EM ASIA CREDIT: Adani Ports: Underperforming on Mid East risk
(ADSEZ, Baa3neg/BBB-neg/BBB-neg)
Adani Ports $ bonds are a little softer again this morning, around +1bp across the curve. The conflict in the Middle East is generating underperformance in Adani bonds, though we note that Israeli port operations in Haifa (70% owned by Adani) represent only a small share of the overall business (2% of volumes, 5% of revenues). The Israeli military operation in Iran began June 13th, Adani $ bonds are around 10-15bp wider since the prior day close, in contrast the Bloomberg Emerging Markets Asia $ index is around 2bp tighter over the same period. That aside, the $ bonds have held on to the majority of the spread performance that followed the announced plan for future $ bond tenders.
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FOREX: AUD Crosses - AUD Bounces Back With US Stocks
The AUD has opened in Asia well supported as the market shrugs off the US downgrade and positioning continues to dictate direction. RBA Today will have a bearing on price action.
- EUR/AUD - Overnight range 1.7390 - 1.7519, Asia is trading around 1.7400. Another failure above 1.7500 puts a double top in place there now. It looks like we could be heading back to the recent lows towards 1.7200. A break above the recent double top would see the market reengage with the uptrend.
- GBP/AUD - Overnight range 2.0674 - 2.0813, Asia is trading around 2.0700. A sustained break back above 2.0800 is needed to signal a base is potentially in and the uptrend is set to resume. Support back towards 2.0500 has proven to be solid, a break is needed through here to see further unwinding of longs.
- AUD/JPY - Overnight range 92.91 - 93.68, Asia is trading around 93.80. The area towards 96.00 proved to be solid resistance. Decent demand seen below the 93.00 area as it holds again overnight. A sustained close back below 91.50/92.00 is needed to turn the focus back towards the lows again. If stocks continue to press higher AUD/JPY should drift back towards the 96.00 area.
AUD/NZD - Overnight range 1.0872 - 1.0909, the cross is dealing in Asia around 1.0890. The Cross has finally found some supply just above 1.0900, support is seen back towards 1.0800. A sustained break above 1.0900 would turn the focus higher.
Fig 1: AUD/JPY spot Hourly Chart
Source: MNI - Market News/Bloomberg
AUD: Correlations Strongest With AU-US Rate Differentials & Equities Past Month
The table below presents AUD/USD correlations with key macro drivers, using the sample period of the past month. This is applied in level terms. At this stage, correlations are strongest with AU-US rate differentials (expressed as the expected 3 month differential 1yr ahead) and global equities. Correlations with commodities, whether it be global Bloomberg indices or iron ore, sit close to flat, down from highs seen in the first part of the year.
- This comes ahead of the RBA meeting later, where any major surprises - to the extent they shift market pricing, could influence AUD/USD, assuming recent correlations hold.
- The balance of risks arguably lies more with a hawkish outcome, given recent employment/wage outcomes (i.e. a 25bps cut but cuation around further moves). Market pricing is also for two more cuts this year from the RBA.
- The AU-US 3mth spread (in 1yrs time) has been in a broad range of around -50bps to flat since the start of the year. We currently sits around -16bps.
Table 1: AUD/USD Correlations With Key Macro Drivers
| AUD/USD | |
| Bloomberg Base Metals | -0.015 |
| Bloomberg Commodities | -0.075 |
| Iron Ore | 0.136 |
| Global Equities | 0.467 |
| AU-US 3mth Spread | 0.529 |
Source: MNI - Market News/Bloomberg
US TSYS: Cash Open
TYM5 is trading 110-07+, up 0-03 from its close.
- The US 2-year yield opens around 3.98%, unchanged from its close.
- The US 10-year yield opens around 4.453%, up 0.01 from its close
- (Bloomberg) -- “House Speaker Mike Johnson said “we are almost there” on passing a sweeping US tax bill. Republicans are pushing to implement Medicaid work requirements in 2027, two years earlier than planned, Majority Leader Steve Scalise told CNBC.”
- (Bloomberg) - “Washington lawmakers are risking a "fiscal disaster" if a recession hits as they continue with their package of sweeping tax cuts, according to Guggenheim Securities Co-Chair Jim Millstein.”
- “The cost estimates of the current GOP package "assume consistent economic growth", but a recession could expand the deficit from $2.4 trillion to $4 trillion.”
- "*FREEDOM CAUCUS CHAIR HARRIS SAYS VOTES NOT THERE FOR TRUMP BILL" - BBG
"*HARRIS PREDICTS DEAL ON TRUNP TAX BILL DELAYED UNTIL JUNE". - The 10-year Yield failed once again to hold above 4.5% likewise the 30-year Yield above the pivotal 5% level. A sustained break above this level could see another round of selling targeting the 4.75% area. Support seen back towards 4.35/40%, dips back towards here should see supply emerge once more.
- Data/Events: Tuesday's schedule includes the Philly Fed nonmanufacturing survey along with another slew of Fed speakers, including Collins, Barkin, Musalem, Kugler, Hammack and Daly.
