- Asian equities rise following stronger-than-expected US Non-Farm Payrolls on Friday. Japanese equities outperform following the sell-off in the yen, while China property takes a breather
- The USD/JPY rallied again on Friday and opened higher this morning hitting a new cycle high of 149.50, before comments from the Japanese currency chief saw some support for the yen.
- Tensions look to have cooled somewhat in the middle east over the past 24 hours, which has seen Oil & Gas trend slightly lower throughout the session
MARKETS
US TSYS: Tsys Futures Trade At Session Lows, As Volumes Jumps
- Tsys Futures have seen very strong volumes today as investors look to position following much stronger-than expected NFP on Friday. Ranges have remained narrow although we trade below Friday's lows and now at session lows across the curve. TU is - 01+ at 103-15⅝ while TY is currently trading -01+ at 112-25+.
- There was earlier some decent size buying of TY put ratios, with TYX4 112.75 / 112.00 1x2 Put Spread bought for -1 and 0 x25,000
- Cash tsys curves have flattened throguhout the session with yields now flat to 3bps higher. The 2yr is +3bps at 3.951%, while the 10yr is +1.2vps at 3.977%, the 2s10s dropped 1.789 to 2.342.
- Fed Funds futures are now pricing in just 24.6bps of cuts at the November 7 meeting, down from 33.8bps prior to NFP.
- The calendar is empty for the session, focus turns to CPI and PPI inflation measures on Thursday and Friday respectively while we also have Wednesday's September FOMC minutes release.
JGBS: Cheaper Following Rinban Operations, Yields At Month Highs
- JGBs continue to sell-off, with yields now 2-5bps cheaper. The 5yr has seen the bulk of the move trading +5bps to 0.527% now back at Aug 5 levels.
- The JGB curve is flatter, with better selling seen through the belly of the curve with the moves coming following Rinban results
- Elsewhere Japanese Finance Minister Kato spoke earlier where he emphasized the need for careful monitoring of sudden currency fluctuations, which he said negatively impact businesses and households. Kato reiterated the government's stance that monetary policy specifics should be left to the BOJ while expecting careful communication from the central bank to manage policy toward achieving its 2% inflation target.
BoJ dated OIS has firmed slightly throughout the session with Dec'24 now pricing in 7.2bps of hike priced, up from 6.5bps this morning.
NZGBs: Closed Cheaper, Ranges Narrow Ahead Of RBNZ Wednesday
NZGBs closed just off session's worst levels, yields were 2-6bps cheaper. The moves were largely just on the back of the sell-off in US tsys following Friday's much stronger-than-expected US Non-farm payrolls. RBNZ dated OIS firmed throughout the session.
- There was no economics data out of the region today, with all eyes turning to the RBNZ on Wednesday, BBG consensus is for a 50bps cut, in line with current OIS pricing.
- RBNZ's Governor Orr has made some comments about the 2023-24 Annual report, “Core inflation and most measures of inflation expectations have declined, and the risks to the inflation outlook have become more balanced” and reiterated the annual CPI is expected to return to the 1-3% target range by year-end. So far the report doesn't seem to have been released publicly.
- New Zealand's official reserve assets slightly declined to NZ$32.54b in September from NZ$32.57b in August. Foreign currency reserves, including other reserve assets, fell to NZ$24.7b from NZ$25.18b, while reserves held in the Treasury increased to NZ$7.84b from NZ$7.4b. The country's special drawing rights also dipped to NZ$4.62b in September from NZ$4.65b in August, per RBNZ.
- NZGB curve has bear-flattened today with most of the move coming on the open, we traded in narrow ranges throughout the session and with Sydney out for a Public Holiday volumes were low. The 2yr closed +5.5bps at 3.838%, while the 10yr closed +4.6bps at 4.299%
- RBNZ Dated OIS is pricing 42.8bps of cuts or a 71% chance of a 50bps cut on Wednesday and 92.5bps of cuts by the November 27th meeting.
- Swaps are 6-8.5bps higher across the curve with the 2-3yr tenors underperforming.
EQUITES: Asian Equities Higher, Tracking Gains In The US, China Returns Tomorrow
Asian stocks advanced broadly on Monday, buoyed by optimism following stronger-than-expected U.S. job data. The U.S. labor market's resilience has raised hopes for a soft landing and fueled Wall Street's rally, which spilled over into Asian markets.
- Goldman Sachs upgraded Chinese equities to "overweight," projecting an additional 15%-20% rise in key indices like the MSCI China and CSI 300, assuming Beijing follows through on its stimulus policies. With mainland Chinese markets reopening on Tuesday, foreign investors are expected to increase buying through the stock connect program.
