- China loan prime rates were cut more than forecast (25bps) but impact on broader sentiment has not been long lasting. China equities are still higher, while the USD has mostly been supported on dips. Election odds continue to push in Trump's favor. It has been a steady start for US TSYs this week.
- South Korea exports (for the first 20-days of October) point to some slowing in global trade growth.
- Commodities are mixed, metals higher but away from best levels, likewise for gold. Oil is a touch higher.
- Looking ahead, the Fed’s Logan, Kashkari, Schmid and Daly speak and the US leading index for September is released. IMF/World Bank meetings are taking place. US PMIs on Thursday are likely the key data for the week.
MARKETS
US TSYS: Tsys Futures Steady, Focus On Corporate Earnings This Week
- Tsys futures are little changed for far today, TU is unch at 103-14¼, while TY is -01 at 112-06. Headlines have been light in the region so far today, China lower LPR to support the local economy, while Oil prices have edges slightly higher after a decent drop last week.
- There is very little on the economic calendar this week, focus turning to corporate earnings with 15% of S&P 500 due to report this week, Verizon, GE, Lockheed Martin, Coca-Cola to report first.
- The 10yr is holding steady at 4.081%, trading just at the 200-day EMA resistance. Curves were little changed over the past week with the 2s10s flattening 1bps, while the 5s10s steepened 0.5bps.
- Fed funds futures now vs 1 week ago; November 23.6bps vs 21.7bps, December 43.6bps vs 44.3bps, January 62.1bps vs 63.4bps.
POLITICAL RISK: US Election Odds - Betting Markets See Trump Pulling Ahead
- Betting agencies show Trump continues to pull further ahead. Polymarket is now at 60% vs 40%, while Kalshi is 58% vs 42% both in Trumps favor.
- According to Polymarket, Trump has taken the lead in Nevada, with the odds now 55% v 45% this would give him lead in all 6 key swing states. Kalshi has odds slightly different with Harris leading in Michigan 51% v 49%, while Nevada is much closer at 51% vs 49% in Trumps Favor.
- RealClearPolitics has Kamala leading at 49.2 vs 48.3, although momentum in Trumps favor after rising from 47.2 at the start of October, while Harris has held steady.
- PredictIt now also shows Trump leading with a 54%, although down from a recent high of 55% on Monday, while they have Harris at 50%.
- Looking at equities that will benefit from a certain party winning, The BofA and separately the Goldman Republican victory basket overtook the Democratic victory basket back on Oct 11th, both for the first time since the Sept 10th debate. The Trump Media & Technology Group stock price has also surged 143% since Step 23 lows.
Chart. PredictIt Presidential Winner
JGBS: Futures Stronger & At Session Highs, 10Y GX Supply Tomorrow
JGB futures are stronger and at session highs, +18 compared to the settlement levels.
- Support for Japanese Prime Minister Shigeru Ishiba’s ruling coalition is continuing to soften in the runup to this coming weekend’s election, two polls showed, indicating the possibility that the vote may result in a weakened and unstable administration.
- “If Japan’s ruling coalition unexpectedly loses its majority at the Oct. 27 lower house elections and Prime Minister Ishiba faces pressure to step down early, there’s a high possibility that political uncertainties will cause drops in Japanese stocks, the yen and JGB yields in the short term, writes Ataru Okumura, senior interest rate strategist at SMBC Nikko Securities.” (per BBG)
- Cash US tsys are little changed in today’s Asia-Pac session after Friday’s modest bull-steepener.
- Beyond the 1-year (+4.4bps), cash JGBs are flat to 1bp richer out to the 20-year, but ~2bps cheaper for longer-dated maturities. The benchmark 10-year yield is 1.4bps lower at 0.963% versus the cycle high of 1.108%.
- Swap rates are 0.5bp lower to 1bp higher, with a slight steepening bias. Swap spreads are wider out the 20-year and tighter beyond.
- Tomorrow, the local calendar is empty from 10-year GX supply.
