MNI EUROPEAN OPEN: BoJ Keeps Bond Buying Unchanged

US TSYS: Treasury Futures Little Changed, Ranges Tight

• Treasury futures are little changed today, hold near overnight lows, the 10Y contract is unchanged at 109-01, while the 2Y contract is (- 00.125) at 101-19
• Volumes: TU 29k, FV 40k, TY 66k
• Tsys Flows: Block seller of 1.8k at 105-24.25
• Despite the latest pullback in Treasuries, the short-term trend condition remains bullish. Support now holds at 108-29 (20-day EMA), a break below here would see us look to test 108-15 (May 14 low), while to the upside initial resistance holds at 109-31+ (May 16 high/Bull trigger).
• The treasury curve bear-flattened on Wednesday, we have opened little changed with the 2Y yield +0.2bp at 4.871%, 10Y +0.2bp to 4.424%.
• Regionally: ACBG curve flatter, yields are +1.5bps to -4.1bps, NZGBs steeper, yields 4-8bps higher, while JGB curve steeper, yields are +2bps to -1bp.
• Rate cut projections are slightly lower vs. late Tuesday levels (*): June 2024 at -5% w/ cumulative rate cut 0bp at 5.323%, July'24 at -16.0% (-20%) w/ cumulative at -5.2 (-6.3bp) at 5.283%, Sep'24 cumulative -17.8bp (-19.9bp), Nov'24 cumulative -25.6bp (-27.6bp), Dec'24 -40bp (-43.7bp).
• Looking ahead: Chicago Fed Nat Activity Index, Jobless Claims & S&P Global US PMI

JGBS: Rinban Operations Support Market, National CPI Tomorrow

JGB futures are stronger, +6 compared to settlement levels, and near session bests.

• Outside of the previously outlined Weekly International Investment Flow and Jibun Bank PMIs, there hasn't been much in the way of domestic data drivers to flag. Machine Tool Orders data is due later.
• However, the market's focus today was on BoJ’s Rinban Operations covering 1-10-year JGBs after the 10-year yield reached a fresh cycle high above 1% yesterday.
• The BoJ left the bond buying amounts unchanged at today’s operations. Nevertheless, the operations went smoothly with negative spreads across the buckets and moderate to low offer cover ratios. This provided support for the market in the afternoon session.
• Cash US tsys are little changed in today’s Asia-Pac session after yesterday’s modest post-FOMC Minutes cheapening.
• The cash JGB curve has twist-steepened, pivoting at the 30s, with yields 1.2bp lower (7-year) to 1.5bp higher (40-year). The benchmark 10-year yield is 0.8bp lower at 1.001% after setting a fresh cycle high of 1.011% yesterday.
• Swap rates are 1bp lower to 1bp higher, with swap spreads mixed.
• Tomorrow, the local calendar will see National CPI and Department Sales data.

AUSSIE BONDS: Mixed, Relatively Narrow Ranges, Nov-28 Supply Tomorrow

ACGBs (YM -1.0 & XM +2.0) are slightly mixed after dealing in relatively narrow ranges in today’s Sydney session. There hasn’t been much in the way of domestic drivers to flag, outside of the previously outlined Melbourne Institute Inflation Expectations and Judo Bank Preliminary PMIs.

• Cash US tsys are little changed in today’s Asia-Pac session after yesterday’s modest post-FOMC Minutes cheapening.
• Cash ACGBs are 1bp cheaper to 2bps richer, with the 3/10 curve flatter and the AU-US 10-year yield differential at -16bps.
• The swaps curve has bear-flattened, with rates flat to 2bps higher.
• The bills strip has slightly cheapened, with pricing flat to -1.
• RBA-dated OIS pricing is 1-4bps firmer for meetings beyond August. Only 7bps of easing is priced by year-end.
• Tomorrow, the local calendar is empty apart from the AOFM’s planned sale of A$900mn of the 2.75% Nov-28 bond.

