- In separate parts of the interview, Bailey is quoted that if the news on inflation continues to be good the MPC can be “bit more aggressive” and "a bit more activist".
- This is a definite step up in the language from the "gradual" line that has been used up until now. These comments make Pill's speech tomorrow morning even more pivotal.
- GBPUSD is down from 1.3245 to below 1.3190 at writing and we would expect a notable move higher for SONIA and gilt futures on the open today (which could trigger another wave of GBP FX weakness).
- On the fiscal side, he says that " “I think the economy has come through the shocks of the last five years better than many of us feared. So there’s a base there to develop." The line on the economy faring better isn't new - that is something that he has said previously in both speeches and has been said in the MPR.
- “The government is right to focus on how to encourage capital investment. There is a clear need for it in terms of infrastructure. We’ve got at least three very big structural issues out there. One is the ageing population, which obviously we’re not alone in that one. Two is the demands for increase in defence spending. And the third one is dealing with climate change.”
- On the situation in the Middle East: "We watch it extremely closely to see the impact of the latest news. But … my sense from all the conversations I have with counterparts in the region, is that there is, for the moment, a strong commitment to keep the market stable.... There’s also recognition there’s a point beyond which that control could break down if things got really bad. You have to continuously watch this thing, because it could go wrong.”
BOE: Scope for 10-15bp more cuts to be priced into SONIA in early trading
- Looking at yesterday's SONIA close, markets were already almost fully pricing a 25bp cut in November, but there were only 36bp of cumulative cuts by December and 101bp by May 2025.
- We have previously argued in the BOE review that the word "gradual" introduced in the September MPC meeting merely ruled out 50bp cuts, rather than ruling out sequential cuts.
- Following Bailey's interview, and hints that the BOE could be a "bit more aggressive" and a "bit more activitst", we still don't think there is any need for the BOE to cut 50bp at any point in the cycle, but there may be some scope for a very small probability to be added to November now. At least 25bp looks almost certain to us, so there are now balance of risks towards 50bp rather than towards no cut in our view.
- The more probable move, however, is that markets move towards pricing back in sequential cuts, so there is scope for at least a 10-15bp move in Dec24-dated MPC SONIA, and scope for the May 2025 contract to see a similar move. Note that the May 2025 contract was pricing in 15bp more cuts than it is today as recently as last week.
| BoE Dated SONIA OIS | ||
| Current Effective Rate | 4.95 | |
| Meeting Date | SONIA BoE-Dated OIS (%) | Difference Vs. Current Effective SONIA Rate (bp) |
| Nov-24 | 4.716 | -23.4 |
| Dec-24 | 4.591 | -35.9 |
| Feb-25 | 4.358 | -59.2 |
| Mar-25 | 4.164 | -78.6 |
| May-25 | 3.939 | -101.1 |
| Jun-25 | 3.813 | -113.7 |
| Aug-25 | 3.668 | -128.2 |
| Sep-25 | 3.602 | -134.8 |
| Nov-25 | 3.514 | -143.6 |
| Source: MNI/Bloomberg | ||
US TSYS: Tsys Futures Steady Ahead Of Jobs Data
- Tsys futures are trading in tight ranges today, Hong Kong equities have taken a breather after their stellar run of late, while a weaker yen has seen Japanese equities well supported. There have been some headlines out that Israel could be planning an attack on Iran's nuclear sites, however little reaction in markets to this. TU is trading -01 at 104-03⅜, while TY is trading -02+ at 114-11.
- Cash tsys have seen slightly better selling through the belly of the curve, The 2yr is +1bp at 3.652%, vs cycle lows of 3.54% made Sept 24, while the 10yr is trading +1.3bps at 3.794%. Curves have flattened over the past week after the 2s10s hit a high of 22.364 and now trades back at 14.050.
- Projected rate cuts continue cool a touch vs Wednesday's levels (*): Nov'24 cumulative -34.1bp (-34.4bp), Dec'24 -69.2bp (-70.5bp), Jan'25 -99.6bp (-101.9bp).
- Today focus will be on Weekly Claims, Factory/Durable Goods Orders and ISM Services, followed by Friday's headline Non-Farm Payrolls for September.
JGBS: Cash Bonds Little Changed, BoJ Dec Hike - Kameda
In afternoon trading, JGB futures are weaker, -9 compared to the settlement levels, but stronger than morning levels following a solid 10-year auction.
- (MNI) The BoJ is likely to raise its policy interest rate further in December if financial markets and the Federal Reserve both foresee a soft landing for the US, former BoJ Chief Economist Seisaku Kameda told MNI.
- “Whether market players and the Fed agree with the outlook for the US economy at the FOMC in November is the key for whether the BoJ will get a chance to raise the policy rate in December,” said Kameda, now executive economist at Sompo Institute Plus, the insurance giant’s research arm.
