US TSYS: Treasury Futures Steady, Curves Slightly Steeper

• Jun'24 10Y are largely unchanged from earlier trading at 110-02+, +05 from NY closing levels and just off earlier highs of 110-03. There has been little in the way of market headlines, while ranges are well within Mondays.
• Looking at technical levels: Initial support lays at 109-24+ (March 18 low and bear trigger) while below here the 109-14+ (Nov 28 low). While to the upside resistance holds at 110-31/31+ (50-day EMA / Mar 27 high), above here 111-10+ (Mar 13 high).
• Cash Treasury have reversed some of Monday's moves, with curves slightly bull-steepening, the 2Y yield is -1.9bps at 4.691%, 10Y -0.6bps to 4.301%, while the 2y10y +1.067 at -38.548
• Looking Ahead: JOLTS, Durable/Factory Orders, Fed Speak

JGBS: Futures Positive, 10Y Went Well, BoJ Rinban Operations Tomorrow

JGB futures are stronger, +6 compared to settlement levels, but off post-auction highs. JBM4 gapped higher to a Tokyo session high of 145.69 (+14) in early afternoon dealings after 10-year supply showed strong demand metrics. The low price beat wider expectations, the tail shortened, and the cover ratio rose to 3.799x from 3.239x at March’s auction.

• Crucially, this offering marked the inaugural auction for the new fiscal year and represented the first unveiling of the 10-year supply since the BoJ removed its negative interest rate policy (NIRP).
• Against this backdrop, today's outcome established an optimistic tone for a market that has experienced mounting pressure since mid-December, fueled by expectations of policy tightening from the BoJ.
• There hasn’t been much in the way of domestic data drivers to flag, outside of the previously outlined Monetary Base.
• Cash US tsys are dealing flat to 1bp richer in today’s Asia-Pac session, with a steepening bias.
• Cash JGBs are flat to 2bps cheaper across benchmarks. The benchmark 10-year yield is unchanged at 0.739% but slightly richer than pre-auction levels.
• The swaps curve has bear-steepened, with rates flat to 1.6bps higher. Swap spreads are mixed.
• Tomorrow, the local calendar sees Jibun Bank Composite & Services PMIs alongside BoJ Rinban Operations covering 1-5-year and 10-25-year JGBs.

AUSSIE BONDS: Cheaper, RBA Board Didn’t Discuss Rate Move In March, May-41 Supply Tomorrow

ACGBs (YM -5.0 & XM -9.0) are holding cheaper on the day, but unchanged after the release of the RBA’s March Meeting Minutes.

• The RBA Board did not discuss a possible change in rates in either direction, as it was “appropriate to leave the cash rate target unchanged” and the data had been “broadly as expected”.
• Both upside and downside risks to inflation were considered but seen as “a little more even”. Given it is still going to take “some time” for the RBA to feel confident that inflation will return to target, rates are likely to be left at 4.35% for some months.
• Cash US tsys are dealing flat to 1bp richer in today’s Asia-Pac session.
• Cash ACGBs are 1-10bps cheaper, with the AU-US 10-year yield differential at -25bps.
• Swap rates are 5-8bps higher, with the 3s10s curve steeper.
• The bills strip has bear-steepened, with pricing flat to -6.
• RBA-dated OIS pricing is 2-3bps firmer for meetings beyond May. A cumulative 37bps of easing is priced by year-end.
• Tomorrow, the local calendar is empty, apart from the AOFM’s planned sale of A$300mn of 2.75% May-41 bond. The AOFM also plans to sell A$800mn of the 2.50% May-30 bond on Friday.

RBA: Board Only Discussed Leaving Rates At 4.35%

The RBA minutes from the March meeting showed that the Board did not discuss a possible change in rates in either direction, as it was “appropriate to leave the cash rate target unchanged” and the data had been “broadly as expected”. Both upside and downside risks to inflation were considered but seen as “a little more even”. Given it is still going to take “some time” for the RBA to feel confident that inflation will return to target, rates are likely to be left at 4.35% for some months.

