JGBS: Cash Bonds Slightly Richer After BOJ Gov Ueda Speaks
At the Tokyo lunch break, JGB futures are stronger, +12 compared to settlement levels.
- (MNI Brief) The BOJ will carefully weigh both upside and downside risks when judging the likelihood its baseline scenario will be realised, he added, stressing that decisions will be made "as appropriate and without any preconceptions." Bank of Japan Governor Kazuo Ueda on Friday highlighted three areas the central bank is closely monitoring when assessing Japan’s economic activity and price trends, underscoring both upside and downside risks.
- “The first point concerns developments in overseas economies,” Ueda told business leaders in Osaka. He noted that while global growth is expected to return to a moderate pace, the outlook could shift significantly depending on economic and policy developments in major economies, particularly the U.S.
- The second factor is how U.S. trade policies will affect Japanese firms’ profits as well as their wage- and price-setting behaviour, Ueda said.
- Cash US tsys are cheaper in today's Asia-Pac session, with yields flat to 1bp higher.
- Cash JGBs are flat to 1bps richer across benchmarks. The benchmark 10-year yield is 0.2bp lower at 1.663% versus the cycle high of 1.674%, set yesterday following the poor auction.
- Swap rates are ~1bp lower.
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GLOBAL MACRO: Indicators Suggest Global IP Growth Continued In Q3
The August JP Morgan global manufacturing PMI printed at 50.9 up from 49.7 signalling growth in activity in the sector again and at its fastest since May 2024. The pickup was driven particularly by higher output but also domestic orders and a return to hiring but confidence remained below average. The PMI, LME metal prices and the Baltic Freight Index (BFI) are all consistent with global IP and trade growth remaining at current rates or possibly improving.
Global growth
Source: MNI - Market News/LSEG/Bloomberg Finance L.P.
- CPB global IP growth rose 0.4% m/m in June driving a 0.4pp improvement in annual growth to 3.2% y/y, the strongest since March which was boosted by the frontloading of deliveries to the US ahead of tariff deadlines. June global trade rose 3% y/y down from 4.1% y/y.
Global IP y/y% vs LME metals
- August output in the JP Morgan PMI rose to 51.7 from 49.7 helped by orders up 1.1 points to 50.9. All sectors saw growth. However the increase was driven by domestic demand and export orders continued to contract but at a slower rate but tariff worries remained a problem, according to JP Morgan.
- The increase in demand likely drove an improvement in employment with it marginally returning to growth territory at 50.2.
- The resumption of output growth in manufacturing was also across most countries with only 5 continuing to see contraction. India, Thailand, Spain and the US saw strong growth.
- Cost inflation rose to its highest rate since February driving a marginal pickup in selling price inflation with the US reporting the fastest rate.
AUSTRALIA DATA: Q2 Boosted By Special Factors, H1 Averaged 0.4% q/q
Q2 GDP was stronger than both the RBA and consensus expected as it rebounded from Q1’s weather-impacted soft result and benefited from holidays. It rose 0.6% q/q to be up 1.8% y/y, the strongest since Q3 2023, after 0.3% q/q & 1.4% y/y in Q1. Growth was driven by private and public consumption with net exports adding 0.1pp while both inventories and investment detracted. Given the RBA’S cautious stance towards easing and recent stronger data, a September rate cut looks unlikely and November will depend on new information and the outlook.
- The S&P Global PMI improvement over Q3 suggests growth may have improved further at the start of H2. The August composite rose to its highest since February 2022.
Australia GDP q/q% vs S&P Global PMI services
- Household consumption contributed 0.45pp to GDP as it rose 0.9% q/q to be up 2% y/y, the highest in 2 years, which was supported by a 1pp fall in the savings rate to 4.2%. Nominal disposable income rose 0.6% q/q.
- The ABS notes that the close proximity of Anzac Day to Easter boosted holiday-related spending. Also end of financial year discounting encouraged discretionary spending which rose 1.4% q/q.
- Government spending contributed 0.2pp to growth as it increased 1.0% q/q to be up 4% y/y driven by a strong increase in benefits paid and health expenditure as well as election and defence spending.
- Investment was lacklustre across the board with it detracting 0.2pp driven by the public sector with private capex neutral.
- Net exports made its strongest contribution to GDP in two years. Exports rose 1.7% q/q to be up 1.5% y/y, while imports increased 1.4% q/q & 1.9% y/y, a sign of improving domestic demand.
- GDP/person rose 0.2% q/q to be up 0.2% y/y, the first annual rise since Q1 2023.
Australia domestic demand y/y%
Source: MNI - Market News/ABS
CHINA PRESS: China To Exempt Taxes For Capital Replenish Social Security Fund
China has transferred part of its state-owned capital to replenish the social security fund, and introduced tax exemption to support the transfer, Yicai.com reported. To avoid additional tax burden during the transfer process, the transferred state-owned equity and cash income will be exempted from value-added tax, corporate income tax and stamp duty, and the implementation date is retroactive to Apr 1, 2024 with taxes paid before to be refunded, according to a document by the Ministry of Finance Tuesday.
