MNI EUROPEAN MARKETS ANALYSIS: NZ Inflation Expectations Point To Further Easing In CPI

US TSYS: Marginally Cheaper In Asia

TYZ3 deals at 108-00, -0-04, a 0-07+ range has been observed on volume of ~98k.

• Cash tsys sit ~1bp cheaper across the major benchmarks.
• Tsys have ticked lower, albeit in narrow ranges, on Wednesday as perhaps participants used yesterday's richening as an opportunity to close long positions/add fresh shorts.
• There was little in the way of meaningful macro news flow in Asia today. WTI briefly dealt below the $77 handle before paring losses.
• Eurozone Retail Sales and the final read of German CPI headline in Europe today. Further out we have US wholesale inventories and New York Fed President Williams speaks. The latest 10-Year Supply is due.

JGBS: Futures At Multi Week Highs, As Ueda States Domestic Wage-Inflation Cycle Still Weak

JGB futures remain on the front foot in afternoon trade. We were last near 144.64, +.30. Session highs rest at 144.67. These levels were last seen back on Oct 25. This has outperformed a slight offered tone in US futures, last (108-00, -03).

• Much of the macro focus today has been on BoJ Governor Ueda's appearance before parliament. Whilst the Governor stated the central bank didn't necessarily have to wait until real wages growth was positive (before exiting YCC and negative rates), the overall tone was still dovish.
• Critically, Ueda stated that the domestic wage-inflation remains weak and that the central bank remains some distance from hitting its 2% inflation target.
• In the cash JGB space, yields are lower across the curve. The 10yr slipping under 0.86% (-3bps). Yield losses have been larger across the 20-40yr tenors, down 4-5bps.
• For swaps, the 10yr is back close to 1.03%, albeit with more moderate yield losses compared to the JGB cash space.

BOJ: Ueda States Domestic Wage-Inflation Cycle Is Still Somewhat Weak

Governor Ueda's appearance before parliament is not showing any dramatic shift relative to recent comments. The Governor is stressing that inflation is expected to rise over the medium to longer term, but only gradually. He add Japan is still some distance to the 2% inflation target (BBG)

• Higher inflation outcomes recently have been driven by cost-push factors, but such pressures are expected to dissipate (RTRS).
• The domestic wage-inflation cycle is still somewhat weak, but is gradually taking place (BBG).
• Ueda noted the potential side-effects from YCC include FX volatility, but he reiterated the well-worn desire for FX markets to move in a stable manner.
• Since Ueda starting speaking, USD/JPY has firmed, close to 150.60 (Tuesday highs at 150.69 aren't too far away), but note broader USD sentiment has firmed as well.
• JGB futures have been relatively steady, currently at 144.58, +.24.

AUSSIE BONDS: Richer On Wednesday, Docket Empty Tomorrow

ACGBs sit 6-10bps richer across the major benchmarks, light bull flattening is apparent. Aussie Bonds ticked away from early session highs however ranges remained narrow and ACGBs held richer.

• XM (+0.1050) and YM (0.08) have ticked higher today however we remain well within recent ranges.
• The 10 Year AU US Swap spread has been stable through today's again session and sits at +1bps.
• In Australia there was nothing in the way of market moving news flow, the local data docket was empty.
• Looking ahead tomorrow we have another empty data docket below the RBA's SoMP crosses on Friday.

NZGBS: Richer On Wednesday, Inflation Expectations Ease

NZGBs sit 5-11bps richer across the major benchmarks, the early gains held through the session and ranges remained narrow for the most part.

• 10 Year NZ US Swap Spread remains stable, we sit at 50bps which is well within recent ranges.
• RBNZ dated OIS are stable, pricing a terminal rate of ~5.50% in Feb 24 with ~40bps of cuts by Oct 24.
• The RBNZ’s measure of business inflation expectations points to a further moderation in CPI over the remainder of 2023. 1-year ahead eased to 3.6% for Q4 from 4.2%, the lowest since Q3 2021 and 1.5pp below the Q1 2023 peak.
• The 2-year ahead measure has naturally been running below the 1-year and posted its third straight quarter at 2.8%, within the RBNZ’s target band, but to two decimal places is the lowest since Q3 2021.
• Looking ahead, the local docket is empty tomorrow.

