- With Vice President Harris deemed to be the presidential debate winner we have seen lower US yields and weaker US equity futures. This is consistent with the viewpoint of reduced Trump election odds and lower likelihood in the reflation theme re-emerging.
- Yen is the outperformer in G10 space, with USD/JPY sub key support at 141.70.
- RBA Assistant Governor for Economics Hunter has spoken on the labour market and noted that the central bank had been surprised how resilient hours worked, underemployment and the participation rate had been.
- Later the focus will be on US August CPI, which is expected to show headline easing to 2.5% y/y with core stable at 3.2%. There are also US August real earnings and UK July trade/IP/GDP. The ECB’s McCaul and Buch speak too.
MARKETS
US TSYS: Tsys Futures Make New Highs Ahead Of US CPI
- Tsys futures continue to edge higher today, and now trade at session best levels. TUZ4 is + 02¼ at 104-14⅝ and TYZ4 is + 05+ at 115-20.
- Initial moves higher came about 30 minutes into the Trump v Harris debate, although there wasn't anything new really spoke about. Betting odds have Harris winning the debate and up about 5pts from prior.
- Cash tsys have seen better buying through the belly of the curve, with the 3yr outperforming -3.1bps at 3.427%, while the 30yr has declined to it's lowest since July 2023.
- Volumes have increased ahead of US CPI today, there was earlier a block TU/FV/TY fly seller of the belly, and a block seller of UXY.
- Projected rate cuts through year end have regained some ground after receding Monday into early Tuesday (*): Sep'24 cumulative -33.5bp (-32.7bp), Nov'24 cumulative -73.3bp (-71.8bp), Dec'24 -115.4bp (-112.0bp).
- Later today we have MBA Mortgage Applications, followed by CPI.
JGBS: Belly Leads Rally, 20Y Supply & BoJ Tamura Speech Tomorrow
JGB futures are stronger and at session highs, +42 compared to the settlement levels.
- MNI BoJ board member Junko Nakagawa said today that the BoJ will adjust the degree of easy policy if the economy realises the bank’s forecast for theeconomy and prices as real interest rates remain at considerably low levels.
- However, Nakagawa added the BoJ needs to assess and judge rate hikes cautiously, taking the impact of volatile markets on economy and prices into consideration.
- The yen has gained 0.9% since the comments, reaching the strongest level versus the dollar since January.
- Cash US tsys are 2-3bps richer in today’s Asia-Pac session. The US presidential debate saw betting odds nudge in favour of Harris. The US market will now focus on tomorrow’s CPI and Thursday’s PPI inflation measures.
- Cash JGBs are richer across benchmarks, with the belly leading. Yields are 1bp higher (1-year) to 5bps lower (7-year).
- The swaps curve has bull-flattened, with rates flat to 3bps lower. Swap spreads are wider out to the 30-year.
- Tomorrow, the local calendar will see BSI Industry Confidence, PPI and weekly International Investment Flow data along with a speech from BoJ Board Member Tamura in Okayama.
- The MoF also plans to sell Y1.0trn 20-year JGBs.
RBA: Underutilisation Should Rise As Hours Worked & Jobs Growth Ease
RBA Assistant Governor for Economics Hunter has spoken on the labour market and noted that the central bank had been surprised how resilient hours worked, underemployment and the participation rate had been. She said that the labour market was tighter than implied by full employment estimates but is moving towards this point. The RBA’s assessment of the labour market is in line with its prolonged hold.
- The RBA believes that recent easing in the labour market is in line with developments in previous “mild downturns” with it concentrated in hours worked rather than employment. This is expected to continue with employment growth also likely to be lower than population growth. Thus the underutilisation rate should rise, but there are significant uncertainties.
- The RBA believes that firms are “labour hoarding” as few are operating with excess labour, so there is a risk of a sharper rise in unemployment when they begin cutting labour costs due to soft growth.
- The layoffs rate is trending higher but remains historically low but the RBA is monitoring it closely.
- The RBA doesn’t just look at the unemployment rate but also employment intentions, vacancies, underutilisation rate, and youth & medium-term unemployment rates. It uses models with wages and inflation to determine if supply and demand in the labour market is in balance.
- Full employment is defined as the “maximum level of employment that is consistent with low and stable inflation”.
- See speech here.
Australia labour market underutilisation %
Source: MNI - Market News/ABS
AUSSIE BONDS: Richer & At Best Levels, AU-US 10Y Diff. Pushes Wider
In roll-impacted dealings, ACGBs (YM +4.4 & XM +5.4) are richer and sit at Sydney session highs.