- Cash US tsys are 1-2bps cheaper in today’s Asia-Pac session after yesterday’s ADP-induced bear flattener. Today’s US calendar will see Weekly Claims, Factory/Durable Goods Orders and ISM Services, followed by Friday's headline Non-Farm Payrolls for September. (See MNI Employment Preview here)
- Beyond the 1-year (+4bps), cash JGBs are little changed out to the 20-year and 1bp cheaper beyond. The benchmark 10-year yield is 0.3bp lower at 0.823% after hitting a high of 0.837% early.
- Swap rates are flat to slightly lower across maturities, apart from the 20-year (+3.5bp). Swap spreads are tighter apart from the 20-year.
- Tomorrow, the local calendar is empty.
AUSSIE BONDS: Cheaper, IMF Warns, Focus On US Claims Data
ACGBs (YM -6.0 & XM -7.0) are cheaper after dealing in narrow ranges in today’s data-light Sydney session.
- Outside of the previously outlined trade balance and Judo bank PMIs, the market’s focus was likely on the IMF’s warning that the government and the RBA need to work together to bring down inflation.
- Cash US tsys are 1-2bps cheaper in today’s Asia-Pac session after yesterday’s ADP-induced bear flattener. Today’s US calendar will see Weekly Claims, Factory/Durable Goods Orders and ISM Services, followed by Friday's headline Non-Farm Payrolls for September.
- US nonfarm payrolls growth is expected to have firmed marginally to 150k in September although some analysts also look for upward revisions to August. (See MNI Employment Preview here)
- Cash ACGBs are 5-6bps cheaper, with the AU-US 10-year yield differential at +22bps.
- Swap rates are 5-6bps higher.
- The bills strip has bear-steepened, with pricing -3 to -7.
- RBA-dated OIS pricing is 2-5bps firmer beyond the November meeting. A cumulative 13bps of easing is priced by year-end.
- Tomorrow, the local calendar will see Household Spending and Home Loans data alongside the AOFM’s planned sale of A$700mn of the 2.75% 21 November 2027 bond.
BONDS: NZGBS: Closed With A Bear-Steepener, US Jobless Claims In Focus
NZGBs closed cheaper, with benchmark yields 2-4bps higher, although off the worst levels.
- Today’s weekly supply saw mediocre demand for the May-31 and May-34 bonds, with cover ratios around 1.6x. The Apr-37 bond saw a more respectable 2.96x.
- The RBNZ will strongly consider a 50bp cut to the 5.25% official cash rate when it meets next week and look to solidify a faster-easing tempo when it updates its forecasts following December's decision, former RBNZ staffers told MNI.
- New Zealand business leaders want the government to explore ways of reducing the nation’s structural budget deficit, which could include a tax on capital gains. (per BBG)
- NZ’s commodity export prices rose 1.8% m/m in September.
- Swap rates closed flat to 3bps higher, with the 2s10s curve steeper.
- RBNZ dated OIS pricing closed 1-2bps firmer for 2025 meetings. A cumulative 93bps of easing is priced by year-end.
- Tomorrow, the local calendar will see Filled Jobs data. The RBNZ will deliver its policy decision next Wednesday.
- Today’s US calendar will see Weekly Claims, Factory/Durable Goods Orders and ISM Services, followed by Friday's headline Non-Farm Payrolls for September.
FOREX: USD Firms As Hong Kong/China Property Equities Fall
The USD is up against all the G10 currencies in the first part of Thursday dealings. The BBDXY index was last near 1231, up around 0.15% versus end Wednesday levels. This is highs in the index back to the first half of September. A pull back in HK/China related equity sentiment has weighed on risk appetite, while Israel retaliation fears linger in the background (although oil prices have been very steady).
- USD/JPY was firmer in early trade, hitting fresh highs of 147.24, marginally above early Sep highs. Sentiment stabilized somewhat post the Tokyo fix, and as a Japanese government official stated new PM Ishiba didn't make a specific policy request to BoJ Ueda. This comes after yesterday's meeting and whereby the new PM stated that now is not the time for further BoJ rate rises (this weighed on yen in Wednesday trade).
- This helped take USD/JPY a little lower, while BoJ board member Noguchi left the door for further rate hikes but there isn't a sense or urgency for a near term shift.
- Yen got a further support as Hong Kong and China related equities gave back some of the recent surge (at the lunchtime break the HSI 300 is off 3.12%). Still, USD/JPY last tracks near 146.80/85, so still close to earlier highs. The yen hasn't meaningfully outperformed AUD and NZD either.
- NZD/USD is back to the low 0.6240 region, off around 0.30% and sub its 20-day EMA. AUD/USD is off by close to the same amount, last near 0.6865, so close to this week's lows.
- We had PMI revisions for Australia and Japan, along with Australian trade figures but these reports didn't shift the sentiment needle.
