- We saw further verbal rhetoric around FX from the Japan authorities, while the Tokyo Oct CPI saw headline y/y dip, although services inflation picked up. Yen has outperformed particularly against AUD and NZD, while JGB futures are stronger and at Tokyo session highs, +10 compared to settlement levels.
- It has been a very uneventful session for US tsys, with futures edging slightly higher throughout the session.
- China and Hong Kong equities are higher, but this isn't benefiting broader risk appetite.
MARKETS
- It has been a very uneventful session for us tsys, with futures edging slightly higher throughout the session, volumes are well below recent averages and we trade well within Thursday's ranges. TU is + 00⅛ at 103-06+ while TY +02 at 111-11.
- Across the APAC markets today, China & HK equities jumped on hopes of further stimulus updates, with tech and small-cap stocks leading the way. In Japan markets are trading lower ahead of this weekend's general election.
- The cash tsys curve has bull-flattened today with yields are trading 1.5-3bps lower. The 2yr is -1.9bps at 4.059%, while the 10yr is -2.6bps at 4.186%.
- Tsys are on track for two session of gains, the 10yr yield is 6.5bps lower than highs made on Wednesday, although still trades 10.5bps higher for the week. The 2s10s is trading flat for the week at 12.5bps, while the 5s30s curves has flattened about 8bps to 43.5bps.
- Flows in SOFR options were relatively light on Thursday, but the trend of downside protection continued as traders positioned for fewer rate cuts than currently priced into the front-end of the curve.
- Currently, the swaps market is pricing around 43bps of rate cuts across the two remaining Fed meetings this year, with a total of 138bps priced in by the end of 2025
- Later today we have Durables/Capital Goods and University of Michigan's sentiment/inflation outlook.
STIR: $-Bloc Markets Firmer Over Past Weak Apart From NZ
In the $-bloc, official rate expectations through July 2025 have mostly firmed over the past week. The US led the movement with an 11bp increase, followed by Canada at +9bps and Australia at +8bps. New Zealand was the outlier, showing a modest softening of 2bps.
- In Canada, the BoC accelerated its easing cycle this week with a 50bp rate cut, bringing the target rate down to 3.75%. This marked a total reduction of 125bps since June. The BoC's neutral rate range is now viewed between 2.25% and 3.25%. Market reaction to the cut was muted, as roughly 46-47bps of easing had already been priced in. Further rate cuts are expected, with their magnitude and timing dependent on upcoming economic data.
- News flow for the rest of the $-bloc was relatively light over the past week.
- Looking ahead to July 2025, the projected official rates and cumulative easing across the $-bloc are as follows: US (FOMC): 3.69%, -119bps; Canada (BoC): 2.82%, -94bps; Australia (RBA): 3.92%, -40bps; and New Zealand (RBNZ): 3.21%, -154bps.
Figure 1: $-Bloc STIR (%)
Source: MNI – Market News / Bloomberg
JGBS: Cash Bonds Bull Flatten, Core CPI < 2%, BoJ MPM Next Wed/Thu
JGB futures are stronger and at Tokyo session highs, +10 compared to settlement levels, despite Tokyo CPI's core measures surprising on the upside of expectations.
• The market focused on the fact that core inflation in Tokyo in October dipped below the central bank's 2% target for the first time in five months, potentially complicating the BoJ's quest to raise interest rates further.
• Moreover, the closely watched services inflation also slowed, casting doubt on the BoJ’s expectations that higher wages would broaden cost pressure beyond goods and keep price rises durably around its 2% target.
• Uncertainty over the outcome of the weekend’s lower house elections also likely supported JGBs. Opinion polls suggest the LDP could lose its majority, which may lead to a postponement of the BoJ’s policy normalisation.
• Cash US tsys, which are ~2bps richer in today’s Asia-Pac session, also assisted the move to yield lows.
• Cash JGBs are flat to 3bps richer across benchmarks, with a flattening bias. The benchmark 10-year yield is 1.0bp lower at 0.953% versus the cycle high of 1.108%.
• Swap rates are flat to 2bps lower, with the belly of the curve outperforming.
• On Monday, the local calendar is empty apart from BoJ Rinban Operations covering 3-25-year JGBs. The BoJ Policy Meeting is next Wednesday and Thursday.
