JGBS: 2yr JGB Weaker Post Solid Auction, Futures Supported Post Tokyo CPI Dip

NZGBs closed 1-2bps cheaper across benchmarks after a relatively subdued session.

• NZGBs underperformed the $-bloc, with the NZ-US and NZ-AU 10-year yield differentials finishing 2bps wider.
• Cash US tsys are slightly mixed, with a steepening bias, in today's Asia-Pac session after yesterday's modest twist-steepener.
• (Bloomberg) -- A La Niña watch is in effect with international guidance suggesting a 60% chance it will be established before Dec 31, Earth Sciences New Zealand says in an update.
• Swap rates closed flat to 4bps higher, with the 2s10s curve steeper.
• RBNZ dated OIS pricing closed little changed across meetings. 34bps of easing is priced for October, with a cumulative 62bps by November 2025.
• Tomorrow, the local calendar will see Cotality Home Values.
• The NZ Treasury plans to sell NZ$250mn of the 4.50% May-30 bond and NZ$200mn of the 4.50% May-35 bond.

The BBDXY has had a range of 1200.12 - 1201.63 in the Asia-Pac session; it is currently trading around 1200, -0.01%. The USD again found some support around the 1200 area after initially being heavily sold on the imminent shutdown. First support back towards the 1200 area and then 1195. The USD has historically not done well during shutdowns, but tends to bounce back quite hard when they eventually end. The fact we are still above 1200 has been impressive though I am not sure it can bounce too far as the shutdown orders look to be executed this morning. I thought it would be a tough ask to see any big directional moves this week until the market gets a look at the Payroll number but with this data now unavailable the ADP could take on a lot more relevance tonight.

• EUR/USD -  Asian range 1.1730 - 1.1743, Asia is currently trading 1.1750. The pair found sellers just above 1.1750 overnight. The deeper correction looks to have been put on hold for now as the focus turns toward how this shutdown plays out. 
• GBP/USD - Asian range 1.3435 - 1.3452, Asia is currently dealing around 1.3450. The pair could not break through its support around the 1.3300 area, price has bounced back into the range. The market should now be looking for bounces to fade initially, first sell zone is back towards the 1.3500 area.
• USD/CNH - Asian range 7.1251 - 7.1397, Asia is currently dealing around 7.1380. The area just below 7.1000 has proved to be well supported recently so looks like we could consolidate 7.09-7.16 for now.
• Cross asset : SPX -0.45%, Gold $3860, US 10-Year 4.146%, BBDXY 1200, Crude Oil $62.54
• Data/Events : Spain HCOB Spain Manufacturing PMI, Germany HCOB Germany Manufacturing PMI, France HCOB France Manufacturing PMI, Italy HCOB Italy Manufacturing PMI/Budget Balance, EZ HCOB Eurozone Manufacturing PMI/CPI

Fig 1: GBP/USD Spot 2H Chart

Source: MNI - Market News/Bloomberg Finance L.P

The NZD/USD had a range of 0.5786 - 0.5805 in the Asia-Pac session, going into the London open trading around 0.5795, +0.05%. The NZD broke through its pivotal 0.5800 support last week and even though it has drifted higher the last few days it has traded heavily around 0.5800 even with the USD falling. The first sell zone would be between the 0.5850/0.5900 area. 

• MNI INTERVIEW: RBNZ To Eye 2% OCR Level - Ex Assistant Gov. The Reserve Bank of New Zealand is likely to need to cut the 3% Official Cash Rate by 100 basis points over the medium term to stabilise output and inflation following weaker-than-expected Q2 GDP data, a former assistant governor told MNI.
• Bloomberg - “ The NZ government has offered to support the three power companies in which it has a majority shareholding if they need to raise capital for new electricity generation - even if it's not renewable.”
• MNI - Cotality home values for September are scheduled to be released between October 1 and 10. August was the fifth consecutive monthly decline in house prices, which may be weighing on consumer confidence.
• Options : Closest significant option expiries for NY cut, based on DTCC data: 0.5825(NZD360m). Upcoming Close Strikes : 0.5850(NZD310m Oct 2) - BBG
• CFTC Data of last week shows Asset Managers continuing to rebuild their short positions in the NZD, -18421(Last -11933). The Leveraged community don’t seem as convinced and reduced their own shorts, -2850(Last -5327).
• AUD/NZD range for the session has been 1.1385 - 1.1415, currently trading around 1.1385. The Cross has broken above the multiple highs around the 1.1200 area and has accelerated up towards 1.1400. I would think this 1.1400/1.1500 could initially be met with some selling and expect some work to be done up here before another extension higher.

Fig 1: NZD/USD Spot Daily Chart

Source: MNI - Market News/Bloomberg Finance L.P