MNI EUROPEAN OPEN: Searching For A Definitive Catalyst Into The Weekend

SNAPSHOT: Searching For A Definitive Catalyst Into The Weekend

Below gives key levels of markets in the second half of the Asia-Pac session:

• Nikkei 225 up 655.63 points at 28474.96
• ASX 200 down 48.351 points at 7022.60
• Shanghai Comp. down 5.133 points at 3276.532
• JGB 10-Yr future down 5 ticks at 150.28, yield up 0.1bp at 0.191%
• Aussie 10-Yr future down 12 ticks at 96.57, yield up 11.5bp at 3.404%
• U.S. 10-Yr future +0-05+ at 119-08+, yield down 2.73bp at 2.860%
• WTI crude down $0.45 at $93.89, Gold up $1.43 at $1791.16
• USD/JPY up 21 pips at Y133.23
• FED’S DALY SEES HALF-POINT SEPTEMBER HIKE; NO INFLATION VICTORY (BBG)
• XI SOUGHT TO SEND MESSAGE TO BIDEN ON TAIWAN: NOW IS NO TIME FOR A CRISIS (WSJ)
• SHANGHAI FINDS FIRST COVID CASES IN WEEK; HAINAN STAYS ELEVATED (BBG)
• EU PROPOSES SIGNIFICANT CONCESSION TO IRAN TO REVIVE NUCLEAR DEAL (WSJ)
• UKRAINE RESUMES RUSSIAN OIL FLOWS TO HUNGARY, SLOVAKIA AS BILLS SETTLE (RTRS)
• OIL LEAK CONTAINED AT THREE U.S. GULF PLATFORMS ON PIPELINE OUTAGE, SHELL SAYS (RTRS)

US TSYS: A Little Richer In Asia

Tsys richened overnight, with desks flagging an apparent regional interest in fading Thursday’s cheapening & steepening given the lack of overt game changing drivers evident yesterday (with position squaring and block flow-driven moves evident in NY hours, as well 30-Year auction concession/reaction).

• Upside options expressions in the form of FVU2 113.00 & TYU2 119.50 calls aided the direction of travel, as did a couple of rounds of screen lifts in TY futures.
• That leaves TYU2 printing +0-05 at 119-08 ahead of London hours, 0-03 off the peak of its 0-12 Asia-Pac range, although volume isn’t particularly firm, running at ~80K lots.
• Cash Tsys sit 1.5-3.5bp richer across the curve, with 20s leading the rally.
• San Francisco Fed President Daly (’24 voter) reiterated her baseline view of a 50bp hike at the September FOMC, although she once again failed to rule out the idea of a 75bp rate hike, stressing the data-dependent nature of monetary policy alongside a need to assess the inflation and labour market data that will cross between now and then.
• Looking ahead, NY hours will see the latest round of UoM sentiment data (with the inflation expectation components eyed) and Fedspeak from Richmond Fed President Barkin (’24 voter).

JGBS: Twisting Flatter As Tokyo Returns

JGB futures generally tracked the broader impetus in core global FI markets during the morning session as Tokyo participants found their feet after yesterday’s holiday. That was before a slowing of activity in the afternoon session, with liquidity diminished owing to the summer holiday period in Japan.

• That leaves the contract off of its session extremes as we work towards the weekend, -6 vs. Wednesday’s settlement. Wider cash JGB trade has seen the curve twist flatten with the major benchmarks running 1bp cheaper to 2bp richer, pivoting around 10s, after the long end more than reversed its modest, early losses.
• The only real domestic headline flow of note saw Japanese PM Kishida revealing that he plans to hold a meeting to discuss ways to curb inflation, with the gathering set to take place this Monday. Rising food prices and wages will seemingly form the focal points of those discussions.
• As we noted elsewhere, the latest round of Japanese weekly international security flow data revealed that last week saw foreign investors buy more than Y1tn of Japanese bonds in net terms for the fourth time in five weeks, with the latest round of purchases likely representing short covering of existing JGB positions, foreign investors looking to take advantage of FX-hedge-related yield pickups, or a mixture of the two.
• Looking ahead, preliminary Q2 GDP data headlines the domestic docket on Monday, with final industrial production data for June also due.