AUSSIE BONDS: Slightly Richer, Domestic Calendar Light Again Tomorrow
ACGBs (YM +2.0 & XM +2.0) are slightly stronger after today’s fireside chat by RBA Deputy Governor Hauser at the CBA 2024 Global Markets Conference.
- “The response of interest-rate traders to Australia’s recent economic data suggests the Reserve Bank’s policy reaction function is being understood, Deputy Governor Andrew Hauser said.” (See BBG link)
- Today’s auction showcased strong demand for ACGBs, with the weighted average yield coming in 0.94bps below the prevailing mid-yields. The cover ratio surged to 4.7486x, significantly higher than the previous auction’s 3.520x. This week's ACGB supply is larger with the usual weekly issuance of A$1.5bn, with A$800mn of the 4.25% 21 December 2035 bond due on Wednesday and A$300mn of the 4.25% 21 June 2034 bond on Friday.
- Cash US tsys are little changed in today’s Asia-Pac session after Friday’s modest bull-steepener.
- Cash ACGBs are 1-2bps richer with the AU-US 10-year yield differential at +21bps.
- Swap rates are flat to 1bp lower, with a slight flattening bias.
- The bills strip is flat to +1.
- RBA-dated OIS pricing is steady. A cumulative 4bps of easing is priced by year-end.
- Tomorrow, the local calendar is empty.
NZGBS: Closed Flat, Subdued Start To The Week For Global Bonds
NZGBs closed flat after trading 1-2bps richer earlier in the session. NZ-US and NZ-US 10-year yield differentials finished 1bp wider than Friday’s closing levels.
- With the domestic calendar light today, the local market sought guidance from US tsys. However, cash US tsys are little changed in today’s Asia-Pac session after Friday’s modest bull-steepener.
- With a limited docket of impactful events on this week's US schedule, the focus will be on weekly jobless claims data and flash PMIs, with appearances by FOMC members Logan and Schmid featuring Monday, and the Fed's Beige Book out Wednesday.
- Swap rates closed 1bp higher, with implied swap spreads wider.
- RBNZ dated OIS pricing closed flat to 3bps softer, with April 2025 leading. A cumulative 101bps of easing is priced by February, with 56bps by year-end.
- Tomorrow, the local calendar will see Trade Balance data and a speech on Financial Markets by RBNZ Assistant Governor Silk. RBNZ Governor Adrian Orr will speak about monetary policy at the Peterson Institute on Thursday.
STIR: RBNZ Dated OIS Holding Post-CPI Softening
RBNZ-dated OIS pricing ended the day flat to 3bps softer, with the April 2025 contract leading the shift. Notably, pricing for 2025 meetings is now 4-12bps softer compared to last week’s levels before the release of Q3 CPI data.
- The market is currently pricing in 56bps of easing for the November meeting, with a cumulative 101bps expected by February and 159bps by July.
- This signals a growing expectation of significant easing by the RBNZ as inflationary pressures appear to be moderating.
Figure 1: RBNZ Dated OIS: Today Versus Last Week’s Pre-CPI Levels (%)
Source: MNI – Market News / Bloomberg
FOREX: USD Ticks Lower, China Asset Sentiment Positive After LPR Cuts
The USD sits slightly weaker in in the first part of Monday trade although outside of JPY, AUD & NZD up around 0.15%, moves have been very modest in the G10 FX space. The USD BBDXY index was last 1251.60, slightly down on end levels from last week.
- AUD/USD sits slightly firmer at 0.6715. Earlier we had comments from RBA Deputy Governor Hauser, that the central bank has been surprised by the strength in the labour market. Hauser also stated inflation was too high but the RBA was prepared to act in both directions given so much uncertainty surrounding the outlook.
- China related asset sentiment has mostly been positive, after banks cut both the 1yr and 5yr LPR by 25bps (consensus had looked for a 20bps cut). China equities are higher at the break, while metal prices have also firmed.
- NZD/USD has ticked higher, last at 0.6080, but remains very much within recent ranges.
- USD/JPY is down to 149.25/50, backing away from a test of 150.00 for now. Earlier lows were just under 149.10.
