MNI EUROPEAN OPEN: Tech Equity Led Sell Off Dominates

US TSYS: Tsys Futures Edge Higher, 10yr Yield Nears 3.80%

• Treasury futures have edged slightly higher today, although we remain within Tuesday's ranges. There was an earlier small jump after the VIX jumped and equities sold off. Japanese tech stocks were the worst performing, as the yen strengthened.
• TUZ4 is +0-01⅞+ at 103-28⅞ while TYZ4 is +0-05 at 114-05.
• Cash treasury curves have steepened today, although we remain in tight ranges with yields flat to 2bps lower. The 2yr is -0.8bps at 3.855%, while the 10yr is -0.6bps at 3.825%. The 2s10s is little changed today at -3.348.
• Projected rate cut pricing through year end has firmed 1bps vs. early Tuesday levels: Sep'24 cumulative -35.2bp (-34.4bp), Nov'24 cumulative -69.1bp (-67.6bp), Dec'24 -103bp (-102.5bp)
• The major focus this week is on Nonfarms on Friday, later today we will get Trade Balance, MBA Mortgage Applications & JOLTS job openings, while Bank Of Canada rate decision will also be watched.

JGBS: Cash Bonds Richer Across Curve, BoJ Takata Speech Tomorrow

JGB futures are stronger and near session highs, +41 compared to the settlement levels.

• Outside of the previously outlined Jibun Bank PMIs, there hasn't been much by way of domestic drivers to flag.
• Cash US tsys are slightly richer in today’s Asia-Pacific session after yesterday’s solid risk-off-induced gains. The major focus in the US this week is Nonfarm Payrolls on Friday. Later today we will get Trade Balance, MBA Mortgage Applications & JOLTS job openings, while the Bank Of Canada rate decision will also be watched.
• Cash JGBs are flat to 4bps richer across benchmarks, with the futures-linked 7-year leading. The benchmark 10-year yield is 3.9bps lower at 0.888% versus the cycle high of 1.108%.
• Swap rates are 1-2bps lower out to the 30-year and flat beyond. Swap spreads are mixed.
• Tomorrow, the local calendar will see Labor & Real Cash Earnings and Weekly International Investment Flow data alongside 30-year supply.
• BoJ Board Member Takata will also give a speech in Ishikawa.

AUSSIE BONDS: Richer & Near Highs, RBA Bullock Speech Tomorrow

ACGBs (YM +6.0 & XM +6.5) are holding stronger and near session highs.

• Q2 GDP was close to expectations rising 0.2% q/q to be up 1% y/y, the slowest since the Covid-impacted Q3 2020 and excluding that period Q4 1991. As expected, growth was driven by public demand and net exports, while private consumption, inventories and private capex were all drags. The headline result was in line with the RBA’s August forecast. Accordingly, it shouldn't impact the current ‘on hold’ stance.
• Cash US tsys are slightly richer in today’s Asia-Pacific session after yesterday’s solid risk-off-induced gains. The major focus in the US this week is Nonfarm Payrolls on Friday. Later today we will get Trade Balance, MBA Mortgage Applications & JOLTS job openings, while the Bank Of Canada rate decision will also be watched.
• Cash ACGBs are 5-6bps richer, with the AU-US 10-year yield differential at +11bps.
• Swap rates are 6-8bps lower, with the 3s10s curve flatter.
• The bills strip has bull-flattened, with pricing flat to +7.
• RBA-dated OIS pricing is 1-9bps softer across meetings. A cumulative 19bps of easing is priced by year-end.
• Tomorrow, the local calendar will see Trade Balance data and a speech from RBA Governor Bullock at the Anika Foundation Lunch. 

NZGBS: Closed Richer & Near Session Highs

NZGBs closed 7-9bps richer across benchmarks as global bond markets reacted to the current bout of risk-off sentiment. 

