MNI EUROPEAN OPEN: Democrats Mixed On Biden Prospects

US TSYS: Tsys Futures Edge Lower Ahead of July 4th, Employ Data Friday

• Treasury futures are little changed today, with cash trading closed for the July 4th Holiday. TU is trading -0-00⅞ at 102-04, while TY is slightly underperforming the front-end at -0-05+ at 109-28+.
• Volumes in the front-end are half what they were yesterday with TU 16k and FV 30k while is TY inline with yesterday at 54k.
• The 10y yields remains within the recent downward trend at 4.36%, after reaching recent cycle highs of 4.375% in late April. The VIX is trading just off multi year lows at 12.09, while the BBG US Eco Surprise Index sits at the lowest levels 2015.
• Overnight the US treasury sold $85b four-week bills at 5.28%, and $80b eight-week bills at 5.275%, signally investors are uncertain around the fed interest rate path.
• FOMC Meeting Minutes were also out, with Federal Reserve officials needing no additional signs that inflation is heading back toward their 2% target before considering any interest rate cuts.
• The Fed's Goolsbee emphasized the need for more data before the US central bank can confidently cut interest rates, expressing concerns about the labor market cooling more rapidly than desired.
• The US presidential candidate winning odds have been moving around a bit amid speculation Biden may drop out of the race. Kamala Harris surged to be the favored Democratic nominee earlier, however has since dropped back post the governors meeting. According to PredictIt Republicans are now at a 59% chance of winning, while the Democrats are at 44%
• Looking ahead, today we have July 4th Holiday cash trading to remain closed with futures closing early. Focus will turn to employment data on Friday.

JGBS: Subdued Session, 30Y Auction Shows Less Demand

JGB futures are stronger, 18 compared to settlement levels, after today’s 30-year supply.

• Like Tuesday’s 10-year auction, today’s 30-year supply went smoothly although less demand was seen. The low price beat dealer expectations but the cover ratio decreased to 2.972x from 3.591x in June. The auction tail did however narrow slightly.
• Outside of the previously outlined weekly International Investment Flow data, there hasn't been much in the way of domestic drivers to flag.
• Cash US tsys are closed for the 4^th of July holiday. The focus is on the US employment report on Friday.
• Cash JGBs are 1bp richer to 1bp cheaper, with the futures-linked 7-year outperforming and the 40-year underperforming. The benchmark 10-year yield is 1.4bps lower at 1.072%.
• The 30-year is little changed in post-auction dealing at 2.278%.
• The swaps curve has bear-steepened, with rates flat to 2bps higher. Swap spreads are wider.
• Tomorrow, the local calendar will see Household Spending data along with the Leading & Coincident Indices.

AUSSIE BONDS: Little Changed, Cash US Tsys Closed, May-28 Supply Tomorrow

ACGBs (YM -1.0 & XM +1.5) are slightly mixed after a subdued session. Volumes have been low with cash US tsys closed for the 4^th of July holiday. The focus is on the US employment report on Friday.

• Outside of the previously outlined trade balance, there hasn't been much in the way of domestic drivers to flag.
• Cash ACGBs are 1bp cheaper to 1bp richer, with the 3/10 curve flatter.
• The bills strip is little changed, with pricing -1 to +1.
• RBA-dated OIS pricing is little changed across meetings today but remains 6-27bps firmer than pre-CPI levels. Terminal rate expectations sit at 4.49%.
• QTC has announced the launch of an increase of QTC 5.25% 21 July 2036 A$ Fixed Rate Benchmark Bond. Initial price guidance is a range of 99-102bps over the 10-year futures contract, [89.7-92.7] bps over the ACGB 3.75% 21 April 2037. This transaction is expected to price tomorrow subject to market conditions.
• (Bloomberg) Australia hopes to issue another green bond in two years as it builds a sovereign green curve, Anna Hughes, chief executive officer of the AOFM. (See link)
• Tomorrow, the local calendar will see Foreign Reserves data alongside the AOFM planned sale of A$900mn of the 2.25% 21 May 2028 bond.

NZGBS: Closed On Weak Note After A Poor May-41 Auction

NZGBs closed on a weak note with the long-end pressured by a poor auction of the 1.75% May-41 bond.

