MNI EUROPEAN OPEN: Japan Yields & Yen Surge On Hawkish Ueda
- YELLEN ‘FEELING VERY GOOD’ ABOUT US STICKING A SOFT LANDING - BBG
- UEDA SAYS BOJ MAY KNOW ENOUGH ABOUT WAGES BY YEAR-END: YOMIURI
- CHINA’s CONSUMER PRICES CREEP OUT OF DEFLATION IN AUGUST - BBG
- G20 NATIONS’S SOFTEN RUSSIA CONDEMNATION TO REACH DELHI SUMMIT COMPROMISE - CNBC
Fig. 1: Japan 10-Year JGB Yield and 10-Year Swap Rate Yield
Source: MNI - Market News/Bloomberg
RENTS: Britain’s tenants are feeling much more pressure from soaring interest rates than the rest of the housing market. Rents are set to rise 25% over the next four years as landlords pass on extra costs from pricier mortgages and tougher regulation, according to a report from broker Hamptons International. Meanwhile, house prices — which are declining at the fastest pace in 14 years — are set to drop 5% over the same period when adjusted for inflation, Hamptons said. (BBG)
GEOPOLITICS: British Prime Minister Rishi Sunak told Chinese premier Li Qiang he had “significant concerns” about “interference” from Beijing, hours after it emerged that two men had been arrested in the UK for allegedly spying for China. Sunak said he’d confronted the Chinese official after news that a parliamentary researcher linked to a number of Tory MPs had been detained earlier this year on suspicion on espionage-related offenses. (BBG)
ECONOMY: Treasury Secretary Janet Yellen said she’s increasingly confident that the US will be able to contain inflation without major damage to the job market, hailing data showing a steady slowdown in inflation and a fresh influx of job seekers. (BBG)
US/VIETNAM: President Joe Biden hailed closer ties with Vietnam on his first visit to the country, as the US seeks to make deeper inroads in the region by offering nations an alternative superpower to China. “I think we have an enormous opportunity,” Biden told General Secretary Nguyen Phu Trong, the leader of the country’s ruling Communist Party, at a meeting in Hanoi. “Vietnam and the United States are critical partners at this very critical time. I’m not saying that to be polite, I’m saying that because I mean it from the bottom of my heart.” (BBG)
US/CHINA: President Joe Biden said China’s recent downturn could diminish any inclination by Beijing to invade Taiwan, adding that the country’s economic troubles have left his Chinese counterpart with “his hands full.” (BBG)
US/CHINA: U.S. President Joe Biden said on Sunday he held his highest level talks with Chinese leadership in months, adding that Beijing's economic wobbles would not lead it to invade Taiwan. Biden said he met with Chinese President Xi Jinping's No.2, Chinese Premier Li Qiang, at the annual G20 summit in New Delhi. The talks were the highest level meeting between the two powers in nearly 10 months since Biden and Xi spoke at last year's G20 in Indonesia. (RTRS)
G20: The Delhi leaders’ declaration omitted words from the last year’s statement that overtly condemned Russian aggression against Ukraine. Ukraine criticized the compromise in the G20 joint communique. The Delhi summit agreement called for a slew of measures aimed at deeply integrating the Global South’s developmental needs and ambitions with the G20. India, U.S. underscore deepening partnership with multilateral deals on the sidelines of the G20, including a rail and sea corridor connecting India, the Middle East and the European Union. (CNBC)
JAPAN: Bank of Japan Governor Kazuo Ueda said it’s possible the central bank will have enough information and data by the year-end to judge if wages will continue to rise, a condition for adjusting stimulus, according to an interview with the Yomiuri newspaper. (BBG)
JAPAN: The Bank of Japan said Monday it will conduct a funds supplying operation against pooled collateral on Thursday. The operation will start on Friday and end Sept. 15 2028, a move aimed at curbing higher bond yields. The 10-year JGB yield rose to 0.700% on Monday, its highest level since January 2014, as speculation over an early end of the negative interest rate increased following a report that BOJ Governor Kazuo Ueda indicated such a move was possible in an interview with a local newspaper on Saturday. (MNI BRIEF)
TAIWAN: China’s economy is showing clear signs of a slowdown that will have an inevitable spillover to the region, according to Taiwan’s top emissary to the US. “There are some alarming indications and we are impacted,” Hsiao Bi-Khim told Bloomberg News, citing a drop in Taiwan’s exports to China. “Despite all the political and strategic tension, we are interested in prosperity for the people on both sides of the strait.” (BBG)
COMMODITIES: Chevron has asked Australia's workplace arbiter to intervene to resolve a labor dispute at two giant natural-gas operations after negotiations with union representatives failed and workers began partial strikes at the sites. The U.S. energy company said Monday that it filed applications to the Fair Work Commission for so-called intractable bargaining declarations for its Gorgon and Wheatstone downstream assets. It said it can't see how an agreement will otherwise be reached. Chevron filed an application for its Wheatstone platform a week ago. (DJ)
