MNI EUROPEAN MARKETS ANALYSIS: USD/JPY Nears Early August Lows, NFP In Focus Later

US TSYS: Tsys Futures Steady Ahead Of NFP

• It has been a quiet session for US tsys today, futures have edged slightly over the last hour or so, however remain well within Thursday's ranges. The 2yr is 3.739 % (-1.1bps) while the 10yr is 3.727% (1.1bps)
• Tsys futures are holding on to this week’s gains and a bullish theme remains intact. The bounce Tuesday, from below the 20-day EMA, highlights a reversal and signals the end of the recent corrective phase. TUZ4 is + 00⅝ at 104-04⅛, while TYZ4 is + 02+ at 114-26+
• Initial support rests at 113-30+ (20-day EMA), below here 113-12 (Sep 3 lows), while to the upside 114-29+ (Sep 5 highs) & 114-31+ (76.4% retracement of the Aug 5 - 8 pullback)
• The 2s10s curve continues to trade around flat, currently -1.913 after overnight hitting a high of 1.532 although was unable to close above flat.
• Fed funds was pricing has cooled slightly vs . Projected rate cut pricing through year end vs Wednesday close levels: Sep'24 cumulative -35.2bp (-36bp), Nov'24 cumulative -71.7bp (-3.2bp), Dec'24 -108.9bp (-111.2bp).
• Today we have calendar is dominated by payrolls and their implications for Fed policy, later in the session we will hear from the FOMC's Williams, Goolsbee and Waller who are anticipated to provide a final steer on the rate outlook going into the pre-September meeting blackout starting this weekend.

STIR: $-Bloc Markets Are Softer, Except For AUS, Ahead Of US Payrolls

Ahead of today's US Non-Farm Payrolls release, STIR markets in the $-bloc, except for Australia, are trading softer compared to last week. 

• Year-end official rate expectations have been revised downward by 13bps in the US, 9bps in Canada, and 6bps in New Zealand. Mid-week, the Bank of Canada lowered its official rate to 4.25%.
• Australia stood out as the exception, with year-end rate expectations rising by 5bps.  
• Yesterday, RBA Governor Bullock maintained her stance that it is "premature to be thinking about rate cuts," despite Treasurer Chalmers remarking that current rates are "smashing the economy"— a comment she did not address.
• Bullock's tone was consistent with the August 6 meeting, reiterating that inflation is moderating more slowly than anticipated, and the RBA’s priority remains reducing inflation while preserving job gains, as inflation disproportionately affects low-income households.
• The December 2024 expectations and the cumulative easing across the $-bloc are as follows: 4.27%, -106bps (FOMC); 3.67%, -58bps (BoC); 4.14%, -18bps (RBA); and 4.48%, -77bps (RBNZ).
   

Figure 1: $-Bloc STIR (%)

Source: MNI – Market News / Bloomberg

JGBS: Cash Curve Bull Flattener Ahead Of US Payrolls

JGB futures are at session highs, +12 compared to the settlement levels. 

• Outside of the previously outlined household spending data, there hasn't been much by way of domestic drivers to flag.
• (Bloomberg) "The Bank of Japan may hike interest rates faster than many currently anticipate, and it should strive to better telegraph those moves to ensure markets don’t panic, according to a former official." (See link)
• Cash US tsys are 1-2bps richer in today’s Asia-Pac session ahead of US Non-Farm Payrolls data later today (our preview ishere). We will also hear from the FOMC's Williams, Goolsbee and Waller ahead of the pre-September meeting blackout starting this weekend.
• The cash JGB curve has twist-flattened, pivoting at the 4-year, with yields 1bp higher to 3bps lower. The benchmark 10-year yield is 1.4bps lower at 0.866% versus the cycle high of 1.108%.
• The stronger performance of longer-dated JGBs is consistent with today's Rinban Operations results, which showed lower offer cover ratios.
• The swap rates are little changed.
• The local calendar will also see Coincident & Leading Indices later today.
• On Monday, the local calendar will see GDP (Final), Trade Balance and Bank Lending data.

JAPAN DATA: Real Household Spending Back In Positive Territory, But Only Just

Japan household spending moved back into positive spending in y/y terms in July. However, at +0.1%y/y it was well short of market expectations, which sat at 1.2%. The June dip was -1.4%y/y. In m/m terms, spending fell 1.7%. 

