MNI EUROPEAN MARKETS ANALYSIS: US 2/10s Hit -50bps, More Data & Fedspeak Ahead

US TSYS: Tsys Futures Little Changed, Ranges Tight, 2Y10Y Taps -50bps

• Treasury futures have traded in tight ranges today, the front-end has underperformed just a touch with TUU4 now +0-00+ at 102-06⅛, while TYU4 is currently +0-03 at 110-20.
• The 2Y10Y has hit -50.00 for the first time since December, with the dec lows at -56.116 (see chart 1 - source bbg)



• Volumes: TU 26k, FV 38k, TY 59k
• Tsys flows: Earlier there was a Block Fly (TU, TY, WN) Buyer belly, DV01 310k
• Cash treasury curve is little changed this morning, yields are flat to 0.5bp higher.
• APAC Markets: ACGB curve is slightly flatter, yields are 1-3bps lower, NZGB curve is 1.5-2.5bps lower, while JGBs are flat to 1.5bps higher, curve is slightly steeper.
• The Fed's Mary Daly warned that the US labor market is nearing an inflection point where further slowing could lead to higher unemployment and emphasized the need for restrained demand to return inflation to the 2% target. She stressed the importance of remaining vigilant and adaptable in monetary policy, given the uncertainty in inflation trends and labor market conditions.
• Projected rate cut pricing are steady to mildly higher vs. early Monday levels (*): July'24 at -10% w/ cumulative at -2.5bp at 5.302%, Sep'24 cumulative -18.6bp (-18.4bp), Nov'24 cumulative -28.0bp (-27.1bp), Dec'24 -47.9bp (-46.8bp).
• Looking ahead, Fed Speak, Home Prices, Regional Fed Data and Fed Governors Michelle Bowman and Lisa Cook will speak

JGBS: Solid 20Y Auction Fails To Strengthen Market

JGB futures are weaker at 143.49, -9 compared to the settlement levels, after initially surging to a new session high of 143.58 following the results of today’s 20-year supply.

• 20-year supply went smoothly, with the low price beating dealer expectations and the auction tail ticking shorter. However, the cover ratio decreased versus last month’s auction. Today’s result is likely to be seen as consistent with the positive tone set at June’s 10- and 30-year JGB auctions.
• Outside of the previously outlined PPI Services, there hasn't been much in the way of domestic data drivers to flag. Leading & Coincident Indices and Machine Tool Orders data are due later today.
• (Bloomberg) Japanese bank shares including Mitsubishi UFJ Financial Group and Sumitomo Mitsui Financial Group climb on growing expectations the BoJ will raise interest rates as early as next month, and as investors rotated into lagging value stocks. (See link)
• The cash JGB curve has twist-steepened, pivoting at the 7s, with yields 1bp lower to 2bps higher. The benchmark 10-year yield is 0.6bp higher at 1.002% versus the cycle high of 1.101%.
• Swap rates are flat to slightly lower out to the 30-year and 4bps higher beyond. Swap spreads are mixed.
• Tomorrow, the local calendar is empty, ahead of Retail Sales and weekly International Investment Flow data on Thursday. Thursday also sees 2-year supply.

AUSSIE BONDS: Richer Ahead Of May’s CPI Monthly Release Tomorrow

ACGBs (YM +2.0 & XM +2.0) are richer and at Sydney session highs ahead of tomorrow’s CPI Monthly release. Dealings were, however, relatively subdued with cash US tsys little changed in today’s Asia-Pac session.

• Outside of the previously outlined Westpac's consumer sentiment, there hasn't been much in the way of domestic drivers to flag.
• Cash ACGBs are 1-2bps richer, with the AU-US 10-year yield differential at -3bps.
• Swap rates are 1bp lower.
• The bills strip is slightly richer, with pricing flat to +2.
• RBA-dated OIS pricing is flat to 2bps softer across meetings. A cumulative 16bps of easing is priced by year-end from an expected terminal rate of 3.37%.
• Tomorrow, the local calendar will see May’s CPI Monthly, with consensus expecting 3.8% y/y up from 3.6% the previous month. Forecasts range from 3.5% to 4.0% with most around 3.7-3.8%. Housing costs, insurance, electricity prices and personal services are likely to rise.
• RBA Assistant Governor Kent will speak tomorrow at 0935 AEST and Deputy Governor Hauser on Thursday at 2000 AEST.
• Tomorrow, the AOFM plans to sell A$600mn of the 3.50% 21 December 2034 bond.

