MNI EUROPEAN OPEN: Intervention Fears/Rate Check Headlines Keep Yen Volatile

US TSYS: Tsys Futures Off Earlier Lows, Volumes Increase In The Front-End

• Treasury futures are slightly lower today, although we are currently trading off the intraday lows, there has been increased activity in front-end futures, TU is trading -0-01⅛ at 102-15⅛, TY is -0-05+ at 110-31+.
• Volumes are slightly above recent averages: TU 72k, FV 75k & TY 143k
• Tsys flows: Block Seller TYQ4C at 0'16 x10k
• The cash treasury curve is little changed this morning with the 10Y yield at 4.214%
• OIS market is now pricing in a 90% chance of a rate cut in September, up from 67% prior to CPI.
• Citi strategists are emphasizing the attractiveness of steepener trades heading into the US election, driven by dovish FOMC policies and weak June CPI data. They highlight that steepeners benefit from both a more accommodative Fed stance and election-related market dynamics, making them an exception among Trump trades, (per BBG)
• Looking ahead, We have PPI, U. of Mich. Sentiment while Wells Fargo, Bank Of NY Mellon, JPM & Citigroup report earnings

JGBS: Bull-Steepener Ahead Of Long Weekend, Focus On US PPI Later Today

JGB futures are stronger but holding mid-range, +23 compared to the settlement levels.

• May industrial production was revised up to +3.6% m/m (1.1% y/y) versus +2.8% m/m (+0.3% y/y) prior. Meanwhile, the May Operating Ratio rose 4.1% m/m to 103.8.
• (Bloomberg) Japan’s finance ministry will need to broaden its pool of bond buyers beyond banks as they won’t be able to fill the vacuum left by the Bank of Japan, according to an economist on a finance ministry panel. (See link)
• (RTRS) Nearly 90% of Japanese households expect prices to rise a year from now, a quarterly central bank survey showed on Friday.
• Cash US tsys are slightly cheaper in today’s Asia-Pac session. In the absence of news flow, this weakening in US tsys most likely reflects some profit-taking after yesterday’s solid rally.
• The US market’s focus now turns to today’s June PPI and UofM Sentiment and the start of the latest equity earnings cycle: Wells Fargo, Bank of NY Mellon, JP Morgan and Citigroup headlining.
• The cash JGB curve has bull-flattened, with yields 1-3bps lower. The benchmark 10-year yield is 2.4bps lower at 1.066% versus the cycle high of 1.108%.
• Swap rates are flat to 1bp lower. Swap spreads are mostly wider.
• The local market is closed on Monday in observance of the Marine Day holiday.

AUSSIE BONDS: Holding Richer But Off Best Levels, Light Local Calendar Ahead Of Thursday’s Jobs Data

ACGBs (YM +3.0 & XM +3.0) remain richer but are off Sydney session highs.

• With the domestic calendar empty, the local market has drifted lower with the slight cheapening in cash US tsys in today’s Asia-Pac session. In the absence of news flow, this weakening most likely reflects some profit-taking after yesterday’s solid rally.
• The market’s focus now turns to today’s June PPI and UofM Sentiment and the start of the latest equity earnings cycle: Wells Fargo, Bank of NY Mellon, JP Morgan and Citigroup headlining.
• Cash ACGBs are 3-4bps richer, with the AU-US 10-year yield differential at +13bps.
• Today’s ACGB Nov-29 supply was priced comfortably through mids, but the cover ratio declined to 3.100x from 3.2286x prior.
• Swap rates are 2-4bps lower, with the 3s10s curve steeper.
• The bills strip has bull-flattened, with pricing +2 to +5.
• RBA-dated OIS pricing is 3-6bps softer for meetings beyond August. Terminal rate expectations sit at 4.44%.
• The local calendar is light ahead of Thursday’s release of the June Employment Report.
• Tomorrow, the AOFM plans to sell A$300mn of the 1.75% 21 June 2051 bond on Monday, A$500mn of the 3.00% 21 November 2033 bond on Wednesday and A$700mn of the 2.75% 21 November 2027 bond on Friday.

NZGBS: Richer, Closed Mid-Range, Q2 CPI Next Wednesday

NZGBs closed richer, but off the session's bests, 6-9bps richer. Nevertheless, today’s move brings the cumulative rally since the RBNZ’s surprising dovish tilt on Wednesday to 14-25bps, with the 2/10 curve 11bps steeper.