NZ DATA: Inflation Expectations Point To Further Easing In CPI

The RBNZ’s measure of business inflation expectations points to a further moderation in CPI inflation over the rest of this year and reinforces the central bank’s view that the economy is developing as it expects. 1-year ahead eased to 3.6% for Q4 from 4.2%, the lowest since Q3 2021 and 1.5pp below the Q1 2023 peak. The 2-year ahead measure has naturally been running below the 1-year and posted its third straight quarter at 2.8%, within the RBNZ’s target band, but to two decimal places is the lowest since Q3 2021. Household inflation expectations are released on November 15.

NZ Inflation %

Source: MNI - Market News/Refinitiv

EQUITIES: Japan Banks Down Sharply, HK & China Markets Steady

Regional equity markets are mixed, although losses outweigh positive markets at this stage. Japan markets have been notable underperformers, with local bank shares down sharply. US futures sit a touch lower at this stage, although have traded tight ranges overall. Eminis were last near 4393 (-0.08%), while Nasdaq futures sit 0.11% weaker.

• Japan's Topix is off around 1.2% at this stage. The bank sub index dipped 5.5% at one stage, with limited prospects of a BoJ policy shift in the near term weighing on sentiment. The index is back to early September levels. The Nikkei 225 is off around 0.35% at this stage. Earlier Suzuki reported better than expected earning results.
• In Hong Kong and China markets, we are seeing a slight outperformance trend, although at the break the HSI and CSI 300 are only modestly in positive territory.
• Prospects for potentially improved US-China ties (ahead of Xi Jinping's Visit to the US next week) is cited as a potential positive, while comments from PBoC Governor Pan suggest support for property developers and indebted local government areas. This follows a meeting between regulators and property developers on Tuesday (see this BBG link). Note the CSI 300 real estate index is up 1.59% at the break.
• The ASX 200 is up modestly despite a softer commodity price backdrop in the energy space. Local bank stocks were higher.
• In SEA most markets are lows, with Singapore's STI down 1.4%.

FOREX: Narrow Ranges In Asia

There have been narrow ranges across G-10 FX in Asia today with little follow through on moves. In a data light session there was little meaningful macro newflow. WTI briefly dipped below the $77 handle, and US Tsy Yields were a touch higher.

• AUD/USD is a touch firmer however a narrow $0.6425/40 range has persisted for the most part. Despite yesterday's fall the short term bull cycle remains in play. Resistance comes in at $0.6523, Nov 6 high and key resistance. Support is at $0.6388 the 20-Day EMA.
• Kiwi is also marginally higher. There was little reaction to RBNZ's Q4 Inflation Expectations ticking lower to 2.76% from 2.83%.
• Yen is consolidating above the ¥150 handle. The latest pullback in USDJPY appears to be corrective. Resistance comes in at ¥151.72, Oct 31 high. Support is at ¥149.21 the low from 3 Nov.
• Elsewhere in G-10 there have been little moves of note, BBDXY is unchanged from opening levels.
• Eurozone Retail Sales and the final read of German CPI headline in Europe today.

OIL: Crude Remains Lacklustre, Fed’s Powell Speaks Later

Oil prices fell sharply on Tuesday to levels not seen since August and there has been no recovery during the APAC session today with Brent down 0.1% and WTI -0.3%. Prices fell sharply early in the session with WTI falling to $76.51/bbl and Brent to $81.26 but they are now at $77.15 and $81.57 respectively. The USD index is flat.

• The lacklustre performance was driven by continued US and China demand concerns and signs of increased supply from Russia and rising US inventories. But OPEC+ retains its positive demand outlook. The next meeting will be held over November 25/26 and an announcement on Saudi/Russian output cuts could be made then.
• The US EIA has revised down its 2024 Brent forecast by 1.8% to $93.24/bbl due to an expected increase in supply but demand should also be stronger. But gasoline consumption per person is expected to fall in 2024 to a 20-year low due to higher prices and cost of living pressures.
• WTI’s prompt spread has narrowed to only 11c, signalling less market optimism, according to Bloomberg.
• Bloomberg reported that US crude inventories rose 11.9mn barrels in the latest week, according to people familiar with the API data. Gasoline stocks fell 400k but distillate rose 1mn. The official EIA data won’t be published today but two weeks will be released on November 15.
• Later the Fed Chairman Powell delivers some opening remarks, which given recent FOMC members’ comments are likely to be monitored closely. Also The Fed’s Cook, Williams, Barr and Jefferson speak. BoE Governor Bailey and ECB’s Lane and Enria also appear. ECB President Lagarde is attending the Eurogroup meeting. There is little on the data front.