NZGBS: Modestly Richer, Subdued Dealings, Light Local Calendar Tomorrow

NZGBs closed on a strong note, with benchmark yields 2-3bps lower.

• Outside of the previously outlined Employment Confidence Index, there hasn't been much in the way of domestic data drivers to flag.
• “First-quarter GDP data indicates key sectors of the economy are deteriorating rather than improving and activity in sectors most affected by interest rates is weak, the NZ Treasury Dept. says in Fortnightly Economic Update.” (per BBG)
• Cash US tsys are little changed in today’s Asia-Pac session after yesterday’s small gains.
• Swap rates closed flat to 1-2bps lower.
• RBNZ dated OIS pricing closed little changed. A cumulative 31bps of easing is priced by year-end.
• Tomorrow, the local calendar is empty ahead of Consumer and Business Confidence on Thursday. Thursday will also see the NZ Treasury’s planned sale of NZ$250mn of the 4.5% May-30 bond, NZ$200mn of the 3.5% Apr-33 bond and NZ$50mn of the 2.75% Apr-37 bond.
• Tomorrow, the Australian calendar will see May’s CPI Monthly release. It is expected to post an increase of 3.8% y/y up from 3.6% the previous month.

FOREX: Early USD/JPY Dip Not Sustained, USD Indices Slightly Lower

USD FX indices sit a touch below their end Monday levels. The BBDXY was last near 1263.5, off close to 0.10% for the session so far.

• News flow and data outcomes have been light, which has kept most currencies in fairly tight ranges against the USD. US equity futures sit a touch higher (0.10-0.20%) following cash losses in Monday trade. US yields have been relatively steady, moves less than 0.5bps at this stage.
• USD/JPY did see a brief dip to 159.19 ahead of the Tokyo fix, but we recovered growth, and last track near 159.50, still down slightly for the session.
• Cabinet Secretary comments on FX were in line with recent rhetoric. The PPI services for May came out weaker than forecast at 2.5% y/y (projection was 3.0%) This didn't impact FX sentiment though.
• AUD/USD and NZD/USD are close to unchanged, albeit with NZD slightly off compared to the A$. AUD/USD last near 0.6660, NZD, close to 0.6120.
• Australian Westpac Consumer Sentiment rose for June but remains depressed by historical standards. Iron ore prices fell to multi-month lows before stabilizing.
• The USD/CNY fixing rose, which went against market expectations for a lower outcome, which provided some USD support, but follow through was limited.
• Looking ahead, Canada CPI is the data highlight Tuesday, before US consumer confidence and Richmond manufacturing also cross.

JPY: USD/JPY Softer, Yield Differentials Pointing Lower, Risk Reversals Still Elevated Though

USD/JPY is up from earlier lows. The pair got to 159.19 not long before the Tokyo fix. We sit near 159.35/40 in recent dealings, still around 0.15% lower versus end NY levels from Monday. Intra-session lows form yesterday rest at 158.82.

• Like elsewhere, the pair received some support post the USD/CNY fixing, which was set at fresh highs back to Nov last year.
• Cross asset moves are muted elsewhere though. US equity futures sit a touch higher, while US yields are close to unchanged. Regional equities are mixed as well.
• More broadly, USD/JPY is too high relative to softer US-JP yield differentials, see the chart below. The 10yr nominal government bond yield differential is back close to early Feb lows near +324bps.
• Still, risk reversals remain elevated relative to recent history. The 1 month is near -0.60, close to YTD highs. The 6 month is near -0.41 (levels last seen in 2022). The 1yr is around -0.19, also fresh highs back to 2022. Whilst we aren't above par levels, the trend has been shifting this way in recent weeks.
• In a relative sense, implied vols are up from recent lows, but still comfortably off 2024 highs.