JAPAN DATA: Tokyo CPI Headline Softens, But Services M/M Up Firmly
Japan's Tokyo CPI was as expected for the headline print, 1.8% y/y (prior 2.1%). The core measures were a touch above expectations though, +1.8%y/y for the ex fresh food measure (1.7% forecast and 2.0% prior), while the core ex fresh food, energy measure was 1.8%y/y against a 1.6% forecast (which was also the prior outcome).
- In m/m terms, headline CPI rose 0.5% after a 0.3% dip in Sep. The core measures were also up 0.4%m/m for ex fresh food and 0.5% for ex fresh food and energy. Good prices rose 0.5%, while services, key watch point for the BoJ, rose 0.4% m/m. This looks to be the strongest monthly rise going back to early 2021. In y/y terms were up 0.8% from 0.6% prior.
- This gain appear to reflect a 1.2%m/m rise in entertainment prices (after falling -2.1% in Sep), while medical expenses also rose 0.6%m/m, after a 0.1% rise prior.
- Elsewhere, food prices stayed firm at +1.4%m/m, while utilities also rose 0.8%m/m.
- In y/y terms, we didn't see sharp swings in the underlying components, outside of utilities falling to 2.4%y/y from 9.0%.
- The base effects slow from above 3% y/y from Q3 2024 to sub 2% early 2024. This should help stabilize y/y momentum as we progress into early 2025.
- This won't shift BoJ thinking for next week's policy meeting but the services inflation backdrop will be a watch point.
AUSSIE BONDS: Richer But Subdued Dealings, Q3 CPI Next Wednesday
ACGBs (YM +2.0 & XM +3.0) are stronger but off Sydney session highs.
- With the domestic calendar light today, the local market likely eyed cash US tsys, which are ~2bps richer in today’s Asia-Pac session.
- Cash ACGBs are 2-3bps richer with the AU-US 10-year yield differential at +23bps.
- The 3/10 curve remains just below the upper range it has traded in since late 2022. The ACGB cash curve has closely tracked the recent upward pressure on the US 10-year yield. However, the local economic outlook may soon play a larger role, with the release of Q3 CPI data next Wednesday.
- Inflation is expected to move back to the top of the RBA’s 2%-3% target band for the first time since Q1-21. Consensus estimates inflation slowed to 3.0% y/y from 3.8% in Q2.
- Swap rates are 2-4bps lower, with the 3s10s curve flatter.
- The bills strip has bull-flattened, with pricing flat to +4.
- RBA-dated OIS pricing is 1-4bps softer for 2025 meetings. A cumulative 4bps of easing is priced by year-end.
- Next week, the AOFM plans to sell A$700mn of the 2.75% 21 November 2028 bond on Monday and A$800mn of the 3.50% 21 December 2034 bond on Friday.
AUSSIE BONDS: Cash Curve Hovers At Top Of Multi-Year Range
The cash ACGB curve has flattened by 2bps today to 49bps, after reaching its steepest level since early November 2023 earlier this week. Despite this, the 3/10 curve remains just below the upper range it has traded in since late 2022.
- With RBA easing expectations already unwound due to stronger domestic economic data, the ACGB 3/10 cash curve has closely tracked the recent upward pressure on the US 10-year Treasury yield. This is reflected in the 30-day correlation between the two, which has shifted back into positive territory after a two-month stretch in negative territory.
- Since mid-September, the US 10-year yield has climbed by as much as 65bps. During the same period, the ACGB 3/10 cash curve steepened by approximately 15bps, underscoring the strong influence of global yield dynamics on Australian bond markets.
- However, the local economic outlook may soon play a larger role, with the release of Q3 CPI data next Wednesday likely to provide fresh insights and potentially shift market expectations once again.
Figure 1: ACGB 3/10 Cash Curve
Source: MNI – Market News / Bloomberg
NZGBS: Closed At Bests, Local Market Closed on Monday
NZGBs closed at the session’s best levels, with benchmark yields 5-7bps lower. On the domestic data front, NZGBs were supported by a fall in the consumer confidence index, which suggested interest rate relief won’t be immediate for many households, and that there are still plenty of challenges to navigate including near-term job insecurity.
- Cash US tsys, which are ~2bps richer in today’s Asia-Pac session, also assisted the move to yield lows. Today's US calendar will see Durables/Capital Goods and the University of Michigan's sentiment/inflation outlook. Next Friday sees employment data for October.
