MNI EUROPEAN OPEN: Fresh Cycle High For 10yr JGB Yield
EXECUTIVE SUMMARY
- BOJ GOVERNOR UEDA SAID THAT INFLATION EXPECTATIONS NOW NEED TO BE REANCHORED AT 2%
- EX-BOJ MASAI SEES RATES AT 0.5% BY YEAR END
- ECB SIGNALS READY TO CUT RATES CUT RATES
- CHINA, JAPAN, S KOREA HOLD FIRST SUMMIT SINCE 2019
- US LAWMAKERS VISIT TAIWAN
- EU FAR RIGHT AGREE NOT TO INCLUDE GERMANY’S AFD IN GROUP
Fig. 1: 10-year JGB yield %
Source: MNI - Market News/Bloomberg
UK
ELECTION (BBC): Labour has said there will be no rises in income tax or National Insurance if it wins the general election - but some spending cuts have not been ruled out.
EUROPE
ECB (FT/BBG): The European Central Bank is on track to start cutting interest rates next month, but will need to keep policy in restrictive territory through 2024, according to Chief Economist Philip Lane.
ECB (BBG): European Central Bank Executive Board member Piero Cipollone said the time is right for an interest rate cut in June, echoing comments a day earlier from Governing Council member Fabio Panetta.
POLITICS (BBC): The far right could secure more than three in every 10 votes when the EU’s 27 states vote in European elections from 6-9 June, and become a powerful force in the European Parliament. Infighting is threatening to take the gloss off the far-right surge - because of a series of scandals surrounding Germany’s AfD. That is why the AfD’s allies in the EU have thrown the German party out of their far-right Identity and Democracy (ID) group in the European Parliament.
UKRAINE (POLITICO): NATO allies are demanding that outgoing chief Jens Stoltenberg offer greater clarity this week on his plan to pledge a massive EUR100 billion in support for Ukraine.
RUSSIA (BBC): The European Union has denounced Russia's removal of buoys marking the border with Estonia on the Narva River. A total of 24 out of 50 buoys placed to mark sailing routes were removed in the early hours of Thursday, Estonian officials said.
POLAND (POLITICO): A long-term re-armament of Europe is needed to counter Russian ambitions, Poland’s foreign minister said. In an interview with the Guardian published on Saturday, Radosław Sikorski also said that Poland supports allowing Ukraine to use Western weapons for attacks on Russian soil.
U.S.
ELECTION (BBC): Donald Trump was booed repeatedly during an appearance at the Libertarian Party's national convention on Saturday as he asked members for their support.
OTHER
JAPAN (MNI BRIEF): The Bank of Japan has appointed Koji Nakamura, former director-general at the bank’s Financial System and Bank Examination Department, the director-general of the BOJ’s Research and Statistics Department, the Bank revealed Monday.
JAPAN (MNI BRIEF): Bank of Japan Governor Kazuo Ueda said on Monday that the Bank will cautiously proceed towards achieving its 2% price target in a stable and sustainable manner.
JAPAN (MNI): Bank of Japan Deputy Governor Shinichi Uchida said on Monday that anchoring inflation expectations to 2% represented a major challenge, but the end of its battle with deflation and the zero lower bound is in sight.
JAPAN (BBG): Japan’s central bank has scope to hike its benchmark rate to as high as 0.5% by the end of the year if economic conditions stay more or less on the same track, according to a former member of the Bank of Japan’s policy board, according to ex-BoJ Masai.
AUSTRALIA (BBG/FITCH): Fitch Ratings earlier today upgraded the ratings of Australia’s five largest banks to reflect the implementation of a formal resolution planning framework in 2024 and that each bank is nearing the completion of a build-up in loss absorbing capacity.
NEW ZEALAND (BBG): New Zealand Finance Minister Nicola Willis speaks at post-cabinet press conference Monday in Wellington ahead of government budget on Thursday. Says ministers have uncovered “more than 240 individual savings initiatives for inclusion in the 2024 budget”.
NORTH KOREA (BBG): North Korea has given Japan notice that it plans to launch a rocket by June 4 to deploy a satellite, attempting to send its second spy probe into orbit months after its first successful launch.
TAIWAN (NBC): A bipartisan group of U.S. lawmakers arrived in Taiwan on Sunday, days after the Beijing-claimed island’s new president took office with a warning to China to stop its threats.
