MNI EUROPEAN MARKETS ANALYSIS: Weaker China Imports Weigh On The Recovery Theme

US TSYS: Marginally Firmer In Asia

TYM3 deals at 115-10, +0-04+, a touch off the top of the 0-05 range on volume of ~55k.

• Cash tsys sit 1-2ps richer across the major benchmarks, the curve has bull steepened.
• Tsys firmed off session lows as the USD trimmed early gains, however moves have been limited on Tuesday with little follow through.
• Early in the session there was a muted start to the day's trading as local participants digested yesterday's corporate issuance driven cheapening as well the latest quarterly NY Fed quarterly loan officers survey.
• President Biden and top congressional leaders will gather at the White House for debt ceiling talks. It will be the first meeting between House Speaker Kevin McCarthy and Biden on the issue since February.
• There is a thin docket in Europe today. Further out Redbook Retail Sales Index and IBD/TIPP Optimism Index will cross. On the wires we also have Fedspeak from Fed Governor Jefferson and NY Fed President Williams as well as the latest 3 Year supply.

JGBS: Futures At Cheaps After A Relatively Poor 10-year JGB Auction

JGB futures hit session lows in afternoon trade, currently -27 versus settlement levels. This drop followed a relatively poor showing in the 10-year JGB supply, which had a cover ratio of 3.60x. This ratio represents the lowest level observed at a 10-year JGB auction since August 2022.

• Expectations of a near-term tweak to YCC over the coming months due to growing inflationary pressures look to have capped demand. To that end, Governor Ueda’s comments in Parliament today regarding encouraging trends in inflation and a willingness to end YCC once the 2% inflation target is reached in a stable and sustainable manner are likely to have weighed on the auction result.
• Despite today’s cheapening, JBM3 is still positioned within a range of 147.92 (the upper limit of April's trading range) and 149.53 (the high point of March 22), currently trading at 148.39. According to MNI's technical analyst, if JBM3 surpasses the March 22 high, it would signal a continuation of the upward trend.
• Lower-than-expected prints for March Household Spending, Labour Cash Earnings and Real Cash Earnings failed to provide meaningful support for the market.
• Cash JGBs are cheaper in afternoon trade led by the 7-20-year zone with the 10-year yield 1.1bp higher at 0.429%. Only the 40-year zone sees its yield lower (-0.6bp).
• Swap rates are higher across the curve with wider swap spreads, apart from the 1-year and 20-year zones.

AUSSIE BONDS: Weaker, Awaits Federal Budget

ACGBs sit weaker (YM -5.0 & XM -7.0) but off session lows. The move away from session cheaps was assisted by US tsys which richened in Asia-Pac trade, partially unwinding weakness seen in yesterday’s NY session. At the time of writing, the 2- and 10-year cash benchmark yields were respectively 2bp and 1bp lower.

• The Federal Budget is scheduled for release after market close (1000 BST), with market expectations oscillating around the idea of a small surplus or deficit for FY23. As part of the budget announcement, the Treasurer is expected to unveil a range of policy initiatives to balance fiscal restraint with support for the most vulnerable members of society. These initiatives may include tax reforms, program changes, and household relief measures. If it turns out to be significantly expansionary, then RBA rate expectations may be affected.
• Cash ACGBs are 5-6bp cheaper with the AU-US 10-year yield differential at -3bp.
• Swap rates are 4-6bp higher with EFPs little changed and the 3s10s curve 2bp steeper.
• The bills strip twist steepens with pricing +1 to -5.
• RBA dated OIS is flat to 3bp firmer across meetings with early ’24 leading.
• The AOFM plans to sell A$800mn of the 3.25% 21 April 2029 bond tomorrow.
• There is no local data slated for tomorrow ahead of US CPI on Wednesday.

AUSTRALIAN DATA: Retail Volumes Contract, Discounting Supported Some Sectors

Real retail sales in Q1 fell 0.6% q/q, as expected, following Q4’s 0.3% decline, signalling that higher rates and cost-of-living are weighing on retail spending. Volumes are only 0.3% higher than Q1 2022. This data is consistent with the view that consumption is slowing but 2023 has seen consumer spending focussed around services and that data won’t be available until the national accounts are published on June 7.

• This was the largest quarterly fall in real sales since Q3 2009, excluding the Covid period, which is not surprising given that Q4 2022 inflation reached its highest since 1990 and March rates were their highest since May 2012.
• Nominal sales were flat on the quarter. The ABS noted that retail prices had slowed to +0.6% q/q, the smallest rise since September 2021 driven by discounting but retail food prices continued to rise.
• Household goods volumes fell 3.7%, the fifth consecutive drop, but department stores rose 1.5%. Restaurants & takeaways rose 1.0% boosted by large events, while food retailing was unchanged on the quarter and up only 0.1% y/y.

