MNI EUROPEAN MARKETS ANALYSIS: RBA On Hold, But A$ Falters On Weaker Equities/Metals

US TSYS: Unchanged, Off Session Cheaps Instigated By Fed Mester

TYZ3 is currently trading at 107-10+, unchanged from NY closing levels.

• Cash tsys have moved off Asia-Pac cheaps instigated by Fedspeak from Mester and are sitting little changed across benchmarks.
• There has been no meaningful headlines outside the previously outlined Fedspeak from Mester.
• Limited data releases on Tuesday, with the focus on ADP on Wednesday ahead of Friday's September Jobs data.

JGBS: Futures Holding Near Session Highs After 10Y Supply Results

During the Tokyo afternoon session, JGB futures are trading close to their session highs, +17 compared to the settlement levels. JGB futures shifted into positive territory around lunchtime in Tokyo and continued to gain strength following the conclusion of the 10-year auction.

• The 10-year supply saw mixed demand metrics. The low price beat wider expectations and the tail shortened. However, the cover ratio declined to 3.934x from 4.019x at the September auction.
• There hasn’t been much in the way of domestic drivers to flag, outside of the previously outlined monetary base data.
• Cash JGBs are mixed across benchmarks, with the belly outperforming. The benchmark 10-year yield is 1.6bps lower at 0.761% versus the cycle high of 0.785% set earlier today.
• The swap curve has bull-flattened to the 10-year, with rates 0.2bp to 2.9bps lower. Swaps rates are 1.3-1.5bp lower beyond. Swap spreads are generally tighter.
• Tomorrow the local calendar sees Jibun Bank PMIs (Final), along with BoJ Rinban operations covering 1- to 25-year JGBs.

AUSSIE BONDS: Cheaper But Slightly Richer After The RBA Decision

ACGBs (YM -2.0 & XM -6.5) sit slightly stronger after the RBA leaves the cash rate target at 4.10%, for the fourth consecutive meeting. This was Michele Bullock’s first meeting as Governor. The statement was little changed, which says something in itself - for now it is business as usual at the Reserve Bank. By choosing the Deputy Governor to replace Philip Lowe continuity appears to have been preserved. The Board retained its tightening bias and so has kept its options open for the November 7 decision given updated forecasts and Q3 CPI due on October 25.

• Cash ACGBs are 2-3bps richer after the RBA decision to be 1-6bps cheaper on the day. The 3/10 curve is steeper, with the AU-US 10-year yield differential at -13bps.
• The swaps curve has twist-steepened, with rates 2bps lower to 3bps higher.
• The bills strip has twist-steepened, with pricing +3 to -4. Ahead of the RBA, the strip had bear-steepened.
• RBA-dated OIS pricing is little changed after the RBA decision. The market had only attached a 12% chance of a 25bp hike today. Terminal rate expectations sit at 4.38%, the highest since late July.
• Tomorrow the local calendar sees Judo Bank PMIs (Final) released.
• Tomorrow the AOFM plans to sell A$800mn of the 2.75% 21 June 2035 bond.

RBA: On Hold, Continuity Under New Governor

The RBA left rates unchanged at 4.1% for the fourth consecutive meeting. This was Michele Bullock’s first meeting as Governor and the little changed statement says something in itself - for now it is business as usual at the Reserve Bank. By choosing the Deputy Governor to replace Philip Lowe continuity appears to have been preserved. The Board retained its tightening bias and so has kept its options open for the November 7 decision given updated forecasts and Q3 CPI due on October 25.

• There were even fewer changes in the October meeting statement than in September. Again the guidance paragraph was unchanged and the Board continues to be data and forecast dependent. The reasons for the unchanged cash rate remained the material tightening to date and time to assess its impact given uncertainty and lags.
• In terms of inflation, the RBA reiterated that it had peaked. There were some additions to this paragraph with it noting that while goods inflation had “eased further”, “many services are continuing to rise briskly”. Fuel prices were mentioned in the September minutes but this month they appeared in the statement having “risen noticeably”. Q3 CPI will include more details on these components and signal any early second round effects from higher fuel prices.
• Another addition was the recognition that H1 growth had been stronger than projected but the RBA still expects it to be below trend. Concerns re China’s economic outlook remain, and household consumption and dwelling investment are still expected to be weak.
• The minutes scheduled for October 17 will be watched closely for the breakdown of the discussion and whether it included a 25bp hike.
• See RBA meeting statement here. There are no imminent RBA speakers with Governor Bullock not speaking until October 18.

