MNI EUROPEAN MARKETS ANALYSIS: YEN VOLATILE IN ASIA

US TSYS: Activity Limited In Asia As NFP In View

TYH4 deals at 110-29, -0-08, a 0-06+ range has been observed on volume of ~70k.

• Cash tsys sit ~1bp cheaper across the major benchmarks.
• Activity has been limited in Asia with narrow ranges observed, the proximity to this evening's NFP print may be limiting activity.
• Tsys were marginally pressured in early trade as a downtick in JGBs spilled over to the wider space. However the move didn't follow through and Tsys remained well within recent ranges.
• Looking ahead, the aforementioned NFP print headlines today's docket, the MNI preview is here. Also due to cross is UofMich Consumer Sentiment.

JGBs: Bear-Steepening Scaled Back In The Tokyo Afternoon, US NFP Due

JGB futures are weaker, -9 compared to settlement levels, but well off the Tokyo session's low. The key driver for the morning’s extension of yesterday’s post-30Y auction sell-off had been labour and real cash earnings data, which printed on the higher side of expectations.

• Bloomberg also reported that JGB futures were heavy today with traders using the rollover into the March contract as a window to refresh bearish positions for an extended drive lower. (See link ICYMI)
• The move away from session cheaps in the afternoon session was consistent with results from today’s BOJ Rinban Operations, which showed lower offer cover ratios across all buckets.
• US tsys are dealing 1-2bps cheaper in today’s Asia-Pac session ahead of US NFP data later today.
• This morning's bear-steepening of the cash JGB curve remains in play, but yields are well below session highs. The benchmark 10-year yield is 1.0bps higher at 0.769% versus the morning high of 0.808%.
• The swaps curve has also maintained its bear-steepening, with rates 2-5bps higher. Swap spreads are wider.
• On Monday, the local calendar sees M2 & M3 Money Stock, BSI Large All Industry and Machine Tool Orders data.

AUSSIE BONDS: A Typical Subdued Pre-NFP Friday Session, JGBs Pressured

ACGBs (YM +2.0 & XM +3.0) are slightly richer after dealing in relatively narrow ranges in a typical pre-NFP Friday session. With the local calendar light, the local market has oscillated with offshore developments in today’s Sydney session.

• After a moderately negative lead in from NY trading for US tsys, weakness extended after JGBs bear-steepened, with yields 1-9bps higher at one stage. This shift was triggered by higher-than-expected labour and real cash earnings data. The current movement extends the sell-off initiated by yesterday's disappointing 30-year auction result. Nevertheless, this weakness has been somewhat tempered during the Tokyo afternoon session.
• US tsys are dealing 1-2bps cheaper in today’s Asia-Pac session.
• Higher interest rates and inflation in Australia mean an increasing number of mortgage holders are facing severe financial stress, though most households remain resilient, according to Andrea Brischetto, the RBA’s head of financial stability, in a speech today. (See Bloomberg link)
• Cash ACGBs are 2-4bps richer, with the AU-US 10-year yield differential 1bp tighter at +14bps.
• Swap rates are 3-4bps lower, with EFPs little changed.
• The bills strip has bull-flattened, with pricing +1 to +2.
• RBA-dated OIS pricing is dealing little changed across meetings.
• Tomorrow, the local calendar sees Westpac Consumer Confidence, along with a speech by Michele Bullock, RBA Governor, at the AusPayNet Summit in Sydney.

RBA: Inflation Target Remains Flexible But Goal Is 2.5%

The Statement on the Conduct of Monetary Policy was released today. For the first time it was an agreement between the Treasurer and the RBA Board rather than just the Governor. The new agreement contains the recommendations from the RBA review with the goal now the mid-point of the 2-3% inflation target band. There are concerns that this will require further rate hikes, as current RBA projections have inflation still at 2.9% by end-2025.

• In today’s announcement Treasurer Chalmers tried to reassure that the target remains flexible and all outcomes within the band are considered consistent with target. But “the Reserve Bank Board sets monetary policy such that inflation is expected to return to the midpoint of the target.” The time frame will depend on “economic circumstances” though.
• Full employment is part of the monetary policy goals as well as achieving the inflation target but there needs to be a “balance”. There was speculation that they must have “equal consideration”.
• Full employment has been defined for the first time as “the current maximum level of employment that is consistent with low and stable inflation”.
• The RBA will need to communicate how long it expects inflation or employment to deviate from the goals.
• The anonymous vote will now be published. The Governor will hold a press conference after each meeting and other Board members will need to make at least one speech or public appearance each year.
• The statement reiterated the central bank’s independence.
• There is a section on the monetary tools available which allows for “other monetary tools”. There will be an official review every 5 years of the “monetary policy framework and tools”.
• See Statement on the Conduct of Monetary Policy here.