Source: MNI - Market News/Refinitiv

NZGBS: Curve Twist Steepens, Wider Budget Deficit

NZGBs ended the trading session with the 2/10 cash curve twist steepening with yields 1bp lower to 3bp higher. The 2-year benchmark yield closed 8bp below the highest level of the day, while the 10-year yield closed only 3bp lower than its high. A strengthening in US tsys during Asia-Pac trading hours assisted the afternoon rally.

• This was despite the release of strong card spending data for the second consecutive month. Total card spending increased by 1% from the previous month, bringing the year-on-year growth rate to 9.8%. In March, card spending had increased by 2.3% m/m and 16.1% y/y.
• The NZ Treasury released its financial statements for the nine months ended March 31. The statements revealed that the budget deficit was NZ$2.48 billion wider than the projection in the half-year fiscal update. This may have contributed to the steepening of the cash curve. The Treasury cited lower tax revenue and additional expenditure related to the North Island weather events as the reasons for the wider deficit.
• The 2s10s swap curve bear steepened 5bp with rates flat to 5bp higher and implied swap spreads wider.
• RBNZ dated OIS was little changed on the day with 25bp of tightening for the upcoming May 24 meeting.
• There is no local data slated for tomorrow ahead of US CPI on Wednesday.

FOREX: USD Little Changed In Asia

The greenback is little changed in Asia today, for the most part ranges in G-10 FX have been narrow with little follow through on moves.

• Yen is ~0.2% firmer, USD/JPY briefly dealt through Mondays highs in early dealing as Japanese data was a touch weaker than expected. Resistance was seen above Monday's high and we now sit below the ¥135 handle.
• Kiwi is little changed from opening levels, NZD/USD was down as much as 0.3% however losses were pared through the session and the pair sits at $0.6335/40. Apr Card Spending rose 1.0% M/M, the prior number was revised downwards to 2.3% M/M from 3.1% M/M. Retail Card Spending held steady in April at 0.7% M/M.
• AUD/USD is unchanged from Mondays closing levels, the pair has observed a narrow range with little follow through. Q1 Retail Sales printed in line with expectations.
• Cross asset wise; e-minis are little changed and US Treasury Yields are 1-2bps lower across the curve. Bloomberg Commodity Index is down ~0.3% as it pares Monday's 0.7% gain.
• There is a thin docket for the remainder of Tuesday's session, the focus data wise now switches to Wednesdays US CPI print.

EQUITIES: China Financials +13% From Recent Lows, Little Positive Spillover Though

Regional equities are a mixed bag today, following an indifferent lead from US/EU markets on Monday. China shares are higher, once again led by the financial sector. Japan stocks are also doing well. Sentiment is more mixed elsewhere though. US equities have been in negative territory for much of the session, but only very modestly.

• The CSI is tracking close to +0.50% higher. Financials once again leading the way. This sub-index is now up ~13% from late April lows. Headlines from the HKMA Chief Executive around expanding wealth connect products has likely helped, as has plans announced around an overhaul of real estate brokerage fees. More broadly, prospects of a more supportive funding backdrop, coupled with economic and earnings optimism from onshore investors for Q2 is aiding sentiment. Import growth was weaker than expected today, taking some of the gloss off the rally.
• The HSI is still weaker though off by 0.53% at this stage, showing limited positive spillover from China onshore gains.
• Japan's Topix index is up close to 1.2%, led by the electronics sector. Toyota has also gained.
• The Kospi is down -0.15% at this stage, while the Taiex is close to flat. The ASX 200 has also slipped, down -0.23%.
• In SEA trends are mixed. Thai stocks continue to rally, +0.40% after yesterday's strong gains around election optimism.

OIL: Offsetting Factors Keep Crude In A Narrow Range

Oil is holding on to its recent gains. It is only down slightly during APAC trading and has been in a narrow range, despite China trade data showing a drop in the volume of crude imports. Brent is down 0.4% to $76.72/bbl and WTI -0.3% to $72.92. The USD index is flat.

