MNI EUROPEAN MARKETS ANALYSIS: USD Recovery Aided By Weaker Yen & AUD

US TSYS: Treasury Futures Edge Higher Post RBA

• Treasury futures have ticked higher post the RBA keeping rates on hold, although we still remain inside Mondays ranges. The 10Y is trading up + 02+ from NY closing levels at 108-31, and just below Mondays highs of 109-01+.
• Earlier we saw a Block flattener trade sell the 5Y buy the 30Y, while there were also a couple of TU-FV-UXY Flys going across the screen.
• The cash treasury curve is little changed today, yields are 1-2bps lower, We currently trade near sessions best levels after initially opening 0.5bps higher across the curve. The 2Y yield is now -1.7bps at 4.814%, while the 10Y yield is -1.8bps at 4.481%.
• Across local rate markets: ACGBs curve is slightly steeper yields are 6-7bps lower, NZGB curve has pivoted at the 7yr, yields are 2-6bps lower while JGBs continue to see better buying in the belly of the curve with yields 1bp higher to 2.5bps lower.
• Looking Ahead: Little on the data calendar for the week, focus will turn to Fed speakers with MN Fed Kashkari at 1130ET.

JGBS: Firmer As Onshore Markets Re-Open, 10yr Debt Supply Tomorrow

JGB futures sit close to session highs in latest dealings. We were last 144.63, +.34.

• Highs not long after the open were at 144.68. Dips back to 144.54 have been supported. Some positive bias from the RBA on hold decision has likely aided futures at the margin this afternoon.
• The broader theme has been one of catch up to a more supportive global fixed income backdrop, as onshore markets were closed through Fri last week and yesterday. We are towards the top end of the range for the past month.
• News flow has been reasonably light, with official comments focused on FX/intervention etc, while April PMI revisions were modest on the data front.
• Cahs JGBs sit lower, led by the 7-10yr parts of the curve. The 10yr is down 2.5bps to 0.875%. 10yr swap is back under 0.95% in latest dealings.
• Tomorrow, we have a quiet data calendar but the 10yr debt sale will be in focus.

AUSSIE BONDS: ACGBs Richer, Curve Slightly Steeper, RBA Keeps Rates On Hold

ACGBs (YM +7.0 & XM +6) are richer today after the RBA as widely expected kept rates on hold at 4.35%, while earlier we had Retail Sales Ex Inflation consensus is -0.3% down from 0.30% in March.

• US Tsys futures have edged a touch higher post the RBA rate decision, with curves little changed.
• The cash ACGB curve is slightly steeper post RBA with yields 6-8bps lower. The AU-US 10-year yield differential is 2.5bps lower at -15.5bps.
• Swap rates are 6-7bps lower.
• The bills strip is slightly cheaper, with pricing f4-7bps higher
• RBA-dated OIS pricing is mixed out past July, with the market pricing 10bps of easing into the year-end from an expected terminal rate of 4.31%.
• Looking ahead, Foreign Reverse at 4.30pm AEST

AUSTRALIAN DATA: Retail Volumes Sink As Inflation Pressures Weigh

Q1 real retail sales fell 0.4% q/q, slightly more than expected, after rising 0.4% q/q. They fell 1.3% y/y after -1.0% in Q4 and have been posting negative annual growth for a year now. The level of sales volumes peaked in Q3 2022 and is now 1.8% below that level as cost of living pressures and higher mortgage payments impact household discretionary spending. Q1 private consumption also includes services spending, but it is looking like it will be weak when GDP is released on June 5.

• The softness in Q1 sales volumes was driven by big ticket items such as large household items, according to the ABS. Food retailing was unchanged, department stores down 0.4% q/q while clothing & footwear rose 1.3% and restaurants & cafes +0.3%.
• With the working population rising 0.7% q/q in Q1, spending per capita fell for the seventh straight quarter and as the ABS says shows clearly “how much consumers have pulled back”. Continued elevated inflation for non-discretionary items, such as insurance and healthcare, has driven the considerable cut back in discretionary spending.
• Retail prices rose 0.6% q/q after 0.2% q/q in Q4.

Source: MNI - Market News/Refinitiv

NZGBS: NZGBs Richer, Curve Flatter, RBA Ahead

NZGBs are 3-6bps richer and trading at the session's best levels, as we head into the close. It has been a relatively quiet session, overnight US tsys did very little. The local market is eagerly awaiting the RBA meeting coming up in just over 30 mins.

