MNI EUROPEAN OPEN: A$ Lags USD Weakness On Higher Unemployment Rate

US TSYS: Treasury Futures Edge Higher As Volumes Surge, Weekly Claims Later

• US treasury futures volume has surged today, initially volumes picked up after what looked to be stopped being triggered, ~160k TY contracts have traded as we head into the Asia break over double the recent volume for this time of day, the contract trades near intraday highs at 109-30+ up (+ 07+), TU briefly traded above overnight highs, tapping 101.29.75 but has been met with sellers and now trade back at 101-29 up ( +01.125)
• The treasury curve has flattened today with yields 1-3bps lower, the 2Y yield -1.3bps at 4.711%, 10Y -2.1bps to 4.319%, while the 2y10y -0.866 at -39.447
• Looking across local rates markets: NZGBs yields are 8-10bps lower, ACGBs yields are 11-12bps lower, JGBs are 0.5bp - 4bps lower, while in the EM space INDON yields are 8-15bps lower and PHILIP yields are 5-12bps lower
• Short end rate cut pricing now projects two 25bp rate cuts by year end (Sep & Dec)
• Looking Ahead: Weekly Claims, Build Permits and more Fed Speak

JGBS: Futures Test Week To Date Highs, BoJ Bond Buying Ops On Tap Tomorrow

JGB futures sit just below session highs. JBM4 was last at 144.27, +.36. Post the lunch time break we got to highs of 144.35, after a solid 20yr auction result.

• These moves put us back to earlier highs for the week and above levels that prevailed prior to the BoJ curbing its bond buying ops (for the 5-10yr tenors).
• The 20yr auction saw a pick up in the bid to cover ratio to 3.65, the highest since February, while the tail also shortened compared to the prior auction, suggesting firm underlying demand.
• Positive impetus for JGB futures has also been from higher US TSy futures, which pushed through Wednesday highs in earlier dealings.
• On the data front, we had weaker than expected Q1 GDP and downward revisions to Q4 growth. Still, government officials are hopeful Q2 momentum will be better as some one-off headwinds fade, while consumption could be aided by higher wages.
• For cash JGBs yields, losses are concentrated in the 7-10yr tenors where we are off 3-4bps. The 10yr yield sits back near 0.92%. The 30yr yield is down around 2bps. The 10yr swap rate has continued to track lower last under 0.98%.
• Tomorrow the data calendar is empty but we do have BoJ bond buying ops, as well as a 3mth bill auction.

AUSSIE BONDS: ACGBs Richer, Curve Flatter, Employment Data Mixed

ACGBs (XM +13.0 (+4.00 post Emply) YM +13.5 (+4.00 post Emply)) are richer today, with the curve slightly flatter. Initial yields opened lower, in line with US treasuries after Retail Sales missed estimates with CPI was still hot but broadly as expected, yields then made another move lower after mixed employment data.

• Cross-asset moves: Equities have followed US markets higher, US equities futures up about 0.15% today. In FX the yen is the top performing G10 currency up 0.63%, while the AUD is the worst performer down 0.10%, while Iron Ore is 1.60% higher.
• Earlier, Employment change was 38.5k vs 23.7k, with the make up being 44.6k part-time and -6.1k full time roles, the unemployment rate was 4.1% vs 3.9% est while March was revised higher to 3.9% from 3.8%.
• US Tsys curve has bull-flattened with the 2y10y -1.474 at -40.055, yields are 0.5bp to 2.5bps lower
• The ACGB is slightly flatter today with the 5-10yr tenors seeing the strongest demand, yields are 12-14bps lower, while the AU-US 10-year yield differential 2bps lower at -13.5bps• Swap rates are 6-7bps lower• The bills strip is 2-12bps higher, curve steeper.
• RBA-dated OIS implied rate is 3-11bps lower out past the august meetings and is now pricing 18bps of easing into the year-end to a terminal rate of 4.17%
• Looking ahead, calendar is empty on Friday, with WBC Consumer Confidence on Tuesday

NZGBS: Richer, Close Near Session Best

NZGBs are 8-10bps richer today and trading near best for the session, over the past month we have seen 25-32bps of tighten across the curve with the 15-20yr the best supported. US Tsys futures have seen an increase in volumes today, after breaking above the overnight highs.

