Trading Resumes After Yesterday’s Holiday, PPI Data Due

In post-Tokyo trade on Friday, JGB futures were slightly higher, closing +8 compared to settlement levels. The local market was closed yesterday.

• Overnight, US tsys had a relatively subdued start to a busy week. The 2-year yield declined 4bps to 4.02%, while the 10-year rate dropped 3.6bps to 3.904%.
• US tsys were supported by brewing tension in the Middle East where Israel is on full alert ahead of an expected attack from Iran/Hamas. Additionally, fighting continues in Eastern Europe after Ukraine took control of over 1,000 square miles of Russian territory in a counter-offensive that kicked off over the weekend.
• Tuesday’s focus in the US will be on US PPI data and Richmond Fed Bostic. PPI data will be scrutinised for categories that feed through to the Fed’s preferred inflation gauge, the personal consumption expenditures price index.
• US CPI is due for release on Wednesday. Consensus sees core CPI at 0.2% m/m in July after the far softer than expected 0.065% m/m in June, with a mild skew towards a “low” 0.2% per MNI’s compilation of sell-side previews. We feel that moving away from a base case of the Fed cutting in 25bp clips will take further downside surprises. (See MNI CPI Preview here)
• Today, the local calendar will see PPI data for July.