MNI EUROPEAN OPEN:  Oil Retains Most Of Recent Gains As Supply Uncertainty At The Fore

US TSYS: Tsys Futures Edge Lower Ahead Of Tsys Auctions

• Treasury futures have edged slightly lower throughout the session, although ranges have been tight while volumes have been largely roll based. TUU4 is - 00+ at 103-10¼, while TYU4 is - 02+ at 113-16+
• Cash treasury yields are flat to 1bp higher, with the 2yr yield +0.1bp at 3.937, while the 10yr yield is trading near yearly lows at 3.824%.
• Fed funds futures are currently pricing in 32bps of cuts for the September meeting, pricing has softened 3-4bps into year-end with 99.5bps of cuts now priced for the December meeting.
• Treasury auction cycle begins later today with $69b 2-year note, while $70b 5-year and $44b 7-year following later in the week, at current levels all three auctions would be the lowest-yielding ones in more than a year.
• Today, we have housing Data, Consumer Confidence, regional Fed data from Dallas and Richmond Fed.

JGBS: Cash Bond Bull Flattener, Light Local Calendar Tomorrow

JGB futures are holding slightly negative, -9 compared to settlement levels, after dealing in a narrow range in today’s Tokyo session.

• Outside of the previously outlined PPI Services data, there hasn't been much in the way of domestic drivers to flag.
• The BoJ is likely to raise interest rates to 0.5% in December from 0.25% amid improvements in inflation-adjusted wages, Okasan Securities economist Ko Nakayama says in a research note. (as per DJ)
• "If the Bank of Japan is becoming more confident about the virtuous cycle of prices and wages, it is likely to raise policy interest rates by 25 basis points every six months, while paying attention to the impact on the markets."
• Cash US tsys are little changed in today’s Asia-Pac session after being slightly richer earlier.
• The cash JGB curve has bull-flattened, with yields flat to 2bps lower. The benchmark 10-year yield is 0.5bps lower at 0.887% versus the cycle high of 1.108%.
• Later today will see an Enhanced-Liquidity Auction for 15.5-39-year OTR JGBs.
• Swap rates are flat to 1bp higher. Swap spreads are wider.
• Tomorrow, the local calendar is empty apart from BoJ Rinban Operations covering 3-25-year+ and Inflation-Indexed JGBs.

AUSSIE BONDS: At Sydney Session Cheaps, CPI Monthly Data Due Tomorrow

ACGBs (YM -4.0 & XM -3.5) are weaker and near session cheaps on another data-light Sydney session.

• The highlight of the local calendar this week comes tomorrow in the form of July CPI Monthly data. July CPI data is expected to ease to 3.4% y/y from 3.8% but won’t include an update of most services components. This outcome requires the CPI to fall on the month. The moderation is expected to be driven by lower food inflation and an outright fall in petrol prices, as well as government cost-of-living measures.
• Q2 Construction Work Done is also due for release tomorrow.
• Cash US tsys are flat to 1bp cheaper in today’s Asia-Pac session after being slightly richer earlier.
• Cash ACGBs are 5-6bps cheaper, with the AU-US 10-year yield differential at +9bps.
• Swap rates are 3-4bps higher, with EFPs tighter.
• The bills strip is slightly cheaper, with pricing -2 to -4.
• RBA-dated OIS pricing is flat to 4bps firmer across meetings, with Aug-25 leading. A cumulative 25bps of easing is priced by year-end.
• Tomorrow, the AOFM plans to sell A$800mn of the 3.50% 21 December 2034 bond. There is a planned sale of A$700mn of the 2.75% 21 November 2029 bond on Friday.

NZGBS: Closed On A Weak Note, NZ-US 10Y Diff Too Wide

NZGBs closed on a weak note, with benchmark yields 4-5 bps higher. With the domestic calendar empty today, the move reflects the cheapening in US tsys over the past 24 hours.

• The NZ-US 10-year yield differential currently stands at +40 bps, up from its late July low of +14 bps, which was the narrowest level since late 2022. Before this, the differential had fluctuated between +20 and +80 bps since late 2022.
• The recent widening of the 10-year yield differential aligns with an increase in the NZ-US 1Y3M spread. However, a simple regression analysis over the current tightening cycle suggests that the 10-year yield differential is about 14 bps wider than fair value, which would be +26 bps instead of the current +40 bps.
• Swap rates closed 3-5 bps higher, with the 2s10s curve steeper.
• RBNZ dated OIS pricing closed 1-7 bps firmer across meetings. A cumulative 73 bps of easing is priced by year-end.
• Tomorrow, the local calendar will see Filled Jobs data ahead of ANZ Business Confidence on Thursday, and ANZ Consumer Confidence and Building Permits on Friday.
• On Thursday, the NZ Treasury plans to sell NZ$250mn of the 4.50% May-30 bond, NZ$200mn of the 4.50% May-35 bond and NZ$50mn of the 2.75% May-51 bond.

FOREX: Yen Lags A$, NZD Amid Higher Commodities, But Aggregate Moves Modest

The USD BBDXY index sits little changed in the first part of Tuesday trade, last near 1226.6. There has been some cross G10 trends, with JPY underperforming the likes of AUD and NZD, but aggregate moves remain modest at this stage.

