JGBS: Bull-Flattener At Lunch, 30Y Extends Yesterday's Post-Auction Rally
At the Tokyo lunch break, JGB futures little changed, -1 compared to the settlement levels, after erasing overnight losses.
- Japan's April household spending was notably weaker than forecast, printing 0.1%y/y in real terms, versus a +1.5% consensus forecast (the March outcome was +2.1%y/y). Note spending was down 1.8%m/m. This outcome continues the recent see-saw y/y pattern for real spending. as we oscillate around flat (the Dec/Jan period we saw back-to-back positive gains).
- (Bloomberg) -- Japanese Chief Cabinet Secretary Yoshimasa Hayashi refrains from commenting on the Nippon Steel-US Steel deal, saying he will await an official announcement from the US government.
- Cash US tsys are flat to 1bp richer in today’s Asia-Pac session. The focus is on today’s Non-Farm Payrolls release. US nonfarm payrolls, due later today, are seen increasing a seasonally adjusted 126k in May in the Bloomberg survey after a stronger-than-expected 177k in April (albeit one that was more than offset by negative revisions). The unemployment rate is widely expected to round to 4.2% again. (See MNI US Payrolls Preview here)
- The cash JGB curve has bull-flattened, with benchmark yields flat to 4bps lower. The benchmark 30-year yield is 2.4bps lower at 2.868%, extending yesterday’s post-auction rally.
- The swaps curve has also bull-flattened, with rates 1-5bps lower.
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CHINA: Further Measures Announced to Support Real Estate Sector
- Amongst the raft of new initiatives announced today, a cut in the loan rates for the individual housing provident fund by 0.25bps was announced.
- This directly impacts home loans that have a maturity of greater than 5 years with the PBOC governor suggesting it will save borrowers up to CNY20bn of interest annually.
- China has been in the grips of a multi year downturn for the property sector with recent data showing that used home prices have contracted every month since July 2021.
- The housing provident fund is a long-term housing savings plan made up of compulsory monthly deposits by both employers and employees. It can only be used by employees for house-related expenses.
US: US Trade Data
Brad Setser posted a thread via X on the US trade data out overnight highlighting the surge in pharmaceuticals to avoid tariffs (and how it is likely to impact trade data going further), below are some key excerpts:
- Almost impossible to overstate just how crazy the US trade data -- and the pharmaceutical trade data -- has become.’
“I would not believe my spreadsheets if it wasn't 100% clear exactly what was going on -- big US pharma (and some European pharma companies) rushing high value goods into the US to beat the tariffs.”
“The aggregate data is crazy"
- “And the numbers on trade with all the centers of tax avoidance* collectively are crazy - - ”
- “The adjustments for pharma trade alone are gonna muck up the US h1 data (I suspect the front running continued in April), the EU & euro area data, the Swiss data and no doubt many other variables. Really hard to capture importing a year's worth of supply in a month!”
“The only silver lining is that the pharmaceutical companies have made the role that trade plays in their tax avoidance strategies abundantly clear -- the charts here make it easy for me to demonstrate that "modern" global trade is often mostly about tax avoidance”
THAILAND: VIEW: Goldman Sachs Expects 25bp Rate Cuts In Q3 & Q4
Thailand’s headline CPI inflation fell into negative territory at -0.2% y/y for the first time in over a year driven by state subsidies and lower vegetable and global oil prices. Core rose 0.1pp to 1.0% y/y, the bottom of the Bank of Thailand’s 1-3% target band, “mainly due to higher prepared food inflation”. Goldman Sachs continues to forecast 25bp rate cuts in Q3 (August) and Q4 resulting in a terminal rate of 1.25%. This assumes that it will be on hold at its June 25 meeting.
- Goldmans observes that “transport and communication inflation slowed to -3.0% yoy in April (vs. -0.4% yoy in March) mainly due to lower domestic fuel prices. This shaved 67bp from headline inflation in April, compared to a -9bp contribution the previous month.”
- “Housing and utilities inflation slowed to -0.7% yoy in April (vs. 0% yoy in March) mainly due to lower electricity tariffs in April. This shaved 17bp from the headline inflation in April, compared to a 0bp contribution the previous month.”
- “Food inflation also slowed to 1.6% yoy in April (vs. 2.4% yoy in March) due to lower vegetable and fruit inflation, with a partial offset from higher protein inflation. This contributed 64bp towards headline inflation in April, compared to a 92bp contribution the previous month.”
