- Focus today remained on further USD FX and US Tsy yield gains. The 10yr yield rose to fresh highs going back to late July, while yen was the weakest performer in the G10 FX space. Data flow was very light, with focus remaining on the upcoming US election.
- Initially, the USD was stronger against all the majors, but some gains for China/HK equities helped stabilize sentiment (ex JPY and CHF).
- Gold hit another fresh all time high, while oil was slightly softer.
- Later the Fed’s Bowman and Barkin speak and the Beige Book is published and September existing home sales print. ECB’s Lagarde and Lane appear, as well as BoE’s Breeden and Bailey. The BoC decision is announced and a 50bp rate cut is expected.
MARKETS
US TSYS: Tsys Futures Edge Lower, BofA's CEO See's 50bps Of Cuts This Year
- US Tsys futures have continued the move lower that occurred during the US session on Tuesday, with TU, FV & TY contracts trading below Tuesday's lows. TU is -01⅜ at 103-06⅜, while TY is -05+ at 111-05+ and now trades just above initial support at 111-00 (July 22 lows), moving average studies are in a bear-mode position, highlighting a dominant downtrend for now. Initial firm resistance has been defined at 112-22 (Oct 16 high).
- Volumes are well down on Tuesday's levels, while the only notable trade has been a SOFR strip block, DV01 $2.2m.
- It has been a relatively quiet session across Asia rates, although the 40yr JGB hit its highest levels since 2008.
- Cash tsys curve has seen a slight bear-flattening move, yields are 2-2.5bps higher. The 2yr is +2.2bps at 4.054% the highest since Aug 19th, while the 10yr is +2bps at 4.228%, the highest since July 25th.
- Earlier, BofA's Brian Moynihan urged the Fed to take a measured approach to cutting interest rates, warning of risks if the reductions are too rapid. He expects a further 50bps in cuts by year-end and four more in 2025, with inflation potentially dropping to 2.3% by 2026.
- Fed fund futures are pricing in 41bps of cuts by year-end, or about a 72% of 50bps of cuts.
- Today, we have MBA Mortgage Applications, followed by existing Home sales & the Federal Reserve Releases Beige Book
POLITICAL RISK: US Elections Impacts On Financial Markets
Two weeks out from the US election, betting markets are now favoring Trump, while polls show the race looks much closer. Financials markets have seen assets likely to benefit from a Trump win outperform over the past 1-2 weeks.
- Bitcoin is seen as a favored asset under a Trump presidency, with significant inflows into Bitcoin-focused ETFs. The iShares Bitcoin Trust, has seen +$1.39b of inflows in the past week, well above the average weekly inflows of about $500m for the year. Options traders are increasingly betting that Bitcoin will reach an all-time high of $80,000 by the end of November. Implied volatility for Bitcoin options expiring around Election Day is elevated, with more traders favoring call options. The most popular strike prices for calls expiring on Nov. 29 are $80,000 and $70,000, while December contracts cluster around $100,000 and $80,000 strikes.
- Energy stocks look to also benefit from a Trump presidency and options markets are now pricing in further upside. The closely tracked XLE Energy ETF which is currently trading at 90.28 shows the $95 strike calls have the most open interest for the Nov 15th maturity followed by the $99 calls while there is a 0.78 put/call ratio for the maturity.
- The markets are signaling that the Harris trade is losing momentum. BofA's Democratic Victory basket, which is heavily weighted with healthcare stocks (8 of the top 10 holdings), reflects this shift. Notably, the iShares US Healthcare ETF has closely tracked betting market odds, and its stock price has declined nearly 10% since the beginning of September, in contrast to the S&P 500, which has risen by 3.60% over the same period.
- In the FX space, countries that rely heavily on exports to the US could face headwinds. In Asia, THB has been the top performer over the past 3 months and currently trades +9.5%, followed by MYR +8.65% while the KRW is flat over the same period however could face headwinds with Trumps focus on technology and automotive sectors. In South America both the MXN & ARS have already seen significant under performance since July 1, falling between 7-8%. The CLP & BRL are both little changed over the past three months, however both nations reliance heavy of exports to the US.