• Today's print comes after yesterday's stronger than expected labor earnings data. The authorities will be hoping that spending trends firm further as we progress through Q3. At the margin though today's data adds to the case for a steady BoJ outcome at the September meeting, as the central bank may want to wait for further details around consumption, before adjusting policy further.
• In nominal terms, spending was up 3.3% y/y, while real incomes rose 5.5%y/y, nominal income up 8.9%y/y, per Bloomberg.
• Such trends point to a supportive spending backdrop going forward, all else equal. 

AUSSIE BONDS: Slightly Richer But AU-US10Y Diff Near Top Of Range

ACGBs (YM +2.0 & XM +3.0) are slightly richer despite today’s home loans data printing stronger-than-expected. 

• Outside of the previously outlined Home Loan data, there hasn't been much by way of domestic drivers to flag.
• Cash US tsys are ~1bp richer in today’s Asia-Pac session ahead of US Non-Farm Payrolls data later today.
• We will also hear from the FOMC's Williams, Goolsbee and Waller, who are anticipated to provide a final steer on the rate outlook going into the pre-September meeting blackout starting this weekend.
• Cash ACGBs are 3bps richer, with the AU-US 10-year yield differential at +18bps. At +18bps, the differential sits in the upper half of the +/-30bps range observed since November 2022.
• Swap rates are 2-3bps lower.
• Bills are flat to +3 across contracts, with the strip flatter.
• RBA-dated OIS pricing is 1-5bps softer across 2025 meetings after being 1-2bps firmer earlier. A cumulative 19bps of easing is priced by year-end.
• Next week, the local calendar is empty on Monday, ahead of Westpac Consumer and NAB Business Confidence on Tuesday.
• Next Wednesday, RBA Assistant Governor (Economic) Sarah Hunter will give a speech at the Barrenjoey Economic Forum alongside the AOFM's planned sale of A$1.0bn of 2.75% 21 November 2027 bond.

AUSSIE BONDS: AU-US 10-Year Yield Differential In The Upper Half Of Range

Today, the AU-US 10-year cash yield differential is at +18bps.

• At +18bps, the differential sits in the upper half 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.
• 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: Little Changed & Narrow Ranges Ahead Of US Payrolls

NZGBs closed 1-2bps richer across benchmarks after dealing in narrow ranges ahead of US Non-Farm Payrolls data later today. 

• Today’s US calendar will be dominated by payrolls (our preview is here). That said, we will also hear from the FOMC's Williams, Goolsbee and Waller, who are anticipated to provide a final steer on the rate outlook going into the pre-September meeting blackout starting this weekend.
• Outside of the previously outlined Construction Work Done data, there hasn't been much by way of domestic drivers to flag.
• The RBNZ said total reserve assets stood at NZ$32.57bn in August, compared with NZ$35.65bn in July.
• Swap rates closed 2-3bps lower, with the 2s10s curve flatter.
• RBNZ dated OIS pricing closed 1bp softer for 2025 meetings. A cumulative 77bps of easing is priced by year-end.
• Next week, the local calendar is empty on Monday, ahead of Q2 Mfg Activity data on Tuesday and Net Migration on Wednesday. Assistant RBNZ Governor Karen Silk will speak at a conference hosted by KangaNews on Wednesday. 

FOREX: Yen Outperforms Amid Lower US Yields/Equity Futures, NFP Up Later

The USD BBDXY index sits sub 1229 in latest dealings, off a little over 0.15%. This largely reflects yen and to a lessor extent CHF gains in the first part of Friday trade. The USD index is above late August lows near 1222, but the trend remains poor ahead of the US NFP print.

• Cross asset signals have been negative from a US yield standpoint, with the 10yr yield breaking down through Thursday lows, last near 3.71%. The 2yr yield is also lower, but Thursday levels are holding for now. The Fed's Goolsbee stated that recent economic data trends justify multiple rate cuts, starting soon, per DJ/Market Watch. US equity futures sit lower, led by the Nasdaq off 0.40%.
• USD/JPY sits close to session lows, last near 142.95, around 0.35% stronger in yen terms. Thursday intra-session lows haven't been tested yet (142.85). Earlier data showed household spending much less than forecast in July, but this hasn't impacted sentiment. CHF is up around 0.15%, last close to 0.8430.
• AUD and NZD have both ticked down against the USD. AUD/USD last near 0.6730, NZD/USD close to 0.6215. The weaker equity backdrop weighing on both pairs, particularly against the yen so far today. Both currencies sit above recent lows against the yen though.
• Oil prices sit close to recent lows, while metal prices, including iron ore have struggled for upside, so a likely headwind, particularly for AUD.  
• Looking ahead it is all about the US NFP print.  