- Outside of the previously outlined speech by Sarah Hunter, RBA's chief economist and Assistant Governor, there hasn't been much by way of domestic drivers to flag.
- Cash US tsys are 2-3bps richer in today’s Asia-Pac session after yesterday’s bull-steepener. The US presidential debate saw betting odds nudge in favour of Harris. The US market will now focus on tomorrow’s CPI and Thursday’s PPI inflation measures. Core non-housing service inflation is expected to see at least a repeat of the 0.21% M/M from July.
- Cash ACGBs are 5-6bps richer, with the AU-US 10-year yield differential at +24bps. At +24bps, the differential is approaching the upper bound of the +/-30bps range observed since November 2022.
- Swap rates are 5-6bps lower.
- The bills strip has twist-flattened, with pricing -2 to +8.
- RBA-dated OIS pricing is flat to 9bps softer, with late 2025 meetings leading. The market is pricing 17bps of easing by year-end, with an additional 42bps by March 2025.
- Tomorrow, the local calendar will see Consumer Inflation Expectation data.
AU STIR: RBA Dated OIS Continues To Ignore RBA Remarks
RBA Assistant Governor for Economics, Sarah Hunter, spoke today on the labour market, highlighting the central bank's surprise at the resilience of hours worked, underemployment, and the participation rate. She noted that while the labour market is tighter than full employment estimates suggest, it is gradually moving toward that level.
- Her assessment aligns with the RBA's prolonged policy hold.
- However, markets are still pricing in 16bps of rate cuts by year-end, with an additional 42bps expected by March 2025.
Figure 1: Official Rate: Current Vs. Year-End Market Expectations
Source: MNI – Market News / Bloomberg
AUSSIE BONDS: AU-US 10-Year Yield Differential Approaching Top Of Range
Today, the AU-US 10-year cash yield differential is 4bps wider at +24bps.
- At +24bps, the differential is approaching the upper bound of the +/-30bps range observed since November 2022.
- Moreover, a simple regression of the AU-US cash 10-year yield differential against the AU-US 1Y3M swap differential over the past 12 months indicates that the 10-year yield differential is near fair value (i.e. +22bps).
- The 1y3m differential is a proxy for the expected relative policy path over the next 12 months.
Figure 1: AU-US Cash 10-Year Yield Differential (%)
Source: MNI – Market News / Bloomberg
NZGBS: Closed At Bests, US Tsys Rally After US Pres. Debate
NZGBs closed at session highs, with benchmark yields down 5-6 basis points.
- However, the NZ 10-year bond has underperformed relative to its US counterpart, pushing the NZ-US 10-year yield differential up by 3bps to +53bps. This marks the highest level since March and a 40bp increase from late July, when the differential hit its lowest point since mid-2021.
- Cash US tsys are 2-3bps richer in today’s Asia-Pac session after yesterday’s bull-steepener. The US presidential debate saw betting odds nudged in favour of Harris. The US market now focuses on tomorrow’s CPI and Thursday’s PPI inflation measures. Core non-housing service inflation is expected to see at least a repeat of the 0.21% M/M from July.
- Outside of the previously outlined Net Migration data, there wasn't much by way of domestic drivers to flag.
- Swap rates closed 6-7bps lower.
- RBNZ dated OIS pricing closed 1-6bps softer across meetings, with mid-2025 leading. A cumulative 80bps of easing is priced by year-end.
- Tomorrow, the local calendar will see Food Prices and Card Spending data.
- The NZ Treasury also plans to sell NZ$300mn of the 3.00% Apr-29 bond, NZ$150mn of the 4.50% May-35 bond and NZ$50mn of the 2.75% Apr-37 bond.
FOREX: USD/JPY Through August 5 Lows As Harris Deemed Winner Of Debate
The reflation theme has taken a hit today, with US Vice President Harris deemed the winner of the Presidential debate versus former President Trump. Election odds have firmed in favor of Harris and moved lower for Trump. CNN also noted that 63% of voters (surveyed after the debate) believed Harris won the debate. Safe haven FX has outperformed, with yen rallying 1%, with USD/JPY breaking down through key support at 141.70.
