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In the G10 FX space, Yen has pared recent losses but the USD is still up strongly for the week. US Tsys futures have traded in narrow ranges throughout the session.
Oil has been steady but is still up strongly for the week on Middle East tensions, with concerns Israel could strike Iran's oil facilities.
Equity sentiment has been mostly positive in the region, with tech outperforming.
Tsys futures have traded in narrow ranges throughout the session TY remains trading just above the 50-day EMA (113-29+) at 113-30+ a break below there would be the first time the contract trades below the 50-day EMA since July.
Yield curves are slightly steeper with the 2s10s +0.427 at 14.263 vs recent highs of 23.585. Yields have given back majority of the sessions gains and are now trading flat to 0.6bps lower, with the 2yr -0.6bps at 3.700% and the 10yr is -0.2bps at 3.844%
Oil rally looks to have taken a break and trades little changed today, while Gold has moved a touch higher over the past 30 mins following some reports that there has been more missiles fired at Israel.
Fed funds futures are trading steady with little change over the past few sessions, Nov dated futures are pricing in 33.8bps of cuts, or roughly 35% chance of another 50bps cut.
Focus is all on tonight's NFP where they expected to have firmed marginally to 150k in September although some analysts also look for upward revisions to August. The employment rate is expected to come in at 4.2% for a second month.
Year-end official rate expectations across the $-bloc have remained fairly steady over the past week, with the exception of the US, where expectations have firmed by 10bps.
In the US, rate expectations strengthened yesterday following stronger-than-expected ISM Services data, which included robust readings for both prices paid and new orders. However, the employment index slipped back into contraction territory, ahead of today’s Non-Farm Payrolls release.
Fed Chair Powell also recently attempted to temper expectations of a second 50bp rate cut following the November 6-7 FOMC meeting. Despite this, markets are still pricing in 32bps of easing for that meeting.
Outside the US, rate expectations inched up by 3bps in Canada and 1bp in Australia.
In contrast, New Zealand's expected year-end OCR softened by 4bps over the past week, with 92bps of easing priced in. For next Wednesday's RBNZ Policy Decision, markets are pricing in a 74% chance (44bps) of a 50bp cut.
Looking ahead to December 2024, the expected official rates and cumulative easing across the $-bloc are as follows: US (FOMC): 4.22%, -86bps; Canada (BoC): 3.58%, -67bps; Australia (RBA): 4.18%, -14bps; and New Zealand (RBNZ): 4.33%, -92bps.
JGB futures are weaker and sit near session lows, -20 compared to settlement levels.
Japan's new economy minister, Ryosei Akazawa, said on Friday that the timing of changes in the Bank of Japan's monetary policy should be aligned with the government's broader goal of exiting deflation. (per Reuters)
"The timing of various monetary policy changes is very important," Akazawa said in a press conference. "It's important that they are aligned with our policy priorities such as exiting from deflation and growth in wages and investments."
Cash US tsys are flat to 1bps richer in today’s Asia-Pac session after yesterday’s heavy session. All eyes have turned to nonfarm payrolls where growth is seen accelerating marginally to 150k in September after the weaker-than-expected 142k in August. That said, everyone remains on Middle East headlines watch.
Cash JGBs are little changed across benchmarks beyond the 1-year (+2.8bps). The benchmark 10-year yield is 0.5bp higher at 0.838%.
Swap rates are little changed out to the 10-year but 3-4bps higher beyond. Swap spreads are mixed.
On Monday, the local calendar will see Coincident & leading Indices alongside BoJ Rinban Operations covering 1-25-year JGBs.
ACGBs (YM -6.0 & XM -6.0) are weaker and near Sydney session cheaps. With the domestic data calendar relatively light, local participants have been largely content to sit on the sidelines ahead of tonight’s release of US payroll data.
Cash US tsys are flat to 1bps richer in today’s Asia-Pac session. All eyes have turned to nonfarm payrolls where growth is seen accelerating marginally to 150k in September after the weaker-than-expected 142k in August. That said, everyone remains on Middle East headlines watch.
Cash ACGBs are 6bps cheaper with the AU-US 10-year yield differential at +23bps.
Swap rates are 6bps higher.
The bills strip has bear-steepened, with pricing -1 to -7.
RBA-dated OIS pricing is flat to 7bps firmer for 2025 meetings. A cumulative 12bps of easing is priced by year-end.
Next week, the local calendar will see the Melbourne Institute Inflation Gauge on Monday, ahead of September’s RBA Minutes, and Consumer and Business Confidence on Tuesday. A reminder that NSW, QLD and SA have a Labor Day holiday on Monday.
