MNI EUROPEAN OPEN: Risk Negative Tone Reverberates In Asia

SNAPSHOT: Risk Negative Tone Reverberates In Asia

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

• Nikkei 225 is closed
• ASX 200 down 147.023 points at 6553.2
• Shanghai Comp. down 33.576 points at 3075.334
• JGBs are closed
• Aussie 10-Yr future down 24 ticks at 96.045, yield up 25.3bp at 3.918%
• U.S. 10-Yr future -0-03+ at at 112-20+, cash Tsys are closed
• WTI crude down $0.55 at $82.95, Gold down $2.27 at $1668.95
• USD/JPY down 15 pips at Y142.24
• YELLEN SEES PATH FOR COOLER PRICES WITHOUT JUMP IN JOBLESS RATE (BBG)
• ECB’S SCHNABEL SEES INFLATION PRESSURE IN ‘ALL PARTS’ OF ECONOMY (BBG)
• BOE'S HASKEL SEES TENSION WITH GOVERNMENT FISCAL EXPANSION (RTRS)
• BOE'S HASKEL SAYS HE IS NOT WORRIED BY STERLING (RTRS)
• JAPAN PM KISHIDA SAYS READY TO ACT AGAIN TO SUPPORT YEN (RTRS)
• NIGERIAN OIL MINISTER: OPEC MAY CUT OUTPUT IF PRICES FALL MORE (BBG)

US TSYS: Futures Little Changed To A Touch Lower, Cash Closed On Japanese Holiday

Tsy futures sit little changed to marginally below Thursday’s settlement levels, after recovering from their respective Asia-Pac session bases. TYZ2 is -0-03 at 112-21, 0-02+ off the base of its 0-07 overnight range, through Thursday’s low.

• Note that cash Tsys are closed until London hours owing to the observance of a Japanese national holiday.
• Thursday saw fresh cycle highs for all of the major U.S. Tsy benchmark yield metrics, as the 10-Year Tsy yield broke decisively through the upper end of the upward sloping channel that we have identified on several occasions. Consolidation above allows Tsy bears to switch focus to the ’11 high at (3.7760%). A move beyond that level would expose the psychological 4.00% area, as well as the double top from ‘09/’10, which resides just above the round number.
• There wasn’t much in the way of market moving headline flow observed in Asia, which left regional reaction to the latest leg of global core FI cheapening at the fore.
• Friday’s NY docket will see the release of flash S&P PMI data. Elsewhere, Fed Chair Powell is set to give opening remarks at a Fed Listens event as the post-FOMC blackout comes to an end.
• Flash PMI data out from across Europe & the UK mini budget prevent some areas of interest in pre-NY hours.

AUSSIE BONDS: Sharp Sell Off After Holiday, RBA Terminal Pricing Jumps

Aussie yields surged as domestic participants played catch up after Thursday’s holiday, with bearish pressure increasing on technical breaks in YM & XM futures, which allowed bears to switch focus to the June cycle lows in the respective contracts. YM -21.5 & XM -24.0 at typing.

• Yields run 21-27bp higher across the curve, with the 3- to 5-Year sector leading the weakness.
• The 3-/10-Year EFP box has flattened, with 3-Year EFP the best part of 5bp wider and 10-Year EFP little changed.
• Bills run 5-26bp lower through the reds, steepening.
• RBA dated OIS sees a bit of a reluctance to price much more into the Oct meeting (last ~44bp), given the Bank’s reference to a need to slow the pace of hikes at some point and pre-meeting outline of discussions surrounding 25 & 50bp hikes. Further out, terminal rate pricing moves up to 4.15%, sharply higher on the day, although nowhere near challenging the cycle peaks of ~4.50% printed back in June.
• Next week’s domestic data docket is headlined by retail sales, job vacancies and the new monthly CPI print.
• Nothing really stands out when it comes to next week’s AOFM issuance slate, outside of a chunky A$2.5bn return of Note issuance after this week’s holiday-inspired hiatus.

EQUITIES: Asia Pac Tech Underperforms

It's a sea of red across the Asia Pac equity space. Asian markets have taken their cue from negative offshore leads overnight, with tech sensitive sectors underperforming. Weaker US futures, which are only marginally off session lows (around -0.20% currently), has also weighed.