- USD/JPY is tracking close to 141.00 in latest dealings, nearly 1.0% firmer for the session in yen terms. Session lows today rest at 140.91. Having broken down through 141.70, the Aug 5 low, focus will be on 140.82, the Jan 2 low. Note 140.25 is the Dec 28 low from last year and key support. US-JP yield differentials are lower at the front, the spread at +319bps, levels last seen in August last year.
- With Harris having appeared to have won the US Presidential debate we are seeing some modest downside pressure on US yields. Earlier comments from BoJ official Nakagawa also lent hawkish, so this is likely providing some positive yen impetus as well.
- US equity futures are lower, with Eminis down 0.50%, while Nasdaq futures are off 0.65%, with similar drivers at play. USD/CHF is off 0.45%, last near 0.8430.
- AUD/USD is relatively unchanged, the pair last near 0.6650. Comments from the RBA's Hunter didn't impact sentiment. NZD/USD is down slightly, last near 0.6140, off 0.15%.
- Later the focus will be on US August CPI, which is expected to show headline easing to 2.5% y/y with core stable at 3.2%. There are also US August real earnings and UK July trade/IP/GDP. The ECB’s McCaul and Buch speak too.
ASIA STOCKS: Asian Equities Head Lower, Yen Hits New Highs, US CPI Later
Asian markets traded lower today, focus in the region today was on the Trump vs Harris debate betting markets have Harris winning with PredictIt showing a 5pt bounce in favor of Harris. There was little reaction from the equity markets during the debate, there has been some weakness post with crypto and tech slightly lower. Japanese & Hong Kong equities are the worst performing amid concerns over global growth and the upcoming U.S. inflation report, while the yen continues to strengthen hurting Japanese exporters. The MSCI Asia Pacific Index fell 0.4%, with key drags coming from Samsung Electronics, Toyota, and CBA. Meanwhile, South Korea’s Kospi dropped 0.2% despite a slight improvement in unemployment, and Australian shares also slipped, while Taiwan stocks are little changed as TSMC holds up well amid weakness in the sector.
- US Equity futures are making fresh session lows, led by the Nasdaq 100 which is down 0.70% while S&P 500 eminis are 0.50% lower.
- Hong Kong equities are the worst in the region today with Banking stocks the worst following overnight weakness in the sector, The HS Mainland Banking Index is -2.13%, while property indices continue to hit new all time lows with the Mainland Property Index down 1.75%.
- In line with weaker tech prices, foreign investors continue to sell South Korean equities with $606m of outflows so far today, with $426m of that coming from local tech stocks.
- Asian EM markets are mixed today, with Thailand SET 1.10% although flows into the region over the past week have been very strong.
ASIA STOCKS: Asia Tech Continues To See Decent Outflows
- South Korea: Saw $638m of outflows yesterday, with the past 5 sessions now at -$2.41b, while YTD is +$13.76b. The 5-day average is -$482m, below both the 20-day average of -$149m and the 100-day average of $0m.
- Taiwan: Saw $755m of outflows yesterday, with the past 5 sessions at -$6.14b, while YTD is -$15.83b, the worst in the region. The 5-day average is -$1.23b, significantly below the 20-day average of -$237m and the 100-day average of -$170m.
- India: Saw an inflow of $135m Monday, with the past 5 sessions now +$809m, while YTD is +$19.59b. The 5-day average is +$112m, below the 20-day average of +$243m but above the 100-day average of +$49m.
- Indonesia: Saw an inflow of $30m yesterday and marked 10 straights session on inflows with the past 5 sessions netting a total inflow of +$173m, while YTD flows are +$2.09b. The 5-day average is +$35m, below the 20-day average of +$94m but above the 100-day average of +$8m.
- Thailand: Saw an inflow of $17m yesterday, with the past 5 sessions now +$649m, while YTD flows are -$2.86b. The 5-day average is +$130m, significantly above the 20-day average of +$23m and the 100-day average of -$11m.
- Malaysia: Saw an inflow of $68m yesterday, with the past 5 sessions at +$210m, while YTD flows are +$963m. The 5-day average is +$42m, slightly below the 20-day average of +$51m but above the 100-day average of +$15m.
- Philippines: Saw an inflow of $13m yesterday, with the past 5 sessions now +$46m, while YTD flows are -$270m. The 5-day average is +$9m, slightly below the 20-day average of +$12m but above the 100-day average of -$4m.
