MNI EUROPEAN OPEN: Yen Gives Back Some Gains As BoJ Comes Into View

US TSYS: Tsys Futures Steady, Volumes Below Average Ahead Of Fed Thursday

• It has been a subdued trading session for US tsys, ranges have been very tight while volumes are below average. TUU4 is currently trading at 102-18⅛, while TYU4 is - 01+ at 111-09+
• Earlier there was a block vol trade - TYU4 109.5/112 strangle bought at 37 x5,000, there has been little else outside of this trade
• The steepener trade has seen some unwinding over the past week after the 2s10s hit -11bps, its least inverted level for the year, while the 10s30s hit the least inverted since May 2023.
• The cash treasury curve is flat to 0.5bps higher today, with the 10y trading +0.4bps at 4.178%.
• The U.S. Treasury Department said Monday it expects to borrow USD740 billion in the third quarter, USD106 billion less than previously announced in April. For the fourth quarter, Treasury expects to borrow USD565 billion, lower than market estimates.
• Thursday, the Fed meets for its July meeting, the market is pricing in a 4% chance of a cut as we look forward to September the market has fully priced in a cut, with a total of 66bps of cuts into year-end
• Today, FHFA House Price Index, while Microsoft will release earnings after market.

JGBS: Cash Bonds Mostly Richer Ahead Of BoJ Policy Decision Tomorrow

JGB futures are stronger and near session highs, +19 compared to the settlement levels, ahead of tomorrow’s BoJ Policy Decision.

• Outside of the previously outlined mixed labour market data, there hasn't been much in the way of domestic drivers to flag.
• Cash JGBs are mixed across benchmarks, with yields 1-2bps lower out to the 10-year and flat beyond. The benchmark 10-year yield is 1.6bps lower at 1.010% versus the cycle high of 1.108%.
• The swaps curve has twist-steepened, pivoting at the 20s, with rates 2bps lower to 0.5bp higher.
• Tomorrow, the local calendar will see the BoJ Policy Meeting, with markets keenly observing any steps the central bank may take towards monetary policy normalisation.
• The BoJ is anticipated to unveil a detailed plan for reducing the pace of its bond purchases over time.
• Regarding policy rate settings, we anticipate the BoJ will maintain its target for the overnight uncollateralized call rate, consistent with consensus. That said, it appears to be a close call.
• See MNI BoJ Preview here.
• Ahead of the BoJ Decision tomorrow, the local calendar will see Retail Sales and Industrial Production data.

AUSSIE BONDS: Cheaper But Narrow Ranges Ahead Of CPI Data, BoJ & FOMC Policy Decisions Tomorrow

ACGBs (YM -2.0 & XM -1.5) are cheaper after dealing in relatively narrow ranges.

• Outside of the previously outlined Building Approvals, there hasn't been much in the way of domestic drivers to flag.
• Tomorrow the local calendar will see Q2/June CPI and June Retail Sales data.
• Headline CPI rose to 4.0% and trimmed mean to 4.4% in May. If the data prints in line with RBA May expectations of 3.8% for headline and trimmed mean, requiring 1.0% q/q and 0.8% quarterly rises, then rates are likely to be unchanged at the August 6 meeting.
• Retail sales for June are forecast to rise for the third straight month. Sales were stronger than expected in May rising 0.6% m/m and consensus is at +0.2% for June.
• Following tomorrow’s domestic data drop, the market faces policy decisions from the BoJ and the FOMC.
• The BoJ Policy Meeting will be keenly watched for any steps towards monetary policy normalisation. See MNI BoJ Preview here.
• Cash US tsys are slightly cheaper in today’s Asia-Pac session.
• Cash ACGBs are 1-2bps cheaper, with the AU-US 10-year yield differential at +11bps.
• Swap rates are 1-2bps higher, with the 3s10s curve flatter.
• Bills strip pricing is -2 to -4.
• RBA-dated OIS pricing is slightly firmer across meetings. Terminal rate expectations sit at 4.43%.

NZGBS: Cheaper, BoJ & FOMC Policy Decisions Tomorrow

NZGBs closed on a weak note, with benchmark yields 2-4bps higher and the 2/10 curve steeper.

• (Bloomberg) New Zealanders are about to keep more of what they earn as the new government follows through on an election promise to cut taxes despite a deepening budget deficit and advice from the OECD that the measures should be delayed. (See link)
• "CoreLogic NZ is introducing a new measure of real estate values that it says will reflect changes in the housing market sooner. The Home Value Index will replace the House Price Index on August 1." (per BBG)
• Cash US tsys are little changed in today’s Asia-Pac session.
• This week will see policy decisions from the BoJ, BoE and Fed alongside top-tier economic releases including the US Non-Farm Payrolls report and Employment Cost Index, Euro Area CPI and GDP, Australian CPI and China PMI.
• Swap rates are 3-5bps higher.
• RBNZ dated OIS pricing is slightly firmer across meetings, with a cumulative 75bps of easing priced by year-end.
• Tomorrow, the local calendar will see Building Permits and ANZ Business Confidence data.
• On Thursday, the NZ Treasury plans to sell NZ$300mn of the 4.50% May-30 bond, NZ$150mn of the 4.25% May-34 bond and NZ$50mn of the 2.75% Apr-37 bond.