ASIA STOCKS: HK Shut For Typhoon, Chinese Equities Slightly Lower

Chinese stocks opened higher this morning as the PBoC hinted at easing monetary policy to support growth, with major benchmarks gains about 0.4%, equities have since turned red as tech and healthcare stocks weigh on the market. Hong Kong markets are close for the morning due to Typhoon and could open if conditions improve. The HSI has fallen 3% this week, weighed down by concerns over weak Chinese economic data and disappointing earnings.

• CSI 300 (-0.27%), with the Tech Index (-1.13%), Healthcare Index (-1.18%) while Financials Index is (+0.86%) after talks of a merger Between Haitong & Guotai Junan.
• Industry insiders in China are calling for a reduction in interest rates on outstanding mortgages, as the gap between rates on existing and new home loans has widened, according to a report by the China Securities Journal.
• Sun Hung Kai Properties reported a 9% drop in profit for the year ended June 30, marking its third consecutive annual decline as Hong Kong's real estate market struggles. Underlying earnings fell to HK$21.7b ($2.8b), just missing analysts estimates of HK$22.8b. High borrowing costs and an oversupply of apartments have hurt sales, forcing developers to offer discounts, while home prices hit an eight-year low in July. Sun Hung Kai cut its annual dividend by 24% to HK$2.8p/s. Despite the downturn, rental income from investment properties rose 3%, with retail and serviced apartments offsetting losses in the office sector.

ASIA PAC STOCKS: Asian Equities Mixed, Ranges Tight, Ahead of US NFP

Asian equity markets are seeing mixed trading today ahead of key US jobs data that could influence the size of a potential Fed rate cut. In Japan, the Topix is 0.4% lower as exporters like Toyota faced pressure from a stronger yen, while domestic retailers performed better, while the Nikkei remained virtually unchanged. In South Korea, the Kospi dropped as much as 1.5%, marking its fourth straight session of declines, with tech giants like Samsung and SK Hynix leading the losses. Meanwhile, Australia's ASX 200 is 0.4% higher, buoyed by financial stocks, though it's set for a weekly decline of about 1% amid a tech-driven global selloff. New Zealand's NZX 50 slipped 0.6%, but it's on track for a 1.6% weekly gain, outperforming the wider region.

• Nasdaq futures briefly dipped below recent lows earlier, as the JPY strengthened a touch while Asia tech stock dropped.
• Foreign investors have been selling Korean tech stocks, although only about $70m worth so far, they have been slightly better buyers of healthcare stocks
• Hong Kong markets are closed for the morning session due to a Typhoon.
• Overall trading has been subdued as the market awaits NFPs in the US later tonight, with BBG consensus at 165k , up from 114k in July.

• Nasdaq futures briefly dipped below recent lows earlier, as the JPY strengthened a touch while Asia tech stock dropped.
• Foreign investors have been selling Korean tech stocks, although only about $70m worth so far, they have been slightly better buyers of healthcare stocks
• Hong Kong markets are closed for the morning session due to a Typhoon.
• Overall trading has been subdued as the market awaits NFPs in the US later tonight, with BBG consensus at 165k , up from 114k in July.

ASIA STOCK FLOWS : Tech See Outflows, Indonesia & Malaysia Benefit From Fed Cuts

Looking back over the week, there have been heavy flows out of the tech heavy markets. India's market made new highs, while Indonesia & Malaysia continue to benefit from expected Fed rate cuts