NZGBS: Closed On A Weak Note, Pressured By JGBs, US NFP Due

NZGBs closed on a weak note, with benchmark yields 2-5bps higher led by the 10-year. This move came despite weak Q3 Manufacturing Activity data, which printed -2.8% q/q versus +0.2% prior.

• The key driver of today’s session has been spillover softness from global markets, particularly JGBs. The JGB curve has bear-steepened, with yields 1-7bps higher, following higher-than-expected labour and real cash earnings data. Today’s move extends the sell-off sparked by yesterday’s poor 30-year auction result.
• Cash US tsys are 1bp cheaper across benchmarks so far in the Asia-Pac session, ahead of this evening’s Non-Farm Payrolls release.
• Swap rates closed 2-8bps higher, with the 2s10s steeper.
• RBNZ dated OIS pricing closed 1-2bps firmer for meetings beyond July’24. Terminal OCR expectations remain at 5.54% but the market now has two 25bp rate cuts fully priced by Nov’24.
• On Monday, the local calendar sees Card Spending Retail and Net Migration data.

STIR: Easing Expectations Build Across $-Bloc Ahead Of Non-Farm Payrolls Data

STIR markets are signalling the conclusion of the tightening cycle across the $-bloc, as the Australian market fell into line with the other markets following this week's RBA policy decision.

• Furthermore, easing expectations for 2024 has gathered momentum.
• Nov’24 expectations and the cumulative easing profile currently stand at: 4.25%, -108bps (FOMC); 3.95%, -105bps (BOC); 4.01%, -32bps (RBA); and 4.98%, -56bps (RBNZ).

OIL: Crude Stronger Ahead Of Payrolls, Fundamentals Remain Negative

Oil prices are up around 1.5% during APAC trading ahead of the US payroll report later as signals suggest the market is oversold. They look like they will again post a weekly decline though driven by oversupply concerns. Brent has broken above $75/bbl and is currently at $75.31, and WTI is above $70 at $70.40. The USD index is 0.1% lower.

• While supply has been the focus since OPEC’s decision last week, demand is also posing risks to the market. US recession concerns persist and a Bloomberg survey is showing expectations that China’s crude consumption will grow by 500kbd in 2024, less than a third of this year’s rise.
• Russian Urals prices have fallen below the $60 price cap. Last month Russia’s output exceeded what it had promised.
• Brent is now down over 17% since mid-September and this is feeding through to fuel prices, which we are already seeing in lower headline CPI data.
• There is now a significant risk to the easing of oil & gas sanctions on Venezuela, as it acts to illegally take territory in Guyana.
• Later the key data are the November US payrolls which are expected to rise 183k with the unemployment rate remaining at 3.9%. There will also be Michigan consumer sentiment and inflation expectations. The ECB’s de Guindos will attend the ECOFIN meeting.

GOLD: Steady Ahead Of US Non-Farm Payrolls Data

Gold is slightly higher in the Asia-Pac session, after closing 0.1% higher at $2028.47 on Thursday.

• Bullion is on track for its first weekly loss in four after retreating from a record high on Monday on signs investors may have gotten ahead of themselves concerning the timing of US rate cuts.
• Nonetheless, the US STIR market has 110bps of easing priced by November 2024, with a slightly more than 50:50 chance of the first rate cut by March.
• Later today sees the release of US Non-Farm Payrolls data. This data may prove to be crucial in shaping bets for monetary policy.
• According to MNI’s technicals team, resistance for the precious metal is seen at $2072.7 (50% retrace of Dec 4-5 down leg).

EQUITIES: APAC Markets Follow US Higher Especially Tech, US Payrolls Later

APAC equity markets have generally followed the US’s Wednesday rally, especially the Nasdaq’s (+1.4%), in trading today, except in Japan where yen appreciation appears to be weighing on markets. US futures are little changed ahead of today’s US payroll data while Asian moves have tended to be moderate (see MNI preview here).

