- The USD has been supported on dips, while short term implied vols surge ahead of next week's US Presidential election. US yields are unchanged at the front end, slightly softer at the back end.
- BoJ-dated OIS pricing has firmed across meetings following yesterday's BoJ’s meeting.
- The China Caixin PMI beat expectations and is back above 50.0, but outside of higher China/HK equities, the spillover has been minimal. Oil prices are higher on fears Iran will strike Israel through proxies.
- Looking ahead, Swiss CPI cross Friday before the US jobs data. Nonfarm payrolls growth is expected to slow materially to circa 100k in October after a booming 254k in September, with significant disruption from strikes and potential hurricane fallout.
MARKETS
- Having retreating somewhat in Asian morning trading, the US 10YR Dec24 future has fought its way back to flat in this afternoon’s trade.
- Cash markets too have turned around and are trading with moderately positive tone with all maturities seeing lower yields. The 2YR (T4.125 ‘ 26 is at 4.172 (-0.2bp) and the 10YR (T 3.875% 34 at 4.279% (-0.9bp).
- Volumes appear light which is unsurprising ahead of tonight’s key data releases.
- Whilst US trading desks were largely seen as short covering, it it wasn’t the case in the morning session in Asian trading, but that has turned around after lunch.
- Tonight’s major release is the Non-Farm Payroll which surveys expect a mere +100k expansion.
- Other key data events will be the MNI Chicago PMI and the Unemployment Rate.
- Fed fund futures remain steady across the next few meetings, with 23.6bps priced for November, 42.9bps for December, and 58.2bps for January.
STIR: $-Bloc Markets Firmer Over Past Weak Apart From CA
In the $-bloc, official rate expectations through July 2025 have mostly firmed over the past week. New Zealand led the movement with a 13bp increase, followed by Australia and the US at +10bps. Canada was the outlier, showing no change.
- The key event across the $-bloc market was the release of Australian Q3 CPI. While Q3 trimmed mean CPI printed in line with expectations at 0.8% q/q and 3.5% y/y, services inflation rose 1.1% q/q and 4.6% y/y up from Q2’s 1.0% and 4.5%. The lack of progress will likely continue to worry the RBA.
- Movements since the CPI print place 2025 meetings 3-9bps above pre-CPI levels.
- Later today will the release of US Non-Farm Payrolls. Nonfarm payroll growth is expected to slow materially to circa 100k in October after a booming 254k in September, with significant disruption from strikes and potential hurricane fallout.
- The Fed’s Waller has previously estimated this could drag 100k from payrolls this month although that appears right at the top end of analyst expectations. (See MNI NFP Preview here)
- Looking ahead to July 2025, the projected official rates and cumulative easing across the $-bloc are as follows: US (FOMC): 3.79%, -108bps; Canada (BoC): 2.83%, -92bps; Australia (RBA): 4.01%, -31bps; and New Zealand (RBNZ): 3.34%, -141bps.
Figure 1: $-Bloc STIR (%)
Source: MNI – Market News / Bloomberg
JGBS: Twist-Flattener Ahead Of US Payrolls
JGB futures are weaker but at session highs, -14 compared to settlement levels, as the market digests yesterday’s BoJ Policy Decision and Governor Ueda’s remarks.
- Outside of the previously outlined Jibun Bank PMI Mfg, there hasn't been much by way of domestic drivers to flag.
- BoJ-dated OIS pricing has firmed across meetings following the BoJ’s highly anticipated decision to hold rates steady yesterday. Prices have firmed by 2-5bps compared to Wednesday’s closing levels.
- “The BoJ may have to raise interest rates to 0.75% next year if the government comes up with a large fiscal stimulus, Morgan Stanley MUFG Securities economists say. "An expansionary fiscal policy is likely to boost not only consumption next year but, given supply-side constraints like the structural labor shortage, inflation as well," the economists say in a note.” (per DJ)
- Cash US tsys are flat to 2bps richer, with a flattening bias, in today’s Asia-Pac session. Yesterday, US tsys finished 1-3bps richer. Trading desks noted modest short covering from proprietary/trading accounts ahead of today's US Nonfarm Payrolls.
- Cash JGBs have twist-flattened, pivoting at the 7-year, with yields 2bps higher to 1bp lower.
- Swap rates are flat to 2bps lower, with a flattening bias.