• There is still a risk that it could take longer than expected for inflation to return to target which would drive inflation expectations higher. This could be driven by demand continuing to exceed supply, disappointing productivity growth and services inflation stickier than expected. Weaker-than-projected consumption resulting in softer growth would result in inflation falling faster.
• Risks overall were seen as “broadly balanced” and so it was “not possible to either rule in or out future changes” in the OCR.
• The RBA continues to monitor global developments, especially inflation, domestic demand and the inflation/labour market outlook.
• Below trend growth driven by soft consumption and negative per capita GDP due to population growth were recognised in the minutes. The output gap is closing “relatively quickly”. It also noted that it was unclear how much the labour market has eased due to “shifting seasonal patterns”.
• The next meeting is on May 7 and will include updated staff projections following Q1 CPI on April 24.

NZGBS: Cheaper But Closed Near Best Levels, New May-35 Bond Priced Tomorrow

NZGBs benchmarks closed 4-6bps cheaper but at or near the best levels. In the absence of domestic data, the local market’s move away from the morning cheaps has likely been linked to the strengthening in US tsys in today’s Asia-Pac session.

• Cash US tsys are dealing flat to 2bps richer, with a steepening bias. This comes after a sharp post-ISM Mfg sell-off yesterday.
• Swap rates closed 3-4bps higher after being 8-10bps higher earlier in the session.
• RBNZ dated OIS pricing is flat to 3bps firmer across meetings, with Feb-25 leading. A cumulative 69bps of easing is priced by year-end.
• Tomorrow, the local calendar is empty, apart from the pricing of the new 4.5% May-35 nominal bond that was launched today by the NZ Treasury.
• NZ Treasury expects to issue at least NZ$3bn of the new bond, with a transaction cap of NZ$5bn. Initial price guidance is 4-8bps over the May-34 nominal green bond. JLM: ANZ, BNZ, UBS AG and Westpac. Given the timing of the launch, the weekly bond auction scheduled for April 4 has been cancelled.

FOREX: USD Stable But BI Has Intervened As USDIDR Approached 16000

G10 currencies are little changed during the APAC session with the DXY USD index slightly higher after range trading through the session and rising 0.5% on Monday following stronger ISM data. The largest mover has been the Swiss franc with USDCHF up 0.2% to 0.9063. EURUSD is down 0.1% to 1.0730. Meanwhile BI has intervened in the market to bring USDIDR down.

• USDIDR rose to 15960 earlier but then BI has been intervening and it is now up 0.3% today to 15942. BI said that it sees the pressure on the rupiah as only temporary.
• USDJPY is little changed up 0.1% to 151.73 after a low of 151.51 early in the session. Finance minister Suzuki warned again that no options have been ruled out against excessive FX moves.
• AUDUSD looked through the RBA March meeting minutes which showed the Board didn’t discuss a rate hike. It was boosted by the rally in the Hang Seng to a high of 0.6499 but the pair couldn’t break above 65c and is now flat on the day at 0.6486 as iron ore is declining again.
• NZDUSD is down 0.1% to 0.5946 but off the low of 0.5944. There has been no news from NZ. AUDNZD rose to a high of 1.0917 but is now down to 1.0909 to be up 0.1% on the day.
• USDTHB is up another 0.7% to 36.66 after the government said that the deficit would have to rise to fund its digital wallet scheme. It is now up 2.2% since the start of March and its highest level since early October.
• Later the Fed’s Bowman, Williams, Mester and Daly appear. In terms of data, there are US JOLTS February job openings, final February durable orders, European March manufacturing PMIs and German preliminary March CPI.

IDR: BI Intervenes To Defend Rupiah As Greenback Strengthens & Foreigners Sell Bonds

USDIDR rose to 15963 earlier today after closing at 15890 on Monday driven by foreign bond outflows. The approach to 16000 has pushed Bank Indonesia (BI) to intervene in the market and now it is up 0.3% to 15932. BI said that it sees the pressure on the rupiah as only temporary and that it can manage supply and demand in the market. According to Bloomberg, it has been intervening in the FX spot and domestic NDF markets.

