AUSSIE BONDS: Cheaper Going Into RBA Decision
ACGBs (YM -5.0 & XM -2.0) are holding cheaper after dealing in narrow ranges in today’s Sydney session ahead of the RBA Policy Decision. While the cash rate is unanimously expected to remain at 4.35%, the meeting statement will be closely analysed for any shifts in tone.
- (AFR) Bullock says the economy is hot. Chalmers says it’s not. Who is right? (see link)
- Cash ACGBs are 2-5bps cheaper. The AU-US 10-year yield differential at +27bps, near the upper limit of the +/-30bps range maintained since November 2022. A simple regression of the AU-US 10-year yield differential against the AU-US 1Y3M swap differential over the past year suggests that the current 10-year yield differential is about 11bps above fair value, estimated at +18bps.
- Cash US tsys are 1-2bps cheaper in today’s Asia-Pac session, with a flattening bias.
- Swap rates are flat to 2bps higher, with EFPs ~2bp tighter and the 3s10s curve flatter.
- The bills strip pricing is flat to -3.
- RBA-dated OIS pricing is little changed today. However, the pricing for 2025 meetings remains 1-7bps above pre-CPI levels from last Wednesday.
- The market has 2bps of easing by year-end, with an 8% probability assigned to a 25bp rate cut at today’s meeting.
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JGB TECHS: (Z4) Bullish Theme Fades
- RES 3: 149.55 - High Mar 22 (cont)
- RES 2: 147.74 - High Jan 15 and bull trigger (cont)
- RES 1: 146.53 - High Aug 6
- PRICE: 144.32 @ 16:23 BST Oct 04
- SUP 1: 143.57 - Jul 17 high
- SUP 2: 142.23 - Low Jul 02
- SUP 3: 140.21 - 1.236 proj of Mar 22 - Nov 1 ‘23 - Jan 15 price swing
The bullish outlook for JGBs was dealt a further blow Friday on the stronger-than-expected US jobs print. As a result, JGBs slipped sharply to pullback lows of 144.300 - however the low is still clear of next support at 143.57. Additionally, moving average studies on the continuation chart are in a bull-mode position, highlighting a clear uptrend. A continuation higher would open 146.53, the Aug 6 high(cont) and a bull trigger.
USDCAD TECHS: Corrective Phase
- RES 4: 1.3739 High Aug 15
- RES 3: 1.3693 High Aug 19
- RES 2: 1.3647 High Sep 19 and key resistance
- RES 1: 1.3584/91 50-day EMA / High Oct 4
- PRICE: 1.3579 @ 16:39 BST Oct 4
- SUP 1: 1.3473/3420 Low Oct 2 / Low Sep 25 and the bear trigger
- SUP 2: 1.3413 Low Feb 9
- SUP 3: 1.3358 76.4% retracement of the Dec 27 ‘23 - Aug 5 bull run
- SUP 4: 1.3288 Low Jan 5
The trend condition in USDCAD remains bearish and the latest recovery appears to be a correction - for now. The strong Sep 24 sell-off reinforced a bearish theme. The pair breached support at 1.3441, the Aug 28 low, confirming a resumption of the downtrend that started Aug 5. This paves the way for an extension towards 1.3358, a Fibonacci retracement. Resistance to watch is 1.3584, 50-day EMA - a level pierced on Friday. A break would expose 1.3647, Sep 19 high.
US TSYS: Tsys Broadly Lower, Curves Flatter After Strong September Job Gains
- Treasuries gapped lower following this morning's stronger than expected jobs data for September, futures gradually extending session lows since midmorning while curves bear flatten: 2s10s -8.542 at 5.295 -- the lowest since mid-September.
- Payrolls growth was far stronger than expected in September at 254k (cons 150k) for a 104k surprise, nearly entirely driven by the 98k surprise for private payrolls (223k vs cons 125k).
- The status flows within the household survey echo the strong headline figures that saw the unemployment rate surprisingly fall from 4.22% to 4.05%. The outright shift from employed to unemployed (-215k) extended the improvement seen in Aug (-47k) after what had been a sharp 292k increase in July that drove the surprise lurch in the unemployment rate to 4.25%.
- Markets have been swift to price out a 50bp November rate cut after September's employment report came in much stronger than expected - in addition to revisions that recast the summer's weak hiring in a much more positive light. Indeed, November implied pricing has even dipped a little below 25bp, suggesting potential for a rate hold.
- Meanwhile, focus turns to next week's CPI and PPI inflation measures on Thursday and Friday respectively, prefaced by Wednesday's September FOMC minutes release.
