- It has been an uneventful session as investors eagerly await the Fed's rate decision later tonight. OIS market is currently pricing in a 59% chance of a 50bps rate cut.
- The Yen has recovered about half of Tuesday's sell-off as investors betting on a 50bps cut take advantage of the dip to position heading into the meeting.
- Equity markets opened slightly higher, however has largely pared gains. Taiwanese equities are the worst performing after TSMC & Hon Hai saw decent losses.
MARKETS
US TSYS: Tsys Futures Little Changed, Curve Steeper As 2yr Trades At 3.592%
- It has been a very slow session, ranges have been tight while volume as well below recent averages. The short-end has performed slightly better with TU -00+ at 104-11⅛ up from earlier lows of 104-10⅜, while TY is - 00+ at 115-11+.
- The bullish theme remains with TY contract holding on to its latest gains. The push higher mid last week has resulted in a print above key resistance and the bull trigger at 115-19, the Aug 5 high. The move higher confirms a resumption of the uptrend and paves the way for a climb towards the 116.00 handle. Moving average studies remain in a bull-mode position, highlighting a clear medium-term uptrend. Firm support is seen at 114-23+, the 20-day EMA.
- Cash tsys are trading about 0.5-1.5bps lower, the 2yr continues to outperform head of tonight's FOMC meeting trading 1.3bps at 3.592% vs cycle lows of 3.523%.
- Investors are increasingly betting on a larger-than-expected half-point interest rate cut at this week’s Federal Reserve meeting, with activity in October fed funds futures reaching record levels since the contract's inception in 1988. Odds of a 50bps cut have increased recently with commentary from ex-Fed Pres Dudley following articles from WSJ & FT which leaned slightly dovish.
- Projected rate hikes through year end gain slightly vs. late Tuesday levels (*): Sep'24 cumulative -42.3bp (-41.5bp), Nov'24 cumulative -78.2bp (-78.0bp), Dec'24 -117.0bp (-116.5bp).
- Focus will turn to FOMC announcement includes the Summary of Economic projections later today.
AUSSIE BONDS: Cheaper, Mid-Range, Awaiting FOMC & AUS Jobs
ACGBs (YM -3.0 & XM -2.0) are weaker with current dealings in the middle of today’s Sydney session ranges.
- Outside of the previously outlined Westpac leading Index, there hasn't been much by way of domestic drivers to flag.
- Cash US tsys are ~1bp richer in today’s Asia-Pac session after yesterday’s modest sell-off. Yesterday’s session reflected position squaring ahead of today’s FOMC policy announcement. The markets still project closer to a 50bp cut than a 25bp move from the Fed.
- Cash ACGBs are 2bps cheaper with the AU-US 10-year yield differential at +21bps.
- Swap rates are 2bps higher.
- The bills strip has bear-steepened, with pricing -2 to -5.
- RBA-dated OIS pricing is flat to 2bps firmer across 2025 meetings. A cumulative 20bps of easing is priced by year-end.
- Tomorrow, the local calendar will see August labour market data. Bloomberg
consensus expects 26k new jobs, around half of the 3-month average, with
unemployment remaining at 4.2%. - Employment prints have been on the upside in recent months but have still come in below growth in the labour force driving up unemployment. The participation rate is expected to stay at its new high of 67.1%.
BONDS: NZGBS: Cheaper, Narrow Ranges, Q2 GDP Tomorrow
In today’s local session, NZGBs closed 4bps cheaper after dealing in narrow ranges.
- Outside of the previously outlined Consumer Sentiment and Current Account Balance, which had limited impacts, there wasn't much by way of domestic drivers to flag.
- Q2 GDP prints tomorrow with both Bloomberg consensus and NZ Treasury expecting a 0.4% q/q decline resulting in the economy contracting 0.6% y/y. It rose 0.2% q/q and 0.3% y/y in Q1.
- The RBNZ’s August forecast was slightly weaker at -0.5% q/q with Q3 also negative. Treasury noted this week that there were few signs of recovery in Q3. Thus, we expect the RBNZ to cut rates by 25bp at its October and November meetings.
- All 15 analysts on Bloomberg expect the economy to contract with the range of forecasts between -0.1% and -0.4% q/q. The annual growth rate is projected to be between +0.2% and -0.7%.
- Swap rates closed 3bps higher.
- RBNZ dated OIS pricing closed 1-4bps firmer across meetings. A cumulative 82bps of easing is priced by year-end.