ISRAEL (BBG): Israel’s central bank is staring at the possibility of keeping interest rates on hold for the rest of the year, after earlier signaling as many as three cuts to help an economy whipsawed by war.
ISRAEL (BBC): Hamas says it has launched a "big" rocket attack at the Tel Aviv area in central Israel, several of which were intercepted by air defence systems, according to the Israeli military.
ISRAEL (BBC): The Hamas-run health ministry in Gaza has said dozens of people were killed or injured in a blast at a refugee camp in the Rafah area. The Israel Defense Forces (IDF) said it had carried out an air strike targeting a Hamas compound in the area. It says it is reviewing the incident.
CHINA
GEOPOLITICS (BBG): China, Japan and South Korea sought to revitalize cooperation on security and economic matters at their first formal three-way summit since 2019, with Premier Li Qiang looking to persuade his neighbors to work with Beijing on keeping supply chains stable.
PROFITS (BBG): Profits at China’s industrial companies rose in April, as a government push for equipment upgrade lifted demand and exports returned to growth, giving a boost to the economy.
FINANCE (YICAI): China should consider allowing prefecture-level cities to issue and repay bonds on their own initiative so they can meet their financing needs more flexibly and improve market pricing.
REGULATION (NBD): The China Securities Regulatory Commission officially issued the so-called "most stringent" new regulations on shareholding reduction in history on Friday after soliciting public opinions.
INVESTMENT (YICAI): Chinese firms should focus on ESG (environment, social and governance) responsibilities when expanding abroad to find win-win cooperation, according to Huang Sheng, director at the China-Europe Enterprise and Capital Market Research Center.
GEOPOLITICAL (BBG): China asked South Korea to maintain stable supply chains as the countries began their first three-way summit with Japan since 2019, with Premier Li Qiang also meeting the head of Samsung Electronics Co.
CHINA MARKETS
PBOC conducts CNY2 bln via Omo Thurs; liquidity unchanged
The People's Bank of China (PBOC) conducted CNY2 billion via 7-day reverse repo on Thursday, with the rates unchanged at 1.80%. The operation has led to no change to the liquidity after offsetting the CNY2 billion maturity today, according to Wind Information.
- The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.8167% at 09:24 am local time from the close of 1.8421% on Wednesday.
- The CFETS-NEX money-market sentiment index, measuring interbank money-market liquidity, closed at 40 on Wednesday, compared with the close of 45 on Tuesday. A higher reading points to tighter liquidity condition, with 50 representing an equilibrium.
The People's Bank of China (PBOC) set the dollar-yuan central parity rate higher at 7.1098 on Thursday, compared with 7.1077 set on Wednesday. The fixing was estimated at 7.2462 by Bloomberg survey today.
MARKET DATA
CHINA JAN.-APRIL INDUSTRIAL COMPANIES' PROFIT RISES 4.3% Y/Y; PRIOR +4.3%
CHINA JAN.-APRIL INDUSTRIAL COMPANIES' PROFIT 2.09 TLN YUAN
CHINA APRIL INDUSTRIAL COMPANIES' PROFIT RISES 4% Y/Y; PRIOR -3.5%
MARKETS
US TSYS: Treasury Futures Have Edged Higher Ahead Of Memorial Day
- Treasury futures have edged higher throughout the day, volumes are also above average. TU is (+ 00.375) at 101-15 while TY is trading up (+ 03) at 108-25+. The 2y10y closed at new ytd lows after breaking below the 200-day EMA and now trades at -48.546, while the Dec lows are -56bp. Cash trading will be closed today for Memorial day.
- Volumes: TU 38k, FV 43k, TY 60k
- Regionally: ACGBs are 1-4bps lower, NZGBs are flat to 1bps lower, while JGBs are1-2bps higher with the 10Y back above 1%.
JGBS: Fresh Cycle High For 10YY, 10Y Climate Transition Bond Supply Tomorrow
JGB futures are weaker and near session lows, -8 compared to the settlement levels after comments from BoJ Governor Ueda and Deputy Governor Uchida at the BoJ-IMES Conference.
- Ueda said the central bank will move cautiously to anchor inflation expectations at 2%, adding that some challenges are uniquely difficult for the BoJ (eg) assessing natural interest rates, given the prolonged period of near-zero short-term interest rates over the past three decades.