FOREX: Yen Reverses Earlier Gains Against Higher Beta FX, But Overall Moves Modest

Overall G10 forex moves have been fairly modest in the first part of Tuesday trade. The BBDXY sits little changed, last near 1260.6, close to end Monday levels from NY trade. Early yen strength, particularly against higher beta FX has reversed as the session progressed.

• USD/JPY has seen modest volatility, albeit in the first half of the session. The pair saw an early dip to 153.62 as US equity futures weakened, but there no follow through. We last track in the 154.15/20 region, close to session highs, but only marginally above end Monday levels.
• Earlier data showed mixed labor market trends, with unemployment rate easing to 2.5% in Japan, but the job-to-applicant ratio also falling. The data didn't impact sentiment.
• AUD and NZD are off earlier lows, aided by US equity futures moving away from session levels (although the benchmarks remain in the red). AUD/USD was last 0.6555 against an earlier low of 0.6534).
• Regional equity market sentiment has mostly been in the red, with Hong Kong and tech sensitive markets weaker.
• NZD/USD has outperformed, up nearly 0.30% to 0.5890/95. This has helped bring the AUD/NZD cross away from recent highs, the pair back to 1.1125/30.
• US yields are close to flat at this stage. Commodities are mostly under pressure., with oil, copper and iron ore all down, although this isn't impacting AUD greatly at this stage (outside of some AUD/NZD softness).
• Looking ahead we have US June JOLTS job opening data and July consumer confidence. In the EU, German preliminary July CPI and euro area Q2 GDP.

ASIA STOCKS: Hong Kong Equities Lead Sell-Off As Investors Concerns Grow

Chinese and Hong Kong equity markets are lower today, declining more than 1% as optimism over Chinese government stimulus plans waned, investors also remain cautious ahead of major central bank rate decisions from the BoJ, BOE & the Fed this week. The Chinese Politburo meeting will be closely watched for any potential stimulus measures, but sentiment remains bearish due to the ongoing property downturn and subdued consumer demand. China's bonds have rallied again with 10-year yields hitting record lows, which poses a challenge for the central bank as it tries to balance boosting growth with easing measures and avoiding financial instability.

• Hong Kong equities are lower across the board today, Real Estate Benchmarks are all lower with (Mainland down 1.75%, and HS Property down 1.50%), the HSTech Index is about 1.40% lower today, while the BBG Asia Semiconductor Index is off earlier lows and trades just 0.30% lower, the wider HSI is trading 1.10% largely inline with other major benchmark indices
• China onshore equities are lower although, slightly better than HK listed stocks, small-caps are again the best performers after the PBoC lowered rates last week with the CSI 1000 down 0.30%, while the CSI 2000 is 0.75% The CSI 300 Real Estate Index is down 1% today and 7.70% for the past 5 sessions, major benchmarks such as the CSI 300 are down about 0.90%
• Investors pulled significant amounts of cash from ETFs with heavy exposure to Chinese stocks during the week ending July 26. The Vanguard FTSE Emerging Markets ETF which holds 25% of its assets in China, experienced over $506 million in redemptions, marking its largest weekly outflow in over four years. Additionally, the iShares MSCI China ETF saw its biggest weekly outflow on record, as per BBG. In China, upcoming economic data, particularly on manufacturing activity, will be closely watched for indications of the country’s economic health and potential further support measures from the central bank. Investors have grown cautious around Chinese stocks after a lack of policy updates came from the Third Plenum meeting, while at the same time the China National Team look to have slowed their purchases of benchmark indices post the meeting.
• China will stop publishing daily data on overseas fund flows into and out of its stock market starting August 18, 2024, instead providing such information quarterly. This move follows earlier efforts to limit data on intraday flows with Hong Kong and aims to bolster confidence amid significant outflows of global funds. Real-time data for mainland China to Hong Kong flows will still be available, per BBG.
• Looking ahead China PMI and Hong Kong GDP is expected on Wednesday

ASIA PAC STOCKS: Equities Off Earlier Lows Although Cautious Ahead Of CB Meetings

Asian stocks fell amid speculation that investors are reducing their holdings ahead of major upcoming events, including central bank decisions, key economic data, and earnings from US megacap companies. The MSCI Asia Pacific Index extended July's decline to 0.5%, with shares in Hong Kong leading losses as optimism over Chinese government stimulus waned. The yen held strong before a BoJ policy decision, while the USD edged higher ahead of a Federal on Thursday. Commodities have erased gains for the year, affected by a challenging outlook in China and losses in US natural gas and foodstuffs.