• Brent reached an intraday low today of $76.42 followed by a high of $76.90 and WTI $72.63 and $73.08 respectively. WTI has struggled to hold above $73 but is up 6.4% since Thursday’s close.
• China’s import volumes of crude fell 18.9% m/m in April but refined products rose 12.5% m/m. Further on the demand side, there are signs that US gasoline demand is easing despite the start of the driving season. In regards to supply, 234kbd of oil output has been affected by closures in Canada due to wildfires.
• The API US fuel inventory data and the US EIA’s short-term outlook report are published later today. OPEC’s monthly report is due on Thursday.
• Later the Fed’s Jefferson and Williams, and the ECB’s Lane speak. Other than that the data calendar is quiet with only US NFIB small business optimism for April ahead of Wednesday’s April CPI data, which will be key to the immediate Fed outlook.

GOLD: Bullion Continues Trending Higher Ahead Of Wednesday’s US CPI

Gold has been trending higher for most of the APAC session. On Monday it rose 0.2% reaching a high of $2029.39 and today it is another 0.2% higher and close to the intraday high at $2025/oz. The USD index is flat.

• Gold remains in an uptrend. It confirmed the resumption of the bull cycle when it broke through resistance at $2048.70, the April 13 high. The focus is on $2070.40, the March 8 high. On the downside, key support is at $1969.30, the April 19 low.
• Safe haven buying of bullion continues as concerns over global growth persist and nervousness regarding a US debt-ceiling agreement. The Economist is reporting that White House analysts are estimating that a limited “default” would cost the economy 0.6% of GDP, which could be enough to push it into recession.
• Later the Fed’s Jefferson and Williams, and the ECB’s Lane speak. Other than that the data calendar is quiet with only US NFIB small business optimism for April ahead of Wednesday’s April CPI data, which will be key to the immediate Fed outlook.

ASIA FX: THB Outperforms PHP & IDR, CNH Weaker Despite Equity Gains

Asian FX is mostly tracking weaker against the USD, most notably in SEA, with PHP and IDR the weakest links (THB is the exception though). CNH is also tracking softer, despite firmer onshore equities. April trade data was weaker from the standpoint of import growth, casting a shadow over the domestic recovery. Tomorrow, South Korea goods balance, current a/c figures for Mar are due, along with Apr unemployment.

• USD/CNH pushed above 6.9300 but ran into selling interest. Post US NFP highs from late last week near 6.9330 remain intact. Onshore equities are once again firmer, led by the financials sub-index but this isn't aiding FX sentiment at this stage. Import growth printed at -7.9% y/y, versus -0.2% expected. This casts some doubt on the domestic recovery. Export growth cooled but was slightly better than expected at 8.5%. The trade surplus was stronger than forecast at $90.21bn owing to weaker imports ($71.25bn was expected).
• 1 month USD/KRW has tracked recent ranges and currently sits just below 1320. Onshore equities are down a touch, while offshore investors have seen -$48.2mn in net outflows.
• USD/PHP is tracking higher, last in the 55.55/60 region. This is nearly +0.60% above closing levels from yesterday, with PHP the weakest performers in the region so far today. A wider than expected trade deficit is weighing. The Mar trade deficit was wider than expected at -$4928mn, versus -$4400mn forecast and -$3905mn prior. Export growth was better than expected, -9.1% y/y, -18.1% was the forecast. Imports were firmer than expected as well, -2.7% y/y, versus -11.4% y/y forecast.
• USD/THB continues to track lower. The pair is in the 33.65/70 region. We are down a further 0.35% so far today, with upticks being sold by the market. This comes after yesterday's break down through 34.00. The pair is now at back to mid Feb lows. Optimism around the election outlook, with the opposition Pheu Thai party potentially able to hold a majority in the lower house based off the latest opinion polls (note the election is held on May 14), is buoying sentiment. Greater economic support under this party's pledges is seen as aiding the economic outlook.
• USD/IDR got to 14765/70 earlier, but we no sit back at 14745/50, still around 0.30% weaker in IDR terms versus levels from the close yesterday. This is fresh highs for the month. Note the 20-day EMA is around 14819. Comments from BI Governor Warjiyo late yesterday that the central bank will be patient before weighing rate cuts may be weighing at the margin. The Governor added it will monitor economic data month-to-month and has no plans to raise interest rates again. Still, the IDR was expected to strengthen further when the Fed pauses monetary tightening according to BI.
• USD/MYR prints at 4.4375/4425, the pair is ~0.1% firmer as the Ringgit follows the broader USD/Asia trend. Ranges have been narrow in recent sessions with little follow through on moves, with the pair supported at 4.43 and facing resistance above 4.45. March Industrial Production rose 3.1% Y/Y firmer than the expected 0.7% rise. The prior read was revised lower to 3.5% Y/Y from 3.6%. Manufacturing Sales Value rose 8.0% in March, ticking lower from 10.3% in February.