MNI EUROPEAN MARKETS ANALYSIS: Japan Equities Down Sharply As Higher Oil/Foreign Selling Weighs

US TSYS: Marginally Richer In Asia

TYZ3 deals at 107-24, +0-05+, a narrow 0-05 range was observed on volume of ~105k.

• Cash tsys sit ~1bp richer across the major benchmarks.
• Tsys have observed narrow ranges in a data light session in Asia, there has been little follow through on moves and little meaningful macro news flow crossed.
• Flow wise the highlight was a TY block buyer (5k lots).
• Regional German CPI provides the highlight in Europe today, further out we have Initial Jobless Claims and 3rd read of GDP. Fedspeak from Chair Poweel and Chicago Fed President Goolsbee is due. We also have the latest 7-Year Supply.

JGBS: Futures Weaker, Near Toyo Session Lows, Heavy Local Calendar Tomorrow Incl. Tokyo CPI

JGB futures are sitting cheaper and near Tokyo session cheaps, -15 compared to session cheaps.

• There hasn’t been much in the way of domestic drivers to flag, outside of the previously outlined international investment flows.
• The cash JGB curve has bear-steepened, with yields 0.1bp to 1.5bps higher. The benchmark 10-year yield is 1.1bps higher at 0.752%. It is slightly lower than the cycle high of 0.756%, set prior to the September BOJ decision.
• The 2-year yield is at 0.031%, 0.4bp higher on the day, but 0.4bp lower in post-auction dealings. This is despite only adequate demand exhibited in today’s auction.
• Considering that today's auction took place amidst more positive demand indicators for 5-, 20-, and 40-year JGB offerings, the results might be viewed as somewhat lacklustre, especially given that the outright yield was the highest since January. The notable steepening of the 2/5 JGB yield curve over the past month, reaching its most pronounced point since January, appears to have influenced demand compared to the recent 5-year auction.
• The swaps curve has bear-steepened, with rates 0.5bp to 2.1bps higher. Swap spreads are wider beyond the 1-year.
• Tomorrow the local calendar is heavy with the release of Tokyo CPI, Jobless Rate, Job-To-Applicant Ratio, Retail Sales, Housing Starts and Consumer Confidence data.

JAPAN DATA: Offshore Investors Dump Local Equities & Bonds

Offshore investors remained heavy sellers of Japan stocks last week. We saw -¥3025.3bn in net outflows, see the table below. This is a record in terms of a weekly outflow from local stocks. It comes after the prior week's outflow of -¥1578.4bn. Since the start of August we have seen a cumulative -¥6101bn in outflows. Only 2 out of 8 weeks over the period have seen positive inflows.

• Foreign investors were also chunky sellers of local bonds, -¥2025.1bn in outflows. This more than offsets the net inflows seen in the prior 3 weeks.
• Japan outbound flows were much more modest in an absolute sense. Local investors sold -¥544.4bn of offshore bonds, while also selling offshore equities, albeit at a very moderate pace.

Table 1: Japan Weekly Investment Flows

Source: MNI - Market News/Bloomberg

AUSSIE BONDS: Hovering Near Session Cheaps Despite Weakish Data

ACGBs (YM -8.0 & XM -8.5) are hovering near the lows of the Sydney session, despite a generally soft release of domestic data. As previously mentioned, August retail sales slightly underperformed expectations (+0.2% m/m versus an estimated +0.3%), and job vacancies experienced an 8.9% decline q/q in the three months leading up to August. With US tsys richer in Asia-Pac trading, the afternoon dip in ACGBs appears to be more of a correction following their earlier outperformance relative to US tsys.

• Cash ACGBs are 7-8bps cheaper, with the AU-US 10-year yield differential 1bp lower at -14bps.
• Swap rates are 6bps higher on the day.
• The bills strip bear-steepens, with pricing -1 to -10.
• RBA-dated OIS pricing is 3-6bps firmer on the day for '24 meetings.
• Tomorrow the local calendar sees Private Sector Credit data for August.
• Tomorrow the AOFM plans to sell A$800mn of the 2.25% 21 May 2028 bond.
• Households have drawn down on their bank account savings for the first time since the last major interest rate tightening cycle in 2007, as higher borrowing costs also squeeze retail spending. (See link)

NZGBS: Closed Near Session Highs, Outperformed $-Bloc Peers

NZGBs closed at or near session bests, with benchmarks 3-6bps cheaper. The move away from session cheaps came despite a lift in ANZ business confidence and lacklustre demand metrics for weekly supply. The cover ratios for today’s auction lines were a low 1.65x to 2.44x. Nonetheless, the bond lines were 2-3bps richer in post-auction dealings, with the May-51 bond outperforming.