- In the cross asset space, US equity futures are close to flat, while US yields have also been close to unchanged. Gold prices are higher.
- Looking ahead, the Fed’s Logan, Kashkari, Schmid and Daly speak and the US leading index for September is released. IMF/World Bank meetings are taking place. US PMIs on Thursday are likely the key data for the week.
USD Risk Reversals Firm With Trump Election Odds, Other Factors Supportive
A proxy for the USD risk reversal (the BBDXY index, see .BBDXYR1M on BBG) sits close to multi month highs. The chart below plots this proxy against the Trump election odds (per PredictIt). The move up in the USD risk reversal is in line with Trump election odds also moving to multi month highs. Trump is seen as supporting the USD via higher tariffs, but also reflationary policies, which could drive US yields/rates higher, all else equal.
- This is not the only driver of USD gains though, with US data momentum outperforming the major economies in recent weeks. The Citi EASI sits at +14.8, fresh highs back to late April of this year. The Atlanta Fed GDP nowcaster is at +3.43%, also fresh multi month highs.
- Some developments outside of the US have also turned more supportive for the dollar. The second chart below plots spot EUR/USD against the real yield differentials (proxied by the German - US real 10yr differential).
- Until we start to see this differential turn higher we may see EUR remain under pressure, which will have broader implications for dollar sentiment.
- As we noted earlier the CFTC positioning update from the end of last week showed a large shift in favor of the USD, so we may see more two-way price action in the lead up to the US election.
Fig 1: USD Risk Reversals (proxy via BBDXY series) & Trump Election odds.
Source: MNI - Market News/Bloomberg
Fig 2: EUR/USD Has Tracked Lower With Weaker Real Yield Differential
Source: MNI - Market News/Bloomberg
FOREX: Positioning Swings Sharply Towards USD, Close To Earlier 2024 Extremes
The IMM CFTC positioning update from Friday (up to the 15th of Oct, last Tuesday) showed a sharp shift back in favor of the USD. The table below outlines the shift in weekly positions by currency, by leveraged contracts and for asset managers. For leveraged managers, only yen long positions were added to last week. All other segments saw net selling, particularly in terms of AUD. For the asset management segment, we only saw CHF shorts trimmed slightly.
- Asset managers returned to shorts in AUD, while leveraged names nearly halved their longs. Asset managers were also particularly aggressive in position adjustments for EUR (cutting longs) and CAD (adding to shorts).
- The second chart below plots the aggregate weekly change in USD positioning across asset managers and leveraged contracts (net negative results means adding to USD positions and vice versa for positive outcomes.
- We haven't seen such a sharp swing in favor of the USD since the middle of this year.
- Interestingly the prior two occasions we saw such a position adjustment the USD BBDXY index faltered around the same time or not long after. The caveats this time around are that the BBDXY level is lower, while the US election is also closer. Macro shifts in terms of US data surprises and growth expectations (which has impacted the Fed outlook) have also been in play. Still, given the size of the position adjustment per CFTC some of this is arguably now discounted by the market.
Table 1: CFTC Positioning By Currency/By Type
| Leveraged Contracts | Asset manager Contracts | |||
| Weekly Change | Outright Position | Weekly Change | Outright Position | |
| JPY | 1572 | 9513 | -10377 | 9331 |
| EUR | -5003 | 12903 | -44026 | 222639 |
| GBP | -7082 | 58778 | -2302 | 9590 |
| AUD | -10563 | 12014 | -16457 | -10104 |
| NZD | -3169 | 5489 | -2726 | -634 |
| CAD | -1129 | -56011 | -48990 | -122849 |
| CHF | -2109 | -4590 | 121 | -22326 |
| MXN | -6681 | -6548 | -4304 | 40433 |
Source; CFTC/MNI - Market News/Bloomberg
Fig 1: Net Change In USD Positioning & BBDXY USD Index
Source: Source; CFTC/MNI - Market News/Bloomberg
EQUITIES: Asian Equities Edge Higher, Tech Outperforming Ahead Of Earnings
Most Asian equity markets are trading higher today with gains seen in South Korea, Taiwan, Australia, China, while Japanese equities are mixed, Hong Kong equities are the worst performing across the region. Chinese stocks rose after banks cut lending rates to support economic growth, with the CSI 300 up 0.85%, while the small & growth focus indices jumped 2-3%. Middle East tensions pushed gold to a record high above $2,730 while other previous metals followed with silver, palladium, and platinum also trading higher.
