MNI EUROPEAN MARKETS ANALYSIS: JPY Outperforms, As Weaker Equities Offset Higher US Yields

US TSYS: Marginally Cheaper In Asia

TYU3 deals at 111-09, -0-02+, a 0-09 range has been observed on volume of ~97k.

• Cash tsys sit 1-2bps cheaper across the major benchmarks, the belly leads the cheaps.
• Tsys have been pressured through the Asia-Pac session, the move came alongside a cheapening in ACGBs and NZGBs which spilled over into the wider space.
• TY broke Wednesday's lows before marginally paring losses, the next support level comes in at 110-27+ the low from Mar 2 and key support.
• Regional Equities and US Equity Futures are lower, with the USD and Yen firming as risk off flows escalated through the session.
• In Europe today German Factory Orders provides the highlight. Further out we have ADP Employment and ISM Services. Fedspeak from Dallas Fed President Logan crosses.

JGBS: Futures At Cheaps After Relatively Poor Digestion Of 30-Year Supply

JGB futures are dealing on a negative note, -23 compared to the settlement levels, as they push to Tokyo session lows after today’s 30-year supply exhibits weaker-than-expected demand.

• 30-year supply sees relatively poor digestion as the low price fails to meet dealer expectations and the cover ratio declines to its lowest level since March. The auction tail was also significantly longer than the past auction, rising to the highest level since Apr-2020.
• Apart from the previously mentioned international investment flow data, which revealed offshore buying of Japanese bonds and increased Japanese buying of offshore bonds, there have been few notable domestic drivers to highlight.
• Cash JGBs are dealing cheaper in the Tokyo afternoon session with yield movements ranging from flat (1-year) to +1.9bp (7-10-year). The benchmark 30-year yield sits at 1.219%, 1.7bp higher than lunch break levels.
• The swaps curve bear steepens with rates 0.7-1.9bp higher. Swap spreads are wider apart from the 7-10-year zone.
• Tomorrow the local calendar sees May’s Real Cash Earnings, Labour Cash Earnings and Household Spending data along with the Leading and Coincident Indicators.
• Later today, attention turns to ADP employment data, ahead of Non-Farm Payrolls on Friday. The US calendar also sees Trade Balance, ISM Non-Mfg, S&P Global Services PMI, Weekly Initial Jobless Claims and JOLTS data.

JAPAN DATA: Outflows To Offshore Bonds Continues, Offshore Investors Return To Local Stocks

Foreign purchases of Japan equities returned last week, albeit with a modest ¥195bn in net inflows. This follows the prior week's outflow, which was the first since the end of March. Offshore investors also purchased Japan bonds last week, +¥484.7bn, but this only partially reverses outflows from the prior two weeks.

• In terms of Japan outbound flows, we saw a decent pick up in buying of offshore bonds,
  +¥1252.7bn. This marks the 8th straight week of outflows into offshore bonds.
• Outflows to offshore stocks more than reversed the previous week's gains, see the table below.

Table 1: Japan Weekly Investment Flows

AUSSIE BONDS: Tracking US Tsys Cheaper

ACGBs are dealing on a negative note (YM -12.0 & XM -11.5), following the weakening trend observed during the Sydney session. Without domestic catalysts, local participants appear to have been guided by US tsys, which have continued their cheapening from the NY session.

• Cash ACGBs are 11bp cheaper with the AU-US 10-year yield differential unchanged at +16bp.
• Swap rates are 11-12bp higher with EFPs slightly wider.
• Bills strip bear steepens with pricing -2 to -16.
• RBA dated OIS pricing is 8-12bp firmer for meetings beyond Nov'23 with Feb'24 leading.
• The local calendar remains light until Tuesday when we can expect the release of CBA Household Spending data for June, Westpac Consumer Sentiment for July, and NAB Business Confidence for June. Additionally, on Wednesday, market attention will be focused on Governor Lowe's speech, as investors hope to gain insights into the central bank's level of concern regarding inflation.
• Later today, attention turns to ADP employment data, ahead of Non-Farm Payrolls on Friday. ADP Employment Change: 225k est vs. 278k prior. The US calendar also sees May Trade Balance, June ISM Non-Mfg, June S&P Global Services PMI, Weekly Initial Jobless Claims and May JOLTS.

