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MNI EUROPEAN MARKETS ANALYSIS: NZD Falls/Bonds Higher, As Inflation Expectations Move Lower

  • Kiwi was pressured in Asia today, NZD/USD is down ~0.6%, last just under 0.6260. 2 Year inflation expectations fell to 2.79% in Q2 from 3.3% in Q1. In the bond space the NZGBs 2/10 cash curve bull steepens, with benchmark yields 10-13bp lower. These moves were aided by richening in US Tsys, which sit ~2bps richer across the major benchmarks.
  • Elsewhere a somewhat cautious mood prevailed, despite a firmer US equity futures backdrop. Weaker economic data in China and the US this week has raised concerns over the global outlook, which is weighing on commodity prices. Oil continued to track lower today, but copper and iron ore stabilized somewhat.
  • China and HK equities are mostly lower at this stage, despite a meeting between senior US and China officials in Vienna earlier in the week (Wed-Thur), which was aimed at thawing tensions.
  • Looking ahead, in Europe we have preliminary print of Q1 UK GDP, further out UofMich Consumer Sentiment crosses. Fedspeak from SF Fed President Daly, Fed Governor Jefferson and St Louis Fed President Bullard is on the wires.

MARKETS

US TSYS: Marginally Firmer In Asia

TYM3 deals at 116-06+, +0-05, a touch off the top of the 0-05+ range on volume of ~55k.

  • Cash tsys sit ~2bps richer across the major benchmarks.
  • Asia-Pac participants faded the move seen late in the NY session, as tsys were pressured into the close, perhaps focusing on the ongoing US regional bank concerns. However moves have been limited with little follow through in Asia today.
  • A 1.5% fall from peak to trough in WTI futures in todays Asian session added a layer of support.
  • Flow wise a TU (3.25k lots) UXY (1.205k lots) block steepener was the highlight.
  • In Europe we have preliminary print of Q1 UK GDP, further out UofMich Consumer Sentiment crosses. Fedspeak from SF Fed President Daly, Fed Governor Jefferson and St Louis Fed President Bullard is on the wires.

JGBS: Futures Through Overnight Highs, Within Striking Distance of Mar 22 High

In afternoon Tokyo trade, JGB futures have surged past the overnight high and are now at +21 versus settlement levels. JBM3 has reached 149.08, its highest level since March 27 and is close to the March 22 high of 149.53. According to MNI's technical analysis, exceeding the March 22 high would signal the continuation of the upward trend.

  • There haven't been any significant domestic drivers to impact the market, with previously mentioned money supply data having minimal impact. As a result, the local market has followed the lead of US tsys, which have continued their richening trend from Thursday in Asia-Pac trade.
  • Cash JGBs are experiencing gains across the curve, except for the 1-year zone which is 0.4bp cheaper on the day. The yield curve has flattened with yields ranging between 0.7 to 3.1bp lower. The benchmark 10-year yield has dropped by 1.9bp to 0.379%, which is well below the BoJ's YCC limit of 0.50%. Meanwhile, the benchmark 30-year yield is down by another 2.6bp to 1.207%, following a 5bp decline yesterday, which came after a strong auction result.
  • Swap rates are lower across the curve with swap spreads wider except for the 1-year zone.
  • The local calendar is relatively heavy next week with PPI data on Monday and Q1 GDP (preliminary) on Wednesday as the highlights.
  • 5- and 20-year JGB supply is scheduled for Monday and Wednesday, respectively, along with BoJ Rinban operations covering 1-10-year and 25-Year+ JGBs.

AUSSIE BONDS: At Session Bests Aided By US Tsys and NZGBs

In Asia-Pac trade, ACGBs are stronger (YM +7.0 & XM +9.5) and at session highs as US tsys extend their gains from Thursday. With a light economic calendar and domestic headlines, local traders have been happy to follow US tsys. Currently, cash US tsy yields are 1-2bp lower, and the curve is flatter. Additionally, the sharp richening in NZGBs after the release of RBNZ inflation expectations data is likely to have contributed to the ACGB's move to session highs.

  • Cash ACGBs are 8-10bp richer with the 3/10 curve 2bp flatter and the AU-US 10-year yield differential -4bp at -7bp.
  • Swap rates are 6-7bp lower with EFPs 2-3bp wider.
  • The bills strip twist flattens with pricing -1 to +5.
  • RBA dated OIS pricing is mixed with pricing 1bp firmer for June but 2-5bp softer for meetings beyond August.
  • The local calendar is light until the RBA Minutes for May are released early next week.
  • The AOFM announced a relatively low round of nominal ACGB issuance for next week with the sale A$700mn of the 2.75% 21 June 2025 bond on Wednesday, 17 May. AOFM issuance is set to remain light for the FY ahead with between A$1-1.5bn per week on average.

NZGBS: At Bests, Curve Bull Steepens, Infl. Expectations Decline

NZGBs 2/10 cash curve bull steepens, with benchmark yields 10-13bp lower, after RBNZ’s 1- and 2-year inflationary expectations data for Q2 respectively fall to 4.28% and 2.79% versus 5.11% and 3.3% in Q1. The 2- and 10-year yields were respectively 6bp and 4bp lower after the data. A richening in US tsys in Asia-Pac trade assisted the move to session bests by the close, although NZGBs outperformed the $-bloc with the NZ/US and NZ/AU 10-year differentials both 2bp lower on the day.

