MNI EUROPEAN MARKETS ANALYSIS: Risk Appetite Buoyed Post FOMC, BoE Up next

US TSYS: Curve Marginally Flatter In Asia

TYZ3 deals at 107-07+, +0-12, a 0-09 range has been observed on volume of ~166k.

• Cash tsys sit 1bp cheaper to 3bps richer across the major benchmarks, the curve has twist flattened pivoting on 5s.
• Tsys extended their post-FOMC bid in early Asian dealing as local participants digested the FOMC rate hold and Chairman Powell's remarks, this was seen alongside pressure on the USD and a bid in US Equity futures.
• The short end was pressured through the session erasing early gains, perhaps the rise in Oil prices weighed. WTI was up ~1%.
• FOMC dated OIS now price a terminal rate of 5.40% in January with ~70bps of cuts by September 2024.
• The latest monetary policy decision from the Bank of England headlines in Europe, further out we have US factory orders, initial jobless claims and productivity.

JGBS: Futures Remain Stronger But 10YY Higher After Weak Demand Seen At Today’s Auction

JGB futures are holding sharply stronger, +30 compared to settlement levels, but are off the session's best level.

• In addition to the previously outlined international investment flow and monetary base data, the key domestic event today was the latest 10-year supply. The 10-year JGB auction saw mixed demand metrics, with the low price meeting wider but the tail lengthening, and the cover ratio printing the second lowest level seen at a 10-year auction since Aug’22.
• Interestingly, the simultaneous occurrence of a cycle high in the outright yield, a steep 2/10 yield curve, and the relative cheapness of 10-year JGBs versus futures with a 7-year maturity hasn't been sufficient to alleviate investor concerns regarding the BOJ's newly introduced flexible YCC framework.
• The cash JGB curve has maintained its bull-flattening, beyond the 1-year, in the afternoon session, with yields 1.2bp to 3.4bps lower. The benchmark 10-year yield is 3.4bps lower at 0.927% versus yesterday’s cycle high of 0.974% and the BOJ's 1% YCC reference rate. The 10-year is around 1.5bps higher in post-auction dealings.
• The swaps curve has also bull-flattened, with swap spreads wider out to the 20-year and tighter beyond.
• Tomorrow, the local market is closed for the Culture Day holiday.

AUSSIE BONDS: Sharply Higher But Off Bests After Poor 10Y JGB Auction

ACGBs (YM +11.0 & XM +15.0) remain sharply richer but have moved off the session’s best levels in recent dealings. This recent move appears to have been primarily due to higher JGB yields, following underwhelming demand metrics observed at today's 10-year auction. US tsys have also reacted to JGBs, with yields 1bp higher to 3bps lower on the day but 1-2bp higher than earlier levels.

• There hasn’t been much in the way of domestic drivers to flag, outside of the previously outlined trade balance and home loans data.
• Cash ACGBs are 10-15bps richer, with the AU-US 10-year yield differential 4bps wider at +8bps.
• Swap rates are 10-15bps lower, with the 3s10s curve flatter.
• The bills strip has bull-flattened, with pricing +2 to +12.
• RBA-dated OIS pricing is 1-7bps softer across 2024 meetings, with Dec’24 leading.
• Tomorrow, the local calendar sees Judo Bank Australia Composite and Services PMIs, and Q3 Retail Sales Ex Inflation data.
• RBA Assistant Governor (Financial System) Jones is a panel participant at The Regulators 2023 (FINSIA) conference.
• The latest monetary policy decision from the BOE headlines in Europe. Further out, the US calendar sees US factory orders, initial jobless claims and productivity.

AUSTRALIAN DATA: Q3 Housing Affordability Set To Be Worst Since 1989

CoreLogic’s home value index rose 0.9% m/m in October to be 7.1% higher than a year ago. This was the ninth consecutive monthly increase. The national index is 7.6% higher than the January trough and the capital cities +9.2%. Prices have rebounded on the back of working-age population growing at its fastest pace since the series began in 1979 at a time of low housing stock. September building approvals fell but there is some positive momentum for private houses.

Australia CoreLogic house prices

Source: MNI - Market News/Refinitiv

• Sydney home prices rose 0.8% m/m in October to be up 9% y/y but Melbourne is lagging up 0.5% m/m and only 2.4% y/y. There were +1% monthly increases in Adelaide, Perth and Brisbane.
• Higher home prices and mortgage rates have meant that housing affordability has deteriorated considerably over the last 18 months. Our housing affordability index is set to deteriorate relative to trend in Q3 by an increased 43% up from 40% in Q2, assuming that disposable income rises at the average quarterly pace of the last four quarters.
• The house price to disposable income ratio looks set to rise in annual terms in Q3 for the first time in over a year and stand further above trend.
• Rents have been a particular focus given strong demand, lack of properties and subsequent rental growth. They rose 7.6% y/y in Q3 up from 6.7% and the highest since Q1 2009. But despite this housing is becoming more overvalued, as measured by house prices to rents relative to trend. It rose to 10.4% overvalued from 9.8% in Q2.

