MNI EUROPEAN MARKETS ANALYSIS: Equities Weaker, USD/JPY Hits Fresh Highs, But Little Follow Through

US TSYS: Narrow Ranges In Muted Asian Session

TYZ3 deals at 109-24+, +0-02+, a 0-04+ range has been observed on volume of ~56k.

• Cash tsys sit 1 bp richer to 1bp cheaper across the major benchmarks, light twist steepening is apparent as the curve pivots on 5s.
• Tsys were marginally pressured in early dealing as a bid in USD/JPY, which printed its highest level since Nov 2022, spilled over into a wider USD strength. The move didn't follow through and the pair ticked away from session lows.
• Narrow ranges were observed for the remainder of the session, little meaningful macro newsflow crossed.
• German Industrial Production and Eurozone GDP provide the highlights in Europe today. Further out we have Initial Jobless Claims. There are a number of Fed speakers including Atlanta Fed President Bostic and New York Fed President Williams.

JGBS: Futures and 30Y JGBs Cheaper After Poor 30Y Supply Digestion, GDP & Labor Earning Tomorrow

JGB futures unwind early afternoon strength to be -1 compared to settlement levels.

• JGB futures and 30-year JGBs initially gained value in early post-auction trading but later relinquished those gains. This reversal aligned with the lacklustre reception for 30-year supply today. The low price fell short of dealer expectations and the cover ratio was lower than the previous month. Notably, the auction tail was the longest observed since April 2020, excluding the July auction.
• Today’s result was consistent with other recent JGB auctions and appears to suggest that local investors seek higher yields and/or more time to assess the new YCC framework and the BoJ's policy outlook before significantly increasing their allocations to the JGB market.
• Cash JGBs are mixed, with yields 1.1bp higher (20-year) to 0.9bp lower (40-year). The benchmark 10-year yield is unchanged at 0.660%, above BoJ's YCC old limit of 0.50% but below its new hard limit of 1.0%.
• The 30-year JGB yield is 0.2bp lower on the day at 1.653%, 1bp higher than pre-auction levels.
• Swap rates are also mixed, pricing 0.1bp lower to 1.4bp higher. Swap spreads are wider beyond the 3-year.
• Tomorrow the local calendar sees Labor Cash Earnings (Jul), GDP (Q2 F), BoP (Jul) and Bank Lending (Aug), along with BoJ Rinban operations covering 1- to 25-year JGBs.

AUSSIE BONDS: Weaker, At Session Cheaps, US Jobless Claims & Fedspeak Later

ACGBs (YM -7.0 & XM -4.5) are weaker and at or near Sydney session lows. July trade balance data and a speech by outgoing RBA Governor Lowe failed to provide a market-moving domestic catalyst.

• (AFR) In his speech, Lowe said the government should hand over some of its taxing and spending powers to an independent body to reduce the reliance on the Reserve Bank in managing the economy. He added that there was a “material risk” that Australia’s living standards would stagnate without urgent action by governments to address the “political problem” of low productivity, which has fallen to its lowest level in seven years. (See link)
• Cash ACGBs are 4-6bp cheaper, with the AU-US 10-year yield differential unchanged at -12bp.
• Swap rates are 4-6bp higher.
• The bills strip has bear steepened, with pricing flat to -9.
• RBA-dated OIS pricing is mixed across meetings. Flat to 2bp firmer out to Aug’24 and 1-3bp softer beyond.
• Tomorrow the local calendar is empty tomorrow.
• Q2 (F) GDP and employment highlight in the European session, along with German July industrial production. Further out, US jobless claims will be looked for signs of a cooling in the labour market. Fedspeak includes Williams, Goolsbee, Harker, Logan and Bostic.