  • Swap rates are 6-14bp lower with the implied swap spread box steeper.
  • Inflation expectations have decreased following a drop in actual inflation to 6.7%. Despite the softening of expectations, inflation remains high, and the RBNZ still has work to do since expectations remain above the target midpoint of 2%.
  • RBNZ dated OIS shunts softer after the data with pricing 3-11bp softer across meetings by the close. Tightening expectations for the May 24 meeting decline to 20bp.
  • NZ net migration data for March showed +12k for a net gain of 65.4k for the year ended March 31. This was the largest gain since August 2020. April Manufacturing PMI increased to 49.1 from 48.1.
  • The NZ calendar is relatively light ahead of the Budget on Thursday.

EQUITIES: Most Regional Markets Tracking Lower, Japan Outperforming

Regional equity markets are mixed today, with Japan the main positive story, but a lot of the other major indices have struggled to maintain positive momentum. China and HK bourses sit lower. US futures has mostly been firmer, with eminis last +0.20% and near 4152. Nasdaq futures are slightly higher at +0.30%.

  • The HSI was higher at the open but couldn't sustain these gains. We were last -0.13% to 19718, after getting as high as 19850 not long after the open. Tech is outperforming, with the sub-index +1.20%. We saw a strong Thursday rally for the Golden Dragon Index in US trade, after senior US/China officials met in Vienna Wed/Thurs. E commerce company JD.com is also tracking higher after surging Q1 earnings.
  • Mainland China shares are also down, the CSI 300 off by nearly -0.60% at this stage. Weaker data outcomes this week have taken the shine off the recovery theme.
  • Japan stocks are doing better, the Topix +0.5%, with the electric appliances sector the main driver of gains.
  • The Kospi is down 0.35%, while the Taiex is close to flat, in line with some tech related weakness during US trade on Thursday.
  • Thai shares are down 1.00% ahead of Sunday's election. We remain comfortably above early May lows though near 1500. Philippines stocks are also weaker, down nearly 1%.

FOREX: Kiwi Pressured In Asia

Kiwi is pressured in Asia today, NZD/USD is down ~0.6%. 2 Year inflation expectations fell to 2.79% in Q2 from 3.3% in Q1. 1-Year Inflation Expectations sit at 4.28% in Q2 vs 5.11% in Q1. Earlier in the session April BusinessNZ Manufacturing PMI which printed at 49.1 ticking higher from 48.1 prior.

  • NZD/USD sits at $0.6260/65. The pair has found support ahead of the 20-Day EMA and sits at its lowest level since 4 May. A break through the 20-Day EMA opens the low from May 1 at $0.6161.
  • AUD is marginally pressured as weakness in the kiwi spills over. AUD/USD prints at $0.6690/95, down ~0.2%. Resistance comes in at $0.6818 high from May 10 and support is at $0.6689 yesterday's low.
  • USD/JPY has dealt in a narrow ~30 pip range in Asia with little follow through on moves. Support is at ¥133.50 low from May 4 and resistance is at ¥135.47 high from May 10.
  • Elsewhere in G-10 ranges have been narrow with little follow through on moves. CHF is marginally outperforming however liquidity is generally poor for the Franc in Asia.
  • Cross asset wise; e-minis are 0.1% firmer, US Treasury Yields are ~2bps lower across the curve. BBDXY is little changed from opening levels.
  • In Europe we have preliminary print of Q1 UK GDP, further out UofMich Consumer Sentiment crosses.

OIL: Maintaining Downside Bias

Brent crude has continued to track lower in the first part of Friday trading. We are around $74.50/bbl currently, just above session lows of $74.34/bbl. We have lost a further ~0.70% so far today (Wed/Thur trade we lost over 3%), while for the week we sit slightly down on closing levels from last Friday. Next support would be seen at $71.28/bbl (May 4 low). WTI is following a similar trajectory, last near $70.40/bbl.

  • Demand concerns from both China and the US have weighed on the outlook this week. Data momentum has faltered in both economies over recent sessions.
  • There is evident in terms of other commodities, with metals notable underperformers this week, although copper and iron ore are firmer today.
  • On the supply side., Iraq is planning to resume oil exports (450k barrels per day) to the market through the port of Ceyhan in Turkey from Saturday. This appeared to offset reports that the US will start refilling its Strategic Petroleum Reserves after June.

GOLD: Slightly Weaker In Asia-Pac Trade

In early Asia-Pacific trading, gold has continued to decline, following a 0.8% drop on Thursday, and is currently at 2010.63, down by 0.2%. Meanwhile, the USD index remains steady at 102.05.

