Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
EXECUTIVE SUMMARY
- KEVIN MCCARTHY OUSTED AS HOUSE SPEAKER IN HISTORIC VOTE - RTRS
- BOJ YIELD CURVE MOVE POSSIBLE IN JANUARY - KAMEDA - MNI
- BOJ UPS JGB BUYING SCALE TO FIGHT HIGHER YIELDS - MNI BRIEF
- JAPAN KEEP YEN TRADERS GUESSING OVER WHETHER IT INTERVENED - BBG
- RBNZ HOLDS OCR AT 5.5%, SIGNALS HIGHER FOR LONGER - MNI BRIEF
Fig. 1: US Eminis & BBDXY (Inverted)
Source: MNI - Market News/Bloomberg
U.K:
FISCAL: Chancellor of the Exchequer Jeremy Hunt says the UK has no money for tax cuts, but that hasn’t stopped the Cabinet from sketching out relief measures before the next election. (BBG)
POLITICS: “Barely a year ago, Prime Minister Rishi Sunak took over a government in free-fall, shunned by the markets and riven by internal squabbling. The task facing him may be even harder now.” (BBG)
EUROPE:
ITALY: “No matter how alert Italian Prime Minister Giorgia Meloni is to the dangers, she just can’t seem to avoid tempting fate in financial markets. Two months after her government was rocked by news of a shrinking economy, a botched attempt to tax banks and last week’s worsening budget outlook have added to the risks haunting bond investors.” (BBG)
EU/UK: “UK Business and Trade Secretary Kemi Badenoch said the European Union’s refusal so far to delay the introduction of post-Brexit tariffs on electric vehicles is driven by “ideological reasons,” as Britain awaits a decision from the EU commission.” (BBG)
GERMANY/FRANCE: Germany is seeking a “grand bargain” with France to resolve their current stand-off over nuclear power and help unblock a sweeping reform of the EU’s electricity market. FT
EU/CHINA: "The European Commission launches anti-subsidy investigation on the grounds that imports of new battery electric vehicles for the transport of persons originating in the People’s Republic of China are being subsidized, according to the bloc’s Official Journal." (BBG)
UKRAINE: “The European Union is gearing up to open negotiations with Ukraine on its future accession to the bloc with a formal announcement expected as soon as December.” (POLITICO)
UKRAINE: “President Joe Biden reassured allies US support for Ukraine would continue, seeking to ease worries after a government funding bill omitted $6 billion in aid.” (BBG)
U.S.
POLITICS: “A handful of Republicans in the U.S. House of Representatives on Tuesday ousted Republican Speaker Kevin McCarthy, as party infighting plunged Congress into further chaos just days after it narrowly averted a government shutdown.” (RTRS)
ECONOMY: “U.S. Treasury Secretary Janet Yellen said on Tuesday she was very optimistic about the outlook for the U.S. economy, adding that inflation was coming down in the short term and the labor market was “extremely strong."” (RTRS)
ECONOMY: “Doubleline Capital founder Jeffrey Gundlach sees a recession alert if the US unemployment rate ticks up just a couple of tenths, he says in a post on X, formerly known as Twitter.” (BBG)
OTHER
JAPAN: The Bank of Japan should be able to determine the pace of next year’s wage hikes by as early as January and could move to adjust its easy policy stance that same month, probably by loosening its yield curve control framework or dropping it altogether, former BOJ Chief Economist Seisaku Kameda told MNI. (MNI)
JAPAN: The Bank of Japan on Wednesday increased the scale of its extraordinary purchase of Japanese government bonds with a remaining life of five-10 years to JPY675 billion, up from its similar Sept. 29 JPY300 billion operation. (MNI BRIEF)
JAPAN: “Japan’s top finance officials kept investors guessing Wednesday by declining to confirm whether Tokyo stepped into markets to prop up the yen amid speculation of a fresh round of intervention.” (BBG)
NEW ZEALAND: The Reserve Bank of New Zealand’s Monetary Policy Committee held the Official Cash Rate steady at 5.5% Wednesday for the third consecutive meeting, noting interest rates were constraining economic activity and reducing inflationary pressure “as required.”( MNI BRIEF)
NEW ZEALAND: “New Zealand house prices steadied in September following 17 consecutive monthly declines, adding to signs that the property market slump has ended.” (BBG)
CHINA