JGBS AUCTION: Japanese MOF sells Y4.54004tn 3-Month Bills:

The Japanese Ministry of Finance (MOF) sells Y4.54004tn 3-Month Bills:

• Average Yield: -0.1126% (prev. -0.1299%)
• Average Price: 100.0281 (prev. 100.0324)
• High Yield: -0.1042% (prev. -0.1202%)
• Low Price: 100.0260 (prev. 100.0300)
• % Allotted At High Yield: 38.4144% (prev. 46.6848%)
• Bid/Cover: 3.955x (prev. 2.703x)

AUSSIE BONDS: Cheaper, But Off Lows

Aussie bonds are off of session cheaps, as a light bid in U.S. Tsys has helped to pull the space back from session lows. The overnight cheapening in futures that stemmed from Thursday’s bear steepening in the Tsy space gained further momentum as YM & XM registered multi-week lows in early Sydney trade, before the aforementioned move away from worst levels. Cash ACGBs run 7.0-13.5bp cheaper across the curve, bear steepening. YM and XM are -8.5 and -12.0, respectively. Bills run flat to 9 ticks cheaper through the reds.

• The latest round of ACGB Sep-26 supply saw firm pricing, aided by the stabilisation away from cycle cheaps in Aussie bonds, with the weighted average yield printing 1.83bp through prevailing mids (per Yieldbroker). On the other hand, the cover ratio moderated to 2.66x from the previous auction’s 3.40x, coming in far below the six-auction average of 4.03x, with international investors still seemingly sidelined amidst lingering uncertainty re: the degree of tightening that will be executed by the RBA in the current cycle. The slightly higher DV01 on offer from the AOFM this week and the marginal richness of the line in micro-RV terms also provided headwinds, limiting demand at the auction.
• The release of the AOFM’s weekly issuance slate provoked little by way of meaningful reaction in Aussie bonds, seeing a smaller A$1.5bn of ACGBs (with a slight step down in the DV01 from this week’s supply) and A$2.5bn of note supply on offer next week.
• The domestic data docket is virtually empty on Monday, with minutes of the RBA’s Aug policy meeting and CBA household spending data expected to provide the first points of interest on Tuesday.

AUSSIE BONDS: AOFM sells A$700mn of the 0.50% 21 September 2026 Bond, issue #TB164:

The Australian Office of Financial Management (AOFM) sells A$700mn of the 0.50% 21 September 2026 Bond, issue #TB164:

• Average Yield: 3.1722% (prev. 3.2120%)
• High Yield: 3.1750% (prev. 3.2150%)
• Bid/Cover: 2.6643x (prev. 3.4029x)
• Amount allotted at highest accepted yield as percentage of amount bid at that yield: 41.5% (prev 42.8%)
• Bidders 37 (prev. 48), successful 13 (prev. 19), allocated in full 8 (prev. 11)

AUSSIE BONDS: AOFM Weekly Issuance Slate

The AOFM has released its weekly issuance slate:

• On Wednesday 17 August it plans to sell A$800mn of the 1.25% 21 May 2032 Bond.
• On Thursday 18 August it plans to sell A$1.0bn of the 21 October 2022 Note, A$1.0bn of the 25 November 2022 Note & A$500mn of the 27 January 2023 Note.
• On Friday 19 August it plans to sell A$700mn of the 2.75% 21 November 2027 Bond.

EQUITIES: Mixed In Asia; Japan Plays Catch-Up

Major Asia-Pac equity indices are mixed at writing on a similar showing from Wall St. on Thursday.

• Suppliers of Apple Inc across Asia were bid as BBG sources have pointed to the U.S. tech giant asking suppliers to produce at least as many next-gen iPhones in ‘22 (~90mn) as in ‘21, with some participants likely watching for similar bids in Europe and U.S. listed suppliers later on Friday.
• Japanese stocks outperformed on their first day back from the holiday on Thursday, experiencing a lift as Japanese participants played catch-up to the recent rally in equities on Wednesday’s better-than-expected U.S. CPI print. Large-caps lead the way higher, with the Nikkei 225 dealing 2.4% firmer at typing, ahead of the broader TOPIX index (+1.8%).
• The CSI300 is 0.2% worse off at typing after a brief show above neutral levels, turning the benchmark away from fresh one-week highs made earlier in the session. Relatively shallow gains across most sectors was countered by losses in consumer discretionary and tech stocks, with the ChiNext index trading 0.9% lower at typing.
• The ASX200 sits 0.7% worse off, backing away from nine-week highs made on Thursday amidst weakness across virtually every sub-index, with healthcare and tech contributing the most to losses (S&P/ASX All Tech Index: -1.5%).
• E-minis deal 0.1-0.3% firmer at typing, operating adrift of their respective multi-month highs made on Thursday.

