MNI EUROPEAN MARKETS ANALYSIS: RBA Musings Dominate In Australia

BOND SUMMARY: U.S. Tsy Yields Ease Off Initial Highs, ACGB Yields Slip Ahead Of RBA Rate Decision

Core FI wobbled in the first Asia-Pac session of the week, with participants digesting weekend headline flow. Worrying geopolitical reports (North Korean missile launches, a dangerous incident involving Australian & Chinese aircraft) were weighed against Beijing's decision to ease COVID-19 curbs further and talk of a potential removal of some tariffs by the U.S. in a bid to tackle inflation.

• T-Notes managed to stay afloat, even as their initial uptick proved short-lived. TYU2 rose to 118-23+ in early trade, unwound this move, then gradually regained poise. It last changes hands +0-04 at 118-21+, while Eurodollars run -0.25 to +1.0 tick through the reds. Cash U.S. Tsy yields trade 0.4-0.8bp higher across the curve, off earlier highs.
• JGB futures unwound the initial uptick (with peak at 149.81) and traded sideways thereafter, as the Nikkei 225 recouped opening losses and continued to climb. JBM2 trades at 149.74 at typing, a dozen ticks below previous settlement. Cash JGB yields sit higher across the curves, but off earlier highs. Comments from BoJ Gov Kuroda were shrugged off.
• Australian YM trades +0.5 and XM +1.0, the latter is heading towards its earlier session highs. Bills last seen +4 to -4 ticks through the reds. Cash ACGB curve has bull flattened, with yields last sitting up to 1.8bp lower. The AOFM sold A$300mn of ACGB Jun '51, market reaction was muted. Domestic data also failed to provoke much response. All eyes were already on the RBA, set to deliver its monetary policy decision tomorrow, with hawkish rate hike bets moderating at the margin.

FOREX: Antipodeans Lag Behind Ahead Of RBA Monetary Policy Decision, Yen Takes Lead

Geopolitical concerns and the prospect of tighter monetary policy weighed generated risk-off flows across G10 FX space, even as equity benchmarks in China and Japan clawed back initial losses, while U.S. e-mini futures crept higher from the off.

• Geopolitical tensions in the Asia-Pacific resurfaced over the weekend. North Korea test-fired a barrage of eight ballistic missiles on Sunday, provoking a symmetrical response from the U.S. and South Korea. Elsewhere, Australia confirmed an incident involving its surveillance plan and a Chinese fighter jet.
• The yen took the lead and spot USD/JPY shed ~30 pips, while regional risk barometer AUD/JPY retreated under the Y94.00 mark. The BoJ released the text of a speech from Gov Kuroda, who merely reiterated his well-documented views on monetary policy.
• Antipodean currencies paced losses in the G10 FX basket. BBG trader sources suggested that the Aussie dollar was sold by leveraged funds as market pricing leaned further towards a 25bp hike to the cash rate target come the end of tomorrow's RBA monetary policy meeting (28bp worth of tightening priced now vs. 31bp last week).
• AUD/USD extended its pullback from a multi-week high printed last Friday, piercing the $0.7200 figure in the process. The pair's implied volatility climbed across the curve, with the short-end posting largest gains, amid uncertainty about the outcome of RBA deliberations.
• Offshore yuan weakened steadily as the session progressed. China's Caixin Services PMI printed at 41.4, missing the median estimate of 46.0 by considerable margin.
• The global economic docket is particularly light during the remainder of the day.

FOREX OPTIONS: Expiries for Jun06 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0647-50(E1.6bln), $1.0675(E743mln), $1.0700(E1.4bln), $1.0800(E1.5bln)
• USD/JPY: Y127.00($1.2bln), Y129.00-05($540mln), Y130.00($545mln)
• EUR/GBP: Gbp0.8750-75(E516mln)
• USD/CAD: C$1.2500($600mln), C$1.2650($600mln), C$1.2725-35($1.7bln)
• USD/CNY: Cny6.80($1.2bln)

ASIA FX: USD/CNH Unwinds Friday Dip

USD/Asia pairs have tracked mostly higher today.

• CNH: USD/CNH has traded with a firmer bias through the afternoon. The pair is back around the 6.6600 level, having unwound all of the dip we saw on Friday. Equities are trading positive today though, following a further easing of restrictions in Beijing. However, the Caixin PMI was much weaker than expected and remains well below expansion territory at 41.4.
• KRW: Korean markets are closed today, but the 1 month USD/KRW NDF has pushed a little higher to 1253, around 0.15% higher than NY closing levels. Onshore spot closed last week at 1242.4.
• INR: USD/INR started softer, but is now drifting higher. Spot is back to 77.66, having spent very little time outside of the 77.50/77.70 range in the past few weeks. Higher oil prices continue to weigh though. Onshore covid cases are also trending higher.
• PHP: Spot USD/PHP extends gains after breaking key resistance from PHP52.500 towards the back end of last week. The rate last deals +0.04 at PHP52.906, hitting its best levels since Mar 2019. Higher oil is not helping. Looking ahead, the Philippine Statistics Authority will publish CPI data on Tuesday, with trade report and unemployment coming up on Thursday and Friday respectively.
• THB: USD/THB opened above 34.40 but has drifted down from this level. Headline CPI printed 7.1% versus 5.9% expected. Core also rose to 2.28% versus 2.20% forecast. This will be the last major data release ahead of Wednesday's monetary policy decision from the Bank of Thailand. All but two economists surveyed by Bloomberg expect the Bank to keep the benchmark policy rate unchanged.
• IDR: USD/IDR has drifted higher, spot pushing back towards 14470, around 0.20% above closing levels from last week. Foreign holdings of local bonds are tracking higher, albeit from low levels. There is little in the way of data this week, with FX reserves out on Wednesday and consumer confidence on Thursday.