Source: MNI - Market News/Refinitiv

AUSTRALIAN DATA: Trade Data Just Goods, Strong Capex Imports in Q3

The merchandise trade surplus narrowed in September to its lowest since March 2021. It fell $3.37bn on the month to $6.79bn due to a strong increase in imports. The data are nominal and so are also impacted by moves in trade prices, especially for commodities. They also now exclude services. Strong Q3 capex and consumption imports signal solid H2 domestic demand.

• Merchandise exports fell 1.4% m/m in September after rising 4.6% with both moves driven by non-monetary gold (-39.2%). They are now down 14% y/y after -8.1%. The other major categories all rose on the month with rural goods up 5% m/m and non-rural +1.7% but both are down sharply on the year.
• Imports of goods rose 7.5% m/m following a 0.8% m/m drop in August to be up 2% y/y. Consumer goods imports rose 0.3% m/m and 5.1% y/y due to strength in clothing and some smaller categories. Non-industrial transport fell 2.7% m/m. Capital goods increased a robust 23.3% m/m and 15.3% y/y with strong rises across categories especially aircraft (+74.6%) and industrial transport equipment (+73.8%). Nominal capex imports rose 41.6% q/q in Q3, signalling strong Q3 capex.
• The ABS no longer includes monthly services trade data and it will now only appear in the Balance of Payments data next scheduled for December 5.

Source: MNI - Market News/ABS

NZGBS: Very Strong Into The Close, Expected Terminal OCR At 5.55%

NZGBs closed on a very strong note, with yields 11-25bps lower across benchmarks. The move reflected the very strong lead-in from the NY session, with US tsys 14-21bps richer. That move has extended in today’s Asia-Pac session, with yields flat to 3bps lower across benchmarks as local participants digested Fed Chair Powell’s remark that the Fed had come “very far” with the rate hiking cycle.

• Strong demand metrics at today’s weekly bond auctions for the May-30 and May-34 bonds likely assisted today’s move. Cover ratios were 4.65x and 3.96x, respectively. However, the May-51 bond saw subdued demand, with a cover of 2.35x.
• The 10-year JGB has seen its yield rise since the NZ market close, primarily due to underwhelming demand metrics observed at today's 10-year auction. Depending on the developments during the remaining part of the JGB trading session, the local market may react at tomorrow’s opening.
• Swap rates closed 12-20bps lower, with the 2s10s flatter. The implied long-end swap spread was 5bps wider.
• RBNZ dated OIS pricing closed 1-12bps softer across meetings, with Oct’24 leading. Terminal OCR expectations softened to 5.55%.
• Tomorrow the local data calendar is empty, with RBNZ Governor Orr’s speech on Climate Change Response as the highlight.

FOREX: Post-FOMC Pressure On USD Extends In Asia

The pressure seen on the USD post FOMC on Wednesday has extended on Thursday, BBDXY is down ~0.3%. The Antipodeans are leading the bid in the G-10 space. US Equity futures are firmer and Tsy Yields have ticked lower. Regional Equities are also higher, the Hang Seng is up ~1%.

• Kiwi is the strongest performer in the G-10 space at the margins. NZD/USD is up ~0.7% last printing at $0.5885/90. Bull's immediate focus is on holding above the 20-Day EMA ($0.5870) to target the high from 10 Oct ($0.6049).
• AUD/USD is up ~0.6%, firming above the $0.64 handle this morning. The pair has cleared the 50-Day EMA ($0.6404), the next target for bulls is $0.6445 high from Oct 11.
• Yen is ~0.4% firmer, however USD/JPY remains well above the ¥150 handle. Support comes in at the 20-Day EMA ¥149.66.
• Elsewhere in G-10, CHF is up ~0.5%, however liquidity is generally poor in Asia.
• In Europe today the latest monetary policy decision from the Bank of England provides the highlight.

JAPAN DATA: Offshore Investors Sold Local Bonds Ahead Of The BoJ Meeting

In the week ending Oct 27, offshore outflows from Japan local bonds were the main theme in terms of the weekly investment flow update. We had a further -¥1672.7bn in outflows. This was the largest since mid September. Since that period, we have seen nearly -¥4300bn in outflows from this segment. Last week's outflow of course came ahead of this week's BoJ meeting. Foreign inflows into local Japan equities were positive, but only just and well off the earlier Oct pace.

• In terms of Japan outbound flows, we had resumed buying of foreign bonds, but it was a moderate ¥238.5bn. This offset last week's selling. In the equity space, we saw ¥311.4bn in purchases, which marked the 5th straight week of buying for this segment.