AUSTRALIAN DATA: China Bright Spot For Australian Exports To Asia

The recovery of Australia’s exports to China continued in May but shipments to much of Asia were weak. The commodity picture was mixed with prices down for coal, iron ore and gas.

• Exports to China remain strong rising 18.5% y/y in May but they were weak to other parts of Asia with exports to Japan down 25.1% y/y, India -46.8% and Indonesia -1%. Shipments to the US were robust rising 34.1% y/y.
• Even though the Australia-UK free trade agreement came into effect at the end of May, there was a large increase in exports to the UK of $767mn m/m to the highest level since January 2021.
• Prices for Australia’s main commodity exports were lower in May with iron ore down around 8% m/m and coal -2% to -11%. LNG prices were -2.7%. Iron ore volumes rose solidly by 9% and coal by 5-12%. The overall rise in coal exports was driven by China with an increase in quantity and price and also Japan. While China increased the volumes of iron ore it bought, it paid a lower price as did all major customers except Japan.

Source: MNI - Market News/ABS

NZGBS: Cheaper, Outperforms The $-Bloc, Syndicated Tap Of Apr-33 Bond

NZGBs closed weaker but off cheaps with benchmark yields 5-6bp higher after the NZ Treasury sells an additional NZ$5.0bn of the nominal 14 April 2033 bond via syndicated tap. The bonds, which carry a coupon of 3.50%, were issued at a spread of 4bp over the 15 May 2032 nominal bond, at a yield to maturity of 4.7575%. Total book size, at final price guidance, exceeded NZ$12.2bn. Today’s tap led to the cancellation of the scheduled tender.

• The cash line richened 2.5bp in post-tap trade, more than unwinding the pre-announcement cheapening.
• While pressured by US tsys and ACGBs in local trade, NZGBs have outperformed with the NZ/US and the NZ/AU 10-year yield differentials respectively 5bp and 7bp tighter.
• Swap rates closed 5-10bp higher with the 2s10s curve steeper and implied swap spreads wider.
• RBNZ dated OIS pricing closed 6-8bp firmer for meetings beyond Nov'23.
• (AFR) While the RBNZ is widely viewed as having reached its interest rate peak, the central bank increasingly is expected to hold the cash rate at its current level well into next year, perhaps even until mid-2024. (See link)
• The local calendar is light tomorrow with the focus turning to the RBNZ policy decision on Wednesday.

FOREX: Yen Firms In Asia

The Yen is firmer in Asia, despite US Tsy Yields ticking high, as weaker regional equities and US equity futures weigh on sentiment.

• USD/JPY is now dealing at session lows a touch above the ¥144 handle, the pair is down ~0.3%. Support comes in at ¥143.29, low from 27 June.
• AUD is down ~0.2%, and last prints at $0.6640/45. Support comes in at $0.6596, low from June 29 and bear trigger. Australia's Trade Surplus in May was stronger than expected printing at $11.179bn vs $10.90bn exp.
• Kiwi is also pressured as the waning risk sentiment weighs. NZD/USD prints at $0.6160/65, the pair is ~0.2% lower. The 20-Day EMA ($0.6153) provides the next technical support level.
• Elsewhere in the G-10 space, EUR is down ~0.2%. The Scandies are under pressure, NOK is down ~0.2% and SEK is down ~0.4%, however liquidity is generally poor in Asia.
• Cross asset wise; E-minis are down ~0.4% and Hang Seng is down ~3%. BBDXY is ~0.1% firmer. 10 Year US Tsy Yields are up 2bps.
• Looking ahead in Europe today we have German Factory Orders, further out a slew of US data crosses including ADP Employment, Initial Jobless Claims and ISM Services.