NZGBS: Closed At Best Levels, Narrow Range, Local Calendar Light Until Tuesday

NZGBs closed near the session’s best levels, with benchmark yields 1bp lower. However, the local session range was narrow. With the domestic drivers light on the ground, local participants have likely been guided by US tsys in the Asia-Pac session. US tsys are currently 1bp lower to 1bp higher across benchmarks, with the curve steeper.

• That said, solid demand seen at the weekly NZGB auction, particularly for the longer-dated lines (cover ratios of 4.045x for the May-32 bond and 3.15x for the Apr-37 bond) likely assisted the local market’s bid tone.
• The swap curve has twist flattened, with rates 1bp higher to 2bp lower.
• RBNZ dated OIS pricing is little changed for meeting out to May’24 and 3-4bp firmer beyond.
• Manufacturing volumes rose 2.9% q/q in Q2 versus a revised -1.8% in Q1. Manufacturing sales rose 0.2% q/q versus a revised -2.5% in Q1.
• Tomorrow the local calendar is empty. The next release of significance will be Retail Card Spending for August on Tuesday.
• US jobless claims will be looked at later today for signs of the heat coming out of the labour market. A few FOMC speakers are on the wires including Williams, Goolsbee, Harker, Logan and Bostic.

EQUITIES: China Seeks To Broaden Iphone Ban, Nasdaq Futures Lower

Regional equities are mostly tracking lower in Asia Pac markets, which is line with losses seen in US and EU bourses through Wednesday trade. Only a few markets in South East Asia (SEA) are tracking higher at this stage. US futures are lower, Eminis last near 4463, down -0.18%. Nasdaq futures are slightly weaker, down 0.26% at this stage.

• Headlines have crossed that China is seeking to broaden the iPhone ban to state firms and agencies. This is likely weighing on tech sentiment.
• Elsewhere. China property related stocks have been volatile. The CSI 300 real estate sub index got above 5200 in early trade, but now sits back at 5145.55, down -0.30% at the break. This sub-index has largely gone sideways in recent weeks. China banks will cut mortgage rates on existing loans for first buyers from September 25th, although this move was already touted.
• The broader CSI 300 is down -0.86% at the break, the index back below the 3800 level.
• The HSI is off by 0.95% at the break. The tech sub-index is down 1.48%, tracking lower for the 3rd straight session.
• Japan stocks are modestly lower at this stage, the Topix off -0.15%. Tech sensitive markets like Taiwan (Taiex -0.40%) and South Korea (Kospi -0.70%) are down, in line with weakness in tech indices in Wednesday US trade and the above mentioned US futures backdrop.
• The ASX 200 remains a weaker performer, down over 1.3%, with weakness evident in the materials sector. Metal prices have softened in recent sessions.
• In SEA Thai stocks are firmer, +0.45%, but the Philippines bourse is weaker at -1.10%.

FOREX: Narrow Ranges In Asia, Fresh YTD High For USD/JPY

Narrow ranges have persisted across much of G-10 FX on Thursday in Asia. USD/JPY firmed in early dealing printing a fresh YTD high however gains were pared and the pair sits little changed.

• USD/JPY printed its highest level since Nov 2022 at ¥147.87 in early dealing before ticking away from session highs as US Tsy Yields unwound a marginal move higher. The trend condition in USD/JPY remains bullish resistance is at ¥148.40, high Nov 4 2022. Support comes in at ¥145.52 the 20-Day EMA.
• AUD/USD is marginally lower down ~0.2%, however recent lows remain intact for now as ranges have been narrow today. Support comes in at $0.6357, yesterday's low and $0.6287, 2.00 projection of Jun 16-Jun29-Jul 13 price swings.
• Kiwi is little changed, NZD/USD was pressured alongside the move higher in USD/JPY however support came in ahead of YTD lows and NZD/USD now prints close to opening levels at $0.5870/75. A $0.5865/85 range has been observed.
• Elsewhere in G-10; EUR and GBP are little changed, there has been little follow through on moves thus far.
• Cross asset wise; E-minis are a touch lower and the Hang Seng is down ~1%. US Tsy Yields are little changed across the curve.
• German Industrial Production and Eurozone GDP provide the highlights in Europe today.

