MNI EUROPEAN MARKETS ANALYSIS: US NFP Coming Into View, China Assets Away From Session Highs

US TSYS: Narrow Ranges In Asia, NFP In View

TYZ3 deals at 110-29, -0-04, a 0-04+ range has been observed on volume of ~62k.

• Cash tsys sit little changed across the major benchmarks.
• Tsys firmed off session lows alongside pressure on the USD after the PBOC cut the forex reserve requirement ratio by 2ppts.
• The move didn't follow through, perhaps the proximity to the NFP limited activity, and tsys dealt in a narrow range for the remainder of the session.
• The highlight of today's session is the August NFP print, the MNI preview is here. ISM Mfg also crosses.
• Fedspeak from Atlanta Fed President Bostic and Cleveland Fed President Mester is also due.

STIR: Half A Hike Is Priced Across The $-Bloc Ahead Of US Non-Farm Payrolls

Terminal rate expectations across the $-bloc have softened over the past week. Ahead of the keenly anticipated US Non-Farm Payrolls release today, terminal rate expectations and the aggregate tightening stand at:

• 5.45%, +12bp (FOMC);
• 5.15%, +15bp (BoC);
• 4.17%, +10bp (RBA); and
• 5.61%, +11bp (RBNZ).

Figure 1: $-Bloc STIR

Source: MNI – Market News / Bloomberg

JGBS: Futures & Longer-Dated JGBs Spike Higher In Afternoon Trade, No Obvious Driver

In the Tokyo afternoon session, JGB futures spiked to a session high of 147.08, +26 compared to settlement levels, after trading in a narrow range in the Tokyo morning session. There was no obvious driver or headline. Currently, JBU3 is trading at 147.03.

• There hasn’t been much in the way of domestic drivers to flag, outside of the previously outlined Q2 capex and company profits data, which were mixed relative to expectations, and an unchanged print for the Jibun Bank Manufacturing PMI.
• Accordingly, local participants have likely been eyeing US tsys ahead of US Non-Farm Payrolls data later today. US tsys firmed off session lows alongside pressure on the USD after the PBOC cut the forex reserve requirement ratio by 2ppts. The move didn't follow through, with benchmarks little changed in Asia-Pac trade. ISM Mfg also crosses today.
• The cash JGB curve has twist-flattened, pivoting at the 2s, with yields 0.2bp higher to 3.2bp lower. The benchmark 10-year yield is 1.9bp lower at 0.632%, above BoJ's YCC old limit of 0.50% but below its new hard limit of 1.0%.
• Swaps rates are lower, with pricing 0.3bp to 1.8bp lower. Swap spreads are wider out to the 30-year.
• Monday’s local calendar is light, with only Monetary Base data due. The BoJ will also conduct Rinban operations covering 1-5-year and 10-25-year+ JGBs.

JAPAN DATA: Q2 Capex Falls, Weaker Than Initial Estimates, Q2 Profits Better Than Forecast

Japan's Q2 capex and company profits data were mixed relative to expectations. On the capex side we surprised on the downside, spending in y/y terms at 4.5%, nearly half the 8.3% consensus, while the prior was 11.0%. Ex software capex spending also disappointed, printing 4.4% y/y, versus 7.5% forecast and 10.0% prior. Profits were better, +11.6% y/y, versus -0.1% forecast and 4.3% prior. Company sales were 5.8% y/y, versus 4.3% forecast and 5.0% prior.

• In terms of the Capex details, we fell 1.2% in q/q terms, while ex software this fall was a little larger at -1.6%. These are the first falls since Q1 2022 and contrast with the initial Q2 GDP report, which showed flat q/q business spending.
• Weakness was concentrated in the non-manufacturing sectors, -2.5% q/q, with manufacturing capex +1.2% q/q. The y/y capex pace is back to mid 2022 levels.
• On the profits side, strength was evident for both manufacturing (12.5% q/q) and non-manufacturing (8.0%q/q). On the sales side, strength was more evident for manufacturing (+4.5% q/q), versus non-manufacturing (0.3%q/q).

AUSSIE BONDS: Slightly Richer Ahead Of US NFP, RBA Policy Decision On Tuesday

ACGBs (YM +2.0 & XM +3.5) sit in the middle of the Sydney session ahead of US Non-Farm Payrolls data later today. There hasn't been much in the way of potential domestic drivers today outside the housing finance miss.

