MNI EUROPEAN MARKETS ANALYSIS: JGB Futures Down Sharply, ECB Up Next

​US TSYS: Treasury Futures Edge Higher, PPI & Jobless Claims Later

• Jun'24 10Y futures have been trading in tight ranges throughout the Asian session and now trade just off intraday highs of 108-13, at 108-11+ for a gain of +05 since NY closing levels, earlier there was a Block buyer of the contract at 108-11+. 5Y futures trade up +03 at 105-10.25, just off earlier highs of 105-11.75.
• Looking at technical levels: Initial support lays at 108-06+ (2.236 proj of Dec 27 - Jan 19 - Feb 1 price swing), below here 108-05+ (Apr 10 lows) and 108-00 (round number support). While to the upside resistance holds at 109-26+ (Apr 10 high), a break back above here would open up 110-06 (Apr 4 high)
• The Cash Treasury curve has bull-steepened throughout the day with the 2Y yield now -1.9bps at 4.955%, 10Y -0.6bps to 4.538%, while the 2y10y +1.253 at -41.911.
• Cross Market - The Japanese 10Y yield has just hit its highest levels since November, with yields 2-8bps higher, ACGBs are 11-15bps higher, while NZGBs are 11-14bps higher
• Looking Ahead: PPI, Jobless Claims & Fed Speak later today.

STIR: US CPI Beat Firms $-Bloc OIS Pricing

STIR markets within the $-bloc have firmed by 4 to 21bps since the beginning of the week, with the US experiencing the most notable increase while Australia lags behind. This movement was triggered by the release of stronger-than-anticipated US CPI data overnight.

• The US market now has 44bps of Fed easing priced for this year, well below the 75bps median projection by policymakers at the March FOMC. Moreover, the first 25bp rate cut has been pushed back to November, from July ahead of the inflation data.
• December 2024 expectations and the cumulative easing across the $-bloc stand at: 4.89%, -44bps (FOMC); 4.41%, -59bps (BoC); 4.06%, -26bps (RBA); and 5.03%, -47bps (RBNZ).

Figure 1: $-Bloc STIR (%)

Source: MNI – Market News / Bloomberg

JGBS: Futures Below March Lows, 20Y Auction Showed Mixed Results, 2YY Highest Since 2009

JGB futures are sharply weaker, -68 compared to settlement levels, and at session lows after today’s 20-year supply delivered mixed demand metrics. Today’s result was disappointing, particularly after April’s 10- and 30-year JGB supply set a positive tone for a market that had been under pressure since mid-December due to anticipated policy tightening by the BoJ.

• The 20-year yield is dealing 3bps cheaper at 1.662% in post-auction trade and less than 10bps below the cycle high set in October.
• Today’s data drop failed to be market-moving.
• According to MNI’s technicals team, a stronger reversal higher is required to signal the end of the recent corrective phase. The bull trigger has been defined at 147.74, the mid-January high. A break would resume the uptrend. Moving average studies remain in a bull-mode set-up, highlighting an uptrend.
• Cash JGBs are sharply cheaper, with the 20-40-year zone underperforming (around 9bps cheaper). The benchmark 10-year yield is 5.6bps higher at 0.862%, a fresh YTD high. The 2-year yield reached 0.272%, the highest level since 2009.
• The swaps curve has bear-steepened, with rates flat to 9bps higher. Swap spreads are mixed.
• Tomorrow, the local calendar sees Industrial Production and Capacity Utilisation data alongside BoJ Rinban operations covering 1- to 10-year JGBs.

AUSSIE BONDS: Dealing At Session Lows, Sharply Cheaper Ahead Of US PPI & Claims Data

ACGBs (YM -15.0 & XM -13.0) have extended overnight weakness and are hovering just above the lows seen during the Sydney session. Despite a relatively light domestic calendar, today's pronounced cheapening reflects the ongoing impact of yesterday's US CPI data. This trend persists despite the slight bull-steepening observed in the US yield curve during today's Asia-Pacific session. Cash US tsys are dealing flat to 3bps richer, ahead of today’s PPI and Claims data.

• There hasn’t been much in the way of domestic drivers to flag, outside of the previously outlined Household Spending and Consumer Inflation Expectations data.
• Cash ACGBs are 13-14bps cheaper, with the AU-US 10-year yield differential 4bps lower at -28bps, marking the lower end of its trading range since late 2022.
• Swap rates are 13-14bps higher, with EFPs mixed.
• The bills strip has bear-steepened, with pricing -3 to -17.
• RBA-dated OIS pricing is 9-13bps firmer for meetings beyond September. A cumulative 24bps of easing is priced by year-end.
• (AFR) Higher US inflation has dashed hopes of a local interest rate cut this year, as economists warn that borrowing costs may need to go higher to offset a “dangerous” policy cocktail of stimulus from green industrial subsidies and income tax cuts. (See link)
• Tomorrow, the local calendar is empty.