• USDJPY is down 2.4% since Wednesday as traders expect the BoJ to tighten and as a result equities are down sharply today with the Nikkei 1.7% lower.
• China’s CSI 300 is up 0.4% with the property index down 0.4%. The Hang Seng is +0.2%.
• Korea and Taiwan have benefited from the better tech sentiment with the KOSPI up 1% and the KOSDAQ +1.5%. Current account data for October showed stronger exports. Taiwan’s TAIEX is +0.7%.
• The ASX is 0.2% stronger supported by the mining and energy sectors. Whereas the NZX 50 is flat.
• In ASEAN markets are mixed with the Jakarta comp 0.4% higher, SE Thai +0.3%, Singapore’s Straits Times +1% and Malay KLCI +0.1%. The Philippines PSEi is closed for a holiday.
• India’s Nifty 50 is 0.4% higher after monetary policy was left unchanged but still restrictive.
• Later the key data are the November US payrolls which are expected to rise 183k with the unemployment rate remaining at 3.9%. There will also be Michigan consumer sentiment and inflation expectations. The ECB’s de Guindos will attend the ECOFIN meeting.

FOREX: Yen Volatile In Asia

The Yen has ticked lower in Asia today, USD/JPY breaching the ¥143 handle and printing a low of ¥142.50 in volatile early trade before paring losses through the session to sit ~0.2% lower.

• There was no overt headline driver for the move lower which came in thin liquidity and was perhaps position squaring ahead of today's NFP print as recent BOJ speak continues to support the Yen.
• AUD/USD is marginally firmer rising ~0.2% to sit above the $0.66 handle. The uptrend in AUD/USD remains intact, resistance comes in at $0.6623 high from Dec5 then $0.6691, high from Dec 4 and bull trigger. Support is at the 20-Day EMA ($0.6547).
• Kiwi is little changed from opening levels, narrow ranges have been observed today with a narrow $0.5155/75 range persisting.
• Elsewhere in G-10 there are no moves of note to report.
• The cross-asset space is muted; BBDXY is a touch lower as are US Tsys.
• November NFP print provides the highlight of today's session, the MNI preview is here.

SOUTH KOREA: Current Account Widens As Goods Exports Recover

Korea’s seasonally adjusted current account surplus widened in October to $6.06bn from $2.62bn helped by a larger merchandise trade surplus, smaller services deficit and wider primary income surplus. The current account has been in surplus since December last year and October was the largest since March 2022. The non-seasonally adjusted measure also widened. USDKRW has fallen 1.2% during trading so far today to 1310.10 finding direction from the stronger yen.

• The seasonally adjusted goods surplus rose $1.2bn to $5.69bn in October. This was as a result of the first annual increase in exports in over a year. Merchandise exports rose 8.6% y/y after falling 3.5% y/y in September, whereas imports fell 6.2% y/y, which was better than last month’s -14.9%. Data is showing that tech exports have begun to recover.
• The October services deficit narrowed to $1.54bn from $2.89bn.
• The financial surplus widened to $8.37bn from $4.52bn due to the other investment component. Direct investment fell into a small deficit while the portfolio investment surplus narrowed moderately.

Source: MNI - Market News/Refinitiv

RBI: Policy To Stay “Disinflationary”, FY24 Growth Revised Up

The Reserve Bank of India outcome was as expected with a unanimous decision to keep the repo rate at 6.5%. Governor Das reiterated that the MPC remains focused on the “withdrawal of accommodation” and the vote was 5 to 6 on this stance. He continued to sound hawkish re inflation and was positive on growth with FY24 revised up and said that the central bank has to keep policy “disinflationary” and “stay the course on inflation”. There had been no need for OMO sales and the RBI will remain “nimble” in managing liquidity.

• FY24 growth was revised up 0.5pp to 7% as the net export drag moderates and domestic demand remains robust, especially capex, services and government spending. Household consumption is expected to pick up. GDP should moderate to 6.5% by Q2 FY25.
• While there has been a broad based easing in core price pressures, Das cited headline risks with it possibly rising in November/December. There is high uncertainty around food prices which will require close monitoring. The RBI remains “highly alert” and prepared to “take appropriate actions” if inflation is not moving in line with the 4% target.
• FY24 CPI forecast was unchanged at 5.4%
• It was noted that tighter monetary policy is still working its way through the economy.
• Uncertainties are high especially around the global growth outlook, due to geopolitical volatility.
• RBI was happy with INR stability and said it reflected the “economy’s resilience”.