• NZ Treasury sold just NZ$94mn May-41 bonds, resulting in the overall proceeds from the weekly supply falling short of the NZ$500mn target (NZ$494mn).
• All the bids were accepted at an average yield of 5.0529%, with a cover ratio of just 0.94x. The sales of the May-31 and May-34 bonds also showed lacklustre demand, with cover ratios of 1.07x and 1.79x respectively.
• The 10-year benchmark closed with its yield 7bps higher than the morning’s low. On a relative basis, the NZ-AU 10-year yield differential closed 6bps wider at +33bps. Cash US tsys are closed today for the 4^th of July holiday.
• Outside of the previously outlined Government financial statements and property prices, there hasn't been much in the way of domestic drivers to flag.
• Swap rates closed flat to 1bp lower with the 2s10s curve steeper.
• RBNZ dated OIS pricing closed little changed. A cumulative 36bps of easing is priced by year-end.
• Tomorrow, the local calendar is empty.

FOREX: USD Downside Limited Ahead Of July 4 Holiday, USD/JPY Dips Supported

The early USD trends were to the downside, although the BBDXY index didn't test sub intra-session lows from Wednesday. The BBDXY last tracked near 1265.25, down slightly for Thursday trade so far.

• There has been no cash Tsy trading with US markets out for the July 4 holiday later. Futures in this space are a touch lower. US equity futures are close to flat, but regional equity markets have been positive, lending a slight risk on trade, although we sit away from best levels.
• AUD/USD was last 0.6710/15, while NZD/USD is around 0.6110. For the A$, higher iron ore prices are also a positive, although recent gains have been dominated by positive yield momentum. Both currencies remain sub Wednesday highs. The Australian May trade surplus was slightly below expectations but didn't impact sentiment.
• USD/JPY was weaker in earlier trade, but remains supported on dips. From lows at 161.14, we last tracked near 161.50/55, only down slightly for the session. FX intervention risks remain, but as we noted earlier, USD/JPY rates of change below April levels, which came prior to intervention.
• News flow has been light today, with focus remaining on Biden's election prospects and whether he will stay in the race. A group of Democrat Governors backed the President, but a Bloomberg story stated some Democrat Senators have expressed doubts.
• Later the ECB’s Lane and Cipollone speak and the minutes from the June 5-6 meeting are published. The UK election is also held. German May factory orders print.

ASIA STOCKS: HK & China Equities Mixed, Property Rally Stalls

Hong Kong and China equity markets are mostly lower today, the top performing sector has been intelligent/electric vehicle names after the government approved 20 pilot cities for testing smart car applications and EU member countries were divided on whether to back additional tariffs on Chinese-built electric vehicles, while after a couple of days of gains in the property sector we have hit a wall. Earlier, Hong Kong S&P Global PMI for June dropped to 48.2 from 49.2 prior, marking the lowest reading for the year and now back at Sept 2023 levels.

• Hong Kong equities are mixed today, property indices have reversed some the the gains made earlier in the week, with the Mainland Property Index down 0.90%, while the HS Property Index is 0.50% lower. Elsewhere the HSTech Index is up 0.50%, tracking gains made overnight in the US market, while the wider HSI is trading 0.05% higher.
• China equity markets are mostly lower today, the CSI300 Real Estate Index is 2.33% lower, small-caps are lower with the CSI 1000 down 1.25% and the CSI 2000 is in bear market territory after falling 24% this year and trade down 1.70% today, while the wider CSI 300 is 0.20% lower
• The latest data from China indicates that the property market's downward spiral is continuing. Despite a slight improvement in new-home sales, this was likely due to price cuts rather than a genuine recovery. The broader housing market remains weak, with falling income, weak spending, and low consumer confidence signaling ongoing trouble. May data showed home prices plunging at the fastest pace in almost a decade, and businesses and households remain pessimistic about the future, suggesting that the downward trend in real estate prices is likely to persist.
• VDA warned that planned EU tariffs on China-made electric vehicles would harm Europe's climate goals and its automotive industry, urging for a negotiated solution with China instead. The VDA emphasized that such tariffs would also negatively impact Western car manufacturers operating in China and hinder the decarbonization and competitiveness of European carmakers.