• US treasury futures volumes has surged today, initially volumes picked up after what looked to be stopped being triggered, ~160k TY contracts have traded as we head into the Asia break over double the recent volume for this time of day, the contract trades near intraday highs at 109-30+ up (+ 07+), TU briefly traded above overnight highs, tapping 101.29.75 but has been met with sellers and now trade back at 101-29 up ( +01.125)
• The NZGB curve is little changed, yields are 8-10bps lower with the 2Y -8.7bps at 4.636, 10Y is -8.4bps at 4.558%
• Swap rates are 1-4bps lower, curve flatter.
• RBNZ dated OIS has firmed today with 1-2bps more of cuts into year-end, with a cumulative 48bps of easing now.
• Earlier, Govt Bonds held by foreigners fall to 62.2% from 62.9% in March.
• Looking Ahead: PPI Input/Output On Friday

FOREX: BBDXY USD Index Testing 100-day MA Support, A$ Lags On Higher U/E Rate

The early trend for the USD was very much to the downside, as dollar weakness extended from Wednesday's US session. The BBDXY got to fresh lows of 1241.31, levels last seen on April 10, before sentiment stabilized somewhat. We last tracked near 1242.5, around 0.15% weaker for the session.

• Note for the BBDXY the simple 100-day MA is nearby to current levels (1242.31). We haven't been below this support point since March of this year.
• Yen gains drove USD weakness, as US Tsy 10yr futures climbed above Wednesday highs. Markets are refocused on Fed easing risks in light of the in line CPI print but weaker retail sales outcome.
• USD/JPY got to lows of 153.60, but we sit back near 153.90 in recent dealings, still around 0.65% stronger in yen terms. The Q1 Japan GDP miss saw USD/JPY push higher but it didn't have a lasting impact on sentiment (officials hope Q2 growth momentum will be better as higher wages benefit consumption).
• AUD/USD has struggled post the higher than expected unemployment rate for April (4.1% versus 3.9% expected). The detail wasn't as bad as the headlines suggested, however, it still indicates some softening in labour market conditions. The currency fell to 0.6677, but we sit higher now around 0.6690, as firmer equity market sentiment, led by China property gains, has provided some offset.
• NZD/USD is around 0.6125, slightly up for the session. The AUD/NZD cross got to lows of 1.0915 before stabilising somewhat.
• Looking ahead, the Fed’s Barr, Barkin, Harker, Mester, Bostic and BoE’s Greene speak. There are also US jobless claims, April housing, IP, trade prices and May Philly Fed index.

ASIA STOCKS: Chinese Property Names Soar After Policy Support, HK GDP Tomorrow

Hong Kong & Chinese equities are higher today. Hong Kong returns from a day break for Buddha's birthday. Property names have been the focus today and have surged higher on the back of news released yesterday around the proposal for local government will be set to buy unsold Chinese homes from distressed builders, the China property stocks gauge is up over 13% at the moment.

• Hong Kong equities are mostly higher today, the property sector is surging with the Mainland Property Index up 5.74%, and is now up 37% from Apr lows, the HSTech Index opened lower on mixed corporate earnings, but has since erased those loses and trade up 1.05%, while the HSI is up 1.59%. In China markets, the CSI300 Real Estate Index is up 3.55%, well above the CSI300 Index which is trading up just 0.78%, elsewhere CSI1000 is up 0.54% while the ChiNext is up just 1.14%
• (MNI) China Press Digest May 16: LPR, Housing Stocks, CSRC - (See link)
• In the property space, as reported on Wednesday China is looking into a proposal which would allow local governments to purchase unsold homes from distressed property developers, authorities of the Lin’an district in China’s Hangzhou city has decided to buy apartment buildings and to use as public rental housing, as per BBG
• (BBG) - China Property Stocks Gauge Jumps on Proposal for Home Purchases - (See link)
• Looking ahead, Chinese Industrial Production & Retail Sales and Hong Kong GDP on Friday

