MNI EUROPEAN MARKETS ANALYSIS: RBNZ Easing Odds Lower Post Firmer Jobs Data

US TSYS: Tsys Futures Edges Lower, Curve Flattens

• Tsys futures opened the session slightly higher today before turning lower on headlines out of Japan around FX intervention and Ruling party heavyweight Ishiba saying the BoJ is on right track to align with world interest rates and followed up by dovish comments from BoJ Deputy Governor Uchida.
• TUU4 is - 02+ at 103-08⅞, while TYU4 is - 06 at 113-07, we trade at session lows and have jsut broken through the lows made overnight.
• The cash treasury curve has bear-flattened, with yields 1-5bps higher. The 2y is back above 4% after trading +4.7bps to 4.022%, while the 10y is +2.5bps at 3.916%.
• Fed fund futures for September meeting has softened 3-5bps into year-end with 42bps of cuts priced for Sept, and 102bps by December.
• Today, we have MBA Mortgage Apps and Consumer Credit, Boston Fed Collins speak, but is not expected to speak about policy, US Tsy $42B 10Y Note auction.

BOJ: Uchida States BoJ Won't Hike If Markets Unstable, Yen Weakens

BoJ Deputy Governor comments are crossing the wires, which strike a dovish tone. The Deputy Governor is speaking in Hakodate.

• He notes that the central bank needs to keep easing for the time being (a likely reference to keeping accommodative financial conditions). He adds that rates won't be raised if the market is unstable and the rate path will shift if market moves affect the economic outlook (per BBG).
• Earlier he noted the central bank will adjust easing if the outlook is realized. These remarks follow yesterday's meeting between the BoJ/FinMin and the FSA, where recent volatility in Japan financial markets was clearly a focus.
• The dovish remarks have lifted USD/JPY, which is now near 146.30, around 1.3% weaker on the day and right on Tuesday highs in the pair. Japan equities are also firmer as these headlines have crossed.

JGBS: Cash Curve Twist-Steepener After Dovish Comments From BoJ

JGB futures are stronger and near session highs, +36 compared to the settlement levels, after dovish comments from BoJ Deputy Governor Uchida.

• (MNI) BoJ Deputy Governor Shinichi Uchida said “In contrast to the process of policy interest rate hikes in Europe and the United States, Japan's economy is not in a situation where the BoJ may fall behind the curve if it does not raise the policy interest rate at a certain pace. Therefore, the Bank will not raise its policy interest rate when financial and capital markets are unstable.”
• Cash US tsys are 2-5bps cheaper in today’s Asia-Pac session. Today, the US calendar will see MBA Mortgage Apps and Consumer Credit data. Fed Collins is set to speak but is not expected to discuss policy. There is also a $42bn US tsy 10-year note auction.
• The cash JGB curve twist-steepened, pivoting at the 30s, with yields ranging from 5bps lower to 3bps higher. The benchmark 10-year yield has decreased by 4.1bps to 0.860%, positioning it in the lower half of its 0.74-1.10% range from the past week.
• Swap rates are 1-4bps lower out to the 10-year and 1-4bps higher beyond.
• Leading and Coincident Indices are due shortly.
• Tomorrow, the local calendar will see International Investment Flow, Trade Balance, Bank Lending and Tokyo Office Vacancies data. There is also 30-year supply.

AUSSIE BONDS: Holds Post-RBA Sell-Off Ahead Of Tomorrow’s RBA Gov Speech

ACGBs (YM -7.0 & XM -6.5) are cheaper and trading near Sydney session lows, having moved within relatively narrow ranges. With a light domestic calendar, the local market has focused on the 2-5bp cheapening in US tsys during today’s Asia-Pacific session, following yesterday’s sharp sell-off.

• After RBA Governor Bullock's press conference yesterday, the appearances of RBA staffers Hunter and Cassidy before the Senate Select Committee on the Cost of Living did not impact the market.
• Cash ACGBs are 6bps cheaper on the day and 9-14bps cheaper than pre-RBA decision levels. The AU-US 10-year yield differential is flat at +17bps.
• Today’s auction demonstrated solid pricing for ACGBs, with the weighted average yield coming in below prevailing mid-yields and the cover ratio increasing to 3.3813x.
• Swap rates are 5-7bps higher.
• The bills strip has bear-steepened, with pricing -2 to -10.
• RBA-dated OIS pricing is 3-9bps firmer across meetings beyond September today, with mid-2025 leading. Today’s move leaves pricing 6-21bps firmer across meetings than pre-RBA levels. A cumulative 19bps of easing is priced by year-end versus 30bps before the RBA decision.
• Tomorrow, the local calendar will see a speech by RBA Governor Bullock and Foreign Reserves data.