- US equity futures sit lower, while US yields have ticked up a little 1bps.
- Looking ahead, focus turns to Weekly Claims, Factory/Durable Goods Orders and ISM Services.
ASIA STOCKS: Asian Equities Mixed, Japanese Outperforms On Weaker Yen
Asian equities are mixed today with Hong Kong equities seeing a decent sell-off, while Japanese equities edged higher. There have been very few headlines or notable data releases today, with the market remaining somewhat cautious amid growing tensions in the middle east. China, Taiwan & South Korea have all been out today.
- Japanese equities gained following the weaker yen which was driven by comments from Japan's new Prime Minister Shigeru Ishiba where he signaled that the economy isn't ready for further interest-rate hikes, stressing the need for continued monetary easing to tackle deflation. Tech stocks were also supported following comments from Nvidia's CEO where he confirmed the company's new Blackwell chips are in full production, with demand described as "insane", despite earlier concerns about delays. The Nikkei is trading 2.22% higher, while the wider TOPIX is 1.37% higher.
- Hong Kong equities have seen profit taking, although we still trade above Yesterday's open/lows. Property names have seen the largest correction with Mainland Property Index -7.60%, HS Property Index -4.85% while BBG's China Property Gauge dropped over 14% at one stage however is down just 8.90% now. Tech stocks have also seen selling with the HSTech Index trading 5.20% lower.
- Australian shares are little changed today with gains in the real estate sector, being offset by losses in Metals & Miners, particularly gold miners following a drop in gold prices.
- Asian EM equities are lower across the board today as investors continue to sell stocks following the announcement of the China stimulus there have been net selling in all regions since last Tuesday with Malaysia, Indonesia & Thailand seeing the most selling.
ASIA STOCKS: Foreign Investors Start To Sell Asian Equities
Taiwan & India were both out on Wednesday, Thailand saw its largest outflow since Aug 19th, and 4th largest outflow for the year on Wednesday.
- South Korea: Saw outflows of $246m on Wednesday, with the past 5 sessions reaching -$808m, while YTD flows are +$10.32b. The 5-day average is -$162m, below both the 20-day average of -$306m and the 100-day average of -$37m.
- Taiwan: Taiwan's market was closed on Wednesday.
- India: India's market was closed on Wednesday.
- Indonesia: Saw outflows of $43m on Wednesday, with the past 5 sessions netting -$398m, while YTD flows are +$3.24b. The 5-day average is -$80m, below the 20-day average of +$66m, but above the 100-day average of +$30m.
- Thailand: Saw outflows of $163m on Wednesday, with the past 5 sessions totaling -$342m, while YTD flows are -$2.80b. The 5-day average is -$68m, below the 20-day average of +$37m, but above the 100-day average of -$9m.
- Malaysia: Saw outflows of $39m on Wednesday, with the past 5 sessions netting -$160m, while YTD flows are +$752m. The 5-day average is -$32m, below both the 20-day average of $0m and the 100-day average of +$9m.
- Philippines: Saw inflows of $10m on Wednesday, with the past 5 sessions totaling +$108m, while YTD flows are +$40m. The 5-day average is +$22m, above both the 20-day average of +$18m and the 100-day average of +$3m.
Table 1: EM Asia Equity Flows
OIL: Overnight Sell Off Pauses as Biden tells Israel Not to Attack Iran Nuclear.
- Ongoing Middle East tensions on Wednesday were tempered by this week’s EIA report showing an unexpected rise in crude inventories and the largest weekly gain since April.
- Given this news broke around the same time that OPEC+ affirmed it will not raise output, it was enough to see oil prices retreat in the late session in US time.
- Crude declined from US$72.40 back down to USD$70 before moving back up to US$71, where it stabilized at the open of the Asia session.
- Brent too followed a similar path declining from US$76 down to US$73.80 before stabilizing at US$74.70.
- For WTI futures, resistance at the 50-day EMA, at $71.62, has been pierced. A clear breach of this EMA is required to highlight a stronger reversal that would open $76.40, the Aug 26 high.
- Oil markets are in watch and wait mode, expecting a retaliatory attack by Israel. Citibank research estimates that a major strike by Israel on Iranian oil exporting capacity could take out up to 1.5m barrels a day and even a hit on minor infrastructure could see between 300k to 450k of supply interrupted (source BBG).
- President Joe Biden has made it clear that there was no support from the US for Israel to attack Iran’s nuclear facilities in retaliation for yesterday’s missile attacks.
GOLD: Consolidates Near Highs After Strong ADP Data
Spot gold has edged down by 0.2% to $2,658.69/oz on Wednesday, as the yellow metal consolidated near last month’s record high of $2,685. It is little changed in today’s Asia-Pac session.