• On a relative basis, the NZGB 10-year has seen a mixed performance, with the NZ-US 10-year differential 1bp wider but the NZ-AU 3bps narrower.
• At +16bps, the NZ-AU 10-year differential sits at its lowest level since August 2022.
• Swap rates closed 5-7bps lower, with the 2s10s curve steeper.
• RBNZ dated OIS pricing closed little changed today, but 18-36bps softer for meetings beyond August versus Wednesday's pre-RBNZ Decision levels. A cumulative 62bps of easing is priced by year-end.
• Next week, the local calendar will see the Performance Services Index and REINZ House Sales data on Monday, Non-Resident Bond Holdings on Tuesday and the all-important Q2 CPI data on Wednesday.
• In the accompanying statement to this week’s Policy Decision, the RBNZ anticipated that CPI will fall within the 1-3% target range in the second half of 2024. Currently, it sits at 3.5% y/y.
• The US calendar later today will see June PPI and UofM Sentiment data alongside the start of the latest equity earnings cycle: Wells Fargo, Bank of NY Mellon, JP Morgan and Citigroup headlining.

FOREX: Japan Officials Don't Confirm Intervention OR Rate Check, NZD Recoups Early Losses

Yen volatility has dominated the first part of Friday G10 FX trade. The BBDXY sits little changed for the session, last near 1254. We remain above post US CPI lows from Thursday US trade (just under 1250).

• USD/JPY had an earlier low of 157.76, after drifting to highs of 159.45 in the first part of trade. The sharp correction may have been driven by a reported EUR/JPY rate check (per onshore Japan media). USD/JPY has stabilized this afternoon, mostly holding above 159.00.
• We have had a host of comments from Japan officials, with FX Chief Kanda speaking first, along with Chief Cabinet Secretary Hayashi and finally FinMin Suzuki.
• The comments were largely in line with on-going FX rhetoric around excessive FX moves, which are one-sided, and a desire for FX moves to be stable and to reflect fundamentals etc. Officials wouldn't comment on whether intervention had take place through Thursday's US session, nor would they discuss the reported rate check.
• Elsewhere, NZD/USD was weaker in early trade, following a very weak PMI update (to multi year lows). Card spending figures also showed a decline in June. We got to lows of 0.6076, but have recouped losses to sit back at 0.6100 in latest dealings. The AUD/NZD cross got to fresh highs of 1.1118, but is now back under the 1.1100 level.
• AUD/USD has drifted higher, last around 0.6770, but hasn't tested Thursday intra-session highs close to 0.6800. China commodity import volumes slowed in June, with iron ore off over 4% but this hasn't impacted sentiment today.
• Looking ahead, the main focus will US PPI and prelim UMich sentiment and inflation expectations data round off the week’s calendar.

ASIA STOCKS: HK Stocks Higher, China Trade Surplus Grows, Third Plenum Next Week

China & Hong Kong's equity markets are mixed today, HK markets are out-performing as investors reacted to the latest U.S. inflation data, which indicated a slowdown and raised hopes for a rate cuts from the Federal Reserve. Chinese markets are slightly lower today as investors await the start of the Third Plenum policy meetings, property stocks have surged higher as investors expect China to announce additional support for the struggle sector at the meeting. Earlier, China's trade surplus grew to the highest levels since at least 1990.

• Hong Kong equities are higher today with the HSTech Index up 1.75% and now trades up 4.55% for the past week. Property indices have surged higher with the Mainland Property Index up 4.10% and now trades off just 1.10% for the week after being down as much as 8% at one stage, the HS Property Index is 4.80% higher today and now 5.30% higher on the week, while the wider HSI is 2% higher.
• China equity markets are mixed today with the CSI 300 down 0.20%, small-cap indices the CSI 1000 down 0.60% and the CSI 2000 up 0.55%, while the growth focused ChiNext is 0.10% lower.
• The CSRC clamped down on short selling to support the sliding stock market, leading to concerns about further deterioration in liquidity, as trading volumes were already at an 18-month low. Despite this, analysts suggest that such restrictions may ultimately impair liquidity and fail to support asset prices, particularly affecting small-cap stocks, as per BBG.