Table 1: EM Asia Equity Flows
OIL: Crude Moderately Higher, Waiting For US CPI Data
Crude is off its Tuesday lows but has barely begun to unwind the sharp decline which was driven by downward revisions to OPEC’s global demand growth forecasts and soft China imports. WTI is up 0.5% to $66.10/bbl after a low of $65.91 followed by a high of $66.41. Brent is 0.5% higher at $69.54 reaching $69.82 earlier after a low of $69.31. The weaker US dollar is providing support with the BBDXY down 0.2%.
- If the 14% drop in oil prices since the start of August is sustained, headline disinflation could pick up in the months ahead and with growth softening may feed through into core from second round effects, which would be good news for central banks but also for consumers. But the US’ EIA expects Brent to return to above $80/bbl in Q4 and average around $84/bbl in 2025.
- The narrowing of the Brent prompt spread is signalling an easing market, but Tuesday’s sharp fall has meant that the relative strength index is flashing oversold, according to Bloomberg.
- Hurricane Francine is due to make landfall today in Louisiana and may impact eight refining facilities along the coast which would reduce crude demand. But on the other hand some platforms in the Gulf have evacuated staff and stopped production. Officials said that about 25% of the Gulf’s crude output has been shut in.
- Bloomberg reported that US crude inventories fell 2.79mn barrels last week, according to people familiar with the API data. Gasoline fell 513k while distillate rose 191k. The official EIA data is out today.
- Later the focus will be on US August CPI, which is expected to show headline easing to 2.5% y/y with core stable at 3.2%. There are also US August real earnings and UK July trade/IP/GDP. The ECB’s McCaul and Buch speak too.
GOLD: Steady After A Two-Day Gain
Gold is slightly higher in today’s Asia-Pac session, after closing 0.4% higher at $2516.73 on Tuesday.
- There was no US economic data yesterday, with the markets awaiting tomorrow’s CPI and Thursday’s PPI inflation measures. Core non-housing service inflation is expected to see at least a repeat of the 0.21% M/M from July, with six analysts between 0.20-0.35% M/M.
- Nevertheless, US 2- and 10-year yields finished 6-7bps lower, with the curve steeper.
- Lower rates are typically positive for gold, which doesn’t pay interest.
- According to MNI’s technicals team, sights remain on $2,536.4, a Fibonacci projection.
CHINA: Region’s Purchase of Unsold Properties Moving Slowly.
- Earlier this year China’s central government advocated for regional cities to purchase unsold homes, estimated to be in the region of 380 million square meters of excess inventory.
- The central government asked up to 200 cities to purchase these unsold homes yet, only 29 cities have begun the process.
- Recently the chairman of the Real Estate Information Platform Shanghai CRIC Info Tech wrote in an August report that “Local Governments have made slow progress (in the purchase of unsold properties).”
- Regional governments, coming to grips with new independence from the Central Government, are listening to these demands whilst balancing the costs of implementation, it appears.
- Regional government budgets have been under enormous pressure following the significant drop of income from land sales, given the decline in the housing sector.
- Since the PBOC announced the CNY300bn lending program it has been widely recognized that the need for states to purchase unsold properties is critical to finding a solution, yet the take up of the program (according to published data in June) is less than 10%.
- The reality may be that further policies may be needed to clear the backlog of unsold properties or that the current policy be redefined.
SOUTH KOREA: Unemployment Falls Giving BOK Reasons to Pause
- Unemployment rate fell to 2.4% for August.
- Market expectations were 2.6% following 2.5% in July.
- 123,000 new jobs created in August yoy.
- Participation rate at 64.4%.
- This release likely does not put pressure on the BOK on rates, rather providing them further time to assess the evolution of the housing market, their main area of concern.
SOUTH KOREA: Rise in Mortgages Troubling for BOK.
- The BOK minutes released saw the policy board members expressing their ongoing concern for home prices in Seoul and the accumulated household debt correlated.
- Today’s Bank Lending to Households showed mortgage loans have increased by a record in August.
- Likely representative of the strength in manufacturing, loans to companies increased by KRW7.2tn month on month to CNY1,311.9tn in August.
- Today’s data will continue to feed the concern from those voting members of the BOK who reiterate their concerns as to the rapid rise in Seoul property prices and the run up in debt associated with that.
ASIA FX: CNH & KRW Rally, But Lag Some SEA Currency Gains
North Asian currencies have rallied against the USD so far today, buoyed by softer USD trends elsewhere (particularly in terms of the yen, +1% firmer). Lower US yields have helped, with Vice President Harris deemed to be the winner of the earlier Presidential debate. This has helped offset a generally weaker equity tone throughout the region. South East Asian (SEA) currencies have generally rallied by more though, given greater sensitivity to US yield shifts.