NZGBS: Closed Sharply Cheaper But Off The Worst Levels, US PPI & Claims Data Later Today

NZGBs closed sharply cheaper, with benchmark yields 13-14bps higher, despite a slight paring of losses late in the session. With the domestic data calendar empty, the move away from session cheaps likely reflected the slight bull-steepening observed in the US cash curve during today's Asia-Pacific session. Cash US tsys are dealing flat to 3bps richer.

• Today’s weekly supply saw mixed demand metrics, with cover ratios ranging from 1.8x (Apr-29) to 3.2x (May-32).
• (Bloomberg) NZ household debt-servicing costs neared a six-year high as interest rates climbed last year, adding to strains on consumer spending. Interest payments increased to 8.4% of household disposable income in the 12 months through December, Statistics New Zealand said. That’s up from 7.9% in the year ended September and is the highest since March 2018. (See link)
• Swap rates closed 14-17bps higher, with the 2s10s curve steeper.
• RBNZ dated OIS pricing is 1-14bps firmer across meetings, with late-24/early-25 leading. A cumulative 45bps of easing is priced by year-end.
• Tomorrow, the local calendar will see BusinessNZ Manufacturing PMI, Card Spending and Food Prices data.
• The US calendar will see PPI, Jobless Claims & Fed Speak later today.

FOREX: Intervention Risks See USD/JPY Pullback, But Little Follow Through

The USD sits modestly lower against the G10 currencies, with JPY and NZD the strongest performers. At this stage though currencies have only pared a fraction of the losses seen post the US CPI print on Wednesday. US yields are off Wednesday highs, while US equity futures have recovered from earlier lows, likely weighing on the USD.

• Yen sentiment was aided in the first part of trade amid a fresh round of verbal jawboning from currency chief Kanda. The comments didn't appear to be a step up from what we have heard recently though. USD/JPY fell back through 153.00 and got to lows of 152.76, but we sit higher now, last near 152.90, only 0.15% firmer in yen terms versus end NY levels from Wednesday.
• USD/JPY overnight vols are elevated at +14.5%, but we remain sub earlier 2024 intra-session highs. A firmer JGB yield backdrop, aided by a poor 20yr auction, has helped move US-JP yield differentials off post US CPI highs, a further yen support.
• NZD/USD sits modestly higher, last above 0.5985. AUD/USD was also a touch higher, last near 0.6520. We have mainly had second tier data releases in Australia, although inflation expectations did tick higher.
• The much stronger than expected CNY fixing, coupled with lower USD/CNH levels has likely aided A$ and NZD sentiment at the margins.
• There was also some concern around Iranian related military action against Israel, but that hasn't materialised so far. This may have supported some stabilization in US equity futures.
• Looking ahead, we have the ECB decision as the main focus point in the EU session. In US trade, Fed speak, the PPI and initial jobless claims will be in focus.

ASIA EQUITIES: HK & China Equities Mixed, Off Morning Lows, China CPI Slows

Hong Kong and China equity markets have followed US Indices lower after stronger than expected US CPI overnight, although markets are off their morning lows. China Mainland equities are out-performing Hong Kong equities after the past few days of underperformance. Investors are now signaling the Federal Reserve will cut interest rates just twice this year, starting in September, less than the most recent Federal Reserve dot plot that indicated three 2024 cuts. At the start of the year, market pricing indicated six cuts were expected. Elsewhere, China Vanke has been downgraded to Junk, Fitch cut China's outlook to negative, China's market watchdog to crack down on fraudulent issuances while China CPI falls to 0.1% y/y in March.