The AOFM plans to sell A$500mn of the 3.25% 21 June 2039 bond on Wednesday and A$1.0bn of the 2.75% 21 November 2028 bond on Friday.
NZGBs closed unchanged but at session bests ahead of the release of US Non-Farm Payrolls data later today.
Outside of the previously outlined filled jobs data, there hasn't been much by way of domestic drivers to flag.
Cash US tsys are flat to 1bps richer in today’s Asia-Pac session after yesterday’s heavy session. All eyes will now turn to headline nonfarm payrolls where growth is seen accelerating marginally to 150k in September after the weaker-than-expected 142k in August.
On a relative basis, the NZGB 10-year has strongly outperformed its $-bloc counterparts, with the NZ-US and NZ-AU yield differentials 4bps and 5bps tighter respectively.
Growing expectations that the RBNZ will cut the OCR by 50bps at each of its two remaining policy meetings this year have assisted this outperformance. Economists point to the risk that inflation could undershoot the RBNZ’s 2% target.
For next Wednesday's RBNZ Policy Decision, the market is pricing in a 74% chance (44bps) of a 50bp cut, with 92bps of easing by year-end.
Swap rates closed flat to 2bps higher, with the 2s10s curve steeper.
The local calendar is empty ahead of next week’s RBNZ meeting.
USD/JPY gains for the week have been pared as the first part of Friday's session unfolds. Otherwise G10 FX moves have been quite muted, as we await the US payrolls print later. The USD BBDXY index sits down a touch, last near 1232.2.
The BBDXY index is still close to recent highs and up over 1% for the week, which at this stage is the best weekly gain since April. A host of factors have aided the USD - better data outcomes, more hawkish Powell rhetoric and flight to safety amid Mid-east tensions. The next litmus test will be the NFP print later.
For USD/JPY we are off 0.50%, last near 146.20. Yen is still down around 2.75% for the past week. Japanese government efforts to show the new PM and BOJ are aligned (after yen slumped earlier in the week on dovish comments from new PM Ishiba) has likely helped JPY at the margins. We have also had an ex BoJ board member note the central bank will continue to seek timing around raising rates. the new government also plans further support for households under cost of living pressures.
CHF is also firmer, up 0.20%, but cross asset signals in the equity space have mostly been against safe havens, with firmer gains in the region and US futures a touch higher. US yields are down a touch.
AUD/USD is a touch higher, but still under 0.6850 at this stage. NZD/USD is steady near 0.6210. The market bias appears to be play AUD/NZD from the long side as we approach next week's RBNZ meeting. The cross sits at 1.1020/25, highs back to mid August.
At this stage, the USD BBDXY index is up over a little over 1% for this week. This would be the USD's first weekly gain since the end of August and best week since mid April.
A combination of factors have aided the USD over this period. The general tone to data outcomes has been more positive, on balance. The chart below plots the Citi US activity surprise index against the USD BBDXY. The surprise index is at multi month highs back to early May.
This, along with Powell's recent rhetoric on not being in a hurry to ease quickly, has clearly helped the USD/yield backdrop. We have another important litmus test tonight with US NFP, but all else equal, any positive surprises should benefit the USD.
Other factors have helped the USD in terms of central bank outlooks this past week, with BoE, BoJ and RBNZ leaning more dovish.
Fig 1: Citi US EASI Versus USD BBDXY Index
Source: Citi/MNI- Market News/Bloomberg
The other USD support has been risk jitters emanating out of the Middle East given heightened Israel/Iran tensions. Outside of the 'flight to safety' benefits for the USD, it's also worth noting the firm positive correlation the USD terms of trade proxy has with global energy prices.
The second chart below overlays the Citi USD terms of trade proxy against spot global energy prices (from BBG).
Outside of the above factors, the other watch point for the USD next week, will be returning China markets on Tuesday. Further positive China related asset sentiment, amid stimulus hopes could act as a USD headwind.
Fig 2: Citi USD Terms of Trade Proxy Versus Spot Energy Prices
Biden has signed legislation exempting certain US semiconductor manufacturing facilities from federal environmental reviews, especially those receiving subsidies under the $52.7b CHIPS Act with the law aiming to prevent delays from additional reviews required by the National Environmental Policy Act.
The US Commerce Department has allocated over $35b for 26 projects, including major grants to companies like Samsung, Intel, and Micron Technology, to enhance domestic chip production. The legislation is seen as crucial for boosting U.S. semiconductor manufacturing and reducing reliance on China, but critics warn of potential environmental risks, citing past pollution incidents in California as per RTRS.