• Note Japan markets are closed today, which has probably impacted regional liquidity to a degree.
• Hong Kong stocks have taken little comfort, in an aggregate sense, from an end to hotel quarantine for overseas arrivals, although the move was well flagged earlier in the week.
• The main HSI bourse is off around -0.85%, while the tech sub-index is down 1.90%, at the time of writing. Mainland China stocks haven't fared much better, down around 1% at this stage for the Shanghai Composite.
• The Kospi is off by 1.6%, offshore investors selling -$333.6mn in local stocks today. Higher core yields (particularly US real yield yields) are weighing on the regional tech backdrop. TWSE losses are now close to 1.20% for the session.
• The ASX 200 is off over 2.2%, but this reflects some catch up after onshore markets were closed for a public holiday yesterday.

OIL: Brent Eyeing Fresh Test Of $90/bbl

Early resilience in Brent crude didn't last, we are now back close to $90/bbl. It's a similar story for WTI, back to the low $83/bbl region. Overall ranges have been modest, albeit with a downside bias. Tighter policy from major central banks and clouds over the global economic outlook remain the main concerns on the demand outlook.

• Brent is on track for its fourth straight weekly decline. Focus is likely to remain on whether we can break below the $90/bbl and trend down further. Dips sub this level have been supported so far in September.
• Still, the sell-side consensus is for a recovery in oil prices through Q4 (see this Bloomberg article for more details).
• Nigeria's oil minister stated that OPEC+ may be forced to make additional production cuts if prices continue to fall. A call between Russian President Putin and Saudi Crown Prince Mohammed bin Salman also committing to maintaining current OPEC+ agreements.
• Earlier headlines, from Reuters, also suggested little progress in terms of a fresh US-Iran nuclear deal.

GOLD: Respecting Recent Ranges

Gold continues to respect recent ranges, as it has done for much of the past week. We currently sit in the middle of the recent range at $1670, down slightly from NY closing levels. The precious metal has spent little time outside of $1660/$1680 this past week.

• The metal has found support on a number of occasions around the $1655 in recent weeks, so this level is offering some support on the downside.
• Still, a test and potential break remains a medium term risk. The chart below overlays spot gold against the US 10yr real yield (which is inverted on the chart). Higher real yields should weigh further on gold, all else equal.
• The metal outperformed the continued run higher in core yields overnight, although did find some relief from firmer yen levels.
• Also note the continued fall in gold ETF holdings, which paints a negative flow picture. Such holdings are still above lows from the beginning of the year.

Fig 1: Gold & US Real Yield (10yr)

Source: MNI - Market News/Bloomberg

FOREX: Risk Comes Under Pressure, Yuan Sell-Off Continues

Risk appetite was subdued as the dust settled after Wednesday's hawkish Fed monetary policy decision and a marathon of central bank decisions on "Super Thursday." Japan observed a public holiday, which came in between markets closures in Australia (Thursday) and New Zealand (Monday), limiting regional activity. Riskier currencies sold off as e-mini futures slipped into the red.

• The likes of USD, JPY and CHF capitalised on their safe-haven status, albeit yen volatility was very limited relative to Thursday, when Japanese authorities intervened in currency markets after the BoJ kept its ultra-loose monetary policy settings unchanged. Heightened risk of repeated intervention on Monday likely gave the yen an edge over its safe-haven peers.
• Selling pressure hit the Antipodeans, albeit nearby cycle lows in AUD/USD and NZD/USD remained intact. Regional risk barometer AUD/JPY was the big mover overnight, shedding ~45 pips through the session.
• Yuan depreciation showed no signs of exhaustion, despite the 22nd consecutive stronger-than-expected PBOC fixing. The mid-point of permitted USD/CNY trading band was set 838 pips below sell-side estimate, not enough to promote yuan recovery. Spot USD/CNH climbed to a new cyclical high (CNH7.1134), which may have had knock-on effect on the Antipodeans.
• Fed's Powell, SNB's Jordan, as well as ECB's Nagel & Kazaks will speak later on Friday. Data highlights include a slew of PMI readings and Canadian retail sales.

FX OPTIONS: Expiries for Sep23 NY cut 1000ET (Source DTCC)

• EUR/USD: $0.9900(E536mln), $0.9950(E724mln), $0.9986-00(E3.1bln), $1.0150(E1.2bln)
• USD/JPY: Y139.85-00($513mln)
• AUD/USD: $0.6675(A$751mln), $0.6865(A$554mln)
• USD/CNY: Cny6.9500($940mln), Cny7.0000($828mln)