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MNI EUROPEAN MARKETS ANALYSIS: Upcoming China Data/MLF In View

  • There was a muted reaction in Asia to Thursday's move in US Tsy Yields. The greenback held the majority of its gains and Tsys dealt in narrow ranges for the most part. Regional FI held cheaper through the session, with little reaction in ACGBs to the RBA's Statement on Monetary Policy.
  • Brent crude has drifted higher versus Thursday closing levels in NY. This only unwinds earlier losses in the week marginally though. As risks of a wider Middle East conflict have fallen, demand concerns have become more prominent. This week's China data has been a concern (even with higher oil import volumes). Continued consumer spending headwinds was highlighted by a PBoC official today.
  • Most USD/Asia pairs are ending the week on a firmer footing, albeit to varying degrees. The USD has seen carry over support from higher US yields on Thursday and weaker regional equities today. MYR and THB have been among the weakest performers. Next week, China's 1yr MLF and October activity data out on Wednesday will be in focus.

MARKETS

US TSYS: Narrow Ranges In Asia

TYZ3 deals at 107-19, +0-02, 0-010 range has been observed on volume of ~151k.

  • Cash tsys sit ~1bp richer across the major benchmarks.
  • Tsys firmed off session lows as participants perhaps used the early move lower to square short positions with spillover from ACGBs, which firmed a touch after the RBAs SoMP, adding a layer of support.
  • Tsys held marginally firmer dealing in a narrow range for the remainder of the Asian session.
  • TY briefly dealt below Thursdays lows before paring losses, support came in ahead of the 20-Day EMA (107-08). Resistance is at 108-25, high from Nov 3.
  • September GDP and Industrial Production from the UK provides the highlight in Europe today, further out we have the latest UofMich Survey. There are a number of Fed speakers including Logan, Bostic and Daly.

JGBs: Yields Only Marginally Above Recent Lows, Q3 GDP, 5yr Supply In Focus Next Week

JGB futures have seen a modest upside bias emerge in the afternoon session, albeit still well within recent ranges. We were last 144.49, -.27. Earlier lows in the session were at 144.40. This fits broadly with the pattern of US futures, with TYZ up from Thursday lows (last 107-19, +02+), maintaining a modest bid tone.

  • In the cash JGB space, yields have continued to tick away from earlier highs. The 10yr is back to the low 0.85% region. We are above Thursday lows, but well below earlier Nov highs ~0.97%. The 20yr is back to 1.55%, while 10yr swap rates are just under 1.04% (earlier Nov highs were ~1.16%).
  • This week has seen BoJ Governor Ueda reinforce that the timing of the central bank's exit from easy policy settings still remains quite uncertain.
  • 3 month bill supply was digested easily enough earlier. Next week's supply focus will be on 5yr debt. Bloomberg noted the government's extra budget is not expected to change the issuance calendar for the current fiscal year.
  • On the data front next week is Q3 GDP (out Wednesday).

AUSSIE BONDS: Cheaper On Friday, Oct Labour Market Report Due Next Week

Aussie Bonds have held cheaper through Friday's session and ACGBs sit 6-9bps cheaper across the major benchmarks.

  • XM (-0.1000) and YM (-0.070) are also holding lower, however losses were marginally pared after the RBA's SoMP.
  • The statement didn't appear to shed much light on the outlook for the economy. CPI is expected to return to the top of the band by end of 2024. THe growth outlook is a touch firmer, and the employment forecast is at 4%.
  • 10 Year AU US Swaps spreads remain stable and sit flat today.
  • Looking ahead the highlight of next week's docket is the October Labour Market report which crosses on Thursday. The unemployment rate is expected to tick higher to 3.7%.

RBA: Little Wiggle Room On Inflation outlook

The RBA's updated inflation forecast profile suggests very little wiggle room in terms of the monetary policy outlook.

