AUSSIE BONDS: Cheaper & Near Worst Levels, AU-US 10Y Diff At Highs

JGB futures are weaker, -10 compared to settlement levels, but well above the morning’s low.

• This came despite today’s 20-year JGB auction delivering weak results across key metrics. The low-price underperformed dealer forecasts, which were set at 98.60 according to a Bloomberg poll. Moreover, the cover ratio dropped to 3.2825x from 3.5599x in the previous outing, and the auction tail lengthened sharply to 0.31 from 0.10.
• BoJ Governor Ueda will meet with Japan FinMin Katayama and Economy Minister Kiuchi later today. The meeting is expected to take place at 6:10pm Tokyo time. This meeting also comes amid renewed speculation around Japan's fiscal outlook. The Kyodo news agency reported on Wednesday that Japan's stimulus package could exceed 20 trillion yen.
• Cash US tsys are little changed in today's Asia-Pac session ahead of Nvidia's earnings, which are due after the market close on Wednesday.
• Cash JGBs are flat to 1bp cheaper across benchmarks. The benchmark 20-year yield is 1.0bp higher at 2.797% after setting a fresh cycle high of 2.822% today. (see chart)
• Swap rates are 1bp higher to 3bps lower, with a flattening bias.
• Tomorrow, the local calendar will see Weekly International Investment Flow and Tokyo Condominiums for Sale data alongside a speech in Niigata from BOJ Board Koeda. 

Source: Bloomberg Finance LP

The BBDXY has had a range today of 1219.30 - 1220.37 in the Asia-Pac session; it is currently trading around 1220, +0.10%. The USD trades sideways after consolidating its recent gains as risk tries to steady itself ahead of the Nvidia results. I continue to watch for signs of a base forming from which to move higher again if risk stays under pressure. On the day it looks like the short-term range is 1217-1222, above 1222 and it could look to  rebuild momentum for a test of the 1230-35 area. Support remains in the 1210-1215 area.

• EUR/USD -  Asian range 1.1573 - 1.1585, Asia is currently trading 1.1580. The pair stalled and moved lower after finding some decent resistance toward the 1.1650-1.1700 area. This has been the pivot within the larger 1.1400-1.1900 range over the past few months. On the day while the 1.1615-30 area continues to cap I would be skewed to fade bounces, above there and we could again challenge the pivot toward 1.1700.
• GBP/USD - Asian range 1.3129 - 1.3153, Asia is currently dealing around 1.3135. I continue to favor fading rallies, as GBP looks to have put in a medium term top. A sustained move back below 1.3080-1.3100 support would see the momentum lower reinstated and focus turn back toward the 1.3000 area. Suspect rallies back toward the 1.3250-1.3300 will be sold into if we see a bounce.
• Cross asset : SPX -0.15%, Gold $4070, US 10-Year 4.115%, BBDXY 1220, Crude Oil $60.60
• Data/Events : EZ ECB Current Account SA/CPI, Germany Current Account Balance, Italy Current Account Balance

Fig 1: BBDXY Spot 4H Chart

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

Gold has range traded today as the market waits for further US data releases to gauge the outlook for the economy and therefore Fed policy. The focus will be on Thursday’s September payroll report. Bullion is 0.2% higher at $4075.0/oz after a low of $4055.68 followed by a peak of $4080.71, below resistance at $4106.7, with the US dollar slightly higher and yields steady. Risk appetite is weaker though with equities down and nerves ahead of today’s Nvidia’s earnings report. Risk off moves can be either positive or negative for gold. 

• With limited data, Fed speakers have been cautious regarding their thoughts for the 10 December meeting. As a result, the market has around a 50% chance of a cut priced in but that could easily change as more delayed data are released. In addition, the October 29 minutes may give some clarity on Fed thinking. It cut rates 25bp at this meeting.
• Silver is up 0.4% to $50.90 off the intraday high of $51.279 and holding between support at $49.363 and resistance/bull trigger at $54.480.
• Equities are mixed with the S&P e-mini down 0.1% and Hang Seng -0.5% but CSI 300 up 0.2% and Topix +0.1%. Oil prices are lower with WTI -0.3% to $60.55/bbl. Copper is flat.
• Later the Fed’s Logan, Miran, Barkin and Williams speak and the October FOMC minutes are published. Delayed August US trade prints as well as UK October CPI/PPI and euro area October CPI.