecting the highest number of people to go by plane this weekend in 20 years.
- The US and UK are closed today for holidays. ECB’s Lane speaks and German Ifo survey for May prints.
GOLD: Higher After A Tempering Of Inflation Expectations
Gold is 0.5% higher in the Asia-Pac session, after closing 0.2% higher at $2333.83 on Friday.
- On Friday, the yellow metal was supported by a tempering of UofM inflation expectations, which bolstered sentiment that the Federal Reserve may still have room to cut rates this year. The 10-year yield met firm resistance at 4.50%, last seen May 14, closing at 4.465%.
- Nevertheless, bullion finished around 3% lower last week, the largest weekly decline since December.
- According to MNI’s technicals team, the trend structure for gold remains bullish and the move lower appears to be a correction.
- On the upside, attention is still on $2,452.5, a Fibonacci projection. The 50-day EMA, at $2,298.5, represents a key support.
MARKETS UP TODAY (TIMES GMT/LOCAL)
Date | GMT/Local | Impact | Flag | Country | Event |
27/05/2024 | 0800/1000 | *** | ![]() | DE | IFO Business Climate Index |
27/05/2024 | 1200/1400 | ![]() | EU | ECB's Lane speech on Inflation in the Eurozone at IIEA | |
27/05/2024 | 1300/1500 | ** | ![]() | BE | BNB Business Sentiment |
28/05/2024 | 2301/0001 | * | ![]() | UK | BRC Monthly Shop Price Index |
28/05/2024 | 0130/1130 | ** | ![]() | AU | Retail Trade |
28/05/2024 | 0455/0055 | ![]() | US | Cleveland Fed's Loretta Mester | |
28/05/2024 | 0455/0655 | ![]() | EU | ECB's Schnabel in panel discussion at BOJ-IMES conference | |
28/05/2024 | 0800/1000 | ** | ![]() | EU | ECB Consumer Expectations Survey |
28/05/2024 | 1000/1100 | ** | ![]() | UK | CBI Distributive Trades |
28/05/2024 | 1230/0830 | * | ![]() | CA | Industrial Product and Raw Material Price Index |
28/05/2024 | 1300/0900 | ** | ![]() | US | S&P Case-Shiller Home Price Index |
28/05/2024 | 1300/0900 | ** | ![]() | US | FHFA Home Price Index |
28/05/2024 | 1300/0900 | ** | ![]() | US | FHFA Home Price Index |
28/05/2024 | 1300/0900 | ** | ![]() | US | FHFA Quarterly Price Index |
28/05/2024 | 1300/0900 | ** | ![]() | US | FHFA Quarterly Price Index |
28/05/2024 | 1355/0955 | ![]() | US | Minneapolis Fed's Neel Kashkari | |
28/05/2024 | 1400/1000 | *** | ![]() | US | Conference Board Consumer Confidence |
28/05/2024 | 1400/1000 | * | ![]() | US | US Treasury Auction Result for 26 Week Bill |
28/05/2024 | 1400/1000 | * | ![]() | US | US Treasury Auction Result for 13 Week Bill |
28/05/2024 | 1430/1030 | ** | ![]() | US | Dallas Fed manufacturing survey |
28/05/2024 | 1530/1130 | * | ![]() | US | US Treasury Auction Result for 2 Year Note |
28/05/2024 | 1530/1130 | * | ![]() | US | US Treasury Auction Result for Cash Management Bill |
28/05/2024 | 1700/1800 | ![]() | UK | BOE's Haskel Speech on UK inflation | |
28/05/2024 | 1700/1300 | * | ![]() | US | US Treasury Auction Result for 5 Year Note |
28/05/2024 | 1705/1305 | ![]() | US | Fed Governor Lisa Cook |