- Tomorrow, the NZ Treasury plans to sell NZ$250mn of the 1.50% May-31 bond, NZ$200mn of the 4.25% May-34 bond and NZ$50mn of the 2.75% Apr-37 bond.
GOLD: Weaker Ahead Of Today’s FOMC Decision
Gold is 0.2% higher in today’s Asia-Pac session, after closing 0.5% lower at $2569.50 on Tuesday following stronger-than-expected US IP and retail sales data.
- However, US retail sales and industrial production data delivered few clues for today’s FOMC outcome. Retail Sales headline beat with a slight upward revision to prior data (0.1% M/M (vs -0.2%, 1.1% prior rev up 0.1pp). Meanwhile, IP was much stronger than expected in August at 0.8% M/M (cons 0.2) but there was a downward revision.
- US Treasuries finished weaker across benchmarks after US yields briefly fell to one-week lows early in the NY session. The session for US Treasuries reflected position squaring ahead of today’s FOMC policy announcement. The markets still project closer to a 50bp cut than a 25bp move from the Fed. Lower rates are typically positive for gold, which doesn’t pay interest.
- According to MNI’s technicals team, a bullish structure in gold remains intact, with the focus on $2,600.Firm support lies at $2,520.7, the 20-day EMA.
JGBS: Yield Swings Muted Ahead Of FOMC & BoJ Decisions
JGB futures are stronger, +5 compared to the settlement levels.
- Outside of the previously outlined trade balance and machine orders data, there hasn't been much by way of domestic drivers to flag.
- The market’s attention is on Friday’s BoJ MPM decision, where the board is expected to keep the policy rate unchanged at 0.25%. The upside risk to prices, driven by high import costs—previously a key concern for policymakers in July— has eased due to the yen’s recent appreciation.
- Before that, the FOMC will announce its policy decision later today, with markets leaning more toward a 50bp rate cut than a 25bp move from the Fed.
- Cash US tsys are ~1bp richer in today’s Asia-Pac session after yesterday’s modest sell-off. Yesterday’s session reflected position squaring ahead of today’s FOMC policy announcement.
- The cash JGB curve has twist-flattened, pivoting at the 2-year, with yield swings bounded by +/- 1.5bps. The benchmark 10-year yield is 0.3bp lower at 0.826% versus the recent low of 0.74%.
- Swap rates are 1-2bps lower out to the 30-year and 4bps higher beyond. Swap spreads are mixed.
- Tomorrow, the local calendar will see Tokyo Condominiums for Sale data alongside an Enhanced Liquidity Auction covering OTR 5-15.5-year JGBs.
LNG: Upcoming Winter Gas Needs In Focus
European and Asian natural gas prices rose on Tuesday as the market focused on the upcoming winter despite elevated storage levels and also took advantage of Monday’s fall in prices. European LNG rose 4.4% to EUR 35.58 but it is not back to Friday’s close and is still down over 10% in September to date. Concerns about disruptions to Russian gas flows through Ukraine during winter persist.
- UBS estimates that European gas prices could rise to around EUR 50 if there is a cold winter and unplanned disruptions to supplies, according to Bloomberg. Fighting in Kursk around a gas transit point and the year-end expiry of the agreement to allow Russian gas to flow through Ukraine are key risks to European supply, as well as unplanned Norwegian outages.
- US natural gas fell 2.6% to $2.31 but is still 8.7% higher in September. Prices rose to a high of $2.44 due to a fire on a pipeline in Texas and then fell on some profit taking. The eastern US is now forecast to have cooler weather over the coming 2 weeks.
- North Asian prices rose 2.9% but are still down 5.2% this month. But price rises may ease as China’s storage facilities fill up and Malaysia’s LNG exports rebound after an outage. Japanese cooling demand has increased again though.
- Chevron announced that it will shut down between a half and one train at its Australian Gorgon LNG facility in June 2025.
OIL: Crude Moderately Lower Ahead Of FOMC & EIA Inventory Data
After rising this week, oil prices are moderately softer ahead of the Fed decision later today. Geopolitical developments in the Middle East are also being watched closely following explosions in Lebanon, which Hezbollah is blaming Israel for. WTI is down 0.5% to $70.84/bbl after reaching a low of $70.78, while Brent is down 0.5% to $73.35 after falling to $73.27. The USD index is down 0.1%.
