MNI EUROPEAN MARKETS ANALYSIS: JGB Futures Up From Lows On Good 5yr Demand

US TSYS: Little Changed In Muted Asian Session

TYZ3 deals at 109-25, unchanged from Monday's settlement levels, a 0-03+ range has been observed on volume of ~43k.

• Cash tsys sit little changed across the major benchmarks.
• Tsys have observed narrow ranges on Tuesday with little follow through on moves, perhaps the proximity to tomorrow's CPI print is limiting activity.
• Little meaningful macro news flow crossed.
• FOMC dated OIS remain stable, a terminal rate of 5.45% is seen in November with ~50bps of cuts by July 2024.
• The UK Labour Market Report headlines in Europe, further out the only data of note today is NFIB Small Business Optimism. We also see the latest 10-Year Supply.

JGBS: Futures Off Session Lows After Stronger Than Expected Demand At 5Y Auction

In Tokyo afternoon trade, JGB futures have moved off session lows, -2 compared to the settlement levels, after 5-year supply saw better than expected demand. All the auction’s metrics were solid, with the low price beating dealer expectations, the cover ratio of 4.415x showing a notable increase from the 3.346x recorded in August and the tail shortening.

• There hasn’t been much in the way of domestic drivers to flag, with the economic data calendar empty.
• Bloomberg reports that Japan’s bond market is increasingly pricing in the prospects for an end to the central bank’s negative interest-rate policy, boosting short-term borrowing costs. The nation’s OIS suggest the BoJ will end the negative rate policy in January, compared with September 2024 seen after the last policy meeting in July, based on data compiled by Bloomberg. (See link)
• Cash JGBs are mixed across the curve, with yields 1.3bp lower (5-year) to 1.2bp higher (2-year).
• The benchmark 10-year yield is 0.2bp higher at 0.711%, after reaching a post-YCC tweak high of 0.722%.
• Swap rates are 0.4bp to 1.1bp higher across the curve, with the belly underperforming. Swap spreads are wider beyond the 2-year.
• Tomorrow the local calendar sees PPI (Aug) and BSI Large Industry (Q3) data, along with BoJ Rinban operations covering 1-3-year, 5-10-year and 25-year+ JGBs.

BoJ: LDP Official States Ueda Interview Suggests BoJ Easing Will Continue

LDP senior part official Seko stated Tuesday that he took BoJ Governor Ueda's recent interview to signify that the central bank will continue with monetary easing, per Reuters reports.

• The official stated that "Monetary easing will eventually end. But Governor Ueda has said an exit will come after achieving the bank's 2% inflation." per Reuters reports after a domestic news conference today.
• These comments come after the Yomiuri newspaper article from the weekend with Ueda, which put forward that the central bank may know enough about wage momentum to adjust policy further by year-end.
• If the central bank becomes confident enough around sustainable price and wage gains, one option could be to end negative interest rates. The article sparked a move higher in Japan yields since yesterday's open and a firmer yen backdrop.

AUSSIE BONDS: Off Session Cheaps With JGBs After A Stronger Than Expected 5Y JGB Auction

In roll-impacted trading, ACGBs (YM +0.8 & XM +1.9) are near session highs after dealing in a relatively narrow range during the Sydney session. The previously outlined consumer and business confidence data failed to be a market mover.

• Accordingly, local participants have likely had their attention focused on the JGB market and any spillover to US tsys after yesterday’s heavy session.
• After extending weakness in morning trade, JGBs have moved away from session cheaps after 5-year supply saw stronger than expected demand.
• US tsys have also pared early Asia-Pac weakness, with benchmark yields flat to 1bp richer.
• Cash ACGBs are 1-2bp richer, with the AU-US 10-year yield differential 1bp lower at -14bp.
• Swap rates are 2-3bp lower across the curve.
• Bills strip pricing is flat to +2.
• RBA-dated OIS pricing is flat to 2bp softer across meetings.
• (AFR) Australia’s building industry will fall 160,000 homes short of the country’s 1.2 million target over the next five years, even after a renewed surge of apartment investment triggered by a shortage of dwellings and rising prices, Master Builders Australia forecasts show. (See link)
• Tomorrow the local calendar will see CBA Household Spending data.
• The AOFM has no plan to sell nominal bonds tomorrow.

