MNI EUROPEAN OPEN: NZD Buoyed By Surging Business Confidence

Tsys Futures Steady Ahead Of GDP & Jobless Claims

• Treasury futures have traded in tight ranges today, ahead of US GDP due out later tonight. Volumes have been light today and largely roll related.
• TUU4 is trading + 00⅜ at 103-11⅝, while the TYU4 is - 00+ at 113-16+.
• Cash treasury curve is little changed, there has been slightly better buying in the 3yr & 5yr tenors, with yields flat to 0.5bp lower across the curve. The 10yr is unchanged at 3.835% The 2s10s curve is almost back to flat at -3.423.
• The Fed's Bostic suggested it "may be time to cut" interest rates next month, though he remains cautious, emphasizing the need for more data before making a decision. Bostic's stance has shifted to consider earlier rate cuts after inflation fell more quickly than expected, a point he reiterated from last week's Jackson Hole conference.
• Projected rate cut pricing through year end has gained vs. early Wednesday levels: Sep'24 cumulative -33.8bp (-33.2bp), Nov'24 cumulative -66.9bp (-66.9bp), Dec'24 -102.1bp (-103.8bp)
• Today, we have US GDP revisions and weekly jobless claims, as well as the final Treasury coupon supply of the month in the form of 7Y Note.

JGBS: Very Strong 2Y Auction Drives Twist-Steepening Of Cash Curve

JGB futures have pushed into positive territory, +7 compared to the settlement levels, after today's very strong 2-year JGB auction.

• The 2-year bond supply demonstrated very strong demand metrics, even with the prospect of further tightening from the BoJ. The low price beat dealer expectations and the cover ratio increased to a very robust 5.542x (highest since 2019) from 4.187x in July. The auction tail was also slightly shorter than last month.
• Today's strong auction result stands in stark contrast to the lacklustre demand seen in this month's 5- and 10-year auctions.
• Outside of the previously outlined weekly international investment flows, there hasn't been much in the way of domestic data drivers to flag. The Consumer Confidence Index is due later.
• Cash US tsys are little changed in today’s Asia-Pac session. Nvidia’s results and Fed Bostick’s remarks aftermarket have had little impact.
• The cash JGB curve has twist-flattened, pivoting at the 20-year, with yields 2bps lower to 1bp higher. The benchmark 2-year yield is 2.0bps lower at 0.362% after today’s supply.
• The swaps curve has also twist-steepened, with rates 1bp lower to 4bps higher.
• Tomorrow, the local calendar will see labour market, Tokyo CPI, Industrial Production, Retail Sales and Housing Starts data.

AUSSIE BONDS: Cheaper Despite Weaker Than Expected Q2 Capex, Retail Sales & Private Credit Tomorrow

ACGBs (YM -1.0 & XM -3.0) are holding slightly cheaper after dealing in narrow ranges in today’s Sydney session. This comes despite weaker-than-expected 2Q Capex data.

• Q2 national account components have so far printed weaker than expected with capex today down 2.2% q/q, yesterday’s construction work up only 0.1% q/q and real retail sales contracting 0.3% q/q. the investment series saw upward revisions to Q1 though. They are painting a weak growth picture for Q2. GDP prints on September 4 with inventories on September 2 and net exports/government spending on September 3.
• Cash US tsys are little changed in today’s Asia-Pac session. Nvidia’s results and Fed Bostick’s remarks aftermarket have had little impact.
• Cash ACGBs are 1-2bps cheaper, with the AU-US 10-year yield differential at +12bps
• Swap rates are 1-2bps higher.
• The bills strip is -2 to flat.
• RBA-dated OIS pricing is little changed today, with a cumulative 18bps of easing priced by year-end. Nevertheless, for meetings beyond November, pricing remains 7-12 bps firmer than pre-CPI levels yesterday.
• Tomorrow, the local calendar will see Retail Sales and Private Sector Credit data alongside AOFM’s planned sale of A$700mn of the 2.75% 21 November 2029 bond.

NZGBS: Closed On A Weak Note After Business Confidence Jumped To Multi-Year Highs

NZGBs closed 3-4bps cheaper and near session cheaps after today’s ANZ Business Confidence report.

• Forward-looking ANZ business confidence and activity outlook jumped in August to multi-year highs, but current activity remains very weak. Business confidence rose to 50.6 from 37.1 in August, the highest since 2014. The activity outlook rose to 37.1 from 16.3, the highest in 7 years.
• There was little difference in pre-and post-RBNZ meeting responses. Inflation expectations eased but pricing intentions picked up after the RBNZ said that it is important for price setters to adjust to the return of low inflation. This survey was on the list of high-frequency indicators that resulted in its change in view and subsequent rate cuts.
• Lacklustre demand at today’s weekly NZGB auctions also possibly weighed on the market. Cover ratios across the lines were a tepid 1.52x to 2.36x.
• Cash US tsys are little changed in today's Asia-Pac session. Nvidia’s results and Fed Bostick’s remarks aftermarket have had little impact.
• Swap rates closed 4-5bps higher.
• RBNZ dated OIS pricing closed 1-2bps firmer across meetings. A cumulative 72bps of easing is priced by year-end.
• Tomorrow, the local calendar will see ANZ Consumer Confidence and Building Permits data.

FOREX: Buoyant Business Surveys Boosts NZD, High Beta FX Outperforms Elsewhere

The USD BBDXY index sits down 0.15%, last near 1228, unwinding some of Wednesday's gains. Higher beta FX, led by the NZD, has outperformed. JPY has been a laggard, likely on account of weakness against the higher beta plays.

