MNI EUROPEAN OPEN: Hong Kong/China Equity Rebound Loses Some Momentum

US TSYS: Treasury Futures Trade Steady Ahead Of Busy Day Of Fed Speaker

• Ranges have been very tight and we trade near overnight lows. The 2Y contract is unchanged at 101-21.375, while the 10Y contract is (- 02) at 109-01.
• Volumes: TU 30k, FV 39k, TY 60k
• Tsys Flows: Block seller of 1.8k FV, Block Steepener 9k TU | 2.5k US
• Looking at technicals, support holds at 108-27+/108-15 (50-day EMA / May 14 low), while resistance holds at 109-31+ (May 16 high)
• The treasury curve is slightly steeper today, yields are flat to 1.5bps lower, the 2Y yield is -1.3bps at 4.835%, 10Y -0.2bp to 4.441%, while the 2y10y +1.093 at -39.783
• Looking across APAC rate markets: ACGBs are 1.5-2bps higher, NZGBs flat to 2.5bps higher, curve is steeper, JGBs yields are flat to 1bps higher
• Rate cut projections have receded vs. this morning's levels (*): June 2024 at -5% w/ cumulative rate cut -1.2bp at 5.318%, July'24 at -20% w/ cumulative at -6.3bp (-7.5bp) at 5.267%, Sep'24 cumulative -19.6bp (-20.9bp), Nov'24 cumulative -27.1bp (-29bp), Dec'24 -41.5bp (-43.9bp).
• Busy day ahead for fed speakers with Barkin, Waller, Williams, Collins, Bostic & Barr all speaking

JGBS: Cash Bonds Little Changed, 40Y Supply Tomorrow

JGB futures are unchanged compared to the settlement levels and sit in the middle of today's range.

• There hasn’t been much in the way of domestic drivers to flag. April Tokyo condominiums for sale are on tap later.
• After yesterday’s modest sell-off, cash US tsys have slightly bull-steepened in today’s Asia-Pac session. The US data calendar is light until mid-week. The focus is on the minutes from the May 1 FOMC on Wednesday.
• Cash JGBs are slightly mixed, with yield movements bounded by +/- 0.7bp. The benchmark 10-year yield is 0.1bp lower at 0.980% after reaching 0.984% earlier, its highest level since 2013, on speculation of further BoJ rate hikes and reduced debt-purchase amounts at operations.
• The breakeven inflation rate for the 10-year CPI-linked bonds rose 2bps to 1.644%.
• The swaps curve has twist-flattened, pivoting at the 3s, with rates 0.4bp higher to 1bp lower. Swap spreads are mixed.
• Tomorrow, the local calendar sees Trade Balance and Core Machine Orders alongside 40-year supply.

AUSSIE BONDS: Cheaper But Off Worst Levels, Jun-54 Supply Tomorrow

ACGBs (YM -2.0 & XM -2.0) sit cheaper but off session cheaps.

• The minutes from the May 7 RBA meeting noted that the data had come in “stronger than expected” but it decided to look through short-term developments to “avoid excessive fine-tuning”.
• As a result, the Board decided to leave rates unchanged but as Governor Bullock said in the press conference a hike was discussed. While the “risks around inflation had risen somewhat”, the general tone of the minutes was neutral demonstrating a strong desire to hold rates thus the bar remains high for a move in either direction.
• (MNI) The RBA will need to alter its forecasts for inflation and employment should its key assumptions on consumption growth, labour market capacity or price rise prove overly optimistic, according to the recently published minutes from the May meeting. (See here)
• Cash ACGBs are 2bps cheaper, with the AU-US 10-year yield differential at -19bps.
• Swap rates are 1-2bps higher.
• The bills strip is cheaper, with pricing -2.
• RBA-dated OIS pricing is 3-4bps firmer for meetings beyond August. A cumulative 10bps of easing is priced by year-end off an expected terminal rate of 4.34%.
• Tomorrow, the local calendar is empty apart from the AOFM's planned sale of A$300mn of 4.75% Jun-54 bond.

