US TSYS: Marginally Richer In Asia

TYM3 deals at 112-21, +0-01, a 0-05+ range has been observed on volume of ~76k.

• Cash tsys sit 1-2bps richer across the major benchmarks, the curve has bull steepened.
• Tsys were pressured in early dealing as concerns over the US Debt Ceiling impasse weighed. House Speaker McCarthy noted that this is no agreement on the US Debt Ceiling. TY dealt below Thursdays lows, however the move did not follow through.
• A recovery off session lows was seen as the USD retreated off best levels and e-minis pared early losses.
• Tsys held richer for the remainder of the Asian session however ranges remained narrow and moves had little follow through..
• In Europe today we have UK Retail Sales, further out US Consumer income, Wholesale Inventories, Durable Goods and UofMich Consumer Sentiment crosses.

JGBS: Futures Reverse Morning Weakness in Afternoon Trade, 40-Year Outperforms

JGB futures strengthen in the afternoon session, unwinding morning weakness, to be -5 compared to the settlement levels.

• There hasn’t been much in the way of domestic drivers to flag, outside of the previously outlined Tokyo CPI and PPI Services data.
• Local market participants seemed content to track US tsys in anticipation of the release of April US PCE deflator data later in the day. US tsys were 1-2bp richer in Asia-Pac trade.
• Cash JGBs are little changed out to the 10-year zone, but richer beyond. The benchmark 10-year yield is 0.1bp higher at 0.427%, below the morning session high of 0.454%. The 40-year has reversed morning underperformance to be the star performer in the afternoon session. The yield is 2.2bp lower at 1.450% after hitting a morning high of 1.509%.
• Swap rates are trading mixed with the curve exhibiting a flattening bias. Swap spreads are generally narrower out to the 30-year zone and wider beyond.
• The local calendar next week sees Leading and Coincident Indicators (Mar F) on Monday, Jobless Rate (Apr) on Tuesday, Retail Sales (Apr), IP (Apr P) and Housing Starts (Apr) on Wednesday, and Capital Spending (Q1) and Company Profits (Q1) on Thursday.
• The next week also has slated BoJ Rinban operation covering 3-25-year+ JGBs (Mon) along with 2-year (Tue) and 10-year (Thu) supply.

AUSSIE BONDS: Cheaper, Narrow Range, Awaits US PCE Deflator

ACGBs are weaker (YM -5.0 & XM -4.0) although holding above session lows. ACGBs traded within a relatively narrow range in the Sydney session with no significant domestic catalysts.

• Local market participants seemed content to adopt a wait-and-see approach in anticipation of the release of April US PCE deflator data later in the day. According to BBG consensus, the core PCE deflator is expected to show a monthly increase of 0.3% and a year-on-year figure of 4.6%, remaining unchanged from March.
• US tsys were 1-2bp richer in Asia-Pac trade.
• Cash ACGBs are 4bp cheaper with the AU-US 10-year yield differential -1bp at -6bp.
• Swap rates are 3-4bp higher with EFPs slightly tighter.
• The bills strip is steeper with pricing flat to -7.
• RBA dated OIS is little changed across meetings.
• The RBA has reiterated that it will consider later this year whether there is a case for selling Commonwealth government bonds off its balance sheet once banks have repaid the first tranche of the circa A$190bn they borrowed from RBA during the pandemic (AFR).
• The local calendar next week sees Building Approvals (Apr) on Tuesday, Construction Work Done (Q1), Private Sector Credit (Apr) and CPI Monthly (Apr) on Wednesday, Capex (Q1) on Thursday and Home Loan data (Apr) on Friday.

NZGBS: Continue To Outperform in the $-Bloc

NZGBs closed 3-4bp cheaper after trading in a relatively narrow range. Without domestic drivers, local participants appear to have been happy to sit on the sidelines ahead of April US PCE deflator data later today. BBG consensus expects the core PCE deflator to print 0.3% m/m 4.6% y/y unchanged from March.

• NZGBs have continued their outperformance in the $-Bloc since the RBZ decision with NZ/US and NZ/AU 10-year yield differentials 3bp and 2bp respectively lower.
• Swap rates are 2-4bp higher with the implied long-end swap spread wider.
• RBNZ dated OIS closed with pricing 1-4bp firmer for meetings beyond August.
• RBNZ Silk said the impact of cyclone Gabrielle has been less inflationary than first feared. The Reserve Bank had initially estimated that Cyclone Gabrielle would add 0.3ppt to inflation in both the first and second quarters but has since downgraded that impact to just 0.1ppt. (link)
• ANZ consumer confidence index fell to 79.2 in May from 79.3 in April. Inflation expectations eased to 4.8% from 5.2%.
• The local calendar next week sees Building Permits (Apr) on Monday, ANZ Business Confidence (May) and CoreLogic House Prices (May) on Wednesday and Terms of Trade (Q1) on Friday.

