MNI EUROPEAN OPEN: US 2yr Yield At Multi-Month Lows On Risk Off/Easing Expectations

US TSYS: Tsys Futures Higher Ahead Of GDP, Curve Least Inverted This Year

• Treasury futures have edged slightly higher throughout with the front-end out-performing again which has been helped by multiple block steepener trades going through. Futures are trading at session's best with TU + 02⅝ at 102-19⅜, while TY trades + 05 at 110-26+.
• Tsys flows: Sellers of TY 109.5 puts, 0'18 x6000, Buyer TYU4 111/112 Call spread, 0'22 x12,000. Multiple Block Steepener trades 2x FV/TY DV01 330k & FV/US DV01 525k
• The tsy curve has bull-steepened today with yields 1-4.5bps lower. The 2y is -4.1bps at 4.389%, while the 10y is -2.2bps at 4.262%
• The 2s10s continues to trade higher last +2.176 at -12.927, the least inverted this year.
• Projected rate cut pricing into year end are gained vs. this morning's levels (*): July'24 at -5.5% w/ cumulative at -1.4bp at 5.315%, Sep'24 cumulative -27.3bp (-25bp), Nov'24 cumulative -42.8bp (-40.1bp), Dec'24 -65.3bp (-62.8bp).
• looking ahead we have GDP, Core PCE Weekly Claims and 7Y Note Sale

JGBS: Cash Bonds Twist-Flatten, Hike Fears Pressure Short-End, Tokyo CPI Tomorrow

JGB futures are slightly weaker, -3 compared to the settlement levels, but at Tokyo session highs.

• Outside of the previously outlined PPI Services and International Investment Flow data, there hasn't been much in the way of domestic data drivers to flag.
• Accordingly, the rally in longer-dated JGBs appears to have been driven by equity and USDJPY weakness. Recent moves have added more evidence to the argument that carry-trade dynamics that dominated much of this year's currency trade are starting to reverse.
• Cash US tsys are 1-4bps richer, with a steepening bias, in today’s Asia-Pac session after yesterday’s twist-steepening.
• However, JGB yields out the 5-year remain higher following the Reuters report that the BoJ was set to consider a hike at next week’s meeting in addition to providing a plan to taper bond buying. Benchmark yields are 2bps higher to 3bp lower.
• The benchmark 10-year yield is 0.8bp lower at 1.073% versus the cycle high of 1.108%.
• Swaps are dealing mixed across maturities, with 1- and 40-year rates ~1bp higher and 10- to 30-year rates ~2bps lower. Swap spreads are mixed.
• Tomorrow, the local calendar will see Tokyo CPI data, Leading & Coincident Indices and 2-year supply.

AUSSIE BONDS: Bull-Steepener As Cash US Tsys Richen On Equity & USDJPY Weakness

ACGBs (YM +6.0 & XM +1.0) are richer and near Sydney session highs. With the domestic data calendar light, today’s local market movements appear to have been driven by offshore factors. First, cash US tsys are 2-4bps richer in today’s Asia-Pac session, with equity and USDJPY weakness as the catalysts.

• Secondly, the PBoC, in an unscheduled operation, announced that the 1-year MLF rate has been lowered to 2.3% from 2.5% prior. This was the first reduction in the rate since August last year. Today’s move was in line with cuts in the 7-day repo rate and the Loan prime rate earlier in the week.
• Cash ACGBs are 1-6bps richer, with the AU-US 10-year yield differential 4bps lower at +5bps. The current level for the differential places it near the middle of the +/- 30bps range it has traded in since November 2022.
• The swap curve has bull-steepened, with rates 2-6bps lower.
• The bills strip has bull-flattened, with pricing +1 to +7.
• RBA-dated OIS pricing is 2-7bps softer across meetings, with 2025 leading. Terminal rate expectations are 2bps lower at 4.40%.
• The local calendar is empty tomorrow, with the next key release being Building Approvals on Tuesday.

NZGBS: Twist-Steepening, 75bps Of Cuts By Year-End

The NZGB curve twist-steepened, with benchmark yields closing 1bp lower to 2bp higher. In the absence of domestic drivers, the move away from the morning’s cheaps appears to have been fueled by a 2-4bp richening in cash US tsys in today’s Asia-Pac session. With news flow light, equity and USDJPY weakness appears to have been in the driving seat.

