US TSYS: Cash Open

Gold prices trended higher on Monday after Friday’s 2.5% increase following weaker-than-expected US payroll data. It found support yesterday from the higher probability of a September Fed cut priced in and slightly lower US yields while the dollar was little changed. Bullion rose 0.3% to $3373.59/oz after a high of $3385.43 and has started today at $3378.1.

• Safe-haven flows also continue to support gold as the US’ effective tariff rate rose considerably on Friday and concerns over Fed independence persist following the resignation of Governor Kugler. While US President Trump has said he won’t replace Chair Powell before the end of his term, markets are worried that he will replace Kugler with someone sympathetic to his rate cutting view.
• Gold broke above initial resistance at $3373.6 on Monday and is trading above that level in Tuesday’s APAC session supporting the view that recent weakness was corrective. If the move is sustained, then the next level to watch is $3439.0, 23 July high, with the bull trigger at $3500.1. Initial support is at $3268.2, 30 July low.
• Silver rose 1% to $37.411 on Monday, close to the intraday high of $37.482 but still below initial resistance at $39.655. It remains in an uptrend with any sell off seen as corrective. Initial support is at $36.216, 31 July low. It has started today around $37.439.
• Equities rallied with the S&P up 1.5% and Euro stoxx +1.5% and the S&P e-mini is +0.1% so far today. Oil prices were lower again with WTI -1.6% to $66.24/bbl. Copper rose 0.5%.

In post-Tokyo trade, JGB futures closed stronger, +19 compared to settlement levels, after US tsys rallied even after the extreme richening on Friday and in spite of upcoming Treasury supply. 

• Fed rate cut bets and further declines in oil prices supported. The 2-year yield was fractionally lower at 3.68% but still 27bps below Thursday's level. The 10-year slid 2bps to 4.219%, extending the move down from 4.385% before the jobs data. It is the lowest since the end of April.
• "Japan is finally out of the grip of deflation that defined its lost decades - but now faces classic signs of stagflation. Inflation is climbing, buoyed by wage gains and rising price expectations. Fiscal policy is set to turn more expansionary after the government's upper house loss, adding inflationary pressure from the demand side. But the Bank of Japan is still taking a cautious approach to its next rate hike, even after a trade agreement with the US helped ease tariff uncertainty, viewing the recent price surge as transitory." - BBG
• Today, the local calendar will see the BoJ Minutes for the June Meeting alongside 10-year supply.

ACGBs (YM +4.0 & XM +6.0) are stronger after a modest bull-flattener from US tsys on Tuesday.                                        

• Bargain hunters helped US equities recover their footing and recoup a lot of the dive into the weekend. Gains were broad-based. The NASDAQ bounced 1.75% after closing on Friday with a 2.25% loss, while the S&P 500 advanced ~1.35% following its ~1.60% decline.
• S&P Global PMIs for July have printed: Services Index rises to 54.1 from 51.8 in June; Composite Index rises to 53.8 from 51.6 in June.
• Cash ACGBs are 12-15bps richer after being closed for a bank holiday yesterday, with the AU-US 10-year yield differential at flat.
• The bills strip is richer, with pricing +2 to +4.
• RBA-dated OIS pricing is giving a 25bp rate cut in August a 100% probability, with a cumulative 67bps of easing priced by year-end (based on an effective cash rate of 3.84%).
• Today, the local calendar will also see ANZ-Indeed Job Advertisements and Household Spending data.
• This week, the AOFM plans to sell A$300mn of the 4.25% 21 June 2034 bond on Tuesday, A$900mn of the 4.25% 21 March 2036 bond on Wednesday and A$1000mn of the 3.00% 21 November 2033 bond on Friday.