MNI EUROPEAN MARKETS ANALYSIS: Antipodeans Outperform On RBA View On Neutral

US TSYS: Marginally Firmer In Asia

Tsys have nudged higher during Asia-Pac dealing, unwinding a little of Monday’s cheapening in the process. Note that the richening isn’t sizable, with a downtick in Chinese equities (which struggled alongside a move higher in the latest Chinese daily COVID case figures) and some spill over from Monday’s move away from NY session cheaps (which came alongside reports that tech giant Apple plans to trim spending and headcount growth in some areas during ’23) supporting the space during Asia-Pac hours.

• That leaves the major cash Tsy benchmarks running 1.5-2.5bp richer across the curve, with very modest bull steepening in play. Meanwhile, TYU2 deals -0-03 at 118-12, 0-00+ off the peak of its 0-06+ session range, on very limited volume of ~40K.
• Geopolitical-tied headlines e.g. FT sources suggesting that U.S. House Speaker Pelosi is getting ready to visit Taiwan in the coming weeks, had nothing in the way of tangible impact on Tsys during overnight dealing, with the space also looking through a downtick in ACGBs.
• Looking ahead, housing starts and building permits data headline the NY docket on Tuesday.

JGBS: Twist Steepening On Conflicting Forces

Cash JGBs twist steepened as Tokyo returned from the elongated weekend, with a moderation in expectations surrounding the prospect of a 100bp rate hike from the U.S. Federal Reserve later this month supporting paper out to 10s, while super-long JGBs struggled after Monday’s cheapening in the wider core global FI space. That leaves the major JGB benchmarks running 1.5bp richer to 5.0bp cheaper, with the wings of the curve representing the respective extremes.

• Paper out to 5s also drew support from a downtick in the offer/cover ratio in BoJ Rinban operations across 1- to 5-Year JGBs, with less movement observed in the metric covering 5- to 10-Year Rinban operations (although the BoJ’s presence likely provided some incremental support there as well).
• The Tokyo open saw JGB futures unwind Friday’s post-Tokyo bid on the back of the aforementioned Monday cheapening in wider core global FI markets, with that contract last dealing little changed ahead of the Tokyo bell, operating within the confines of a relatively narrow range.
• A liquidity enhancement auction for off-the-run 1- to 5-Year JGBs headlines the domestic docket on Wednesday.

AUSSIE BONDS: Cheaper Post-Bullock

Aussie bonds cheapened in the wake of a speech from RBA Deputy Gov Bullock. The language that Bullock deployed in her initial round of remarks provided little in the way of RBA worry surrounding households in the rising rate environment. She did note that risks to the household sector from rising rates “are a little elevated”, although she pointed out that “while housing prices have started falling in recent months, they would have to fall a fair way for negative equity to become a systemic concern.” Note that in the subsequent Q&A Bullock pointed to previous RBA work (from ’17) which suggested that the neutral real rate is somewhere between 0.5-1.5%, when questioned on the matter. This allowed Aussie bond futures to register fresh session lows, before the contracts nudged away from worst levels, aided by a light bid in U.S. Tsys.

• Cash ACGBs run 7.0-8.5bp cheaper across the curve. YM is -7.5, operating through its overnight low, while XM is -7.0 after briefly showing below its own overnight low. Bills run 5 to 12 ticks lower through the reds, bear steepening.
• The release of RBA minutes earlier in the session provided little in the way of surprises, with the Bank reaffirming the need to tighten policy further, ultimately provoking little reaction in ACGBs at the time. The highlight of the release revolved around the RBA’s acknowledgement that the cash rate is “well below” the lower estimates of neutral, alongside a clear desire to continue to anchor medium-term inflation expectations.
• Wednesday will see RBA Governor Lowe speak at the Australian Strategic Business Forum, while A$800mn of ACGB May-32 will be on offer.

FOREX: RBA Speak Generates Antipodean Outperformance

Antipodean currencies found poise as an uptick in U.S. e-mini contracts sparked hopes for rebound after yesterday's Wall Street rout. The Aussie dollar outperformed as participants parsed the latest round of comments from the local central bank.

• The minutes from the RBA's most recent monetary policy meeting revealed that the Bank still saw the cash rate "well below" the lower estimates of neutral and recognised the need to keep tightening policy.
• Later in the session, RBA Dept Gov Bullock expressed confidence that most households are well positioned to weather tighter monetary conditions.
• The Aussie dollar crept higher since the release of RBA minutes. It extended gains to session highs on Bullock remarks, which inspired a notable upswing in 3-Year ACGB yield.
• The kiwi dollar firmed in tandem with its Antipodean cousin. AUD/NZD crept to a one-week high.
• The European FX bloc showed some weakness amid lingering worry surrounding gas supplies from Russia.
• On tap today are the final reading of Eurozone's CPI, UK labour market report, U.S. building permits as well as comments from Fed's Brainard, ECB's Makhlouf & BoE's Bailey.

FX OPTIONS: Expiries for Jul19 NY cut 1000ET (Source DTCC)

• EUR/USD: Jul20 $1.0100(E1.0bln); Jul21 $1.0000(E1.2bln), $1.0200(E1.4bln)
• AUD/USD: Jul22 $0.6800(A$1.1bln)
• USD/CAD: Jul20 C$1.3285-00($1.0bln)
• USD/CNY: Jul20 Cny6.6000($3.7bln), Cny6.7000($3.7bln), Cny6.8000(1.1bln)

ASIA FX: Rupee Hits All-Time Low In Mixed Asia Trade

The dollar index (BBDXY) unwound its initial uptick, with U.S. Tsy yields ticking lower, providing some reprieve to Asia EM space.

