Trial now
JAPAN

Japan To Observe Holiday

AUSSIE BONDS

Flattening Extends

JPY

Liquidity Sapped By Local Holiday

AUD

AUD Edges Lower After Volatile Wednesday

JGB TECHS

(Z1) Bearish Trend Condition

AUSSIE BONDS

U.S. Tsys Help Futures To Twist Flatten Overnight

  • RBA goes early with QE pre-announcement, surprising most, as it looks to preserve loose financial conditions.
  • Silver hit on CFTC flagging oversight and margin hikes.
  • DXY struggling to break downtrend from Mar '20 high.


BOND SUMMARY: RBA QE Pre-Announcement Results In Chop

U.S. Tsys traded unchanged to lower during the bulk of Asia-Pac hours, with the PBoC's latest round of liquidity injections and a message from China's chief diplomat, Yang Jiechi, pointing to the potential for a more constructive Sino-U.S. relationship, albeit with the usual caveats surrounding well defined flash points, seemingly supporting broader risk appetite. Elsewhere, some took solace from after-hours losses for U.S. retail favourite equity name GME and the Biden administrations re-affirmation that it wanted to provide sizeable stimulus in the wake of a meeting with 10 GOP Senators, flagging shortcomings within their smaller proposal. T-Notes trading -0-02 at 137-04 last, with the spillover from the latest RBA decision seeing the contract away from lows in the middle of the session, although the contract stuck to a 0-03+ range overnight. Cash little changed across the curve, with some twist steepening seen as 30s run 1.0bp cheaper on the day. Fedspeak from Mester & Kaplan headlines locally on Tuesday.

  • JGBs were unchanged to higher for the bulk of Tokyo trade, although pulled back into the close, with futures closing -1. Best levels of the day came on the back of spillover from the RBA decision and in the wake of a 10-Year JGB auction which was a little firmer than exp./prev. (tail narrower than prev. auction and low price topping dealer exp. at the margin), but was still relatively soft in the grand scheme of things (below long run average cover ratio). Cash JGBs were a touch firmer across most of the curve, with swap spreads generally a little wider on the day. Elsewhere, we learnt that 10 of the areas that are under a state of emergency re: COVID will see those measures extended through to March 7. Japanese PM Suga will speak on the matter later today. 1-5 Year Rinban operations from the BoJ headline locally on Wednesday, with 30-Year JGB supply due on Thursday.
  • Aussie bonds were softer into the first RBA decision of '21, but the RBA's pre-announcement of A$100bn worth of bond purchases, which will run at the same rate as the current scheme from when it runs dry in mid-April, caught markets off guard owing to its timing (the size of the new scheme was in line with broader exp.). This left YM unchanged at the bell, while XM unwound its post RBA bid, finishing the day 0.5 softer, 4.5 shy of best levels. The rhetoric surrounding the Bank's economic projections was a little more upbeat (as expected), but wasn't a gamechanger, with the unemployment rate set to remain comfortably above the Bank's estimate of NAIRU across the forecast horizon (at least under the Bank's forecasts) The Bank clearly wanted to fend off any unwanted tightening of financial conditions that continued/broader speculation re: bond purchase tapering could bring as it noted that "the decision to extend the bond purchase program will ensure a continuation of this monetary support." Attention now moves to RBA Governor Lowe's discussion on the "The Year Ahead," which is due to be delivered on Wednesday.

FOREX: Risk-On Flows Evident, AUD Takes Hit From RBA Announcement

AUD crept higher in the lead-up to the RBA's monetary policy decision, but reversed course after the Reserve Bank announced a A$100mn 6-month extension of its bond buying scheme from mid-April. AUD/USD trimmed the bulk of its earlier gains, but remained in positive territory amid broader greenback sales. Worth noting that A$1.2bn worth of AUD puts with strikes at $0.7600 roll off at the NY cut today, with the spot currently trading around $0.7625. AUD/NZD swung to a loss in the wake of the RBA's announcement and seems poised to extend its losing streak to three consecutive days.

  • Safe haven currencies faced some headwinds as regional equity benchmarks flashed green, while e-minis climbed through the session. The likes of USD, JPY & CHF landed towards the bottom end of the G10 scoreboard. The DXY pulled back from three-week highs.
  • NOK outperformed in the G10 basked, drawing support from firmer crude oil prices.
  • EUR/USD edged higher on the back of a softer U.S. dollar, despite continued political uncertainty in Italy, where talks between former ruling coalition partiers have seemingly stalled. Lower house speaker responsible for mediating the negotiations reports back to Pres Mattarella today.
  • The PBoC injected funds to help alleviate the liquidity crunch and a senior Chinese diplomat called for a more constructive relationship with the U.S., lending further support to broader risk appetite. Spot USD/CNH slipped even as the PBoC fixed USD/CNY at CNY6.4736, another fix above sell-side estimates, bringing total misses in Feb to +33 pips (Jan +284 pips, Dec +133 pips).
  • The economic docket is fairly thin today, focus turns to advance GDP data from the EZ & Italy, flash French CPI and comments from Riksbank's Ingves, ECB's de Cos as well as Fed's Kaplan & Mester.