- The US 10yr yield has also closely tracked the spread difference of betting market odds
Chart. Polymarket Odds, GS Party Baskets, 10yr Yield
GLOBAL: IMF Global Outlook Little Changed But Trend Growth “Mediocre”
The updated October IMF forecasts showed little change in global aggregates compared to its expectations in both April and July. Global growth is forecast at 3.2% in 2024 and 2025 with the latter revised down 0.1pp, to be in line with the series average. The IMF warns that the 5-year outlook is “mediocre” and that reforms remain “necessary” to lift it, while policy should “ensure a smooth landing” near-term.
Global growth %
- Global trade in goods and services is still projected to improve to 3.1% this year from 0.8% in 2023 before picking up to 3.4% next year but still well below average. DM export growth was revised down slightly to 2.5% and 2.7% respectively, while EM was revised up around 0.5pp to 4.6%.
- DM economic growth is forecast to be steady at 1.8% this year and next with upward revisions to the US, Spain and UK more than offsetting downward ones to Germany, France and Japan relative to July.
- Total EM growth is little changed at 4.2% in 2024 and 2025. The IMF notes that the growth outlook for the Middle East and Central Asia and Sub-Saharan Africa have been revised down since April due to disruptions to shipping, especially of oil, conflicts, civil unrest and weather events, while emerging Asia was revised higher.
- Average global inflation was revised 0.1pp lower to 5.8% and 4.3% in 2024 and 2025 respectively down from 6.7% in 2023 helped by both DM and EM. It should moderate to 5% by end-2024 and continue to ease to 3.2% by end-2028. It peaked at 8.8% at end-2022.
Global inflation year-end %
Source: MNI - Market News/IMF
GLOBAL: IMF Sees China Growth Moderating Towards 3%
The IMF’s outlook for China’s economy is pessimistic with the growth continuing to slow over the forecast horizon, which is likely to reduce its role as an engine of global growth and increase calls for protectionist measures against the country. Also, the IMF’s chief economist Gourinchas said that the latest China fiscal stimulus had not been included in the updated forecasts due to a lack of detail.
- Growth in emerging Asia is forecast to slow to 5.3% in 2024 from 5.7% and then to 5% down 0.1pp compared with July and up 0.1pp vs April. The downtrend continues over the IMF’s forecast horizon driven by China. China’s growth is expected to reach 3.3% in 2029 compared with 4.8% this year and 4.5% in 2025 and the 6% average since 1980.
- The IMF’s Gourinchas said that PBoC rate cuts are unlikely to materially impact China’s growth, while US Treasury Secretary Yellen said that it needs to boost consumption as a share of GDP and sort the property sector problems, neither of which recent measures address sufficiently.
- They noted that excess capacity remains a problem and Yellen said that Chinese subsidies are “utterly enormous” according to Reuters. Trade with China has been a major US election issue and while the bilateral deficit improved from Q4 2022, that trend has stalled again over this year.
- The IMF notes a larger correction in China’s property market, especially if it impacts consumption, as a risk to global growth. An increase in protectionism is also a key risk, the degree to which will be dependent on the US election outcome and continued Chinese subsidies, which have triggered recent EV tariffs in a number of countries.
US trade deficit US$bn 12mth sum
JGBS: Cash Bonds Cheaper With US Tsys, 20Y Supply Tomorrow
JGB futures are holding an uptick, +1 compared to settlement levels, after giving back earlier gains.
- The International Monetary Fund on Tuesday lowered its forecast for Japan’s gross domestic product this year to 0.3% from the 0.7% made in July but raised its 2025 growth forecast to 1.1% from July’s 1.0%, the IMF’s World Economic Outlook showed.
- Cash US tsys are 2-3bps cheaper in today’s Asia-Pac session after yesterday’s modest extension of Monday’s heavy session. Today’s US calendar will see MBA Mortgage Applications, followed by existing home sales & the Federal Reserve Beige Book.
- Cash 2- to 40-year JGBs are flat to 1bps cheaper. The benchmark 10-year yield is 0.5bp higher at 0.983% versus the cycle high of 1.108%.
- The 40-year JGB yield climbed to 2.542% today, its highest level in 16 years, amid growing speculation that the BoJ will push ahead with interest rate increases in the coming months. The yield is currently 0.9bp higher at 2.532%
- Swap rates are little changed.