AUSTRALIAN DATA: Refis Continue To Exceed New Owner-Occupier Loans

The value of home loans rose a higher-than-expected 2.2% m/m in August up from -1.1% but it is still down 9.4% y/y. There was strength in both the owner occupier and investor components with them rising 2.6% m/m and 1.6% respectively.

• In terms of trends, lending to investors has driven the total with 3-month annualised momentum at 27.2%. Also, the annual rate is now down only 3% compared to last year after -7.2% in July. Whereas lending to owner occupiers is still down 12.5% y/y and 3-month momentum turned negative in August.
• The ABS is reporting that the number of owner-occupier refis fell 5.4% m/m in August to 26,539 after reaching a record high in July. It also observed that refis had been above new loans since November last year as borrowers looked for better deals given higher rates.
• Data on housing finance to new home buyers has been suspended due to “data reporting issues”.

Source: MNI - Market News/ABS

NZGBS: Cheaper, Mid-Ranges Across Benchmarks, RBNZ Policy Decision Tomorrow

NZGBs closed mid-range, with benchmark yields 4-6bps higher ahead of tomorrow’s RBNZ policy decision. Bloomberg consensus expects the RBNZ to leave the cash rate unchanged at 5.50%.

• There wasn’t much in the way of domestic drivers, other than the previously outlined Q3 NZIER survey of business opinion.
• Accordingly, local participants were likely on headlines and US tsys watch. It is worth noting that the local market closed at the same time as the RBA delivered its policy decision.
• Swap rates closed 2-4bps higher, with the 2s10s curve steeper.
• RBNZ dated OIS pricing is mostly firmer across meetings, with a 17% chance of a 25bp hike tomorrow priced.
• Terminal OCR expectations sit at 5.85%, the highest since late May. A full 25bp hike is priced by Feb'24.
• Tomorrow the local calendar also sees CoreLogic House Prices.

FOREX: USD Index To Fresh Highs, AUD & NZD Hit By Hong Kong Equity Weakness

The USD has remained on the front foot in the first part of Tuesday trade. The BBDXY hitting fresh cyclical highs above 1277. This is +0.20% above NY closing levels on Monday.

• Early impetus came from a further rise in US yields, as Cleveland Fed President Mester stated another rate hike may be needed. US yields hold higher, but are away from session highs. The 10yr yield is near 4.69%.
• Weaker regional equity sentiment has weighed noticeably on the antipodean currencies. NZD/USD initially led moves lower, the pair last near 0.5910, 0.60% weaker for the session.
• As the afternoon session has progressed, AUD/USD has played catch up to the downside. The pair to fresh 2023 lows, sub 0.6330, which is also off 0.60% (last near 0.6325). The spill over from weaker HK equities (which has led by renewed China property concerns) has been evident in terms of lower iron ore and copper prices.
• As widely expect the RBA held rates at 4.10%, with a largely unchanged statement. This didn't impact AUD though.
• JPY is outperforming modestly. USD/JPY sits at 149.85 currently, little changed for the session. Further verbal jawboning was evident from the Japan FinMin but the rhetoric on FX didn't appear as an escalation compared with recent commentary.
• EUR/USD is down further last near 1.0460.
• Looking ahead, we have the ECB's Lane speaking, then later on, Fed’s Bostic speaks on the economic outlook and inflation. On the data front, there are US JOLTS job openings for August, which are expected to be steady.

EQUITIES: Hong Kong Stocks To Fresh YTD Lows, Property Concerns Weigh

Major regional equity markets are mostly lower. Hong Kong markets have returned from the long weekend, but sentiment has been firmly on the back foot. The HSI is off around 3% at this stage. A number of other regional markets are also tracking weaker, including Japan and Australian stocks. At this stage, US futures are down a touch, Eminis last near 4322.