- Asian tech stocks are the top performers today with TSMC and SK Hynix driving gains, particularly due to continued enthusiasm for AI chip stocks. Tech stocks in Hong Kong were lower, however they did outperform the wider market, with the HSTech index -0.25% vs the HSI down 0.55%. Elsewhere in tech, Australia's Wisetech Global plunged 11.4% after concerns arose regarding the company's leadership.
- South Korea has seen small inflows from foreign investors today, with focus on buying tech stocks, while they have been better sellers of Transport, Financials & Steel names
- Previous metal miners continue to benefit from higher commodity prices, as gold makes new all time highs, while Silver trades up 7.10% over the past three sessions.
- US equity futures are trading little changed today with Dow Jones +0.05%, S&P 500 unch & Nasdaq 100 -0.08%.
- It is a quiet week for economic data in Asia & US this week, key meetings from the IMF and World Bank will be closely watched. Drivers of prices this week will largely be earnings related, 15% of S&P 500 due to report this week with Verizon, GE, Lockheed Martin, Coca-Cola to report first.
ASIA STOCKS: Asian Equity Flows Mixed, Investors Dump Indian Equities
Taiwan saw strong inflows on Friday, as investors looks to jump back into TSMC after strong earnings during the week. Elsewhere flows were mixed, SK saw the 3rd session of above 5-day average outflows while India saw the 13th straight session of outflows for a total size of $9.2b over that period.
- South Korea: Recorded outflows of -$371m Friday, bringing the 5-day total to -$1.02b. YTD flows remain positive at +$8.77b. The 5-day average is -$205m, worse than the 20-day average of -$231m and the 100-day average of -$63m.
- Taiwan: Saw strong inflows of +$1.45b Friday, with +$1.40b over the past 5 days. YTD flows remain deeply negative at -$11.01b. The 5-day average is +$280m, better than the 20-day average of +$192m and above the 100-day average of -$162m.
- India: Experienced outflows of -$869m Thursday, with a total of -$2.26b over the past 5 days. YTD inflows stand at +$2.55b. The 5-day average is -$452m, worse than both the 20-day average of -$317m and the 100-day average of +$59m.
- Indonesia: Posted inflows of +$19m Friday, bringing the 5-day total to +$78m. YTD flows remain positive at +$2.92b. The 5-day average is +$16m, better than the 20-day average of -$38m but slightly lower than the 100-day average of +$31m.
- Thailand: Recorded outflows of -$8m Friday, with -$64m over the past 5 days. YTD flows are negative at -$3.13b. The 5-day average is -$13m, which is better than the 20-day average of -$28m but worse than the 100-day average of -$12m.
- Malaysia: Saw inflows of +$27m Friday, contributing to a 5-day inflow of +$94m. YTD flows stand at +$653m. The 5-day average is +$19m, better than the 20-day average of -$17m and in line with the 100-day average of +$6m.
- Philippines: Reported minor inflows of +$3m Friday, with net inflows of +$19m over the past 5 days. YTD flows are +$97m. The 5-day average is +$4m, slightly lower than the 20-day average of +$13m and in line with the 100-day average of +$4m.
Table 1: EM Asia Equity Flows
OIL: Crude Stabilises But Finds Little Support From China Rate Cuts
Oil prices have stabilised during APEC trading today after falling almost 2% on Friday but have found little support from China’s LPR cuts. WTI is up 0.4% to $68.94/bbl after a high of $69.03 earlier, and Brent is 0.2% higher at $73.22/bbl after rising to $73.32. Crude markets are currently focused on supply/demand fundamentals but the conflict in the Middle East continues to be monitored closely. The USD index is down slightly.