• Japanese stocks fell as investors braced for key central bank decisions from the BOJ and the Fed, while also digesting mixed corporate earnings. The Topix Index is 0.63% lower led by declines in banks and mining stocks, with Mitsubishi UFJ contributing significantly by falling 1.4%, while the Nikkei is 0.50% lower. Investor caution ahead of the BOJ meeting, where potential changes to quantitative easing and interest rates are anticipated, is keeping many on the sidelines. Additionally, machinery maker Komatsu's earnings are under scrutiny, adding to the cautious sentiment in the market.
• South Korean equities opened lower, influenced by mixed performances on Wall Street and investor anticipation of the Federal Reserve's upcoming rate decision. The benchmark KOSPI is down 1.10% with major large-cap stocks seeing declines. Notably, Samsung dropped 0.9%, and SK hynix fell 2.7%, reflecting broader market caution, while the small-cap focused Kosdaq is down 0.70%. The market is also awaiting earnings results from major tech firms like Samsung, adding to the cautious trading environment.
• Taiwan equity opened weaker, however as steady to trade little changed for the session after global tech stocks has seen a bit of a bounce as we head into Microsoft's earnings which are due out post the US session later today.
• In Australia, the ASX 200 index fell as much as 1% early driven by losses in mining and tech shares, we have since pared half those losses to trade down 0.50% as we head into the final hour of trading. Investors are cautious ahead of the country's quarterly inflation report due on Wednesday, which will influence the debate over the need for further interest rate hikes by the RBA. In New Zealand, the NZX 50 index bucked the regional trend, rising 0.85%, as investors remained optimistic about the local economy and corporate earnings, while A2 Milk was the largest contributor to gains after Bell Potter raised their price target on the stock 24%.
• In EM Asia markets are mixed today with Thailand's SET returning for their break to trade 0.40% higher, Singapore's Strait Times is 0.15% higher while elsewhere most other markets are lower with Malaysia's KLCI down 0.10%, Indonesia's JCI is 0.70% lower, Philippine's PSEi is 1% lower while India's Nifty 50 is little changed.

OIL: Crude Continues To Sink But In Oversold Territory Now

After falling over 2% on Friday and then 1.6% yesterday, oil prices are down another 0.5% during APAC trading today a China growth concerns persist and the US dollar strengthened, although it is now off its intraday high to be little changed. WTI is down 0.5% to $75.46/bbl, close to the intraday low, and Brent -0.4% to $79.45, holding just above initial support.

• Pessimism re the outlook for China has been driving crude lower. Citigroup revised its GDP forecasts down and as a result H2 imports are also likely to be soft, according to Bloomberg. This is consistent with US light sweet crude to Asia priced at a discount.
• The 9-day relative strength index is signalling that both benchmarks are now oversold, according to Bloomberg.
• Last week the EIA reported that US crude inventories fell for a fourth consecutive week. Industry data from API is released today and EIA on Wednesday and will be watched to see if the trend continued. The Fed decision on Wednesday and payrolls on Friday will also be key to the outlook.
• OPEC holds it review meeting on Thursday and while market participants are divided over whether there will be changes to production targets, the 6.5% drop in oil prices this month may still prompt some caution. Delegates have said ahead of the meeting though that they are unlikely to recommend any alterations to the current plan to reduce output cuts from Q4, which have made the market nervous.
• Later there are US May housing data, June JOLTS job openings and July consumer confidence and in Europe, euro area Q2 GDP, July economic sentiment and German preliminary July CPI.

GOLD: Steady Ahead Of A Busy Week Of Global Policy Decisions and Data

Gold is steady in today’s Asia-Pac session, after closing slightly lower at $2384.19 on Monday.

• It was a subdued start to a busy week of global central bank policy meetings and key data releases. This week will see policy decisions from the BoJ, BoE and Fed alongside top-tier economic releases including the US Non-Farm Payrolls report and Employment Cost Index, Euro Area CPI and GDP, Australian CPI and China PMI.
• (AFR) Goldman Sachs economist David Mericle wrote "We expect the FOMC to revise its statement to say that the unemployment rate has ‘risen slightly but remains low’, that there has been ‘further progress’ (dropping ‘modest’) toward the 2 per cent inflation goal, that the risks to the two sides of the mandate ‘are in’ (not ‘have moved toward’) better balance, and—most importantly—that it now needs only ‘somewhat’ greater confidence in the inflation outlook to start lowering interest rates.”
• Lower rates are typically positive for gold, which doesn’t pay interest.
• According to MNI’s technicals team, the yellow metal has recently pierced the 50-day EMA at $2,361.8, a clear break of which would signal scope for a deeper retracement towards $2,277.4, the May 3 low. For bulls, a reversal higher would refocus attention on $2,483.7, the Jul 17 high.