• South Korea: Saw $455m of outflows yesterday marking the 12th straight session, with past 5 sessions now -$1.43b, while YTD is +$14.99b. The 5-day average is -$286m, well below both the 20-day average of -$114m and the 100-day average of +$7m.
• Taiwan: Saw $817m of outflows yesterday, with past 5 sessions now -$4.06b, while YTD is -$13.60b, the worst in the region. Sept 4 was the largest outflow in 3 years. The 5-day average is -$812m, significantly below the 20-day average of -$80m and the 100-day average of -$177m.
• India: Saw an inflow of $189m yesterday, with the past 5 sessions now +$3.15b, while YTD is +$19.33b. The 5-day average is +$354m, above the 20-day average of +$208m and the 100-day average of +$51m.
• Indonesia: Saw an inflow of $48m yesterday, with the past 5 sessions now +$866m, while YTD has seen +$1.98b. The 5-day average is +$173m, above the 20-day average of $93m and well above the 100-day average of $4m.
• Thailand: Saw an inflow of $223m yesterday, with the past 5 sessions now +$49m, while YTD flows are -$3.31b. The 5-day average is +$10m, slightly above the 20-day average of $0m and the 100-day average of -$14m.
• Malaysia: Saw an inflow of $46m yesterday, with the past 5 sessions now +$266m, while YTD flows are +$866m. The 5-day average is +$53m, above both the 20-day average of +$44m and the 100-day average of +$12m.
• Philippines: Saw an inflow of $5m yesterday, with the past 5 sessions now +$10m, while YTD flows are -$309m. The 5-day average is +$2m, below the 20-day average of +$9m and slightly above the 100-day average of -$4m.

Table 1: EM Asia Equity Flows

OIL: OPEC+ Supply Hike Delayed in Face of Risk Off Environment

• OPEC+ coalition members issued a statement on OPEC’s website advising that the expected increase in production is now on hold.
• Production was expected to be ramped up by up to 180,000 barrels per day from next month.
• There is a longer term plan to ramp up production over the course of 2025 and for now that plan appears to remain, though the implementation period appears extended.
• The risk off sentiment in global markets was the overriding driver of Oil overnight as it steadied throughout the Asia trading day at $69.18, having peaked at $70.75 earlier, and much lower for the week having closed last Friday at $73.55.
• Brent too is off its highs having traded through $74 earlier, before hitting a one year low $72.69 and now settling at $72.74, and much lower for the week having closed last Friday at $78.80.
• Volumes have been light throughout the day.
• Ahead of tonight’s major data releases in the US it could be expected that the volatility should subside throughout the day as the market digests the push pull between supply news and expectations for US interest rates.

GOLD: Hovering Near All-Time Highs Ahead Of US Payrolls Data

Gold is slightly higher in today’s Asia-Pac session, after spot gold rose by 0.8% to $2,516.76/oz yesterday, keeping the yellow metal close to last month’s record high of $2,531.75. 

• September Fed rate cut pricing again neared 50/50 for 50bp in Fed Funds futures yesterday following weak labour market data, before fading to 40/60.
• Lower rates are typically positive for gold, which doesn’t pay interest.
• ADP reported private US employers added 99k jobs in August. This is the lowest number in more than three years and further signified a cooling labour market.
• Today’s US calendar will be dominated by payrolls (our preview is here). Later in Friday's session, we will hear from the FOMC's Williams, Goolsbee and Waller who are anticipated to provide a final steer on the rate outlook going into the pre-September meeting blackout starting this weekend.
• According to MNI’s technicals team, the focus remains on $2,536.4 next, a Fibonacci projection, while initial support is at $2,472.0, the Sep 4 low.

CHINA: PREVIEW:  Next week's Data.

• Next week’s data on pricing for August will provide insight as to the immediacy of the problem that the government faces in a slowing economy.
• Monday will see the release of both PPI and CPI. PPI market consensus is for an increasing contraction to -1.4% following last month’s contraction of -0.8%. July saw, with the exception of Mining and Raw Materials, a contraction across all other segments.
• CPI is also released where at present the market consensus is for an August rise of 0.7% versus a prior rise of 0.5%. Whilst remaining in positive territory, a CPI print such as this is not reflective of an economy growing at the growth rates desired by the government.
• CPI has remained tepid at best for over a year now and the counteractive policies implemented thus far have failed to arrest this trend.
• Monday will also see Aggregate Financing / Net New CNY loan data. Whilst the surveys suggest that these should see growth, it is important to note that most of this growth is seasonal and supplemented by a post Plenum uptick in spending by the government.
• Tuesday will see trade data where a modest decline in exports is expected, reflecting a softening of demand in the region. Export controls or sanctions from the US are slowing exports but not dramatically at this stage, due to the global reliance on Chinese goods. Imports though will be a key release. Imports are projected to decline significantly. This is likely more reflective of the poor sentiment for Chinese consumers who are impacted by the ongoing malaise in the property sector.