NZGBS: Closed Slightly Cheaper Ahead Of The RBNZ Policy Decision

NZGBs closed flat to 2bps cheaper but around the session’s best levels ahead of tomorrow’s RBNZ Policy Decision. Updated staff forecasts will also be released.

• The RBNZ is unanimously expected to leave rates at 5.5% as it is yet to be convinced that inflation will sustainably return to target. We don't expect the tone of the statement or the updated projections to be significantly changed with guidance that “a restrictive monetary policy stance remains necessary” retained.
• Given elevated non-tradeables inflation, the MPC will likely still want to see a couple of quarters of CPI data to determine if domestic price pressures have eased sufficiently. With Q3 CPI not released until October 16 and only one meeting left before year end thereafter, it looks like the RBNZ’s prolonged hold will continue through this year. (See full preview here)
• Swap rates closed 1bp lower to 1bp higher, with the 2s10s curve steeper.
• RBNZ dated OIS pricing closed little changed across meetings. There's a 7% probability priced in for a 25bp hike at tomorrow’s meeting.
• The pricing level of 5.52% for the May meeting also represents the anticipated terminal OCR. By year-end, a cumulative 45bps of easing is factored into the pricing.

FOREX: Dollar Modestly Higher, Weaker Commodities/Lower Equities Weigh On A$

The USD BBDXY index sits higher in the first part of Tuesday trade. We were last near 1247.5 (+0.10% firmer), slightly off session highs just above 1248.0.

• USD gains have been fairly uniform and broad based, albeit modest at this stage. USD/JPY was last around 156.50, this is close to session highs. We aren't too far away from May 14 highs at 156.74.
• AUD/USD is back to 0.6655/60, off close to 0.2%. We have seen some retracement in commodity prices from recent frothy levels, which has likely weighed at the margins. Regional equities are also mostly weaker, led by Hong Kong markets. The RBA mins didn't offer any great surprises relative to policy outcome earlier in May.
• NZD/USD has also weakened last under 0.6100.
• US Tsy futures sit off session highs, but have tracked tight ranges overall. Cash Tsy yields are little changed.
• Later the Fed’s Barkin, Waller, Williams, Bostic and Barr and BoE’s Bailey speak. US Philly Fed non-manufacturing for May and Canadian April CPI print.

ASIA STOCKS: HK & China Equities Head Lower, Tech Forms Double Top

Hong Kong & Chinese equities are lower today, equities are being dragged lower following Li Auto's 19% drop after weaker-than-expected first quarter results, Tech is lower after Tencent shut down new game DNF Mobile within an hour of debut with the HSTech index forming a doble top and now on track for the worst day in this month, while property indices are holding up slightly better than the wider markets. There is little in the way of market data today, focus will turn to FOMC minutes on Wednesday.

• Hong Kong equities are lower today, property is holding up slightly better than the wider markets with the Mainland Property Index down just 1.60% although the Hang Seng Property Index is down 1.79%, the HSTech Index is down almost 3.20%, while the HSI is down 2.05%. In China onshore markets, the CSI300 is trading down 0.40% while the small-cap indices CSI1000 & CSI2000 are down 0.80%, while the ChiNext is down 0.62%
• In the property space, China Vanke is securing more bank loans to enhance liquidity while awaiting government support for builders, the company applied for a 1.2 billion yuan loan from Bank of China for a development project in Changzhou
• Li Auto Inc.'s first-quarter vehicle sales fell short of analyst estimates, with sales reaching 24.25 billion yuan ($3.4 billion) against an expected 26.71 billion yuan. Net income was 1.3 billion yuan, below the forecasted 1.6 billion yuan. The company delivered 80,400 vehicles, including the new MEGA van, whose tepid demand led to a revised delivery target of 76,000-78,000 units, down from 100,000-130,000. Li Auto faces increased competition and a price war in China's EV market. It expects second-quarter revenue of 29.9-31.4 billion yuan, below the forecasted 38.6 billion yuan, and deliveries of 105,000-110,000 units, versus an expected 130,692
• Looking ahead, quiet week for China on the data front