• The PBoC’s unscheduled lowering of the 1-year MLF rate from 2.5% to 2.3% also likely provided support.
• Today’s weekly supply was adequately absorbed, with cover ratios ranging from 2.16x to 2.59x.
• On a relative basis, the NZ-US and NZ-AU 10-year yield differentials continue to hover around their lowest levels since late 2022 at +16bps and +11bps respectively.
• The 2s10s swaps curve has bull-steepened, with rates flat to 4bps lower.
• RBNZ dated OIS pricing closed relatively stable out to November but showed a 4-11bps softening for 2025 meetings.
• Today’s moves have resulted in a softening across meetings beyond August, ranging from 25 to 71bps compared to pre-RBNZ decision levels.
• A 56% chance of a rate cut in August is currently priced in, with a cumulative 92% chance of a cut by October, before expectations jump sharply to three 25 bps cuts by year-end.
• Tomorrow, the local calendar will see ANZ Consumer Confidence data.

FOREX: AUD/JPY Sub 100.00, As Metal Losses Continue, JPY TWI Rebound Continues

Safe haven gains again dominate the G10 FX space. USD/JPY fell to 152.23, but we sit slightly higher in latest dealings, last around 152.65, still around 0.80% strong in yen terms. The CHF is the only other major firmer against the USD, up 0.25% at this stage.

• The BBDXY USD is down slightly to 1256.1, largely owing to yen gains. Broader macro trends continue to support then yen, with negative equity trends weighing heavily on Asia Pac markets today. Fresh policy stimulus in terms of the 20bps MLF cut in China hasn't shifted the sentiment needle.
• Further weakness in metals prices, with copper and iron ore down around 1% each, has weighed on AUD/JPY, which has fallen below 100.00. Current levels are very close to the 200-day MA, around 99.83.
• AUD/USD is tracking to 0.6540, fresh lows back to the start of May and sub key support (0.6576). The continued metals falls have likely weighed on AUD/NZD, which is back to 1.1060. NZD/USD is lower, last near 0.5910/15, off 0.30%, compared with AUD's 0.60% fall.
• The general trend around softer core yields, with US yields weakening further at the front end has been another JPY support point.
• For USD/JPY we are oversold based off RSI (14), while the TWI is up 5% in the past month. However, on-going position adjustments may offset such technical stretch points. Recent CFTC data still suggested market positioning was some distance from neutral (after being aggressive short this year).
• USD/JPY's simple 200-day MA is around 151.5. The 200-day EMA (152.38) was tested earlier, but we haven't sustained the break at this stage.
• Later US Q2 GDP, jobless claims, June durable orders and German July Ifo survey print. Also ECB President Lagarde speaks.

ASIA STOCKS: China & Hong Kong Markets Mixed, Small-Caps Higher, Tech Lower

Chinese and Hong Kong equity markets continue to face pressure despite Beijing’s efforts to bolster the economy. The MSCI China Index fell as much as 1.2%, with major tech companies like Tencent and Meituan dragging the gauge lower. The surprise rate cut by the PBoC looks to have helped the small-cap names although investor confidence remains weak on the lack of any large policy update. The sell-offs have been exacerbated by disappointing earnings reports from global tech giants and ongoing concerns about the economic recovery in China.

• Hong Kong equities are underperforming, property stocks have been the least hit with the Mainland Property Index down just 0.50%, while the HS Property Index is down 0.50%, the HSTech Index has fallen 1.63% while the HSI is down 1.40%.
• China onshore equities are mostly lower today, although small-caps are in positive territory with the CSI 1000 up 0.80% and the CSI 2000 up 1.20% with the wider CSI 300 down 0.60%.
• Macau's gaming sector experienced a notable decline after Las Vegas Sands, reported second-quarter net revenue of $2.76 billion, missing the average analyst estimate of $2.82b. Despite an 8.6% y/y increase, visitation in Macau remains below pre-pandemic levels. The overall recovery continues but investor sentiment is weakened by the missed revenue targets. Additionally, Macau's casino operators are facing challenges with net interest margins, which have been below the critical 1.8% threshold for the past five quarters, hitting a record low of 1.54% at the end of March, as per bbg.
• An increasing number of Chinese companies have canceled their A-share IPO plans due to tighter listing rules and a slowing economy. As of Wednesday 339 companies had terminated their IPO applications. The primary reason for these terminations is more stringent listing criteria. Some firms are now planning to go public through mergers and acquisitions or seeking listings on the Beijing bourse or Hong Kong stock exchange, according to a Shanghai Securities News report.