AU STIR: RBA Dated OIS Sharply Firmer Post-RBA

RBA-dated OIS pricing is 5-6bps firmer across meetings beyond September today, with early 2025 leading.

• Today’s move leaves pricing 6-20bps firmer across meetings than pre-RBA levels.
• A cumulative 20bps of easing is priced by year-end versus 30bps before the RBA decision.

Figure 1: RBA-Dated OIS – Pre- Vs. Post-CPI

Source: MNI – Market News / Bloomberg

MNI RBA Review – August 2024: No Easing In “Near-Term”

• The RBA left rates at 4.35% as expected and maintained its language but at the margin was more hawkish. It added that policy will need to be “sufficiently restrictive” until the Board is “confident” inflation is “sustainably” moving towards target. The Board remains “vigilant to upside risks to inflation” and continues not to rule “anything in or out”.
• RBA Governor Bullock stated at the press conference that a hike had been discussed today and made clear that in the “near-term” rate cuts are not on the agenda as they do not “align with the Board’s current thinking” with the “near-term being around the next 6 months”. With the outlook as it stands, the February meeting would be the earliest to begin easing.
• During FY25 it will be even more important to focus on trimmed mean inflation. It saw minimal revisions with Q4 2024 +0.1pp to 3.5% with it in the band in Q4 2025, the same as May’s projections. It is now close to the mid-point in Q4 2026, 2 quarters later than previously expected. The return of inflation to the band is likely to be “bumpy” and the Board is “very alert" to upside risks.
• RBA-dated OIS pricing is 5-6bps firmer across meetings beyond September today, with early 2025 leading. A cumulative 20bps of easing is priced by year-end versus 30bps before the RBA decision.
• See full review here.

NEW ZEALAND DATA: Labour Market Softening But Wage Growth Elevated

The NZ labour market continues to ease but not by as much as consensus expected for Q2. The unemployment rate rose 0.3pp to 4.6%, its highest since Q1 2021 but in line with the RBNZ’s May expectation. Employment growth and the participation rate were stronger than expected as were private sector wages. Public sector agreements boosted overall earnings. With the labour market developing broadly as the RBNZ expects and some domestic inflation still strong, it will likely want to see Q3 CPI on October 16 before cutting rates.

• Unemployment rose 5.9% q/q in Q2 to be up 30% y/y and Statistics NZ notes that almost half were 15-24 year olds. The unemployment rate for 15-19 years is up 5.6pp y/y to 20.7% and +2.2pp to 8% for 20-24 years. The youth unemployment rate tends to be a leading indicator of labour market developments and this signals further deterioration to come.
• Employment rose 0.4% q/q with the annual rate slowing to 0.6% from 1.3% in Q1 and 4.5% in Q2 2023. Jobs growth was driven by the part-time sector (+1.9% q/q) with full-time falling (-0.1% q/q). Working age population grew 0.4% and so new jobs covered this increase.

Source: MNI - Market News/Refinitiv

• Underutilisation picked up to 11.8% from 11.2% in Q1 and 9.9% in Q2 2023 consistent with hours worked falling 1.2% q/q and 0.3% y/y in Q2, the weakest since Q4 2021.
• Despite softening labour market trends, private and public sector wage rises remain robust. The labour cost index rose 1.2% q/q to be up 4.3% y/y from 4.1% in Q1 and in line with Q2 2023. Private sector wages rose 0.9% q/q after 0.8% in Q1. But Statistics NZ notes that the public sector LCI rose to a series high of 6.9% y/y driven by health and education.

Source: MNI - Market News/Refinitiv

NZ STIR: RBNZ Dated OIS Shunts Firmer After Stronger Than Expected Jobs Data

RBNZ-dated OIS pricing has firmed by 9-15bps across meetings following today’s stronger-than-expected Q2 Employment Report.

• The market now prices a 43% chance of a rate cut in August, down from 78% before the data release.
• Additionally, a cumulative 84bps of easing is anticipated by year-end, compared to 97bps previously.

Figure 1: RBNZ Dated OIS Post-Jobs Versus Pre-Jobs Levels (%)

Source: MNI – Market News / Bloomberg

NZGBS: Closed Sharply Cheaper After Stronger-Than-Expected Labour Market Data

NZGBs closed 9-14bps cheaper on the day across benchmarks and 8-12bps cheaper than pre-jobs data levels.