- The local market is closed on Monday.
STIR: BoJ Dated OIS Firmer After Gov. Ueda’s Remarks Yesterday
BoJ-dated OIS pricing has firmed across meetings following the BoJ's highly anticipated decision to hold rates steady yesterday.
- Prices have firmed by 2-5bps compared to Wednesday’s closing levels. BoJ Governor Kazuo Ueda left the possibility of a rate hike in December open, noting that downside risks to the U.S. economy had diminished, though he highlighted new concerns linked to next week’s presidential election.
- “If the probability of achieving our economic and inflation targets increases, it will lead to a rate hike,” Ueda stated, citing strong recent U.S. data as a reason for not needing to reiterate the bank's previous caution about taking time to monitor risks.
- However, Ueda emphasised that the BoJ does not have a predetermined path for raising the policy interest rate from 0.25%. He underscored that policymakers will assess the need for rate hikes at each meeting based on the latest available data.
- Currently, markets are assigning a 25% chance of a 25bp hike in December, with the probability rising to a cumulative 60% by January. A full 25bp increase is not priced in until June 2025.
Figure 1: BoJ-Dated OIS – Today Vs. Pre-BoJ
Source: MNI – Market News / Bloomberg
AUSSIE BONDS: Heavy & Near Session Lows Ahead Of US Payrolls
ACGBs (YM -6.0 & XM -4.0) are cheaper and at/near Sydney session lows.
- Today’s domestic data drop (PPI, household spending, house prices, home loans and Judo Bank Mfg PMI) failed to move the market.
- Cash US tsys are flat to 2bps richer, with a flattening bias, in today’s Asia-Pac session. Yesterday, US tsys finished 1-3bps richer. Trading desks noted modest short covering from proprietary/trading accounts looking to square up positions ahead of the release of US Nonfarm Payrolls later today.
- Nonfarm payroll growth is expected to slow materially to circa 100k in October after a booming 254k in September, with significant disruption from strikes and potential hurricane fallout.
- Cash ACGBs are 4-5bps cheaper with the AU-US 10-year yield differential at +27bps.
- Swap rates are flat to 1bp higher, with EFPs 4bps tighter.
- The bills strip has bear-steepened, with pricing flat to -3.
- RBA-dated OIS pricing is flat to 2bps firmer for 2025 meetings. A cumulative 2bps of easing is priced by year-end.
- On Monday, the local calendar will see Melbourne Institute Inflation and ANZ-Indeed Job Advertisements data alongside the AOFM’s planned sale of A$700mn of the 2.75% 21 November 2027 bond. The AOFM also plans to sell A$800mn of the 2.75% 21 June 2035 bond on Friday.
NZGBS: Slightly Richer, Narrow Ranges Ahead Of US Payrolls
NZGBs closed 1bp richer after being 1bp cheaper earlier in the session. Nevertheless, the 2bp range across benchmarks highlighted a willingness to stay on the sidelines ahead of the release of US Non-Farm Payrolls data for October later today.
- Nonfarm payroll growth is expected to slow materially to circa 100k in October after a booming 254k in September, with significant disruption from strikes and potential hurricane fallout.
- The Fed’s Waller has previously estimated this could drag 100k from payrolls this month although that appears right at the top end of analyst expectations. (See MNI NFP Preview here)
- Locally, house prices and building approvals failed to be market moving, as expected.
- NZ’s National Institute for Water and Atmospheric Research said there is a 53% chance that La Niña developing by the end of 2024, down from 60% reported in early October.
- Swap rates closed flat to 3bps firmer, with the 2s10s curve flatter.
- RBNZ dated OIS pricing closed 3-9bps firmer, with the later meetings leading. A cumulative 96bps of easing is priced by February, with 55bps by year-end.
- The local calendar is empty on Monday, ahead of the RBNZ’s release of its Financial Stability Report on Tuesday.
FOREX: USD/JPY Firms, Steady Trends Elsewhere, Implied Vols Surging At 1wk Tenor
The USD BBDXY index sits higher in latest dealings, last near 1259.75, largely thanks to a weaker yen trend as the Friday Asia Pac session has unfolded.
- USD/JPY was softer earlier, perhaps reflecting carry over from Thursday's session, but was supported sub 152.00. The pair last tracked 152.50, off around 0.30% in yen terms, and around session highs.