Further, comments from Nvidia CEO Jensen Huang where he stated demand for the company's upcoming Blackwell “Superchip” is "insane." with tech firms like Microsoft, OpenAI, Meta, and other AI-focused companies are eagerly seeking the chip. Blackwell-based products are set to be shipped to cloud services at Oracle, Amazon, Microsoft, and Google later this year, as per CNBC.
Semiconductor stocks have underperformed the market since the Yen carry trade started to be unwound back in July with the Philadelphia SE Semiconductor Index underperforming the S&P 500 by 12.40% from July 1st. However, with the yen falling 4.75% from recent Sept highs and dovish comments from BoJ over the past week traders could be tempted back into the yen carry trade which could support semiconductor names again.
Asian stocks are mostly higher today led by gains in Hong Kong shares, as traders assessed the ongoing impact of Middle East tensions. The MSCI Asia Pacific Index rose 0.6%, boosted by major Chinese tech names like Tencent and Alibaba. Investors are optimistic about holiday spending data from the Golden Week in China, though mainland markets remain closed until Monday. Japan's stocks rose amid a weaker yen, and South Korea's market saw gains, though Taiwan edged lower after reopening post-typhoon. Despite today’s uptick, the regional benchmark is set for a 0.7% weekly decline, its first in four weeks.
Shipping stocks fell across Asia as US dockworkers suspended their strike, while Asian energy producers like Woodside and S-Oil saw gains due to rising oil prices on fears of further Middle East conflict.
China property stocks have been rather volatile today with the Mainland Property Index +1.35%, the BBG China Property gauge trades +0.50% although well off earlier highs of +6%.
Nasdaq 100 Futures have broken back above 20,000 although levels we have been unable to hold above for any longer than an hour or so since breaking below on Tuesday. The HSTech index is trading up 3.50% which looks to be supporting the move with other large-cap Asian tech stocks also trade higher, Sk Hynix +3.10%, Hon Hai +3.50%, TSMC +0.75% although Japan's Tokyo Electron trades 1.65% lower.
Elsewhere, Taiwan returns from serve weather with the Taiex -0.30%, gains in semiconductor names have been offset by losses in most other sectors and South Korean equities are seeing slightly better buying from foreign investors today which has contributed to the KOSPI trading 0.40% higher. Australia's ASX200 -0.80% has been weighed down by Miners.
It has been an interrupted week for flow in Asia with multiple public Holidays. Taiwan has been out majority of the week due to server weather, while South Korea has had public holiday's. The recent stimulus for China has seen a rotation of Indonesia, Thailand & Malaysian equities over the past week, as can be seen by the 5-day averages dropping below the 20-day. Selling of Malaysian equities hit a 2 month high, while Thailand has seen 7 straight sessions of selling.
Indonesia: Outflows of $71m on Thursday, with the past 5 sessions netting -$318m. YTD flows are +$3.17b. The 5-day average is -$64m, below the 20-day average of +$62m, but above the 100-day average of +$30m.
Thailand: Outflows of $84m on Thursday, with the past 5 sessions totaling -$385m. YTD flows are -$2.88b. The 5-day average is -$77m, below the 20-day average of +$21m, but above the 100-day average of -$9m.
Malaysia: Outflows of $71m on Thursday, with the past 5 sessions netting -$210m. YTD flows are +$681m. The 5-day average is -$42m, below both the 20-day average of -$7m and the 100-day average of +$9m.
Philippines: Inflows of $5m on Thursday, with the past 5 sessions totaling +$28m. YTD flows are +$45m. The 5-day average is +$6m, above both the 20-day average of +$18m and the 100-day average of +$4m.
As world leaders warn against an uncontrolled escalation in the Middle East, news emerged of significant bombing of Hezbollah targets in Beirut on Thursday.
Joe Biden admitted on Thursday when asked if airstrikes would target Iranian oil facilities that ‘we are discussing that.’
Crude oil’s price rise had stagnated yesterday following data out showing that inventory levels in the US were rising.
However, on news of the airstrikes, prices surge with crude trading up towards US$74/bbl, settling in Asia’s morning at US$73.61/bbl.
WTI also surged towards US$78/bbl, settling at US$77.50.
For the week crude was up almost 8% with WTI up 7.70%.
Iran pumps approximately 3 million barrels of oil per day and any impact on that supply would put upward pressure on prices.
For WTI, having pierced resistance at the 50-day EMA, at $71.69, focus turns to $76.40 next, the Aug 26 high. (for the Nov 2024 contract).
Gold is 0.3% higher in today’s Asia-Pac session, after closing little changed at $2655.89 on Thursday.