  • The central bank now projects headline inflation to be 4% mid next year (versus 3.25% prior), returning to the top-end of the 2-3% target band by the end of 2025 (prior forecast was 2.75%). The core inflation (trimmed mean) has a similar trajectory, albeit returning to the top end of the band by the middle of 2025 and then holding there to the end of the year (prior forecasts had 2.75% by end 2025). RBA link is here.
  • The growth outlook is a touch firmer, 1.75% mid 2024 (1.25% prior), 2% end 2024 (1.75% prior), 2.25% mid 2025 (2% prior). The unemployment rate is forecast at 4% mid next year (4.25% prior), but the 4.25% forecast to end 2025 was unchanged.
  • RBA OIS pricing is a touch weaker compared to pre SoMP levels, see the table below. Terminal rate hike expectations have firmed from post RBA lows. We remain below late October highs though (4.54%).
  • Looking ahead, Q3 WPI (Nov 15), employment (Nov 16), retail sales (Nov 28) and CPI (Nov 29) are key data before the December 5 RBA meeting but since there are no new forecasts even upside surprises are unlikely to push another hike. Watch services, core and house prices though. But February is definitely live with Q4 CPI on January 31 and revised staff forecasts available. If those projections show inflation at target not until 2026 (Q2:26 will be added), then expect more tightening. Either way “higher for longer” inflation means rates are high for longer.
Figure 1: RBA-Dated OIS Today & Pre-RBA SoMP
Today (%)Pre RBA SOMP (%)Change (%)
Dec-234.354.360.00
Feb-244.424.43-0.01
Mar-244.464.48-0.03
May-244.474.50-0.03
Jun-244.454.49-0.03
Aug-244.444.47-0.03
Sep-244.434.45-0.03
Nov-244.394.41-0.02
Dec-244.354.37-0.03
Source: Bloomberg / MNI - Market News

NZGBs: Cheaper On Friday, Docket Light Next Week

NZGBs have held their early move lower dealing in narrow ranges for the most part in today's session. Cash NZGBs sit 1-11bps cheaper across the major benchmarks, the curve has bear steepened.

  • 10 NZ US Swap Spread printed their narrowest level since early February on Thursday (+37bps) before trimming losses today to sit at +51bps.
  • RBNZ dated OIS remain stable, a terminal rate of 5.55% is seen in February with ~40bps of cuts by October 2024.
  • A reminder on the wires early in today's session was BusinessNZ Mfg PMI for October which printed at 42.5 this morning, the prior read was revised lower to 45.1. This is the lowest reading since August 2021 and marks the 8th consecutive month of contraction.
  • Looking ahead the docket is relatively light next week with Oct PSI, Food Prices and Card Spending due. Q4 PPI rounds off the docket.

GOLD: Tracking Lower For The Second Straight Week

Gold has had a reasonably tight range to start Friday trade ($1956.49 to $1960.85). We sit modestly below session highs in latest dealings, $1958.60. This is near closing levels from Thursday in NY. Thursday's +0.40% gain was the first for this week and came despite a firmer USD backdrop, although the precious metal is still tracking -1.70% down for the week.

  • We are tracking for a second consecutive weekly loss in gold, as the Middle East war premium gets unwound.
  • In terms of levels, gold remains a long way from the bull trigger at $2009.4 (Oct 27 high) after recent heavy declines.
  • Equally though sentiment has still stabilized somewhat in the face of a rebound in US yields. Thursday lows were around the $1945 level, while the 50-day EMA is near $1938.80.

OIL: Weekly Losses Trimmed, But Only Marginally, Demand Concerns Weighing

Brent crude has drifted higher versus Thursday closing levels in NY. We were last near $80.50/bbl, a further gain of 0.60%, after Thursday's +0.60% rise. This only unwinds earlier losses in the week marginally though. At this stage we are still tracking 5.20% lower, which would be the 3rd straight week of losses for the benchmark. WTI was last just above $76.15/bbl, having followed a similar trajectory.