EQUITIES: Chinese Sentiment Lifted On Earnings; Australia Underperforms Ahead Of RBA Decision

Major Asia-Pac equity indices are mostly higher at typing, bucking a negative lead from Wall St. The positive performance comes despite the small beat in U.S. NFPs (fuelling hawkish Fed worry from some quarters), with optimism surrounding China’s well-documented post-COVID re-opening taking focus elsewhere.

• The CSI300 sits 1.5% higher at typing, a little under seven-week highs made earlier in the session. The Chinese equity benchmark broke above the 4,100 level following the release of May Caixin Services PMIs, the latter which missed expectations (41.4 vs. BBG median 46.0), but still pointed to an improvement over the previous month (Apr 36.2). Chinese tech names were amongst the best performers on the day, with the ChiNext and STAR50 indices adding 4.1% and 4.3% respectively at typing.
• Zooming out, a slew of BBG reports have pointed to equity analysts for Chinese stocks slowing/reversing their cuts to forward earnings estimates, coming as Chinese internet tech giants have generally reported better-than-expected Q1 earnings.
• Turning to the Hang Seng, the Hong Kong benchmark index has added 1.1% at writing, with China-based tech outperforming. The Hang Seng Tech Index accordingly deals 2.3% firmer at typing, with overall sentiment boosted by Meituan’s (+6.9%) after-hours earnings beat last Friday.
• The Nikkei 225 reversed earlier losses to trade 0.7% higher at writing, with the energy and utilities sub-indices leading gains. Major exporters mostly underperformed amidst JPY strength, with USD/JPY backing away from last-Friday’s one-month highs.
• The Australian ASX200 sits 0.3% worse off at typing, with high-beta tech names struggling ahead of the RBA’s MonPol decision on Tuesday, where the central bank is expected to raise rates for a second, consecutive time. The S&P/ASX All Technology Index trades 1.6% lower at typing, diving to worst levels soon after Monday’s open, led by underperformance in large-caps Block Inc, Xero Ltd, and REA Group. Magellan Financial Group was a notable loser as well, dealing 12.8% lower on typing after reporting a A$3.6bn decline in FUM.
• U.S. e-mini equity index futures are 0.4% to 0.7% better off to operate around session highs, extending a rise off of their respective troughs on Friday at typing.

GOLD: Pushing Back Above $1855

Gold has recovered modestly through the session, up around 0.25% from NY closing levels to $1855. We remain comfortably within recent ranges.

• Today's price action has seen the late recovery from the Friday NY session extend. Oil is tracking higher in the region, while the USD is softer against the majors, although moves are quite small at this stage. The DXY remains above 102.00. Other cross asset signals are less supportive for gold though.
• Equities are tracking higher in terms of US futures (close to 0.5% for the S&P500), while China/HK have recovered after an indifferent start to post gains in the 0.5-1.0% region. Likewise for Japanese equities.
• US yields are a touch higher in terms of Cash Tsys (10yr close to 2.94%), which is building on gains from the Friday session. The real US 10yr yield still edged down though on Friday (from 0.26% to 0.22%).
• Gold weakness on Friday broadly tracked the rebound in USD sentiment. This saw us move down to sub $1850, from above the $1870 level.
• Elsewhere, the Bolivian congress will debate a bill that allows the central bank to buy gold produced in the country to raise its FX reserves. Currently the local central bank holds $2.5bn in gold reserves (as at the end of May).

OIL: Higher Despite Supply-Positive Developments; Incoming Crude Demand Surge Debated

WTI and Brent are ~$1.00 higher apiece at typing, with both benchmarks a little under freshly-made highs at $120.99 and $121.95 respectively.

• Looking to the Middle East, Saudi Arabia raised crude prices for customers in Asia by more than expected, mainly on raised demand forecast expectations for the region. The move saw major crude benchmarks catch a bid early in Monday’s session, with WTI and Brent building on six straight weeks of gains.
• Keeping within the region, U.S.-Saudi relations continue to be in focus, with U.S. President Biden delaying a previously-flagged, possible trip to Saudi Arabia. On the other hand, RTRS source reports have since flagged that two Saudi delegations to the U.S. are expected to arrive in mid and end-June, led by the Saudi Commerce and Investment Ministers respectively.
• Turning to energy demand expectations, debate re: an incoming rise in fuel demand has accordingly done the rounds in Asia, with participants looking to the U.S. driving season (noting that Chevron CEO Wirth stated late last week that he has seen little sign of demand destruction amidst high gasoline prices), a rebound in Chinese energy consumption, and a recovery in international travel/flights for cues.
• On the supply side of the equation, worry surrounding the outlook for crude supply likely eased a little as Vitol Head of Asia Mike Muller suggested over the weekend that the U.S. may turn a “blind eye” to Iranian exports of crude amidst stalled nuclear talks in Vienna, while RTRS source reports have pointed to the U.S. allowing for Venezuelan crude to be shipped to Europe by as soon as July.
• Elsewhere, Libya announced that it has restarted production at its largest (280K bpd) Sharara oilfield after a two-month halt.