• The NZ labour market continued to ease but not by as much as consensus expected for Q2. The unemployment rate rose 0.3pp to 4.6%, its highest since Q1 2021 but in line with the RBNZ’s May expectation.
• Employment growth and the participation rate were stronger than expected as were private sector wages. Public sector agreements boosted overall earnings.
• With the labour market developing broadly as the RBNZ expects and some domestic inflation still strong, it will likely want to see Q3 CPI on October 16 before cutting rates.
• Swap rates closed 9-13bps higher on the day, with the 2s10s curve flatter.
• RBNZ-dated OIS pricing closed 10-17bps firmer across meetings. The market now prices a 43% chance of a rate cut in August, down from 78% before the data release. Additionally, a cumulative 82bps of easing is anticipated by year-end, compared to 97bps previously.
• Tomorrow, the local calendar will see RBNZ Inflation Expectations data alongside the NZ Treasury's planned sale of NZ$275mn of the 1.5% May-31 bond, NZ$175mn of the 4.5% May-35 bond and NZ$50mn of the 1.75% May-41 bond.

FOREX: Yen Slumps 2% On Dovish BoJ Comments, Broader Risk Recovers Further

Recent safe haven FX gains have continued to be unwound today. Yen losses are over 2%, as the dovish rhetoric from the BoJ Deputy Governor weighed heavily on yen. These comments also helped fuel broader risk gains. Regional equities and US futures are continuing to recover from recent lows. Japan equities have been the strongest gainers.

• USD/JPY is close to 147.7 in recent dealings, very close to session highs. We stared the session around 144.35. Upside focus may rest on pre NFP highs, which came in around 149.10 last Friday.
• BoJ Deputy Governor Uchida stated, that rates won't be raised if the market is unstable and the rate path will shift if market moves affect the economic outlook (per BBG). This offset earlier comments that rates would continue to rise if projections unfolded as expected.
• It also follows yesterday meeting between the BoJ/FinMin and the FSA, where recent volatility in Japan financial markets was clearly a focus.
• High beta FX has outperformed, led by the NZD following the earlier Q2 jobs beat. This has seen RBNZ easing expectations for next week's meeting slashed to 43% from 78% prior.
• NZD/USD is up 1% to 0.6015, AUD/USD at 0.6560/65 is 0.65% higher, so lagging NZD. The AUD/NZD cross is at 1.0910/15, near recent lows. NZD/JPY has rebounded +3%, last near 88.90.
• Looking ahead, the data calendar is fairly light for the offshore session, with just second tier releases out.

JAPAN STOCKS: Japanese Equities Continue Bounce, Lead By Financials

BOJ Deputy Gov Uchida stated that the central bank will maintain its current policy interest rate and not raise it amid market instability to ensure monetary easing. His comments led to the yen has slipped to 147.75 vs the USD, which has helped local equities, with banks the top performing sector.

• The TOPIX Bank Index is currently trading 9.36% higher today, with Mitsubishi UFJ Financial (+10.89%), Sumitomo (+10.63%) & Mizuho (+10.13%) and after falling over 30% after a profit miss and market sell-off Daiwa has recovered 17.5%.
• The TOPIX Bank Index is currently underperforming the wider TOPIX by 9.72% since August 1.
• The broader TOPIX is 3.75% higher today, while the Nikkei 225 is 2.65% higher.

ASIA STOCKS: China & Hong Kong Equities Edge Higher, China Trade Surplus Narrows

Hong Kong and China markets showed gains, helped by a regional rally after the BoJ announced it wouldn’t raise interest rates amidst financial instability. The Hang Seng China Enterprises Index climbed as much as 1.6%, breaking a four-day losing streak. Stocks related to China's electricity grid technology surged on plans to enhance renewable energy infrastructure, while China's trade surplus narrowed a touch after exports came in below estimates while imports were well above estimates.

