US TSYS: Curve Marginally Flatter In Asia

TYZ3 deals at 107-07+, +0-12, a 0-09 range has been observed on volume of ~166k.

• Cash tsys sit 1bp cheaper to 3bps richer across the major benchmarks, the curve has twist flattened pivoting on 5s.
• Tsys extended their post-FOMC bid in early Asian dealing as local participants digested the FOMC rate hold and Chairman Powell's remarks, this was seen alongside pressure on the USD and a bid in US Equity futures.
• The short end was pressured through the session erasing early gains, perhaps the rise in Oil prices weighed. WTI was up ~1%.
• FOMC dated OIS now price a terminal rate of 5.40% in January with ~70bps of cuts by September 2024.
• The latest monetary policy decision from the Bank of England headlines in Europe, further out we have US factory orders, initial jobless claims and productivity.

JGBS: Futures Remain Stronger But 10YY Higher After Weak Demand Seen At Today’s Auction

JGB futures are holding sharply stronger, +30 compared to settlement levels, but are off the session's best level.

• In addition to the previously outlined international investment flow and monetary base data, the key domestic event today was the latest 10-year supply. The 10-year JGB auction saw mixed demand metrics, with the low price meeting wider but the tail lengthening, and the cover ratio printing the second lowest level seen at a 10-year auction since Aug’22.
• Interestingly, the simultaneous occurrence of a cycle high in the outright yield, a steep 2/10 yield curve, and the relative cheapness of 10-year JGBs versus futures with a 7-year maturity hasn't been sufficient to alleviate investor concerns regarding the BOJ's newly introduced flexible YCC framework.
• The cash JGB curve has maintained its bull-flattening, beyond the 1-year, in the afternoon session, with yields 1.2bp to 3.4bps lower. The benchmark 10-year yield is 3.4bps lower at 0.927% versus yesterday’s cycle high of 0.974% and the BOJ's 1% YCC reference rate. The 10-year is around 1.5bps higher in post-auction dealings.
• The swaps curve has also bull-flattened, with swap spreads wider out to the 20-year and tighter beyond.
• Tomorrow, the local market is closed for the Culture Day holiday.

AUSSIE BONDS: Sharply Higher But Off Bests After Poor 10Y JGB Auction

ACGBs (YM +11.0 & XM +15.0) remain sharply richer but have moved off the session’s best levels in recent dealings. This recent move appears to have been primarily due to higher JGB yields, following underwhelming demand metrics observed at today's 10-year auction. US tsys have also reacted to JGBs, with yields 1bp higher to 3bps lower on the day but 1-2bp higher than earlier levels.

• There hasn’t been much in the way of domestic drivers to flag, outside of the previously outlined trade balance and home loans data.
• Cash ACGBs are 10-15bps richer, with the AU-US 10-year yield differential 4bps wider at +8bps.
• Swap rates are 10-15bps lower, with the 3s10s curve flatter.
• The bills strip has bull-flattened, with pricing +2 to +12.
• RBA-dated OIS pricing is 1-7bps softer across 2024 meetings, with Dec’24 leading.
• Tomorrow, the local calendar sees Judo Bank Australia Composite and Services PMIs, and Q3 Retail Sales Ex Inflation data.
• RBA Assistant Governor (Financial System) Jones is a panel participant at The Regulators 2023 (FINSIA) conference.
• The latest monetary policy decision from the BOE headlines in Europe. Further out, the US calendar sees US factory orders, initial jobless claims and productivity.

NZGBS: Very Strong Into The Close, Expected Terminal OCR At 5.55%

NZGBs closed on a very strong note, with yields 11-25bps lower across benchmarks. The move reflected the very strong lead-in from the NY session, with US tsys 14-21bps richer. That move has extended in today’s Asia-Pac session, with yields flat to 3bps lower across benchmarks as local participants digested Fed Chair Powell’s remark that the Fed had come “very far” with the rate hiking cycle.

• Strong demand metrics at today’s weekly bond auctions for the May-30 and May-34 bonds likely assisted today’s move. Cover ratios were 4.65x and 3.96x, respectively. However, the May-51 bond saw subdued demand, with a cover of 2.35x.
• The 10-year JGB has seen its yield rise since the NZ market close, primarily due to underwhelming demand metrics observed at today's 10-year auction. Depending on the developments during the remaining part of the JGB trading session, the local market may react at tomorrow’s opening.
• Swap rates closed 12-20bps lower, with the 2s10s flatter. The implied long-end swap spread was 5bps wider.
• RBNZ dated OIS pricing closed 1-12bps softer across meetings, with Oct’24 leading. Terminal OCR expectations softened to 5.55%.
• Tomorrow the local data calendar is empty, with RBNZ Governor Orr’s speech on Climate Change Response as the highlight.