• USD/JPY was weaker in the first part of trade, but support was seen at lows in the 144.20/25 region. We last tracked near 144.70. On the topside we have been unable to break above 145.00.
• Cross asset wise, US yields are closed to unchanged, with US equity futures displaying a similar backdrop. Regional equities have been mixed, with HK/China slightly softer.
• A firmer commodity backdrop, with oil retaining most of its Monday gain, and firmer metals may be lending some support to the likes of AUD/ AUD/USD is up 0.15%, last 0.6780/85. This leaves us close to key resistance near 0.6800.
• NZD/USD is slightly firmer, last near 0.6220, but short of recent highs close to 0.6240.
• On the data front Japan services PPI was a touch weaker than projected, but market reaction at the time was minimal. China profits data was above the June outcome in y/y terms, but again market impact was negligible.
• Looking ahead, the second estimate of Q2 German GDP is out. Later there are US house price data and August consumer confidence and Richmond & Dallas activity indices.

ASIA STOCKS: Asian Equities Weigh Down By Weaker Tech Prices

Asian equities fell today, driven by weakness in major tech stocks ahead of Nvidia's earnings report, with concerns over artificial intelligence demand and disappointing results from Chinese e-commerce firm PDD weighing on sentiment. The MSCI Asia Pacific Index declined, led by losses in Hong Kong, mainland China, Taiwan, and South Korea. Meanwhile, the growing chances of an upcoming US rate cuts and a weaker dollar provided some support, especially for Japanese equities, which benefited from a firmer yen with small-cap stocks performing the best. Overall, markets are in consolidation mode after recent gains, with attention focused on upcoming corporate earnings and central bank actions.

• Japanese equities traded mixed today, with modest gains in small-cap and domestic-oriented firms driven by a stronger yen, which shifted investor focus towards local companies like retailers and information-system vendors. While the broader Topix Index outperformed, blue-chip stocks in the Nikkei 225 faced some pressure, reflecting a rotational trade within the market. Investor sentiment was cautious overall, as the broader Asian market struggled due to weakness in technology stocks and concerns over slowing demand in the artificial intelligence sector ahead of Nvidia's earnings report. Despite these concerns, Japan’s market showed relative resilience, supported by expectations of U.S. Federal Reserve rate cuts, which could benefit Japanese companies with a stronger yen and more stable economic outlook.
• Taiwanese equities declined, led by losses in technology stocks as concerns over the sustainability of artificial intelligence demand weighed on the market. Companies like TSMC were among the biggest drags (-0.75%), reflecting broader caution in the tech sector ahead of Nvidia’s highly anticipated earnings report. Investors are also cautious due to mixed signals from global markets, with the potential for U.S. rate cuts providing some support but not enough to offset worries about slowing growth in key sectors. The Taiex is currently down 0.46%.
• South Korean stocks fell, driven by weakness in semiconductor and technology shares, mirroring declines in global tech markets. Concerns about the future demand for AI-related products, coupled with a broader tech sell-off, pressured key companies like Samsung (-0.26%) and SK Hynix (-3.10%). the KOSPI is 0.35% lower, while the KOSDAQ is down 0.50%
• Australian equities are slightly lower today with strong performances in the mining and energy sectors in particular BHP and Woodside Energy leading the gains. Woodside advanced over 4% after reporting first-half net income that exceeded analyst expectations while BHP shares also rose by as much as 2.7%, buoyed by better-than-expected underlying profit and a robust dividend, gains have been offset by losses in financials. New Zealand equities are down 1% with healthcare contributing the most to the loses.
• In Asia EM, Indonesia's JCI is down 0.60%, Thailand's SET is down 0.05%, Singapore Straits Times is down 0.30%, while Malaysia's KLCI is 0.70% higher and Philippines PSEi is 0.30% higher.

OIL:  Crude Retains Most Of Recent Gains As Supply Uncertainty At The Fore

Oil prices are moderately lower during APAC trading today after rallying strongly since Thursday on Fed cut optimism and geopolitical issues. WTI is down 0.3% to $77.17/bbl off the intraday low of $76.85, and Brent is 0.2% lower at $81.25 following a trough of $80.92. The USD index is flat.

• Focus has now shifted to the supply side with developments in Libya, tensions between Iran and Israel, a tanker adrift in the Red Sea after Houthi strikes and low US inventories. Industry data is out later today with official EIA numbers on Wednesday. A Reuters’ poll is forecasting another drop in US EIA stocks.
• Libya’s eastern government in Benghazi closed its oil fields and halted exports to protest the government in Tripoli’s control of the central bank, which manages the country’s oil revenues. If there is another civil war, Libyan oil output could fall to zero. It is currently 1mbd down from 1.18mbd in July. All but one of the major fields are in eastern Libya.
• Later there are US house price data and August consumer confidence and Richmond & Dallas activity indices. There is also the second estimate of Q2 German GDP.

GOLD: Choppy Start To Week

Gold is 0.4% lower in today’s Asia-Pac session. This comes after both spot gold and silver largely ignored the moderate uptick for the US dollar yesterday. Bullion traded 0.2% higher, extending Friday’s rally.

• Gold’s underlying bullish trend saw the yellow metal print fresh all-time highs last week.
• Yesterday US Treasuries largely consolidated their move richer following Chair Powell’s Jackson Hole speech ahead of the weekend. With little on the data docket until Thursday's claims data, the market took a breather.
• SF Fed Daly sounded a little more cautious over the pace/size of rate cuts while generally echoing Chairman Powell's "the time is now" opinion from Jackson Hole.
• Lower rates are typically positive for gold, which doesn’t pay interest.