AUSTRALIAN DATA: Confidence Depressed As Inflation Worries Households

Westpac’s consumer confidence index fell 1.5% m/m in August after 0.4%, the first consecutive monthly falls since November last year. The RBA on hold since July has not outweighed the impact of cost of living pressures, including the recent rises in petrol and electricity prices, and higher mortgage payments on sentiment, although mortgage holders’ sentiment rose 7.8% and house price expectations increased further.

• This period of depressed confidence is the worst since the early 1990s. While mortgagors were happier, renters sentiment fell 6.1% and home owners -5.8%, as the assessment of finances compared to a year ago fell a further 4.4%.
• In terms of the news, inflation stories had the highest recall at 53% followed by budget/taxation 34%, economic conditions 34% and interest rates 25%. Westpac notes that a material easing in cost of living pressures is needed before consumer confidence will begin to recover. While it has improved, 70-80% reported news on inflation and rates as “unfavourable”.
• After the September RBA decision to keep rates at 4.1%, 48% expected rates to rise over the coming year down significantly from 68% in August, but only 15% expect a rate cut over the year ahead.
• The “time to buy a major household item” component fell 3% and unlike confidence is below the depressed early 1990s levels. Signalling that spending is likely to continue stagnating.
• Unemployment expectations have been steady since mid-year, suggesting that it is harder to get a job but that layoffs haven’t picked up.
• Time to buy a home rose 0.6% but remains depressed while over 65% expect prices to rise over the coming year.

Source: MNI - Market News/Australian Institute of Petroleum/Westpac

AUSTRALIAN DATA: NAB Survey Points To Cost Pressures And Possible Trough In CPI

The price/cost components of the August NAB business survey showed that businesses continue to face rising costs but retail and finished product prices eased in the month. While it is still early days, the Q3 average of finished goods prices is suggesting that the CPI may trough in Q4 as significant cost pressures are passed on.

Australia NAB price of final products vs CPI y/y% (quarterly)

Source: MNI - Market News/Refinitiv

• Purchase costs rose further to 2.9% from 2.8%, the highest since February, as fuel prices rose substantially in August in addition to July’s power price hikes. Labour costs moderated to 3.2% from 3.7%, but remained above average after July was boosted by the minimum award wage rise.
• The price of final products moderated though to 1.7% from 1.9%, still above the 2023 average, and retail prices to 1.9% from 2.6%. This may be a tentative signal that firms’ pricing power eased, especially retailers. Although trading conditions rose a point to 18.4 in August suggesting that firms retain some pricing power.

Source: MNI - Market News/Refinitiv

AUSTRALIAN DATA: NAB Business Survey Shows Economic Resilience

The NAB business survey for August showed that activity in Australia while off its peaks remains resilient. Business conditions rose to 13 from an upwardly revised 11 and confidence, which has been volatile, rose to 2 from a downwardly revised 1, the highest since January. This data should reassure the RBA that it can achieve a soft landing as with rates steady at 4.1% business isn’t running too hot or collapsing and labour demand remains strong.

• The Q3 average of business confidence is signalling that GDP growth may trough around the end of the year.

Source: MNI - Market News/ABS/Refinitiv

• All the current conditions components were higher. Employment rose 3 points to 9.2, still above average and the highest since April, signalling that labour demand remains robust. Forward looking orders rose to +0.3 from -0.9 and while exports and exporters sales were lower they both remained above the historical average.

Source: MNI - Market News/Refinitiv

NZGBS: Closed Slightly Richer After The Release Of The PEFU

NZGBs are 1-2bp richer after the Treasury released its pre-election budget economic and fiscal update, which gives a starting point for the government that will follow the October 14 elections. Polls currently suggest that there will be a change of government.

