AUSSIE BONDS: ACGB Nov-32 Supply Faces A Higher Yield But A Flatter Curve

JGB futures finished up post Tokyo trade on Tuesday at 136.41, +.08 versus settlement levels. Like elsewhere the Dec JGB futures is holding the bulk of its gains seen so far this week. This impulsive rally comes in the context of the firm downtrend that’s dominated prices since mid-September, and will need to challenge resistance before signaling a broader reversal. Key short-term resistance has been defined at 137.30, the Sep 8 high. On the downside, note the Oct 8 low at 135.61. 

• The bias remains for futures to remain in a downtrend, given fiscal pressures and potential delays to the BoJ tightening cycle (which should bias the JGB curve steeper, all else equal). Still, markets will be mindful that the US 10yr Tsy yield is close to recent lows near 4.00%, so spill over could unfold if this benchmark yield tests lower.
• Domestic politics remains in focus, with uncertainty as to who will be the next PM. An extraordinary session of the National Diet is expected to be held on 21 October (likely to elect a new PM). Per Kyodo news: "There is no indication of when LDP President Sanae Takaichi will receive the nomination, and a series of meetings between the ruling and opposition parties and within the opposition parties are expected to be held in the afternoon of the 15th." LDP leader Takaichi is seeking meetings with the three main opposition parties today. Takaichi's PM odds sit at 80 per Polymarket, slightly up from this week's lows.
• Note we have the 20yr debt sale today. Concerns around a sharp rise in bond issuance may have fallen, given the on-going political uncertainties could leave it difficult to pass aggressive fiscal policy in the near term.
• The 10yr JGB finished up yesterday at 1.65%. 

China’s comments on current trade issues with the US supported gold to another new record high at $4179.7/oz. It fell to $4090.67 soon after driven by a stronger US dollar and likely profit-taking as the metal is in overbought territory. Later on Wednesday it dipped again following comments from US trade representative Greer that staff-level talks with China were taking place increasing hopes of a solution. Gold ignored Fed Chair Powell’s indication of further easing due to the labour market as it has rate cuts already factored in.

• Easier liquidity in London for silver drove it down to $50.473 after a new high at $53.546. This also contributed to end gold’s Tuesday rally. Silver finished down 1.8% to $51.434 and is currently trading around $51.79. The white metal is still up over 10% in October and trend signals continue to be bullish with initial resistance at $52.00. Initial support is at $46.791, 20-day EMA.
• Silver is due to arrive in the UK in coming weeks as tight liquidity drove increased buying. The mismatch between physical and paper supply is expected to unwind with the risk that the small market size exaggerates a correction.
• Gold outperformed silver rising 0.8% to $4142.94 to be 7.4% higher this month. It is up on Wednesday to $4163.8. The bull cycle remains but the trend is overbought and a correction would allow this to start to unwind. Initial resistance is at $4179.7 followed by $4200.0 with initial support at $4006.5, 10 October low. 

Early Wednesday trade has Aussie bond futures down modestly, although we are still holding onto the bulk of recent gains seen this week. 3yr futures were last 96.50 (+2.5bps), while 10yr were at 95.73 (+2bps ). For 3yr recent Sep highs remain intact at 96.615, while for the 10yr the upside focus point is 95.78. Clearance of these levels would reinstate a bullish theme. 

• Focus is on US-China tensions, which softened as Tuesday's session unfolded, with the USTR stating trade talks are on-going. Recall yesterday, risk off gripped markets as China announced shipping curbs/investigation.
• Whilst tomorrow the Sep Jobs data prints. We do hear from the RBA's Hunter later this morning, but the central bank is in data watch mode at this stage and still painting a cautious outlook (in terms of further cuts). A full 25bps cut is not priced in until Feb/Mar next year.
• ACGB cash yields sit around 2bps firmer across the benchmarks in the first part of Wednesday trade.  The 3yr back to 3.48%, after finding support near 3.45%.
• The 3/10s curve is +77bps, slightly flatter. The AU-US 10yr spread has stabilized ahead of +20bps.
• Note today we also get the Westpac Leading index for Sep, while we also have a 2035 bond sale.