- Nevertheless, the NZGB 10-year outperformed its $-bloc counterparts, with the NZ-US and NZ-AU yield differentials 2-3bps tighter.
- Swap rates closed 5-8bps lower, with the 2s10s curve flatter.
- RBNZ dated OIS pricing closed 1-4bps softer for 2025 meetings. A cumulative 100bps of easing is priced by February, with 54bps by year-end.
- The local market is closed on Monday for the Labour Day Holiday.
- Across the ditch, Australia will see the Q3 CPI report on Wednesday. Inflation is expected to move back to the top of the RBA’s 2%-3% target band for the first time since Q1-21. Consensus estimates inflation slowed to 3.0% y/y from 3.8% in Q2.
FOREX: AUD & NZD Eyeing Weekly Lows, Underperforming Yen
The USD BBDXY index is a touch higher, last near 1258.3. Most weakness today has been focused in AUD and NZD. Yen is marginally higher, but is within Thursday ranges.
- The AUD and NZD weakness doesn't appear to have had a direct catalyst. Broader technical trends remain weaker for both currencies. AUD/USD is very close to key Sep lows, last near 0.6620. NZD/USD is last at 0.5990, challenging week to date lows.
- Onshore China and HK equities are higher, up around 1% at this stage. Stimulus optimism and better housing data is aiding sentiment. Iron ore is higher, up 1.8%, but this is not benefiting the AUD so far.
- USD/JPY has been somewhat volatile, but within recent ranges, we were last 151.70. We had fresh FX rhetoric from the Chief FX Diplomat, but yen strength was limited. The Tokyo CPI for Oct showed firmer core price trends relative to expectations. Services prices rose firmly in the month. However, with BoJ Governor Ueda hinting at no changes next week, this may be limiting the data's impact.
- We also have the Japan lower house elections this weekend. Uncertainty rests over whether the ruling LDP will lose its outright majority. A broader coalition in Japan may temper the BoJ normalisation process, albeit at the margins.
- Looking ahead, we have US durable goods orders and the U. Of Mich sentiment final read as the main data points. The Fed's Collins also speaks.
EQUITIES: China & Hong Kong Equities Edge Higher On Stimulus Hopes
Chinese and Hong Kong markets traded higher on Friday, driven by optimism surrounding the real estate sector and potential government stimulus measures. The HSI is 1.20% higher, trimming its weekly decline to just 0.3%, while the CSI 300 trades 1.10% higher. A key factor was a 22% rise in residential presales in 30 major Chinese cities, with first-tier cities leading the gains, boosting investor sentiment.
- Solar stocks in China rebounded sharply, with Xinyi Solar jumping 11% and Xinyi Glass up 4.1%, following news that the US may consider cutting tariffs on Chinese solar products. Additionally, positive remarks from China’s Photo-voltaic Industry Association regarding pricing strategies in the sector helped lift stocks.
- EV Stocks have also rallied with the CSI New Energy Vehicle Index up 5.40% as traders remain hopeful about further policy support and better growth prospects in China.
China is launching 20 new equity funds linked to the recently created A500 index, which tracks 500 large-cap, highly liquid stocks from various industries. This move comes after 10 ETPs based on the A500 index raised 20b yuan ($2.8b) and saw rapid asset growth, doubling to 39b yuan within just seven trading days. The introduction of these mutual funds, backed by ETFs tracking the A500 index, is seen as part of broader government efforts to stabilize the economy and stock market, attracting investor confidence.
EQUITIES: Japanese Equities Lower Ahead Of Election
Japanese equities are lower today, ahead of this weekend's general election. The Topix Index & Nikkei 225 both dropped 1%, driven by concerns that the ruling Liberal Democratic Party and its coalition may lose their majority in the lower house. This uncertainty has led to a cautious mood among investors, despite support from a weaker yen.
- An inconclusive election result could delay the usual post-election fiscal stimulus, affecting stock sentiment. However, it may also pressure the BOJ to maintain its easy monetary policy, which would help weaken the yen further and improve corporate earnings, particularly in the upcoming earnings season.
- Rigaku Holdings, saw its shares fall as much as 15% on its debut after conducting Japan’s second-largest IPO of the year. Concerns also weighed on Canon, whose shares dropped 5% after cutting its full-year profit guidance.