• Major benchmarks are higher across the board, with Hong Kong's HSI up 1.25% & China's CSI 300 up 0.20%. Looking at sectors, the HSTech Index is up 1.15%, HS Finance Index is 0.90% higher, Property Indices are about 0.25% higher.
• China's battery makers face challenges of overcapacity, weakening demand, and falling prices in 2024, with smaller producers at risk as top players dominate the market; fierce competition and squeezed profit margins are expected to continue until a demand-supply rebalance occurs, the Global X China EV & Battery ETF is off 6.50% from recent highs made in July.
• China's imports surged 7.2% in July, the highest in three months, while export growth slowed to 7%, resulting in a $84.65b trade surplus, narrowing from $99.05b. The rise in imports indicates some domestic demand strength, but the decelerating exports suggest cooling global demand, potentially exacerbated by US and European trade tensions. The overall economic outlook remains mixed, with weak domestic demand and a prolonged housing slump offsetting export growth.
• Looking ahead focus will now turn to PPI & CPI on Friday

ASIA EQUITY FLOWS: Taiwan See Inflows After Heavy Selling

• South Korea: South Korean equities experienced an inflow of $138m yesterday. This follows an outflow of $893m over the past five trading days. The 5-day average outflow is $179m, compared to the 20-day average outflow of $83m and the 100-day average inflow of $89m. Year-to-date, South Korea has had substantial inflows totaling $17.408b.
• Taiwan: Taiwan saw an inflow of $1.078b yesterday, the largest inflow since early July, and now takes the net outflow to $3.687b over the past five trading days. The 5-day average outflow is $737m, compared to the 20-day average outflow of $745m and the 100-day average outflow of $186m. Year-to-date, Taiwan has experienced outflows totaling $10.166b.
• India: Indian equities had an outflow of $440m Monday, resulting in a net outflow of $1.307b over the past five trading days. The 5-day average outflow is $261m, compared to the 20-day average inflow of $79m and the 100-day average outflow of $49m. Year-to-date, India has seen inflows totaling $3.073b.
• Indonesia: Indonesian equities recorded an outflow of $7m yesterday, leading to a net inflow of $176m over the past five trading days. The 5-day average outflow is $35m, which is below the 20-day average inflow of $15m and close to the 100-day average outflow of $13m. Year-to-date, Indonesia has had inflows totaling $30m.
• Thailand: Thai equities saw an outflow of $20m yesterday, resulting in a net outflow of $72m over the past five trading days. The 5-day average outflow is $14m, which is better than the 20-day average outflow of $5m and the 100-day average outflow of $24m. Year-to-date, Thailand has had significant outflows amounting to $3.358b.
• Malaysia: Malaysian equities had an outflow of $7m yesterday, resulting in a 5-day net outflow of $32m. The 5-day average outflow is $6m, which is worse than the 20-day average inflow of $7m and equal to the 100-day average inflow of $0m. Year-to-date, Malaysia has experienced inflows totaling $52m.
• Philippines: The Philippines had an outflow of $11m yesterday, resulting in a net outflow of $26m over the past five trading days. The 5-day average outflow is $5m, compared to the 20-day average inflow of $1m and the 100-day average outflow of $7m. Year-to-date, the Philippines has seen outflows totaling $493m.

Table 1: EM Asia Equity Flows

OIL: Crude Up Marginally As Risk Recovers, US EIA Stock Data Due Later

Oil prices were little changed on Tuesday after rising moderately on Monday and are up around 0.4% today, despite soft China oil imports. The recovery in risk appetite has also helped. The USD index is up 0.2%. The market remains nervous about attacks on Israel by Iran and Hezbollah but this is only likely to worry oil markets if there is an impact on output and exports from the region.

• WTI is up 0.4% today to $73.51/bbl, close to the intraday high of $73.59. It fell to a low of $72.58 early in the session. A bear threat remains in place with initial support at $71.67. Resistance is at $74.59.
• Brent is 0.4% higher at $76.77/bbl after a peak of $76.84 which followed a low of $75.96. The benchmark remains in a bear cycle but is trading above initial support at $74.96. Key support is at $73.31. It does appear oversold though and initial resistance is at $77.95.
• China’s oil imports remain weak with volumes in July down 3.1% y/y and refined products -27.8% y/y. In levels, crude was at 42.34mn tonnes, the lowest in almost two years. China is the world’s largest importer of oil and the market has been concern about its economic strength for some time. The EIA reduced its 2025 oil demand expectations due to a softer China.
• Bloomberg reported that US crude inventories rose a less-than-expected 0.176mn barrels, according to people familiar with the API data. Gasoline rose 3.31mn and distillate 1.22mn. The official EIA data is out today and last week recorded its fifth consecutive drawdown.
• Later the Fed’s Collins and ECB’s McCaul appear. US June consumer credit, German June IP & trade and Canadian July PMI are released as well as BoC’s summary of deliberations.

GOLD: Pullback Continues

Gold is 0.2% lower in today’s Asia-Pac session, after closing 0.8% lower at $2390.82 on Tuesday.