• US Tsys yields are little changed today, with futures seeing some block trade activity with a flattener and a couple of fly trades going through.
• Swap rates are 2bps higher in the front-end, with the long end unchanged to 1bps higher.
• RBNZ dated OIS pricing is 2-8bps higher today, A cumulative 45bps of easing is priced by year-end.
• NZGBs are 3-6bps lower today, with better buying in the belly of the curve with yields somewhat pivoting at the 7yr. The 2Y yield is -3.2bps at 4.711%, the 10Y -5.2bps at 4.701%
• Cross-asset NZD is little changed at 0.6013, Equities are down 0.30% while 5Y CDS is 1bp lower at 14bps
• Looking Ahead: NZ to Sell 7yr, 10yr 20yr bonds on Thursday and BusinessNZ Manufacturing PMI on Friday

FOREX: Dollar Firms As USD/JPY Recovery Continues, A$ Down Post RBA

The BBDXY sits firmer in the first part of Tuesday dealing. The USD index last near 1252.70, around 0.1% stronger for the session so far. Yen losses and an AUD dip post the RBA have been the main focus points.

• The RBA left rates unchanged as widely expected, but the statement didn't contain any hawkish shift in terms of the rates bias, while the RBA inflation outlook still has prices returning towards target unchanged from the prior meeting. This comes despite the Q1 upside inflation surprise.
• Given adjustments to market pricing this has been enough to weigh on the AUD. We are back to 0.6600, off around 0.4%, and close to session lows.
• NZD/USD is close to unchanged, last near 0.6005/10, hence the AUD/NZD cross is down to 1.0985/90.
• USD/JPY has continued to recover ground, last near 154.50. Earlier highs in the pair were at 154.65. In the absence of further intervention flows the path of least resistance in USD/JPY has been to the upside. Earlier dips to 153.85/90 were supported.
• Still to come we have RBA Governor Bullocks press conference. Later the Fed’s Kashkari speaks and March US consumer credit is released. There are also March German factory orders and euro area retail sales.

ASIA EQUITIES: China & Hong Kong Equities Head Lower, Property Rules Relaxed

Hong Kong and China equities are lower today, there has been very little in the way of headlines or economic data. Recently, Hong Kong equity markets have been outperforming since China announced measures to support them with the HSI now up 10.51% vs the CSI up just 3.41% over that period. The city of Shenzhen has relaxed home buying rules to help the struggling sectors while Investors have been buying onshore Chinese equities recently with flows via the northbound connect picking up while stock turnover in mainland equities has topped 1tln yuan for the fourth day on Monday, with high turnover a feature of prior rallies.

• Hong Kong equities are mixed today the HSTech Index is down 2.00%, taking a break from it's recent 20% rally, the Mainland Property Index is up 0.28% while the wider the HSI is down 0.85%. China onshore markets are performing slightly better today with the CSI300 down 0.17% still holding above the 200-day EMA, while small-cap indices the CSI1000 and CSI2000 are both down about 0.10%, and the ChiNext has erased earlier gains to trade down 0.30%
• China Northbound saw a 9.31b yuan inflow on Monday. Equity flow momentum is strong in the short-term with the 5-day average at 6.87b, well above the 20-day average at 0.76b and the 100-day average at 0.77b yuan.
• In the property space, the city of Shenzhen, has relaxed home buying rules in an effort to stimulate the struggling real estate market, joining other cities in similar efforts. The city has eased personal income tax and social insurance payment requirements for home buyers, allowing local families with two or more children to purchase additional homes in certain districts. This move follows previous measures implemented in February, reflecting ongoing concerns about declining home prices and property investment nationwide.
• Looking forward, it is a quiet week for economic data in the region with Hong Kong and China Foreign Reserves are due out later today and China Trade Balance on Thursday

ASIA PAC EQUITIES: Asian Equities Head Higher On US Rate Cut Bets, RBA On Hold

Asian markets are higher today, with South Korea and Japan both returning from breaks. South Korean equities are the top performing today as tech stocks traded up 1% overnight, with the market bringing forward rate cut expectations to November from December. Locally, focus today has been on the RBA where left rates on hold as widely expected. The RBA also stuck to the line of not ruling anything in or out. The forecast profile sees higher inflation in the near term but still returning to target by end 2025 and the mid point 2026, elsewhere Philippines CPI was below consensus.