Table 1: Japan Weekly Investment Flows

Source: MNI - Market News/Bloomberg

EQUITIES: Eminis Track Higher To 200-day MA, China Real Estate Index Continues To Struggle

Equity sentiment is positive across the Asia Pac region in Thursday trade, although China markets are only modestly firmer at this stage. Most focus has been on digesting the Fed outcome from Wednesday. US equity futures are higher, following positive gains on Wednesday. Eminis sit near 4266, +0.25% in latest dealings. This puts the active contract back to the simple 200-day MA. Nasdaq futures are slightly higher at +0.40%.

• Some of the stand out gains today have been in tech sensitive countries. The Kospi is +1.80%, the Kosdaq +4.2% in South Korea. The Taiex is up 2%. Tech outperformance is in line with sensitivity to US yield movements/Fed outlook.
• In Hong Kong the Tech sub index is +2.30% higher at the break, the headline HSI +1.20%, although this is away from earlier highs. Japan markets are lagging somewhat, but still in positive territory (Topix +0.30%).
• Mainland China shares are a touch higher at the break (CSI 300 +0.1%). This is down from earlier highs. The real estate sub index is down modestly further. This sub-index is at fresh multi-year lows. The PBoC reported outstanding property loans contracted (on an annual basis) for the first time in September (BBG).
• In SEA, Indonesia's JCI is the standout, +1.8%, while Thailand's SET is +1.25%. More modest gains are evident for bourses in Singapore, Malaysia and the Philippines.

OIL: Crude Higher In APAC Trade Supported By Fed Tone

Oil prices are around a percent higher in APAC trading today helped by further dollar softness and better risk appetite following a more dovish Fed press conference. They have been down each of the last three days. The USD index is down 0.3% after -0.2% yesterday. WTI is around $81.24, close to the intraday high of $81.53. Brent is trading at $85.43 after a high of $85.71.

• There are signs that the market is easing with EIA reporting a crude stock build in the US in the latest week and the prompt spread has narrowed. But according to Woodmac data, European inventories are at seasonal decade low. The demand outlook, especially in the US and China, will continue to be a focus while the Middle East conflict seems contained. Attention now turns to Friday’s US payrolls.
• Later the Fed’s Paese gives welcoming remarks. On the data front, US Q3 unit labour costs, September orders and October Challenger job cuts print. Also the ECB’s Lane and Schnabel speak, the BoE decision is announced and European manufacturing PMIs released.

GOLD: Third Day Of Declines Despite Fed Chair Powell’s Hint Tightening May Be Over

Gold is little changed in the Asia-Pac session, after closing 0.1% lower at $1982.53 on Wednesday. Bullion closed lower for the third straight day, despite lower US Treasury yields following Fed Chair Powell’s hint that it may be finished with the tightening cycle.

• When discussing whether every meeting is "live", Chair Powell said, "We are going meeting by meeting, asking ourselves whether we achieved a stance of policy sufficiently restrictive to bring inflation down 2% over time" and "We have come very far with this rate hiking cycle, very far."
• US tsys reacted favourably to Powell’s remarks, rallying 14-21bps across benchmarks.
• Earlier in the NY session, US tsys shifted richer after lower-than-expected ADP private jobs data (113k vs. 150k est, 89k prior). This move extended after weaker-than-expected ISM data: Mfg (46.7 vs. 49.0 est), Employ (46.8 vs. 50.6 est), New Orders (45.5 vs. 49.8 est) and Prices Paid (45.1 vs 45.0 est).
• From a technical standpoint, gold’s current level neither troubles support at $1947.0 (20-day EMA) or resistance at $2009.4 (Oct 27 high).

CNH: Yuan Implied Vols Continue To Slump

MNI (Australia) Yuan vol continues to fall sharply. USD/CNH 1 month implied is fast approaching early 2022 lows, last near 3.51%, see the chart below. USD/CNH tried to track lower in the first part of trade today but couldn't get sub 7.3220, we last tracked near 7.3290. Onshore spot has had even less volatility. It's implied 1 month vol is the other line (white) on the chart below.

• Onshore spot remains wedged sub 7.3200. We may have seen more downside today, but the USD/CNY fixing was set modestly higher, which went against market expectations, with the Bloomberg consensus estimate for today noticeably lower today compared with Wednesday (in line with softer USD backdrop).
• The authorities may be aiming to keep sentiment as steady as possible, particularly after September indicated strong capital outflow pressures.
• The other factor may be the rebound in the CNY NEER, up ~4% from mid July lows. All else equal a weaker NEER is likely to be preferred to a stronger one in terms of the current China backdrop given low inflation and PMI misses this week.
• However, the NEER will move higher if USD/CNY is roughly stable in a stronger USD environment. With a weaker USD evident in the past 24 hours, the authorities may be comfortable with some CNY underperformance as pay back to these recent trends.