- Cross asset sentiment, particularly from an equity market standpoint may be weighing on yen against crosses. Hong Kong and China equities are a clear standout in terms of posting solid gains. This followed the stronger than expected Caixin Manufacturing PMI, which rose back above 50.0.
- US equity futures are also holding in positive territory, Amazon rose in late Thursday US trade, post earnings, although Apple tracked lower.
- AUD/USD and NZD/USD are closed to unchanged against the USD, the A$ last near 0.6580, NZD, 0.5980. This leaves both currencies outperforming yen modestly. Neither FX reacted much at the time of the PMI beat in China
- We had a number of Australian data releases, second tier in nature, which didn't shift A$ sentiment. The household spending gauge was softer though.
- US yields have largely tracked sideways. Oil prices spiked amid fears Iran may strike Israel via proxies (such as Iraq). Brent was last above $74/bbl.
- 1 week implied vols are very elevated across the G10, with USD/JPY the highest at +18%. NZD/USD is at 15.75%, AUD is next 15.7%, as next week's US election comes into focus.
- Looking ahead, Swiss CPI cross Friday before the US jobs data. Nonfarm payrolls growth is expected to slow materially to circa 100k in October after a booming 254k in September, with significant disruption from strikes and potential hurricane fallout.
ASIA STOCKS: China Up on Further Stimulus Hopes ("Title Correction")
- Equity indices were weaker across the region today, with China bucking the trend.
- As the Party Congress Meeting starts next week in China, there are renewed hopes for further stimulus measures to be announced.
- The CSI300 was up +0.85%, Shanghai Comp +0.60%, Hang Seng +1.50% whilst the Shenzhen Comp was off -0.70%.
- Data released in China today saw the Caixin PMI move into expansion territory; a sign that the stimulus is starting to impact the broader economy.
- In Indonesia, the CPI release was the weakest since October 2021 and may point to a further cut from the Central Bank at their meeting later this month.
- Equity markets brushed that aside as the Jakarta Composite was lower by -0.70%.
- South Korea saw their PMI contract for the third consecutive month, potentially paving the way for further rate cuts.
- Equity markets shrugged this to move moderately lower by -0.10%
- Markets have had generally light volumes across the region as the markets pause ahead of significant US data releases tonight.
ASIA STOCKS: Asia Equity Outflows as Investors Prepare for the US Election.
Outflows across the board in Asian on Thursday. Korea saw a large outflow of $510m, the largest outflow it has seen in two weeks. The outflows across the region are consistent with the ‘risk off’ mode the markets are in ahead of the US Presidential Election. Typically in this type of environment, global investors retreat back to USD denominated assets. .
• South Korea: Recorded outflows of -$510m yesterday, bringing the 5-day total to -$1.126b. YTD flows remain positive at +$7.158b. The 5-day average is -$225m, worse than the 20-day average of -$170m but better than the 100-day average of -$64m.
• Taiwan: Experienced outflows of -$105m yesterday, totaling -$287m over the past 5 days. YTD flows are negative at -$10.971b. The 5-day average is -$57m, worse than the 20-day average of $51m and the 100-day average of -$132m.
• India: Saw outflows of -$261m yesterday, with a total outflow of -$1.554b over the past 5 days. YTD inflows stand at +$605m. The 5-day average is -$311m, worse than the 20-day average of -$490m and the 100-day average was +$40m.
• Indonesia: Posted outflows of -$22m yesterday, bringing the 5-day total to -$211m. YTD flows remain positive at +$2.530b. The 5-day average is -$40m, slightly better than the 20-day average of -$32m and the 100-day average was +$30m.
• Thailand: Recorded outflows of -$13m yesterday, totaling -$215m over the past 5 days. YTD flows are negative at -$3.426b. The 5-day average is -$43m, the 20-day average is -$40m and the 100-day average was -$11m.
• Philippines: Saw outflows of -$22m yesterday, with net outflows of -$49m over the past 5 days. YTD flows are positive at +$44m. The 5-day average is -$10m, the 20-day average is +$1m and the 100-day average of +$5m.
OIL: Prices Consolidate Following Iranian News.
- Rumours are circulating of a potential attack by Iran on Israel following on from Israel’s attack on Iran’s military targets.
- News of the attacks initially calmed oil markets as fears were held as to the potential interruption from oil supply.