• Japanese equities are higher today with the Nikkei 225 is performing better than the Topix largely due to the higher concentrations of tech names in the index. Focus is still on the JPY as it has continued it's slide again, with the USDJPY now trading back at 154.60 vs the lows made on May 3rd of 151.86, the currency may have more room to fall after comments earlier from Kanda where he said "intervention is not necessary if markets are orderly". Focus this week will be on earnings from Toyota and Tokyo Electron. The Topix is up 0.42%, while the Nikkei 225 is up 1.35%.
• South Korean equities have soared higher after returning from a break on Monday, hopes of an earlier Fed rate cut are helping spur chip names higher. Samsung and SK Hynix are the the biggest contributors to the market gains. There is little in the way of economic data out for the next week in South Korea, with focus largely on global events and corporate earnings. The Kospi is up about 2.00%, trading well above all moving averages, while there are increasing greens bars for the MACD indictor and the 14-day RSI has ticked up to 58.
• Taiwan equities are higher today, with semiconductor names the top performing sector. The Taiex is now up 6.71% from lows made the day of the Israel/Iran conflict, and now comfortably trades above all major EMA's while the 14-day RSI sits at 58.5 and the MACD has increasing green bars indicating buyers are in control. Looking ahead focus will turn to CPI due out later today with consensus of 2.20% up from 2.14% in March. The Taiex is up 0.36%.
• Australian equities have benefitted from the RBA keeping rates on hold, the ASX200 was trading 0.77% higher prior to the announcement, and now trades up 1.20% Earlier we had Retail Sales Ex Inflation come in below expectations at -0.4% vs -0.3% and down from 0.40% in 4Q.
• Elsewhere in SEA, New Zealand equities are down 0.25%, Indonesian equities continue to see foreign investors selling, although the market has held up relatively well and trades unchanged today. Malaysian equities are making new all-times-highs, while foriegn investors continue to buy the market is up 0.75% today, Singapore equities are up 0.10%, while Philippines CPI missed estimates earlier coming in at 3.8% vs 4.1% with the PSEi down 0.20%

ASIA EQUITY FLOWS: China Continue To See Inflows, Investors Dump Indonesian Stocks

• China equity markets returned from their 3-day break with a strong 9.3b yuan inflow via the northbound connect. Small-cap and growth indices were the top performing, while the CSI300 is now comfortably trading above all major EMAs. Markets are being well supported by Beijing’s supportive policy stance. Looking ahead trade balance data on Thursday will be the main focus, with CPI due out over the weekend. Equity flow momentum continues to grow with the 5-day average now 6.9b well above the 20-day average at 0.76b and the 100-day average at 0.77b.
• Taiwan equities were higher on Monday with another strong $688m inflow, as foreign investors continue to pump cash into semiconductor names, especially TSMC and Hon Hai. Later today we have CPI data with consensus at 2.20% up from 2.14% in March. The Taiex is up 6.77% from recent lows and has seen $2.23b on inflows over that period, although that is still less than the $2.7b outflow from Apr 19th and the cycle lows. The 5-day average is now $356m well above the 20-day average of -$202m and the 100-day average at $58m.
• Philippines equities have now marked 4 straight days of outflows, for a total net outflow of $316m. After a strong bounce off recent lows the PSEi has begun to lose steam again, and now tests the 20 & 100-day EMAs. CPI missed consensus coming in at 3.8% vs 4.1% expected, and slightly higher than the 3.7% in March. The 5-day average is -$59m, the 20-day average is -$22.5m, while the 100-day average continues to edge lower now at -$2.9m.
• Indonesian equities have now marked 21 of 23 days of outflows and now takes the total flows from the past 22-days to -$1.53B. The JCI has traded largely rangebound since foreign investors started this period of selling, implying domestic buyers are so far buyers of local equities. The 5-day average is now -$53m, the 20-day average is -$71m, while the longer term 100-day average is $8m.
• Malaysian equities continue to make new all-time highs and trade well above all major EMAs, the RSI is now in overbought territory, while foreign investors have been buying over the short term with the 5-day average now $48m, vs the 20-day at -$10m and the 100-day average at -$3.3m

Table 1: EM Asia Equity Flows

OIL: Geopolitics Driving Oil Prices Again As Gaza Negotiations To Continue

Oil prices are off their intraday highs and began to moderate as the US dollar rose. They are still up moderately during the APAC session. Negotiations on a Gaza truce will continue in Egypt after Hamas responded. A deal is likely to drive crude lower as the geopolitical risk premium unwinds further. The USD index is up 0.1%.

