MNI EUROPEAN OPEN: French Right Win Parliamentary Elections, Majority Looks Unlikely

US TSYS: Tsys Futures Off Earlier Lows, Curve Steepens, ISM Later Today

• Treasury futures are off earlier lows with TUU4 is -0-00¾ at 102-02¾ while TYU4 is down -0-08+ at 109-23+, tsys looks to have followed French bond futures higher throughout the day, with OATU4 up 28 ticks, amid speculation a far-right party may not secure an absolute majority in France’s legislative election, and investors weighing up a Trump Presidency.
• Volumes are above recent averages with TU 56k, FV 118k & TY 180k
• Cash treasuries have erased earlier weakness with yields now lower across the curve. The 2Y -2.5bps at 4.729%, 5Y -1.8bps at 4.359% while the 10Y is -1bps at 4.386%.
• APAC rates: NZGB yields are 1-3bps lower, ACGB yields are 2-9bps higher, while JGBs have seen selling through the belly with yields +/- 2bps.
• The increasing likelihood of a Trump presidential victory has made curve steepeners an attractive bet, as it is expected to slow growth and increase inflation. PredictIt has Trump's odds of winning at 56% although this is down from 64% during the debate, while they have Biden's odds at just 31% chance of winning.
• In-line with the steepening moves, projected rate cut pricing through year end looks steady to mildly higher vs. pre-data levels (*): July'24 at -10% w/ cumulative at -2.5bp at 5.302%, Sep'24 cumulative -18.6bp (-17.5bp), Nov'24 cumulative -27.6bp (-26.6bp), Dec'24 -47.3bp (-45.3bp).
• Looking ahead, S&P Global US Manufacturing PMI, ISM Manufacturing, Construction Spending MoM

JGBS: Belly Of Cash Curve Cheaper, Q1 GDP Revised Lower

JGB futures are weaker but well off session lows, -24 compared to the settlement levels.

• Outside of the previously outlined Tankan Report and Mfg PMI, there hasn't been much in the way of domestic drivers to flag.
• (MNI) Japan's Q1 economy contracted at a faster pace than previously estimated as public investment was revised lower, updated data released by the Cabinet Office showed on Monday. The economy contracted 0.7% q/q, or an annualised -2.9%, compared to previous estimates of -0.5% q/q and an annualized -1.8%.
• Cash JGBs are 1bp richer to 2bps cheaper, with the belly of the curve underperforming. The benchmark 10-year yield is 1.1bps higher at 1.068% versus the cycle high of 1.101%.
• The move away from morning cheaps has been assisted by a bull-steepening in US tsys in today’s Asia-Pac session. Cash benchmarks are currently 1-3bps richer after being as much as 2bps cheaper in early dealings.
• (Bloomberg) “The BoJ will probably continue to purchase government bonds to some degree long after it kicks off quantitative tightening this summer, according to a former BOJ executive director.” (See link)
• The swaps curve is little changed, apart from the 40-year which is 3bps higher. Swap spreads are mixed.
• Tomorrow, the local calendar will see Monetary Base data alongside 10-year supply.

NZGBS: Closed On A Positive Note After Friday’s Holiday

NZGBs closed on a strong note, with benchmark yields 2-3bps lower compared to Thursday’s close. The local market was closed for a holiday on Friday.

• With the local calendar relatively light, the move away from morning cheaps has been assisted by a bull-steepening in US tsys in today’s Asia-Pac session. Cash benchmarks are currently 1-3bps richer after being as much as 2bps cheaper in early dealings.
• Swap rates closed 1-4bps lower, with the 2s10s curve steeper.
• RBNZ dated OIS pricing closed flat to 4bps softer across meetings, with 2025 meetings leading. A cumulative 30bps of easing is priced by year-end.
• Tomorrow, the local calendar will see the NZIER Business Opinion Survey results and Building Permits data, ahead of ANZ Commodity Prices on Wednesday.
• On Thursday, the NZ Treasury plans to sell NZ$225mn of the 1.5% May-31 bond, NZ$175mn of the 4.25% May-34 bond and NZ$100mn of the 1.75% May-41 bond.

AUSSIE BONDS: Cheaper But Off Worst Levels, RBA Minutes For June Tomorrow

ACGBs (YM -5.0 & XM -7.5) are cheaper but well above session cheaps.