Bullion has been steady over the past 24 hours ahead of the release of US Non-Farm Payrolls data later today.
The market hopes the jobs print will shed light on the health of the US economy, as it weighs the potential for further monetary easing by the Federal Reserve.
Lower rates are typically positive for gold, which doesn’t pay interest.
Yesterday, ISM Services printed stronger than expected with some genuinely strong readings for both prices paid and new orders. However, the employment index fell back into contractionary territory, which took some of the gloss off an otherwise strong report.
According to MNI’s technicals team, gold bulls remain in the driver’s seat and moving average studies are in a bull-mode set-up, highlighting a clear uptrend and positive market sentiment. The focus remains on $2,690.2 next, a Fibonacci projection, while firm support lies at $2,602.0, the 20-day EMA.
Today’s decline in CPI to 1.9% was much larger than expected.
August’s CPI printed at 3.3% and consensus for September was 2.5%.
The BSP surprises markets with a cut in rates at their last meeting.
Today’s CPI release is below the BSP’s target of 3% +/- 1% and potentially paves the way for for another cut.
It is a busy period for Central Banks over the coming weeks and with the next BSP meeting on 16 October, it will be interesting to see if a cut is forthcoming given today’s release.
Expect the RBI to remain on hold at next week's meeting, with the bias now moving to cut.
GDP has softened, though the monsoon rains have been good and likely to start to see the impacts of the expenditure from the recent budget flow through.
CPI has moderated, as has wholesale prices. Currently sitting around mid part of the target for the RBI.
Area to watch will be how the two new voting members vote given there is limited understanding of their bias.
Today's services PMI whilst softer, should not have a material impact on the decision.
The shift in sentiment towards a rate cut has moved rapidly in the last week.
Following the weaker than expected CPI and a contraction in the PMI, the door is now ajar for a rate cut.
The BOK has been focused on the surge in property prices in Seoul yet recent data shows that the macro-prudential measures put in place are having an effect with the number of transactions and average sale price declining.
Whilst exports have remained robust, it appears that the decline in consumer confidence is the primary focus and September's consumer confidence data supports that.
Our bias now turns to a cut at the next meeting of the BOK on October 11, with the accompanying statement reasonably measured to allow the impact of the cut, the effects of the China stimulus and the flow on from the cut in rates by the US Federal Reserve to be seen.
USD/CNH is drifting higher, the pair now back around 7.0640, off nearly 0.20% in CNH terms versus end Thursday levels in NY. Liquidity will be lighter given China markets are still out, but it continues the pattern since the start of Oct in terms of modest upside pressure in the pair. It puts us marginally above the 20-day EMA (7.0570), with the pair having spent very little time above this resistance point since July. The 50-day EMA has a 7.11 handle.
So far today the tone to Hong Kong and China related equities are higher, with the HSI up over 1.7% at this stage, after a negative start. Broader USD trends after a bit softer, particularly in terms of lower USD/JPY levels. However, these factors aren't aiding CNH much at this stage.
The 1 month USD/CNH risk reversal has pushed noticeably higher in recent sessions, last near 0.15, fresh highs back to early May of this year. See the chart below, which is overlaid with USD/CNH spot.
One factor that may be weighing on CNH is concern around the extent to which recent equity gains will be sustained. Several sell-side names (Nomura, J.P. Morgan etc) have expressed such concerns. Other sell-side names are more bullish on further positive momentum.
The other factor is the proximity to the US election, which will be held on Nov 5, so in just under a month. 1 month implied vol for USD/CNH is above 7.76%, fresh highs back to March 2023.
Fig 1: USD/CNH & 1 month Risk Reversal
UP TODAY (TIMES GMT/LOCAL)
Date
GMT/Local
Impact
Country
Event
04/10/2024
0545/0745
**
CH
Unemployment
04/10/2024
0645/0845
*
FR
Industrial Production
04/10/2024
0700/0900
**
ES
Industrial Production
04/10/2024
0730/0930
**
EU
S&P Global Final Eurozone Construction PMI
04/10/2024
0755/0855
GB
BOE's Pill Speech at Chartered Accounts conference
04/10/2024
0830/0930
**
GB
S&P Global/CIPS Construction PMI
04/10/2024
0900/1100
*
IT
Retail Sales
04/10/2024
1000/1200
EU
ECB's De Guindos remarks at Radio Intereconomia anniversary
04/10/2024
1230/0830
***
US
Employment Report
04/10/2024
1300/0900
US
New York Fed's John Williams
04/10/2024
1310/1510
EU
ECB's Elderson Speech at Change in Leadership event
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Please enter your details below.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.
Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
MNI (SYDNEY)
In the G10 FX space, Yen has pared recent losses but the USD is still up strongly for the week. US Tsys futures have traded in narrow ranges throughout the session.
Oil has been steady but is still up strongly for the week on Middle East tensions, with concerns Israel could strike Iran's oil facilities.
Equity sentiment has been mostly positive in the region, with tech outperforming.
Tsys futures have traded in narrow ranges throughout the session TY remains trading just above the 50-day EMA (113-29+) at 113-30+ a break below there would be the first time the contract trades below the 50-day EMA since July.
Yield curves are slightly steeper with the 2s10s +0.427 at 14.263 vs recent highs of 23.585. Yields have given back majority of the sessions gains and are now trading flat to 0.6bps lower, with the 2yr -0.6bps at 3.700% and the 10yr is -0.2bps at 3.844%
Oil rally looks to have taken a break and trades little changed today, while Gold has moved a touch higher over the past 30 mins following some reports that there has been more missiles fired at Israel.
Fed funds futures are trading steady with little change over the past few sessions, Nov dated futures are pricing in 33.8bps of cuts, or roughly 35% chance of another 50bps cut.
Focus is all on tonight's NFP where they expected to have firmed marginally to 150k in September although some analysts also look for upward revisions to August. The employment rate is expected to come in at 4.2% for a second month.
Year-end official rate expectations across the $-bloc have remained fairly steady over the past week, with the exception of the US, where expectations have firmed by 10bps.
In the US, rate expectations strengthened yesterday following stronger-than-expected ISM Services data, which included robust readings for both prices paid and new orders. However, the employment index slipped back into contraction territory, ahead of today’s Non-Farm Payrolls release.
Fed Chair Powell also recently attempted to temper expectations of a second 50bp rate cut following the November 6-7 FOMC meeting. Despite this, markets are still pricing in 32bps of easing for that meeting.
Outside the US, rate expectations inched up by 3bps in Canada and 1bp in Australia.
In contrast, New Zealand's expected year-end OCR softened by 4bps over the past week, with 92bps of easing priced in. For next Wednesday's RBNZ Policy Decision, markets are pricing in a 74% chance (44bps) of a 50bp cut.
Looking ahead to December 2024, the expected official rates and cumulative easing across the $-bloc are as follows: US (FOMC): 4.22%, -86bps; Canada (BoC): 3.58%, -67bps; Australia (RBA): 4.18%, -14bps; and New Zealand (RBNZ): 4.33%, -92bps.
JGB futures are weaker and sit near session lows, -20 compared to settlement levels.
Japan's new economy minister, Ryosei Akazawa, said on Friday that the timing of changes in the Bank of Japan's monetary policy should be aligned with the government's broader goal of exiting deflation. (per Reuters)
"The timing of various monetary policy changes is very important," Akazawa said in a press conference. "It's important that they are aligned with our policy priorities such as exiting from deflation and growth in wages and investments."
Cash US tsys are flat to 1bps richer in today’s Asia-Pac session after yesterday’s heavy session. All eyes have turned to nonfarm payrolls where growth is seen accelerating marginally to 150k in September after the weaker-than-expected 142k in August. That said, everyone remains on Middle East headlines watch.
Cash JGBs are little changed across benchmarks beyond the 1-year (+2.8bps). The benchmark 10-year yield is 0.5bp higher at 0.838%.
Swap rates are little changed out to the 10-year but 3-4bps higher beyond. Swap spreads are mixed.
On Monday, the local calendar will see Coincident & leading Indices alongside BoJ Rinban Operations covering 1-25-year JGBs.
ACGBs (YM -6.0 & XM -6.0) are weaker and near Sydney session cheaps. With the domestic data calendar relatively light, local participants have been largely content to sit on the sidelines ahead of tonight’s release of US payroll data.
Cash US tsys are flat to 1bps richer in today’s Asia-Pac session. All eyes have turned to nonfarm payrolls where growth is seen accelerating marginally to 150k in September after the weaker-than-expected 142k in August. That said, everyone remains on Middle East headlines watch.
Cash ACGBs are 6bps cheaper with the AU-US 10-year yield differential at +23bps.
Swap rates are 6bps higher.
The bills strip has bear-steepened, with pricing -1 to -7.
RBA-dated OIS pricing is flat to 7bps firmer for 2025 meetings. A cumulative 12bps of easing is priced by year-end.
Next week, the local calendar will see the Melbourne Institute Inflation Gauge on Monday, ahead of September’s RBA Minutes, and Consumer and Business Confidence on Tuesday. A reminder that NSW, QLD and SA have a Labor Day holiday on Monday.
