MNI EUROPEAN MARKETS ANALYSIS: Risk Appetite Supported By China Stimulus Calls, RBA On Tap Tomorrow

US TSYS: Cheaper In Asia

TYU3 deals at 111-06+, -0-04+, a touch off the base of the 0-10 range on volume of ~78k.

• Cash tsys sit 2-3bps cheaper across the major benchmarks, the belly is marginally leading the cheaps.
• Tsys were pressured in early dealing as spillover from JGBs weighed, losses were briefly pared after an unscheduled bond buy from the BOJ.
• Through the session tsys continued to tick lower however ranges were narrow as follow through remained limited.
• On Sunday Federal Reserve Bank of Minneapolis President Kashkari said the base case for the US was a slowing economy but avoidance of a recession.
• Eurozone CPI headlines in the European session today, further out we have Dallas Fed Mfg Activity and MNI Chicago PMI. Fedspeak from Chicago Fed President Goolsbee is also due.

JGBS: Cheaper, Sitting Just Off Worst Levels, As Market Adjusts To Tweaked YCC

In Tokyo afternoon trade, JGB futures are weaker, just off session lows, -61 compared to the settlement levels.

• In addition to retail sales that beat and industrial production that missed, housing starts data surprised to the downside with a print of -4.8% y/y in June versus +3.5% in May.
• Morgan Stanley expects “the 1y+ JGB index to extend by 0.003y in July, compared to an average month’s extension range of ~0.02-0.06y. A total of ~¥3 trillion of issuance will affect the extension and ¥3.03 trillion worth of JGBs will be reinvested.”
• The cash JGB curve has bear steepened with yields 0.8bp (1-year) to 10bp (30-year) higher in Tokyo afternoon trading as the market continues to adjust to Friday’s surprise decision to tweak YCC.
• The benchmark 10-year yield is 3.5bp higher at 0.603%. In line with the tweaked YCC, the BoJ announced bond-purchase operations of ¥300b of 5-to-10-year notes at market today.
• The swap curve also bear steepens with swap spreads tighter out to the 7-year wider beyond.
• Tomorrow the local calendar sees Jobless Rate and Jibun Bank PMI data along with 10-year supply.

AUSSIE BONDS: Richer But Pressured By JGBs Ahead Of RBA Decision Tomorrow

ACGBs (YM +2.0 & XM +3.5) sit richer but near Sydney session lows as global yields see spillover selling from another session on weakness in JGBs. JGB yields are 4-10bp cheaper beyond the 5-year zone after the BoJ surprisingly tweaked yield curve control (YCC) on Friday. While maintaining the target of 0% +/- 50bp for the 10-year JGB, the BoJ announced that the 50bp was no longer rigid up to 1%.

• US tsys are holding cheaper in today's Asia-Pac session with yields 3-4bps higher across the major benchmarks.
• Cash ACGBs are 3-4bp richer with the AU-US 10-year yield differential -1bp at +4bp.
• Swap rates are 2-3bp lower.
• The bills strip has twist flattened with pricing -2 to +3.
• RBA-dated OIS pricing is flat to 2bp firmer across meetings. The market attaches a 27% chance of a 25bp hike at tomorrow’s meeting. Terminal rate expectations currently sit at 4.33% versus 4.75% in early July.
• Tomorrow the local calendar sees the RBA Policy Decision. Bloomberg consensus expects a 25bp hike to 4.35%, but the decision is generally seen as a line ball.

AUSTRALIAN DATA: Inflation Gauge Signalling CPI Moderation

The Melbourne Institute’s inflation gauge for July eased to 5.4% from 5.7%, the lowest since October 2022. The data is not seasonally adjusted and July usually sees a robust monthly rise due to the start of the new financial year but 2023’s 0.8% m/m was lower than 2022’s 1.2%, possibly signalling some easing in pricing power. Headline CPI is now running below the gauge, but the latter is signalling some further moderation in CPI inflation in July.

Australia CPI y/y% vs MI inflation gauge y/y%

Source: MNI - Market News/Refinitiv/ABS

NZGBS: Richer But Off Bests, Spillover From JGB Cheapening

NZGBs closed 3-5bp richer, but well off session best levels, as $-bloc yields grind higher through the session in line with another post-BoJ decision cheapening in JGBs.