• NZ July New Lending rose 19% m/m in July says RBNZ.
• NZ commodity export prices rose 2.1% from a month earlier in August, with dairy seeing the largest increase, according to the ANZ Commodity Price Index report.
• Cash US tsys are slightly richer in today’s Asia-Pacific session after yesterday’s solid risk-off-induced gains. The major focus in the US this week is Nonfarm Payrolls on Friday. Later today we will get Trade Balance, MBA Mortgage Applications & JOLTS job openings, while the Bank Of Canada rate decision will also be watched.
• Swap rates are 9-10bps lower, with the 2s10s curve little changed.
• RBNZ-dated OIS pricing is 1-8bps richer across 2025 meetings. A cumulative 73bps of easing is priced by year-end.
• Tomorrow, the local calendar will see CoreLogic Home Values alongside the NZ Treasury’s planned sale of NZ$225mn of the 4.50% May-30 bond, NZ$225mn of the 4.25% May-34 bond and NZ$50mn of the 1.75% May-41 bond.

FOREX: Safe Havens Outperformance Limited, Equity & Oil Trends Eyed

The USD BBDXY index sits down a touch from end Tuesday levels, last near 1235.5, off around 0.15%. In the G10 space, EUR and CHF are a touch higher, likewise for JPY. AUD and NZD are off slightly but up from session lows. 

• Early focus was on USD/JPY downside, with the pair seeing a brief dip sub 145.00 but we quickly recovered (the pair last near 145.30). An option expiry for NY cut at 145.00 later may be influencing spot trends today.
• Still, FX options volumes has been dominated by USD/JPY downside, with a number of $100mn notional trades going through per DTCC (strikes between 140-145.00)
• We have seen weaker US equity futures, breaking below Tuesday lows, but after that sentiment stabilized somewhat. Eminis last -0.50%, Nasdaq futures off 0.63%. WTI prices slipped under $70/bbl, but follow through has been limited. US yields are relatively steady.
• This has likely helped curb risk off trends in the FX space. AUD/JPY got to lows near 97.00, but sits back near 97.50 in latest dealings.
• AUD/USD got to lows of 0.6686, but sits back above 0.6700 now. Q2 GDP headline figures for Australia were close to expectations, albeit with positive revisions. Still, the private domestic economy was quite weak. NZD/USD holds sub 0.6185 in latest dealings.
• Looking ahead we have ECB speak and the Bank of Canada decision (a 25bps cut is expected). In the US the focus will be on the JOLTS jobs data. 

ASIA STOCKS: China & HK Equities Outperform Wider Asian Markets

China and Hong Kong equities are lower today, though they are faring better than other Asian markets. The CSI 300 is down less than 0.5%, making it a relative outperformer, while the HSI has dropped about 1.1%. The decline in these markets comes in the wake of a tech-led selloff on Wall Street, exacerbated by concerns over the US economy and weaker factory activity data. Earlier Caixin PMI missed estimates, while S&P Global Hong Kong PMI dropped slightly to 49.4 vs 49.5 prior.

• Major Indices in the region are holding up much better than the wider Asian markets in Hong Kong the Mainland Property Index is down just 0.62%, HS Property Index is down 1%, while in China the CSI 300 Real Estate Index is 1% lower, CSI 300 Tech is 0.90% lower, whiel the CSI EV Index is trading 1.30% higher.
• China's services sector grew less than expected in August, with the CAIXIN PMI Services falling to 51.6 from 52.1 in July, missing the forecast of 51.8. The IMF has pointed out that China's services sector is an "underutilized driver of growth" compared to peers. Despite policy efforts to support the slowing economy, the impact has been minimal, and concerns are growing, especially with the ongoing decline in the real estate sector negatively affecting consumer behavior.
• Some Chinese banks have experienced an increase in NPLs in their retail lending businesses during the first half of the year, though the overall asset quality remains stable, according to China Securities Journal. Competition for consumer and business loans has intensified, with nine banks reporting a rise in NPL ratios compared to the end of last year. Bank of Xi'an saw its NPL ratio increase by 0.37 percentage points to 1.72% by the end of June. Despite these rises, the risks in retail loans are considered manageable, per BBG.
• There is little else on the calendar for the region this week with China CPI expected on Monday.