- Meanwhile, Uchida said the end of the battle with deflation is in sight, while the big challenge ahead is anchoring of inflation expectations at 2%. He added that Japan could resolve the original causes of deflation as labour market conditions have changed structurally and irreversibly.
- Leading & Coincident Indices are due later.
- The US market is closed for the Memorial Day holiday today.
- Cash JGBs are little changed, apart from the benchmark 10-year yield which is 1.8bp higher at 1.023%, a new cycle high.
- Swaps rates are little changed out to the 10-year and 1-4bps higher beyond, with the 20-year leading. Swap spreads are mixed.
- Tomorrow, the local calendar will see PPI Services data alongside 10-Year Climate Transition Bond Supply.
AUSSIE BONDS: Slightly Richer, Retail Sales Tomorrow, CPI Monthly On Wednesday
ACGBs (YM +1.0 & XM +3.5) are richer and at/near Sydney session highs. With the domestic calendar light and cash US tsys closed for observance of the Memorial Day holiday, volumes have been light.
- Cash ACGBs are 2-3bps richer.
- Swap rates are 2-3bps lower, with the 3s10s curve flatter.
- The bills strip has bull-flattened, with pricing flat to +3.
- RBA-dated OIS pricing is flat to 2bps softer across meetings. 6bps of easing is priced by year-end.
- Tomorrow, the local calendar will see Retail Sales ahead of Wednesday’s CPI for April.
- After the RBA revised up its 2024 headline and trimmed mean CPI forecasts, there is likely to be even more scrutiny of inflation data. Bloomberg consensus expects it to ease 0.1pp to 3.4% but it is worth noting that the first month of the quarter does not include updated services components, the sector the RBA is principally concerned about.
- The AOFM also plans to sell A$150 million of 0.25% Nov-32 inflation-linked bond tomorrow.
NZGBS: Subdued Session With The Local Calendar Light & US Tsys Closed
NZGBs closed little changed after dealing in narrow ranges in today’s session. Local participants were content to stay on the sidelines with the domestic calendar empty and cash US tsys closed for Memorial Day.
- The swap curve bear-flattened, with rates flat to 2bps higher.
- RBNZ dated OIS pricing is little changed today across meetings but 23-36bps firmer for meetings beyond October compared to levels before last week’s RBNZ Policy Decision. At that Policy Meeting, the RBNZ said it expected to keep monetary policy tight for longer due to domestic inflation pressures.
- The projected terminal OCR is around 5.50%, with a cumulative easing expected by year-end at 20bps. It was around 45bps before RBNZ Decision.
- Tomorrow, the local calendar will Filled Jobs data.
FOREX: APAC Currencies Stronger Against The Dollar
The US dollar is moderately weaker during APAC trading today with the BBDXY index at 1248.97 after closing at 1249.77 on Friday. There has been a better risk tone with commodities and equities moderately higher.
- USDJPY has traded lower through the session and is currently down 0.2% to 156.72, close to the intraday low. BoJ’s Ueda and Uchida said that they are moving towards the 2% target but inflation expectations need to be anchored at this rate.
- Aussie and kiwi have been supported by the improved risk appetite. AUDUSD is 0.1% higher at 0.6637, close to the intraday high, and NZDUSD is +0.2% to 0.6131. AUDNZD is down slightly to 1.0825.
- The USDCNY fix at 7.1091 was slightly below Friday’s but remains near recent highs. USDCNH dropped to 7.2542 following the fixing but is currently down slightly to 7.2588. Industrial profits rose 4.3% y/y YTD to April in line with the previous month.
- USDSEK is down 0.2% to 10.654 while EURUSD is little changed at 1.0849.
- The largest movers in Asia have been USDKRW -0.3% to 1365.20, USDTWD -0.3% to 32.181 and USDTHB -0.3% 36.57. The Thai government announced an increase in the expected deficit and debt ratio due to the digital wallet scheme.
- The US and UK are closed today for holidays. ECB’s Lane speaks and German Ifo survey for May prints.
ASIA-PAC EQUITIES: Equity Edged Higher As Tech Stocks Rise On Lower Inflation Pressures
Asia markets have tacked US equities higher on Monday, as an easing in US consumer inflation expectations bolstered the case for the Federal Reserve to cut rates this year. Tech stock are the top performing sector, with the MSCI Asia Pacific trading 0.60% higher. It has been a quiet session today with little in the way of headlines or economic data, while the UK and US will be out for public holidays.