- Japanese equities have jumped higher driven by gains exporters and financials. The yen hit a lows of 149.13 vs USD before comments from the Currency Chief saw some support for the currency, it currently trades 0.16% at 148.46. Financials rallied after Japan's 10-year bond yield hit a one-month high following Rinban operations and comments from Japan's FinMin where he said monetary policy specifics should be left to the BOJ. The Nikkei is +2.15%, slightly outperforming the TOPIX +1.90%
- HSI is +1.15%, with equity turnover elevated due to expectations of strong inflows when mainland China markets reopen. Property stocks have struggled today with the Mainland Property Index -1.30%, while most other sectors trade higher.
- SK & Taiwan equities both trade higher with their respective Large-cap tech stocks outperforming, led by SK Hynix +5.20% although Foreign investors have again been better sellers of SK equities in particular Tech stocks.
- Elsewhere, Australia's ASX 200 +0.65% and Philippines PSEi +1.80% are the top performers.
ASIA STOCKS: Foreign Investors Rotate Into China Equities
Asian equities saw decent size outflows last week as investors looked to rotate in Chinese equities.
- South Korea: Saw inflows of $90m Friday, with the past 5 sessions reaching -$299m, while YTD flows are + $10.41b. The 5-day average is -$60m, which is above the 20-day average of -$294m but below the 100-day average of -$45m.
- Taiwan: Saw outflows of -$666m Friday, with the past 5 sessions netting -$1.02b, while YTD flows are -$12.87b. The 5-day average is -$204m, below both the 20-day average of -$159m and the 100-day average of -$131m.
- India: Saw outflows of -$1.85b Thursday, with the past 5 sessions netting -$2.17b, while YTD flows are + $21.57b. The 5-day average is -$798m, below the 20-day average of + $128m, and the 100-day average of + $92m.
- Indonesia: Saw outflows of -$33m Friday, with the past 5 sessions netting -$319m, while YTD flows are + $3.14b. The 5-day average is -$64m, below the 20-day average of + $58m, but above the 100-day average of + $30m.
- Thailand: Saw outflows of -$31m Friday, with the past 5 sessions totaling -$360m, while YTD flows are -$2.91b. The 5-day average is -$72m, below the 20-day average of + $4m, and the 100-day average of -$9m.
- Malaysia: Saw outflows of -$76m Friday, with the past 5 sessions netting -$263m, while YTD flows are + $605m. The 5-day average is -$53m, below both the 20-day average of -$13m and the 100-day average of + $8m.
- Philippines: Saw inflows of $11m Friday, with the past 5 sessions totaling + $35m, while YTD flows are + $56m. The 5-day average is + $7m, below both the 20-day average of + $18m and the 100-day average of + $4m.
Table 1: EM Asia Equity Flows
OIL: Crude Down Slightly As Waits For Israel’s Response To Iran’s Attack
Oil prices are slightly lower today as markets watch and wait for Israel’s response to Iran’s missile attack. Earlier Iran cleared its airspace but has since opened some airports. The US is urging Israel to avoid Iran’s oil infrastructure. WTI is down 0.3% to $74.19/bbl off the intraday low of $73.62 and Brent is -0.4% to $77.74 after falling to $77.23. The USD index is little changed.
- Iran is an OPEC member and its October 1 attack on Israel has increased the chance of a strike on its oil facilities and also of a regional war that would impact both oil and gas supplies. The Middle East produces around a third of the world’s crude. As a result, many market participants are now covering short positions.
- Goldman Sachs estimates that Brent could increase to the $90s if Iranian oil production was hit, according to Bloomberg.
- Israel continued to strike targets in Lebanon and Gaza over the weekend. Commemorations for October 7 victims have begun in Israel.
- Saudi Arabia increased the crude premium for shipments to Asia by more than expected but cut it for cargoes to Europe and the US.
- Oil markets have received support from China’s recent stimulus announcements. On Tuesday the head economic planner will hold a press conference and further government spending will be hoped for.
- The Fed’s Bowman, Kashkari, Bostic and Musalem appear later today and in terms of data there are only US August consumer credit, German August factory orders and euro area retail sales.
GOLD: Bullion Trends Lower Following Stronger US Payrolls
Gold prices have trended lower to be down 0.3% to $2645.60/oz during APAC trading today, as risk assets generally strengthened. The BBDXY USD index is off its intraday low to be flat. Bullion fell sharply following the better-than-expected US payrolls on Friday reaching a low of $2632.09, as the data encouraged economic optimism and reduced Fed cut expectations which drove the USD higher. Gold recovered to $2653.60 though to be down only 0.1% on the day.
- Geopolitics continue to provide support for bullion with the situation in the Middle East deteriorating further over the weekend as Iran shut its airspace in preparation for a retaliatory strike from Israel and Israel continued to strike targets in Lebanon and Gaza.
- Gold remains in consolidation mode and recent declines are seen as corrective. Moving average studies are in a bull mode and signal positive market sentiment. Initial resistance is at $2685.60, September 26 high, with support at $2624.80, September 30 low. The yellow metal is up 3.4% since the Fed cut rates 50bp on September 18.
