JPY: Asia Wrap - Sellers Cap Move Above 144.00 Again
The Asia-Pac range has been 143.40 - 144.14, Asia is currently trading around 143.45. The relief from USD selling overnight did not last long, USD/ASIA has seen a fresh round of selling in our session as Asia's major markets have another strong week of inflows with almost $2bn recorded to yesterday.
- "Japan's hotter-than-expected core inflation boosts odds of a Bank of Japan rate hike in July, ING's Min Joo Kang says in a research report. Consumer prices excluding fresh food rose 3.5% in April from a year earlier, up from March's 3.2% increase, and exceeded the market consensus of a 3.4% increase, the senior economist for South Korea and Japan notes. Excluding fresh food and energy, core-core CPI rose 3.0% on year in April, which suggests underlying inflation will remain above the BOJ's target of 2.0%, the economist says." (DJ via BBG)
- “ Workers at companies affiliated with the Japan Business Federation won pay hikes exceeding 5% for a second consecutive year, which will help to keep a floor under domestic inflation”(BBG)
- “ISHIBA: FEEL TRUMP AND I SHARED BROAD UNDERSTANDING, CONVEYED HOPE FOR PRODUCTIVE TALKS OVER TRADE; WILL KEEP SEEKING REMOVAL OF ADDITIONAL US TARIFFS" - BBG
- USD/JPY again struggled to hold onto any gains above 144.00, fresh USD/Asia selling has seen the USD broadly lower in our session.
- The price action for the week shows the market is still much more comfortable selling rallies, resistance is now back towards 145.00/146.00. The longer we stay down here the focus will turn once more to the pivotal 140.00 area.
Options : Closest significant option expiries for NY cut, based on DTCC data: 145.00($2.1b May 23),144.00($2.09b May 23), 140.00(1.67b May 23). Upcoming Strikes : 143.00($1.36b May 28), 145.00($1.39b May 28).(BBG)
Fig 1 : USD/JPY Spot Daily Chart
Source: MNI - Market News/Bloomberg
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ASIA STOCKS: All In The Green Amid Tariff Hopes/Trump Call On Powell
Asia Pac equity markets are all in the green, led by tech related plays and Hong Kong markets. We had strong cash gains in US markets on Tuesday, while US futures are firmly in the first part of Wednesday trade. Trump remarks have dominated sentiment, with the US President stating he had no intention of firing Fed Chair Powell (which has been a source of concern for markets recently), while also stating final tariff levels on China will be lower than the 145% that currently prevails. This followed reported comments from US Tsy Secretary Bessent that the tariff standoff is unsustainable, and he expects de-escalation with China.
- Eminis are up over 1.5%, but the contract has been unable to sustain +5400 levels. A move into 5500/5600 region would likely be needed to unnerve recent shorts for this benchmark. Nasdaq futures are +1.8% at this stage.
- Japan markets are up over 2% at this stage, with the NKY 225 trending back towards 35000. The Taiex has outperformed in Taiwan up nearly 4%, while the South Korean Kospi is up around 1.5%, above 2500 in index terms.
- Hong Kong markets have the HSI up 2.4% at the break, with the tech sub index over 3%.
- Despite appearing to soften his stance on China, onshore China markets are only a touch higher at this stage. The CSI 300 up +0.22%, lagging the gains seen elsewhere.
- Trends are slightly more modest in SEA markets, the Singapore Straits Times up around 1%, same too for JCI in Jakarta, +1.2%. Gains elsewhere though are under 1%, while Philippine markets are down slightly.
US TSYS: Asia Wrap - Yields Drift Lower In The Long End
TYM5 has traded higher with a range of 110-20 to 111-00+ during the Asia-Pacific session. It last changed hands at Heading 110-29, up 0.04 from the previous close.
- The US 10-year yield is drifting lower, dealing around 4.34%, down from its open around 4.40%
- The US 2-year yield is unchanged, dealing around 3.81%
- Risk has reversed higher as Trump makes a U-turn saying he won’t fire Powell and made comments that seemed to soften his stance towards China.
- Block Curve flattener flows : SELL 8200 of USM5 traded at 108-06, post-time 01:25:20 BST (DV01 $353,017). BUY 2800 of USM5 traded at 114-22, post-time 01:25:20 BST (DV01 $353,492).
- 10-year Yields, having bounced off their support around the 4.25 area, yields are consolidating with the range looking something like 4.25/4.50% for now.
Data/Events : US S&P Global Services & Manufacturing PMI, New Home sales
AUSSIE BONDS: Holding A Twist-Flattener, Light Local Calendar
ACGBs (YM -6.0 & XM +1.5) are dealing mixed on a data light Sydney session, with the short-end under pressure as markets re-assess tariff-tied risks to global trade and the Trump Admin's efforts to meddling with the Federal Reserve's independent policy making.
- Risk-on sentiment extended into today’s Asia-Pacific session after US President Trump stated that he had no intention of firing Fed Chair Powell (which has been a cause of concern recently and around the outlook for Fed Independence).
- Trump also stated that the final tariff number for China wouldn't be near the current 145%. He also expressed optimism around trade deals with lots of countries and spoke of the large investment agreements reached for flows into the US.
- Cash US tsys have twist-flattened in today's Asia-Pac session, with yields 2bps higher to 8bps lower.
- Cash ACGBs are 6bps cheaper to 1bps richer with the AU-US 10-year yield differential at -10bps.
- Swap rates are flat to 5bps higher, with the 3s10s curve flatter.
- The bills strip is cheaper with pricing -4 to -9.
- RBA-dated OIS pricing is 2-10bps firmer across meetings today. A 50bp rate cut in May is given a 14% probability, with a cumulative 114bps of easing priced by year-end (based on an effective cash rate of 4.09%).