FOREX: Post-FOMC Pressure On USD Extends In Asia

The pressure seen on the USD post FOMC on Wednesday has extended on Thursday, BBDXY is down ~0.3%. The Antipodeans are leading the bid in the G-10 space. US Equity futures are firmer and Tsy Yields have ticked lower. Regional Equities are also higher, the Hang Seng is up ~1%.

• Kiwi is the strongest performer in the G-10 space at the margins. NZD/USD is up ~0.7% last printing at $0.5885/90. Bull's immediate focus is on holding above the 20-Day EMA ($0.5870) to target the high from 10 Oct ($0.6049).
• AUD/USD is up ~0.6%, firming above the $0.64 handle this morning. The pair has cleared the 50-Day EMA ($0.6404), the next target for bulls is $0.6445 high from Oct 11.
• Yen is ~0.4% firmer, however USD/JPY remains well above the ¥150 handle. Support comes in at the 20-Day EMA ¥149.66.
• Elsewhere in G-10, CHF is up ~0.5%, however liquidity is generally poor in Asia.
• In Europe today the latest monetary policy decision from the Bank of England provides the highlight.

EQUITIES: Eminis Track Higher To 200-day MA, China Real Estate Index Continues To Struggle

Equity sentiment is positive across the Asia Pac region in Thursday trade, although China markets are only modestly firmer at this stage. Most focus has been on digesting the Fed outcome from Wednesday. US equity futures are higher, following positive gains on Wednesday. Eminis sit near 4266, +0.25% in latest dealings. This puts the active contract back to the simple 200-day MA. Nasdaq futures are slightly higher at +0.40%.

• Some of the stand out gains today have been in tech sensitive countries. The Kospi is +1.80%, the Kosdaq +4.2% in South Korea. The Taiex is up 2%. Tech outperformance is in line with sensitivity to US yield movements/Fed outlook.
• In Hong Kong the Tech sub index is +2.30% higher at the break, the headline HSI +1.20%, although this is away from earlier highs. Japan markets are lagging somewhat, but still in positive territory (Topix +0.30%).
• Mainland China shares are a touch higher at the break (CSI 300 +0.1%). This is down from earlier highs. The real estate sub index is down modestly further. This sub-index is at fresh multi-year lows. The PBoC reported outstanding property loans contracted (on an annual basis) for the first time in September (BBG).
• In SEA, Indonesia's JCI is the standout, +1.8%, while Thailand's SET is +1.25%. More modest gains are evident for bourses in Singapore, Malaysia and the Philippines.

OIL: Crude Higher In APAC Trade Supported By Fed Tone

Oil prices are around a percent higher in APAC trading today helped by further dollar softness and better risk appetite following a more dovish Fed press conference. They have been down each of the last three days. The USD index is down 0.3% after -0.2% yesterday. WTI is around $81.24, close to the intraday high of $81.53. Brent is trading at $85.43 after a high of $85.71.

• There are signs that the market is easing with EIA reporting a crude stock build in the US in the latest week and the prompt spread has narrowed. But according to Woodmac data, European inventories are at seasonal decade low. The demand outlook, especially in the US and China, will continue to be a focus while the Middle East conflict seems contained. Attention now turns to Friday’s US payrolls.
• Later the Fed’s Paese gives welcoming remarks. On the data front, US Q3 unit labour costs, September orders and October Challenger job cuts print. Also the ECB’s Lane and Schnabel speak, the BoE decision is announced and European manufacturing PMIs released.

GOLD: Third Day Of Declines Despite Fed Chair Powell’s Hint Tightening May Be Over

Gold is little changed in the Asia-Pac session, after closing 0.1% lower at $1982.53 on Wednesday. Bullion closed lower for the third straight day, despite lower US Treasury yields following Fed Chair Powell’s hint that it may be finished with the tightening cycle.

• When discussing whether every meeting is "live", Chair Powell said, "We are going meeting by meeting, asking ourselves whether we achieved a stance of policy sufficiently restrictive to bring inflation down 2% over time" and "We have come very far with this rate hiking cycle, very far."
• US tsys reacted favourably to Powell’s remarks, rallying 14-21bps across benchmarks.
• Earlier in the NY session, US tsys shifted richer after lower-than-expected ADP private jobs data (113k vs. 150k est, 89k prior). This move extended after weaker-than-expected ISM data: Mfg (46.7 vs. 49.0 est), Employ (46.8 vs. 50.6 est), New Orders (45.5 vs. 49.8 est) and Prices Paid (45.1 vs 45.0 est).
• From a technical standpoint, gold’s current level neither troubles support at $1947.0 (20-day EMA) or resistance at $2009.4 (Oct 27 high).