- China’s gold reserves were unchanged at 72.8mn ounces at the end of September.
- The Fed’s Bowman, Kashkari, Bostic and Musalem appear later today and in terms of data there are only US August consumer credit, German August factory orders and euro area retail sales.
LNG: Middle East Escalation Pushes Gas Prices Higher
European LNG prices rose 2.1% on Friday to EUR 40.75, just below the intraday high of EUR 41.18, to be up 5.6% last week. Geopolitics remain a market driver with the situation in the Middle East deteriorating further but European storage levels at 94% is partially offsetting this. Events over the weekend indicate an escalation in tensions as Iran shut its airspace in preparation for a retaliatory strike from Israel and Israel continued to target Lebanon.
- Israeli PM Netanyahu has promised a “strong” response to Iran’s missile attack on Israel last week and hasn’t ruled out attacking its oil and nuclear infrastructure. US President Biden discouraged strikes on Iran’s oil. The main risk is if Iran becomes more involved in the conflict and blocks the Strait of Hormuz which Qatar relies on for its LNG exports.
- US natural gas fell 4.7% to $2.83 to be down 2.5% on the week. It has started today lower at $2.80. Milton has been classed as a hurricane and while Florida is preparing, it is not expected to threaten gas infrastructure. Other storms in the Gulf of Mexico and Atlantic currently look likely to also miss gas facilities.
- US lower-48 gas production fell 1.4% y/y on Friday and demand rose only 0.3% y/y. The west is forecast to be warmer into mid-October, while the east should be cooler, according to the Commodity Weather Group.
- North Asian gas prices followed Europe higher rising 1.5% on Friday to be up 1.3% last week and also include a geopolitical risk premium.
FOREX: DM FX Rallies In APAC Trading While EM Weakness Continues
DM APAC FX strengthened against the US dollar, while most of EM weakened as the BBDXY USD index weakened slightly after rising 0.4% on Friday following stronger-than-expected US payrolls. The data reduced Fed easing expectations, which generally weighs on EM currencies.
- USDJPY is down 0.2% to 148.44 after rising to $149.13 early in the session. Japan’s finance minister Kato said FX moves will continue to be monitored and that they have both positive and negative effects but sudden moves hurt the economy. The yen strengthened moderately following the comments.
- USDKRW is slightly lower at around 1347.35.
- Aussie is also stronger with AUDUSD up 0.2% to 0.6810, close to the intraday high. It received support from the risk on move seen today which also boosted iron ore prices to over $110/t. AUDJPY is up 0.1% to 101.08 after a high of 101.42.
- NZDUSD is 0.1% higher at 0.6167 ahead of Wednesday’s RBNZ decision. Consensus is expecting a 50bp cut. AUDNZD is up 0.1% to 1.1042, close to the intraday high.
- European currencies are little changed with EURUSD at 1.0972 and GBPUSD at 1.3128.
- The ringgit, rupiah and baht saw the largest moves today. USDIDR is up 1.2% to 15668, USDMYR +1.3% to 4.2738 and USDTHB +1.2% to 33.44.
- Bank Indonesia said that it was prepared to intervene in the spot, bond and domestic non-deliverable forwards markets to defend the IDR. The announcement and the rupiah weakness is increasing speculation that BI will be on hold at its October 16 meeting to preserve FX stability.
- The Fed’s Bowman, Kashkari, Bostic and Musalem appear later today and in terms of data there are only US August consumer credit, German August factory orders and euro area retail sales.
THAILAND: CPI Inflation Picks Up But Remains Low, Expected To Exceed 1% in Q4
Thai headline CPI in September came in below consensus at 0.6% y/y but picked up from 0.35%. Core was in line at 0.8% y/y, highest in just over a year, but also up on August’s 0.6%. Inflation remains very low driven by lacklustre growth as well as government subsidies and price caps. Bank of Thailand Governor Sethaput has said that the central bank remains “outlook dependent” and will adjust monetary policy if needed but doesn’t see signs of deflation.
- Inflation is expected to pick up towards the end of the year with the government forecasting October to rise to 1.25%. The increase is due to higher oil prices and the impact of recent floods. 2024 inflation is forecast to be 0.2-0.8%.
- The government continues to put pressure on BoT for a rate cut with finance minister Pichai saying today that “inflation is too low” and it is looking at whether higher inflation would support growth. It wants to discuss the inflation target with the BoT but Pichai wouldn’t comment on reports of a 1.5-3.5% corridor. The current band is 1-3%.
UP TODAY (TIMES GMT/LOCAL)
Date | ET | Impact | Period | Release | Prior | Consensus | |
07/10/2024 | 1130 | * | 11-Oct | 3M Auction | -- | -- | |
07/10/2024 | 1130 | * | 11-Oct | 6M Auction | -- | -- | |
07/10/2024 | 1500 | * | Aug | Consumer Credit m/m | 25.452 | -- | USD (b) |
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