EQUITIES: Asia Tech Stocks Pare Gains

Gold is slightly higher in today’s Asia-Pac session, after closing slightly lower at $2396.59 yesterday. The yellow metal hit an intra-day low of $2384.

• Bullion has now pulled back around 3.5% from its record high set last week.
• US yields ended Monday ~1bp higher after being ~2bps lower during the Asian session on the back of news that President Biden was pulling out of the election race.
• Lower rates are typically positive for gold, which doesn’t pay interest.
• It seems very likely that Kamala Harris will be the Presidential Nominee for the Democrats with the focus now turning to her running mate, betting markets have Josh Shapiro as the favourite with a 32% chance followed by Andy Beshaer at 26% and Roy Cooper at 20%.
• The market is now waiting for Friday’s update on the Fed’s preferred underlying inflation measure, which is expected to show the PCE deflator retreated to an annual pace of 2.5% from 2.6% in the year to May.
• According to MNI’s technicals team, the trend condition in gold remains bullish, despite the fade off last-week highs, with initial resistance at $2,483.8, the July 17 high. Initial support is at $2,390.1, the 20-day EMA.

The active iron ore contract on the SGX is testing multi month lows, last near $101.5/ton. This is just below late June lows. The next logical downside target is a test of the $100/ton level. The 20-day EMA sits back at $107/ton on the topside.

• Iron ore weakness is consistent with softer onshore steel prices. Both hot rolled coil and steel rebar futures are both off more than 1%. Rebar futures are back close to early April lows.
• The CSI 300 is off a little over 1% in the equity space, with equity sub indices tracking down for the third straight session. Yesterday's rate moves not doing much to boost sentiment at this stage.
• Broader metal prices have also been under pressure. The Bloomberg metals sub index off nearly 1.5% in Monday's session the 6th straight loss. The index is back to levels from early April.
• The chart below overlays this index against spot iron ore prices. Over supply (with copper inventories)/China demand concerns are weighing on broader sentiment in the complex.

Fig 1: Iron ore & Bloomberg Metals Sub Index

Source: MNI - Market News/Bloomberg

At the Tokyo lunch break, JGB futures are weaker, -14 compared to the settlement levels.

• The local calendar will see Machine Tool Orders data later today.
• (Bloomberg) Bank of Japan officials see weakness in consumer spending complicating their decision over whether to raise interest rates at a policy meeting next week, according to people familiar with the matter. (See link)
• Cash JGBs are 1-2bps cheaper across benchmarks. The benchmark 10-year yield is 1.6bps higher at 1.071% versus the cycle high of 1.108%.
• The 40-year yield is 2.0bps higher at 2.443%, ahead of tomorrow’s supply and a week ahead of the upcoming BoJ’s policy decision. Although this 40-year sale is set for a higher outright yield than at the May auction (high yield of 2.27%), secondary pricing hasn’t yet reached the 2.5% area which is said to be a target zone for institutional investors.
• Swaps are slightly mixed. Swap spreads are also mixed.