- Bloomberg reported that US crude inventories rose 1.96mn barrels last week, according to people familiar with the API data, which has weighed on prices today. Gasoline and distillate rose 2.3mn barrels each. The official EIA data is out today.
- Later the FOMC decision is announced and the revised dot plot released. Bloomberg consensus is forecasting a 25bp cut (see MNI Fed analyst outlook and MNI Fed Preview). There is significant speculation that the first move will be 50bp with the market pricing in 1.5 25bp moves. An outsized 50bp would likely drive crude higher on optimism re the US demand outlook.
- There are also US August housing starts/permits, final euro area August CPI and UK August CPI/PPI. The ECB’s McCaul and Buch speak.
ASIA STOCKS: Asian Equities Trade In Tight Ranges Ahead Of FOMC
Asian stocks traded in a narrow range as investors awaited the Fed's rate decision, with the market now favoring a 50bps cut slightly. The MSCI Asia Pacific Index rose in early morning trading led higher by Japanese exports as the yen fell, however as the day progressed the yen and recovered with exporters paring gains, while Asia tech stocks trade slightly lower. China markets have returned from their break and trade mixed, with gains in consumer discretionary & Utilities offset by losses in Consumer Staples & Tech stocks. Hong Kong & South Korea are out for public holidays today.
- Chinese chip-related stocks surged following the nation's announcement of a breakthrough in developing homegrown semiconductor-making equipment, signaling progress in overcoming US sanctions. Companies like Changchun UP Optotech and Sai Micro Electronics saw significant gains.
- Japanese equities are trading in tight ranges, the Nikkei 225 is unchanged, while the TOPIX trade 0.30% as the yen recovers from Tuesday's sell-off.
- Taiwan's Taiex is trading 0.70% lower, after TSMC fell 0.75% while Hon Hai is down 3.60%. Taiwan's central bank meets tomorrow, where they are expected to keep rates on hold.
- Australia's ASX 200 is trading down 0.15% with Metals & Mining and Health care stocks weighing on the market. New Zealand's NZX 50 is down 0.45% after A2 milk fell over 2%.
- Eyes are all on the Fed tonight, there has been a surge in activity in October fed funds futures with the bulk of new bets targeting an 50bps cut.
FOREX: Yen Outperforming, US$ Slightly Weaker Ahead Of Fed
The US dollar is slightly weaker today ahead of the FOMC decision later with the BBDXY index down 0.1% with most G10 currencies stronger against the greenback. The yen is outperforming and making up some of Tuesday’s losses as the Fed is widely expected to cut rates, while the BoJ’s next move is likely to be a hike, even if it isn’t this Friday.
- USDJPY is down 0.7% to 141.37 with key support at 139.58. It reached a low of 141.23 earlier.
- After reaching a high of 0.6773 earlier, AUDUSD has given up those gains to be down 0.1% on the day at 0.6751, as softer commodity prices, especially iron ore, and mixed regional equities weigh. AUDJPY is down 0.8% to 95.42, close to the intraday low.
- NZDUSD is up 0.2% to 0.6196 but off the intraday high of 0.6207. AUDNZD is 0.2% lower at 1.0898 where 1.09 seems to be providing some support.
- European currencies are little changed with EURUSD at 1.1122 and GBPUSD 1.3159 but USDCHF is down 0.2% to 0.8453.
- Bloomberg consensus is forecasting a 25bp FOMC cut (see MNI Fed analyst outlook and MNI Fed Preview). There is significant speculation that the first move will be 50bp with the market pricing in 1.5 25bp moves.
- There are also US August housing starts/permits, final euro area August CPI and UK August CPI/PPI. The ECB’s McCaul and Buch speak.
NEW ZEALAND: Q2 GDP Widely Expected To Contract But Significant Uncertainties
Q2 GDP prints on Thursday and Bloomberg consensus and NZ Treasury both expect it to post a 0.4% q/q decline resulting in the economy contracting 0.6% y/y. It rose 0.2% q/q and 0.3% y/y in Q1. The RBNZ’s August forecast was slightly weaker at -0.5% q/q with Q3 also negative. Treasury noted this week that there were few signs of recovery in Q3. Thus we expect the RBNZ to cut rates 25bp at its October and November meetings.
- All of the 15 analysts on Bloomberg expect the economy to contract with the range of forecasts between -0.1% and -0.4% q/q. The annual growth rate is projected to be between +0.2% and -0.7%.
- Of the major local banks BNZ, Westpac and Kiwibank are all in line with consensus, while ANZ expects only a 0.1% q/q decline and ASB -0.3% q/q.