The AOFM plans to sell A$500mn of the 3.25% 21 June 2039 bond on Wednesday and A$1.0bn of the 2.75% 21 November 2028 bond on Friday.
NZGBs closed unchanged but at session bests ahead of the release of US Non-Farm Payrolls data later today.
Outside of the previously outlined filled jobs data, there hasn't been much by way of domestic drivers to flag.
Cash US tsys are flat to 1bps richer in today’s Asia-Pac session after yesterday’s heavy session. All eyes will now turn to headline nonfarm payrolls where growth is seen accelerating marginally to 150k in September after the weaker-than-expected 142k in August.
On a relative basis, the NZGB 10-year has strongly outperformed its $-bloc counterparts, with the NZ-US and NZ-AU yield differentials 4bps and 5bps tighter respectively.
Growing expectations that the RBNZ will cut the OCR by 50bps at each of its two remaining policy meetings this year have assisted this outperformance. Economists point to the risk that inflation could undershoot the RBNZ’s 2% target.
For next Wednesday's RBNZ Policy Decision, the market is pricing in a 74% chance (44bps) of a 50bp cut, with 92bps of easing by year-end.
Swap rates closed flat to 2bps higher, with the 2s10s curve steeper.
The local calendar is empty ahead of next week’s RBNZ meeting.
USD/JPY gains for the week have been pared as the first part of Friday's session unfolds. Otherwise G10 FX moves have been quite muted, as we await the US payrolls print later. The USD BBDXY index sits down a touch, last near 1232.2.
The BBDXY index is still close to recent highs and up over 1% for the week, which at this stage is the best weekly gain since April. A host of factors have aided the USD - better data outcomes, more hawkish Powell rhetoric and flight to safety amid Mid-east tensions. The next litmus test will be the NFP print later.
For USD/JPY we are off 0.50%, last near 146.20. Yen is still down around 2.75% for the past week. Japanese government efforts to show the new PM and BOJ are aligned (after yen slumped earlier in the week on dovish comments from new PM Ishiba) has likely helped JPY at the margins. We have also had an ex BoJ board member note the central bank will continue to seek timing around raising rates. the new government also plans further support for households under cost of living pressures.
CHF is also firmer, up 0.20%, but cross asset signals in the equity space have mostly been against safe havens, with firmer gains in the region and US futures a touch higher. US yields are down a touch.
AUD/USD is a touch higher, but still under 0.6850 at this stage. NZD/USD is steady near 0.6210. The market bias appears to be play AUD/NZD from the long side as we approach next week's RBNZ meeting. The cross sits at 1.1020/25, highs back to mid August.
At this stage, the USD BBDXY index is up over a little over 1% for this week. This would be the USD's first weekly gain since the end of August and best week since mid April.
A combination of factors have aided the USD over this period. The general tone to data outcomes has been more positive, on balance. The chart below plots the Citi US activity surprise index against the USD BBDXY. The surprise index is at multi month highs back to early May.
This, along with Powell's recent rhetoric on not being in a hurry to ease quickly, has clearly helped the USD/yield backdrop. We have another important litmus test tonight with US NFP, but all else equal, any positive surprises should benefit the USD.
Other factors have helped the USD in terms of central bank outlooks this past week, with BoE, BoJ and RBNZ leaning more dovish.
Fig 1: Citi US EASI Versus USD BBDXY Index
Source: Citi/MNI- Market News/Bloomberg
The other USD support has been risk jitters emanating out of the Middle East given heightened Israel/Iran tensions. Outside of the 'flight to safety' benefits for the USD, it's also worth noting the firm positive correlation the USD terms of trade proxy has with global energy prices.
The second chart below overlays the Citi USD terms of trade proxy against spot global energy prices (from BBG).
Outside of the above factors, the other watch point for the USD next week, will be returning China markets on Tuesday. Further positive China related asset sentiment, amid stimulus hopes could act as a USD headwind.
Fig 2: Citi USD Terms of Trade Proxy Versus Spot Energy Prices
Biden has signed legislation exempting certain US semiconductor manufacturing facilities from federal environmental reviews, especially those receiving subsidies under the $52.7b CHIPS Act with the law aiming to prevent delays from additional reviews required by the National Environmental Policy Act.
The US Commerce Department has allocated over $35b for 26 projects, including major grants to companies like Samsung, Intel, and Micron Technology, to enhance domestic chip production. The legislation is seen as crucial for boosting U.S. semiconductor manufacturing and reducing reliance on China, but critics warn of potential environmental risks, citing past pollution incidents in California as per RTRS.