• The updated projections show a better growth outlook over the forecast horizon with lower unemployment, but the current account deficit has been revised higher. While inflation has been revised down for FY23 it is now expected to be higher in FY24.
• The fiscal outlook has deteriorated with the surplus pushed out one year to FY27.
• New Zealand Debt Management revised the government bond program for 2023/24 to NZ$36 billion, NZ$2 billion higher than published in the Budget Economic and Fiscal Update 2023. The forecast NZGB programs for 2024/25 and 2026/27 have also been increased, by NZ$3 billion and NZ$4 billion respectively. The forecast for the 2025/26 year is unchanged.
• Swap rates are 2-3bp lower.
• RBNZ dated OIS pricing is little changed on the day, with terminal OCR expectations steady at 5.62%.
• Tomorrow the local calendar sees REINZ House Prices and Food Prices, along with a speech from RBNZ Assistant Governor Silk on liquidity.

NZ FISCAL: Higher FY24 Deficit Forecast Creates Some Uncertainty Around RBNZ

Treasury has released its pre-election budget economic and fiscal update which gives a starting point for the government that will follow the October 14 elections. Polls currently suggest that there will be a change of government. The updated projections show a better growth outlook over the forecast horizon with lower unemployment, but the current account deficit has been revised higher. While inflation has been revised down for FY23 it is now expected to be higher in FY24. The fiscal outlook has deteriorated with the surplus pushed out one year to FY27.

• The FY24 forecasts may be a concern for the RBNZ as Treasury has revised up CPI inflation to 3.8% from 3.3% and the deficit has been revised 0.5pp higher to 2.7% of GDP. Revised inflation is consistent with the RBNZ’s FY24 forecasts but while FY25 is still within the band Treasury’s projection at 2.5% continues to be higher than the RBNZ’s 2.2%. Growth is stronger and the budget deficit an additional 0.4pp compared to the RBNZ. The RBNZ had revised higher its deficit expectations in August but Treasury’s are higher again and it remains to be seen if this increase in stimulus will be enough to worry the central bank.
• Treasury now expects the FY24 deficit to be 0.5pp higher at 2.7% of GDP adding 0.3pp to the net debt ratio at 22.3%. In the budget it expected a surplus in FY26 of 0.1% of GDP but that is now a deficit of 0.3% and a surplus of 0.4% now waits until FY27. Given how far out this is, the probability of a surplus is likely to be very fluid.
• Production-based GDP in FY24 has been revised 0.3pp higher to 1.3% and the unemployment rate down 0.2pp to 4.8%. The current account deficit as % GDP has been revised 0.5pp higher across the forecast years.

EQUITIES: HK Markets Recoup Earlier Losses As Property Developer Sentiment Improves

Regional equity market trends are mixed again in the first part of trading. This comes despite positive leads from US/EU markets in Monday trade. US futures are up from earlier lows, but haven't breached Monday session highs. Eminis (Dec contract) were last near 4535, after an earlier low just under 4530. Nasdaq futures track at 15662.

• The HSI has erased earlier losses to sit around flat at the break. Property sector sentiment improved as the session progressed as Country Garden reportedly received approval to extend repayment on six yuan bonds by 3 years. Real estate developers were down 2%, but now sit close to 3% higher.
• Optimism around EV car demand is also spurring gains after a positive outlook was posted by analysts at Citic Securities. The HS China Enterprise index has largely unwound earlier losses.
• At the break, mainland shares sit modestly higher. The CSI 300 +0.10% to 3771 in index terms.
• Japan shares are firmer, the Topix +0.60% at this stage. Toyota has been the strongest performer, while local bank stocks have added modestly to yesterday's +5% gain. Japan yields have ticked modestly higher, although a 5-yr debt auction went well.
• Elsewhere trends are mixed. The Kospi is off by 0.55%, while the Taiex is outperforming, +0.85%. There was a better tone to some tech related shares in US trade on Monday, but it wasn't led by semiconductors (with the SOX only modestly higher).
• In SEA Thai stocks are higher by 0.50%, but modest losses are being seen elsewhere.