ASIA PAC STOCKS: Equities Mixed As Tech Sells Off, Yen Surges, US Rate Cuts

Asian equity markets are mixed today with Japanese equities facing pressure as the yen strengthened over 2% overnight amid speculation the BoJ intervened which impacting export stocks negatively. The market is now pricing about a 90% chance of a US rate cut in September following subdued US inflation data, this saw front-end US yields move about 10bps lower and we saw a rotation out of Mega cap tech stocks into more beaten up stocks which are more sensitive to interest rates. Meanwhile, Australian and New Zealand markets saw gains, supported by optimism around potential rate cuts and strong performances in banking sectors amid global economic uncertainties. Overall, market movements reflected a cautious stance amid fluctuating currency dynamics and expectations of central bank actions.

• Japanese equities are lower today, with the Nikkei falling by 2.20% and the broader Topix Index dropping about 1%. This downturn was primarily driven by a surge in the yen's value overnight, which adversely affected exporters. Tokyo Electron was notably impacted, contributing heavily to the Topix's decline with a 4.1% decrease. The market sentiment was further dampened by concerns over potential Federal Reserve rate cuts following recent US inflation data, leading to cautious trading and increased volatility, especially among mega cap tech stocks.
• South Korean stocks are lower today, mirroring overnight losses on Wall Street where major tech shares faced significant sell-offs. The Kospi is 1.30% lower with the decline heavily influenced by profit-taking in major tech stocks, despite signs of cooling U.S. inflation that sparked hopes for a Federal Reserve rate cut later this year.
• Taiwanese stocks are lower today following a global trend of sell-offs in major tech shares amid hopes for a potential Federal Reserve rate cut later this year due to signs of cooling U.S. inflation. The Taiex is 2.1% lower, influenced by declines in the tech sector with semiconductor companies such as TSMC which is down 3.7% and MediaTek down 3.50% as investors look to profit-take after strong gains earlier in the year.
• Australian equities are higher today, and the ASX200 has made new all time highs and is up 0.80% and New Zealand equities are 0.35% higher. The positive sentiment was driven by data showing that U.S. inflation cooled broadly in June, bolstering the case for potential Federal Reserve rate cuts. Most sectors saw gains, with banks contributing the most to the gains.
• Elsewhere, EM Asian markets are benefitting from lower US yields and expectation of a rate cut in September with Singapore equities are 0.66% higher, Indian equities up 0.25%, Philippines equities are 0.20% higher, Indonesian equities are 0.50% higher, while Malaysian equities are the only market in the red and trade 0.30% lower

OIL: Benchmarks Firming, But Still Down For The Week

Front month Brent tracks near $85.60/bbl, up modestly in the first part of Friday trade (+0.2%). This follows gains from Thursday's session, although at this stage Brent is still tracking lower for the week (-1.1%). For WTI we were last around $82.90/bbl, up 0.35% so far today and with a more modest loss in the past week compared to Brent.

• Broader macro trends have aided oil benchmarks, with lower US yields/USD apparent in the aftermath of Thursday's CPI miss.
• Brent prompt spreads are mostly pointing to a tighter market, while earlier data in the week showed US stockpiles continued to decline. Hurricane activity hasn't disrupted gulf coast activity as much as feared though.
• Data today showed an easing in China crude import volumes for June, although we are still elevated from a levels standpoint.
• For Brent, we remain above key EMAs (the 20-day near $85/bbl), while earlier July highs rest at $88/bbl.

GOLD: Moved Sharply Higher After US CPI Miss

Gold is 0.3% lower in the Asia-Pac session, after closing 1.9% higher at $2415.48 on Thursday, its highest level since May 22.

• The yellow metal rallied following yesterday’s soft US June CPI data, which showed back-to-back declines for "supercore" prices, increasing prospects for an earlier Fed rate cut.
• Supercore (services ex-housing) inflation printed negative again, at -0.05% (-0.04% prior), vs +0.27% expected, for the first back-to-back deflations since Aug-Sep 2021. Overall core services printed just +0.13%, vs +0.32% MNI avg (and 0.22% May), the lowest since August 2021.
• The US calendar will see PPI data later today.
• Lower rates are typically positive for gold, which doesn’t pay interest.
• According to MNI’s technicals team, yesterday’s gains reinforce short-term bullish conditions, resulting in a breach of $2,387.8, the Jun 7 high. This has opened key resistance at $2,450.1, the May 20 high.