• WTI is up 0.3% to $78.71/bbl after falling to $78.55 following a high of $79.02. Brent is 0.3% higher at $83.57 after a low of $83.36 and a high of $83.82.
• Geopolitics are currently the focus of energy markets. A “softened” version of the US/Egyptian brokered proposal has been agreed to by Hamas, according to Reuters. This amended offer has been unanimously rejected by Israel’s war cabinet but it will send negotiators back to Egypt. Israel has begun operations in Rafah.
• Last week the US recorded a strong crude inventory build and so the API data released later today will be monitored closely given the upcoming driving season. The EIA also releases its Short-Term Energy Outlook today. BP and Aramco release earnings as well which may include commentary on the outlook.
• Later the Fed’s Kashkari speaks and March US consumer credit is released. There are also March German factory orders and euro area retail sales.

GOLD: Consolidates Monday's Gains

Gold has been relatively steady in the first part of Tuesday trade. We were last near $2324.5, close to the middle part of the rough $2320-$2330 range observed so far in Tuesday trade. Current levels are little changed versus end NY levels from Monday trade (where gold prices rose nearly 1%).

• Supports for gold have come from fresh Mid East tensions, around uncertainty on peace prospects.
• USD sentiment has been more stable today, while US yields are down a touch, providing some offset.
• Goldman Sachs has reiterated its $2700 forecast for end 2024, stating strong EM central bank demand will aid the bullion backdrop (see this BBG link).
• Levels wise, we are above the 20-day EMA, last near $2315.55, while dips sub $2280 have been supported. Recent highs from late April rest around $2352.6.

ASIA FX: Most USD/Asia Pairs Higher As Yen Weakens

USD/Asia pairs are mostly higher, which is in line with generally firmer USD tone against the majors, most notably yen. Asian FX losses are modest but fairly uniform at this stage. USD/CNH has crept higher, while onshore spot has lost ground as well. Still to come today is Taiwan CPI, while Singapore and Hong Kong FX reserves are also out. Tomorrow, we have Taiwan trade figures for April, along with March Philippines trade data and Indonesia FX reserves.

• USD/CNH has spent most of the session with a modest upside bias. Sellin interest has been evident on moves above 7.2200, while onshore spot is back to 7.2170. The yen is down around 0.40%, so that will have weighed on yuan sentiment. In terms of local equities, we are close to flat so far in Tuesday trade.
• 1 month USD/KRW is slightly higher, last near 1356, around 0.20% weaker in won terms. Onshore markets were closed yesterday, with onshore spot slipping back sub 1360, as this market plays catch up. Onshore equities are up around 2%, in line with solid tech gains offshore. Again though, the slightly firmer USD backdrop against the major is providing an offset to these positive.
• Philippines inflation data was slightly under expectations, but he BSP still sees risks towards the upside, particularly for the next few quarters. USD/PHP is little changed, last around 57.20/25.
• USD/IDR is slightly higher, last around 16055, an IDR loss of 0.20%. USD/THB is slightly lower, last near 36.75. The new Thailand Finance Minister stated he hopes the government and central bank can be coordinated from a policy standpoint.

PHILIPPINES DATA: Inflation Back Towards Top End Of Target Band But Not As Strong As Feared

Philippines April inflation was not as strong as forecast. The print coming in at 3.8% y/y, versus 4.1% projected but versus 3.7% prior.

• M/M inflation fell 0.1% against a +0.2% forecast and 0.1% rise prior. Food prices fell 0.2% m/m (after a 0.3% fall last month). The downward shift came from housing and utilities, which fell 0.5% m/m (versus flat in March).
• Working the other way transport prices rose 0.6 (versus 0.2% prior). Most other sub-indices saw similar or slightly lower m/m outcomes versus March.
• In y/y terms it was a similar backdrop. Food prices rose to 6.0%, while transport rose to 2.6% (from 2.1%). Other sub indices were mostly lower or the same as the March outcome in y/y terms.
• Core CPI moved down to 3.2% y/y, from 3.4% prior. We are back to Q2 2022 levels from a core momentum standpoint.
• Official comments after the print noted on-going food inflation concerns, particularly in terms of rice prices (up 23.9% y/y).
• The BSP stated inflation risks still rest to the upside and that inflation may be above target (2-4%) in the next 2 quarters. Still, average 2024 and 2025 inflation are expected to within the target range. The next BSP meeting is on May 16 (before then we also get Q1 GDP on May 9).