GOLD: Bullion Trending Lower As War Premium Unwinds, Fed’s Powell Speaks Later

Gold fell only 0.4% on Tuesday to $1969.40/oz despite hawkish Fed comments. Today it has continued the gradual move down falling another 0.1% to $1967.66 off the intraday high of $1971.07. Flight-to-quality flows following the October 7 Hamas attack continue to unwind while the conflict looks contained; bullion is down over a percent this week. The USD index is flat.

• The uptrend in gold remains intact and recent moves are seen as corrective. Prices have continued to trade above initial support of $1959.50, 20-day EMA, today. The bull trigger and initial resistance are at $2009.40.
• FOMC member Kashkari’s comments that it would be better to overtighten than not do enough and that inflation is yet to be contained and Bowman’s that she expects the Fed will have to hike again are likely to pressure gold. Later Fed Chairman Powell delivers some opening remarks, which given these comments are likely to be monitored closely.
• Also the Fed’s Cook, Williams, Barr and Jefferson speak. There are only US wholesale inventories on the data schedule.

ASIA FX: USD/CNH's Dip Sub 100-day MA Draws Buying Interest

USD/Asia pairs have been mixed today. USD/CNH saw a brief dip sub 7.2700 to fresh multi month lows (also briefly through the simple 100-day MA), but there was no follow through. This saw other pairs find USD support, although there are still some pockets of strength. Tomorrow October inflation data prints for China. Q3 GDP is out in the Philippines, along with Thailand consumer confidence.

• USD/CNH had a brief dip sub 7.2700 but it wasn't sustained. We sit back at 7.2800 in latest dealings (earlier lows were at 7.2666). This dip came amid supportive comments from PBoC Governor Pan around preventing one-sided FX moves and support for property developers and LGFVs. Equity sentiment was a touch positive earlier but now sits weaker post the lunchtime break.
• Dips in 1 month USD/KRW sub 1300 have been supported today. The pair last tracking at session highs of 1306/07, against an earlier low of 1296.93. This came during USD/CNH weakness, but wasn't sustained. Local equities are on the backfoot, the Kospi down 0.80%, the Kosdaq -1.30%. Earlier data showed healthy goods surplus and current account figures for September.
• Spot USD/HKD sits near 7.8170 in latest dealings. This is back close to mid-October lows near 7.8160. A break sub this level could see 7.8100 targeted, while early August lows in the pair rest back at 7.7926. HKD strength is in line with lower US-HK yield differentials, although at the 3 month tenor, the shift lower has been modest. We were last at +15bps, still not sub late Sep lows in the differential. Modestly more positive equity sentiment for China and Hong Kong, with gains in property stocks evident post a meeting between developers and regulators is likely helping HKD at the margins. The same factors have also aided CNH.
• The Rupee has opened dealing little changed from yesterday's closing levels. On Tuesday Oil fell ~4.5%, its weakest day since July as weak trade data from China and a firmer USD weighed on Tuesday. WTI briefly dealt below the $77 handle this morning before paring losses, however the spillover to the Rupee is limited thus far. A reminder that the local docket is thin this week with just September Industrial Production due on Friday. There is no estimate and the prior read was 10.3%.
• The Ringgit is little changed on Tuesday as onshore participants digest the move in US Tsys during the NY session as 2024 rate cut expectations ticked higher. USD/MYR last prints at 4.6705/55. A reminder that the local docket is empty today and also for the remainder of the week.
• The SGD NEER (per Goldman Sachs estimates) is continuing totick away from Monday's cycle highs, however ranges do remain narrow in early trade on Wednesday. We sit ~0.4% below the top of the band. USD/SGD has firmed above the 200-Day EMA ($1.3546) this morning as the post-NFP gains continue to be trimmed and lower Oil prices marginally weigh on the SGD. We sit at $1.3550/55. A reminder that the local docket is empty today and for the remainder of the week.
• USD/IDR has climbed steadily during the afternoon session last near 15640. We are some distance from recent lows (15510), with sentiment remaining at the whim of US yield moves. BI comments have also crossed, with the central bank stating that new FX securities, SVBI, will help curb FX risks in the shallow spot market. The instruments can't be used to buy dollars and won't add to dollar demand during times of stress (BBG).