MNI EUROPEAN MARKETS ANALYSIS: Japan's Labour Market Conditions Softened In July

US TSYS: Slight Richening In Early Asia-Pac Dealing

TYU3 is currently trading at 109-24+, +04 from NY closing levels.

• US tsys are sitting near Asia-Pac session highs, with benchmark yields 1-2bp richer. The curve has steepened.
• There has been no news of significance so far in the session.

JGBS: Futures Higher But Off Bests, Rinban Operations for 3- to 25-Year+ JGBs Tomorrow

In afternoon trade, JGB futures are dealing richer, +17 compared to settlement levels, but off session bests.

• There hasn’t been much in the way of domestic data drivers to flag, outside of the previously outlined jobless rate that surprised on the upside.
• That said, 2-year supply witnessed lacklustre demand, with the low price failing to meet dealer expectations and the cover ratio declining to the lowest observed at a 2-year auction since 2010. It is noteworthy that today’s 2-year JGB auction today was the first 2-year supply since the BoJ's decision to tweak yield curve control (YCC). August’s 5-year supply also saw weak demand.
• The cash JGB curve has twist flattened, pivoting at the 4s, with yields 0.4bp higher to 1.5bp lower. The benchmark 10-year yield is 1.2bp lower at 0.652%, above BoJ's YCC old limit of 0.50% but below its new hard limit of 1.0%. The 2-year is 0.1bp higher on the day at 0.01%, after being at 0.003% before the auction result.
• The swaps curve has bull flattened, with rates 0.1bp to 1.0bp lower. Swap spreads are narrower, apart from the 7-20-year zone.
• Tomorrow the local calendar sees Consumer Confidence data for August, along with BoJ Rinban operations covering 3- to 25-Year+ JGBs.

JAPAN DATA: July Labor Market Data Weaker Than Expected

Japan's July unemployment rate rose top 2.7%, versus 2.5% forecast (prior was 2.5%). The job to applicant ratio eased to 1.29, versus 1.30 expected, which was also the prior result. At face value the data suggest a loss of momentum in terms of the labor market.

• In terms of the detail, the number of employed fell by 100k, while unemployed persons rose 110k from June.
• New job offers fell -2.5% y/y, the second straight y/y fall, although this series can be quite volatile. The new jobs to applicant ratio eased back to 2.27, from 2.32. Late 2022/early 2023 highs were at 2.38 for this metric.
• The chart below shows the unemployment rate overlaid against the job-to-applicant-ratio, which is inverted on the chart.
• Insofar as this data suggests the best of the labor market strength is now behind it adds a modest dovishness to the BoJ outlook, given the data hints at less upside on wage pressures, all else being equal.

Fig 1: Japan Unemployment Rate & Job-To-Applicant Ratio (Inverted)

Source: MNI - Market News/Bloomberg

AUSSIE BONDS: Richer, Mid-Range, CPI Monthly Tomorrow

ACGBs (YM +2.0 & XM +2.0) sit in the middle of the Sydney session range ahead of the closely watched CPI Monthly data tomorrow. There was no data or headlines of note today. Accordingly, local participants appear to have been guided by US tsy dealings in the Asia-Pac session.

• US tsys are sitting near Asia-Pac session highs, with benchmark yields 1-2bp richer. The curve has steepened. There has been no news of significance so far in the session.
• Cash ACGBs are 2bp richer, with the AU-US 10-year yield differential unchanged at -7bp.
• Swap rates are 2bp lower, with EFPs slightly wider.
• The bills strip has twist flattened, pivoting at late whites, with pricing -1 to +3.
• RBA-dated OIS pricing is flat to 2bp softer across meetings. A 5% chance of a 25bp hike in September is priced, with terminal rate expectations at 4.21%.
• Speech by RBA Deputy Governor Michele Bullock, “Climate Change and Central Banks” is due today at 0840 BST / 1740 AEST.
• Tomorrow the local calendar sees the CPI Monthly for July, accompanied by Construction Work Done (Q2), Building Approvals (Jul) and Private Sector Credit (Jul).
• Tomorrow the AOFM plans to sell A$700mn of the 2.75% 21 November 2028 bond.

AUSTRALIAN DATA: SEEK Salary Growth Shows Labour Market Remains Tight

The SEEK advertised salary index rose 0.4% m/m in July up from 0.3% the previous three months. This brought the annual rate to 4.6% from 4.5% in June. While advertised pay is off its December peak of 5% y/y, it remains elevated and with the 3-month rate steady at about 1% signals that labour shortages persist in a tight market. The tick up also coincided with an increase in job ads suggesting a pickup in labour demand.