- China’s 1-year LPR was reduced 25bp to 3.1% and 5-year to 3.60% - 5bp more than Bloomberg consensus was forecasting. Oil has been concerned for some time about the outlook for China given it is the world’s largest crude importer. It was disappointed with fiscal announcements made this month.
- The market continues to wait for Israel’s retaliation for Iran’s October 1 attack and Bloomberg is reporting that PM Netanyahu has met with advisors on how Israel should respond.
- Later the Fed’s Logan, Kashkari, Schmid and Daly speak and the US leading index for September is released. IMF/World Bank meetings are taking place. US PMIs on Thursday are likely the key data for the week.
GOLD: Up For A Fifth Consecutive Session
Gold is 0.3% higher in today’s Asia-Pac session, after closing 1.1% higher at $2721.46 on Friday.
- Friday’s gain took bullion’s winning streak to four consecutive sessions, while today’s move has extended the record high to $2,732/oz.
- Analysts note that US election hedges and ongoing geopolitical uncertainties could drive gold higher near-term.
- Cash US tsys are ~1bp cheaper in today’s Asia-Pac session after Friday’s modest bull-steepener. With a limited docket of impactful events on this week's US schedule, the focus will be on weekly jobless claims data and flash PMIs, with appearances by FOMC members Logan and Schmid featuring Monday, and the Fed's Beige Book out Wednesday.
- Lower rates are typically positive for gold, which doesn’t pay interest.
- According to MNI’s technicals team, the clearance of $2,700 reinforces current bullish trend conditions, with sights on $2737.8 next, a Fibonacci projection.
CHINA: 1 and 5-year Loan Prime Cuts More than Expected.
- China cut the 1-year LPR rate to 3.10% for October down from 3.35% in September.
- China cut the 5-year LPR rate to 3.60% for October down from 3.85% for September.
- The LPR is viewed as the benchmark for lending in China and is a quote-based system where qualified banks submit to the Central Bank rates offered.
SOUTH KOREA: Weak Trade Data Puts Focus Back on BOK.
- South Korean exports for the first 20 days of October slumped to -2.9% YoY.
- South Korean imports recorded a dramatic decline for October down -10.1%.
- The decline in exports is worrying and the accompanying trade deficit was impacted by declines in oil products and wireless communication devices despite chip exports remaining robust.
- Whilst for now chip exports remain a key support to Korean trade, there are signs that global demand for chips could be at peak, which presents downside potential for the economy.
BNM: Malaysia’s Economy Continues to Perform.
- Malaysia’s third quarter GDP came in at +5.3% today, ahead of market expectations.
- Survey’s expected the economy to expand +5.2%, following the second quarter result of +5.9%.
- Whilst mining and Agriculture slipped from Q2, Manufacturing continued its outperformance potentially supporting the government’s attempt to position Malaysia as an alternate venue for International Companies.
- The construction sector too expanded more than expected delivering its third successive quarter of double digit growth.
- The Central Bank of Malaysia Bank Negara has been on hold since May when rates were increased to 3.00%.
- Unlike regional neighbours, Malaysia’s Central Bank does not appear to moving closer to a cut in rates as inflation moderates and today’s release shows that GDP remains robust.
ASIA FX: USD/CNH & USD/KRW Supported On Dips, TWD Outperforms
Both USD/CNH and USD/KRW have been supported on dips so far today. TWD has outperformed notably, gaining over 0.40% versus the USD.
- USD/CNH sub Friday lows, getting to 7.1081, before some support kicked in. We track near 7.1155 in latest dealings, little changed for the session. the lows in USD/CNH came not long after the equity market open. Sentiment was supported by the larger than expected LPR cuts (1yr and 5yr reduced by 25bps, instead of the 20bps consensus expected). It wasn't a total surprise though, given PBoC Governor Pan on Friday stated that the rates would likely be cut by 20-25bps. China equities are higher at the break (CSI 300 +0.85%), while the CNY fixing was neutral.