CHINA: Must Fight Deflation Former Governor Says.

• Comments by former Governor Yi Gang are a stark reminder of the challenges facing China at present.
• Ahead of next week’s PPI and CPI, the former Governor said during a panel discussion that ‘fighting deflationary pressures’ should be the focus of policymakers.
• “China’s immediate focus should be to turn it’s GDP deflator positive” he said at the Bund Summit in Shanghai today.
• Policymakers have highlighted the decline in yields as one of the a battlegrounds in the fight against deflation, yet stopping yields falling may not arrest the underlying reason for the decline in prices.

ASIA FX: KRW & TWD Rally, CNH Lagging

North Asia currencies are taking their respective cues from major USD trends, particularly yen gains, ahead of the US NFP print later. KRW has firmed as the afternoon session has progressed, while TWD has also rallied strongly. CNH has lagged. Weaker equity trends haven't impacted sentiment so far. 

• USD/CNH sits a touch lower, last near 7.0835. The USD/CNY fixing was back close to neutral, after yesterday's modest downside surprise, which drove fresh CNH gains. So today's outcome has likely tempered CNH sentiment at the margins. This comes despite a 0.35% gain for yen. Local equities are weaker at the margins, while news flow has seen former PBoC Governor Yi Gang stating China needs to fight deflation stress. This comes ahead of August inflation data next Monday. Late August lows for USD/CNH rested at 7.0710, while recent highs were just above 7.1300.
• Spot USD/KRW has played catch up to the downside as the afternoon session unfolds. The pair last near 1327.5, around 0.50% stronger in won terms. Positive spill over from yen gains is a likely positive, while local equity losses and further offshore outflows aren't impacting sentiment at this stage. Recent lows sub 1320 will be eyed on further USD losses.
• Spot USD/TWD is back under 32.00, against recent highs of 32.21. This puts the pair back sub all of its key EMAs. Unlike South Korea, Taiwan equities are firmer, the Taiex up around 1% at this stage. 

ASIA FX: SEA FX Continues To Rally, THB Back To Early 2023 Highs

South East Asia currencies are all firmer against the USD, albeit to varying degrees. PHP FX has been one of the strongest performers, up 0.60%. THB and IDR are also up firmly, MYR has seen slightly more modest gains. Broader USD softness, particularly against the yen, has likely seen positive spill over to the region. 

• Thailand related asset sentiment has been on a firmer footing in recent sessions. Local equities have surged and are more than 10% above recent August lows, with strong offshore inflows. USD/THB sits near 33.55, slightly up from session lows, but this still fresh lows back to early 2023.
• USD/PHP is under 56.00, last near 55.90, so still being somewhat of a laggard compared to THB and MYR. Earlier lows in the pair came close to 55.28 back in March of this year. On the data front, the unemployment rose dramatically in July according to release from the Philippines Statistics Authority.
• USD/IDR is down 0.30%, last near 15350. Recent lows come in at 15310. The data showed Indonesia's foreign reserves were US$150.2b in August higher than the July print of US$145.4b, according to Bank Indonesia.
• USD/MYR is lower but holding above recent lows, last near 4.3300. MYR is up 6% year to date, easily the best performer in EM Asia FX (THB is next best at +1.75%). So, some slowing in relative outperformance may not be surprising. 

INDONESIA: Foreign Reserves Up Again

• Indonesia's foreign reserves were US$150.2b in August higher than the July print of US$145.4b, according to Bank Indonesia.
• Reserves for August are equivalent to 6.7 months of imports, a figure that is strong by historical standards.
• Today’s data is reflective of the strong position the Indonesian economy is in and the ample flexibility available to it to support the IDR.

PHILIPPINES DATA: Unemployment Climbs Vindicating BSP.

• Unemployment rose dramatically in July according to release from the Philippines Statistics Authority.
• Unemployment rose to 4.7% in July, up from 3.1% in June.
• Earlier in the week, Philippines CPI had printed weaker than expected, questioning the reasoning for the cut recently by the BSP.
• Today’s number vindicates that cut, showing that the challenges ahead for the economy remain.