OIL: A Little Below One-Week Highs

WTI and Brent are ~-$0.50 softer apiece at writing, operating a little below their respective one-week highs made on Thursday. Both benchmarks are on track for a higher weekly close amidst a moderation in demand destruction worry in recent sessions, but remain well short of unwinding last week’s steep selloff, with concern re: tightness in global crude supplies continuing to pull away from recent extremes (Brent’s prompt spread sits at ~$1.27 vs. the ~$2.80 peak witnessed at the beginning of August).

• WTI and Brent closed ~$2 higher apiece on Thursday despite diverging demand forecasts from the International Energy Agency (IEA) and OPEC, with the former highlighting that OPEC+ is unlikely to raise output in the near-term due to severely limited spare capacity, while flagging the potential for further disruptions to Russian crude exports as another risk to supply.
• Turning to the forecasts, the IEA boosted its ‘22 global demand growth projections by 380K bpd while OPEC cut its own ‘22 demand growth forecasts by ~260K bpd later in the session, with the latter also predicting that global oil markets will experience a surplus in Q3 ‘22 on simultaneous supply increases from non-OPEC+ members.
• Elsewhere, crude has also drawn support from news of pipeline and oil & gas field closures in the Gulf of Mexico due to leaks, with Shell expecting the affected pipelines (capacity ~500K bpd of crude) to return to service on Friday, with no timeline given re: restarting production at the fields at writing.

GOLD: Little Changed In Asia; On Track For Higher Weekly Close

Gold sits ~$1/oz weaker, printing ~$1,788/oz at writing. The precious metal operates around the bottom of Thursday’s range at typing, backing away from recently-made five-week highs, but remaining on course to close higher for a fourth consecutive week, drawing support from a continued pullback in the USD (DXY) from cycle highs observed in mid-July.

• While comments from San Fran Fed Pres Daly (‘24 voter) earlier in the session provoked little reaction in gold (with her delivered remarks providing little fresh insight after her FT interview on Thursday), Daly emphasised the need to not get “head-faked” by the recent better-than-expected CPI print, pointing to further employment and inflation data due before the next FOMC due in September.
• Sep FOMC dated OIS now price in ~60bp of tightening, pointing to greater odds of a 50bp hike at that meeting (vs. odds for a 75bp hike), little changed from levels observed a week ago prior to the hot NFP print on Friday.
• From a technical perspective, gold’s recent breach of trendline resistance (~$1,794.6/oz) has signalled a firmer tone for the yellow metal. Initial resistance is located at $1,807.9/oz (Aug 10 high and the bull trigger), while support is seen at $1,754.4 (Aug 3 low, key short-term support).

FOREX: Better Sentiment Keeps Lid On Yen, Supports Antipodeans

The risk switch flicked to on, lending support to the Antipodeans and sapping strength from the yen as the working week in Asia was drawing to an end. Both U.S. Tsys and e-mini contracts found poise amid continued assessment of the outlook for Fed tightening campaign.

• USD/JPY ran as high as to Y133.50 before giving back the bulk of its earlier gains as U.S. Tsy yields lost altitude. Risk reversals crept higher, with one-year skews returning above par. The yen remains the worst G10 performer as risk-on impetus seemingly outweighed slight tightening in U.S./Japan yield gap. Note that there is a notable $1.7bn option expiry with strikes at Y133.98-00 due at the NY cut.
• The kiwi dollar paced gains, setting the tone for the outperformance of commodity-tied FX bloc. The kiwi looked past a quarterly survey which showed that inflation expectations of New Zealand households have stabilised.
• AUD/NZD went offered in line with a move in Australia/New Zealand 2-year swap spread. The spot rate fell to its lowest point in 10 days, with its 100-DMA now within sight. That moving average has remained intact since Dec 2021.
• The sterling traded on a softer footing ahead of the release of UK data which is expected to show that domestic economy slipped into contraction in the second quarter.
• Flash UK GDP & industrial output, Swedish CPI will take focus in European hours, while the American docket is headline by flash U.S. Uni. of Michigan Survey (inflation expectations gauges from that survey will be closely watched). Fed's Barkin will make a TV appearance.

FX OPTIONS: Expiries for Aug12 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0185-00(E812mln), $1.0225-30(E639mln), $1.0300(E1.8bln), $1.0325(E800mln), $1.0350(E766mln), $1.0435-40(E521mln)
• USD/JPY: Y132.00($810mln), Y132.45-50($575mln), Y133.98-00($1.7bln)
• GBP/USD: $1.2300(Gbp576mln)
• AUD/USD: $0.7100(A$593mln)
• USD/CAD: C$1.2700($1.3bln), C$1.2800($880mln), C$1.3135-55($1.5bln), C$1.3200($1.1bln)
• USD/CNY: Cny6.80($899mln), Cny6.85($500mln)