Fig 1: Yuan Implied Vol Continues To Fall Sharply

Source: MNI - Market News/Bloomberg

SOUTH KOREA: October Inflation Firmer Than Forecast

South Korean October inflation figures were stronger than expected. Headline m/m rising 0.3% (forecast 0.2%, 0.6% prior). Headline rose to 3.8% in y/y terms (3.6% forecast, 3.7% prior). Core inflation ex food and energy rose 3.2% y/y (forecast 3.1%, prior 3.3%).

• Headline pressures are comfortably off the July trough (2.3% y/y). The core measure edged down to 3.2% but is moving lower at a gradual rather than dramatic pace. The chart below overlays headline y/y versus core. The Oct uptick is also consistent with some recovery in inflation expectations for households.
• In terms of the detail, most of the m/m gain was in transport, +1.3% m/m. Clothing rose 0.5%, furnishings rose 0.4%.
• In y/y terms, we had 7 out of 12 sub categories record either the same y/y pace or firmer relative to September. Food +6.7% y/y, clothing at 8.1%y/y, were the strongest performers.
• Whilst base effects for headline CPI improve modestly in Nov/Dec, the authorities are likely to stay vigilant in terms of inflation risks. South FinMin Choo noted prior to today's data that inflation pressures were coming down at a slower pace than expected.

Fig 1: South Korea Headline & Core CPI Y/Y

Source: MNI - Market News/Bloomberg

ASIA FX: USD/Asia Pairs Fall Post FOMC, CNH Remains Steady

USD/Asia pairs are lower across the board, although CNH remains a noticeable absentee from broader USD swings. Sentiment in the region has been buoyed by lower US yields and generally positive equity market gains post Wednesday's FOMC. The won has been the best performer, although IDR, THB and MYR have also performed strongly. Still to come is the BNM decision later, no change is expected. Tomorrow, we get the Caixin services PMI in China as the main data highlight.

• Yuan vol continues to fall sharply. USD/CNH 1 month implied is fast approaching early 2022 lows, last near 3.51%. USD/CNH tried to track lower in the first part of trade today but couldn't get sub 7.3220, we last tracked near 7.3310. Onshore equities have struggled to maintain a positive tone, with real estate stocks tracking down further. Onshore spot has had even less volatility, last near 7.3180.
• 1 month USD/KRW got to 1338.50, very close to the 50-day EMA, but sits higher now, last near 1341. Spot won is up over 1% and is the strongest performer in EM Asia FX so far today. The better risk on tone in the equity space (+1.7% for the Kospi) has been a key a driver. Earlier Oct CPI was stronger than expected, which BoK suggested would mean price pressures would run ahead of forecasts made in August.
• The SGD NEER (per Goldman Sachs estimates) is little changed in early trade this morning and sits a touch off the touch of recent ranges. The measure sits ~0.5% below the top of the band. USD/SGD is ~0.2% lower as broader greenback flows dominate on Thursday as Asia participants digest yesterday's FOMC rate decision and comments by Fed Chair Powell. Due this evening we have the October Purchasing Managers Index and the Electronic Sector Index. There is no estimate for either print.
• The Ringgit has firmed in early trade on Thursday as US Tsy Yields fell after the FOMC meeting on Wednesday, extending losses on Thursday in Asia. USD/MYR is ~0.4% lower, last printing at 4.7500/40. On tap today we have that latest monetary policy decision from the BMN, there is no change to policy expected.
• The Rupee has opened dealing a touch firmer as onshore participants digest falling US Tsy Yields after Wednesday's FOMC decision to leave rates on hold. USD/INR is testing the 20-Day EMA (83.2148) this morning, the pair is ~0.1% below yesterday's closing levels. Looking ahead due tomorrow we have the Services & Composite PMI components cross.
• USD/THB sits slightly above session lows, last at 36.03. Earlier we got to 35.96. This was above lows from earlier in the week, which came just under 35.90. Current spot levels are very close to the 50-day EMA, with recent breaks below this level unable to be sustained. Below that rests the 100-day near 35.60. On the topside, the 20-day is near 36.25. As we noted yesterday, lower highs for USD/THB rebounds is a positive technical backdrop for the baht, but sensitivity to the US Fed outlook, like elsewhere in the region is likely to remain high in the near term.
• USD/IDR sits comfortably off Wednesday closing levels in the first part of trade. The pair last near 15850, 0.50% stronger in rupiah terms. The 15950/60 level looks to represent somewhat of a line in the sand in terms of near term topside resistance. On the down we have spent little time sub 15850 in recent weeks. Further on the downside is the 20-day EMA just under 15800. Elsewhere in the cross-asset space, local equities are +1.9% higher at this stage, while 5yr CDS is back to 93bps.