- The local data calendar has been empty today. Tomorrow will see Oct preliminary PMIs and weekly investment flows alongside 20-year supply.
AUSSIE BONDS: Cheaper & Near Worst Levels But A Subdued Session
ACGBs (YM -3.0 & XM -3.0) are weaker, hovering near Sydney session lows. Despite the decline, today's trading ranges have remained relatively narrow, reflecting subdued market activity.
- Today's extension of the recent selloff for ACGBs, which brings the rise to 60-70bps over the past month, potentially leaves Aussie bonds vulnerable to a short squeeze into next week’s quarterly CPI data.
- With the domestic calendar light today, local participants have likely eyed US tsys for guidance. Cash US tsys are ~2bps cheaper in today’s Asia-Pac session after yesterday’s modest extension of Monday’s heavy session. Today's US calendar will see MBA Mortgage Applications, followed by existing home sales & the Federal Reserve Beige Book.
- According to the latest results of a Bloomberg News survey, the Australian economy will expand by 1.2% in 2024, 2.1% in 2025 and 2.5% in 2026. (See link)
- Cash ACGBs are 2-3bps cheaper with the AU-US 10-year yield differential at +23bps.
- Swap rates are 1bp higher, with EFPs tighter.
- The bills strip is slightly weaker, with pricing -1 to -3.
- RBA-dated OIS pricing is little changed. A cumulative 3bps of easing is priced by year-end.
- Tomorrow, the local calendar will see Judo Bank PMIs and the RBA Annual Report.
AUSSIE BONDS: AU-US 10-Year Yield Differential Above Fair Value
Today, the AU-US 10-year cash yield differential is 2bps wider at +24bps.
- At +24bps, the differential is near the upper bound of the +/-30bps range observed since November 2022.
- 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 around 6bps above fair value (i.e. +18bps).
- 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
STIR: CORRECTION - NZ-AU Official Rate Spread To Narrow -75bps By July 2025
*** Correction To Pricing For November RBNZ Meeting
RBNZ dated OIS pricing closed mostly little changed but late 2025 meetings firmed 3-5bps.
- The NZ market is pricing in 57bps of easing for the November meeting, with a cumulative 103bps by February and 154bps by July.
- Relative to Australia, NZ's official rate is projected to be 75bps lower by July, despite currently sitting at 43bps above Australia's cash rate.
Figure 1: Official Rate & OIS Pricing: AU vs. NZ (%)
Source: MNI – Market News / Bloomberg
NZGBS: Cheaper But Off Worst Levels, RBNZ Gov. Speaks Tomorrow
NZGBs closed flat to 2bps following a subdued session with little news flow. Despite the subdued trading, the benchmarks ended 1-2bps above their session cheaps.
- Notably, the NZGB 10-year outperformed its Australian counterpart, with the NZ-AU yield spread narrowing by 2bps to +5bps. Meanwhile, the NZ-US 10-year yield differential remained unchanged at +28bps, sitting near the midpoint of the range it has traded within since March.
- Cash US tsys are ~2bps cheaper in today’s Asia-Pac session after yesterday’s modest extension of Monday’s heavy session. Today, we have MBA Mortgage Applications, followed by existing home sales & the Federal Reserve Beige Book.
- According to a survey conducted by Bloomberg News, the NZ economy will expand by 0.4% in 2024, 2.0% in 2025 and 2.6% in 2026. (See link)
- Swap rates closed flat to 3bps higher, with the 2s10s curve steeper.
- RBNZ dated OIS pricing closed mostly little changed but late 2025 meetings firmed 3-5bps. A cumulative 103bps of easing is priced by February, with 57bps by year-end.
- RBNZ Governor Adrian Orr will speak tomorrow at the Peterson Institute about monetary policy.
FOREX: Yen Weakness Continues, As US 10yr Yield Hits Multi Month Highs
Yen weakness remains the standout in G10 FX. USD/JPY is quickly closing on 152.00, having got to 151.95, just above the July 25 low. We are around 0.55% weaker in yen terms. The BBDXY USD index sits a little higher relative to end Tuesday levels in the US, last near 1258.8, largely thanks to yen weakness.
