AUSSIE BONDS: ACGB May-28 Auction Results

The May S&P Global ASEAN manufacturing PMI continued to show a decline in activity in the sector but at a slower pace with the index rising 0.5 points to 49.2, the second straight month below the 50-breakeven level. Q2 growth is shaping up to be soft. Only the Philippines and Thailand showed some growth, with the latter outperforming the rest of the region. Generally there was some improvement though across countries except the Philippines and Myanmar.

• While the ASEAN PMI picked up in May, the details signal manufacturing weakness could persist. The good news was a reduction in cost inflation to its lowest in five years with minimal selling price inflation, lowest since November 2020, but this reflects soft demand.
• The improvement in the May PMI was due to a slower fall in output but new orders contracted at a sharper rate with external demand also down. Total orders growth was its lowest since August 2021 while exports did better at their worst since end-2024.
• Less weak output meant that employment and purchasing also fell at a slower rate.
• While business confidence improved, it remains pessimistic running below the historical average. Global trade uncertainty is currently weighing with the delay in US tariffs due to expire July 8 but court cases and new steel tariffs adding to the unpredictability.
• Indonesia’s S&P Global manufacturing PMI in May rose to 47.4 from 46.7, Thailand to 51.2 from 49.5, Singapore to 49.7 from 49.6, Malaysia to 48.8 from 48.6 and Vietnam to 49.8 from 45.6, while the Philippines fell to 50.1 from 53.0 and Myanmar to 45.4 from 49.5.

ASEAN S&P Global manufacturing PMI

Source: MNI - Market News/Bloomberg

In Tokyo morning trade, JGB futures are weaker, -11 compared to settlement levels.

• Jibun Bank / S&P Global PMIs for May have printed: Services Index falls to 51 from 52.4 in April; and Composite Index falls to 50.2 from 51.2 in April.
• “Japanese government bonds may find short-term support as authorities signal efforts to rein in volatility. A draft of the government’s annual fiscal blueprint highlights the need to boost domestic holdings of JGBs to help cap rising yields, Bloomberg News reports. While the proposal lacks specifics, it underlines broader plans for fiscal consolidation and more stable issuance.” (per BBG)
• Cash US tsys are flat to 2bps richer, with a flattening bias, in today’s Asia-Pac session after yesterday’s modest losses. The 10-year yield continues to find good support around 4.35/40%. Yields need to hold above this area to continue to build for a move higher.
• Cash JGBs are little changed across benchmarks. The benchmark 10-year yield is 0.3bp higher at 1.497% versus the cycle high of 1.596% after yesterday's strong auction result.
• Swap rates are slightly lower. Swap spreads are mostly tighter.

The BBDXY range overnight was 1209.64 - 1214.67, Asia is currently trading around 1213. Asia opens a little lower but the BBDXY continues to find demand back towards the pivotal 1200 area. The market will probably refrain from any big breaks until we see what the NFP on Friday night has to offer.

• The Kobeissi Letter on X - “Is the US Dollar overvalued? The US Fed Trade Weighted Real Broad Dollar Index is trading near its 40-year high."
• "The index measures the value of the Dollar against 26 currencies based on its competitiveness with trading partners."
• "The Inflation-Adjusted Broad Dollar Index is ~15% above its long-term average, suggesting the US Dollar is overvalued."
• "However, the US Dollar index has declined -9% year-to-date to its second-lowest level since April 2022."
• "This marks the 5th consecutive monthly decline, its worst streak in almost 5 years. The trade-based US Dollar is still expensive.” https://x.com/KobeissiLetter/status/1929650480352793038
• The BBDXY rejected the 1125 area pretty strongly, the USD should continue to be met with supply should this 1225/30 area cap price. 
• We are approaching some key Weekly support towards the 1200 area in the BBDXY and this has found some decent demand as we head into NFP on Friday. A break below here is needed to signal the move is about to accelerate.

• Data/Events : ADP, S&P Services PMI, ISM Services Index, Fed Beige Book

  Fig 1: Inflation Adjusted Dollar Index Monthly Chart

  

          Source: Kobeissi Letter/ Bloomberg