MNI EUROPEAN OPEN: USD/JPY On Intervention Watch

SNAPSHOT: USD/JPY On Intervention Watch

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

• Nikkei 225 down 222.75 points at 27402.39
• ASX 200 down 94.138 points at 6731.4
• Shanghai Comp. up 3.83 points at 3247.398
• JGB 10-Yr future down 24 ticks at 149.14, JGB 10-Yr yield up 0.4bp at 0.251%
• Aussie 10-Yr future down 6 ticks at 96.285, Aussie 10-Yr yield up 6bp at 3.71%
• US 10-Yr future down 0-00 at 115.-19, US 10-Yr yield down 1.13bp at 3.3379%
• WTI crude down $1.62 at $85.24, Gold down $6 at $1696.31
• USDJPY up 117 pips at 143.93
• FED’S BARKIN SAYS RATES MUST STAY HIGH UNTIL INFLATION EASES: FT (BBG)
• TRUSS TO STEP BACK FROM EARLY CONFRONTATION WITH BRUSSELS (FT)
• YEN PLUNGE WORSENS DESPITE STRONGEST GOVERNMENT WARNINGS YET (BBG)
• BOJ BOOSTS BOND BUYING AS YIELDS ADVANCE TOWARD POLICY LIMIT (BBG)
• NORWAY OPEN TO DISCUSSING EU GAS PRICE CAP, PM SAYS (FT)
• U.S. HOPES CHINA, INDIA WILL AT LEAST TAKE ADVANTAGE OF RUSSIAN OIL PRICE CAP-ADEYEMO (RTRS)
• IAEA REPORT ON UKRAINE SAYS SITUATION AT ZAPORIZHZHIA 'NOT SUSTAINABLE' (RTRS)

US TSYS: Tight Trade After Tuesday’s Cheapening; Fed Speeches And Beige Book Eyed

Price action across the Asia-Pac session saw Tsys consolidate within relatively narrow ranges after the cheapening in core FIs on Tuesday (that saw 30-Year yields hit eight-year highs), with regional data prints provided little by way of lasting, meaningful direction for the space as well.

• TYZ2 is -0-01+ at 115-17+, sitting towards the middle of a tight 0-06 range established throughout the Asia-Pac session, a short distance above freshly made three-month lows.
• Cash Tsys run flat to 2.5bp richer across the curve, with long-end Tsys leading the way higher, while 2-Year yields were unable to establish a clear break above the 3.50% mark.
• Looking ahead, U.S. trade balance data, weekly mortgage applications, and the Fed’s Beige Book will cross later in the NY session amidst Fedspeak from the Fed’s Barkin (‘24 voter), Mester (voter), and Brainard (voter), with the BoC’s policy decision due as well.

JGBS: Off Lows, 10-Year Yields Approach BoJ’s YCC Tolerance Band

JGBs have edged away from session lows throughout the Asia-Pac session, with cash JGBs running 0.5-6.0bp cheaper across the curve, bear steepening, while JGB futures print -26 on the day.

• There was much focus centred around the latest round of JPY weakness, with USD/JPY back below 144.00 amidst rhetoric from Japanese officials.
• The BoJ announced an increase to the purchase of its 5- to 10-Year bonds in its Rinban ops (from the Y500bn scheduled to Y550bn), coming as 10-Year JGB yields (~0.243%) have continued inching higher to the upper limit of the BoJ’s permitted +/- 0.25% trading band.
• Thursday will see final Q2 GDP, balance of payments data, bank lending, and weekly international security flow figures headline the domestic docket, with a liquidity enhancement auction for off-the-run 5-15.5 Year JGBs due as well.

AUSSIE BONDS: Off Lows; Gov. Lowe’s Speech Eyed After Solid Q2 GDP Print

Aussie bonds have edged away from session lows, having unwound a downtick observed after the release of Q2 GDP, which met expectations on a Q/Q basis (+0.9% Q/Q vs. BBG median +0.9%), while recording a slight beat on the Y/Y print (+3.6% vs. BBG median +3.4%).

• Cash ACGBs run 3.5-7.5bp cheaper across the curve, with the 10- to 15-Year zone leading the way lower.
• YM is -5.0 and XM is -9.0, with both contracts having failed to stage a clear breach of their respective overnight bases so far. EFPs are little changed, while Bills run 1 to 6 ticks cheaper through the reds.
• The Q2 GDP result was contributed in part by the 2.2% rise in household spending and 5.5% increase in exports, with the solid headline print possibly validating expectations from some quarters re: further RBA hawkishness.
• Focus domestically now turns to a speech by RBA Gov. Lowe on Thursday.

AUSSIE BONDS: AOFM sells A$800mn of the 4.50% 21 April 2033 Bond, issue #TB140:

The Australian Office of Financial Management (AOFM) sells A$800mn of the 4.50% 21 April 2033 Bond, issue #TB140:

• Average Yield: 3.7398% (prev. 3.4433%)
• High Yield: 3.7425% (prev. 3.4450%)
• Bid/Cover: 4.1125x (prev. 2.3813x)
• Amount allotted at highest accepted yield as percentage of amount bid at that yield: 37.9% (prev. 87.7%)
• Bidders 48 (prev. 39), successful 21 (prev. 18 ), allocated in full 12 (prev. 10)

EQUITIES: Following Wall St. Lower; Hang Seng Approaches 10-Year Lows

Virtually all Asia-Pac equity indices are in the red at typing, building on a bearish lead from Wall St. amidst pressure from Tuesday’s surge in U.S. yields and continued strength in the USD.