• Local participants have likely been on headlines and US tsys watch. US tsys are near Asia-Pac lows, flat to 1bp cheaper.
• Cash ACGBs are 3bp richer, with the AU-US 10-year yield differential 4bp lower at -11bp.
• Swap rates are 3bp lower.
• The bills strip has slightly bull-flattened, with pricing flat to +3.
• RBA-dated OIS pricing is flat to 3bp softer across meetings out to May’24.
• Next week the local calendar sees the MI Inflation Gauge (Aug), Inventories (Q2), Company Profits (Q2) and ANZ-Indeed Job Ads (Aug) on Monday, ahead of Judo Bank PMIs (Aug F), Balance of Payments (Q2) and Net Exports (Q2) on Tuesday and GDP (Q2) on Wednesday.
• The RBA policy decision is on Tuesday, with consensus unanimous in expecting the cash rate to be left unchanged at 4.10% for the third consecutive month. A 3% chance of a 25bp hike is currently priced for next week’s meeting.
• The AOFM plans to sell A$700mn of the 3.50% Dec-34 bond on Wednesday.

NZGBS: Richer But Off Best Levels Ahead Of US Payrolls

NZGBs closed 2-5bp richer, but off session bests, as global bond markets await the release of US Non-Farm Payrolls data later today. An increase in payrolls of 170k is expected in August versus 187k in July. The unemployment rate is forecast to be unchanged at 3.5%.

• There hasn’t been much in the way of domestic drivers to flag, outside of the previously outlined ANZ consumer confidence data, which printed a rise of 1.6%.
• Accordingly, local participants have likely been on headlines and US tsys watch. US tsys are flat to 1bp cheaper across the major benchmarks in Asia-Pac dealing. Ranges have been narrow.
• Swap rates are 1-4bp lower, with the 2s10s curve flatter and implied swap spreads wider.
• RBNZ dated OIS pricing is little changed.
• Next week the local calendar sees Terms of Trade (Q2) on Monday, ANZ Commodity Prices (Aug) on Tuesday, Volume of All Buildings (Q2) on Wednesday and Mfg Activity (Q2) on Thursday.
• Also, next Thursday, the NZ Treasury plans to sell NZ$225mn of the 4.5% May-30 bond, NZ$175mn of the 2.0% May-32 bond and NZ$100mn of the 2.75% Ap-37 bond.

EQUITIES: China Equities Modestly Firmer As Policy Support Steps Up

Major regional equity indices are mostly tracking higher as the US NFP print comes into view. Much focus has been on China stocks, as the authorities look to boost sentiment via a number of avenues. Markets are firmer, but away from session highs. At the stage US equity futures are tracking modestly higher. Eminis last near 4522, (+0.13%), while Nasdaq futures are near 15550, also a touch firmer.

• For China, local banks have cut deposit rates, while downpayments for home loans and mortgage rates are coming down as well. We also saw renewed efforts to stabilize/boost the yuan, with the reserves on FX deposits that local banks have to put aside reduced to 4% (from 6%)
• The CSI 300 sits higher, +0.51% at the lunch time break. Earlier moves above 3800 (+1%) weren't sustained, the index back to 3788.4 now. The real estate sub index is up 2.35% at this stage, reversing part of yesterday's 5.32% dip. This index is tracking higher for the week though.
• Note Hong Kong markets have been closed today due to a typhoon.
• Elsewhere, Japan stocks are firmer, with the Topix up 0.80% at this stage. Gains in Sony a standout. The Kospi (+0.25%) and Taiex (+0.25%) are seeing more muted gains.
• The ASX 200 is down 0.30%, while in SEA, most markets are modestly firmer at this stage. Thailand stocks are around flat, after a strong rally through the second half of August.

FOREX: Antipodeans Marginally Pressured In Asia, NFP In View

The Antipodeans are marginally pressured in Asia, AUD and NZD were unable to hold gains seen after the PBOC cut the forex reserve requirement ratio and Caixin PMI was stronger than forecast.

