- Risk appetite is softer in the first part of Wednesday trade. US Tsy futures have ticked down after opening higher. The USD is up against the majors and the Asian FX bloc. USD/JPY continued to rebound even with fresh FX rhetoric from the FinMin. AUD broke sub Tuesday lows, as yield momentum weighed.
- Oil prices are also softer, although gold has outperformed and been supported on dips.
- Regional equities are mostly softer, with China property sub-indices weaker.
- Later the Fed’s Jefferson, Collins and Cook speak. March German IP is released and little else.
MARKETS
US TSYS: Treasury Futures Erase Earlier Gains, Fed Speak Ahead
- Treasury futures initially opened the session stronger with the 10Y contract making highs of 109-03, we have pared gains and now trade down (- 02+) at 108-30, earlier a few block sells of the 10y contracted traded at 108-30/30+.
- Cash Treasury curve is slightly steeper today with the 2Y yield +0.4bp at 4.834%, 10Y +1.4bp to 4.471%, the 2y10y is +0.819 at -36.731.
- MNI - MN FED Kashkari: Fed Likely On Hold For 'Extended Period' - (See link)
- Projected rate cut pricing scaled back from midmorning levels: June 2024 at -10.0% w/ cumulative rate cut -2.5bp at 5.302%, July'24 at -24% w/ cumulative at -8.5bp at 5.243%, Sep'24 cumulative -20.1bp, Nov'24 cumulative -30.3bp, Dec'24 cumulative currently -43.9bp.
- Looking Ahead: MBA Mortgage Applications, Wholesale Trade/Inventories, and more Fed Speak. US Treasury auctions $42B 10Y notes as well.
JGBS: Softer Tone Amid Lower US Tsys, Ueda Remarks
The bias in JGB futures has mostly been to the downside in Wednesday trade to date. We were last near 144.61, -.07. Session lows rest at 144.57, which is a touch above lows from early trade on Tuesday. Session highs came not long after the open at 144.86.
- A softer tone to US Tsy futures has likely weighed on the JGB backdrop. Fed speak around an extended pause has been a factor on the Tsy backdrop.
- JGBs also may have seen some light pressure on comments made by BoJ Governor Ueda around risks from a weaker yen and its potential impact on domestic policy. Still, such comments haven't aided the yen much today.
- We had the 10yr debt sale, with a slightly lower debt to cover ratio compared to the previous auction. Just under ¥2trln was sold.
- In terms of cash JGB yields, we sit back at 0.87% for the 10yr, unchanged for the session. The 20-40yr parts of the curve are still lower in yield terms by 1-2bps. The 10yr swap rate is a touch higher, last near 0.945%.
- Tomorrow, we have March labor cash earnings data on tap.
AUSSIE BONDS: ACGBs Mixed, Curve Flattens, Strong Demand At 5Y Auction
ACGBs (YM -2.0 & XM +2.5) are mixed today, curves have flattened as investors looks to position post the RBA on Tuesday. Earlier we have the 5yr auction, bid coverage ratio was 4.125 from 3.3375 prior, otherwise it has been a slow day, data was light with the next release not until Monday when NAB business surveys are out.
- US equity futures are little changed in Asia trading, while local markets led by Japan edge lower, poor outlook by Nintendo and Toyota reported operating income miss.
- US Tsys curve is slightly steeper today, yields are flat to 1.5bps higher. Earlier there was some block selling of 10Y futures contracts at 108-30/30+.
- The cash ACGB curve is flatter today with the front-end weaker, yields are 1.5bps higher to 3bps lower, the AU-US 10-year yield differential is now -18bps up from -22bps earlier today
- Swap rates are flat to 1bp lower
- The bills strip is mixed, 1bp higher to 1bp lower.
- RBA-dated OIS is little changed today, with the market pricing 4.5bps of easing to a terminal rate of 4.30%
- Looking ahead: Tomorrow we have 63 & 126-day bill auction, with the next data print the Nab Business Surveys on Monday
RBA: MNI RBA Review – May 2024: Rate Hike Discussed, RBA “Vigilant”
- The RBA left rates at 4.35% which was widely expected and maintained its reasonably neutral bias with the optionality that it isn’t “ruling anything in or out”. In that respect there was little change but the tone of the statement was a lot more cautious re the inflation outlook saying that not only is inflation “falling more gradually than expected”, especially services, but the Board “will remain vigilant to upside risks”.