FOREX OPTIONS: Expiries for Feb02 NY cut 1000ET (Source DTCC)

  • EUR/USD: $1.1950-65(E653mln), $1.2050(E603mln), $1.2150(E1.4bln-EUR puts), $1.2200(E536mln), $1.2220(E563mln),$1.2290-1.2300(E1.1bln)
  • USD/JPY: Y106.00($530mln)
  • AUD/USD: $0.7600(A$1.4bln, A$1.29bln of AUD puts), $0.7650(A$624mln-AUD puts), $0.7685(A$1.1bln-AUD puts), $0.7735(A$592mln-AUD puts), $0.7845-50(A$604mln-AUD puts)
  • AUD/NZD: N$1.0665-90(A$850mln-AUD puts)
  • USD/CNY: Cny6.55($1.1bln)

ASIA FX: Risk On Sees Most Asia EM FX Bid

Risk on tone has been supported by a number of developments overnight. The PBOC injected funds to help alleviate the liquidity crunch, a senior Chinese diplomat said the relationship between the US and China should be put back on a more constructive track and in the US officials are said to have made progress towards a coronavirus relief bill. This saw the greenback recede while EM FX caught a bid.

  • CNH: Constructive risk tone has seen USD/CNH move lower as the yuan advances, the pair last 6.4659 – down around 82 pips. The bank fixed USD/CNY at 6.4736, another fix above sellside estimates for the eleventh straight session, bringing total misses in Feb to +33 pips (Jan +284 pips, Dec +133 pips)
  • SGD: Singapore dollar advances ahead of PMI data. The index is expected to rise to 50.9 from 50.5 which would show further improvement in the manufacturing sector.
  • TWD: The Taiex saw further gains as foreign investors are on track to be net buyers again. Elsewhere Taiwan has taken steps to join the CPTPP.
  • KRW: The won strengthened, the government are reportedly considering an extra budget to facilitate cash handouts to citizens and support for businesses impacted by the pandemic.
  • IDR: USD/IDR remained within a familiar range but bucked the trend of lower USD/Asia crosses, last trades +15 pips at 14,042. FinMin Indrawati informed that her ministry, Bank Indonesia and the financial services regulator have joint forces and are designing a policy package to boost financing for businesses.
  • MYR: The ringgit declined, markets await a government decision on whether to extend the current MCO/lockdown order beyond Feb. 4.
  • PHP: Peso saw some modest strength, Philippine President Duterte pledged to keep the economy afloat amid the coronavirus pandemic, and kept GDP forecasts unchanged at 7.5% for 2021.
  • THB: USD/THB oscillates around neutral levels, last changes hands at 29.98. The BoT's Business Sentiment Index deteriorated to 44.2 in Jan from 46.8, falling to the worst level since Jul 2020.

EQUITIES: Green In Asia After US Indices Rally

Asia-Pac equities took a positive lead from the US, all major indices are in the green. Risk on tone has been supported by a number of developments overnight. The PBOC injected funds to help alleviate the liquidity crunch, a senior Chinese diplomat said the relationship between the US and China should be put back on a more constructive track and in the US officials are said to have made progress towards a coronavirus relief bill.

  • Equity markets in South Korea and Taiwan lead the way higher, in the former foreigners are on track for the second day of inflows, after four consecutive sessions of outflows. The tech heavy Taiex in Taiwan also saw strong gains ahead of earnings from Amazon and Alphabet today.
  • US futures are higher, e-mini S&P up around 0.6% at the time of writing after adding 1.65% by the close yesterday in the biggest rally for 10-weeks. Nasdaq futures outperforming ahead of the aforementioned earnings.

METALS: Tighter Oversight And Margin Hikes For Silver Weigh

Gold sits $5/oz or so lower on the day, stuck in familiar territory, last printing $1,855/oz, although more focus has once again been given to silver.

  • The latter has shed $0.70/oz on the session, to last deal around $28.35/oz, a little off worst levels of the day, and comfortably shy of Monday's peak located at $30.10/oz.
  • Regulatory oversight has been noted on the back of the recent developments surrounding U.S. retail trading accounts, with the CFTC issuing a statement during the NY-Asia crossover, in which it noted that it "is closely monitoring recent activity in the silver markets. The Commission is communicating with fellow regulators, the exchanges, and stakeholders to address any potential threats to the integrity of the derivatives markets for silver, and remains vigilant in surveilling these markets for fraud and manipulation."
  • Elsewhere, CME hiked margin requirements for its silver futures by 18%.

OIL: Risk On & Supportive Demand Picture Sees Crude Gain

Oil has moved higher in Asia on Tuesday, shaking off a negative tone at the start of the session to build on yesterday's gains. WTI & Brent sit ~$0.60 better off as a result.

  • Crude futures were boosted on demand optimism as the US moved towards a coronavirus relief bill, the news saw the greenback come off best levels which spurred the bid in oil. Saudi Aramco were also positive on demand, the oil giant said it saw demand returning to pre-pandemic levels later in 2021, while Japan said it would look to reinstate a travel incentive programme from March.
  • As a note the Joint Technical Committee will meet today to discuss compliance to output levels (said to be 99%), while the JMMC (Joint Ministerial Monitoring Committee, meeting of ministers) will meet on Wednesday. The next full OPEC+ meeting is on March 4.

UP TODAY (Times GMT/Local)

MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com