ASIA PAC STOCKS: Asian Equities Head Lower As Investors Take Profit

Asia markets are lower today as investors look to take profits. Japan opened higher following moves made overnight in the US markets, however we have since reversed all those gains as corporate earnings weigh on the tech sector, metals prices continue to edge higher and trade near all-time-highs helping miners, while the Chinese property sector sold off heavily on concerns recent policy announcements will be enough to support the sector, the MSCI Asia Pacific is trading down 0.70%. There was little in the way of economic data in the region today, although the RBA released minutes from their May policy meeting where they resumed a discussion of interest rate hikes.

• Japanese equities opened higher this morning, following moves made in US markets overnight and insurers rose after positive earnings outlooks and buyback announcements, however we have since pared gains and now trade little changed. The Nikkei 225 is down 0.02%, while the Topix is up 0.06%.
• South Korean equities are lower today as local tech stocks slide, Samsung is the largest contributed to the loss. There is little on the calendar today, with PPI and Business Survey Manufacturing due out tomorrow, while focus will be on the BOK Thursday. The Kospi is trading down 0.65%, while the small-cap Kosdaq is down 0.18%.
• Taiwan equities are slightly lower today, regional tech prices are lower which is leading to the weakness in the local market. This week we have the unemployment rate due out tomorrow and Industrial Production on Thursday. The Taiex is down 0.20%.
• Australian equities are lower today, focus has been on the RBA minutes where they discussed interest-rate hikes and that inflations risks had risen somewhat. Financials and Materials are the worst performing sectors, offsetting gains in Consumer Discretionary, Industrials and Tech, the ASX200 is down 0.05%
• Elsewhere in SEA, New Zealand equities are down 0.42%, Singapore equites are down 0.38%, Indonesian equities are down 0.55%, Philippines are down 0.75% & Malaysian equities are down 0.24%.

OIL: Crude Lower On Weaker Risk Sentiment But Still In Recent Ranges

Oil prices have fallen driven by a general pullback in risk with commodities lower and HK equities down sharply. WTI is down 0.6% to $78.84/bbl close to the intraday low. Brent is 0.5% lower at $83.26 but continues to move in a narrow range. Recent geopolitical events have been overlooked by the market. The USD index is up 0.1%.

• Market signals are pointing to an easier crude outlook with the Brent prompt spread at its narrowest since January, according to Bloomberg. Other indications include money managers reducing their longs and the reduction of refining margins.
• With the focus back on fundamentals, US inventory data is being watched closely. Later today the API sourced information will be released.
• Later the Fed’s Barkin, Waller, Williams, Bostic and Barr and BoE’s Bailey speak. US Philly Fed non-manufacturing for May and Canadian April CPI print.

GOLD: Pullback After Reaching A Fresh All-Time High

Gold is 0.5% lower in the Asia-Pac session, after closing 0.4% higher at $2425.31 on Monday. Earlier in yesterday’s session bullion hit a fresh all-time high of $2,450. There was no headline flow of note, with markets generally shaking off weekend political risk.

• China’s bullion imports slowed last month as demand in the world’s biggest consumer begins to buckle in the face of record prices. Overseas purchases of physical gold fell to 136 tons in April, a 30% decline from the previous month and the lowest total for the year, according to the latest customs data (BBG).
• Having traded through resistance at $2431.5 (the Apr 12 high and bull trigger), the focus turns to 2452.5, a Fibonacci projection, according to MNI's technical team.
• Meanwhile, silver outperformed again yesterday, with its price hitting the highest level since end-2012.
• Sights are on $33.887 next for silver, a Fibonacci projection. Short-term pullbacks would be considered a correction. A key support zone lies between $27.229-36.948, the 20- and 50-day EMA values.