- Governor Bullock said that both a rate hike and hold were discussed at the May meeting and the Board hopes that it won’t have to hike but it will if it has to. Currently the Board sees risks as “reasonably balanced” but needs to monitor upside inflation risks, especially as the costs of an overshoot exceed those of an undershoot.
- While the CPI is not expected to be near the top of the band at the end of this year, the RBA continues to project both headline and core at 2.8% in Q4 2025 and 2.6% in Q2 2026, so no change in when inflation enters the band and reaches the mid-point but the “process” is “unlikely to be smooth”. With inflation forecast to be 3.8% at year end though, it looks like there will be a prolonged hold.
- See review here.
AUSTRALIAN DATA: SEEK Vacancies Now 35% Below 2022 Peak
April SEEK job ads data showed a sharp drop in vacancies of 4.7% m/m to be now down 18.6% y/y to be 35% below the May 2022 peak, but the level remains elevated. The deterioration was broad based occurring across states and territories and industries. IT, hospitality & tourism and administration saw the largest falls. The number of applicants per job rose 8.6% m/m to its highest level since the Covid-impacted May 2020. On Tuesday, RBA Governor Bullock pointed out that while the unemployment rate is little changed there has been a drop in vacancies and hours worked, which tells the Board that labour market conditions are easing.
Australia SEEK applicants per job ad index
Source: MNI - Market News/SEEK
NZGBS: NZGBS Richer, Curve Flattens, Bonds Auction Thursday
NZGBs are flat to 5bps richer, with the curve bull-flattening, although the 30yr has lagged the move somewhat. It has been a very subdued day in the region, with no major data releases. Local rates markets have largely been digesting and positioning on the back on the RBA less hawkish than expected tone late Tuesday
- the US Tsys curve is slightly steeper today, yields are flat to 1.5bps higher. Earlier there was some block selling of 10Y futures contracts at 108-30/30+.
- The NZGB curve has bull-flattened, the 2Y is +0.8bps at 4.728% while the 10Y is -5.2bps at 4.652%, while the 30yr has lagged the move trading just 3.8bps lower.
- Swap rates are 1-4bps higher
- RBNZ dated OIS has pushed out expected cuts slightly with pricing now 2bps softer at the November meeting with a cumulative 40bps of easing is priced by year-end.
- Earlier, the GDT Price Index increased significantly from 0.1% to 1.8%, signaling a positive trend in the dairy market. While whole milk power average prices rose to $3,350 a ton, with the index rising 2.4%.
- Looking Ahead: Today the local calendar is empty with, NZ to Sell 7yr, 10yr 20yr bonds on Thursday and BusinessNZ Manufacturing PMI on Friday
FOREX: USD Rebound Continues, Yen & AUD Underperform NZD
USD sentiment has continued to recovery in the first part of Wednesday trade. The BBDXY USD index sits up a further 0.20% to 1256.85. This is still well below earlier May highs, but comfortably above post NFP lows from Friday near 1245. US Tsy futures have ticked lower, while regional equities are mostly weaker, which has aided the USD at the margins
- AUD and JPY have been the main sources of weakness against the USD, although all G10 currencies are tracking lower at this stage. NOK and SEK are also down by around 0.3%.
- USD/JPY has rallied back above 155.00, continuing to unwind last week's losses. We were last near 155.15 (around 0.30% weaker in yen terms). Earlier highs were at 155.27, lows at 154.55.
- We had fresh verbal FX rhetoric from FinMin Suzuki. They were in line with what has been said previously, although some sell-side analysts question the ability for continued Japan FX intervention given recent comments from US Treasury Secretary Yellen that FX such episodes such be rare.
- We also heard from BoJ Governor Ueda, who spoke about FX risks and how this can impact monetary policy, depending on the type of moves. Still, Ueda stated monetary policy can't control FX and a policy shift would be guided by risks of inflation over shooting the current projections.
- These comments didn't alter the yen trend.
- AUD/USD has been weighed down by further yield underperformance post yesterday's RBA outcome. AU-US spreads continue to fall. The currency was last at 0.6575/80, off a little over 0.3%.
- NZD has outperformed the A$ move but is still down against the USD, last near 0.5995. AUD/NZD is down 0.18% to 1.0972. Initial support is 1.0960 (20-day EMA), while a break back above 1.1000 would be needed to test resistance is 1.1031 (May 7 high).
- Later the Fed’s Jefferson, Collins and Cook speak. March German IP is released and little else.