INFLATION: Chinese consumer prices rose 0.1% in Aug following July's 0.2% decrease, as recent efforts to boost demand began to show results, according to Yicai. The news outlet said price changes returned to above zero due to the economy entering peak summer consumption and increases in pork prices. Dong Lijuan, chief statistician of the National Bureau of Statistics, stated pork prices increased 11.4% m/m due to extreme weather, with farmers suppressing sales and the central reserve supporting market confidence. Factory prices showed a narrowing of declines from the previous month, with the PPI index decreasing 3.0% in Aug y/y, but an increase of 0.2% m/m. (MNI)
INFLATION: China’s deflationary pressures eased slightly in August as consumer prices rose and producer price declines moderated, adding to signs that the worst may be over for some parts of the world’s second-biggest economy. (BBG)
LOANS: Chinese banks issued a higher-than-expected amount of new loans in August, as Beijing tapped the nation's financial institutions to step up support for the cooling economy. New yuan loans extended by banks in China reached 1.36 trillion yuan ($185.20 billion) in August, up from CNY345.9 billion in July, the People's Bank of China said Monday. The result beat the CNY1.2 trillion expected by economists in a Wall Street Journal poll. Total social financing, which includes both bank and nonbank credit, was CNY3.12 trillion in August, up sharply from CNY528.2 billion in August, the central bank said. (DJ)
RATES: Guangzhou has become the first tier-one city in China to offer first time mortgage rates below LPR, according to 21st Century Herald. The paper said first time buyers can now access mortgages at LPR -10bp at the lower limit. Policymakers said the measures will take effect from September 8, and although down payments for first-time buyers remained at 30%, the minimum down-payment ratio for purchasing a second home will reduce to 40%, which exceeds market expectations.(MNI)
MORTGAGES: At least 24 Chinese cities, including four tier-1 cities, allow people who’ve previously had a mortgage — even if fully repaid — to qualify as first-time homebuyers, Shanghai Securities News reports. (BBG)
YUAN: PBOC’s recent moves to aid yuan, such as increasing the supply of foreign currency in the local market, can guide market expectation and stabilize the currency, the Securities Daily reports, quoting Chinese analysts. (BBG)
YUAN: China escalated its defense of the yuan by delivering a strong verbal warning after forceful guidance with its daily reference rate, moves that pushed the managed currency away from a 16-year low. The nation’s financial regulators will take action to correct one-sided moves in the market whenever it’s needed and they are confident in keeping the yuan basically stable, the People’s Bank of China said in a statement on Monday. (BBG)
CREDIT/RRR: China is expected to see a rebound in its credit growth in August from the previous month, mainly driven by mid to long-term loans to corporate borrowers, China Securities Journal reports Monday, citing analysts. (CSJ)
MARKETS: Risk weighting of insurance companies’ investment in component stocks of CSI 300 index and stocks listed on STAR market will be lowered, according to new rules issued by China’s National Administration of Financial Regulation. (BBG)
MNI: PBOC Net Injects CNY203 Bln Monday via OMO
The People's Bank of China (PBOC) conducted CNY215 billion via 7-day reverse repos on Monday, with the rates unchanged at 1.80%. The operation has led to a net injection of CNY203 billion after offsetting the maturity of CNY12 billion reverse repo today, according to Wind Information.
- The operation aims to keep banking system liquidity reasonable and ample, the PBOC said on its website.
- The 7-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.8542% at 09:50 am local time from the close of 1.8625% on Friday.
- The CFETS-NEX money-market sentiment index closed at 40 on Friday, compared with the close of 43 on Thursday.
PBOC Yuan Parity Lower At 7.2148 Monday Vs 7.1986 Friday
The People's Bank of China (PBOC) set the dollar-yuan central parity rate lower at 7.2148 on Monday, compared with 7.2150 set on Friday. The fixing was estimated at 7.3391 by Bloomberg survey today.
JAPAN AUGUST MONEY STOCK M2 Y/Y 2.5%; PRIOR 2.5%
JAPAN AUGUST MONEY STOCK M3 Y/Y 1.9%; PRIOR 1.9%
CHINA AUGUST AGGREGATE FINANCING CNY 3120BN YUAN; MEDIAN 2690BN; PRIOR 528.2BN
CHINA AUGUST NEW LOANS CNY 1360BN YUAN; MEDIAN 1250BN; PRIOR 345.9BN
CHINA MONEY SUPPLY M2 Y/Y 10.6%; MEDIAN 10.7%; PRIOR 10.7%
CHINA MONEY SUPPLY M1 Y/Y 2.2%; MEDIAN 2.4% PRIOR 2.3%
TYZ3 deals at 109-21+, -0-08, a touch off the base of the 0-08 range observed on volume of ~82k.