US/CHINA: “Washington’s restrictions on advanced semiconductor exports to China are similar to the petroleum ban it imposed against Japan prior to the outbreak of war in 1941, according to Ray Dalio, founder of Bridgewater Associates.” (BBG)
US/CHINA: “U.S. Treasury Secretary Janet Yellen said on Tuesday the United States has become overly dependent on China for critical supply chains, particularly in clean energy products and needs to broaden out sources of supply.” (RTRS)
MARKET DATA
NEW ZEALAND SEP CORELOGIC HOUSE PRICES Y/Y -7.3%; PRIOR -8.7%
AUSTRALIA SEP F JUDO BANK PMI SERVICES 51.8; PRIOR 50.5
AUSTRALIA SEP F JUDO BANK PMI COMPOSITE 51.5; PRIOR 50.2
SOUTH KOREA AUG IP M/M 5.5%; MEDIAN 0.2%; PRIOR -2.0%
SOUTH KOREA AUG IP Y/Y -0.5%; MEDIAN -5.8%; PRIOR –8.1%
SOUTH KOREA AUG CYCLICAL LEADING INDEX CHANGE 0.0; PRIOR 0.4
SOUTH KOREA SEP MANUFACTURING PMI 49.9; PRIOR 48.9
JAPAN SEP F JIBUN BANK SERVICES PMI 53.8; PRIOR 53.3
JAPAN SEP F JIBUN BANK COMPOSITE PMI 52.1; PRIOR 51.8
MARKETS
US TSYS: Bear Steepening Extends Into Asia-Pac Dealings
TYZ3 is currently trading at an Asia-Pac session low of 106-12+, -0-08 from NY closing levels.
- Cash tsys are flat to 5bps cheaper across benchmarks, as the bear-steepening seen in yesterday's NY session extends into the Asia-Pac session.
- There haven’t been any meaningful headlines so far in the Asia-Pac session, other than the US House of Reps voting to oust speaker McCarthy.
- Bloomberg reports that investors are positioning for the US tsy 10-year to exceed 5.0%. Most of the options action centred on November and December expiries, which have seen a jump in open interest across a number of put-option strikes equivalent to a 5% yield and higher. (See link)
- Later today sees a slew of US economic releases, including ADP Private Employment and ISM Services.
JGBS: Futures At Session Lows, JGB Curve Bear Steepens
In the Tokyo afternoon session, JGB futures are weaker and near session lows, -37 compared to settlement levels.
- There hasn’t been much in the way of domestic drivers to flag, outside of the previously outlined Jibun Bank Services and Composite PMIs.
- Accordingly, JGBs have likely found direction from US tsys, which have extended overnight weakness. Cash tsys are flat to 5bps cheaper across benchmarks, as the NY session’s bear-steepening extends into the Asia-Pac session.
- The cash JGB curve has bear-steepened, with yields 0.7bp to 3.8bps (20-year) higher. The 30-40-year zone is 2.1-2.9bps cheaper. The benchmark 10-year yield is 2.2bps higher at 0.788%, above BOJ's YCC soft limit of 0.50% but below its hard limit of 1.0%. It is also slightly below the cycle high of 0.798% set earlier today.
- Bloomberg noted that Japan’s 10-year OIS has risen to 1% for the first time since January amid growing speculation the central bank will end its negative interest rate, which caused a spike in sovereign long-term yield. (See link)
- The swap curve has also bear-steepened, with rates 0.5bp to 4.0bps higher. Swap spreads are generally wider, apart from the 7-20-year bucket.
- Tomorrow the local calendar sees International Investment Flow data, along with 30-year supply.
AUSSIE BONDS: Bear Steepening As Longer-Dated US Tsy Yields Push Higher In Asia-Pac
ACGBs (YM -5.0 & XM -12.5) have experienced significant weakness, primarily driven by the long end, as the bearish steepening of the US tsy curve extended into the Asia-Pac session. US tsys are flat to 5bps higher across benchmarks, with a steepening of the yield curve.
- On the other hand, shorter-term ACGBs have displayed better performance, partly due to an RBNZ that appeared less hawkish than anticipated. As expected, the RBNZ maintained the OCR at 5.50% but hinted at the possibility of keeping policy tight for a longer duration rather than tightening it further.
- (AFR) A surge in long-term bond yields has driven the Australian dollar to an 11-month low and may force Reserve Bank of Australia governor Michele Bullock to deliver further cash rate rises, economists say. (See link)
- Cash ACGBs are 5-12bps cheaper, with the AU-US 10-year yield differential 2bps lower at -18bps.
- Swap rates are 7-14bps higher, with the 3s10s curve steeper and EFPs 1bp wider.