EQUITIES: Most Asia Pac Markets Down, Hong Kong Shares Off By -3%

Regional equities are by and large in the red. Losses have been largest for Hong Kong stocks. The HSI off by over 3% at this stage, amid multiple headwinds. Japan stocks are also weaker. US futures are tracking lower at this stage, with losses moderately accelerating in the Asia Pac afternoon session. Eminis were last -0.35% around 4468. This is fairly close to Wednesday session lows. Broader sentiment has been weighed by higher US yields, post the FOMC minutes from Wednesday.

• The HSI is off by a little over 3% at this stage. Property woes are weighing, with recent trading halts in bonds for state back Sino-Ocean cited as one factor. The tech sub index is also down, off by close to 2.4% at this stage. The HS China Enterprise index is also down sharply, off by 3.55%, with China banks suffering.
• The authorities are also reportedly halting China banks from buying free-trade zone bonds, which is expected to impact LGFVs.
• Japan stocks are also weaker, with the Nikkei 225 down by 1.80% at this stage. Weakness is evident in tech related plays, while Daiwa notes that ETF managers may sell shares to pay for dividends.
• The Kospi is down by near 0.90% at this stage, but the Taiex is faring worse, off by 1.60%, following a sharp pull back in the SOX during Wednesday trade.
• In SEA, only Indonesian stocks are higher at this stage, but gains are modest. Elsewhere losses are generally under 1%.

OIL: Crude Off Highs As Soft Risk Appetite Weighs

Oil prices are holding onto most of yesterday’s gains with WTI down to $71.68/bbl but Brent down 0.4% to $76.38. Crude rose in early APAC trading but has fallen with weak risk appetite driving equity markets across the region lower (Hang Seng down 3.1%). Minutes showed that most FOMC members think rates will need to rise further. The USD index is 0.1% higher and off the day’s lows.

• WTI reached an intraday high of $72.06 earlier but hasn’t been able to sustain moves above $72. It is currently close to the low of $71.64. Brent’s high was $76.82 and it is now trading close to intraday lows. Friday’s June payroll data will be a key input into the Fed and thus oil outlook.
• EIA US inventories are released today. Last week they were their lowest for nearly 6 months. Bloomberg reported that US API crude stocks fell another 4.38mn barrels in the latest week after -2.41mn according to sources familiar with the data. Gasoline rose 1.6mn and distillate 600k.
• Later the Fed’s Logan speaks. Also in the US, there are jobless claims, Challenger job cuts, JOLTS job openings, ADP employment and services ISM/PMI – all of which will be important guides to Friday’s payroll data. There is also US May trade.

GOLD: Pressured By 3-Month High In US Tsy 10-Year Yield

Gold is steady in Asia-Pac trading, after slumping 0.5% in the previous session, as higher US tsy yields pressured non-interest-bearing bullion. The 10-year US tsy yield finished 8bp higher at 3.93% after reaching a fresh 3-month high of 3.95%. This move largely came prior to the release of the FOMC minutes of the June meeting, which offered few surprises.

• There was little reaction to the release of the FOMC minutes of the June meeting. "Almost all participants noted that in their economic projections that they judged that additional increases in the target federal funds rate during 2023 would be appropriate," the report said. “Some participants indicated that they favoured raising the target range for the federal funds rate 25 basis points at this meeting or that they could have supported such a proposal.”
• A July hike from the Fed is close to fully priced (circa 22bp), though markets are more circumspect on the policy outlook thereafter, with a cumulative 33bp priced out to November.
• Attention now turns to employment data (ADP later today and Non-Farm Payrolls on Friday).

ASIA FX: USD/Asia Pairs Mixed Despite Equity Falls

USD/Asia pairs have been mixed today, despite a risk off tone evident in both G10 FX and regional equities. USD/CNH has been relatively steady, close to 7.2600, while a firmer yen has likely helped KRW. In SEA USD/THB has rebounded, while USD/INR is creeping higher. Still to come is the BNM decision, with no change expected, along with Taiwan CPI. Tomorrow, China FX reserves are out along with South Korea's current account and goods balance data. Taiwan trade figures are also due.