NZGBS: Post-RBNZ Sell-Off Continued

NZGBs closed 6-8bps cheaper, with the short-end underperforming. The stronger-than-expected Q1 Retail Sales excluding Inflation likely contributed but the primary driver was yesterday's announcement from the RBNZ that it expects to maintain tight monetary policy for longer due to domestic inflation pressures. (See MNI RBNZ Review here)

• Additionally, lacklustre demand at today's weekly supply, with cover ratios for the three lines at or below 2.00x, further impacted the market.
• Comments from Federal Reserve officials in the May FOMC minutes, indicating that US interest rates will need to stay higher for longer to combat persistent inflation, also weighed on NZGBs.
• 2-, 5- and 10-year yields are a cumulative 15bps, 11bps and 10bps higher respectively than pre-RBNZ levels.
• Swap rates closed 3-8bps higher, with the 2s10s curve flatter.
• RBNZ dated OIS has continued to firm with pricing being 7-13bps firmer for meetings beyond October. Additionally, these meetings are now 18-23bps firmer than before the RBNZ Decision.
• The local calendar will see ANZ Consumer Confidence and Trade Balance data tomorrow.
• Later today, the US calendar will release the Chicago Fed Nat Activity Index, Jobless Claims and S&P Global US PMIs.

FOREX: NZD Outperformance Continues On Data & Higher US Equity Futures

The BBDXY sits slightly lower for the first part of Thursday trade, the BBDXY index last under 1250. NZD has been the outperformer aided by better data and a firmer US equity futures backdrop.

• NZD/USD is back around 0.6120, up close to 0.40% for the session. This is still sub post RBNZ highs, but is maintaining the Kiwi outperformance theme.
• Retail sales for Q1 rose +0.5%, against a consensus expectation for a fall. The broader consumer spending backdrop remains soft though. RBNZ Governor Orr stated the central bank doesn’t want to risk a blowout in inflation expectations, although appeared to leave a high bar for a further hike.
• AUD/NZD is down 0.25% at 1.0830/35, close to the 200-day EMA support point. AUD/USD is higher, but trailing NZD, the pair last near 0.6630. Consumer inflation expectations eased to 4.1% in April from 4.6%.
• Risk sentiment has been aided by a positive US equity futures backdrop. Nasdaq futures are up nearly 1% (Eminis +0.60%), with Nvidia's strong earnings result from late Wednesday US time, a clear positive. This is helping to offset a more mixed regional equity tone, with China/HK markets tracking lower. US yields sit a touch higher.
• USD/JPY got to fresh highs of 156.90, but now sits back in the 156.70/75, little changed for the session. BoJ bond buying ops were unchanged, while the preliminary manufacturing PMI for May moved back into expansion territory.
• Looking ahead, preliminary PMIs in the UK and EU are out, as well as the US. The Fed's Bostic also speaks.

ASIA STOCKS: HK & China Equities Lower, HSI Breaks Below 19,000

Hong Kong & Chinese equities have lower today after FOMC minutes suggested they would keep interest rates elevated for some time due to sticky inflation, while corporate earnings in the region have also weighed on sentiment, the HSI also breached the 19,000 and now trades at the lowest level in two weeks. China set its daily reference rate for the yuan at its weakest level since January, allowing for more currency depreciation alongside regional peers due to the dollar's rebound. Today, we have CPI composite with consensus at 2%, in line with May.

• Hong Kong equities are lower today, with property the worst performing sector. The Mainland Property Index is down 1.27%, while the HS Property Index is down 1.86%, HStech Index is down 1.68% while the wider HSI is down 1.38%. In China, the CSI300 is down 0.90% performing better than the small-cap CSI1000 and CSI2000 Indices which are trading down 1.70%, while the growth focus ChiNext Index is down about 1%.
• In the property space today, China Vanke has pledged about 27b yuan worth of shares in the Vanke logistics Development unit, to China Merchants Bank, which is typically used to obtain a loan.
• MNI China Press Digest May 23: Exports, Sino-EU, Electricity - (See link)
• Chinese automaker BYD plans to launch its low-cost Seagull hatchback in Europe next year, increasing competitive pressure on local carmakers like Stellantis and Renault. With premium features and a price under €20,000, the Seagull's arrival is part of a broader push by Chinese EV manufacturers into the European market, challenging incumbents and prompting discussions on tariffs and new industry alliances, as per BBG.
• Hong Kong’s retail investors are increasingly betting on a decline in local equities, pouring around $400 million into inverse exchange-traded funds (ETFs) this quarter, the highest since late 2022. These investments, largely driven by retail traders, suggest expectations of a market reversal following a 30% rebound in key equity gauges since January. Despite institutional interest, the trend is typical of retail behavior during market upswings. Concurrently, ETFs tracking Hong Kong stocks have seen significant outflows of $1.2 billion this quarter, primarily from those linked to the Hang Seng Tech Index.
• Today, we have HK CPI Composite at 1830 AEST/ 1630HKT

ASIA PAC STOCKS: Equities Edge Higher As Chip & AI Names Rally On Nvidia's Update

Asia markets opened lower this morning, but have largely erased those loses. A hawkish fed minutes initially weighed on sentiment, however as the day progressed chip and AI-related stocks pushed higher. Miners are underperforming today, although well off earlier lows after copper and oil prices fell on Wednesday. There hasn't been too much in the way of market moving economic data releases with NZ Retail Sales best estimates, AU Judo Bank PMI and Consumer Inflation Expectations both fell in May, JP Jibun Bank May PMI was mixed. Looking ahead to tomorrow, NZ Trade Balance data and JP National CPI will be the focus.