• US tsys are holding cheaper in today's Asia-Pac session with yields 3-4bps higher across the major benchmarks. TYU3 deals at 111-06 (-0-05).
• Swap rates are 2-4bp lower but 5bp higher than early session lows.
• RBNZ dated OIS pricing closed flat to 4bp firmer across meetings with mid’24 leading. Terminal OCR expectations closed at 5.67%.
• The Business confidence index rose to -13.1 in July from -18 in June, according to ANZ Bank. Business confidence read is highest since September 2021. The business activity outlook index fell to 0.8 from 2.7 in June. Inflation expectations ease to 5.14% vs. 5.29%. A net 82% expect to raise wages over the next 12 months.
• Tomorrow the local calendar sees June Building Permits with tighter financial conditions still likely to weigh.
• Tomorrow's antipodean highlight however will likely be the RBA Policy Decision. Bloomberg consensus expects a 25bp hike to 4.35%, but the decision is generally seen as a line ball.

NZ DATA: ANZ Survey Shows High But Easing Price Pressures, Monitor Services

ANZ business confidence rose to -13.1 in July from -18 to be the highest since September 2021. This signals that the economy has some resilience given there has been 525bp of tightening since then. The activity outlook deteriorated to 0.8 from 2.7 but is pointing to a trough in GDP growth and employment intentions rose to their highest since late 2022.

• The pricing components of the survey remained elevated but continued their gradual moderation. Inflation expectations eased to 5.1% from 5.3% in June. It peaked at 6.4% in November 2022. Pricing intentions remained high but were 48.1 down from 49.3 and 80.5 in March 2022. All sectors saw a drop in selling price expectations except services which rose to 3.2% q/q from 2.9%. Unfortunately, costs rose to 80.6 from 76, but still below May’s 84.1, and the share of firms expecting to increase wages rose to 81.8% from 80.2% and was broad based. But expected wage growth over the coming year continued to trend down at 4.1% from 4.2%.
• The activity components were mixed with investment down to -3.3 from -2.7, but still above the Q2 average, and profits to -24.5 from -24.1. Exports rose though to +1.5 from -1.8 and residential construction to -24.1 from -51.5 helped by increased migration and the pause in tightening. Expected employment rose to -1.6 from -3.5, the highest since October 2022.

Source: MNI - Market News/Refinitiv

NZ GDP q/q% vs ANZ activity outlook

Source: MNI - Market News/Refinitiv

FOREX: Yen Pressured, Antipodeans Firm In Asia

The Yen is pressured in Asia, after an scheduled bond buy from the BOJ coupled with better risk sentiment in regional equities, weighed. The Antipodeans are outperforming in the G-10 space, benefitting from the aforementioned better risk sentiment.

• USD/JPY is ~0.4% firmer and has breached Friday's post BOJ highs, the pair sits at ¥140.70/80 rising ~0.8% from trough to peak in Asia.
• Kiwi is up ~0.4%, NZD/USD sits at $0.6180/85, a touch off session highs. The $0.62 handle is intact for now, the 20-Day EMA is at $0.6211.
• AUD/USD prints at $0.6670/75 up ~0.3% on Monday. Private Sector Credit grew at 0.2% M/M in June slower than the expected 0.4%.
• Elsewhere in G-10, CHF is down ~0.2%. EUR and GBP are little changed dealing in narrow ranges in Asia.
• Cross asset wise; Hang Seng is up ~1.5% and CSI300 is up ~0.8%. E-minis are down ~0.2% and BBDXY is up ~0.1%.
• In Europe today the Eurozone preliminary inflation print provides the highlight. Tomorrow in Asia we have the latest monetary policy decision from the RBA.

EQUITIES: HK Equities & China Related Bourses Higher On Further Stimulus Talk

Regional markets are mostly tracking higher, with focus again on China stimulus measures. Hong Kong markets lead the region higher. Taiwan markets have faltered, while US futures are in the red, which has likely curbed regional enthusiasm to some degree. Eminis were last just under 4600, earlier highs were at 4618, as markets tried to build on Friday's late rally in NY. Nasdaq futures are down around 0.30%, underperforming Eminis slightly.