Fig 1: USD/JPY Diverging Somewhat From Lower US-JP Yield Differentials

Source: MNI - Market News/Bloomberg

ASIA STOCKS: Hong Kong Equities End Three Day Slide, China Equities Mixed

Hong Kong & China equities have shown a mixed performance today, HK stocks are performing better than their mainland peers with the HSI up 0.5%, buoyed by gains in tech stocks such as Meituan, Tencent, and Alibaba, despite broader concerns. In contrast, mainland Chinese indices experienced modest losses, with the Shanghai Composite dipping 0.4%. Traders in Hong Kong attributed the volatility to improving fundamentals and a global rotation away from semiconductors into other sectors.

• Hong Kong equities are higher this morning with the HSI up 0.45% following a positive performance from US-listed Chinese shares, with the Nasdaq Golden Dragon China Index climbing 1.3%. Investors in Hong Kong are likely assessing the potential for a tech sector rally to run out of steam, as seen with Nvidia’s recent losses. Additionally, concerns about China’s economic outlook remain, particularly after data showed a significant decline in fiscal revenue, potentially prompting further government intervention to support the economy. The HSTech Index is 0.26% higher, while property Indices are higher with the Mainland Property Index up 0.90% and the HS Property Index up 0.66%
• In Mainland China, Investors are closely monitoring signs of pressure on the world’s second-largest economy. Data released on Monday showed China’s fiscal revenue shrank at the fastest pace in over a year, increasing expectations of a potential mid-year budget revision to support economic recovery. The CSI 300 is 0.40% lower today, the small-cap indices CSI 1000 is 0.10% higher, the CSI 2000 is 0.80% lower, the CSI 300 Real Estate Index is 1.20% higher, while the ChiNext is down 1.35%.
• Property space, The Shanghai luxury real estate market is thriving amid China's overall property downturn, driven by wealthy Chinese seeking secure investments in prime locations with recent policy relaxations favoring buyers, resulting in high demand and rapid sales for upscale properties exceeding $3.8 million.
• Canada, aligning with the Biden administration, plans to begin public consultations on imposing tariffs on Chinese-made electric vehicles due to concerns over unfair competition and potential impacts on domestic industries, while also considering adjustments to federal incentives and broader investment restrictions in the EV sector. While China has proposed easing tariffs on German luxury cars in exchange for the European Union dropping planned tariffs on Chinese electric vehicles (EVs), amidst escalating trade tensions. The EU, aiming to counteract alleged state subsidies benefiting Chinese EV manufacturers, faces pressure from Germany's auto industry to negotiate a resolution ahead of tariff implementation in July.
• Looking ahead, it is a quiet week for China, while Hong Kong has trade balance data later today

ASIA PAC STOCKS: Regional Asian Equities Erased Earlier Losses

Asian equities edged higher on Tuesday, rebounding from recent losses despite another challenging day for tech stocks on Wall Street. Japan's Nikkei 225 rose 0.5%, buoyed by interventions to support the yen, which remains at a three-decade low against the dollar. Investors remain focused on the Federal Reserve's plans for interest rates and the upcoming release of the PCE index, while in the currency market, the yen strengthened slightly against the dollar. Taiwan equities are the worst performing largely being dragged down by TSMC.