• Japanese equities are higher today, after initially opening lower, hawkish fed minutes have weighed on market sentiment initially, while lower commodity prices have dragged mining names lower, as the day progressed Technology stocks pulled the market higher. Earlier, Jiban Bank PMI Mfg was 50.5 vs 49.6, Services were 53.6 vs 54.3 while the Composite came in at 52.4 vs 52.3 prior. The Topix is up 0.54%, the Topix Oil & coal index is down about 1.90% while the Nikkei 225 is up 1.15%.
• Taiwan equities are higher today, the BBG Asia-Pacific Semiconductor Index has been grinding higher all throughout the day and now trade up 1.72%. Later today, April Industrial Production data is expected to show an increase from 3.99% to 11.25%. The Taiex is currently up 0.32%.
• South Korean equities are higher today, similar to other markets we opened lower but have been griding higher throughout the day. The BOK left rates unchanged at 3.5% as expected with a restrictive stance expected for a sufficient period of time. The large-cap Kospi is up 0.20%, while the small-cap Kosdaq is up 0.30%
• Australian equities are lower today are the FOMC minutes signaling they are in no rush to cuts rates, which pushed commodity prices lower, unlike other markets the ASX200 has a much smaller exposure to tech and chip names and has lagged the move higher by other regional markets. Judo Bank PMI composite fell in May to 52.6 from 53.0. The ASX200 is down 0.50%
• Elsewhere in SEA, New Zealand equities are up 0.50%, earlier retail sales ex inflation beat estimates coming in at 0.5% vs -0.3%, Singapore returned from a break on Wednesday with equities trading up about 0.26%, Malaysian equities continue to march higher as foreign investors continuing their buying streak, the KLCI is up 0.38%, the Philippines PSEi is up 0.33%, Indian equities are up 0.33%.

OIL: Crude Continues Falling On US Rate Fears

Oil prices continued falling during APAC trading on the back of hawkish FOMC minutes. If it continues, it will make four straight daily declines. WTI is down 0.7% to $77.04/bbl but off the intraday low of $76.83, to be down 3.2% this week. Brent is 0.6% lower at $81.45/bbl after a low of $81.21. Both have remained above initial support levels. The USD index is down 0.1%.

• EIA reported US crude inventories rose 1.83mn barrels last week but they were boosted by the largest adjustment factor since November. Gasoline demand rose 0.44mbd to 9.315mbd and inventories fell 945k barrels but the market looked through this positive information once it became concerned that Fed easing would be delayed further.
• While prices are lower this week, they are within recent ranges as the market waits for the June 1 OPEC meeting where it is widely expected to extend output cuts into H2. Russia has said it will present a plan to deal with its overproduction.
• The Fed’s Bostic and BoE’s Pill appear. US jobless claims, preliminary May PMIs and new home sales print. There’s also euro area May PMIs & consumer confidence, and Q1 negotiated wages. The G7 central bank governors and finance ministers meeting is taking place.

GOLD: Extends Post-Minutes Dump

Gold is 0.3% lower in the Asia-Pac session, after closing 1.7% lower at $2378.85 on Wednesday following the release of the FOMC Minutes for the May meeting. The yellow metal is now around $80 below the record high reached on Monday.

• Comments from Federal Reserve officials that US interest rates will need to stay higher for longer to combat stubborn inflation weighed on bullion.
• “Participants noted disappointing readings on inflation over the first quarter and indicators pointing to strong economic momentum, and assessed that it would take longer than previously anticipated for them to gain greater confidence that inflation was moving sustainably toward 2%,” the minutes said. Some officials also appeared willing to contemplate interest rate increases if conditions worsen.
• According to MNI’s technicals team, the medium-term outlook for gold remains bullish, with attention on 2452.5 next, a Fibonacci projection. On the downside, the 50-day EMA, at $2293.9, represents a key support.