• Outside of the previously outlined MI Monthly Inflation Gauge and ANZ Job Ads, there hasn't been much in the way of domestic drivers to flag.
• With the local calendar relatively light, the move away from morning cheaps has been assisted by a bull-steepening in US tsys in today’s Asia-Pac session. Cash benchmarks are currently 1-3bps richer after being as much as 2bps cheaper in early dealings.
• Cash ACGBs are 4-6bps cheaper, with the AU-US 10-year yield differential at -1bp.
• Swap rates are higher, with a steepening bias.
• The bills strip has bear-steepened, with pricing flat to -4.
• Although softer than Thursday’s levels, RBA Dated OIS remains 6-23bps firmer than pre-CPI levels. The market gives a 25bp hike in August a 43% chance versus 55% last Thursday. Terminal rate expectations also remain dramatically firmer at 4.48% versus 4.37% before the CPI data. Thursday’s high was 4.53%.
• Tomorrow, the local calendar will see the RBA Minutes of the June Policy Meeting.

FOREX: EUR/USD Rebounds Post First Election Round, Yen Underperformance Continues

EUR strength has been the main focus point in the first part of Monday trade. This has weighed on the BBDXY USD Index, which is down 0.10% to the low 1268.20/30 region.

• The single currency rallied early doors as Le Pen's far right party didn't poll as strongly as some opinion polls suggested in the first round of French parliamentary elections. Left leaning parties also vowed to bloc Le Pen's majority ambitions. EUR/USD is back to 1.0755, around 0.40% stronger for the session today.
• USD/JPY dips have been supported, the pair last just above 161.00. Friday highs (161.27) remain intact, but the yen remains weaker on crosses. CFTC positioning data showed an extension of yen shorts (we aren't too far away from 2024 lows). The Tankan survey data was mixed, albeit mostly positive for large firms and the Capex outlook, suggesting the BoJ can continue to adjust accommodative settings.
• AUD/USD is near 0.6665, underperforming modestly. Second tier data today hasn't shifted the sentiment needle. NZD/USD is a touch higher, last around 0.6100. Last week trades added to long NZD positions and cut AUD shorts (per CFTC).
• In the cross asset space, US equity futures were last up close to 0.3%. US yields are lower, led by the end of the curve. Iron ore has risen, amid positive China property news but with little benefit for the A$.
• Later US June manufacturing ISM/PMI, European PMIs and preliminary June German CPIs print. Also ECB President Lagarde speaks.

CHINA STOCKS: Equities Mostly Lower, Property Stocks Higher On Promising Sales

Mainland Chinese equities fell after factory activity contracted for the second consecutive month in June, raising doubts about the country's economic recovery, while Hong Kong markets are closed for HKsar Establishment day. Property stocks have rallied on the back of data showing the nations top 100 developers posted a 36% m/m increase in contract sales, although y/y sales were still down 17%.

• China equity markets are mixed today, with the CSI 300 trading 0.22% lower, small-cap indices the CSI 1000 and CSI 2000 are both down about 0.60% while the CSI 300 Real Estate Index has surged 6.05% higher.
• China's factory activity contracted for the second consecutive month in June, with the official manufacturing PMI at 49.5, indicating weak demand and posing a threat to the country's economic growth target of around 5% for the year. Additionally, the non-manufacturing PMI fell to 50.5, reflecting ongoing challenges in the construction and services sectors amid trade tensions and a prolonged real estate crisis.
• In the property space, the downturn in China’s residential real estate sector slowed in June, with new-home sales from the top 100 developers posting a 36% m/m increase although this still equated to a 17% drop y/y, compared to May's 34% decline, following easing measures in major cities. Despite some recovery, the broader market remains weak, with funding challenges for developers and ongoing bearish sentiment among investors.
• Asian regulators have tightened controls on high-frequency and quantitative trading, raising concerns about reduced market liquidity and attractiveness. While intended to stabilize markets, the restrictions have sparked debate over their long-term impact, with some fearing they could stifle innovation and efficient asset pricing.
• Looking to next week, Tuesday we have Hong Kong Retail Sales, Wednesday we have Caixin China PMI composite & Services.

ASIA PAC STOCKS: Asian Equities Rise Led By Gains In Japanese Stocks

Asian markets are mostly higher today, there was been plenty of regional economic data out this morning which has helped support markets, although we have faded in the second half of trading. Japanese stocks are higher as yields rise, yen continues to weaken which continues to support export names, while Japanese department store operators saw significant gains, driven by strong earnings forecasts. South Korean equities are slightly higher today as easing US inflation concerns and rising political uncertainties. Meanwhile, Australian shares declined, led by losses in technology and health-related sectors. Global yields have recovered some of the early morning sell-off, with tsys future volumes well above recent averages.