- Cash tsys sit 1-3bps cheaper across the major benchmarks, light bear steepening is apparent.
- Tsys were pressured in early dealing as spillover from JGBs weighed on the wider space. BoJ Governor Kazuo Ueda said it’s possible the central bank will have enough information and data by the year-end to judge if wages will continue to rise, a condition for adjusting stimulus, according to an interview with the Yomiuri newspaper.
- TY sits a touch above support at 109-19 (low from Sep 7) and 109-09+ (low from Aug 22 and bear trigger).
- Narrow ranges were observed in recent dealing, and moves had little follow through after the initial move lower.
- There is a thin docket in Europe today, further out the only data of note is NY Fed's 1-Year Inflation Expectations.
JGB futures have experienced a significant decline, dropping as much as 77 in comparison to their settlement levels. This comes after previously outlined hawkish remarks made by BoJ Governor Ueda over the weekend.
- At 146.52, JGB futures currently sit slightly above session lows after the BoJ announced that it would conduct 5-year funds-supplying operations against pooled collateral on September 14.
- Bloomberg reports that the BoJ's 5-year funds-supplying operations this week won’t put an end to sliding JGBs. There was a similar intervention in January but 5-year yields are higher now than they were at that time. (See link)
- There hasn’t been much in the way of domestic drivers to flag, outside of Ueda’s comments and the BoJ operations announcement.
- JGB benchmarks are cheaper across the curve, with yields 2.1bp (1-year) to 6.9bp (5-year) higher, amid speculation that the central bank is preparing to end its negative rate policy. The benchmark 10-year yield is 5.2bp at 0.707%, a post-YCC tweak high.
- The 5-year is at 0.291% ahead of supply tomorrow.
- Swap rates are higher across the curve, with the belly underperforming. Swap spreads are wider, apart from the belly of the curve.
- Tomorrow the local calendar is empty. However, the MoF plans to sell Y2.5tn 5-year JGBs.
In roll-impacted trading, ACGBs (YM -7.0 & XM -9.3) are weaker and at Sydney session lows as spillover from JGBs continues to weigh on the local market.
- In recent dealings the JGB 10-year yield is just shy of the post-YCC adjustment high of 0.705%, 4.7bp cheaper on the day. The catalyst for the JGB move has been remarks from BoJ Governor Ueda over the weekend that it’s possible the central bank will have enough information and data by the year-end to judge if wages will continue to rise, a condition for adjusting stimulus.
- With the domestic calendar empty today, local participants were largely guided by offshore events. US tsys are 1-3bp cheaper across benchmarks in Asia-Pac trade, with the belly of the curve underperforming.
- Cash ACGBs are 6-9bp cheaper, with the AU-US 10-year yield differential 2bp wider at -12bp.
- Swap rates are 5-9bps higher, with the 3s10s curve steeper.
- The bills strip has bear-steepened, with pricing -1 to -6.
- RBA-dated OIS pricing is little changed across meetings out to May’24 and 2-3bp firmer beyond.
- Tomorrow the local calendar sees Westpac Consumer Confidence and NAB Business Confidence.
NZGBs closed on a weak note, with benchmark yields 4-5bp higher and the 2/10 curve steeper. With the domestic calendar light today, the key driver for the local market was spillover selling as JGB yields pushed to their highest levels since 2014. The catalyst for the JGB move was hawkish remarks from BoJ Governor Ueda over the weekend.
- US tsys and ACGBs are also cheaper on the day. However, NZGBs have slightly outperformed, with the NZ-US and NZ-AU 10-year yield differentials 1bp and 2bp tighter, respectively.
- Swap rates are 5-8bp higher, with the 2s10s curve steeper.
- RBNZ dated OIS pricing is flat to 4bp firmer across meetings, with terminal OCR expectations at 5.62%.
- Tomorrow the local calendar sees Retail Card Spending and Net Migration data.
- Nevertheless, the market’s focus is likely to be on the release of the Pre-Election Economic and Fiscal Update. It is worth noting that economic conditions have taken a downturn since the Treasury's Budget publication in May. Consequently, the Treasury is expected to unveil around a NZ$15bn cumulative deficit increase out to 2026/27, with a substantial surge in the government's projected borrowing program.
The Yen is outperforming the G-10 space in Asia today after comments from BOJ's Ueda over the weekend. He said it’s possible the central bank will have enough information and data by the year-end to judge if wages will continue to rise, a condition for adjusting stimulus, according to an interview with the Yomiuri newspaper. The move lower in USD/JPY has spilled over into wider greenback weakness.