• Overseas investors are concerned that the new government under President-elect Prabowo, which takes over later in the year, will boost spending considerably. USDIDR is up 2.2% since the February 14 election. USDTHB has risen 0.6% today to 36.65 on news that deficits will need to rise to fund the government’s digital wallet scheme.
• In Q1, global funds sold $1.7bn of Indonesian bonds, the highest since Q3 2022, according to Bloomberg. In this environment trade and current account data will be watched closely.
• On Monday the USD index rose 0.5%, as the US manufacturing ISM was stronger-than-expected including the price component. The index is slightly higher again today.
• BI has said that the window to begin its easing cycle is in H2 2024, but it needs the Fed to cut rates first to put downward pressure on the greenback and bring USDIDR down from levels not seen since BI hiked to defend the rupiah in October last year.

EQUITIES: HK Equities Play Catch Up, CSI300 Unable To Break 200-Day EMA

Hong Kong equity markets have surged higher today after returning from a two-session break, tracking moves higher made by onshore markets on Monday. The gains come after data out on Sunday showed a jump in PMI with manufacturing PMI coming in at 50.8 vs 50.1 expected and up from 49.1 in Feb, while investors piled into onshore stocks via northbound connect for two consecutive months as of march. China Vanke falls on a decline in net income, while denying fraud claims.

• Hong Kong markets have surged higher led by the tech space with the HSTech Index up 2.28%, the Mainland Property Index is up 1.66%, while the HSI is up 2.29%, as the market plays catch-up to onshore China markets after being closed the past two sessions. In China, markets are mixed with the CSI300 now down 0.37%, while the small-cap CSI1000 is down 0.26%, the Growth Index ChiNext is down 0.21%
• The CSI300 is currently just hovering just below the 200-EMA of 3595, a level it broke below back in July 2021 and has been unable hold back above since.
• In the property space, China Vanke, has fallen 3.7% after reporting a 46% fall in it 2023 net income and missing estimates, while the company also refutes allegations made by some Shandong-based partner companies against the company and Chairman Yu Liang, stating they are untrue. Vanke acknowledges being in a judicial procedure with Yantai Bairun Property Co., one of the local partners, and asserts its commitment to take legal actions to protect its legal interests. The accusations, including misuse of funds, usury, tax evasion, and money laundering, were made by the Shandong-based partners, as per a joint statement on a WeChat account of one of the joint venture partners. While finally the company plans to exercise the redemption option on the 3.4% 1b yuan bond due May 2026, according to a filing late Monday.
• (Bloomberg) -- Vanke Leads Slide in China Developers After First Sell Rating (see link)
• Looking ahead. China has Caixin China PMI Composite & Services on Wednesday

OIL: Crude Continues Climbing On Positive Industrial Data & Middle East Tensions

WTI crude has risen a further 0.5% to $84.10/bbl during APAC trading after increasing 1% on Monday. It’s at its highest level since September last year. Brent is up 0.5% to $87.82/bbl. Oil prices have been supported this week by stronger-than-expected China PMIs, higher US manufacturing ISM, and an escalation in Middle East tensions. Mexico has also said it will cut back on crude exports. The USD index is flat.

• With WTI now up 16.6% this year, central banks will be looking closely for signs that higher fuel costs are feeding into other prices before cutting rates. Second-round effects from rising oil prices, which would result if demand is still robust, would likely delay easing cycles.
• Iran has accused Israel of bombing its embassy in Damascus killing a senior military official. Conflicts in the Middle East over the last six months have not threatened oil supplies but the market has remained alert to risks that Iran becomes directly involved and impacts its crude flows. There have also been more altercations off Yemen.
• On Wednesday OPEC+ will meet online but no change is expected as members said current quotas were appropriate. A decision on whether to extend the cuts into Q3 is likely to be made in early June.
• Later the Fed’s Bowman, Williams, Mester and Daly appear. In terms of data, there are US JOLTS February job openings, final February durable orders, European March manufacturing PMIs and German preliminary March CPI.