• This leaves the yellow metal ~3.5% down from last Friday’s high.
• Commerzbank says that along with overblown expectations of Fed rate cuts, selling to compensate for losses in other assets may have also been behind gold’s recent weakness.
• Nevertheless, bullion remains ~15% higher this year after hitting an all-time high in July, mainly supported by bets the US Federal Reserve will pivot to monetary easing. Lower borrowing costs are positive for bullion as it doesn’t pay interest.
• According to MNI’s technicals team, this recent weakness appears to be a correction, for now. However, a clear break of support at the 50-day EMA at $2,375.4 would signal scope for a deeper retracement towards $2277.4, the May 3 low.

CHINA DATA: Exports Miss, Imports Above Forecast, Trade Data Likely To Remain Volatile

• China exports showed an unexpected loss of momentum for July in signs the biggest economy in the region is slowing.
• Exports have expanded for four months consecutively but were below market expectations for July. At 7.0% yoy growth, this was significantly below expectations of 9.5% and June’s release of 8.6%.
• Import data has remained volatile in 2024 with July’s release of 7.2% much higher than surveys of 3.2% and ahead of the prior months release of -2.3%.
• Last month’s record trade surplus of $99bn could not be maintained, retreating to a surplus of $84bn.
• The volatile nature of the trade data is showing the challenges ahead for China as the economy slows.
• With the impact of the various policy initiatives yet to show in the data, and PMI's weakening, it is anticipated that the trade data will remain volatile in the coming prints.

CHINA DATA: Some Commodity Import Volumes Higher In July, But Trends Still Mostly Softening

Looking at China import commodity volumes more closely, July delivered positive gains for most commodities outside of oil. Y/Y trends though remain fairly modest across key commodities, with oil losing further momentum in July and copper also slowing.

• Coal was up to 46.21/t from 44.60 in June. Iron ore import volumes also rose to 102.8/t from 97.61 prior. Natural gas was also higher at 10.86/t from 10.43 in June.
• Some food products were down, while oil was also off (to 42.3/t, versus 46.45 prior). Copper imports were close to steady in volume terms.
• In terms of trends, the broader backdrop still looks like softening momentum. The first chart below is oil and LNG import volumes on a 3mma y/y basis. LNG is also moving off recent highs.
• Metal and coal trends have been volatile, see the second chart below. Copper is now at its slowest pace in a number of years. Coal is painting a more positive picture.

Fig 1: China Oil Import Volumes Slowing

Source: MNI - Market News/Bloomberg

Fig 2: China Metal & Coal Import Trends

Source: MNI - Market News/Bloomberg

INDIA: MNI RBI Preview - August 2024: No Change, Focus Remains On Policy Bias

• The RBI is widely expected to keep rates on hold tomorrow. This is the firm economic consensus and our own bias. Headline inflation outcomes remain sticky, while growth is holding up resiliently.
• This is likely to leave greater focus on the policy bias from the RBI. We see risks of the ‘withdrawal of accommodation’ stance being removed, but the August meeting might be too soon for such a shift. The RBI is likely to want to see further progress on inflation towards the mid-point of the 2-6% target range before shifting to neutral. Such a viewpoint is also the rough sell-side consensus.
• Full preview here:

ASIA FX: Recent Outperformers Slip Amid Yen Losses, IDR Rallies On Equity Rebound

USD/Asia pairs have been mixed today. Recent outperformers have given back some recent gains. CNH, MYR and THB have all lost ground. Higher USD/JPY levels amid a dovish BoJ has caused some negative spill over. Working the other way has been stronger equity trends, as we continue to recover from the recent rout. KRW is marginally weaker, while TWD has been close to steady. IDR has been the strongest outperformer.

• USD/CNH got above 7.1900, but sits slightly lower now, a loss of 0.30% for the yuan. The highest USD/CNY fixing, coupled with a a resurgent USD/JPY weighed on China currency sentiment. Export growth was also weaker than forecast, while imports were higher than forecast, although trends for commodity import volumes are still softer.
• USD/KRW has drifted higher, last near 1378, with JPY and CNH losses hurting sentiment. Local equities continue to rebound, providing some offset. It has been a similar backdrop for USD/TWD, which was last 32.71, slightly higher for the day.
• USD/MYR has rallied, back above 4.50, around 0.60 weaker in MYR terms. USD/THB is up to 35.64. We had slightly stronger than forecast inflation data for July, but we remain sub the bottom end of the BoT's 1-3% inflation target band.
• USD/IDR is off 0.40%, but under 16100, as the better equity tone aids risk appetite for the rupiah, driving outperformance in Wednesday trade to date.