• CNH: Spot USD/CNH shed ~50 pips, with the move seemingly driven by the greenback side of the pair. The rate had earlier held a very tight range, even as the PBOC delivered another firmer than expected yuan fixing.
• KRW: The won outperformed, tracking the slightly weaker greenback. U.S. Tsy Sec Yellen is in South Korea, will speak with Pres Yoon, FinMin Choo & BoK Gov Rhee.
• IDR: Spot USD/IDR edged higher, respecting a familiar range. Participants assessed interest rate outlook ahead of this week's Bank Indonesia meeting.
• MYR: Spot USD/MYR rose to a new cyclical high of MYR4.4584. Renewed weakness in palm oil futures may have sapped strength from the ringgit.
• PHP: The peso inched higher, with the Philippines looking to revise its COVID-19 alert system next month.
• THB: The baht traded on a slightly heavier footing ahead of today's censure debate against PM Prayuth and 10 senior Cabinet ministers.
• INR: The Indian rupee plunged to an all-time low, with spot USD/INR having a look above INR80.

EQUITIES: Tech Stocks Lead The Way Lower In Asia

Major Asia-Pac equity indices are mostly lower at typing on a negative lead from Wall St., with Japanese benchmarks bucking the broader trend of losses on their first day back from the extended weekend. High-beta equities region-wide struggled, likely in the wake of BBG source reports on Monday pointing to Apple Inc considering plans to slow some hiring and spending growth (following similar announcements from other tech giants earlier), fanning fears re: economic slowdowns.

• The Nikkei 225 deals 0.6% firmer at typing, on track for a fourth straight higher daily close. Energy and materials equities contributed the most to gains in the index, with major exporters trading mostly higher as well. Apart from that, the Nikkei may have come up against technical resistance at ~27,050, having failed to break through that level since end-June.
• The CSI300 sits 0.9% worse off, more than reversing Monday’s gains at typing. The consumer staples and healthcare sub-gauges posed the most drag on the index, tracking the broader sell-off in high-beta stocks, with the ChiNext and STAR50 indices dealing 1.1% and 1.9% lower respectively at typing as well. Elsewhere, the CSI300 Real Estate index sits 0.8% worse off, with previously-flagged source reports on a potential stay of mortgage payments for homeowners failing to provide relief for the space.
• The ASX200 trades 0.6% worse off at writing, with the healthcare sub-index (-2.3%) and tech equities (S&P/ASX All Tech Index: -2.3%) leading the way lower. Energy and utilities provided the lone bright spot, tracking the recent rally in major crude benchmarks.
• E-minis sit flat to 0.1% better off at typing, operating firmly within the bottom end of their respective ranges established on Monday.

GOLD: Little Changed In Asia; Spinning Wheels Around $1,700/oz

Gold sits ~$2/oz weaker to print ~$1,707/oz at typing, operating a shade above Monday’s session lows after briefly showing below those levels earlier. The precious metal has established a tight $5/oz channel across Asia-Pac dealing thus far, struggling for direction amidst a limited uptick in the USD (DXY), with little reaction observed on news of China reporting 699 fresh COVID infections for Monday (highest since May 22).

• To recap, gold was little changed on Monday, closing within ~$10 of the $1,700/oz handle for a third consecutive day as debate re: the aggressiveness of Fed tightening vs. economic slowdowns (particularly in the U.S. and Europe) remains in focus. A continued pullback in the DXY from last Thursday’s cycle highs has also likely lent some support to the precious metal, helping it tread water above $1,700/oz in recent sessions.
• July FOMC dated OIS have drifted lower from last week’s extremes, and now price in around ~80bp of tightening for that meeting, pointing to ~20% odds of a 100bp rate hike (vs. ~93bp observed last Thursday).
• From a technical perspective, gold remains in a downtrend, with our technical analyst flagging that moving average studies are pointing to bearish conditions. Initial support is located at $1,690.6/oz (Aug 9 ‘21 low), while resistance is situated at $1,745.4/oz (Jul 13 high).

OIL: Little Changed In Asia After Monday’s Rally; Chinese COVID Cases Rise Further

WTI and Brent are ~$0.20 worse off apiece, operating a little shy of their respective best levels made on Monday. Crude has struggled to make headway above neutral levels in Asia as China has reported 699 COVID cases for Mon (highest since May 22), stoking simmering fears re: reduced Chinese energy demand owing to pandemic control measures.

• To elaborate, Shanghai is carrying out mass testing in 12 of the city’s 16 districts, with daily cases continuing to be reported in the low double-digits. China’s current outbreak epicentre has shifted steadily from the east to Guangxi (south) and Gansu (northwest), with the latter’s provincial capital locked down for the past week thus far.
• To recap Monday’s price action, WTI reclaimed the $100 handle after both benchmarks closed ~$5 higher, catching a bid as no concrete measures re: crude production increases were forthcoming from the Saudis after U.S. Pres Biden’s visit, unwinding some of the sell-off in crude observed since the meeting was confirmed in June.
• Worry re: tightness in global supplies again takes centre stage, with Brent’s prompt spread sitting at ~$4.40 (against ~$3.95 observed during yesterday’s Asian session), operating around its highest levels observed for ‘22 so far.
• The Keystone pipeline running from Canada to the U.S. is operating at a “reduced rate” (usual capacity ~590K bpd) due to damage to a power supply facility, with operator TC Energy declaring force majeure, and offering no timeline for its restoration at writing.