- Japanese equities have opened higher today, the yen is a touch stronger at 156.74 after initially trading above 157 as the BoJ Governor Ueda said the central bank will move cautiously to anchor inflation expectations at 2%. The BoJ-IMES conference is being held in Japan today with both Ueda and Uchida speaking, later today we have the Leading & Coincident Index. The Topix is up 0.35%, while the Nikkei is up 0.20%.
- Taiwan equities opened higher today, however has given up some of those early gains. Semiconductor names are benefitting from a visit from Nvidia boss Jensen Huang, with TSMC leading the way again. The Taiex is up 1%
- South Korean equities are higher today, there is little in the way of news out of the region today. Equity flows have started to slow, with just $152m of inflows over the past 5 sessions. The kospi is 0.49% higher today and bounced off the 50-day EMA on Friday, with the next target the 20-day EMA at 2,708.
- Australian equities are higher today, there isn't much happening locally today with markets largely just tracking global markets. BHP has contributed the most to index gains today, while Lendlease is 9.8% higher after announcing they would be abandoning their global plans and list 4b of assets. The ASX200 is up 0.80%
- Elsewhere in SEA, New Zealand equities are down 0.20%, Singapore equities are 0.15% higher, Malaysian equities are unchanged, Philippines equities are down 0.75% while Indonesia has returned from their break and trade down 0.15%
ASIA EQUITIES: China & Hong Kong Equities Mostly Higher, Property Underperforms
Hong Kong & Chinese equities are off earlier lows and now trade in the green, tech stocks are higher as US inflation expectations ease, Asia shipping stocks are higher on red sea disruptions. China Property names are the worst performing sector, following a large sell-off on Friday as investors concerns grow over whether the recent policy announcements will be enough.
- Hong Kong equities are mixed today with property the worst performing sector again. The Mainland Property Index is down 0.80%, while the HS Property Index is down 0.66%, HStech Index is up 0.70%, while the wider HSI is up 0.60%. In China, the CSI300 is up 0.35%, while the small-cap CSI1000 and CSI2000 Indices underperforming down 0.40% and 0.90% respectively, while the growth focus ChiNext Index is down 0.65%
- MNI China Press Digest May 27: Local Bond, CSRC, Multinational - (See link)
- In the China property space CIFI plans to include long-term and CNY-denominated loan options in its offshore debt restructuring proposals to lower financial costs, leveraging potential support from the "real estate project white list" program, and has progressed to the next negotiation stage with a committee representing 59% of its offshore loan lenders. Kaisa has been granted more time for a restructure by a Hong Kong court, while China Vanke has has told investors it has remitted funds to pay an onshore bond.
- The US will reimpose tariffs on hundreds of Chinese goods, allowing tariff exclusions on about half of 400 products to expire as part of a strategy to protect American manufacturing. The US Trade Representative announced that 164 exclusions will be extended through May next year, with all exemptions extended through June 14 for a transition period. Continued exclusions include motors and medical equipment, while exclusions for over 100 products, with no public comment, will end. This move follows Biden's plan to increase tariffs on electric vehicles and other imports due to alleged intellectual property theft by China.
- Looking ahead: China PMI on Friday, for Hong Kong we have Trade Balance later today, and Retail Sales of Friday
CREDIT APAC Credit Little Changed, CBA Upgraded By Moody's
- It was a positive session for Asia rates today, US tsys futures wedged higher, ACBG curve flatter, yields are 2-3bps lower, NZGBs steeper, yields are about 1bp higher, while JGB curve mixed, yields are 1-2bps higher, with the 10Y trading back above 1%
- Regional Asian equities are mostly higher today, getting a boost after US inflation expectations fell on Friday, leading to rate cut expectations coming forward, US equity futures are little changed today.
- Aus Corps & Fins 1-2bps tighter. China Credit is 1-2bps wider, with Fins underperforming.
- Aus iTraxx CDS unchanged at 63bps & Asia Ex-J iTraxx is up 1bp at 92.50bps
- CBA was upgraded to Aa2 by Moody's, while Lendlease announced they will be selling international assets as they look to divest from international operations.