FOREX: Narrow Ranges In Muted Asian Session

The greenback has observed narrow ranges in a muted Asian session on Tuesday, moves have been limited with little follow through.

• AUD/USD is ~0.1% firmer, dealing at $0.6435/40. The pair has observed a narrow range for the most part and sits a touch off session highs. Technically the latest bounce is considered corrective. Support comes in at $0.6357, low from Sep 6 and bear trigger. Resistance is at $0.6449, 20-Day EMA.
• Kiwi is little changed, NZD/USD has consolidated yesterday's gains above the $0.59 handle in a narrow range today.
• Yen is a touch pressured, however recent ranges remain intact. USD/JPY is ~0.1% firmer, last printing at ¥146.75/80. The trend condition remains bullish and any weakness is considered corrective. Resistance is at ¥147.87, high from Sep 7, and ¥148.40, high from Nov 4 2022. Support comes in at ¥145.07, high from Jun 30.
• Elsewhere in G-10; GBP is a touch firmer and EUR is marginally lower.
• Cross asset wise; BBDXY is ~0.05% lower and US Tsy Yields are ~1bp lower across the curve. E-minis are little changed, as is the Hang Seng.
• The July UK Labour Market Report provides the highlight in Europe today.

OIL: Crude Stronger On Improved Sentiment, Brent At $91

Oil prices are around 0.5% stronger during APAC trading today as risk sentiment improved on the back of a positive Hang Seng and a lifeline to Country Garden. WTI is close to its intraday high at $87.70/bbl and has traded above $87.20. Brent has breached $91 briefly and is currently trading around that level. The USD index is flat.

• The market has focused on the tightness of crude supply and later API data on US inventories are scheduled. US stocks have fallen sharply over the last few weeks. Also OPEC+ and the US’s EIA publish their monthly outlook reports today. The IEA’s is due on Wednesday. European diesel prices have risen strongly as Russia reduces shipments.
• The demand outlook has also improved with the US currently looking like it is headed for a soft landing and stronger crude imports into China.
• Later there is the August US NFIB small business optimism index, UK wages/employment and September euro area ZEW. The focus is on Wednesday’s US CPI.

GOLD: Small Gain After USD Declines

Gold is little changed in the Asia-Pac session, after closing +0.2% at $1922.30 on Monday. The gain in the precious metal was limited considering a sizeable -0.5% decline in the USD index.

• The USD's remarkable winning streak, after 8 straight weeks of gains, faced a significant challenge on Monday as the People's Bank of China intensified its efforts to protect the yuan. Meanwhile, the Bank of Japan dropped hints of a potential policy shift, causing the yen to surge in value. A strengthening dollar typically exerts a bearish pressure on gold, given that the precious metal is denominated in US currency.
• Bloomberg reports that as weakness in the yen looks set to continue into next year, prospects for gold priced in the Japanese currency have rarely looked so good. (See link)
• Gold investors are looking ahead to a US CPI report due midweek, which will help inform the outlook on the Federal Reserve’s interest-rate path.
• From a technical standpoint, bullion quickly reversed a clearance of resistance at $1930.5 (50-day EMA), according to MNI's technicals team. A more concerted push is required to open a key resistance at $1953.0 (Sep 4 high).

ASIA FX: USD Dips Supported

USD/Asia pairs are steadier today, in line with fairly tight ranges observed in the G10 space. USD/CNH tried to break lower in early trade, but saw dollar support emerge. Regional equity markets are mixed. Most other pairs sit above session lows, as the USD has firmed modestly as the session progressed. Still to come is Indian CPI and IP prints. Tomorrow, South Korean trade prices print early, then Hong Kong PPI and IP later.