  • As risks of a wider Middle East conflict have fallen, demand concerns have become more prominent. This week's China data has been a concern (even with higher oil import volumes). Continued consumer spending headwinds was highlighted by a PBoC official today.
  • Bloomberg has also reported that Asia diesel spreads are turning more bearish on rising supply (see this link for more details).
  • Elsewhere, the WTI prompt month time-spread has flattened and is oscillating between a shallow contango and shallow backwardation. Weak prompt demand, record US output and expectations of building Cushing stocks are weighing on the prompt and pushing the market into contango.
  • For Brent, this week's low sits at $79.20/bbl, with all key EMAs back above $85/bbl.
  • Looking ahead, on Monday OPEC publishes its monthly oil report. IEA publishes its monthly report on Tuesday, US CPI is out on Tuesday as well, while China activity figures print on Wednesday.

EQUITIES: Broad Losses, Hong Kong & Some China Related Markets Underperform

Regional equities are lower in Friday Asia Pac trade. Weakness has been broad based, although for the most part, losses have been under 1%. Hong Kong and some China related markets are the exception. US futures were lower, particularly in the tech space, in early trade, but have largely recouped losses. Eminis are marginally higher, last near 4366, while Nasdaq futures are down a touch (but were off -0.30% at one stage).

  • Carry over from the US yield rebound in Thursday trade, led by Powell comments and a poor 30yr debt auction, has weighed on Asia Pac sentiment so far today. The fact that nominal US yields have drifted a little lower today has probably helped contain the fallout for broader risk appetite, including in the equity space.
  • In HK, the HSI is off 1.6% at the break, slightly above session lows. Some disappointing earnings results, led by China chipmaker SMIC has weighed, while comments from PBOC advisor Wang Yiming were also noteworthy. He stated that China can still achieve its growth target this year, but noted that domestic demand remains under pressure given a weak consumption recovery.
  • Elsewhere, PBoC Governor Pan reiterated that the central government is paying close attention to local government debt risks in some provinces, while broader property risks remain manageable.
  • The CSI 300 sits 0.70% down at the break, but also away from session lows. Northbound stock connect outflows have been evident in the first part of the session (-4.7bn yuan).
  • Japan stocks are outperforming modestly, the Topix off 0.10%, up from session lows, with weakness in Softbank weighing in early trade.
  • The Kospi and Taiex are both off by less than 1% at this stage. It's a similar story in SEA markets.

FOREX: Narrow Ranges In Asia

There have been narrow ranges across G-10 FX on Friday, BBDXY is marginally lower however there have been little follow through on moves. US Tsy Yields are marginally lower in Asia trimming gains seen in yesterday's NY session and US Equity futures are a touch softer.

  • AUD/USD is down ~0.1% at $0.6360/65, post SoMP losses have been pared. The statement didn't appear to shed much light on the outlook for the economy. Technically the pair has breached the 20-Day EMA and support now comes in at $0.6315, low from Oct 31.
  • Kiwi is dealing in a narrow range below the $0.59 handle. On the wires early in todays session was BusinessNZ Mfg PMI for October which printed at 42.5 this morning, the prior read was revised lower to 45.1. This is the lowest reading since August 2021 and marks the 8th consecutive month of contraction.
  • Yen is unchanged this morning. USD/JPY prints at ¥1.151.30/35. Technically bulls remain in the drivers seat, resistance comes in at ¥151.72 high from Oct 31.
  • September GDP and Industrial Production from the UK provides the highlight in Europe today.

Dollar Supported, THB & MYR Lose The Most Ground

Most USD/Asia pairs are ending the week on a firmer footing, albeit to varying degrees. The USD has seen carry over support from higher US yields on Thursday and weaker regional equities today. MYR and THB have been among the weakest performers, while USD/CNH has edged to a fresh high for the week above 7.3000. Still to come today is Indian IP for September. Next week, China's 1yr MLF and October activity data out on Wednesday will be in focus.