• The Nikkei 225 is 1.0% worse off at writing, erasing virtually all of its gains since rallying in mid-July while the broader TOPIX (-0.8%) has fared a little better. Accordingly, large caps such as Tokyo Electron (-2.3%) and Softbank Group (-2.3%) contributed the most to drag on the index, with major exporters finding little relief amidst the latest round of JPY weakness.
• The Hang Seng deals 1.7% softer after opening lower, hitting fresh six-month lows at writing, approaching ten-year lows last witnessed in mid-March (at ~18,235.5). China-based tech led the way lower (HSTECH: -2.3%), adding to underperformance in the financials sub-index (1.9%)
• The CSI300 is flat at writing, having traded on either side of neutral throughout Asia-Pac dealing. Tech equities outperformed, with the tech-heavy ChiNext (+1.2%) gaining on local news of Chinese Pres Xi Jinping calling for a “whole nation system” to strengthen technology critical to national security, likely in response to recent U.S. tech-related curbs.
• E-minis sit 0.5-0.6% weaker apiece, showing a little through their respective Tuesday’s troughs, with S&P500 contracts operating just above seven-week lows at typing.

OIL: Fresh Multi-Month Lows As Demand Worry Rises

WTI and Brent are ~$1.30 worse off apiece, with both benchmarks hitting their lowest levels observed since Jan ‘22 amidst elevated demand-related worry.

• To elaborate, the expansion of COVID-related control measures across China has driven the outlook for crude demand lower, with an indefinite lockdown on the city of Chengdu (pop. ~21mn) keeping worry elevated re: further mass lockdowns on major cities.
• The outlook for travel-related fuel demand has also weakened, with reports pointing to international air travel remaining a fraction of pre-COVID levels, while authorities have continued to postpone/cancel major events in view of the ongoing outbreak (e.g. the Lujiazui financial forum in Shanghai and Asia’s biggest pet fair in Shenzhen).
• Elsewhere, an ongoing rally in the USD (DXY) to fresh cycle highs has continued to provide headwinds to crude.
• Looking ahead, the EIA will release their Short-Term Energy Outlook (STEO) for September.

GOLD: Slipping Below $1,700/oz As Yields Rally; Further Central Bank Action In Focus

Gold deals ~$5/oz weaker to print ~$1,697/oz at writing, pressured by a rally in the USD, with the DXY operating just shy of fresh cycle highs at writing.

• The precious metal operates a little above six-week lows observed last Thursday (at $1,688.9/oz), cutting short its recent, limited bounce amidst Dollar strength and rising bond yields globally (with U.S. 10-Year real yields operating just shy of multi-year lows), coming as several central banks worldwide will raise rates by the end of the week.
• Looking ahead, the BoC’s policy decision and a spread of Fedspeak from the Fed’s Barkin (‘24 voter), Mester (voter), and Brainard (voter) are due later today, while further out, the ECB’s policy decision will come on Thursday.
• From a technical perspective, the downtrend in gold remains intact, with initial support seen at $1,681.0 (Jul 21 low and bear trigger). On the other hand, key resistance remains some distance away, at $1,765.5 (Aug 25 high).

FOREX: USD Off Highs

USD upside momentum has cooled somewhat during the afternoon session. Within the G10 space, all currencies are away from worst levels against the USD. The DXY is back to around 110.50, versus earlier highs of 110.70. USD/JPY hit a high just shy of 144.40, but we are now back sub 144.00. The market is likely to be wary of further rhetoric from the authorities around FX over coming sessions.

• EUR/USD has edged back up towards 0.9900, headlines that Norway is open to an EU gas price cap likely helping at the margin. The pair is nearly back to unchanged for the session.
• The Fed's Barkin said in an interview with the FT that his bias is to move quickly on rates and that real rates need to above zero and stay there. We hear from Barkin again during the US session, along with a host of other Fed speakers, see below.
• US yields have been steady for the most part, with the 2yr not drifting too far away from 3.50%. Equities are in the red for Asia Pac markets, while US futures are lower but away from session lows.
• AUD/USD has held above 0.6700. Q2 GDP showed the economy maintains solid momentum. China trade figures were disappointing, although iron ore import volumes still rose over 5% in August. Corporate related demand for the A$, related to dividend inflows, may be driving some demand at lower levels.
• NZD/USD has underperformed, dipping sub 0.6000 for the first time since 2020, although we are now back above this level.
• Looking ahead, U.S. trade balance data, weekly mortgage applications, and the Fed’s Beige Book will cross later in the NY session, with Fedspeak from the Fed’s Barkin (‘24 voter), Mester (voter), and Brainard (voter) in focus. The BoC decision is also due, with the market looking for a 75bps hike (taking the policy rate to 3.25%).

FX OPTIONS: Expiries for Sep07 NY cut 1000ET (Source DTCC)

• EUR/USD: $0.9875-00(E1.6bln), $0.9950(E803mln), $0.9960-75(E1.1bln), $1.0000(E691mln)
• USD/JPY: Y140.85-00($1.6bln)
• GBP/USD: $1.2730-50(Gbp1.2bln)
• EUR/GBP: Gbp0.8575(E1.1bln)
• USD/CNY: Cny7.0000($2.2bln)