• AUD/USD is the weakest performer in the G-10 space at the margins down ~0.2%, last printing at $0.6470/75. A gain of as much as 0.2% was reversed through the session. The trend condition of the pair remains bearish, Support comes in at $0.6365, low from Nov 17 and bear trigger. Resistance is at $0.6522 the Aug 30 high.
• Kiwi has also trimmed early gains to sit softer, last printing at $0.5955/60. ANZ Consumer Confidence ticked higher in August rising 1.6% M/M to 85.0. Bears look to break the low from 25 Aug ($0.5886) which opens $0.5841 (low from 10 Nov 22).
• Yen is little changed and has dealt in narrow ranges in Asia today. Technically the uptrend remains intact, resistance is at ¥147.37 (Aug 29 high) and support is at ¥145.01 (20-Day EMA).
• Elsewhere in G-10 ranges have been narrow with little follow through on moves. EUR and GBP are both a touch lower.
• Cross asset wise; US Tsy Yields are little changed as is BBDXY. E-minis are up ~0.1% and Hong Kong Exchange has cancelled morning trading after a Typhoon warning.
• The NFP print headlines Friday's docket, the MNI preview is here.

OIL: Up Strongly This Week, WTI Outpacing Brent

Oil has continued to track higher in the first part of Friday trade. Brent sits above $87/bbl in recent dealings, close to session highs. We are ~0.20% firmer for the session, following Thursday's +1.16% gain. Brent is comfortably up for the week at this stage, +3%. WTI is just above $83.80/bbl in recent dealings, which puts the benchmark nearly 5% higher for the week at this stage.

• The prospect of tighter supply has aided the latest move higher in oil. Russia stated it has agreed with OPEC+ partners to further cut oil exports, with more details set to be announced next week. At the same time Saudi Arabia is expected to a extend a 1-million-barrel supply cut into October (this was first introduced in July).
• This comes amid signs of tightening US supply, given declining inventory levels.
• Better China related asset sentiment has also likely helped crude. Efforts to improve housing demand are in focus, whilst manufacturing PMIs in China have beaten expectations over the past two days.
• For Brent, early August highs of $88.10/bbl are within sight, while recent lows rest just under $82/bbl. For WTI August 10 highs around $85/bbl are the topside focus.

GOLD: Near Unchanged Ahead Of US Non-Farm Payrolls

Gold is little changed in the Asia-Pac session. The precious metal closed near unchanged at $1940.19 on Thursday after dipping slightly intraday amidst a recovery for the US dollar.

• Nevertheless, bullion is headed for a second weekly gain, buoyed by lower US Treasury yields after weak employment data earlier in the week.
• On Thursday, US inflation data met economists’ forecasts, easing pressure on the Federal Reserve to continue raising rates. The core PCE deflator printed at +4.2% y/y but showed a slight acceleration from the +4.1% seen in June.
• The market’s attention now turns to the release of the US Non-Farm Payrolls data later today. An increase in payrolls of 170k is expected in August versus 187k in July. The unemployment rate is forecast to be unchanged at 3.5%.
• On Thursday, Fed Funds implied rates showed cumulative hikes of +3bp for Sep and +11.5bp for Nov to a terminal 5.45%, followed by 51bp of cuts to Jun’24 and a cumulative 122bp of cuts to Dec’24.
• According to MNI's technicals team, gold continues to sit close to resistance at Wednesday’s high of $1949.05.

SOUTH KOREA: Some Light At the End Of Export Tunnel

South Korea's August trade figures were better than expected. Exports fell -8.4%y/y, versus -11.8% forecast and -16.4% prior. Imports were -22.8%y/y, versus -23.4% forecast and -25.4% prior. This left the trade position in a surplus of $870mn, against expectations of a -$560mn deficit. The prior month's surplus was $1652mn.

• The export trend appears to be improving modestly, with the 3 month MA of y/y growth at -10% versus a trough at the start of the year near -13.5%. Car exports are a bright spot, +29%, while ship exports rose 35%.
• Offsets remain from the chip sector, -21%y/y, although this is above recent trough points. It suggests the worst of the y/y downside momentum may be behind us, see the chart below. Petroleum exports were also down 35% y/y.
• Exports to China fell 20% y/y, only slightly above the July pace of -25.1%.
• Note as well the August PMI eased back to 48.9 from 49.4 in July.

Fig 1: South Korea Chip Exports & Global Semiconductor Sales Y/Y

Source: MNI - Market News/Bloomberg

• The trend on the trade balance continues to improve, see the chart below. However, the improvement in the Citi terms of trade proxy has halted, in line with the rebound in global commodity prices, particularly in the energy space.