- ANZ said that its forecast is still weak and a GDP print around this point wouldn’t derail the RBNZ from cutting rates further this year, but it believes the “partial industry-level data” released in recent weeks doesn’t signal that the economy is as weak as the high-frequency data published before the August RBNZ meeting implied.
- BNZ expects that private consumption fell in Q2 and that Q1 is likely to be revised down. It also believes investment will be flat and net exports will be a drag on growth. It says that the width of the error band around its consensus forecast is particularly wide this quarter.
NEW ZEALAND: Current Account Improvement Stalls As Imports Rise
The Q2 current deficit was wider than expected at $4.83bn after a downwardly-revised $3.83bn in Q3. This resulted in the YTD holding steady at 6.7% of GDP, which remains elevated and suggests that the improvement begun over a year ago has stalled. There was a widening of the goods and primary income deficits, while services narrowed.
- The goods deficit widened by $110mn to $2.6bn driven by stronger imports of transport equipment, especially aircraft. The services deficit narrowed $28mn to $0.5bn.
- The primary income deficit widened by $291mn to $3.8bn in Q2, as NZ continued to issue bonds to overseas investors.
- There was a net inflow from overseas to the financial account of $3.8bn.
NZ YTD current account % GDP
AUSTRALIA DATA: Commodity Prices Weighing On Westpac Leading Index
The Westpac leading index fell 0.05% m/m in August, the second straight monthly decline, after -0.03%. This left the 6-month average annualised measure back in negative territory at -0.27%, the lowest since May, after +0.04% in July, but its improvement since mid-2023 has been maintained. This series leads detrended growth by around 6 months and is signalling soft growth into the first quarter of next year. Falling commodity prices are the main driver of the fall in the August lead indicator but unemployment expectations and the yield spread also contributed, while equities, dwelling approvals and hours worked made positive contributions.
Australia Westpac Leading Indicator 6m/6m annualised %
AUSTRALIA: Unchanged Unemployment Rate Forecast For August
August labour market data print on Thursday and Bloomberg consensus is expecting 26k new jobs, around half of the 3-month average, with the unemployment rate remaining steady at 4.2%. Employment prints have surprised to the upside in recent months but have still been below labour force growth, thus driving up unemployment. The participation rate is expected to stay at its new high of 67.1%.
- The labour market has been gradually easing, with increased labour supply doing most of the work, but it still remains tight. In this release, the RBA not only looks at the headline numbers but also monitors the underemployment and youth unemployment rates, and hours worked.
- Employment forecasts are between zero and 56.6k with most around 20k-35k. The 3-month average to July was 50.6k and the 6-month 50.9k.
- CBA and NAB are below consensus expecting 20k new jobs, whereas ANZ and Westpac are above at 30k and 35k respectively. Westpac is projecting a stronger employment gain as it expects it to remain in line with trend which would keep the employment/population ratio “broadly steady”.
- Unemployment rate forecasts are quite narrow between 4.1% and 4.3%. NAB is in line with consensus, whereas CBA is above at 4.3%, and ANZ and Westpac below with 4.1%.
WEDNESDAY DATA CALENDAR
| Date | GMT/Local | Impact | Country | Event |
| 18/09/2024 | 0600/0700 | *** |  GB | Consumer inflation report |
| 18/09/2024 | 0600/0700 | *** | GB | Producer Prices |
| 18/09/2024 | 0600/0800 | ** |  SE | Unemployment |
| 18/09/2024 | 0900/1100 | *** |  EU | HICP (f) |
| 18/09/2024 | 0900/1100 | ** | EU | Construction Production |
| 18/09/2024 | 1100/0700 | ** |  US | MBA Weekly Applications Index |
| 18/09/2024 | 1230/0830 | * |  CA | International Canadian Transaction in Securities |
| 18/09/2024 | 1230/0830 | *** | US | Housing Starts |
| 18/09/2024 | 1300/1500 | EU | MNI Connect Video Conference on Euro Area Macro Projections | |
| 18/09/2024 | 1430/1030 | ** | US | DOE Weekly Crude Oil Stocks |
| 18/09/2024 | 1730/1330 | CA | BOC Minutes (Summary of Deliberations) | |
| 18/09/2024 | 1800/1400 | *** | US | Fed Rate Decision / FOMC Statement |
| 18/09/2024 | 2000/1600 | ** | US | TICS |