OIL: Benchmarks Ease Away From Recent Highs, China Oil Imports Up Strongly In August

Oil has ticked down modestly in Thursday trade so far. Brent sits back near $90.35/bbl, slightly above session lows of $90.32/bbl. This is down 0.25% versus NY closing levels on Wednesday. If maintained this would be the first loss for the benchmark since the start of last week. WTI has followed a similar trajectory, last near $87.25/bbl, off by ~0.30%. If maintained this would end WTI's 9 sessions of straight gains, the longest stretch going back to Jan 2019. Both benchmarks remain comfortably higher for the week to date.

• Official US weekly inventories are due later on Thursday. The API reported earlier that crude inventories fell by 5.5 mln barrels last week. This is likely to be the main macros focus in the space for today's session.
• We had China August trade data earlier, with oil imports strengthening in August, up 20.9% versus August levels. This represented 52.80mln tonnes of crude oil. Oil product imports were weaker, but are much smaller in tonne terms.
• For Brent, bulls remain focused on recent highs above $91/bbl, recent lows rest near $88/bbl.

GOLD: Another Decline Driven By Higher US Treasury Yields

Gold is 0.2% higher in the Asia-Pac session, after closing -0.5% at $1917.25 on Wednesday. Bullion was pressured by an increase in front end US Treasury yields rather than USD strength with the latter seeing relatively modest gains considering the surprise strength in ISM Services.

• The ISM Services Index printed more robustly than expected (54.5 vs. 52.5 est. & 52.7 prior), with Prices Paid (58.9 vs. 56.8 prior). Reacceleration to the highest reading since February added further evidence that the US economy has been resilient through Q3.
• US Treasuries finished 2-7bp cheaper, with the curve flatter. Implied Fed funds repriced for a slightly better than 50-50 chance for a 25bp tightening in November, though eased back to 42% by the close. The market attached a 7% chance of a hike on 20 September.
• While little changed on Wednesday, the USD Index looks to have resumed the primary uptrend off the mid-July low, potentially exerting sustained downward pressure on precious metals, according to MNI's technicals team.

CHINA DATA: August Trade Close To Expectations

China's August trade data came out relatively close to market expectations. Exports were -8.8% y/y (forecast at -9.0%, -14.5% prior). Imports were slightly better than expected at -7.3% y/y (forecast -9.0%, prior -12.4%). This left trade surplus slightly below estimates, coming in at $68.36bn ($73.90bn forecast and $80.60bn prior).

• Export growth is above recent lows, but faces an uncertain outlook. There are signs of a slightly better US backdrop, whilst there are tentative signs of better export momentum in countries like South Korea and Taiwan, albeit coming from a low base.
• The CNY NEER in also above its recent trough in y/y terms, see the chart below. Other factors are also in play in terms of wide policy rate differentials with the US etc.

Fig 1: China Exports Y/Y & CNY NEER Y/Y

Source: MNI - Market News/Bloomberg

• On the import side, the slightly better than expected result will be welcomed, but the market will want to see other stronger signs of improving domestic demand to turn more constructive on the outlook.
• Commodity imports continued to post impressive y/y gains, but base effects from 2022 is certainly helping such trends.
• For the first 8 months of this year, coal imports are 82% higher. Oil is 14.7% higher for the same period.

ASIA FX: USD/Asia Dips Supported, BNM Still To Come, No Change Expected

USD/Asia pairs are mostly higher, led by gains in USD/CNH, which has risen above 7.3300. There appears resistance to a move higher in USD/KRW towards 1340, but dips in the pair are still supported. In SEA PHP is outperforming, but this doesn't appear to be fundamentally driven. Tomorrow, we get Taiwan August trade figures, July BoP/current account data for South Korea and Philippines July trade data. Still to come today is the BNM decision, with no change expected.