• The HSI sits up nearly 1.5% at the break. Note we had a surge of nearly 7% in the Golden Dragon Index in Friday US trade. This followed earlier reports of the authorities reportedly asking large tech companies to provide case studies of their most successful start ups. Note the HS TECH index is up +3.24% to the break. The China Enterprise Index is +2.29% higher.
• The CSI 300 is +0.83%, with the real estate sub index up 1.29%, building on Friday's +4.38% gain. Onshore analysts stated that the authorities may ease property restrictions in large cities in the aftermath of the recent Politburo meeting. Further consumption support measures will also be announced at 3pm local time today.
• Elsewhere, Japan stocks are around 1% higher, while the Kospi is +0.80% higher. The Kosdaq is +2%. The Taiex is underperforming though in Taiwan down -0.85% at this stage. Australian stocks are also down, off around 0.30% at this stage, reversing earlier gains.
• In SEA markets are mostly higher, with Thai stocks firmer (+0.85%), playing catch up after onshore markets were closed on Friday.

OIL: Crude Down But July Was A Very Strong Month

Oil has unwound almost all of Friday’s gains in the APAC session. It is down around 0.5% with WTI at $80.14/bbl, close to its intraday low at $80.13, but holding above the important $80 level. Brent is 0.6% lower at $83.93, having only recently broken below $84. The USD is up 0.2%.

• Crude initially rose on the better-than-expected China manufacturing PMI but after WTI reached $80.57 and Brent $84.38 prices have been declining since as the composite PMI disappointed. This is despite Goldman Sachs saying that demand is at a record high. Measures to boost China’s consumption are scheduled to be announced later today.
• Brent is currently up 11.5% in July and WTI +13.3% as tighter supply and improved demand optimism have driven the rally this month.
• The Fed’s Goolsbee speaks later and the senior loan officer survey is published. The July MNI Chicago PMI and Dallas Fed surveys print. Euro area Q2 GDP & July inflation are also released. Friday’s US non-farm payroll report is the key event for crude this week.

GOLD: Slightly Softer In Asia-Pac After Strengthening on Friday After US Wage & Price Data

Gold experienced a 0.3% decline during the Asia-Pacific trading session, following a 0.7% gain that brought it to $1959.49 on Friday. The market reacted to mixed US price data, which created uncertainty about the Federal Reserve's potential rate adjustments. There are speculations about whether the US economy is overheating or experiencing a slowdown.

• There was an immediate bid for US tsys after a lower-than-estimated gain in the Employment Cost Index (1.0% vs. 1.1% est). However, rates quickly reversed the gap move as markets deemed it an overreaction to near-in-line data. Core PCE printed in line at 4.1%, with core non-housing services, the Fed’s preferred indicator, easing a tenth to 0.22% m/m.
• China also said it will announce new measures to boost consumption, which could boost gold purchases from one of the world’s biggest importers.
• The strong climb in bullion came against a background of modest USD weakness. Nonetheless, it only reversed about half of Thursday’s post-US data slump. According to MNI’s technicals team, Thursday’s low of $1942.7 now forms initial support. Resistance remains at a bull trigger of $1987.5 (Jul 20 high).

CHINA DATA: PMIs Suggest Weaker Growth, But Manufacturing Details Encouraging & Less Deflation Fears

The official PMIs, in aggregate, suggest China's economy lost momentum in July, with the composite index slipping to 51.1 (from 52.3). However, the manufacturing reading beat expectations, with some positive details as well. The market may also look through the weaker services read, given efforts in recent weeks to boost consumption growth and potentially easier housing market restrictions. The market reaction has generally been positive post the prints, with local equities tracking higher, CNH and AUD firmer (albeit away from best level).

• The manufacturing PMI printed a touch above market expectations (49.3, 48.9 Bloomberg consensus). This was also a slight improvement on prior outcome of 49.0 in June. The detail showed steady output (50.2, 50.3 prior), but new orders bounced to 49.5, the highest since March of this year.
• The new orders to inventory ratio climbed back to early 2023 highs, which suggests we could see further improvement in the headline index in the near term, see the chart below.
• Other detail was less positive though. The employment index was down a touch to 48.1, while new export orders softened to 46.3.
• Input and output prices spike though. Input prices to 52.4 from 45.0, with firmer commodity prices likely playing a role. By scale of enterprise, we saw the most notable improvement in the small sector, albite from a low base, to 47.4 from 46.4.