• There was a modest risk off tone in the first part of trade, as the market was left disappointed by AI bellwether Nvidia's earnings update. Nasdaq equity futures were comfortably off more than 1% at one stage.
• We are now away from these lows though (-0.70% last for Nasdaq futures). Reports Apple is buoyant on the outlook for the next Iphone has likely help stabilize sentiment.
• From lows of 144.22, USD/JPY last track near 144.70, close to session highs.
• NZD/USD is at 0.6290 in latest dealings, just off session highs (0.6295), up 0.75% for the session. Forward looking ANZ business confidence and activity outlook jumped in August to multi-year highs but current activity remains very weak.
• AUDNZD is down 0.5% to 1.0815 with the pair falling to 1.0817 following very strong NZ ANZ business confidence data and then stepping down to 1.0798 after Aussie investment data showed a 2.2% q/q Q2 contraction. It found support at 1.08.
• AUD/USD is up 0.30%, last near 0.6800, SEK is up 0.30%, NOK 0.20%.
• US yields have largely been steady, with earlier cautious comments from the Fed's Bostic not impacting sentiment.
• Later, US revised Q2 GDP, July trade & inventories and jobless claims print, as well as the European Commission survey for August. We hear again from the Fed's Bostic, while The ECB's Lane also speaks.

ASIA STOCKS: Asian Equities Lower As Investors Sell Tech Stocks

Asian equities are lower today, as weak earnings reports and Nvidia's underwhelming forecast weighed on investor sentiment. Chipmakers, including TSMC, Samsung Electronics, and SK Hynix, led the losses, reflecting a cooling in enthusiasm for AI-related stocks. Chinese equities also struggled, with tech and EV makers like Li Auto and BYD dragging down indices due to earnings misses. In contrast, Southeast Asian markets saw mixed performance, with Indonesia's key stock gauge touching a record high, supported by strong foreign inflows.

• Japanese equities fell as tech-related stocks, particularly Tokyo Electron (-0.67%) fell on the back of Nvidia's forecast. The broader Topix is down 0.10% , while the Nikkei 225 is down 0.15%, reflecting concerns over the tech sector's outlook amid a global cooling in AI-related enthusiasm.
• South Korean shares declined sharply, led by significant drops in major chipmakers Samsung (-3%) and SK Hynix (-5.90%). The market's negative sentiment extended to bio stocks, while energy shares provided some offset, with gains in SK Innovation and LG Chem. Currently the KOSPI is down 1.20%, while the KOSDAQ is down 1%
• Taiwan's equities are also lower today, driven by a decline in TSMC which is trading down 2%. The cooling sentiment around AI investments weighed heavily on the tech-heavy market, as the Taiex is down 1%.
• Australian stocks were pulled lower by weak earnings reports, particularly in the mining and consumer discretionary sectors. The ASX 200 index is down 0.40%, reflecting broader regional declines and dampened sentiment following Nvidia's underwhelming forecast.
• Asia EM equities are mixed today, Thailand's SET & India Nifty 50 are both flat, Indonesia's JCI is 0.60% higher, Singapore's Straits Times is 0.35% higher, Malaysia's KLCI is 0.30% is lower while Philippine's PSEi is 0.90% lower.

OIL: Crude Subdued On Demand Worries & Soft Risk Sentiment

Oil prices are only moderately higher today after falling over 3.5% on Tuesday/Wednesday as softer risk appetite is capping gains. WTI is up 0.2% to $74.69/bbl, after a high of $74.83, and Brent is also 0.2% higher at $77.71 following a peak of $77.86. Markets have become focussed on the cyclical and structural demand outlook for crude and are less worried about geopolitics, although the latter can still drive volatility. The October 2 OPEC decision is also making participants nervous. The USD index is down 0.1% today.

• The EIA reported a US crude drawdown of 846k barrels last week, which was larger than expected. There has been a build in only one week since the start of July. Gasoline stocks fell 2.2mn but distillate rose 275k. The data continue to point to robust US demand.
• Goldman Sachs and Morgan Stanley have cut their 2025 crude forecasts due to soft demand from China related to the economy but also the switch to EVs, according to Bloomberg. It is the world’s largest oil importer. These trends are also likely to impact European demand.
• A Bloomberg survey found that the majority of respondents believe that China won’t achieve its 2024 growth target of 5%. Another poll showed that analysts are split on whether OPEC will reduce its output cuts as planned from October.
• Later the Fed’s Bostic and ECB’s Lane speak. US revised Q2 GDP, July trade & inventories and jobless claims print, as well as the European Commission survey for August.

GOLD: Weighed By Dollar Strength Yesterday But Stronger So far Today

Gold is 0.4% higher in today’s Asia-Pac session. This comes after it closed 0.8% lower at $2504.61 on Wednesday, amidst US dollar strength.

• Bullion has rallied this year, with recent gains supported by expectations that the Federal Reserve is poised to lower borrowing costs. Fed Chair Jerome Powell said last week that the “time has come” to ease, although other officials including Fed Bank of Atlanta President Raphael Bostic have struck a slightly more cautious tone. Lower rates are typically positive for gold, which doesn’t pay interest.
• From a technical perspective, bullish conditions in gold remain intact, with a focus on a climb towards $2,536.4 next, a Fibonacci projection. Initial support to watch lies at $2,475.4, the 20-day EMA. Short-term weakness would be considered corrective.
• Meanwhile, silver has underperformed, falling by 2.3%. For silver, a medium-term bearish cycle is still intact and recent gains appear to be a correction - for now.
• Key support is seen at $26.018, the May 2 low, while on the upside the 50-day EMA has been cleared and is a concern for bears. A continuation higher would cancel the bearish theme and expose $30.502 next, a Fibonacci retracement.