Further, comments from Nvidia CEO Jensen Huang where he stated demand for the company's upcoming Blackwell “Superchip” is "insane." with tech firms like Microsoft, OpenAI, Meta, and other AI-focused companies are eagerly seeking the chip. Blackwell-based products are set to be shipped to cloud services at Oracle, Amazon, Microsoft, and Google later this year, as per CNBC.
Semiconductor stocks have underperformed the market since the Yen carry trade started to be unwound back in July with the Philadelphia SE Semiconductor Index underperforming the S&P 500 by 12.40% from July 1st. However, with the yen falling 4.75% from recent Sept highs and dovish comments from BoJ over the past week traders could be tempted back into the yen carry trade which could support semiconductor names again.
Asian stocks are mostly higher today led by gains in Hong Kong shares, as traders assessed the ongoing impact of Middle East tensions. The MSCI Asia Pacific Index rose 0.6%, boosted by major Chinese tech names like Tencent and Alibaba. Investors are optimistic about holiday spending data from the Golden Week in China, though mainland markets remain closed until Monday. Japan's stocks rose amid a weaker yen, and South Korea's market saw gains, though Taiwan edged lower after reopening post-typhoon. Despite today’s uptick, the regional benchmark is set for a 0.7% weekly decline, its first in four weeks.
Shipping stocks fell across Asia as US dockworkers suspended their strike, while Asian energy producers like Woodside and S-Oil saw gains due to rising oil prices on fears of further Middle East conflict.
China property stocks have been rather volatile today with the Mainland Property Index +1.35%, the BBG China Property gauge trades +0.50% although well off earlier highs of +6%.
Nasdaq 100 Futures have broken back above 20,000 although levels we have been unable to hold above for any longer than an hour or so since breaking below on Tuesday. The HSTech index is trading up 3.50% which looks to be supporting the move with other large-cap Asian tech stocks also trade higher, Sk Hynix +3.10%, Hon Hai +3.50%, TSMC +0.75% although Japan's Tokyo Electron trades 1.65% lower.
Elsewhere, Taiwan returns from serve weather with the Taiex -0.30%, gains in semiconductor names have been offset by losses in most other sectors and South Korean equities are seeing slightly better buying from foreign investors today which has contributed to the KOSPI trading 0.40% higher. Australia's ASX200 -0.80% has been weighed down by Miners.
It has been an interrupted week for flow in Asia with multiple public Holidays. Taiwan has been out majority of the week due to server weather, while South Korea has had public holiday's. The recent stimulus for China has seen a rotation of Indonesia, Thailand & Malaysian equities over the past week, as can be seen by the 5-day averages dropping below the 20-day. Selling of Malaysian equities hit a 2 month high, while Thailand has seen 7 straight sessions of selling.
Indonesia: Outflows of $71m on Thursday, with the past 5 sessions netting -$318m. YTD flows are +$3.17b. The 5-day average is -$64m, below the 20-day average of +$62m, but above the 100-day average of +$30m.
Thailand: Outflows of $84m on Thursday, with the past 5 sessions totaling -$385m. YTD flows are -$2.88b. The 5-day average is -$77m, below the 20-day average of +$21m, but above the 100-day average of -$9m.
Malaysia: Outflows of $71m on Thursday, with the past 5 sessions netting -$210m. YTD flows are +$681m. The 5-day average is -$42m, below both the 20-day average of -$7m and the 100-day average of +$9m.
Philippines: Inflows of $5m on Thursday, with the past 5 sessions totaling +$28m. YTD flows are +$45m. The 5-day average is +$6m, above both the 20-day average of +$18m and the 100-day average of +$4m.
As world leaders warn against an uncontrolled escalation in the Middle East, news emerged of significant bombing of Hezbollah targets in Beirut on Thursday.
Joe Biden admitted on Thursday when asked if airstrikes would target Iranian oil facilities that ‘we are discussing that.’
Crude oil’s price rise had stagnated yesterday following data out showing that inventory levels in the US were rising.
However, on news of the airstrikes, prices surge with crude trading up towards US$74/bbl, settling in Asia’s morning at US$73.61/bbl.
WTI also surged towards US$78/bbl, settling at US$77.50.
For the week crude was up almost 8% with WTI up 7.70%.
Iran pumps approximately 3 million barrels of oil per day and any impact on that supply would put upward pressure on prices.
For WTI, having pierced resistance at the 50-day EMA, at $71.69, focus turns to $76.40 next, the Aug 26 high. (for the Nov 2024 contract).
Gold is 0.3% higher in today’s Asia-Pac session, after closing little changed at $2655.89 on Thursday.