- USD/JPY is down ~1% and last prints at ¥146.40/50 sitting at session lows. Support comes in at ¥145.88 the 20-Day EMA and 144.45, low from Sep 1 and key support.
- Kiwi is ~0.5% firmer and has breached the $0.59 handle, benefitting from the broader move lower in the USD. The 20-Day EMA ($0.5942) is now in sight for bulls, a break through here opens which opens the high from 10 Aug ($0.6118) and the 200-Day EMA ($0.6157).
- AUD/USD is ~0.6% higher and has breached $0.64 handle, last printing at $0.6415/20. Resistance comes in at $0.6456, 20-Day EMA, then $0.6522, high from Aug 30.
- Elsewhere in G-10; EUR and GBP are both ~0.2% firmer.
- Cross asset wise; BBDXY is ~0.4% lower and WTI is down ~0.5%. E-minis are up ~0.1% and US Tsy Yields are a touch firmer across the curve.
- There is a thin docket on Monday in Europe.
Asia Pac equities are mixed in Monday trade. Hong Kong markets have returned and are down on multiple headwinds. Other major regional markets are painting more of a mixed picture. US equity futures are a touch higher at this stage. Eminis last near 4518, +0.15%, while Nasdaq futures are around 0.25% higher.
- The HSI is down 1.68% at the break. Alibaba has tracked down sharply, with the unexcepted exit of a senior executive weighing on sentiment. Hong Kong builders have tracked lower amid weaker earnings and plans for banks to raise rates. The HS China Enterprise index is also tracking lower, down 1.42%.
- On the mainland, the CSI 300 is faring better, up 0.3% at this stage. This follows a recent pledge by the regulator to boost market confidence, while over the weekend it was announced that insurance companies would have easier avenues to purchase stocks.
- Elsewhere, Japan stocks are down modestly, the Topix last ~0.20% off. Mixed trends are evident, as local yields and the yen have surged following hawkish weekend comments by BoJ Governor Ueda. Banks are higher, but property sector names are off.
- The Taiex is off by 0.80%, weighed by the weaker SOX trend in US trade late last week, while the Kospi is marginally higher (+0.25%).
- Trends in SEA are mixed, with most bourses lower, but only modestly at this stage, while Indonesian shares are a touch higher.
Oil prices are down slightly during APAC trading today but Brent has held above $90/bbl. After rising over 2% last week, technical indicators are suggesting that crude is overbought and it has responded today but still in a tight range. WTI is down 0.6% to $87.00/bbl off the intraday low of $86.71. Brent is down only 0.2% to $90.44 after a low of $90.11. The USD index is down 0.4%.
- The relative strength index, stochastic oscillators and Bollinger bands are suggesting that oil is overbought and thus there could be a correction, according to Bloomberg. CFTC net oil positions rose to 299.3k from 240.9k in the latest week.
- Futures timespreads are still signalling that the market is tight. While there was some increased supply in August, Iran’s output is now close to pre-sanction levels and so there is unlikely to be much more from there. There has also been no breakthrough between Turkey and Iraq on the six month dispute over flows from Iraqi Kurdistan to the Turkish port of Ceyhan. This issue continues to hold up around 500kbd. On the demand side, China’s trade data showed strong crude imports.
- The Fed is now in the blackout period ahead of the September 20 meeting and there isn’t any US data. Europe is also quiet. The focus is likely to be on Wednesday’s US CPI.
Gold has registered a modest 0.2% uptick during the Asia-Pac session despite higher bond yields in early Monday trading, led by JGBs.
- In recent dealings the JGB 10-year yield is at a post-YCC adjustment high of 0.702%, 4.7bps higher on the day. The catalyst for the JGB move has been remarks from BoJ Governor Ueda over the weekend that it’s possible the central bank will have enough information and data by the year-end to judge if wages will continue to rise, a condition for adjusting stimulus.
- Today’s small gain follows an unchanged closing price of $1919.08 ahead of the weekend, which came after reaching a peak of $1929.71.
- It's worth noting that Friday's high approached resistance at the 50-day EMA at 1931.4, beyond which a significant resistance point looms notably higher at $1953.0, as per the insights from MNI's technicals team.
- These observations underscore the considerable drop in gold's value observed last week, driven by DXY's concurrent increase of approximately +0.8%.
UP TODAY (TIMES GMT/LOCAL)
|11/09/2023||1500/1100||**||US||NY Fed Survey of Consumer Expectations|
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|11/09/2023||1700/1300||***||US||US Note 03 Year Treasury Auction Result|
|12/09/2023||2300/0000||UK||BOE's Mann to Speak in Canada|