• SEEK notes that there wasn’t especially strong offered wage growth in those industries linked to awards such as hospitality but that the 5.75% increase from July 1 probably has provided some support.
• Queensland saw the strongest growth at 5.3% y/y. Trades & services increased 5.9% and retail +5.5% whereas government was only 0.9%.

Source: MNI - Market News/SEEK

NZGBS: Richer, Outperforms The $-Bloc, Building Permits Tomorrow

NZGBs closed 2bp richer, with benchmarks just off local session bests. Without local catalysts, the direction of the local market was largely set by US tsys dealings in the Asia-Pac session.

• US tsys are 1-2bp richer across benchmarks. The curve has steepened. There has been no news of significance in the session.
• That said, NZGBs have outperformed the $-Bloc today, with the NZ-US and NZ-AU 10-year yield differentials both 2bp tighter. This move partially unwinds the underperformance seen yesterday sparked by NZ fiscal deterioration concerns. The NZ Pre-Election Economic and Fiscal Update (PREFU) is due for release on September 12.
• The International Monetary Fund has published sluggish predictions for NZ's economic growth, tipping higher inflation for longer. The paper makes for grim reading for Kiwis, already in a technical recession, without a pathway back to growth enjoyed in recent years. (See link)
• Swap rates are 4bp lower, with implied swap spreads narrower.
• RBNZ dated OIS pricing is unchanged out to Apr’24 and 1-4bp softer beyond. Terminal OCR expectations sit at 5.65%.
• Tomorrow the local calendar sees Building Permits for July. On Thursday, ANZ Business Confidence is on tap, with ANZ Consumer Confidence on Friday.

FOREX: USD Softens On Lower Yields Firmer Regional Equities

The USD sits further away from recent highs, last near 1241.50, having lost ~0.1% in Tuesday trade to date. A modest drift lower in US yields has weighed, although we are away from session lows. 2yr last around 5.035%, 10yr at 4.19%. Regional equities are tracking with a positive tone as well, which has seen higher beta FX outperform the yen, albeit at the margins.

• USD/JPY got close to Monday session lows (low of 146.31), as US yields softened, before edging back to 146.45 this afternoon. Earlier July unemployment figures unexpectedly ticked higher to 2.7% (2.5% forecast), but this didn't impact sentiment, while we saw a poor 2yr debt auction as well. Broader US-JP yield differentials haven't moved a great deal though.
• AUD/USD is up around 0.30%, tracking near 0.6445/50. The better regional equity tone has helped, along with higher metal prices. Copper is +0.60%, iron ore futures, +0.50%. Highs from last week near 0.6490 beckon the top side, while recent lows rest at 0.6365. Later on, incoming RBA Governor Bullock speaks on 'Climate change and central banks'.
• NZD/USD has risen, but ran into some resistance around the 0.5930 level, we last track near 0.5920.
• GBP/USD has slightly outperformed the other majors, last at 1.2625 (~0.20% firmer).
• Looking ahead we have German consumer confidence, while later the Fed’s Barr speaks about banking services and there are US June house prices, July JOLTS job openings and August consumer confidence & Dallas Fed services.

EQUITIES: Hong Kong Stocks +2%, As Better Earnings Drives Sentiment

The regional equity tone is a positive one for the major indices in Tuesday trade to date. This follows gains in EU/US bourses during Monday trade. At this stage, US equity futures are a touch higher. Eminis last tracked near 4444.50. which is reasonably close to Monday session highs. Nasdaq futures are a tough firmer in (percentage terms), last near 15112.

• Among the strongest performers today have been Hong Kong shares. The HSI is around +2% stronger, just below sessions highs at the lunchtime break. The TECH sub index is +2.61%, building on yesterday's +1.69% gain.
• China EV market BYD rallied on strong Q2 profits, with further earnings due later. The South China Morning Post notes that 56 of 80 HSI members have reported earnings so far, with average earnings growth of 1.9%.
• In China markets initially opened lower, but sentiment has improved as the session progressed. At the break, the CSI 300 is +1.45% and back above 3800 in index terms. Positive spill over from HK moves is helping, while the onshore media stressed patience in terms of better market conditions.
• Japan stocks are lagging somewhat. The Topix +0.20% at this stage. Some chatter is local equities may suffer from China's export seafood ban.
• The Kospi is up 0.35% in South Korea, although offshore investors have sold -$74.4mn of local shares today. The Taiex is also lagging somewhat, last +0.20%.
• In SEA, most bourses are higher, but gains are comfortably under 1% at this stage. Philippine equities continue to lag broader sentiment, down a further 0.2% in the first part of trade today, as markets return from yesterday's holiday.