• Japanese stocks rose as investors rotated into value stocks that have underperformed in recent weeks, including banks and automakers. The Topix Index increased by 1.31%, with banks and automakers as the biggest contributors. Toyota Motor Corp. led the gains, rising 2.3%. The Nikkei 225 advanced by 0.60%, although chip-related shares like Disco and Renesas were among the worst performers, following a decline in US peers.
• Korean shares opened higher on Tuesday as investors scooped up auto and chemical shares, despite a slump in technology shares on Wall Street. The Kospi is 0.37% higher . Car manufacturers like Hyundai Motors and Kia saw gains of 2.49% and 1.25%, respectively. Chemical shares also performed well, with LG Chem and SK Innovation rising. However, tech shares were bearish, with Samsung Electronics and SK hynix both falling.
• The Taiwan equities have opened lower, but well off earlier lows with the Taiex down 0.44% after earlier being down about 1.50%. The Philadelphia SE Semiconductor Index fell over 3% overnight which is weighing on local stocks.
• Australian shares are higher this morning with ASX 200 up 1.10%. This comes despite a mixed performance on Wall Street, where Nvidia and other semiconductor stocks extended their sell-off. Gains in the financial, real estate, and utilities sectors in the US helped offset losses in tech. Earlier, the Westpac Consumer Confidence rose 1.7% m/m from -0.3% rising to 83.6 vs 82.2.
• Elsewhere, New Zealand equities are 0.42% higher, Singapore equities are 0.22% higher, Thailand equities are 0.50% higher, Philippines are 0.40% higher, Indian equities are 0.20% higher, Indonesian equities are 0.30% lower, Malaysia are 0.05% lower

Asian Equity Flows Negative To Start The Week

• South Korean equities experienced outflows of $377 million yesterday. Despite this, the past 5 trading sessions have netted a total inflow of $500 million. This recent activity aligns with the 5-day average inflow of $99.95 million, which is significantly above the 20-day average of $51.13 million and the longer-term 100-day average of $148.07 million. Year-to-date, South Korean equities have seen a substantial inflow of $16.4b.
• Taiwanese equities saw significant outflows of $1.6b yesterday. However, the past 5 trading sessions recorded a strong net inflow of $899 million. This recent activity surpasses the 5-day average inflow of $179.89 million, which is well above the 20-day average outflow of $56.04 million and the 100-day average inflow of $93.66 million. Year-to-date, Taiwan has accumulated a total inflow of $4.9b.
• Indian equities attracted inflows of $215 million yesterday, contributing to a robust 5-day total inflow of $2b. The 5-day average inflow of $408.05 million is notably higher than the 20-day average of $62.67 million. Despite this, the 100-day average still shows a slight outflow of $18.35 million. Year-to-date, India has seen outflows amounting to $1.35b.
• Indonesian equities experienced outflows of $2 million yesterday. Over the past 5 trading days, Indonesia recorded a total net outflow of $27 million. The 5-day average shows an inflow of $5.32 million, which is an improvement compared to the 20-day average outflow of $22.83 million and the 100-day average outflow of $7.18 million. Year-to-date, Indonesia has experienced outflows totaling $459 million.
• Thai equities had outflows of $30 million yesterday, bringing the 5-day total to a net outflow of $247 million. The 5-day average outflow is $49.38 million, which is slightly below the 20-day average of $53.08 million and more than double the 100-day average of $23.65 million. Year-to-date, Thailand has seen significant outflows amounting to $3,022 million.
• Malaysian equities recorded outflows of $37 million yesterday. The past 5 trading days have seen a total net outflow of $106 million. The 5-day average outflow of $21.18 million is higher than the 20-day average outflow of $5.80 million and the 100-day average outflow of $1.76 million. Year-to-date, Malaysia has experienced outflows totaling $97 million.
• Philippine equities experienced outflows of $7 million yesterday, contributing to a 5-day total outflow of $53.7 million. The 5-day average outflow of $10.74 million is less than the 20-day average outflow of $12.29 million and the 100-day average outflow of $5.98 million. Year-to-date, the Philippines has seen outflows totaling $534 million.

Table 1: EM Asia Equity Flows

OIL: Holding Close To June Highs

Front month oil prices sit just off recent highs in the first part of Tuesday dealing. News flow in the space has been very light so far today, and we sit just off late Monday highs from US trade for both Brent and WTI.