ASIA EQUITIES: China & Hong Kong Equities Mixed, Property Slumps,
Hong Kong and China equities are mixed today, with Hong Kong markets again outperforming mainland stocks with the HSI has outperforming the CSI300 by 7.64% over the past month. China has announced they may support Telsa self-driving taxi trails, which have help local self driving technology shares, while sporting good manufacturing stocks also jumped after a report that the government will look at policies to promote the upgrade of sports equipment in the country.
- Hong Kong equities are mixed today the HSTech Index is up 0.25% after falling over 2% on Tuesday, the index is still in bull market territory after climbing 22% from recent lows. The Mainland Property Index is down just over 3% today, and is now trading back below the 200-day EMA, while the wider the HSI is down 0.10%. China onshore markets are outperforming today with the CSI300 down 0.85% although we still hold above the important 200-day EMA, while small-cap indices the CSI1000 and CSI2000 are both down about 1.20%, and the ChiNext down 1%
- China Northbound saw a -2.12b yuan outflow on Tuesday. Equity flow momentum however remains strong in the short-term with the 5-day average at 6.38b, well above the 20-day average at 0.745b and the 100-day average at 0.75b yuan.
- In the property space, China Vanke has put a commercial project in Shenzhen up for sale, with bidding starting at approximately 2.24 billion yuan. This move is part of Vanke's strategy to divest from non-core investments due to significant industry changes, despite expressing optimism about Shenzhen's development. Earlier this week Shenzhen relaxed home buying rules, however some analysts believe these measures in may not significantly bolster market confidence. These policies aim to reduce housing inventories in non-core areas but are perceived as less aggressive compared to measures implemented by other cities. Market expectations included stronger actions such as relaxed tax treatments and eased homebuying restrictions in Shenzhen's core areas, which were not realized.
- Analysts suggest that China might lower the Reserve Requirement Ratio (RRR) for banks this quarter to inject medium-term liquidity and bolster the economy. With anticipated increases in government and policy bank debt issuance in the second and third quarters, such a move could help mitigate potential liquidity shocks.
- Looking forward, the calendar is light on Today with China Trade Balance due out tomorrow.
ASIA PAC EQUITIES: Asian Equities Mixed, Nintendo Reports Weak Outlook
Asian markets are lower in early morning trading on Wednesday, Japanese equities are underperforming in the region after Nintendo reported weak outlook and while investors await results from Toyota later today. In the currency space, local FX is weaker vs the USD with KRW the worst performer, followed by the JPY, weaker local currency could support export names, however there has been little signs of that this morning. There is little on the calendar today in the region, markets will be focused on corporate earnings and any hints from Fed speakers later tonight.
- Japanese equities are lower today, dragged down by weaker tech stocks as the rally in the US seems to have lost steam. Nintendo's share tumbled after the company warned of a sharp fall in profit and expects operating income to fall a bigger-than-expected 24% to ¥400 billion ($2.6 billion) on a 19% revenue decline in the year to March 2025. The JPY is down 0.32% to 155.15 after BoJ Gov Ueda said he doesn't see yen moves as having a big impact on trend inflation at the moment, while Suzuki again warned about excessive FX moves. The Nikkei and Topix are both down about 1.20%.
- South Korean equities are little changed on Wednesday, HD Hyundai Marine jumped as much as 45% after largest Korean IPO since 2022. There has been little else in the way of headlines in the region while data remains light for the next week The Kospi is currently up 0.10%
- Taiwan equities are slightly lower today after headline CPI inched down to 2.0% y/y in April from 2.1% prior. The print fell back within the central bank's target range of 0-2%. The outcome was meaningfully below Bloomberg consensus of 2.2%. Looking ahead, later we have Trade Balance data while the Taiex currently trades down 30%.
- Australian equities are little changed today after the RBA kept rates on hold yesterday. The market was expected a slightly move hawkish tone from the bank, which saw the yields curve bull-flatten. The ASX200 has held onto recently gains and eyes a break of 7,800.
- Elsewhere in SEA, New Zealand equities are down 0.10%, Singapore equities down 0.75%, Philippines equities down 0.67% while Malaysian equities trade 0.13% higher and Indonesian equities are 0.15%.
ASIA EQUITY FLOWS: Tech Stocks See Inflows, Selling Of Indonesian Equities Continue
- China equity markets saw a small outflow on Tuesday, equity markets were weaker with small-cap indices performing slightly better than large-cap. The CSI300 continues to hold above all moving averages, however the market does look a touch weaker today, RSI is dropping while MACD indictor looks to have peaked for the moment. Looking ahead trade balance data on Thursday will be the main focus, with CPI due out over the weekend. Equity flow momentum remains positive with the 5-day average now 6.38b still well above the 20-day average at 0.74b and the 100-day average at 0.74b.