Fig 2: South Korean Trade Balance Citi Korea ToT Proxy

Source: Citi/MNI - Market News/Bloomberg

ASIAN DATA: August Asian PMIs Mostly Lose Ground Or Remain In Contraction Territory

In contrast to the better than expected China manufacturing PMIs, the rest of Asia generally saw disappointing August manufacturing PMI outcomes.

• South Korea's PMI slipped to 48.9 versus 49.4 in July. We remain above recent lows though sub 48.0. Output rose to 47.3 from 47.2, but this was offset by lower new orders. The result is also in contrast to some modest improvement in the August export trend.
• Taiwan's PMI edged marginally higher to 44.3 from 44.1 but remains comfortably in contraction territory. Output also rose in Taiwan to 42.0 (from 39.9), but new orders were weaker.
• Thailand's PMI slipped to 48.9 from 50.7 in July, due to lower output and falling new orders. Political uncertainty has weighed on sentiment indicators in recent months.
• The Philippines PMI also eased to 49.7 from 51.9 in July. The output index falling to 50.4 from 52.7. Q2 GDP growth contracted in the Philippines, while lower bank lending is also indicating that tighter rates are impacting activity.
• Malaysia's PMI was unchanged at 47.8, while Indonesia's PMI bucked the broader trend, rising to 53.9 from 53.3, as output and new orders improved.

ASIA FX: USD/CNH Sits Above Session Lows, KRW Outperforming

USD/Asia pairs are mixed, with earlier USD weakness, (inspired by CNH gains on further policy support) giving way to a more cautious tone as the session progressed (we do have US NFP later). PMI prints were mixed, with China beating expectations, but the rest of the region mostly steady or weaker. KRW was the clear standout, with 1 month USD/KRW getting too fresh multi week lows.

• USD/CNH dipped sharply as the authorities cut the FX RRR for onshore banks, in a move designed to boost onshore foreign currency liquidity and increase the appeal of the yuan. The USD/CNY fixing error was also beyond -1000pips. However, USD/CNH couldn't sustain a break of 7.2400, we sit back near 7.2670 in afternoon trade. The better Caixin PMI print didn't help sentiment much. Onshore equities are modestly firmer following further support measures for the housing market, but we remain within recent ranges. For USD/CNH the 20-day EMA is just above 7.2700, and this zone was a support point in recent weeks, so it may act as a resistance zone now we have broken through to the downside.
• 1 month USD/KRW is tracking to fresh lows sub 1315 this afternoon, multi week lows. August 10 lows came in around 1304.50. The near term bias appears to fade upticks towards 1320. Earlier we had slightly firmer export and trade surplus figures for August. The worst of the export downtrend may now be behind us. Onshore equities are higher, while USD/CNH is lower on further policy support. These factors have also helped.
• The SGD NEER (per Goldman Sachs estimates) is little changed in early dealing and has consolidated August's gains in a narrow range in recent dealing. The measure is ~0.4% below the top of the band. Broader USD trends continue to dominate flows for USD/SGD, the pair was supported at the 200-Day EMA yesterday. Narrow ranges are persisting in today's dealing ahead of this evening's NFP print. Looking ahead over the weekend August Purchasing Managers Index will cross, S&P Global PMI is due on Tuesday.
• The ringgit is steady in early dealing holding little changed against the USD. USD/MYR prints at 4.6380/4.6425, the pair continues to consolidate in narrow ranges, support came in at the 20-Day EMA this morning after brief pressure. August S&P Global Mfg PMI was unchanged in August at 47.8, the index has been contracting since July 2022. Looking ahead, the next risk event is the BNM's monetary policy decision on 7 Sep, no change to policy is expected.
• The Rupee has firmed in early dealing USD/INR is down ~0.1%. The pair sits at 82.65/68, yesterday's low has been breached as onshore markets reopen after yesterday's Q2 GDP which printed at 7.8% Y/Y the strongest level in a year. Global investors purchased a net of $1.6bn in local equities in August, which marked a sixth straight month of inflows into Indian stocks. With this year’s inflows, foreigners are now just $137 million shy of reversing their record $17 billion exodus from the nation’s equities in 2022. S&P Global Mfg PMI ticked higher in July to 58.6 from 57.7.
• USD/IDR has drifted a little higher, last tracking near 15255, +0.15% higher for the session. We remain within recent ranges for the pair. July CPI came out close to expected in terms of headline, 3.27% y/y (3.34% forecast), while core moderate further to 2.18% y/y (2.33% forecast and 2.43% prior).