  • MNI's technical team reports that gold is still on an uptrend, marked by a series of higher highs and higher lows. Moving average studies are also indicating a bullish setup. Investors are closely monitoring the March 8 high of $2070.4, which is the immediate target before the all-time high of $2075.5. Meanwhile, the key support level remains at $1969.3, which was the low point recorded on April 19th.
  • Gold prices have remained above $2000 for the month of May, as investors anticipate the end of the Federal Reserve's tightening cycle. Concerns about the impasse over the US debt ceiling have also contributed to a bullish market sentiment.
  • Earlier in the week, gold prices hit $2048.19 per ounce after the release of US CPI data, which was accompanied by a decline in US tsy yields. Although yields have continued to decline and reached new weekly lows following the release of PPI data, gold prices have not returned to the post-CPI high.

ASIA FX: CNH Steadies, Mostly Weaker Trends Elsewhere

USD/Asia pairs have been mixed today. CNH has stabilized, moving back to 6.9550. PHP is back to flat after weakening beyond 56.00 in early trade. USD/THB is higher, with onshore equities down ahead of Sunday's election. Still to come today is Indian CPI and IP prints. Monday next week delivers the China 1yr MLF outcome, no change expected. Thailand Q1 GDP is out, along with Indonesian trade figures.

  • USD/CNH spot has tracked modestly softer today, bucking the generally supported USD trend seen elsewhere in the region. We were last close to 6.9550. Onshore equities are tracking lwoer, the CSI 330 off nearly 1% at the time of writing. A meeting between senior US/China officials in Vienna Wed-Thur of this week has aided sentiment. Onshore 10yr yields are slightly higher, back above 2.70%.
  • 1 month USD/KRW has stayed mostly elevated today. We did get above 1335 briefly, but now sit back at 1331/32. Local equities are weaker, while the government detailed a cautious growth backdrop. The authorities will provide consumption vouchers in order to aid the growth outlook.
  • USD/PHP broke above 56.00 in early trade, getting to a high of 56.015. However, we have steadily moved lower since then, last back to 55.75, basically unchanged for the session. The 200-day MA sits at 56.105, and we saw official rhetoric pick up around FX levels the last time we broke above 56.00. Next week's BSP meeting is expected to deliver on hold rates, at least according to the Bloomberg consensus. The meeting is next Thursday.
  • USD/IDR opened up firmer getting to 14765, which is right around May highs. We have pared gains somewhat, last just under 14750. Note late April highs sit around 14925, while on the downside, we haven't spent much time sub 14700, while early May lows come in under 14600. Cross-asset headwinds persist for IDR. Local equities are now 3% off late April highs, with the benchmark continuing to track lower today (-0.50%). Yesterday saw $61.8mn in net equity outflows, while Wednesday saw -$189.2mn in bond outflows.
  • USD/THB has continued to recover in the first part of trading. The pair back to 33.90/95, +0.55% on yesterday's closing levels (33.725). This is line with broader USD/Asia gains and higher beta FX struggling in terms of the majors. There may be some resistance at the 34.00 round figure level, while the simple 50-day MA is not too far away at 34.095. Sunday will see Thai election, although a clear winner may not be immediately clear after the result. The two front runners, the populist Pheu Thai and progressive Move Forward parties, will likely face opposition in the Senate in terms of forming government, with the Senate likely to side with the military.
  • USD/INR prints at 82.10/15, the pair is ~0.1% firmer in early trade. Equity inflows have been strong in May to date, there has been a total of ~$1.913bn net of Foreign Equity Investment. On the wires today we have April CPI, which is expected to moderate to 4.76% Y/Y from 5.66% in March which would be the slowest rise in CPI since Oct 2021 giving the RBI room to keep rates on hold. Also on the wires is March Industrial Production, which is expected at 3.2% Y/Y the prior read was 5.6% Y/Y.
  • USD/MYR prints at 4.4700/50, the pair is ~0.3% firmer today. We now sit at the highest level since mid-March and USD/MYR is ~1% firmer this week. Palm Oil futures fell ~2.6% yesterday, however losses have been pared this morning with the contract up ~0.5%. Q1 GDP printed at 5.6% Y/Y above the expected 5.1%. The BoP Current Account Balance was MYR4.3bn, narrower than the expected MYR21.5bn.


UP TODAY (TIMES GMT/LOCAL)

DateGMT/LocalImpactFlagCountryEvent
12/05/20230600/0700**UKUK Monthly GDP
12/05/20230600/0700***UKGDP First Estimate
12/05/20230600/0700***UKIndex of Production
12/05/20230600/0700**UKTrade Balance
12/05/20230600/0700**UKIndex of Services
12/05/20230600/0700**UKOutput in the Construction Industry
12/05/20230600/0800**NONorway GDP
12/05/20230645/0845***FRHICP (f)
12/05/20230700/0900***ESHICP (f)
12/05/20230800/1000
EUECB de Guindos Lecture at Academia Europea Leadership
12/05/20231115/1215
UKBOE Pill & Shortall Monetary Policy Report National Agency Briefing
12/05/20231230/0830**USImport/Export Price Index
12/05/20231400/1000***USUniversity of Michigan Sentiment Index (p)
12/05/20231600/1200***USUSDA Crop Estimates - WASDE
12/05/20231820/1420
USSan Francisco Fed's Mary Daly

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