JGBS: Bull-Flattener But 2/5 Curve Remains Around Cycle High

Asia equities are down again today with many key AI / Tech stocks dragging bourses lower.  Ahead of anticipated US data (NF Payrolls) markets are cautious as the path for US interest rates remains uncertain.  For the AI  / Tech space, what started with Oracle's warning last week has grown into something more, exacerbated by highly stretched valuations.  In China, mixed views on the economy are keeping equities at bay given what weak raft of data released yesterday and some strategists suggesting that more policy intervention is required.  Stocks in Japan are under pressure ahead of the BOJ interest rate decision this week and an expected 25bps rate rise alongside tech weakness.  

• The NIKKEI is down -1.30%, following yesterday's fall of -1.31% with key tech stock Softbank Group down -1.5%
• The KOSPI is down -1.65% after falls of -1.84% yesterday with leading AI Tech stock SK Hynix down -7% today alone.  The losses sees the KOSPI at 4025 and dip below the 20-day EMA of 4046.  Downside resistance in the form of the 50-day EMA is at 3,908.
• China's bourses are all down -1.50% - 2.00% with the Hang Seng the biggest faller.  Down -1.9% the HSI leads the CSI 300 down -1.35% and Shenzhen down -1.77%.  The HSI is near the 25,000 resistance level that it last traded below in August
• Taiwan's TAIEX is down -1.5% as TSMC drags the index down with falls of -1.7%
• India's NIFTY 50 closed near flat yesterday after falling earlier in the day but has opened down -0.34% today, breaking below 26,000 to be at 25,935
• The FTSE Malay KLCI continues to appear lowly correlated to its Asian peers, rising today by +0.15% whilst the JCI in Indonesia is down -0.20%

The BBDXY has had a range today of 1205.04 - 1206.29 in the Asia-Pac session; it is currently trading around 1205, -0.05%. The USD continues to find support between 1204-1205 but has still failed to react to a weakening risk backdrop. Is it lagging or is it waiting for clarity from postponed US data tonight. The supreme court decision regarding tariffs looks like it might now be a problem for early 2026 but the tail risk of an early decision does still exist. On the day look for initial resistance again back towards the 1208-110 area and above here the more important 1213-1216 area where sellers should remerge initially. Support is in the 1204/05 area; a move below here would target 1198-1200. 

• EUR/USD -  Asian range 1.1747-1.1759, Asia is currently trading 1.1750. The pair is trading sideways trying to hold onto its gains above 1.1700. On the day, first support is toward 1.1710-1730 initially, if this does not hold, look for demand to then return in the 1.1640-1.1670 area.
• GBP/USD - Asian range 1.3362-1.3383, Asia is currently dealing around 1.3365. The pair stalled above 1.3400 at the end of last week. On the day GBP has initial support around the 1.3325-1.3345 area, if this does not hold look for a pullback to the more important 1.3250/80 area. I continue to watch for signs of GBP potentially topping out.
• Cross asset : SPX -0.50%, Gold $4287, US 10-Year 4.17%, BBDXY 1205, Crude Oil $56.48
• Data/Events : Germany HCOB Germany PMI’s/ZEW Survey Expectations, France HCOB France PMI’s, Spain Labour Costs YoY, Italy CPI, EZ HCOB Eurozone PMI’s/ZEW Survey Expectations/Trade Balance 

Fig 1: BBDXY Spot Daily Chart

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

The NZD/USD had a range today of 0.5758-0.5789 in the Asia-Pac session, going into the London open trading around 0.5775, -0.10%. The NZD has slid lower again in our day driven by risk moving lower ahead of some important US data. The NZD underperformed yesterday as well on the back of comments from the RBNZ’s Breman, but demand continues to be seen toward the 0.5750 area. On the day, I suspect we will consolidate in a range ahead of the US data dump, something like 0.5740 - 0.5810 should keep it contained until then. 

• MNI AU - NZGBS: Sharp Rally As NZDM Revises Down Debt Issuance Outlook: The NZ government faces deeper budget deficits and a slower path back to surplus as the economic recovery lags. New Zealand Debt Management has revised the government bond program, with planned issuance of NZ$35bn in 2025-26, down NZ$3bn from the Budget, and NZ$34bn in 2026-27, down NZ$2bn, before rising in later years.
• Bloomberg - “The New Zealand government will head into an election year facing deeper budget deficits and a delayed return to surplus as an economic recovery takes longer to gather momentum.”  {NSN T7C5DLT96OTD <GO>}
• Options : Closest significant option expiries for NY cut, based on DTCC data: 0.5850(NZD304m). Upcoming Close Strikes : 0.5630(NZD594m Dec 19), 0.5690(NZD531m Dec 18 ), 0.5860(NZD471m Dec 18 ) - BBG
• The NZD/USD Average True Range for the last 10 Trading days: 41 Points

Fig 1: NZD/USD Spot Daily Chart

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