ASIA PAC STOCKS: Regional Asia Equities Head Higher On US Rate Cut Expectations

Asian equity markets are mostly higher today, following US markets higher as the latest US inflation data reinforced bets for Federal Reserve interest-rate cuts. Locally, Japan posted GDP numbers that were lower than expected coming in annualized at -2.0% q/q and Australia reported mixed employment data.

• Japanese equities are mixed today, tech shares gained after a slowdown in US inflation supported the sector globally, while USD weakness has helped strengthen the yen and now trades back under 154.00 however this move has hurt export names. The Topix is down 0.08%, while the Nikkei 225 is up 0.95%
• South Korean equities have returned from their break and with the Kospi trading about 1.2% higher although off morning highs, the moves are largely on the back of higher global tech prices following lower yields and expected rate cuts.
• Taiwan equities continue their strong run of late, with the Taiex trading up 0.65%. There hasn't been any local data out or major headlines recently, with the moves largely tracking global peers. Equity flows into Taiwan, have been strong recently with $1.65b of net flows over the past 5 trading sessions.
• Australian equities are trading near days best with the ASX200 up 1.87%, earlier we had a mixed employment print with slightly higher jobs growth at 38.5k (+23.7k forecast) although full time jobs fell to -6.1k, partially unwinding some of the prior months rise, part time job rose 44.6k and the unemployment rate rose more than expected to 4.1% 3.9% est.
• Elsewhere in SEA, New Zealand equities are up 1.75%, Indonesian equities are up 0.90%, Philippines equities are up 0.45%, Malaysian equities are up 0.50% and Singapore equities are 0.80% higher.

OIL: Crude Continues Climb Higher On Better Supply & US Inflation News

After rising around a percent on Wednesday, crude is up again during the APAC session after a lower-than-expected US CPI print, and the US’ EIA reported a drawdown in crude and product inventories. Fires are threatening Canada’s oil sands region with two close to Fort McMurray. A softer USD is also providing support with the BBDXY index down 0.1%.

• Brent has found support around $83.00 and is currently up 0.4% to $83.09 after a low of $83.01 and high of $83.25. WTI is hovering around $79 to be up 0.5% today.
• EIA reported a crude drawdown of 2.51mn barrels last week after -1.36mn bringing them to the lowest level in almost a month. Gasoline stocks fell 235k and distillate -45k. Gasoline demand rose 78kbd. Refinery utilisation rose 1.9pp to 90.4%.
• The oil sands are well outside Fort McMurray but employees live in the town and so the fire threat may disrupt crude production through staff shortages. Operators have said that while they have reduced staff levels, operations haven’t yet been impacted.
• The next major scheduled events for oil will be US April core PCE inflation on May 31 and the OPEC meeting on June 1 to decide the way forward for its output cuts.
• Later the Fed’s Barr, Barkin, Harker, Mester, Bostic and BoE’s Greene speak. There are also US jobless claims, April housing, IP, trade prices and May Philly Fed index.

GOLD: Can't Break Above $2400, But Technical Uptrend Intact

Gold stopped short of a test above the $2400 level. Earlier highs in bullion were at $2397.35. We last tracked at $2388, marginally above end NY levels from the Wednesday session.

• The earlier move up in gold coincided with a further round of USD weakness, led by the yen. However, as broader USD sentiment stabilized we have moved off session best levels for bullion.
• Still, the broader technical backdrop looks supportive for gold, underpinned by a weaker USD/lower yield backdrop as Fed cuts get priced back in the wake of recent data (softer retail sales/broadly in line CPI).
• This backdrop could refocus attention on $2,431.50, the Apr 12 high. On the downside, the 50-day EMA, at $2,273.83, represents a key support.