  • USD/CNH has made fresh highs for the week in Friday dealing, albeit marginally. We currently hold near 7.3000, a modest CNH loss for the session. Earlier the USD/CNY fixing ticked down a touch despite a firmer USD backdrop. This provided some relief for CNH but it wasn't sustained. Onshore & HK equities are weaker amid on-going growth concerns, highlighted by a PBOC advisor (who also stated this year's growth target will be met). Elsewhere, PBoC Governor Pan reiterated that the central government is paying close attention to local government debt risks in some provinces, while broader property risks remain manageable.
  • Spot USD/HKD has been somewhat immune to the broader USD recover in recent sessions. We sit near 7.8080 in recent dealings, albeit up from earlier lows (7.8032). This was fresh lows in the pair back to early August. We got to 7.7926 then, a brief dip below the mid-point of the HKMA's peg band. HKD gains are in line with waning US-HK yield differentials. The 3 month spread back to +5bps, also lows from early August. A break below 0bps in this spread could herald a deeper move lower in USD/HKD. In the risk reversal space, we remain around recent highs, last near -0.35.
  • USD/IDR sits near 15685 in recent dealings, down from earlier highs of 15695, but still ~0.20% weaker in IDR terms versus yesterday's closing levels. The pairs remains in a modest uptrend, largely following the rebound in US yields in recent sessions. To close the gap with the earlier November break lower in the pair we need to get back to the 15725 region, which is also near the 20-day EMA. On the downside, the 50-day EMA is back near 15607.
  • The SGD NEER (per Goldman Sachs estimates) is marginally firmer this morning, the measure sits well within recent ranges. We sit ~0.4% below the top of the band. USD/SGD firmed yesterday as US Tsy Yields ticked higher, the latest 30-Year auction was poorly received by the market as the auction tailed, and pushed above $1.36 handle in early trade today.
  • The Ringgit has been pressured in early dealing on Friday, Thursday's uptick in US Tsy Yields is weighing. USD/MYR sits at touch above the 4.72 handle and has risen ~0.6%. The pair has erased all its post-NFP losses. Bulls focus on the 20-Day EMA (4.7248) which opens the 4.80 handle. On the downside bears look to break the 4.70 handle to target the 200-Day EMA (4.5999).
  • USD/THB gaped higher at the open. The pair got above 35.80, but now sits slightly lower, last at 35.78. This is 0.60% weaker in baht terms relative to yesterday's closing levels, as the currency plays catch up to the firmer USD trend. These moves have pushed us back above the 100-day EMA (35.605), while the 20 and 50 day sit above 35.90. Recent lows rest just under 35.40. Baht weakness is in line with the recovery in US yields. The US-TH 2yr government bond yield differential is back to +250bps, against recent lows around +230bps. Note PM Srettha we announce details of the digital wallet policy at 2pm local time today.


UP TODAY (TIMES GMT/LOCAL)

DateGMT/LocalImpactFlagCountryEvent
10/11/20230700/0700**UK UK Monthly GDP
10/11/20230700/0700**UK Index of Services
10/11/20230700/0700***UK Index of Production
10/11/20230700/0700**UK Trade Balance
10/11/20230700/0700**UK Output in the Construction Industry
10/11/20230700/0800*NO CPI Norway
10/11/20230700/0800**SE Private Sector Production m/m
10/11/20230700/0700***UK GDP First Estimate
10/11/20230900/1000*IT Industrial Production
10/11/20231230/1330
EU ECB's Lagarde fireside chat with Martin Wolf
10/11/20231230/0730
US Dallas Fed's Lorie Logan
10/11/20231400/0900
US Atlanta Fed's Raphael Bostic
10/11/20231500/1000**US U. Mich. Survey of Consumers
10/11/20231900/1400**US Treasury Budget


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