• The HSI is tracking 3% lower at this stage, which puts the index back to fresh lows from late November last year.
• The mainland properties index is down 4.14%, more than reversing Friday's +3.48% gain. The Hang Seng properties index is down 3.90%. Bloomberg reported that China property sales for end September still remain deeply negative in y/y terms, albeit not as low as August (see this link).
• A reminder that China onshore markets remain closed all of this week. South Korean markets also remain shut today, returning tomorrow.
• Japan's main equity indices are off by over 1%. Losses are broad based, with bellwether Toyota a drag on aggregate performance. The ASX 200 is also down, off -1.20%. Weakness in commodity prices is weighing on the materials. Markets haven't reacted to the as expected RBA outcome.
• In South East Asia, Thailand stocks are the weakest performers, down 1.70% at this stage. This puts the index down sub 1450, which is levels last seen in early 2021. Indonesian and Malaysian stocks are modestly outperforming.

OIL: Crude Falls Through Support Levels On Fed Fears

Oil prices are down around a percent so far in APAC trading with Brent falling below $90 and WTI below $88 on a stronger greenback and a general pullback in risk driven by expectations that Fed policy will need to remain restrictive for longer. Brent is now down 5% since last Wednesday but market fundamentals remain positive. The USD index is up 0.2% after 0.8% on Monday.

• Brent broke through support at $90.41 opening up $87.37, the 50-day EMA. It is currently trading around $89.72/bbl, close to the intraday low. WTI is below initial support of $88.19 opening up $84.19. It reached an intraday low of $87.76 and is now around $87.91.
• According to Bloomberg, OPEC will have an online meeting on Wednesday to discuss the current position of global markets. Output was constant in September and its current stance is unlikely to be altered.
• The US is seeing an increase in oil output supported by the rise in prices since June but despite this inventories have continued to be run down. Later today US stock data from API is released.
• Later the Fed’s Bostic speaks on the economic outlook and inflation. On the data front, there are US JOLTS job openings for August, which are expected to be steady.

GOLD: Heavy Again In Asia-Pac After A Very Heavy Monday

Gold is 0.4% weaker in the Asia-Pac session, after starting the week on a bearish note (-1.1% at 1828.03). This came after bullion saw its biggest weekly decline in eight months last week, with the higher-for-longer interest rate environment taking its toll on the precious metal.

• US Treasury yields climbed on Monday, pressuring the yellow metal after a US government shutdown was averted over the weekend and markets shifted focus back to the future path for interest rates. US Treasuries finished the NY session 6-11bp cheaper, with the belly underperforming. The 10-year yield climbed to test the 4.70% cycle high before finishing at 4.68%.
• From a technical standpoint, the recent move lower has resulted in a break of support at $1901.10. According to MNI’s technicals team, this was followed by a breach of further support at $1884.9, the Aug 21 low. This has confirmed a resumption of the downtrend that started off the early May high. On the upside, initial firm resistance is at $1905.5, the 20-day EMA.

ASIA FX: USD/Asia Pairs Stay On The Front Foot

USD/Asia pairs are higher in line with broader USD gains, (BBDXY +0.20% to 1277). Familiar themes have weighed on Asian FX, although China and South Korean markets still remain out (South Korean markets return tomorrow). Weaker regional equities led by HK has aided the USD, with on-going property concerns a drag. Comments have also been evident from the BI and Thailand officials re FX weakness. Tomorrow, the main focus will be South Korean data, with August IP and the September PMI on tap.

• USD/CNH did push to 7.3300 amid sharp Hong Kong equity losses. However, we found selling interest around this level. The pair last near 7.3275. Hong Kong markets returned today, but China markets remain closed this week.
• 1 month USD/KRW is back to 1360, amid renewed risk off in the equity space. Onshore markets return tomorrow. The last spot close was 1349.40, back last Wednesday. Hence if these levels hold it implies a weaker onshore KRW open tomorrow.
• USD/THB has broken through 37.00, last near 37.13, around 0.50% weaker in baht terms for the session so far. Comments have crossed from the Deputy Finance Minister that the BoT can manage THB weakness. New PM Srettha has also stated that a weaker baht is good for exports (BBG).
• USD/IDR has broken above 15600, erasing YTD rupiah gains. The pair was last at 15611, also down 0.50% for the session so far. Comments have cross that the BI is in the market to ensure supply/demand balance and confidence in the FX backdrop (RTRS). Again though, the BI doesn't appear to have a firm line in the sand for the currency. A higher for long Fed and weaker equity risk appetite are weighing on IDR.
• USD/PHP is holding sub 57.00, with moves above 56.90 drawing selling interest. Resistance at the figure continues to hold. The main focus this week being on Thursday's September CPI report.