• The NZGB 10-year benchmark outperformed its $-bloc peers by 2-3bps.
• Swap rates are 2-4bps higher, with the 2s10s steeper.
• RBNZ dated OIS pricing is flat to 2bps firmer across meetings, with terminal OCR expectations at 5.77%.
• The business confidence index rose to 1.5 in September from -3.7 in August, according to ANZ. This was the first positive read since May 2021. The business activity outlook index fell to 10.9 from 11.2 in August. Inflation expectations eased to 4.95% from 5.06%. ANZ said the NZ economy is certainly patchy, and the rebound in activity indicators that’s been evident since the start of the year may be running out of steam, according to Bloomberg. Inflation pressures are gradually waning in the big picture, but not rapidly nor in a straight line: ANZ.
• Tomorrow the local calendar sees ANZ Consumer Confidence.

EQUITIES: Ex-Dividend Day/Oil Surge Hits Japan Stocks, China Property Concerns Remain

Japan stocks are noticeably weaker in Thursday trade, the major indices off nearly 2%. A number of markets are shut including South Korea and Indonesia. This is also China's last trading day ahead of the extended Golden Week break. US equity futures were higher in early trade, but couldn't sustain these levels. Eminis sit down slightly, last at 4309, after getting to 4326.50 earlier. We are above Wednesday intra-day lows sub 4280 though.

• Japan stocks are noticeably weaker. The Nikkei 225 off around 2% at this stage. The Topix down ~1.90%. The continued climb higher in oil prices have weighed from a broader macro standpoint. The local 20yr yield hit fresh highs back to 2014, while the yen also strengthened marginally.
• Also note that the Topix was weighed by over 1000 stocks going ex-dividend. Local analysts also indicated that a possible portfolio adjustment from the GPIF may be weighing as well.
• At the break the HSI is down a little 1%. Shares of struggling property conglomerate Evergrande have been suspended, which hasn't helped sentiment. While Country Garden dollar bond holders are reportedly yet to receive coupon payments which were due on Wednesday.
• In China, the CSI 300 is off 0.28% at the break. The other major indices slightly higher. Note this is the final trading session for China markets until we return from the Golden Week break on Oct 9.
• In Australia, the ASX 200 is off 0.40%. In SEA Thailand and Philippine stock indices are modestly higher.

FOREX: Antipodeans Trim Wednesday's Losses

The Antipodeans have firmed in Asia trimming some of Wednesdays losses, US Tsy Yields have ticked lower and the Bloomberg Commodity Index has ticked higher.

• AUD/USD is up ~0.4% and last prints at $0.6375/80. The pair looked through a weaker than forecast Retail Sales print in August (0.2% M/M vs exp 0.3%). The trend condition remains bearish and support now comes in at $0.6287, 2.000 projection of the Jun 16-Jun 29-Jul 13 price swing. Resistance comes in at the 20-Day EMA ($0.6435).
• Kiwi is firmer, NZD/USD is up ~0.4% and sits at $0.5945/50. The pair has continued the move seen late in yesterdays NY session and now targets the Sep 22 high ($0.5989) after recovering above the 20-Day EMA today.
• The Yen is a touch firmer however ranges have been relatively narrow. USD/JPY last prints at ¥149.40/45. The trend continues to be bullish, resistance comes in at ¥147.71, high from Oct 24 2022. Support is at ¥147.29, the 20-Day EMA.
• Elsewhere in G-10 there hasn't been much movement and ranges have been narrow.
• Regional German CPI provides the highlight in Europe today.

OIL: Tight Supply/China Demand, Fuel Further Gains

Brent crude extended Wednesday gains in the first bit of Thursday trade. We touched fresh highs of $97.69/bbl, but have consolidated somewhat since. The benchmark was last at $97.30/bbl, still +0.80% above Wednesday closing levels and tracking higher for the fourth straight session. WTI poked above $95/bbl (high of $95.03), but now sits slightly lower, last near $94.60/bbl.

• Today's momentum has largely been about concern on the supply side, following US data on Wednesday showing inventories at Cushing dropped below 22mln barrels, the weakest result since July 2022 and near operating minimums. Not surprisingly WTI prompt spreads remain very elevated.
• Analysts at J.P. Morgan also note that stronger China trucking activity as well as a pick in international travel ahead of the Golden Week period is providing additional support from a demand stand point (see this link).
• Focus for Brent is on whether we can break above $100/bbl, levels that haven't been seen since August last level. Note that the Nov 2022 high was $99.56/bbl. The 20-day EMA is back near ~$92/bbl on the downside.

GOLD: Steady In Asia-Pac After A Very Heavy Wednesday

Gold is steady in the Asia-Pac session, after closing -1.3% at $1875.12 on Wednesday Bullion faced downward pressure driven by a strengthening US dollar, which surged to a new year-to-date high, primarily due to the soaring US Treasury yields, reaching fresh multi-year peaks.