ASIA PAC STOCKS: Equities Track US Peers Lower, Tech Hit Hardest

Asian equity markets are under significant pressure today, with major indices experiencing steep declines driven by a combination of Wall Street's sharp selloff and a stronger yen, which is dampening demand for Japanese exports. The Nikkei 225 and Topix are leading the downturn, dragged down by semiconductor stocks like Renesas and Socionext after Nvidia's extended losses following a US Justice Department subpoena. Broader concerns about the global economy, fueled by disappointing US manufacturing data and sliding oil prices, are exacerbating the risk-off sentiment across the region. Other major markets, including South Korea, Taiwan, and Australia, are also seeing substantial losses as investor focus shifts to potential economic slowdowns and higher borrowing costs.

• Japanese equities are lower across the board, consumer staples is the top performing sector with 22% of stocks trading higher, the TOPIX is down 2.75%, with banks contributing the most to the losses the TOPIX Banks Index is down 3.70%. The Nikkei 225 is trading down 3.30%, with tech stocks the largest contributors to the fall.
• Taiwan's Taiex is trading 3.60% lower today, with TSMC down 4.15% & Hon Hai down 2.70% contributing the most to the losses. Tomorrow we have Taiwan's CPI, which is expected to show a drop to 2.27% for August from 2.52% in July according to bbg consensus.
• South Korean equities are faring slightly better than Japan & Taiwan, although still struggling. Samsung is off 2.76%, SK Hynix is off 6.80%, while the KOSPI is down 2.60% and the KOSDAQ is down 3.15%. Tomorrow we have 2Q GDP with consensus at 2.3% in line with Q1.
• Australia's ASX 200 is down 2%, Mining and energy shares are among the hardest hit, reflecting worries about demand and oversupply in commodities, while Financials are tracking Asian peers lower. Earlier, Q2 GDP was close to expectations rising 0.2% q/q to be up 1% y/y, the slowest since the Covid-impacted Q3 2020 and excluding that period Q4 1991.

OIL: Crude Continues To Fall With Little To Support Prices

Oil prices fell sharply on Tuesday and have continued to sell off during APAC today. WTI has been trading below $70 and is currently down 0.6% to $69.92/bbl, today’s low of $69.72 is only a touch above the 2024 trough in early January. Brent is down 0.5% to $73.38/bbl after a low of $73.14 – a new trough for 2024 and the lowest since mid-2023. The USD index is down 0.1%.

• Weak risk sentiment has weighed again on oil prices but so too have persistent concerns over excess supply if OPEC begins to gradually increase output from October. But if prices remain around these levels, then there will likely be pressure for the group to delay the unwinding of its output cuts. It has voiced flexibility around the plan.
• Libya’s central bank believes that an agreement can be reached soon that will allow the country’s oil output to resume to usual levels after a political dispute cut it sharply.
• Algorithmic selling has exacerbated the sharp move down in oil prices seen this month.
• With the market so focussed on supply/demand developments, the US industry inventory data out later today and the official EIA numbers on Thursday are likely to be watched closely. Recently they have been signalling robust US demand.
• Later the Fed’s Beige book is released and July JOLTS job openings, durable goods orders and trade balance print. The ECB’s Elderson speaks, European August services/composite PMIs are released and the BoC decision is announced. Friday’s US payrolls will be a focus for crude markets as they await Fed easing to support demand. 

GOLD: Hovering Just Below $2500

Gold is slightly stronger in today’s Asia-Pac session, after closing 0.3% lower at $2492.91 on Tuesday. 

• Bullion hovered just under the $2500 mark as the market succumbed to a broad-based sell-off in commodities on Tuesday stoked by growth concerns.
• US Treasury yields declined alongside lower US equities, with the 2-year yield reaching a low of 3.84%, before finishing 5bps lower at 3.86%. The yield curve flattened modestly with the 10-year yield down 7bps to 3.83%.
• Projected US rate cut pricing through year-end firmed 1-2bps vs. Friday close levels: Sep'24 cumulative -35bps (-33bps), Nov'24 cumulative -68bps (-66bps), Dec'24 -102bps (-100bps).
• Lower rates are typically positive for gold, which doesn’t pay interest.
• According to MNI’s technicals team, trend conditions in gold remain bullish, with focus on a climb towards $2,536.4 next, a Fibonacci projection. Initial support to watch lies at $2,484.0, the 20-day EMA, which was pierced earlier in the session. A pullback would be considered corrective.