- The US Treasury curve bear-steepened on stronger-than-expected ADP data on Wednesday, with US yields finishing 3-6bps higher.
- ADP employment was stronger than expected in September at 143k (cons 125k) after a slightly upward-revised 103k (initial 99k) in August. The data has had mixed success at tracking private payrolls growth, undershooting private payrolls growth by 15k in August but before that overshooting by 37k in July and 58k in June.
- The job openings report on Tuesday also signalled a resilient labour market.
- Today’s US calendar will see Weekly Claims, Factory/Durable Goods Orders and ISM Services, followed by Friday's headline Non-Farm Payrolls for September.
- US nonfarm payrolls growth is expected to have firmed marginally to 150k in September although some analysts also look for upward revisions to August.
- According to MNI’s technicals team, gold bulls remain in the driver’s seat and moving average studies are in a bull-mode set-up, highlighting a clear uptrend and positive market sentiment. The focus remains on $2,690.2 next, a Fibonacci projection, while firm support lies at $2,602.0, the 20-day EMA.
JAPAN DATA: Offshore Investors Return To Equities, Bond Purchases Slow
Last week's offshore investment flows were were more muted in absolute sense relative to prior week's. Approaching month end may have been a factor. In terms of offshore inflows, we saw foreign investors buying both local stocks and bonds. The inflow into local stocks was the first positive weekly inflow since early August. As we noted last week, offshore investors had continued to sell local stocks despite a decent recovery recovery in the headline indices from the sharp risk off move at the start of August. Inflows to local bonds returned but only offset a fraction of the prior week's net selling.
- In terms of Japan outflows to the rest of the world, we were close to flat last week. The modest selling of offshore bonds was just the second week in the past 9 that we have seen such outflows. Local investors have been chasing better returns in the global bond space over this period.
- Equity flows were just a touch above flat.
Table 1: Japan Offshore Weekly Investment Flows
| Billion Yen | Week ending September 27 | Prior Week |
| Foreign Buying Japan Stocks | 757.9 | -1927.7 |
| Foreign Buying Japan Bonds | 221.8 | -2014.2 |
| Japan Buying Foreign Bonds | -58.0 | 774.9 |
| Japan Buying Foreign Stocks | 16.1 | -536.1 |
Source: MNI - Market News/Bloomberg
- Indonesia Central Bank has entered in the FX market to ensure the balance of supply and demand - official (Source: Reuters)
- Indonesia Central Bank official says rupiah weakened due to rising geopolitical tension in the middle east (Source: Reuters).
- Equity markets weaker today with Jakarta Composite down 0.45% and bonds selling off to push yields higher.
2yr 6.208% (+3bp) 5yr 6.352% (+8bp) 10yr 6.504% 30yr 6.921%
- Middle East tensions were tempered by EIA report showing an unexpected rise in crude inventories and the largest weekly gain since April. (source: MNI Australia)
- Given this news broke around the same time that OPEC+ affirmed it will not raise output, it was enough to see oil prices retreat in the late session in US time. (source: MNI Australia)
- Palm Oil Jumps the Most in 15 Months on Middle East Tensions (source: BBG)
- Malaysia is expanding oil and gas exploration in the disputed South China Sea despite pressure from Chinese vessels, according to a report from a US think tank (source: BBG)
- Equity market weaker today with FTSE Malay KLCI down 0.25% and front end bond yields higher.
3yr 3.350% (+1.5bp) 5yr 3.512% (+0.5bp) 10yr 3.723% 20yr 4.046% (-0.5bp)
UP TODAY (TIMES GMT/LOCAL)
| Date | GMT/Local | Impact | Country | Event |
| 03/10/2024 | 0630/0830 | *** |  CH | CPI |
| 03/10/2024 | 0700/1700 |  AU | MNI Connect Video Conference on Australian Economic & Policy Developments | |
| 03/10/2024 | 0700/0300 | * |  TR | Turkey CPI |
| 03/10/2024 | 0830/0930 |  GB | BOE's Decision Maker Panel | |
| 03/10/2024 | 0900/1100 | ** |  EU | PPI |
| 03/10/2024 | 1230/0830 | *** |  US | Jobless Claims |
| 03/10/2024 | 1230/0830 | ** |  US | WASDE Weekly Import/Export |
| 03/10/2024 | 1400/1000 | *** |  US | ISM Non-Manufacturing Index |
| 03/10/2024 | 1400/1000 | ** |  US | Factory New Orders |
| 03/10/2024 | 1430/1030 | ** |  US | Natural Gas Stocks |
| 03/10/2024 | 1440/1040 |  US | Fed's Raphael Bostic, Neel Kashkari | |
| 03/10/2024 | 1530/1130 | ** |  US | US Bill 04 Week Treasury Auction Result |
| 03/10/2024 | 1530/1130 | * |  US | US Bill 08 Week Treasury Auction Result |
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