• Brent front month was last near $86/bbl, little changed for the session. Recent highs rest just above this figure level. A clean break higher could see late April levels near $87.50/bbl targeted. The key EMAs are clustered on the downside between $83.60 to $83.80/bbl.
• For WTI, front month was last near $81.65/bbl. Both benchmarks are comfortably higher for June to date.
• Talk of stronger demand as the US driving seasons kicks into a gear is a factor, while some risk premium has been built into prices given on-going attacks from the Houthi's in Yemen.
• Also note the EU imposed sanctions on 27 ships, including 17 that have been transporting oil on behalf of Moscow, Bloomberg reported.

GOLD: Still In Consolidation Mode

Gold is 0.4% lower in the Asia-Pac session, after closing 0.5% higher at $2334.65 on Monday

• According to MNI’s technicals team, gold continues to trade below resistance - for now. The yellow metal recently pierced the 50-day EMA, at $2,318.3, a clear break of which would open $2,277.4, the May 3 low. Initial firm resistance is $2,387.8, the Jun 7 high.
• Meanwhile, gold may rise to $3,000/oz over the next 12-18 months, according to separate reports from BofA and Citi. Citi notes that expected Fed rate cuts should be particularly bullish for precious metals.
• Lower rates are typically positive for gold, which doesn’t pay interest.

SOUTH KOREA DATA: Consumer Sentiment Firms, Inflation Expectations Ease Back To 3.0%

Earlier data showed South Korea consumer sentiment rose to 100.9 in June from 98.4 in May. This tick higher is consistent with a resilient local GP growth backdrop, see the first chart below. However, the index remains sub earlier 2024 highs of 101.9 (recorded in February).

• In terms of the sub-indices for the index, most ticked higher. The domestic economy situation rose to 71 from 67. Expectations around the economic outlook also firmed. Spending plans were more mixed but mostly higher.

Fig 1: South Korean Headline Consumer Sentiment Index & GDP Y/Y

Source: MNI - Market News/Bloomberg

• On the prices front, the expected inflation level fell back to 3.0% from 3.2% in May. We haven't been able to breach the 3% level though on the downside, so far in 2024.
• Headline inflation pressures are moving in the right direction in terms of a pivot towards easing by the BOK, see the chart below, although the central bank is likely to want to see further downside in consumer inflation expectations.
• In terms of other price changes, expected wages were steady, but house price expectations did rise noticeably (to 108 from 101 in May).

Fig 2: South Korean Consumer Inflation Expectations & CPI Y/Y

Source: MNI - Market News/Bloomberg

ASIA FX: CNH Losses Trimmed By Tighter Liquidity

USD/Asia pairs are mostly lower, albeit modestly. North East Asia FX has trailed though amid a slightly weaker yuan and early tech equity weakness (which has reversed somewhat as the session progressed). Gains in South East Asia FX have not gone beyond 0.25% at this stage though. Tomorrow, the data focus rests on Singapore May industrial production figures, with a quiet day ahead for other markets data wise.

• USD/CNH saw some volatility through the USD/CNY fixing result, from sub 7.2800 we rebounded towards 7.2850 before selling interest emerged. The fixing was set to fresh highs back to Nov last year, which went against market expectations of a lower outcome in USD/CNY terms. Helping limit CNH losses has been tighter CNH liquidity in Hong Kong, with CNH deposit rates rising. Onshore spot pushed above 7.2600 in early trade, but stopped short of the upper daily trading limit around 7.2650.
• 1 month USD/KRW is close to unchanged, last near 1384. Onshore equity sentiment has been stronger, bucking the negative tech lead from US markets in Monday trade. Earlier data showed improved consumer sentiment for June, while inflation expectations eased.
• Both spot USD/TWD and the 1 month NDF sit slightly higher, spot last above 32.40. Local equities are lower amid offshore tech headwinds. Yesterday saw strong net equity outflows from local markets.
• Elsewhere has seen softer USD trends, albeit within recent ranges. USD/MYR is back to 4.7070. The CPI print for May was slightly stronger than forecast at 2.0% y/y, versus 1.9% forecast and 1.8% prior.
• USD/THB is back to 36.60, around 0.25% stronger in baht terms of the session. USD/IDR was last near 16375, up a little 0.10% in IDR terms.