• Japanese stocks rose for a second day as a jump in US yields and a stronger dollar against the yen lifted banks and exporters. The rise in US rates is expected to positively impact value stocks globally, with Japanese financials and materials stocks showing strength. Exporters, such as automobile makers and machinery producers, firmed as the euro remained stable following the first round of France’s legislative elections. Additionally, shares of department store operators J. Front Retail and Takashimaya surged by at least 11%, driven by raised full-year operating income forecasts and strong quarterly earnings. Earlier, Japan's Tankan data print was mixed. Large manufacturing sentiment was slightly better than forecast For Q2. The headline index rose to +13, versus +11 forecast and +11 prior. The Topix is 0.43% higher, while the Nikkei is 0.10% higher.
• South Korean stocks opened slightly higher amid eased concerns over US inflation and rising political uncertainties. South Korea's exports rose by 5.1% year-on-year to $57 billion in June, leading to a trade surplus of $8 billion as imports fell by 7.5% to $49 billion. This marks the ninth consecutive month of export gains and the 13th consecutive month of a trade surplus. The Kospi is 0.10% higher, while the Kosdaq is up 0.70%.
• Taiwanese equities are higher today with TSMC again contributing the most. AI continued to drive Taiwan's stock market, making it the top-performing market in the Asia-Pacific so far this year, with with TSMC climbing 63% and Hon Hai Precision Industry jumping 105%. Earlier S&P Global PMI Mfg jumped to the highest levels since March 2022 at 53.2 from 50.9, while the Taiex is up 0.20% this morning.
• Australian equities are lower this morning, with Financials and Health care stocks offsetting gains in Materials and Real estate. Earlier this morning, Judo Bank PMI Mfg fell to its lowest levels since 2020m while MI inflation ticks slightly higher to 3.2% y/y from 3.1% and ANZ-Indeed Job Ads fell 2.2% from 1.9% (revised) prior. Eyes will now be on the RBA minutes tomorrow. the ASX200 is down 0.40%
• Elsewhere, New Zealand equities are 0.55% higher, Indonesian equities are 0.70% higher although S&P Global PMI fell to 50.7 from 52.1, the JCI is now up 6.45% from recent lows, Thailand Equities are 0.35% higher, Indian equities are 0.30% higher, Malaysian equities are 0.20% higher, Philippines equities are 0.05% higher while Singapore equities are up 0.15%

OIL: Crude Starts Week Higher On Better China Manufacturing PMI & Geopolitics

After falling moderately on Friday, oil prices are higher during APAC trading today driven by a pickup in China’s Caixin manufacturing PMI and geopolitical uncertainty in the Middle East, US and Europe. WTI is up 0.3% to $81.82/bbl after breaking above $82 briefly. Brent is also 0.3% higher at $85.30/bbl after a high of $85.49. The USD index is down 0.1%.

• China’s Caixin manufacturing PMI for June rose to 51.8 from 51.7, higher than expected and the highest in three years. Uncertainty over the strength of China’s economy has concerned oil markets as the country is the world’s largest crude importer and so this data will be welcomed. However the official manufacturing PMI released Sunday was stable at 49.5, still in contractionary territory.
• In terms of geopolitics, right-wing National Rally’s win in first round elections in France could not only derail French reform but also destabilize the European Union depending on second round results on July 7. Tensions between Israel and Hezbollah in Lebanon have also escalated. In addition, US President Biden’s weak performance in last week’s election has clouded the election outlook.
• The market remains optimistic on oil with prompt spreads suggesting the market is tight and money market net longs increasing, according to Bloomberg.
• Later US June manufacturing ISM/PMI, European PMIs and preliminary June German CPIs print. Also ECB President Lagarde speaks.

GOLD: Steady Despite Benign US Inflation Data

Gold is little changed in the Asia-Pac session, after closing basically unchanged at $2326.75 on Friday. Friday’s move left the yellow metal marginally higher on the week.

• Bullion was steady on Friday despite news that the Fed’s preferred measure of underlying US inflation, the core PCE deflator index, rose 2.6% from a year ago — the slowest pace since March 2021.
• The US short term interest rate market shows traders attach a 58% chance of a rate cut being implemented by September.
• Lower rates are typically positive for gold, which doesn’t pay interest.
• According to MNI’s technicals team, a bear threat in gold remains present and the yellow metal continues to trade closer to its recent lows. A clear break of the 50-day EMA, at $2,318.4, would open $2,277.4, the May 3 low. Initial firm resistance is $2,387.8, the Jun 7 high.