OIL: Range Trading, Crude Likely To Be Down In August

Oil prices have been in a narrow range during APAC trading. They fell earlier in the session but have bounced back to be unchanged, as supply and demand concerns balance out. Stronger equity markets have provided support. The USD index is down 0.1%.

• WTI is currently just above $80 at $80.05/bbl, close to the intraday high of $80.13. It has been under the key $80 level during the session falling to a low of $79.79. Brent is at $84.42, close to the high of $84.47. The low earlier was at $84.11. It is currently down 1.2% this month and WTI -1.5%.
• Demand from China continues to worry the market. Its largest refiner, Sinopec, expects product demand in H2 to be less than H1.
• On the supply side, futures timespreads continue to point to tight supply given OPEC production cuts and the possibility of their extension. Later today US API inventory data is published. Turkey’s energy minister has said that work on a key Iraqi pipeline is about to be finished.
• Later the Fed’s Barr speaks about banking services and there are US June house prices, July JOLTS job openings and August consumer confidence & Dallas Fed services.

GOLD: Slightly Firmer, US Tsy Yields Lower

Gold is 0.3% higher in the Asia-Pac session, after closing +0.3% on Monday.

• The strengthening in gold was supported by lower US tsy yields on Monday. In a data light session, technical flows dominated US tsy trading as participants eyed Friday's US Non-Farm Payrolls data.
• According to MNI’s technicals team, the trend outlook in bullion remains bearish, however, a short-term correction resulted in a recovery last week. The yellow metal has breached resistance at the 20-day EMA and attention turns to the 50-day EMA, at $1930.8.
• A clear break of this average would strengthen the current bull cycle.
• For bears, moving average studies continue to highlight a dominant downtrend. Key support and the bear trigger has been defined at $1884.9, the Aug 21 low.

ASIA FX: CNH Steady Despite Better Equity Tone, PHP Underperforms On Weaker Equities

USD/Asia pairs tracked lower in the first part of trade, but sit away from session lows in latest dealings. USD/CNH has struggled to challenge lower, despite a firmer equity market backdrop. THB has outperformed marginally, while PHP has underperformed the other way. Most other pairs have exhibited reasonably tight ranges, despite a mostly firmer regional equity backdrop. The regional data calendar is quiet tomorrow.

• USD/CNH has seen a rough 100pip range today, with support evident around 7.2850, while moves above 7.2950 have drawn selling interest. Local equities have remained a focus point and after a negative open we saw better sentiment as we progressed to the break. The CSI 300 last around 1% higher, down from session highs, although not imparting much positive impetus for CNH. USD/CNH was last above 7.2900, little changed for the session.
• 1 month USD/KRW has been able to see fresh downside beyond 1317, we last tracked near 1320. Onshore equities are higher, but offshore investors have been net sellers of local shares today. The government plans only a modest increase in government spending next year, which should see bond issuance lower in 2024 versus this year.
• Spot USD/HKD's uptrend remains intact, the pair moving above 7.8460, which is where track close to in the first part of dealings on Tuesday. We are above mid-May highs, with the 7.8500 level (top-end of the peg band) the next upside target. 1 month Hibor fell to 3.755% today, lows back to the first part of May. The 3 month is back to 4.45%, also multi-month lows.
• USD/THB is tracking lower in the first part of dealing today, las near 35.17, around 0.30% firmer in baht terms for the session so far. This keeps us within recent ranges, with the 20-day EMA at 35.025 a potential support point on the downside. On the tourism front, the new PM has stated the aim is to boost flight capacity by 20% ahead of peak season. Srettha is also targeting 3.3t baht in tourism revenue next year, up from a projected 2.38t baht this year.
• USD/PHP sits higher, last at the 56.75 level. We remain well within recent ranges, with 57.00 likely representing a cap on the topside (or at least heightened intervention risks at this level), while the 20-day EMA sits lower at ~56.21. The peso is underperforming the softer USD trend elsewhere today. The local equity tone remains a PHP headwind, Equities appear under pressure from the softness in Q2 growth and signs of slowing bank lending activity.