• Hong Kong equities are lower today, the HSTech Index is down 1.30%, while the Mainland Property Index is off 1.15%, the HSI failed to break above March 3 highs and just shy of testing the 200-day EMA on Wednesday, and is now down 0.76% for the day. China equities are faring slightly better today, with the CSI300 unchanged, while the small cap CSI1000 is up 0.72% and the growth focused ChiNext is off 0.37%
• China Northbound flows were 4.1billion yuan on Wednesday, with the 5-day average at -2billion, while the 20-day average sits at 1.32billion yuan.
• In the property space, S&P Global Ratings downgraded China Vanke to junk status due to a cash crunch and investor scrutiny, with Moody's and Fitch also recently lowering its credit rating. Despite having enough liquidity to address this year's debt maturities, weakening property sales and margins threaten its competitiveness, and its longer-term financial position may deteriorate if planned asset sales falter. China Vanke Stocks and Bonds continued to decline after news emerged that a regional manager in Jinan is assisting in an investigation for "personal reasons," causing the stock to close at its lowest level since May 2014. This follows recent allegations of money laundering and tax evasion made against the company and its chairman.
• (Bloomberg) Fitch Cuts China Outlook to Negative on Steady Rise in Debt (See link)
• (Bloomberg) China Market Watchdog Vows to Crack Down on Fraudulent Issuances (see link)
• (Bloomberg) Chinese Cities Further Ease Home-Buying Policies, Newspaper Says (see link)
• Earlier, China's consumer prices saw slower growth in March, rising by 0.1% year-on-year, attributed to declines in food and travel costs, which widened deflation concerns after a brief respite in February. Despite an expected rise, food prices dropped by 2.7%, while non-food prices increased by 0.7%, with the core CPI slowing to 0.6% growth. Additionally, the producer-price index fell 2.8% year-on-year, in line with economist expectations, continuing an 18-month streak of deflation.
• Looking ahead, Trade Balance data is due out on Friday

JAPAN DATA: Offshore Investors Return To Local Stocks, Sell Local Bonds

Offshore investors returned to local stocks last week, with ¥1764.4bn in offshore inflows. This was the first inflow into the space in 4 weeks, with cumulative outflows of -¥2418.8bn from Japan equities in the month of March. Offshore investors returned to net sellers of local bonds, continuing somewhat of a see-saw pattern. Net flows into local bonds have been close to flat since early March.

• In terms of Japan outbound flows, we saw some buying off offshore bonds, but this only modestly offsets last week's net selling.
• Local investors continued to sell offshore stocks, which marks the 5th week out of the last 6 where we have seen outflows from this space by the local investor base.

Table 1: Japan Weekly Investment Flows

Source: MNI - Market News/Bloomberg

ASIA PAC EQUITIES: Asian Equities Off Morning Lows, Yen Eyes 153.00

Regional Asian equities fell after higher-than-expected US inflation data supported the view the Federal Reserve may keep interest rates higher for longer, although most markets are well off their opening lows. The USD/JPY has weakened, reaching a high of 153.24 on Wednesday post US CPI and trades just below the 153.00 level at 152.93 while global yields have surged higher. South Korea has returned from their break yesterday with SK President suffering a defeat in parliamentary elections, while Taiwan exports surged in March.

• Japan equities have fallen for a second day, after US inflation data supported the view the Federal Reserve may keep interest rates higher for longer, which dampened investors’ sentiment for riskier assets. JGBs yields are near or have made new highs, while the yen rebounded slightly after weakening to levels not seen since 1990 against the dollar, investors are likely to take a cautious stance as the weakening has sparked fresh speculation Japanese authorities might step into the market to support the currency. The Japanese Finance Minister Suzuki spoke earlier where he emphasized the importance of stable FX movements reflecting fundamentals, although he refrained from commenting on daily FX fluctuations. The Nikkei 225 is down 0.55% at 39,365, while the Topix is now unchanged
• South Korean has returned from their break on Wednesday where SK President Yoon Suk Yeol has suffered a major defeat in parliamentary elections, reducing his legislative influence and facing increased opposition to his agenda. The Kospi is now unchanged for the day after opening 1.60% lower, as investors view the impact of the election results will be short-lived.
• Taiwan's exports experienced a significant surge in March, with shipments of computer hardware, particularly those supporting the global AI industry, skyrocketing by over 400% in March. This propelled overall exports to $41.8 billion, marking the fastest growth rate in two years. While semiconductors, the largest export category, saw a decline, other tech-related products thrived. Import growth, particularly in aircraft purchases, unexpectedly rose by 7.1%, contrary to economist forecasts for a contraction. The Taiex is down just 0.30%
• Australian equities are lower today, down 0.35%. Real Estate and Consumer Discretionary stocks are the worst performing sectors. The ASX200 briefly traded below the 20-day EMA however this was quickly met with buyers.
• Elsewhere in SEA, New Zealand equities are down 0.60%, a few markets have returned from their breaks with Singapore down 0.40%, Philippines down 0.80%, Thailand equities are also down 0.63%.