- The bills strip has bear-steepened, with pricing +1 to -10.
- RBA-dated OIS pricing is 1-6bps softer across meetings, with November leading.
- Tomorrow the local calendar sees Trade Balance data for August. Terminal rate expectations sit at 4.34% (+27bps).
NZGBS: Twist-Steepens, Weighs A Less Hawkish RBNZ Vs. Higher Longer-Dated Global Yields
NZGBs closed with a twist-steepening of the curve, as the market weighed a slightly less hawkish RBNZ against higher longer-dated US tsy yields. Benchmark yields are 2bps lower to 11bps higher.
- The RBNZ left rates at 5.5%, which was widely expected, and it reiterated its higher-for-longer stance. The outlook “remained similar” to the last meeting implying that as of this month, the RBNZ’s forecasts are unchanged. There was a tweak to the end of the statement saying that policy needs to remain restrictive for “a more sustained period of time” rather than “the foreseeable future”. This may imply that rather than increase rates further, policy may stay tight longer than is currently expected.
- Meanwhile, US tsys have extended overnight weakness in the Asia-Pac session, with yields flat to 5bps higher across benchmarks, a steepening of the curve is evident.
- Swap rates are +/-3bps after the RBNZ decision to be flat to 10bps higher on the day. The 2s10s curve has bear-steepened.
- RBNZ dated OIS pricing is 4-8bps softer across meetings beyond October.
- Tomorrow the local calendar sees ANZ Commodity Prices and Government’s 12-month Financial Statements.
- Tomorrow the NZ Treasury plans to sell NZ$225mn of the 0.25% May-28 bond, NZ$225mn of the 3.50% Apr-33 bond and NZ$50mn of the 1.75% May-41 bond.
FOREX: USD Uptrend Continues, NZD Underperforms Post RBNZ
USD indices have continued to track higher. The BBDXY getting close to 1280, fresh highs back to late November last year. Dollar sentiment has been aided by the continued rise in US yields, with the 10yr making fresh cyclical highs of 4.85%.
- NZD/USD has underperformed post the slightly less hawkish RBNZ (which left rates on hold as expected). The RBNZ language hinted potentially less need to tighten in November. The kiwi fell to 0.5871 but has since stabilized somewhat, last 0.5885/90, still 0.35% weaker for the session.
- AUD/USD was dragged lower by NZD but found support under 0.6290 (similar to lows from Tuesday). We now sit back near 0.6300, slightly outperforming broader USD trends. AUD/NZD has pushed back above 1.0700.
- USD/JPY has drifted a little higher. The pair was last near 149.25, after opening closer to 149.00. Highs for the session sit at 149.32. A raft of Japanese officials have refused to confirm if the authorities intervened in FX markets yesterday, while maintaining recent rhetoric around FX. Yen is outperforming the rise in US yields, but markets remain wary of intervention risks.
- Looking ahead, we have some ECB speak, headlined by Lagarde. Final September PMIs are due in the EU. Later the Fed’s Bowman and Goolsbee speak. There is also a swathe of US data including ADP September employment, September services PMI/ISM and final August durable goods orders.
EQUITIES: Broad Based Losses Amid Continued US Yield Surge
Regional Asia Pac equities are once again under pressure. Losses are evident across the board, as the relentless rise in US yields continues to unsettle broader risk appetite. Japan markets and returning South Korean markets are among the weakest performers.
- US equity futures have also exhibited further weaker (following losses in Tuesday cash trade). Eminis are off by 0.40%, last near 4248, and close to the simple 200-day MA (we are already sub the 200-day EMA). Nasdaq futures are down by a similar amount. Strong US yield gains have continued in Asia Pac in Wednesday trade to date The 10yr yield making a fresh high of 4.85% (+5bps for the session). The higher for longer theme continues to see US yields adjust.
- Japan yields have risen, the 10yr swap rate above 1.0%, although yen has lost a little ground. Japan benchmark indices are down close to 2% at this stage.
- South Korean markets have returned (shut since last Thursday) and played catch up to the downside. The Kospi is off over 2%, the Kosdaq -3.5%. Offshore investors have sold -$425.3mn of local stocks so far.
- Hong Kong stocks remain on the backfoot, the HSI down over 1%. The ASX 200 is down around 1%.
- In SEA, Indonesian and Singapore indices are the weakest, down over 1% at this stage.