- The primary concern as to the rumours circulating is that Iran is planning the attack via Iraq based militia groups they support.
- This would potentially open up Iraq as a target for Israel and as a major OPEC producer, could have implications for the production and supply to global oil.
- News of the potential attack took WTI from US$69.10 through $70.50 before backing off during the Asian session to $70.41.
- WTI has had a volatile week trending down to be just on 1.9% lower.
- Brent’s ascent has been far more gradual having touched US$72.25 it has progressively moved higher to $73.92.
- Brent too has had a volatile week trending down to be -2.80% lower.
- At time when the Middle East tensions are adding volatility to oil prices, US production is steadily ramping up.
- US oil production hit a monthly record of 13.4 million barrels in August, driven by a rapid expansion of production in Texas.
General risk-off sentiment on Thursday, emphasised by the sharp weakness for major equity benchmarks, prompted a solid pullback for gold. The spot price declined 1.5%, unwinding an overbought condition for the yellow metal.
- Bullion is steady in today’s Asia-Pac session ahead of the release of US Non-Farm Payrolls later today. Nonfarm payroll growth is expected to slow materially to circa 100k in October after a booming 254k in September, with significant disruption from strikes and potential hurricane fallout.
- The Fed’s Waller has previously estimated this could drag 100k from payrolls this month although that appears right at the top end of analyst expectations. (See MNI NFP Preview here)
- The US Fed’s next policy meeting is on November 6-7. Traders continue to price in a roughly 90% chance of a 25bp cut next week. Lower rates are typically positive for gold, which doesn’t pay interest.
- According to MNI’s technicals team, the trend condition in Gold is unchanged and bulls remain in the driver’s seat. The latest climb has resulted in a breach of $2685.6, the Sep 26 high, confirming a resumption of the primary uptrend and maintaining the price sequence of higher highs and higher lows.
CHINA: Caixin PMI Stronger than Expected.
- China’s Caixin PMI rose to 50.3 from 49.3 for September beating estimates of 49.7.
- The output and new orders component were the highest readings since June.
- Yesterday’s official PMI manufacturing rose to 50.1, following declining the month prior.
- The Caixin survey covers small and medium sized businesses whereas the official focuses on large and state-owned enterprises.
- As a result, the Caixin is often considered a more accurate estimation for the performance of China’s private sector.
SOUTH KOREA: Trade Data Puts Focus Back on BOK.
- Korea’s October export decline show the challenges looming for the economy.
- Rising just +4.6% in October marked a material decline from September’s +7.5% expansion against market expectations for a +7.0% increase.
- Imports were weaker also growing just +1.7% following September’s +2.2% expansion.
- This saw a trade balance much lower than expected at $3.167bn.
- Today’s data highlights the issues that the BOK is faced with given that tepid domestic consumption now coupled with a poor backdrop for trade, casts shadows over the economy.
- Korea, like many other countries in the region, will watch carefully the Party meetings in China next week for any indications of further stimulus in the region’s biggest economy.
- The Bank of Korea does not meet again until November 28 and with only approximately 12 bps priced in for the next meeting, markets have decisions to make as they try to forecast the next move in rates.
ASIA FX: CNH and KRW Slip, Implied Vols Very High Ahead Of Next Week's Election
North East Asia FX is seeing CNH and KRW lose a little bit of ground. Both currencies remain within recent ranges though. TWD is marginally firmer.
- Early doors we have slightly disappointing South Korea trade data, which showed that export growth slowed more than expected (is now back negative y/y on a daily average basis). The PMI was unchanged and remained in contraction territory as well. Spot USD/KRW was last near 1380, around 0.20% weaker in won terms.
- Implied vols continue to surge for both USD/KRW and USD/CNH. For the 1week tenor in South Korea we are back to early 2020 levels, while for CNH we are at fresh record highs (per BBG). Next week's election in the US will be a key driver of sentiment next week.
- For spot USD/CNH we are back above 7.1300. The Caixin manufacturing PMI printed better than expected and is back above 50.0. This has aided China onshore equities, but the currency has seen little benefit.
- Spot USD/TWD is slightly lower, last tracking underneath 32.00. While the pair remains within recent ranges, the generally more positive local growth backdrop may be helping sentiment at the margins.