• USD/CNH has tracked recent ranges in Thursday Asia Pac dealings. We currently sit slightly below NY closing levels from Thursday, last just under 7.2980, after a 7.2530-7.2681 range for the session. The CNY fixing was again much stronger than expected, which likely helped sentiment, although the initial impact was muted. Onshore and China equities are noticeably weaker though.
• 1 month USD/KRW found selling interest at 1305 on a number of occasions today. The pair last sat close to session lows just under 1300. Onshore equities are weaker, while offshore investors have sold local shares (-$230.3mn). A positive offset has come from the sharp slump in USD/JPY though (back to 143.80).
• The Rupee has weakened in early dealing, as higher US Tsy Yields weigh. USD/INR is up ~0.2%, and prints its highest level since 13 June. USD/INR has firmed above the 20-Day EMA (82.17) and last prints at 82.42/43. S&P Global Services PMI ticked lower in June to 58.5 from 61.2 in May, the measure remains comfortably in expansionary territory. Junes Composite PMI printed at 59.4, the prior read was 61.6. Looking ahead the data calendar is empty for the remainder of the week.
• The Ringgit has weakened in early dealing as today's BNM monetary policy decision comes into view. USD/MYR is up ~0.2% last printing at 4.6560/90, the pair does remain well within recent ranges. Yesterday the pair finished dealing little changed, support came in at the 20-Day EMA (4.6407) and early losses were pared. Palm Oil futures fell ~0.5% yesterday as inventories expanded to their largest level in 4 months as export demand stayed sluggish, more here. The contract is firmer in early trade today and sits a touch above the MYR 3900 handle. On the wires this afternoon the BNM's latest monetary policy decision will cross, no change to policy is expected.
• The SGD NEER (per Goldman Sachs estimates) is little changed in early dealing, the measure remains well within recent ranges. We now sit ~0.7% below the upper end of the band. USD/SGD ticked away from the 200-Day EMA ($1.3503) yesterday rising ~0.3% as broader greenback trends continued to dominate flows. The pair last prints at $1.3525/35. On the wires yesterday; May Retail Sales fell 0.2% M/M ticking lower from the 0.5% M/M rise in April. Looking ahead, June Foreign Reserves is due tomorrow to round off the week's data.
• USD/THB has rebounded today, back above 35.00, last around 35.15. These moves put spot USD/THB back above its simple 200-day MA (35.086), but we remain comfortably below end June highs just above 35.70. The BoT seems comfortable with the current baht backdrop, at least according to Assistant Governor Piti Disyatat. The central bank official stated that fluctuations have been in line with the baht's fundamentals and that an improved economic backdrop should aid the baht recovery in H2.

SOUTH KOREA: Highlights From Local News Wires

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

TRADE: S. Korea's overseas plant orders jump 40.2% in H1 (Link)

TRADE: 'China decoupling could boost Korean trade' KCCI report suggests rise of ‘Altasia’ to replace China in global supply chain (Link)

TRADE: Weak yen incurred $10 billion in losses in Korean exports in H1: analysis (Link)

TRADE: Weak yen raises concerns about Korea’s exports, travel balance (Link)

TRADE: Korea removes tariffs on naphtha imports (Link)

FLOWS: Samsung Electronics Accounts for 98% of Foreign Stock Investment Made in 1st Half (Link)

FLOWS: Korea Attracts Record Foreign Investment (Link)

MARKETS: Samsung profit likely lowest in more than 14 years as chip glut persists (Link)
TECH: China's export curbs worry chip, display makers (Link)

SOUTH KOREA/CHINA: Korean companies’ sales from China subsidiaries drops sharply since 2016 (Link)

POPULATION: Koreans Support Immigration to Bolster Dwindling Population (Link)