Bullion has been steady over the past 24 hours ahead of the release of US Non-Farm Payrolls data later today.
The market hopes the jobs print will shed light on the health of the US economy, as it weighs the potential for further monetary easing by the Federal Reserve.
Lower rates are typically positive for gold, which doesn’t pay interest.
Yesterday, ISM Services printed stronger than expected with some genuinely strong readings for both prices paid and new orders. However, the employment index fell back into contractionary territory, which took some of the gloss off an otherwise strong report.
According to MNI’s technicals team, gold bulls remain in the driver’s seat and moving average studies are in a bull-mode set-up, highlighting a clear uptrend and positive market sentiment. The focus remains on $2,690.2 next, a Fibonacci projection, while firm support lies at $2,602.0, the 20-day EMA.
Today’s decline in CPI to 1.9% was much larger than expected.
August’s CPI printed at 3.3% and consensus for September was 2.5%.
The BSP surprises markets with a cut in rates at their last meeting.
Today’s CPI release is below the BSP’s target of 3% +/- 1% and potentially paves the way for for another cut.
It is a busy period for Central Banks over the coming weeks and with the next BSP meeting on 16 October, it will be interesting to see if a cut is forthcoming given today’s release.
Expect the RBI to remain on hold at next week's meeting, with the bias now moving to cut.
GDP has softened, though the monsoon rains have been good and likely to start to see the impacts of the expenditure from the recent budget flow through.
CPI has moderated, as has wholesale prices. Currently sitting around mid part of the target for the RBI.
Area to watch will be how the two new voting members vote given there is limited understanding of their bias.
Today's services PMI whilst softer, should not have a material impact on the decision.
The shift in sentiment towards a rate cut has moved rapidly in the last week.
Following the weaker than expected CPI and a contraction in the PMI, the door is now ajar for a rate cut.
The BOK has been focused on the surge in property prices in Seoul yet recent data shows that the macro-prudential measures put in place are having an effect with the number of transactions and average sale price declining.
Whilst exports have remained robust, it appears that the decline in consumer confidence is the primary focus and September's consumer confidence data supports that.
Our bias now turns to a cut at the next meeting of the BOK on October 11, with the accompanying statement reasonably measured to allow the impact of the cut, the effects of the China stimulus and the flow on from the cut in rates by the US Federal Reserve to be seen.
USD/CNH is drifting higher, the pair now back around 7.0640, off nearly 0.20% in CNH terms versus end Thursday levels in NY. Liquidity will be lighter given China markets are still out, but it continues the pattern since the start of Oct in terms of modest upside pressure in the pair. It puts us marginally above the 20-day EMA (7.0570), with the pair having spent very little time above this resistance point since July. The 50-day EMA has a 7.11 handle.
So far today the tone to Hong Kong and China related equities are higher, with the HSI up over 1.7% at this stage, after a negative start. Broader USD trends after a bit softer, particularly in terms of lower USD/JPY levels. However, these factors aren't aiding CNH much at this stage.
The 1 month USD/CNH risk reversal has pushed noticeably higher in recent sessions, last near 0.15, fresh highs back to early May of this year. See the chart below, which is overlaid with USD/CNH spot.
One factor that may be weighing on CNH is concern around the extent to which recent equity gains will be sustained. Several sell-side names (Nomura, J.P. Morgan etc) have expressed such concerns. Other sell-side names are more bullish on further positive momentum.
The other factor is the proximity to the US election, which will be held on Nov 5, so in just under a month. 1 month implied vol for USD/CNH is above 7.76%, fresh highs back to March 2023.
Fig 1: USD/CNH & 1 month Risk Reversal
UP TODAY (TIMES GMT/LOCAL)
Date
GMT/Local
Impact
Country
Event
04/10/2024
0545/0745
**
CH
Unemployment
04/10/2024
0645/0845
*
FR
Industrial Production
04/10/2024
0700/0900
**
ES
Industrial Production
04/10/2024
0730/0930
**
EU
S&P Global Final Eurozone Construction PMI
04/10/2024
0755/0855
GB
BOE's Pill Speech at Chartered Accounts conference
04/10/2024
0830/0930
**
GB
S&P Global/CIPS Construction PMI
04/10/2024
0900/1100
*
IT
Retail Sales
04/10/2024
1000/1200
EU
ECB's De Guindos remarks at Radio Intereconomia anniversary
04/10/2024
1230/0830
***
US
Employment Report
04/10/2024
1300/0900
US
New York Fed's John Williams
04/10/2024
1310/1510
EU
ECB's Elderson Speech at Change in Leadership event
04/10/2024
1400/1000
*
CA
Ivey PMI
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