• Both the 2-year and 10-year yields concluded the day 7 basis points higher, settling at 5.135% and 4.61%, respectively. These moves were influenced by factors such as the rising oil prices, the looming possibility of a federal government shutdown within days, and escalating labour disputes, notably involving the United Auto Workers.
• He suggested that the Federal Reserve might need to implement more than one additional interest rate hike. However, he also acknowledged that a potential US government shutdown or an extended strike by automotive workers could potentially slow down the economy, potentially obviating the need for the Federal Reserve to deploy its policy tools to combat inflation.
• According to MNI’s technical team, the yellow metal pushed through two support levels including the bear trigger at $1884.9 (Aug 21 low). However, Wednesday’s low of $1872.7 stopping short of next support at $1871.6 (Mar 13 low).

ASIA FX: CNH Supported Via CNY Fixing Ahead Of Golden Week Holiday Period

USD/Asia pairs are mixed today. We have some markets out -South Korea, Indonesia and Malaysia. Today is also the final session ahead of the Golden Holiday week period for China, with onshore markets closed tomorrow and all of next week. USD/CNH has moved off recent highs, but remains well within recent ranges. THB has hit fresh YTD lows, while USD/PHP remains sub 57.00. Spot USD/HKD has firmed back to mid September levels.

• USD/CNH has tracked modestly lower, aiding by a stronger than expected CNY fixing. We were last near 7.3100, around 0.20% strong in CNH terms versus opening levels. Equity sentiment has been weaker, and note this is the final onshore trading session ahead of the Golden Week Holiday period, which kicks off tomorrow and runs through all of next week.
• Spot USD/HKD has firmed, the pair rallying to 7.8280 this afternoon. We were around 7.8210 at the open. This is fresh highs back to mid September. We have moved back above the 20-EMA (~7.8260), but the 200-day sits above 7.8300, which hasn't been breached yet. These moves come despite a fresh record high in overnight Hibor, fixing at 5.81%. The 1 month also climbed 4bps to 5.40%, highs back to earlier August. We were steadier in the 3 month space, fixing at 5.27%. This has kept the US-HK 3mth differential steady at +18bps.
• USD/MYR continued to tick higher yesterday, breaching the 4.70 handle, as broader USD trends dominated flows. The pair rose ~0.4% closing at its highest level since mid-November. A reminder that domestic markets are closed today for the observance of a national holiday. Palm Oil futures had their largest rise in 6 weeks yesterday, the weaker MYR is boosting demand and cushioning the impact of the recent slide in Soybean Oil.
• The SGD NEER (per Goldman Sachs estimates) sits a touch off Monday's cycle highs, holding a narrow range this morning. We now sit ~0.5% below the top of the band. Broader USD trends continue to dominate flows for USD/SGD, the pair printed a fresh cycle high as the USD continued to strengthen alongside US Tsy Yields yesterday. The pair is down ~0.1% this morning, last printing at $1.3710/15. Singapore will raise the price of water by 18% over two years from April, Consumers will have to pay an additional S$0.50 per cubic metre of water, which means most households will see an increase of less than S$10 in their monthly water bills once the full price revision takes effect, the national water agency PUB said in a statement Wednesday.
• USD/INR has opened dealing little changed from Wednesday's closing levels, the pair last prints at 83.23/24. Yesterday the pair consolidated recent gains above the 83 handle. Rising US Tsy Yields and Oil prices continue to weigh on the Rupee. FTSE Russell is to review India’s potential inclusion in its emerging market debt index on Sept 28; India is currently on watchlist for potential inclusion with the decision due late US hours today.
• USD/PHP continues to hold close to the 57.00 level. We got to a high of 56.985 in the first part of trade today, but sit slightly lower now (last 56.94). Focus remains on BSP intervention around the 57.00 level. A clean break above this resistance point would pave the way for a move towards 57.15, then 57.55, levels which prevailed back in Nov 2022. Upside pressure remains in USD/PHP, particularly from resurgent oil prices.
• USD/THB has continued to climb in the first part of trade today. We sit close to session highs, last at 36.75, -0.6% weaker in baht terms since the open. This continues the recent run of baht weakness, with some catch up to USD strength post the onshore close yesterday also in play. There doesn't seem much in the way of resistance to the 37.00 figure level. Ther 14 day RSI is overbought territory but has been for a number of sessions. The 20-day EMA sits back near 35.91. Yesterday's BoT hike only provided fleeting support to the baht, as broader USD trends continue to dominate. A number of sell-side analysts see the BoT on hold for the remainder of the year.