- Outside of yen weakness, we haven't seen large G10 FX shifts. The early trend was for broader USD based gains, but as the session has progressed, we have seen more of a risk on feel. CHF is also weaker, albeit off by a little under 0.20% at this stage (last near 0.8670).
- Helping stabilizing sentiment for the likes of AUD and NZD has been a stronger tone to HK and China equities. AUD/USD last just under 0.6680, while NZD/USD is at 0.6040. We are up from earlier session lows.
- US yields are firmer, around 2bps across the Tsy benchmarks. This has aided yen underperform, US-JP yield differentials, particularly for the 10yr tenor continuing to track higher. The 10yr Tsy hitting fresh highs back to late July.
- The AUD/JPY cross has hit fresh highs back to late July, getting close to 101.59. We sit slightly lower now.
- Looking ahead, the Fed’s Bowman and Barkin speak and the Beige Book is published and September existing home sales print. ECB’s Lagarde and Lane appear, as well as BoE’s Breeden and Bailey. The BoC decision is announced and a 50bp rate cut is expected.
ASIA STOCKS: Asian Equities Mixed, HK & China Outperform On Stimulus Hopes
Asian markets are mixed today, in what has been a very quiet session for economic data and headlines. Japan's transport sector has led gains following Tokyo Metro's strong IPO debut, which surged 36% with foreign demand for the stock strong, signaling possible renewed offshore interest in Japanese equities, although political uncertainties ahead of Japan's lower house elections, a strong USD and rising yields have weighed on the market. Elsewhere, Chinese & Hong Kong stocks advanced on hopes of further government stimulus, Korea's benchmark indices have been supported by strong performance from Samsung & SK Hynix.
- US equity futures are trading slightly lower, although remain within recent ranges. Dow -0.30%, S&P 500 -0.10% & Nasdaq 100 -0.15%.
- Intraday flows into South Korean equities, show foreign investors are buying local tech stocks, although flows are still relatively light, there could be a bit of a rotation out of TSMC after its strong rally post earnings, it is 1.40% lower today after falling 0.92% on Tuesday.
- Chinese & HK equities advanced, supported by a government-linked think tank calling for the issuance of 2 trillion yuan in special bonds to create a market stabilization fund, with investors are optimistic about further stimulus from Beijing.
- It is another quiet session globally for economic data, with focus turning to corporate earnings. Later today we have earnings from Coca-Cola, IBM, AT&T and Tesla to name a few.
Oil Prices Lower, US Inventory Data Out Later
Oil prices are down moderately today after a US crude stock build was reported but are off their intraday lows and have been trading in a narrow range. WTI is down 0.2% to $71.58/bbl after a high of $71.66 and Brent is 0.2% lower at $75.87 after approaching $76. The USD index is slightly higher.
- The US’ Blinken is in the Middle East for ceasefire talks while the conflict continues. The market continues to wait for Israel’s retaliation for Iran’s October 1 missile attack.
- Bloomberg reported that refined products in China fell compared to a year ago due to cutbacks driven by weak fuel demand, less profitable exports and the opening of a huge refining facility. State refiners have cut runs by 6.7% y/y in October, according to Mysteel OilChem. Oil markets have been worried about demand from China and are not yet convinced that recent stimulus measures will be effective in boosting growth.
- Bloomberg reported that US crude stocks rose 1.6mn barrels last week, according to people familiar with the API data. Products were lower though with gasoline down 2mn and distillate 1.5mn. The official EIA data is out later today.
- Later the Fed’s Bowman and Barkin speak and the Beige Book is published and September existing home sales print. ECB’s Lagarde and Lane appear, as well as BoE’s Breeden and Bailey. The BoC decision is announced and a 50bp rate cut is expected.
GOLD: Fed, US Election & Middle East Uncertainties = Another All-Time High
Gold is hovering just below its all-time high of 2749.03 in today’s Asia-Pac session. It closed 1.1% higher yesterday. Traders have been drawn to the market amid heightened uncertainty surrounding the tight U.S. presidential election and growing fears that escalating violence in the Middle East could lead to a broader conflict.