- Investors are largely holding back until after the election, focusing on how the political outcome may impact fiscal and monetary policies moving forward.
- All sectors are in the red today, with financials contributing most to the days losses, the TOPIX Banks Index is 1.42% lower.
ASIA STOCKS: Foreign Investors Sell Asian Equities
Outflows across all countries on Thursday, short-term outflows have been increasing across most countries, although Taiwan saw decent inflows recently on the back of strong TSMC earnings.
- South Korea: Recorded outflows of -$492m yesterday, bringing the 5-day total to -$856m. YTD flows remain positive at +$8.285b. The 5-day average is -$171m, similar to the 20-day average of -$153m and worse than the 100-day average of -$70m.
- Taiwan: Experienced outflows of -$278m yesterday, totaling +$1.781b over the past 5 days. YTD flows are negative at -$10.684b. The 5-day average is +$356m, better than the 20-day average of +$131m but worse than the 100-day average of -$168m.
- India: Saw outflows of -$594m Wednesday, with a total outflow of -$1.256b over the past 5 days. YTD inflows stand at +$2.159b. The 5-day average is -$251m, worse than the 20-day average of -$433m but slightly better than the 100-day average of +$45m.
- Indonesia: Posted outflows of -$30m yesterday, bringing the 5-day total to -$173m. YTD flows remain positive at +$2.731b. The 5-day average is -$35m, close to the 20-day average of -$38m and near the 100-day average of +$31m.
- Thailand: Recorded outflows of -$12m yesterday, totaling -$167m over the past 5 days. YTD flows are negative at -$3.211b. The 5-day average is -$33m, better than the 20-day average of -$39m but worse than the 100-day average of -$11m.
- Malaysia: Experienced outflows of -$53m yesterday, contributing to a 5-day outflow of -$3m. YTD flows stand at +$623m. The 5-day average is -$1m, better than the 20-day average of -$13m and close to the 100-day average of +$8m.
- Philippines: Saw minimal outflows of -$4m yesterday, with net outflows of -$1m over the past 5 days. YTD flows are positive at +$93m. The 5-day average is $0m, in line with the 20-day average of +$4m and the 100-day average of +$4m.
Table 1: EM Asia Equity Flows
Oil Prices Consolidate Following Supply Led Concerns.
- With limited new news out of the Middle East markets returned their attention to the stockpile accumulation story from the US as the key driver in oil’s price decline overnight.
- US government figures showed a significant and unexpected pick up in stockpiles, reaching 5.47 million barrels when only 1.6 million was forecast.
- Yet despite this, data out shows that traders are positioning themselves against sudden oil price rises.
- WTI had paired back all of Wednesday’s decline in Thursday trading reaching US$72.34 before the refocus on the inventory accumulation.
- WTI then declined materially in late trading reaching $69.77 before steadying at $70.33.
- Oil has had a positive week after last week’s decline with WTI up +1.60%.
- Brent followed a similar trading pattern reaching US$76.54 before bouncing off $74.00 to steady at $74.56.
- Brent had a positive week also up just over +2.00%.
- In the Middle East, US Secretary of State Antony Blinken met with Saudi Crown Prince Mohammed bin Salman in efforts to find ways to move forward in the Israeli / Lebanon conflict.
- Blinken had pleaded with Israel to find ways that do not exacerbate hostilities with Iran or it’s militant groups.
GOLD: Buoyed By Weaker Dollar & Continued Have Demand
Gold is 0.3% lower in today’s Asia-Pac session, after closing 0.8% higher at $2736.17 yesterday.
- Bullion gained support from a weakening U.S. dollar yesterday and sustained safe-haven demand, pushing gold to record highs this week.
- One driver of this haven buying is the looming U.S. election, now less than two weeks away. Republican candidate Donald Trump's pledges to impose massive tariffs that could disrupt global trade have fueled market uncertainty, bolstering demand for gold.
- Despite expectations that the Federal Reserve will adopt a more gradual approach to cutting interest rates in the coming months, gold has continued to rise. Typically, lower interest rates are beneficial for gold, as it is a non-yielding asset, making it more attractive in a low-rate environment.
- According to MNI’s technicals team, gold bulls are still in the driver’s seat, with sights remaining on $2767.1, a Fibonacci projection point, ahead of the $2800.0 handle.
CHINA: Medium Term Lending Rate Unchanged Whilst Withdrawing Liquidity.