ASIA EQUITY FLOWS: Markets Closed, Thailand Sees Equity Inflows As Investors Sell Bonds

• China saw an outflow via northbound connect of 4.1b yuan on Wednesday marking the largest for the month. Chinese equity markets have struggled to make any ground this month with HSI outperforming the CSI300 by 4.13% and is now closing the YtD performance gap to just 1.09%. Wednesday saw Fitch cut China outlook to negative on steady rise in debt, while S&P downgraded China Vanke to Junk. The 5-day average -$2b, the 20-day average is $1.32b while the longer term 100-day average is 0.35b yuan.
• Taiwan equities saw little action on Wednesday markets were largely unchanged while foreign investors bought just $52m on equities as the market readied for US CPI data. There was little change to the averages with the 5-day average now -$90m, the 20-day average is -$186m while the longer term 100-day average is $168m.
• India saw a large inflow on Monday with foreign investors purchasing $1.02b of equities, this was largely driven by the inclusion of 18 Indian stocks in the MSCI India Index, while the Nifty 50 has made new all-time highs again. The 5-day average is now $186m, the 20-day average is $235m, while the longer term 100-day average is just $92m.
• Thailand equities saw another large inflow on Wednesday with $100m of net foreign investor buying. Investors have been selling Thai Bonds recently and buying equities ahead of the BoT decision, of which they kept rates on hold. While government support for property names could also be helping attract inflows. The 5-day average is now $67m, vs the longer term 20-day average at -$33m, and the 100-day average at -$18m.

Table 1: EM Asia Equity Flows

OIL: Firms As Middle East Conflict Concerns Outweigh Higher USD/US Inventory Build

Brent crude sits just off session highs in recent dealings, last near $90.75/bbl. This is close to 0.30% stronger versus end Wednesday levels in NY (Wednesday gains were +1.19%). WTI is above $86.45/bbl, having followed a similar trajectory so far in Thursday trade.

• Sentiment remains on edge amid fears of a strike on Israel from Iran or a proxy. In US trade on Wednesday, per Bloomberg, the US and its allies believe that "major missile or drone strikes by Iran or its proxies against military and government targets in Israel are imminent," in retaliation for an Israeli airstrike on an Iranian diplomatic compound in Damascus on April 1.
• Earlier headlines also crossed that Iran was closing down its airspace due to military drills, also this was later removed and denied by local new agencies.
• Risks of an escalation in the Middle East conflict outweighed a higher yield backdrop, firmer USD (post the stronger than expected CPI) and also rising US crude stockpiles, which was reported on Wednesday.
• A bull theme in WTI futures remains intact and the next objective is $89.08, a Fibonacci projection. If cleared, this would pave the way for a climb towards the $90.00 handle further out. On the downside, initial firm support to watch lies at $83.03, the 20-day EMA.

GOLD: Rebounds After Yesterday’s US CPI-Induced Dip

Gold is 0.4% higher in the Asia-Pac session, after closing 0.8% lower at $2334.04 on Thursday. Yesterday's move came after stronger-than-expected US CPI data, fuelled a further scaling back of the US Federal Reserve rate cuts, and prompted a large sell-off in US tsys. Iranian missile threat headlines had a fleeting positive impact.

• CPI inflation: m/m (0.4% vs. 0.3% est), y/y (3.5% vs. 3.4% est); CPI Ex Food and Energy m/m (0.4% vs. 0.3% est), y/y (3.8% vs. 3.7% est).
• US Treasuries bear-flattened, with the 2-year yield finishing 23bps higher at 4.97%. The US 10-year yield increased 18bps to 4.54%, a fresh YTD high, and more than 70bps above January levels.
• The March FOMC Minutes reflected concerns that inflation’s progress toward its 2 per cent target might have stalled, and restrictive monetary policy may need to be maintained for longer than anticipated.
• The market now has around 40bps of Fed easing priced for this year, well below the 75bps median projection by policymakers at the March FOMC. The first 25bp rate cut has been pushed back to November, from July ahead of the inflation data.
• According to MNI’s technicals team, the trend condition in gold remains bullish and the next objective is $2376.5, a Fibonacci projection. Initial firm support is at $2234.8, the 20-day EMA.

SOUTH KOREA: MNI BoK Preview - April 2024: On Hold Amid Sticky Headline Inflation

• The firm sell-side consensus and our own bias rests firmly with an on-hold outcome at tomorrow's BoK policy meeting. Sticky headline inflation pressures, along with still elevated consumer inflation expectations, suggest there is no need to rush into an easing bias.
• Offshore developments have also been on the hawkish side, as Fed cuts get pushed back further into 2024, while fresh highs in USD/KRW back to late 2022 may also factor into BoK thinking.
• All in all we expect the BoK to push back against any near term easing expectations. The central bank has stated as much in recent commentary. We also expect Governor Rhee to keep easing expectations for the second half of the year as quite vague and not commit to any predetermined path.
• Full preview here.