- USD/CNH sits around 7.1120 in latest dealings, close to session lows. We are around 0.30% firmer in CNH terms, although lows from Friday last week at 7.0735 are still some distance away. CNH is benefiting from yen gains, although its beta with respect to such moves is fairly modest. CNH/JPY has broken lower to 19.82, levels last seen in January of this year. Earlier the USD/CNY Fixing was set below market expectations. Increased Harris odds of winning the Presidency should allay some fears of a further sharp escalation in trade tensions.
- Spot USD/KRW is back sub 1339, around 0.40% stronger in KRW terms. Yen and CNH gains likely aiding the won, although we remain well within recent ranges. On the data front, South Korean unemployment fell to 2.6%, a record low, against a 2.6% market estimate. Jobs growth slowed in y/y terms. Other data showed Bank Lending to Households for mortgage loans have increased by a record in August. A likely concerns for the authorities.
- Spot USD/TWD is only down a touch, last near 32.15. This leaves us close to recent highs around the 32.20 level. Local equities are around flat at this stage, but offshore investors have continued to sell local equities.
ASIA FX: SEA Currencies Targeting Recent Highs Against the USD
In South East Asia (SEA) FX we are seeing gains across the board. PHP is the stand out up 0.75% in spot terms. This puts USD/PHP back near 56.00. Earlier September lows at 55.88 are not too far away. Lower US yields is certainly helping FX sentiment around the region. US Tsy yields sit -3-4bps lower across the key benchmarks at this stage. With US Vice President Harris deemed the winner of the Presidential debate, the reflation theme has taken a hit today.
- For SEA currencies the weaker US yield backdrop has offset equity weakness in parts of the region. Yen gains have also helped. USD/THB is down 0.40% to 33.60/65. Recent lows rest near 33.50.
- IDR spot is up around 0.35%, with USD/IDR sub 15400. USD/MYR is down by around 0.40% as well, leaving this pair near 4.3240. Recent lows in this pair rest close to 4.3100.
INDONESIA: Bond Wrap
- Indonesia To Sold 2037, 36, 41, 28, 49 Sukuk Bonds yesterday with modest bid to cover ratios of 1-2 times, possibly reflecting indigestion in the new issue market ahead of perceived market volatility.
- Indonesian retailers are optimistic about their sales performance in August, anticipating a year-on-year increase of 5.8%, according to the latest survey conducted by Bank Indonesia (source: Bloomberg).
- Jakarta composite modestly down in trading, bond yields lower across intermediate maturities.
2yr 6.538% (+0.5bp) 5yr 6.498% (-0.5bp) 10yr 6.602% (-2bp) 30yr 6.848%
UP TODAY (TIMES GMT/LOCAL)
| Date | GMT/Local | Impact | Flag | Country | Event |
| 11/09/2024 | 0600/0700 | ** |  | UK | UK Monthly GDP |
| 11/09/2024 | 0600/0700 | ** | | UK | Trade Balance |
| 11/09/2024 | 0600/0700 | ** | | UK | Index of Services |
| 11/09/2024 | 0600/0700 | *** | | UK | Index of Production |
| 11/09/2024 | 0600/0700 | ** | | UK | Output in the Construction Industry |
| 11/09/2024 | 0900/1000 | ** | | UK | Gilt Outright Auction Result |
| 11/09/2024 | 1100/0700 | ** |  | US | MBA Weekly Applications Index |
| 11/09/2024 | - | *** |  | CN | Money Supply |
| 11/09/2024 | - | *** | | CN | New Loans |
| 11/09/2024 | - | *** | | CN | Social Financing |
| 11/09/2024 | 1230/0830 | *** | | US | CPI |
| 11/09/2024 | 1230/0830 | * |  | CA | Intl Investment Position |
| 11/09/2024 | 1400/1000 | * | | US | Services Revenues |
| 11/09/2024 | 1400/1000 | | US | MNI Connect Video Conference on ‘Fed Balance Sheet – Comparison with Other Central Banks’ | |
| 11/09/2024 | 1430/1030 | ** | | US | DOE Weekly Crude Oil Stocks |
| 11/09/2024 | 1700/1300 | ** | | US | US Note 10 Year Treasury Auction Result |
| 12/09/2024 | - |  | EU | European Central Bank Meeting |
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