• USD/CNH has tracked recent ranges so far in Tuesday trade. The pair got to 7.2926 in early trade and just ahead of the CNY fix. This was around lows from Monday's session. The fixing was again stronger than expected, but the error was narrower than yesterday's record wide. This coupled with some earlier HK equity market weakness took USD/CNH back towards 7.3100. We now sit back closer to 7.3070, with HK and China equities struggling for positive ground, albeit away from lows.
• Spot USD/HKD sits back at 7.8310, which is above session lows (7.8283), but maintains the recent track lower in the pair. We are now back close to mid August levels. The pair has breached the 20-EMA (back near 7.8355), while current levels are right on the 200-day EMA. Note the 50 and 100-day EMAs sit close to 7.8300. A firmer HKD spot backdrop continues to be underpinned by firmer Hibor fixings. The 1 month rose 33bps to 4.62%, while the 3 month set near 4.82%, +16.5bps. The US-HK 3 month yield differential continues to track lower, last near +59bps, we were near +100bps back in late August.
• USD/INR continues to see-saw around the 83 handle with little follow through on moves as Indian CPI (due today) and US CPI (due tomorrow) come into view. In early trade today USD/INR has opened a touch below the 83 handle and last prints at 82.95/96. August's CPI print today headlines this week's docket, CPI is expected to tick lower to 7.10% Y/Y remaining above the RBIs inflation band for the 2nd consecutive month. Also due this evening is July Industrial Production, which is expected to print at 5.3% Y/Y. The prior read was 3.7% Y/Y.
• USD/MYR prints at 4.6750/75, the pair is ~0.1% firmer today as the Ringgit is marginally pressured in early trade. On Monday the pair finished dealing a touch lower, narrow ranges continue to persist and there has been little follow through on moves in recent dealing. Malaysian Prime Minister Anwar Ibrahim signalled that the Southeast Asian nation may be considering additional taxes to boost state revenue and meet the target of almost halving the fiscal deficit by 2025. The domestic data docket is empty for the remainder of the week.
• The SGD NEER (per Goldman Sachs estimates) is little changed in early dealing on Tuesday, the measure sits well within recent ranges and is ~0.6% below the top of the band. USD/SGD fell ~0.4% yesterday as broader greenback trends dominated flow, the pair found support below the $1.36 handle and sits a touch above the figure in early trade today. A reminder that the local docket is empty this week.
• USD/PHP has reversed an earlier firming trend. We were last near 56.69, little changed for the session, while earlier highs were at 56.785. It keeps us firmly within ranges seen in September so far, roughly 56.50/57.00. Yesterday's USD weakness hasn't flowed through into the peso to any great extent, with USD/PHP modestly above levels from the end of last week. The focus remains on resistance at 57.00, which remains a potential intervention point by the authorities.

SOUTH KOREA: Highlights From Local News Wires

Below is a collection of news wires reports from English versions of South Korean Newspapers from the past day or so.

TECH: Korean battery makers threatened by rapid growth of Chinese rivals (link)

TECH: Korean firms confident they can outpace China in LFP battery race (link)

TECH: Amid US-China ‘Huawei Dispute,’ What’s Fate of Korean Semiconductor Plants in China? (link)

GEOPOLITICS: Kim-Putin summit could take place as early as Tuesday (link)

GEOPOLITICS: White House urges N. Korea not to provide weapons to Russia (link)

BOND FLOWS: Korean retail investors’ holdings of government bonds top $7.48 bn (link)

BOND FLOWS: Retail investors flock to bond investments (link)

EQUITY FLOWS: Foreign Stock Ownership Plummets to 14-Year Low (link)

LABOR: Hyundai workers warn of partial strike for higher wages (link)

FISCAL: Korea faces fiscal challenges amid tax income shortfall (link)

TRADE: S. Korea attends new round of IPEF talks in Thailand (link)

SHIPPING: Korean Builders' Overseas Orders at Highest Level in 8 Years (link)