- Federal Reserve officials continue to opine on the path forward, with Fed Schmid favouring a slower pace of rate reductions and Fed Daly forecasting more cuts. Lower rates are typically positive for gold, which doesn’t pay interest.
- “Gold is one of this year’s strongest-performing commodities, with gains of more than 30 per cent so far supported by rate-cut optimism, strong central-bank buying and robust Asian purchases,” ING Bank NV wrote in a note. “Haven demand amid heightened geopolitical risks, as well as uncertainty ahead of the US election in November, have also supported gold’s record-breaking rally.” (per AFR)
- According to MNI’s technicals team, technicals for gold remain bullish, with sights on $2,767.1 and $2,785.3 next, Fibonacci projection points.
GLOBAL: IMF Sees China Growth Moderating Towards 3%
The IMF’s outlook for China’s economy is pessimistic with the growth continuing to slow over the forecast horizon, which is likely to reduce its role as an engine of global growth and increase calls for protectionist measures against the country. Also, the IMF’s chief economist Gourinchas said that the latest China fiscal stimulus had not been included in the updated forecasts due to a lack of detail.
- Growth in emerging Asia is forecast to slow to 5.3% in 2024 from 5.7% and then to 5% down 0.1pp compared with July and up 0.1pp vs April. The downtrend continues over the IMF’s forecast horizon driven by China. China’s growth is expected to reach 3.3% in 2029 compared with 4.8% this year and 4.5% in 2025 and the 6% average since 1980.
- The IMF’s Gourinchas said that PBoC rate cuts are unlikely to materially impact China’s growth, while US Treasury Secretary Yellen said that it needs to boost consumption as a share of GDP and sort the property sector problems, neither of which recent measures address sufficiently.
- They noted that excess capacity remains a problem and Yellen said that Chinese subsidies are “utterly enormous” according to Reuters. Trade with China has been a major US election issue and while the bilateral deficit improved from Q4 2022, that trend has stalled again over this year.
- The IMF notes a larger correction in China’s property market, especially if it impacts consumption, as a risk to global growth. An increase in protectionism is also a key risk, the degree to which will be dependent on the US election outcome and continued Chinese subsidies, which have triggered recent EV tariffs in a number of countries.
US trade deficit US$bn 12mth sum
CHINA: Issuance of CNY2tn of Special Purpose Bonds Urged by Think Tank.
- A key government associated think tank (affiliated with the State Council, China’s cabinet) has suggested that up to CNY2 trillion of special government bonds should be issued for the creation of a market stabilization fund (per BBG).
- The purpose of the fund would be to promote market stability via active participation in (primarily) equity markets.
- This proposal would run alongside the PBOC’s re-lending facility that allows companies to draw on the swap line for the purposes of buybacks.
- On the back of a range of stimulus measures announced in September, and following several years of relatively poor performance, China equities performance had been strong until the last week.
- China’s Shanghai Composite is down over 5% from the early October peak and appears to be treading water for now.
- However, even with the recent decline, the index remains up over 20% from the mid-September lows.
- As news from the likes of the IMF show the reservations for China’s GDP growth, further stimulus measures may be required to preserve the equity performance and create a positive environment for growth.
- The markets may also be awaiting fresh economic news to assess the stimulus impact. Outside of higher frequency updates on the property market etc, we get the Oct PMIs at the end of next week.
IDR: FX Intervention a Surprise But Expect More to Come.
- News broke during yesterday’s trading session of intervention by Indonesia’s Central Bank (‘the BI’) in the FX markets following the decline in IDR spot to 15,431.
- In 2024, IDR has averaged 15,784 with a high of 16,450 in June, and a low of 15,100.
- Whilst the BI do not publish any currency target levels, it is very clear that their mandate is currency stability.
- In order to maintain stability, the BI requires FX reserves (typically USD).
- Over the last 5 years, the BI has done a good job in accumulating reserves with the 1-year average reserves up to US$142bn, an increase from the 5-year average of US137bn.
- This is a result of the strength of the domestic economy, the period of (relative) political stability and the international flows into the domestic bond market as a result.
- The currency moves this week are potentially symptomatic of two things namely the swearing in of a new Indonesian government and the improving odds of Donald Trump in the US Presidential race (which at this stage is seen as USD/US yield supportive).