Fig 1: China Manufacturing PMI Index Versus New Orders To Inventory Ratio

Source: MNI - Market News/Bloomberg

• On the non-manufacturing side, we saw a decent downside miss of 51.5, versus 53.0 forecast (53.2 prior). The detail showed weaker new orders (48.1 versus 49.5 prior), while employment slipped to 46.6 from 46.8. Overall, this suggests that the services side lost further momentum in July.
• In terms of prices, we saw a decent bounce in input and selling prices, which was a similar result to manufacturing.
• The second chart below plots input measures for both the manufacturing and non-manufacturing sides. This is line with a firmer spot commodity price backdrop in July, and at the margin may calm some fears around weaker China inflation for H2.

Fig 2: China Manufacturing and Non-manufacturing PMIs Input Price Indices

Source: MNI - Market News/Bloomberg

ASIA FX: Weaker Yen Trend Curbs Asian FX Rally

USD/Asia pairs are mostly lower, but away from session lows for most pairs. A rebound in USD/JPY hasn't helped NEA FX, with USD/CNH rebounding back to 7.1500 from earlier lows. China PMIs were mixed, but further stimulus hopes have helped equities. Tomorrow, we get the Caixin manufacturing PMI for China, and South Korea trade data for July. Regional PMIs will also print, as well as Indonesia CPI.

• USD/CNH is away from earlier session lows. The pair dipped to 7.1329, before rebounding. CNH gains were propelled by stronger equity gains amid stimulus hopes. Official PMI data was mixed, but the detail in the manufacturing sector was less downbeat. Equities are away from highs, which has likely helped curb CNH gains. USD/CNH was last near 7.1500, only down slightly from closing levels in NY last Friday. A rebound in USD/JPY back towards 142.00 has also weighed. Further consumption support measures are expected to be announced later today.
• USD/THB has recovered further ground today. The pair last in the 34.25/30 region. Lows from late last week near 34.00 held and this region, and back near 33.75, have been recent support points. All of the key EMAs remain further north, with the 20-day the closest at 34.52. The main macro focus this week will be on the BoT decision on Wednesday, with +25bps expected, which is a fairly broad based consensus. Later today we do get June BOP and trade data. On the political front, the new PM vote may take place this Friday, although that will depend on how the Constitutional Court rules on the petition for the rejected renomination of MFP PM candidate Pita. If it accepts the petition the PM vote on Friday will not take place.
• USD/HKD spot has drifted slightly higher today, the pair back above the 7.8000 level. Recent lows rest around the 7.7950 level, with last week's move sub this level the first time the pair had breached the mid-point of the HKMA peg band this year. Still, we remain some distance away from early December 2022 lows near 7.7600. HKMA Executive Arthur Yuen stated that higher rates may prevail for some time, in a warning to local investors late last week. He also stated HKD was receiving support from dividend related flows. Later today, Q2 GDP is out. The market expects y/y growth at 3.5%, versus 2.7% prior. Money supply and June Budget Balance figures are also due out some time today.
• USD/INR firmed above the 20-Day EMA on Friday as broader USD trends dominated flows. The Rupee is little changed in early dealing, and last prints at 82.2150/2300. On Thursday there was a total of $152.43mn in net outflows of Indian equities by foreign investors, trimming last week's inflows to $361mn. Due today is the June Fiscal Deficit and Eight Infrastructure Industries.
• The Ringgit is marginally firmer on Monday, USD/MYR is down ~0.5% and last prints at 4.5280/5320. The pair remains well within recent ranges, since the US CPI print mid month a 4.52/58 range has persisted for the most part. S&P Global Mfg PMI for July is the only data of note this week, there is no estimate and the prior read was 47.7.
• USD/SGD was marginally firmer on Friday as broader USD trends dominated flows, with gains remaining capped at the 20-Day EMA ($1.3330). On Monday the pair is unchanged from opening levels and sits at $1.3310/15. The highlight of the week is July S&P Global PMI, which is due on Thursday. Friday's Retail Sales print for June rounds off the docket.