FOREX: Greenback Marginally Pressured In Asia

The USD is a touch lower in Asia on Friday, the Antipodeans were pressured in early dealing however losses were pared. AUD and NZD sit a touch firmer. Early in the session House Speaker McCarthy noted that this is no agreement on the US Debt Ceiling. He also said he will stay at the Capitol and continue working until a deal is done.

• Yen is ~0.2% firmer, USD/JPY deals below the ¥140 handle however we remain well within recent ranges. Tokyo Headline and Core CPI were a touch below estimates.
• Kiwi is marginally firmer, NZD/USD was down as much as ~0.3% in early trade as e-minis extended losses and RBNZ's Silk noted that rates need to stay on hold for an extended period and that the bank is wary of over tightening. Support was seen ahead of year to date lows and losses were pared.
• AUD/USD is ~0.1% firmer, the pair dealt below the $0.65 printing a low of $0.6491 before paring losses to sit a touch firmer at $0.6510/15.
• Elsewhere in G-10 SEK is ~0.2% firmer, however liquidity is generally poor in Asia. EUR and GBP are both up 0.1%.
• Cross asset wise; e-minis are 0.1% softer however they were down as much as 0.3% in early trade. BBDXY is down ~0.2% and US Treasury Yields are softer across the curve.
• In Europe today we have UK Retail Sales, further out US Consumer income, Wholesale Inventories, Durable Goods and UofMich Consumer Sentiment crosses.

EQUITIES: Tech Still Outperforming, Mixed Trends Elsewhere

Regional equity sentiment is mixed in Asia Pac for the final trading session of the week. Hong Kong markets have been closed today, which has lightened liquidity for the region. Tech related plays are outperforming modestly, while China and parts of SEA remain weaker.

• US futures are in the red, albeit with losses not extending beyond -0.30% for Eminis. The index was last at 4152, down by -0.2%, with Nasdaq futures off by a similar amount. Headlines from US House Majority Leader McCarthy that there is no agreement on the debt ceiling weighed at the margins in early trade. Negotiations are likely to continue into the weekend.
• In Taiwan, the Taiex is the outperformer, up over 1%, with positive Chip/Tech sentiment from Thursday trade in the US aiding moves. This is fresh highs for the index back to early June last year.
• The Kospi is also up but a more modest 0.15%, although offshore investors have bought another $487.7mn in local locals, brining week to date inflows to $881.6mn.
• China markets are weaker to the break, the CSI 300 off a further 0.40%. We are up from fresh lows though.
• In SEA, Philippines stocks are down around 0.80%, while Thai stocks are -0.40% at this stage, unwinding gains from earlier in the week.

OIL: Brent Close To Flat For The Week On Mixed OPEC Views

Brent crude is modestly lower versus NY closing levels from Thursday. We were last close to $76/bbl. This is well below highs for the week above $78.50/bbl, but we haven't tested Thursday session lows near $75/bbl so far today. WTI was last under $72/bbl, following a similar trajectory.

• Brent is barely in positive territory for the week, as the market continues to digest conflicting signals from OPEC+ members. Russia's Deputy Premier stating the group was unlikely to adjust production targets in June (next meeting is next weekend June 3-4). This contrasted with earlier comments from the Saudi Arabia Energy Minister, which stated speculators should 'watch out'.
• Speculation around the meeting outcome is likely to dominate market sentiment over the coming week.
• For Brent, a break sub $75/bbl would open up a move to the May 15 low around $73.50/bbl. On the topside, the 20-day simple MA comes in close to $79/bbl.

GOLD: Touched Two-Month Low, 6% From Peak

Gold is firmer at 1948.74 (+0.4%) in the Asia-Pacific session, after closing 0.8% lower on Thursday at 1941.41, a two-month low.

• Gold is on track for its largest weekly decline, currently standing at 1.5%, in nearly four months. This decline comes as indications of resilience in the US economy raise the likelihood of the Federal Reserve continuing its rate hikes. The US GDP saw a slight upward revision for Q1, reaching an annualized rate of 1.3%. Additionally, the core PCE deflator was revised upward by 0.1% to a 5.0% annual rate for Q1.
• Traders have now fully factored in another 25bp hike by July. Higher interest rates traditionally having a negative impact on gold, which does not offer interest-bearing returns. As a result, the metal has experienced a decline of approximately 6% since its peak in early May, largely driven by speculation surrounding interest rates.
• However, the ongoing impasse concerning the US debt-ceiling is providing some support to the haven asset.