- The PBOC left the 1-year MLF interest rate unchanged at 2.0%.
- PBOC issued CNY700bn of 1-year issuance.
- Maturities accounted for CNY789bn.
- Net liquidity withdrawal CNY89bn.
- It was widely anticipated that today’s operations would not see a change in the interest rate with all except one of the fifteen economists surveyed expected no change.
- The MLF had an interest rate reduction in September, and it was indicated that over time it is to be phased out.
CHINA: LGFV Defaults: The Trust Products Remain an Issue.
- In 2023 a wave of issuance was permitted by the Central Government to refinance local government debts (“LGFV”).
- Some of these debts were packaged up and sold to retail investors as non-standard products called ‘trust products.’
- It is estimated that in 2023 over US$ equivalent $300bn of new issuance occurred to refinance LGFV debt, with the majority of refinancing occurring in the publicly traded bonds, with the number of trust products refinanced only a portion of the refinanced securities.
- Data released by the Financial China and Information & Technology Company shows defaults of these Trust products is still occurring and that not only has the problem not gone away, it's getting worse.
- Defaulting obligations have reached a new high as of September with retail investors now realizing that the implied local government guarantee was only implied.
- At a time when consumer confidence is at an all time low because of the state of the real estate sector, this is an additional challenge for the government as retail investors who were concerned about real estate invested in 'trust products' instead.
- As part of the 2024 stimulus program the Central Government is anticipated to allow local government’s to issue as much as CNY6trillion of new bonds .
- This again will likely see local governments refinance publicly traded bonds.
- Given the lessons from last time it will be interesting to see policy shifts that could broaden the support for non-standard products, bringing hope to those retail investors hurt by trust products.
ASIA FX: KRW Slumps To Fresh Multi Month Lows
North East Asia currency weakness has been led by the won. USD/KRW spot rallied to fresh highs back to July, above the 1390 level. There didn't appear a direct catalyst for this fresh round of won weakness, which took spot USD/KRW back to highs last seen in July. Late June highs were near 1395, while mid April YTD highs were at 1400. Broader USD sentiment was firmer against the likes of AUD and NZD, while most other Asian currencies have struggled today.
- We heard from the South Korea FinMin earlier, stating they are aware of the FX vol currently in the market. This comes after the earlier comment this week around 1400 being the new normal. In the cross asset space, South Korean equities are holding higher, while US equity futures sit down a touch. The local market hasn't seen much benefit from the rise in China/HK shares.
- USD/CNH has risen as well, but only back to a 7.1300 handle. Some offset has likely come from the better local equity tone, with some signs housing data/demand is on the improve. The USD/CNY fixing bias remained close to neutral.
- Spot USD/TWD is little changed, still holding in the 32.05/10 region at this stage. The better equity/inflow picture relative to South Korea is likely aiding outperfomance.
UP TODAY (TIMES GMT/LOCAL)
| Date | GMT/Local | Impact | Country | Event |
| 25/10/2024 | 0600/0800 | ** |  SE | PPI |
| 25/10/2024 | 0645/0845 | ** |  FR | Consumer Sentiment |
| 25/10/2024 | 0700/0900 | ** |  ES | PPI |
| 25/10/2024 | 0800/1000 | ** |  EU | M3 |
| 25/10/2024 | 0800/1000 | ** |  IT | ISTAT Business Confidence |
| 25/10/2024 | 0800/1000 | ** |  IT | ISTAT Consumer Confidence |
| 25/10/2024 | 0800/1000 | *** |  DE | IFO Business Climate Index |
| 25/10/2024 | 0800/1000 | ** |  EU | ECB Consumer Expectations Survey |
| 25/10/2024 | 1230/0830 | ** |  CA | Retail Trade |
| 25/10/2024 | 1230/0830 | ** |  US | Durable Goods New Orders |
| 25/10/2024 | 1230/0830 | ** |  CA | Retail Trade |
| 25/10/2024 | 1300/1500 | ** |  BE | BNB Business Sentiment |
| 25/10/2024 | 1400/1000 | ** |  US | U. Mich. Survey of Consumers |
| 25/10/2024 | 1500/1100 |  US | Boston Fed's Susan Collins | |
| 25/10/2024 | 1500/1100 |  CA | Finance Dept monthly Fiscal Monitor (expected) |