ASIA FX: SEA FX Weaker, But Most USD/Asia Pairs Off Late Oct Highs
South East Asia currencies have mostly lost ground against the USD in the first part of Friday trade, albeit with moderate losses. The weaker regional equity backdrop has been a headwind, with little positive spillover from firmer HK/China markets. The weaker yen trend in the yen space, has been an additional headwind.
- USD/THB is up nearly 0.40%, last near 33.87. This is right on recent highs, with a clean break higher likely to see 34.00 round figure support targeted. Outside of the yen loss, we have also seen a weaker gold backdrop, another cross asset headwind for THB. The MoF is looking at ways of easing the local debt burden, per RTRS reports. part of this could include asking the BoT to ease loan to value ratios. The PMI eased back to 50.0 from 50.4,
- USD/MYR has been supported on dips. After reaching lows of 4.3640, the pair is back above 4.3800, still shy of end Oct levels near 4.4000.
- USD/IDR is a little higher, last near 15725, also short of late Oct highs. Data showed CPI headline towards the bottom end of BI's 1.5-3.5% range, but core inflation was sticky above 2%. The PMI remained sub the 50.0 expansion/contraction point.
Indonesia Bond Wrap: CPI Opens the Door for the BI.
- S&P Global Indonesia Oct. Manufacturing PMI Unchanged at 49.2 (source BBG)
- Indonesia Oct. Inflation Rate Eases to Lowest in Three Years (source: BBG)
- Palm Oil Set for Big Monthly Advance on Tight Supply Outlook (source BBG)
- Equity markets shrugged off the possibility of lower rates trading very heavy throughout the day with the Jakarta Composite off -0.70% whilst bond yields trended higher at the front end, with intermediate maturity yields lower.
2yr 6.494% 5yr 6.694% (+1.5bp) 10yr 6.783% (-1bp) 30yr 6.959% (+0.5bp)
China Bond Wrap: Caixin PMI Pointing to Improvements.
- China’s Caixin PMI surprised to the upside, moving into expansion territory (source: MNI – Market News).
- President Xi Jinping highlighted pressures facing China’s employment market in a newly published speech that painted a turbulent time for the world’s No. 2 economy, as officials try to arrest a growth slowdown (source: BBG)
- China Home Sales See First Monthly Rise in 2024 on Stimulus (source: MNI – Market News)
- Equity markets rallied on generally good data with CSI300 up +0.85% and the Hang Seng +1.50%.
2yr 1.453% 5yr 1.794% 10yr 2.143% (-1bp) 30yr 2.334%
ASIA: PMIs Treading Water with Vietnam the Only Bright Spot.
- The raft of PMIs across Asia today saw an even mix between those countries remaining in modest contraction and those expanding.
- With numbers printing in line with prior months, Indonesia, South Korea and Malaysia’s PMI are moderating.
- For Indonesia, this was the fourth successive month of contraction, Korea the second and Malaysia the fifth.
- The BNM meets next week on November 06 to decide on monetary policy with expectations at this stage for no change.
- Indonesia's Central Bank follows thereafter on November 20 and the Bank of Korea on November 28.
- Vietnam was the only bright spot, expanding more than expected – up 51.2 whilst Thailand and Taiwan are only just in expansion territory.
- The region’s fortunes remain correlated with the fortunes of China’s economy and the impact of the various stimulus measures announced since September.
- Expectations are growing that next weeks Party Congress Meeting in China could result in even more stimulus measures announced and could ultimately benefit the broader region, a factor that will be considered as the Central Banks meet.
UP TODAY (TIMES GMT/LOCAL)
| Date | GMT/Local | Impact | Country | Event |
| 01/11/2024 | 0730/0830 | *** |  CH | CPI |
| 01/11/2024 | 0730/0830 | ** | CH | Retail Sales |
| 01/11/2024 | 0930/0930 | ** |  GB | S&P Global Manufacturing PMI (Final) |
| 01/11/2024 | - | *** |  US | Domestic-Made Vehicle Sales |
| 01/11/2024 | 1230/0830 | *** | US | Employment Report |
| 01/11/2024 | 1345/0945 | *** | US | S&P Global Manufacturing Index (final) |
| 01/11/2024 | 1400/1000 | *** | US | ISM Manufacturing Index |
| 01/11/2024 | 1400/1000 | * | US | Construction Spending |