- South Korean equities continue to tick higher, helped by strong global tech prices. The Kospi surge over 2% and saw it's largest inflow since 21 March on Tuesday as markets played catch up after being closed on Monday. The 5-day average is $196m, comfortably above the 20-day average at $75m and while largely inline with the 100-day average at $182m.
- Taiwan equities were higher on Monday with another strong $325m inflow, as foreign investors continue to pump cash into semiconductor names, especially TSMC and Hon Hai. Later into the session on Tuesday CPI came out below expectations at 1.95% vs 2.20%, while today we have Trade Balance data. The Taiex is up 6.52% from recent lows and has seen $2.5b on inflows over that period, although that is still less than the $2.7b outflow from Apr 19th and the cycle lows. The 5-day average is now $195m well above the 20-day average of -$161m and the 100-day average at $62m.
- Philippines equities have now marked 5 straight days of outflows, for a total net outflow of $331m. Tuesday we have CPI data which missed estimates coming in at 3.8% vs 4.1%, up next we had Trade Balance data. After a strong bounce off recent lows the PSEi has begun to lose steam again, and broke back below the 20, 50 & 100-day EMAs, and now hovers just above the 200-day EMA, with a break below here opening up a retest of the Apr 19 lows at 6,400. The 5-day average is -$66m, the 20-day average is -$22.8m, while the 100-day average continues to edge lower now at -$3.2m.
- Indonesian equities have now marked 22 of 24 days of outflows and now takes the total flows from the past 22-days to -$1.6B. The JCI has traded largely rangebound since foreign investors started this period of selling, with the index trading below the 100-day and 200-day EMAs. The 5-day average is now -$57m, the 20-day average is -$73m, while the longer term 100-day average is $7m.
Table 1: EM Asia Equity Flows
| Yesterday | Past 5 Trading Days | 2024 To Date | |
| China (Yuan bn)* | -2.1 | 31.9 | 81.4 |
| South Korea (USDmn) | 905 | 1379 | 14836 |
| Taiwan (USDmn) | 325 | 975 | 840 |
| India (USDmn)** | -138 | -255 | -216 |
| Indonesia (USDmn) | -45 | -288 | 213 |
| Thailand (USDmn) | 49 | -10 | -1877 |
| Malaysia (USDmn) ** | 53 | 274 | -333 |
| Philippines (USDmn) | -16 | -44.6 | -294 |
| Total (Ex China USDmn) | 1133 | 2030 | 13167 |
| * Northbound Stock Connect Flows | |||
| ** Data Up To Apr 6th |
OIL: Crude Lower Again, US EIA Stock Data Out Later
Oil prices are lower again today as API measured US crude stocks rose and hopes of a Gaza ceasefire deal remain. Also the US dollar is stronger (BBDXY +0.2%). WTI has found support at $78 and is down 0.4% to $78.06/bbl, close to the intraday low of $78.01. Brent is down 0.4% to $82.79 after a low of $82.74.
- Bloomberg reported that US crude inventories rose 500k barrels last week according to people familiar with API data. Gasoline rose 1.5mn and distillate 1.7mn. The official EIA data is out later today.
- There are number of indicators pointing to easier conditions in the oil market. Not only has there been a US stock build but also refining margins and prompt spreads have narrowed. But supply remains in focus with tightened sanctions on Iran and Venezuela and a likely extension of OPEC+ output cuts into H2 2024 to be decided at its June 1 meeting.
- China has allowed 14mn tonnes of diesel, gasoline and jet fuel to be exported as domestic fuel demand wanes with the growth in EV use.
- Later the Fed’s Jefferson, Collins and Cook speak. March German IP is released and little else.
GOLD: Remains Within Recent Ranges, But Outperforming Firmer USD Backdrop
Gold is up from earlier lows, last near $2318.5. We got close to $2307 in the first part of trade amid a broadly firmer USD backdrop and as US Tsy futures moved away from session highs. THis was sub intra-session lows from Tuesday. However, support emerged and we have recovered, even as the USD has held near session highs.
- We remain within ranges in terms Tuesday US trade (gold lost 0.42% for Tuesday). At this stage we are +0.20% higher in the first part of Wednesday trade, outperforming USD gains/firmer US yield backdrop.
- This leaves us close to the 20-day EMA, which is around current spot levels.
- China FX reserves fell in April, while gold accumulation slowed. The PBoC purchased 60k troy ounces in April, down from 160k in March and 390k in Feb per BBG.