- Spot USD/KRW sits back near 1373 in latest dealings, around a 0.30% loss in won terms. Earlier lows were at 1366.5. We are still short of recent highs 1373.75. Onshore equities are higher, while offshore equity inflows are modestly positive. These moves haven't had a lasting positive impact on sentiment though. Earlier data showed export growth is slowing, with daily average exports only modestly positive for the first 20-days of the month.
- Spot USD/TWD is down sharply, last near 31.94. this is fresh lows since the earlier in the month. Carry over from strong equity inflows at the tail end of last week (post the TSMC earnings beat) is a positive. Late Sep lows in the pair near 31.56 are still some distance away though.
ASIA FX: Early SEA FX Gains Largely Not Sustained
In South East East, most USD/Asia pairs are up from earlier lows. This is line with USD/CNH dips being supported, while against the majors, outside of modest yen gains, we haven't seen G10 currencies sustain firmer levels against the USD.
- USD/MYR is down slightly, last near 4.3030. Earlier data showed Q3 GDP print stronger than forecast, with 5.3%y/y, versus 5.1% projected. This continues the generally resilient Malaysian economic backdrop. Domestic focus is also likely to rest on potential changes to fuel subsidy scheme. Earlier lows in the pair were at 4.2970.
- USD/THB has seen more upside momentum compared to prior sessions. From recent lows near 33.09 we have pressed back above 33.25.
- USD/IDR opened lower but found support near 15430, we sit back at 15475, slightly weaker in IDR terms for the session. Focus is likely to shift to the new Prabowo government, although fiscal discipline is likely to be maintained with Indrawati staying on as Fin Min.
- USD/PHP also saw early downside momentum, the pair falling to 57.26, but we have rebounded this afternoon, back to 57.45/50, only a modest 0.1% firmer in PHP terms for the session. Friday's strong BoP surplus may have aided early sentiment today.
- Chinese Banks Slash Lending Rates to Bolster Ailing Economy (source: BBG)
- The Chinese central bank’s program to issue loans for share buybacks has provided immediate support for stock prices but also raised questions about its long-term effectiveness and borrowers’ intrinsic value, according to traders and analysts (source: BBG).
- On the back of the reduction in the 1 and 5-year LPR, equity markets responded positively with the Shanghai Comp up +.80% whilst bond markets were unchanged.
2yr 1.497% 5yr 1.786% 10yr 2.123% 30yr 2.305%
UP TODAY (TIMES GMT/LOCAL)
| Date | GMT/Local | Impact | Country | Event |
| 21/10/2024 | 0600/0800 | ** |  DE | PPI |
| 21/10/2024 | - |  EU | ECB's Lagarde and Cipollone participate in IMF/World Bank Meetings | |
| 21/10/2024 | 1255/0855 |  US | Dallas Fed's Lorie Logan | |
| 21/10/2024 | 1530/1130 | * |  US | US Treasury Auction Result for 13 Week Bill |
| 21/10/2024 | 1530/1130 | * |  US | US Treasury Auction Result for 26 Week Bill |
| 21/10/2024 | 1700/1300 |  US | Minneapolis Fed's Neel Kashkari | |
| 21/10/2024 | 2105/1705 |  US | Kansas City Fed's Jeff Schmid | |
| 21/10/2024 | 2240/1840 |  US | San Francisco Fed's Mary Daly | |
| 22/10/2024 | 0600/0700 | *** |  GB | Public Sector Finances |
| 22/10/2024 | 0900/1000 | * |  GB | Index Linked Gilt Outright Auction Result |
| 22/10/2024 | 1230/0830 | * |  CA | Industrial Product and Raw Material Price Index |
| 22/10/2024 | 1230/0830 | ** |  US | Philadelphia Fed Nonmanufacturing Index |
| 22/10/2024 | 1255/0855 | ** |  US | Redbook Retail Sales Index |
| 22/10/2024 | 1325/1425 |  GB | BOE's Bailey address at Bloomberg Global Regulatory Forum | |
| 22/10/2024 | 1345/1445 |  GB | BOE's Greene fireside chat with Josh Lipsky |