ASIA PAC STOCKS: Equities Surge Higher, Topix At 34 Year Highs

Asian markets are higher today, driven by favorable economic data from the US that bolstered the case for potential Federal Reserve rate cuts. A regional equities gauge rose for the fifth consecutive session, with Japan’s Topix reaching a record intraday high and gains seen in South Korea and Australia. The USD/JPY gapped lower on the back of US data overnight, although has erased about half the moves to trade back at 161.50, which has help support Japanese export names. The positive sentiment followed the S&P 500 and Nasdaq setting new highs in a shortened trading session before the July 4th Holiday.

• Japanese equities are higher today with the Topix surging to its highest level in over 34, surpassing the peak recorded during the bubble economy in 1989, driven by broad-based buying momentum across almost all industry sub-indexes, with automakers, insurers, and banks leading the gains. The Nikkei 225 Stock Average also climbed above 40,000, with Semiconductor and high-tech stocks leading the gains, following positive trends from the US markets. Overall, Japanese stocks are on a bullish trajectory amid favorable economic conditions and supportive monetary policies. The Topix is currently 0.85% higher, while the Nikkei is trading 0.80% higher.
• South Korean stock market has rallied to its highest levels since early 2022, buoyed by strong gains in tech and automotive sectors. Positive sentiment from US markets, fueled by expectations of Federal Reserve rate cuts, contributed to the rally. Samsung Electronics have surged higher ahead of the company reporting results. The Kospi is up 0.82%, while the Kosdaq is up 0.50%
• Taiwanese equities are higher today, most of the gains can be attributed to TSMC up 2.66% & Hon Hai up 5.40%. The S&P 500 hit new all time highs overnight, while the Philadelphia Semiconductor Index rose 1.92%, the Taiex is currently trading 1.40%.
• Australian equities are higher today, led by gains in mining and energy shares following strong performances in US markets. Key contributors included BHP Group and Arcadium Lithium. Economic data showed a narrowing trade surplus in May, with mixed results in export and import figures. The ASX200 is 1.10% higher.
• Elsewhere, New Zealand equities are 0.18% lower, Singapore equity are 0.50% higher, Indonesian equities are 0.62% higher, Philippines equities are 0.90% higher, India is 0.45% higher and finally Malaysian equities are up 0.15%

OIL: Crude Gives Up Some Gains, US Holiday Likely To Keep Volumes Thin

Oil prices are trending lower and have given up a large share of Wednesday’s gains during APAC trading today. Brent is down 0.6% to $86.85/bbl, close to the intraday low, while WTI is 0.6% lower at $83.34/bbl. The US is closed today and so volumes are likely to be light with the focus then turning to Friday’s US payroll data. The USD index is down slightly.

• Crude reached highs early in the session of $87.12 for Brent and $83.69 for WTI driven by the largest US crude inventory drawdown in almost a year and the partial evacuation of some oil platforms in the path of Hurricane Beryl. But they have trended lower since then possibly due to technical selling and continued demand concerns.
• Hurricane Beryl is currently expected to possibly impact around 73kbd of federal offshore oil output, according to the National Hurricane Center and Ocean Energy Management data.
• Later the ECB’s Lane and Cipollone speak and the minutes from the June 5-6 meeting are published. The UK election is also held. German May factory orders print.

GOLD: Large Gain After Weaker US Economic Data

Gold is slightly stronger in the Asia-Pac session, after closing 1.1% higher at $2356.20 on Wednesday.

• The softer-than-expected US labour market and ISM services survey data allowed gold to break above $2,360/oz briefly as the USD weakened and US Treasuries rallied before gains were pared later in yesterday's session.
• Nonfarm payrolls data due on Friday should also help build a clearer picture of the US labour market and the policy outlook for the Federal Reserve.
• Swaps traders are pricing a 70% chance of a rate cut in September.
• Lower rates are typically positive for gold, which doesn’t pay interest.
• From a technical perspective, gold is in consolidation mode, with initial firm resistance at $2,387.8, the Jun 7 high.
• Meanwhile, silver outperformed, rising ~3% to $30.5/oz. For silver, first resistance to watch is $30.853, the Jun 21 high. A break would be a bullish development.