GOLD: Pared Gains After ISM Mfg Data

Gold is little changed in the Asia-Pac session, after closing 1% higher at $2251.44 on Monday. Earlier in the day, it had achieved a fresh all-time high of $2265.73.

• Bullion pared gains following stronger-than-expected ISM manufacturing data. ISM Manufacturing printed 50.3 vs. 48.3 est., climbing above 50.0 for the first time since September 2022. Additionally, Prices Paid, New Orders and Employment sub-indices were higher than estimated.
• The US Treasury curve bear-steepened, with the 2-year yield finishing 9bps higher and the 10-year yield up 11bps. The 10-year yield sits just shy of its YTD high of 4.35%.
• FOMC dated OIS is pricing in a 56% chance of a US rate cut in June.
• Attention now turns to US Non-Farm Payrolls on Friday.

UK: Shop Price Growth Lowest Since Dec 2021, With Both Non-Food and Food Softening

BRC-NielsenIQ Shop Price inflation slowed to +1.3% Y/Y in March (vs +2.5% Y/Y prior), whilst Shop Price inflation fell on a monthly basis by 0.4% M/M (vs +0.4% M/M growth in February).

• There is a clear trend of disinflation continuing, driven by the Food component falling for the eleventh consecutive month to +3.7% Y/Y (vs +5.0% Y/Y prior) - the lowest rate since April 2022.
• In addition to this, despite concerns about the non-food inflation component stalling, the pace of disinflation has once again picked up to +0.2% Y/Y in March (vs +1.3% Y/Y prior), the lowest level since December 2021.
• The graph below displays the disinflation trend for both the BRC and ONS series across both food and nonfood. This month's downward moves in the BRC data show little sign of slowing, suggesting the official ONS NEIG inflation rate is likely to continue falling.
• The Chief Executive of the BRC highlights despite "high global cocoa and sugar prices...retailers compete fiercely to bring prices down", which has continued to weigh on the overall index. However, they also cautioned that the "largest rise to the National Living Wage on record...could put progress on bring down inflation at risk."
• The BOE MPC will again welcome the progress this data displays, although will be keeping an eye on upcoming Q1 and April wage data and services inflation.

PHILIPPINES: Philip Curve Steepens, Spreads Tightens, CPI Later This Week

The Philippines USD sovereign debt curve has bear-steepened on Tuesday, with yields are 4-6bp higher. Central Banks expects Inflations to range from 3.4% to 4.2%.

• The PHILIP curve has bear-steepened on Tuesday, however has out-performing the move by US treasuries, the 2Y yield is 4bps higher at 4.855%, 5Y yield is 5bps higher at 4.975%, the 10Y yield is 6bp lower at 5.06%, while 5yr CDS is 0.5bp higher at 63.5bps.
• The PHILIP to UST spread difference tighten in the front-end throughout the day as the US treasury yields moved higher post ISM data, the 2y is 14.5bps (-3.5bps), the 5yr is 66.5bps (-3bp), while the 10yr is 75bps (-2bps)
• Cross-asset moves: USD/PHP is 0.17 higher at 56.355, the PSEi is 1.02% higher, while US Tsys yields have steepened with yields 0.5bp higher to 1.5bps lower.
• The Bangko Sentral ng Pilipinas predicts Philippine inflation for last month to range from 3.4% to 4.2%, compared to February's 3.4%. Rising prices of rice, meat, domestic oil, and electricity are driving upward pressures, while lower prices of fruits, vegetables, fish, and a stronger peso may counterbalance. The central bank pledges to monitor inflation and growth closely for future policy decisions.
• Looking Ahead: CPI is due out on Friday