- Central bank demand is seen as a key driver of gold's run higher, so such trends will be watched as progress into H2 this year.
MALAYSIA: MNI BNM Preview - May 2024: Remaining On Hold
- The policy rate is likely to remain at 3.00%. There seems little need for a BNM shift at the current juncture. FX risks are still present given uncertainty of the Fed easing cycle.
- Equally the need for easier policy settings is not compelling from a domestic growth stand point.
- The strong sell-side consensus is for no change at Thursday's policy meeting.
- See the full preview here:
PHILIPPINES DATA: Trade Deficit Improves On Import Slump
Philippines March trade figures were weaker than forecast from both an export and import growth standpoint. Exports fell -7.35 y/y, versus a 15.7% prior outcome and -2.2% consensus projection. Imports fell -20% y/y, against a -6.0% forecast and +6.5% prior outcome. This saw a better than expected trade position. The deficit printed at -$3.18bn, versus -$4.1bn forecast and -$3.6bn prior.
- Exports were higher in m/m terms, up 3.8%, with both manufactures and electronic products rising. Hence the y/y fall is likely overstating the extent of weakness and we could recover some ground next month given April 2023 saw a -20.2% y/y dip.
- On the import side, such a sharp drop may raise concerns around the domestic demand backdrop Aggregate imports were down -2.7% m/m, after last month's -7.5% fall. Still, we saw capital good imports rise 10.2% m/m, while consumer goods rose 4.1% in m/m terms. This should ease such fears at the margin.
- Raw material imports and mineral fuel imports were both down in m/m terms to offset these rises.
- The improved Philippines trade deficit backdrop is in line with a better terms of trade of trade backdrop. The chart below overlays the Citi PHP terms of trade proxy against the country's trade position.
Fig 1: Philippines Trade Position Versus Citi ToT Proxy
Source: Citi/MNI - Market News/Bloomberg
ASIA FX: Lost Further Ground, CNH Beta To Dollar Gains Remains Low
USD/Asia pairs are mostly higher amid a further recovery in the major USD indices. A downtick in US Tsy futures has helped the dollar, while regional equity sentiment has also been softer. Still to come today is Malaysian FX reserves along with Taiwan April trade figures. Tomorrow we have the BNM decision, with no change expected. China April trade figures also cross.
- USD/CNH is tracking above 7.2300 this afternoon, modestly weaker in CNH terms. This is in line with broader USD gains, although as has been the pattern for much of 2024, CNH losses are maintaining a low beta to such trends. The local equity backdrop is weaker, amid uncertainty around fresh stimulus measures being enough to turn around the ailing sector.
- 1 month USD/KRW is around 0.45% weaker in won terms. This puts us back to 1363/64. This is close to the 20-day EMA (near 1365). Onshore equities have actually outperformed the softer region trend but this hasn't done much for won, which is among the weaker performers in the region so far today.
- USD/PHP has rebounded as well, the pair back to 54.40/45, around 0.35% weaker in spot terms. We had mixed March trade figures with slowing export growth but a better than expected trade deficit position (owing to weaker imports). The market didn't though on the print.
- USD/IDR has gravitated higher, the pair back to 16085, still comfortably off recent highs but unable to make headway sub 16000. We are expected to hear from the BI Governor later on at 2pm local time, where an economic update will be discussed.
UP TODAY (TIMES GMT/LOCAL)
| Date | GMT/Local | Impact | Flag | Country | Event |
| 08/05/2024 | 0600/0800 | ** |  | DE | Industrial Production |
| 08/05/2024 | 0700/0900 | ** |  | ES | Industrial Production |
| 08/05/2024 | 0730/0930 | *** |  | SE | Riksbank Interest Rate Decison |
| 08/05/2024 | 0800/1000 | * |  | IT | Retail Sales |
| 08/05/2024 | 1100/0700 | ** |  | US | MBA Weekly Applications Index |
| 08/05/2024 | 1400/1000 | ** | | US | Wholesale Trade |
| 08/05/2024 | 1430/1030 | ** | | US | DOE Weekly Crude Oil Stocks |
| 08/05/2024 | 1500/1100 | | US | Fed Vice Chair Philip Jefferson | |
| 08/05/2024 | 1545/1145 | | US | Boston Fed's Susan Collins | |
| 08/05/2024 | 1700/1300 | ** | | US | US Note 10 Year Treasury Auction Result |
| 08/05/2024 | 1730/1330 | | US | Fed Governor Lisa Cook | |
| 08/05/2024 | 1935/1535 | | US | New York Fed's Roberto Perli |
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