FOREX: Asia-Pac FX: The USD Drifts Higher As Risk Struggles In Asia

The TYZ5 range has been 112-19+ to 112-22 during the Asia-Pacific session. It last changed hands at 112-21+, unchanged from the previous close. 

• 10-Year yields bounced to start the week on the back of global politics but remains subdued below 4.20% as the market works through the US shutdown. I suspect buyers continue to be around 4.20% initially and look to fade bounces higher looking for a move back towards 4%.  
• The US 10-year yield is trading around 4.125%.
• The US 2-year yield is trading around 3.568%.
• MNI Brief - Stephen Miran emphasized the importance of an independent U.S. central bank, and said he will not be playing a part in the search for the next Fed chair.

Fig 1: 10-Year US Yield Daily Chart

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

ACGBs (YM flat & XM +2.0) are modestly stronger in today's data-light session but off session bests.

• According to MNI’s technicals team, Aussie 3-yr futures (YM) have traded lower, and the contract has cleared the Sep 3 low of 96.435. A break of this level negates the recent short-term bullish theme. This breach signals scope for an extension towards 96.280, the May 15 low on the continuation chart. The short-term resistance to watch is 96.615, the Sep 12 high. Clearance of this level is required to reinstate a bullish theme. 
• Cash US tsys are little changed in today's Asia-Pac session after yesterday's modest rally.
• Cash ACGBs are 1-3bps richer with the AU-US 10-year yield differential at +23bps. At 23bps, the differential is approaching the top of the +/- 30bp range it has traded in since late 2022.
• The bills strip is flat to +2 across contracts.
• RRBA-dated OIS pricing is largely unchanged across meetings today. Markets now assign a 40% probability to a 25bp rate cut in November, with a total of 14bps of easing priced by year-end. This marks a notable shift from late September, when markets had fully priced a 25bp cut ahead of the August CPI release.
• Tomorrow, the local calendar will see Consumer Inflation Expectation data.

Asia Pac equities are mixed, with some caution coming through in tech/AI related space. Hong Kong markets have returned weaker, with the HSI down over 1%, tracking lower for third straight session. The tech sub index off over 1.1%. We did see US tech related bourses underperform in US Tuesday's trade, while the Golden Dragon index lost 2.24%. Note onshore China markets return tomorrow. 

• Reuters also noted: "U.S. lawmakers are calling for broader bans on chipmaking equipment to China after a bipartisan investigation found that Chinese chipmakers had purchased $38 billion of sophisticated gear last year." This has potentially weighed on China tech related plays in Hong Kong.
• BBG also notes Citigroup analysts who stated that Golden Week box office results were below expectations (hurting sentiment in this space).
• Taiwan's Taiex is off around 0.50%, but still 2700, so close to recent record highs. Even with this recent run higher, offshore investors have only added modestly to local stocks, (but regional holidays, with China and South Korea still out may be a factor).
• In South East Asia, trends are mixed. Indonesia went to a fresh record high, but is now tracking modestly lower. Onshore government bond yields continue to fall, amid the dovish BI outlook, while consumer sentiment data for Sep fell to fresh lows since 2022.
• Thailand stocks are up ahead of an expected BoT cut later (last 0.55%). We also stimulus measures (0.3-0.4ppts of GDP) announced yesterday to boost consumption (via BBG).
• NZ stocks are outperforming Australia, after the 50bps RBNZ cut surprised the market.