SINGAPORE: MNI MAS Preview - April 2024: On Hold As Growth & Inflation Holding Up

• The MAS is expected to keep all of its major policy parameters unchanged at tomorrow’s April policy meeting. This is the strong sell-side consensus and also our firm bias.
• Growth and inflation pressures are holding up, which should reduce the need for the central bank to turn more dovish. Q1 growth, released at the same time as the policy outcome, is expected to show y/y momentum improving to 3%.
• Market expectations appear to be in line with a steady hand at tomorrow's meeting, with SGD NEER elevated within the policy band, but not threatening the top end.
• Full preview here.

ASIA FX: Yuan Support Aids Broader FX Sentiment

Lower USD/CNH levels, prompted by record CNY fixing support, and tighter liquidity, has helped stabilize broader USD/Asia sentiment. USD/CNH is back under 7.2550, while most NDF markets have either been steady or seen modest gains against the USD versus end NY levels on Wednesday. Equity sentiment has been mixed, but we are away from earlier lows, another modest USD headwind. Tomorrow, the focus will rest on the BoK and MAS decisions, although neither central bank is expected to shift policy.

• All eyes were on the USD/CNY fixing this morning. In the even it was only shifted a touch higher, while we saw a record fixing error back to 2018. USD/CNH fell but we couldn't breach sub 7.2500 on the downside. Onshore USD/CNY has tried to go higher, but at 7.2360 remains sub the daily trading limit. BBG noted state banks were selling USDs around 7.2350. This, along with tighter liquidity in CNH markets, were further supports for the yuan. Inflation data printed weaker than expected, with headline CPI back to 0.1% versus 0.4% forecast, raising fresh concerns around the extent of the demand recovery.
• 1 month USD/KRW has remained below intra-session highs from Wednesday (post the US CPI print), with the pair near 1361 in recent dealings. Spot is above 1360 though, which is fresh highs in the pair back to late 2022. Equities opened weaker post yesterday's parliamentary election loss for President Yoon's ruling part, but dip buyers emerged particularly in the chip space. Early trade data trends for April look positive from an export growth standpoint.
• Earlier the Philippines Trade Balance narrowed, while the unemployment rate dropped to 3.5% y/y from 4.5% y/y in Jan. USD/PHP sits down modestly, last near 56.43. ADB believes that the country's broader fiscal deficit outlook until 2028 remains acceptable if government spending prioritizes infrastructure and social services, and efforts to improve tax efficiency match increased expenditure.
• USD/THB spiked higher in early trade, as catch up to the stronger USD post yesterday's onshore close. We got to 36.75, but sit back near 36.60 in recent dealings. PM Srettha has continued to press for easier policy settings, even if that means a weaker baht. This comes after yesterday's on hold BoT outcome (policy rate at 2.50%).

PHILIPPINES: Philip Sov Curves Flattens, Spreads Tighten, Trade Balance Narrows

The Philippines USD sovereign debt curve has bear-flattened today, yields are 10-15bps higher post US CPI. Earlier Philippines Trade Balance narrowed, while the unemployment rate dropped to 3.5% y/y from 4.5% y/y in Jan.

• Post US CPI the 2Y yield is 15bps higher at 5.00%, 5Y yield is 17bps higher at 5.20%, 10Y yield is 17bp higher at 5.28%, while 5yr CDS is 2bp higher to 64bps
• The Philip to US Treasury spread difference has tighten over the past week with the front-end & long-end are now at the tightest levels since June 2023, the belly of the curve lags with the 5-7yr area off YtD tights, the 2y is 4bps, the 5yr is 60bps, while the 10yr is 75bps.
• Cross-asset moves: the USD/PHP is unchanged at 56.499, PSEi Index is 0.80% lower, Corporate Credit curve is 2-6bps higher over the week with better buying out past 5yr maturity, while US Tsys yields are flat to 3bps lower as the curve steepens.
• ADB believes that the country's broader fiscal deficit outlook until 2028 remains acceptable if government spending prioritizes infrastructure and social services, and efforts to improve tax efficiency match increased expenditure. Despite a slight downward adjustment in the economic growth forecast for 2024 to 6% from 6.2%, the Philippines is still seen as a growth leader in the region, driven by domestic demand, with inflation expected to average 3.8% in 2024, supporting the case for a rate cut in the second half, while main risks include extreme weather events and geopolitical tensions disrupting shipping and causing supply shocks.
• Looking Ahead, Money Supply is due out later today.