ASIA PAC STOCKS: Equities Head Lower On Weaker Tech Stocks, Central Bank Moves

Asian stocks fell to a four-week low with technology stocks declining as investors look to pull back on their AI investments. The MSCI Asia Pacific Index dropped over 1.5%, with significant declines in Hitachi, SK Hynix, and Tencent. Japan’s Nikkei 225 fell nearly 3%, while the yen continued to strengthen against the USD. The losses followed a Wall Street selloff triggered by disappointing earnings from Tesla which fell over 10% and Alphabet, cooling an already weakening AI-driven rally. Former NY Fed Pres Dudley said he had changed his mind and rate cuts were warranted now, not later in the year, with some analysts believing such a move would be worrisome as it would indicate officials rushing to avoid a recession. Concerns about Beijing's economic rejuvenation also weighed on Hong Kong and mainland China stocks, while Taiwan's market remained closed due to a typhoon.

• Japanese equities are under pressure today with benchmark indices down 1-3% with some nearing a technical correction, as an AI-driven rally in technology shares reversed and concerns grew over a potential BoJ interest rate hike. The Nikkei is down 2.75% today and has dropped over 10% from its peak two weeks ago, with Renesas Electronics leading the decline after disappointing earnings. The broader Topix index is 2.5% lower, with significant declines in exporters such as Hitachi and Tokyo Electron as the yen continues to trade higher and now is now up 5% over the past two weeks.
• South Korean equities are lower, with tech stocks like SK Hynix tumbled as much as 8.4%, even after solid earnings, contributing to the broader market's decline. The strengthening yen has added to the pressure on South Korean exporters. The Kospi & Kosdaq both trade about 1.50% lower.
• Taiwan equity markets are again closed today due to a Typhoon, Taiex futures continue to trade though and are 2% lower. Philadelphia SE Semiconductor Index fell 5.41% overnight and now trades down almost 14% since the July highs.
• Australian equities are lower today, tech stocks fell inline with global peers but due to the large exposure to resources rather than tech, the ASX 200 is down just 1.10%. New Zealand equities fell 0.90%.
• In EM Asia all markets are lower with Singapore's Straits Times down 0.80%, Malaysia's KLCI down 0.25%, Indonesia's JCI down 0.55%, Philippines PSEi is down 1.10% while India's Nifty 50 fell 0.50%

OIL: Crude Lower As Further China Easing Weighs On Commodities

After rising around 0.7% on Wednesday, oil prices have given up these gains during APAC trading today as the general pullback in risk following China’s announcement of further policy support has weighed on equities and commodities too. The fourth consecutive weekly drop in US crude inventories and 0.1% drop in the USD index have failed to support prices.

• WTI fell below $77 to a low of $76.86/bbl. It is currently down 0.9% to $76.93. Brent touched $81 but is now around $81.05. Both are above initial support levels.
• Today’s unexpected China stimulus included a 20bp MLF cut and a 2000bn liquidity injection, which follows Monday’s 10bp reduction in key rates. Markets have been concerned re demand from the world’s largest crude importer for some time and the monetary policy easing this week may be confirming those fears. The China Petroleum Planning and Engineering Institute estimates that gasoline demand will fall 3.2% y/y in H2 and diesel 6.4%, according to Bloomberg.
• The EIA reported a 3.74mn barrel US inventory drawdown for last week, the fourth consecutive decline amounting to a total of 24.21mn barrels. The level is now its lowest since the start of February. But next Wednesday’s FOMC meeting will be key to the oil outlook.
• Later US Q2 GDP, jobless claims, June durable orders and German July Ifo survey print. Also ECB President Lagarde speaks.

GOLD: Yesterday’s Slide Extends Into Today’s Asian Session

Gold is under heavy pressure in today's Asia-Pacific session, down 0.9%, after closing 0.5% lower at $2,397.70 yesterday.

• Bullion’s recent drop comes despite former NY Fed President Dudley suggesting rate cuts were warranted now, not later in the year. Projected US rate cut pricing into year-end strengthened from Tuesday’s levels: Sep'24 cumulative -27bps (-25bps), Nov'24 cumulative -43bps (-40bps) and Dec'24 -65bps (-63bps).
• Lower rates are typically positive for gold, which doesn’t pay interest.
• The market focus now turns to Advance Q2 US GDP later today and Friday’s update on the Fed’s preferred underlying inflation measure. The PCE deflator is expected to have retreated to an annual pace of 2.5% from 2.6% in the year to May.
• According to MNI’s technicals team, the medium-term trend for gold still points higher and the previous breach of key resistance at $2,450.1, the May 20 high, opens the $2,500.00 handle next. Initial support is at $2,393.8, the 20-day EMA.