OIL: Prices Steady, OPEC Meeting Later Unlikely To Change Stance
Oil prices are down slightly during the APAC session and are off the session’s highs. Tight supply fundamentals are holding crude up despite a stronger greenback, USD index +0.2%, and rising US yields. Brent fell from a high of $91.21/bbl earlier in the session to a low of $90.62 on dollar strength but has come back to around $90.84/bbl. WTI has traded below $90 finding a floor at $89 and is currently around $89.16.
- The WTI prompt spread is off its peak but still wider than the end of August and continues to signal market tightness, according to Bloomberg.
- Bloomberg reported that there was a 4.21mn barrels US crude stock drawdown in the latest week according to people familiar with the API data. Gasoline rose 3.9mn and distillate 0.3mn. Later the official EIA data are released and oil inventories are expected to be close to flat.
- Russia is considering a lift of its diesel export ban for producers with an announcement likely in the next few days. This would put downward pressure on prices.
- According to Bloomberg, OPEC will have an online meeting on Wednesday to discuss the current position of global markets. Output was constant in September and its current stance is unlikely to be altered.
- Later the Fed’s Bowman and Goolsbee speak. There is also a swathe of US data including ADP September employment, September services PMI/ISM and final August durable goods orders. Euro area services PMIs, August retail sales and PPI also print. The ECB’s Lagarde, de Guindos and Panetta appear.
GOLD: Slightly Weaker After Hitting Lowest Level In Seven Months
Gold is slightly weaker in the Asia-Pac session, after closing -0.3% at $1823.02 on Tuesday. Tuesday’s close was the lowest in almost seven months, as US tsy yields continued to push to multi-year highs.
- US tsys finished 5-14bps cheaper across major benchmarks, with a steepening of the curve. Higher-than-expected JOLTS data drove the move, with the 10-year yield reaching a fresh cycle high of 4.8081%.
- US job openings unexpectedly rose sharply by 690k in August to 9.6m, breaking a run of declines. However, the quits rate was unchanged at 2.3%, matching the lowest level since 2020, consistent with workers remaining less confident in their ability to find another job in the current market.
- Fed Mester did little to dissuade the tsy sell-off. In contrast, Fed Bostic struck a more cautionary view: “I am not in a hurry to raise, but I am not in a hurry to reduce either.”
- Focus now turns to the scheduled economic data later today, including ADP Private Employment and ISM Services. US Non-Farm Payrolls are due for release on Friday.
UP TODAY (TIMES GMT/LOCAL)
| Date | GMT/Local | Impact | Flag | Country | Event |
| 04/10/2023 | 0715/0915 | ** |  | ES | S&P Global Services PMI (f) |
| 04/10/2023 | 0745/0945 | ** |  | IT | S&P Global Services PMI (f) |
| 04/10/2023 | 0750/0950 | ** |  | FR | IHS Markit Services PMI (f) |
| 04/10/2023 | 0755/0955 | ** |  | DE | IHS Markit Services PMI (f) |
| 04/10/2023 | 0800/1000 | ** |  | EU | IHS Markit Services PMI (f) |
| 04/10/2023 | 0815/1015 | | EU | ECB's Lagarde speaks at ECB MP Conference | |
| 04/10/2023 | 0830/0930 | ** |  | UK | S&P Global Services PMI (Final) |
| 04/10/2023 | 0900/1100 | ** | | EU | PPI |
| 04/10/2023 | 0900/1100 | ** | | EU | Retail Sales |
| 04/10/2023 | 0900/1000 | ** | | UK | Gilt Outright Auction Result |
| 04/10/2023 | 1100/0700 | ** |  | US | MBA Weekly Applications Index |
| 04/10/2023 | 1140/1340 | | EU | ECB's de Guindos speaks at Cyprus CB Conference | |
| 04/10/2023 | - | | UK | BoE's Bailey Interview in Prospect Magazine | |
| 04/10/2023 | 1215/0815 | *** | | US | ADP Employment Report |
| 04/10/2023 | 1345/0945 | *** | | US | IHS Markit Services Index (final) |
| 04/10/2023 | 1400/1000 | *** | | US | ISM Non-Manufacturing Index |
| 04/10/2023 | 1400/1000 | ** | | US | Factory New Orders |
| 04/10/2023 | 1400/1600 | | EU | ECB's Panetta speaks at ECB MP Conference | |
| 04/10/2023 | 1425/1025 | | US | Fed Governor Michelle Bowman | |
| 04/10/2023 | 1430/1030 | ** | | US | DOE Weekly Crude Oil Stocks |
| 04/10/2023 | 1600/1800 | | EU | ECB's Lagarde speaks at Columbia University |
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.