• USD/CNH has risen to fresh highs, last above 7.3300 (highs for the session near 7.3340). Local equities are a headwind, down near 1% at this stage. We did have slightly better than expected August trade data, but this didn’t shift the sentiment needle. The USD/CNY fixing also remained close to record wides. USD/CNY spot has made fresh YTD highs above 7.3200, with state bank intervention potentially absent today.
• Spot USD/KRW has seen additional selling interest above 1337, which was around yesterday’s highs. We sit back at 1334/35 currently. The 1 month NDF is in the 1332/33 region. Equity sentiment is weaker, the Kospi off ~0.80%. Offshore investors have sold -$176.6mn of local shares so far today. Headlines have cross from chipmaker SK Hynix that it is investigating the presence of its chips in the Huawei phone. The company stating it doesn’t do business with Huawei since the US introduced tech related curbs.
• The SGD NEER (per Goldman Sachs estimates) is little changed on Thursday as the measure continued to nudge away from late August's cycle highs yesterday. We now sit ~0.7% below the top of the band. USD/SGD printed its highest level since early December 2022 this morning before paring gains as the USD ticked away from session highs. The pair last prints at $1.3640/45, and is ~0.1% firmer this morning. August Foreign Reserves are on tap today, the prior read was $340.79bn.
• USD/MYR is observing narrow ranges in early dealing, there has been little follow through on moves and the pair is holding near its highest level since mid-July. On Wednesday the pair rose ~0.2% as broader USD trends dominated flows. USD/MYR now sits ~4% above levels seen at the beginning of August. On tap today we have the latest monetary policy meeting from the BNM, the Overnight Policy Rate is expected to be held steady at 3.00%.
• USD/INR printed its highest level since late October yesterday, as the pair sits little changed on Thursday holding near its record high. Higher Oil prices and US Yields weighed on the Rupee on Wednesday seeing USD/INR firm a further ~0.1%. The pair is ~3% above its 2023 low seen in January. In the first 3 business days of September a net outflow of $230mn was seen from Indian equities by foreign investors.
• USD/PHP sits down slightly from recent highs, last near 56.86. There appears to be resistance ahead of the 57.00 level, which has been cited as the top end of the assumed FX range by the authorities. Local equities are noticeably weaker today, down over 1% but this hasn't impacted sentiment in the FX space.
• USD/THB is pressing for a break above 35.60 in latest dealings, but hasn't been able to breach this level. We continue to see resistance around this level, which marked mid August highs. Late June highs were around 35.75. The local data calendar remains quiet, with just FX reserves data out tomorrow.• Focus remains on the roll out of the new government's fiscal policy agenda. PM Srettha is set to unveil policy priorities next Monday. Cash handouts, through a so-called digital wallet, lower energy prices and debt relief are some of the main focus points.

MALAYSIA: MNI BNM Preview - September 2023: Lower Growth & Inflation = On Hold

• Tomorrow’s BNM policy meeting outcome looks a fairly straight forward on hold decision at this stage. This is our firm bias and also the sell-side consensus. All 21 economists surveyed by Bloomberg look for the policy rate to hold steady at 3.00%.
• Local data outcomes continue to argue for steady policy. On the inflation front, we continue to see a loss of momentum in terms of both headline and core. The authorities are likely to be wary of a rebound in food prices. However, this is likely to be a watch point, rather than something that turns the BNM more hawkish. In the July CPI print, 11 out of the 12 sub-categories recorded softer or the same y/y momentum compared with June.
• On the growth front, Q2 GDP was 1.5% q/q, but eased back to 2.9% y/y, versus 5.6% prior. Private spending momentum slowed further, and the export drag rose, while government spending and investment were positive offsets. Growth momentum is well below 2022 highs. The weaker MYR FX may be a source of renewed concern, but the MYR NEER is comfortably above 2023 lows.
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