- It is quite likely that with the confidence of the reserves behind them the BI will be more likely to intervene in the weeks ahead to smooth the volatility in their currency.
- Whilst the US political cycle will impact the FX more, global investor portfolio flows will also be impacted by the domestic political cycle.
- It is early days in Prabowo’s government and the appointment of Ms. Indrawati to retain her finance position has been greeted positively.
- We will keep one eye on global investor portfolio flows for government bond as an indicator for how global investors are judging this new era in Indonesian politics.
UP TODAY (TIMES GMT/LOCAL)
| Date | GMT/Local | Impact | Country | Event |
| 23/10/2024 | 0900/1000 | ** |  GB | Gilt Outright Auction Result |
| 23/10/2024 | 1100/0700 | ** |  US | MBA Weekly Applications Index |
| 23/10/2024 | - |  EU | ECB's Lagarde and Cipollone in G20 FMs and CB Governors meeting | |
| 23/10/2024 | 1300/1400 | GB | BOE's Breeden panellist at IIF meeting | |
| 23/10/2024 | 1300/0900 | US | Fed Governor Michelle Bowman | |
| 23/10/2024 | 1345/0945 |  CA | BOC Monetary Policy Report | |
| 23/10/2024 | 1345/0945 | *** | CA | Bank of Canada Policy Decision |
| 23/10/2024 | 1400/1600 | ** | EU | Consumer Confidence Indicator (p) |
| 23/10/2024 | 1400/1000 | *** | US | NAR existing home sales |
| 23/10/2024 | 1400/1600 | EU | ECB's Lane participates in growth talk at IIF Meeting | |
| 23/10/2024 | 1400/1600 | EU | ECB's Lagarde Speech at Atlantic Council event | |
| 23/10/2024 | 1430/1030 | ** | US | DOE Weekly Crude Oil Stocks |
| 23/10/2024 | 1430/1030 | CA | BOC Governor Press Conference | |
| 23/10/2024 | 1430/1630 | EU | ECB's Cipollone in panel by Bretton Woods Committee | |
| 23/10/2024 | 1600/1200 | US | Richmond Fed's Tom Barkin | |
| 23/10/2024 | 1700/1300 | ** | US | US Treasury Auction Result for 20 Year Bond |
| 23/10/2024 | 2030/2130 | GB | ECB's Bailey at IIF meeting | |
| 24/10/2024 | 2200/0900 | *** |  AU | Judo Bank Flash Australia PMI |
| 24/10/2024 | 0030/0930 | ** |  JP | Jibun Bank Flash Japan PMI |
| 24/10/2024 | 0645/0845 | ** |  FR | Manufacturing Sentiment |
| 24/10/2024 | 0715/0915 | ** | FR | S&P Global Services PMI (p) |
| 24/10/2024 | 0715/0915 | ** | FR | S&P Global Manufacturing PMI (p) |
| 24/10/2024 | 0730/0930 | ** |  DE | S&P Global Services PMI (p) |
| 24/10/2024 | 0730/0930 | ** | DE | S&P Global Manufacturing PMI (p) |
| 24/10/2024 | 0800/1000 | ** | EU | S&P Global Services PMI (p) |
| 24/10/2024 | 0800/1000 | ** | EU | S&P Global Manufacturing PMI (p) |
| 24/10/2024 | 0800/1000 | ** | EU | S&P Global Composite PMI (p) |
| 24/10/2024 | 0830/0930 | *** | GB | S&P Global Manufacturing PMI flash |
| 24/10/2024 | 0830/0930 | *** | GB | S&P Global Services PMI flash |
| 24/10/2024 | 0830/0930 | *** | GB | S&P Global Composite PMI flash |
| 24/10/2024 | 1000/1100 | ** | GB | CBI Industrial Trends |
| 24/10/2024 | - | EU | ECB's Lagarde and Cipollone in G20 FMs and CB governors meeting | |
| 24/10/2024 | 1230/0830 | *** | US | Jobless Claims |
| 24/10/2024 | 1230/0830 | ** | US | WASDE Weekly Import/Export |
| 24/10/2024 | 1245/0845 | US | Cleveland Fed's Beth Hammack |