- Primary Deals: NAB announced a A$ 15NC10 T2, Auckland Airport announced 7.5Y A$ Bonds & Wuxi Communications announced a 3Y fixed EUR Bond
OIL: Crude Holds Onto Friday’s Gains As Markets Awaits OPEC Decision
Oil prices are moderately higher supported by today’s better risk tone and a slightly weaker US dollar . WTI is up 0.3% to $77.97 after a high of $78.03. The benchmark is struggling to hold breaks above $78. Brent is 0.2% higher at $82.28 after an intraday high of $82.36.
- The focus this week is on the weekend’s OPEC+ meeting which will now be held online and on June 2 – one day later than the original schedule. The group is widely expected to extend its 2mbd of output cuts into H2 but until when and any changes to the details are unclear.
- The current long weekend marks the start of the US driving season and gasoline demand will be monitored closely, but many Americans may choose to fly with the American Automobile Association expecting the highest number of people to go by plane this weekend in 20 years.
- The US and UK are closed today for holidays. ECB’s Lane speaks and German Ifo survey for May prints.
GOLD: Higher After A Tempering Of Inflation Expectations
Gold is 0.5% higher in the Asia-Pac session, after closing 0.2% higher at $2333.83 on Friday.
- On Friday, the yellow metal was supported by a tempering of UofM inflation expectations, which bolstered sentiment that the Federal Reserve may still have room to cut rates this year. The 10-year yield met firm resistance at 4.50%, last seen May 14, closing at 4.465%.
- Nevertheless, bullion finished around 3% lower last week, the largest weekly decline since December.
- According to MNI’s technicals team, the trend structure for gold remains bullish and the move lower appears to be a correction.
- On the upside, attention is still on $2,452.5, a Fibonacci projection. The 50-day EMA, at $2,298.5, represents a key support.
MARKETS UP TODAY (TIMES GMT/LOCAL)
Date | GMT/Local | Impact | Flag | Country | Event |
27/05/2024 | 0800/1000 | *** | ![]() | DE | IFO Business Climate Index |
27/05/2024 | 1200/1400 | ![]() | EU | ECB's Lane speech on Inflation in the Eurozone at IIEA | |
27/05/2024 | 1300/1500 | ** | ![]() | BE | BNB Business Sentiment |
28/05/2024 | 2301/0001 | * | ![]() | UK | BRC Monthly Shop Price Index |
28/05/2024 | 0130/1130 | ** | ![]() | AU | Retail Trade |
28/05/2024 | 0455/0055 | ![]() | US | Cleveland Fed's Loretta Mester | |
28/05/2024 | 0455/0655 | ![]() | EU | ECB's Schnabel in panel discussion at BOJ-IMES conference | |
28/05/2024 | 0800/1000 | ** | ![]() | EU | ECB Consumer Expectations Survey |
28/05/2024 | 1000/1100 | ** | ![]() | UK | CBI Distributive Trades |
28/05/2024 | 1230/0830 | * | ![]() | CA | Industrial Product and Raw Material Price Index |
28/05/2024 | 1300/0900 | ** | ![]() | US | S&P Case-Shiller Home Price Index |
28/05/2024 | 1300/0900 | ** | ![]() | US | FHFA Home Price Index |
28/05/2024 | 1300/0900 | ** | ![]() | US | FHFA Home Price Index |
28/05/2024 | 1300/0900 | ** | ![]() | US | FHFA Quarterly Price Index |
28/05/2024 | 1300/0900 | ** | ![]() | US | FHFA Quarterly Price Index |
28/05/2024 | 1355/0955 | ![]() | US | Minneapolis Fed's Neel Kashkari | |
28/05/2024 | 1400/1000 | *** | ![]() | US | Conference Board Consumer Confidence |
28/05/2024 | 1400/1000 | * | ![]() | US | US Treasury Auction Result for 26 Week Bill |
28/05/2024 | 1400/1000 | * | ![]() | US | US Treasury Auction Result for 13 Week Bill |
28/05/2024 | 1430/1030 | ** | ![]() | US | Dallas Fed manufacturing survey |
28/05/2024 | 1530/1130 | * | ![]() | US | US Treasury Auction Result for 2 Year Note |
28/05/2024 | 1530/1130 | * | ![]() | US | US Treasury Auction Result for Cash Management Bill |
28/05/2024 | 1700/1800 | ![]() | UK | BOE's Haskel Speech on UK inflation | |
28/05/2024 | 1700/1300 | * | ![]() | US | US Treasury Auction Result for 5 Year Note |
28/05/2024 | 1705/1305 | ![]() | US | Fed Governor Lisa Cook |