EM ASIA CREDIT: China Southern Power: Possible Chile deal back on table

NZGBs closed slightly off worst levels, 2bps cheaper, after a relatively subdued start to the week.

• NZ-US and NZ-AU 10-year yield differentials closed 1-2bps tighter.
• RBNZ publishes Tara-ā-Umanga Business Expectations Survey, for September quarter. Average 1-year ahead inflation expectation rises to 2.53% from 2.44% in 2q. 2-year rises to 2.64% from 2.54%. 5-year rises to 3.16% from 3.06%. 10-year falls to 3.57% from 3.94%.
• NZGBs held by international investors increased to 62.8% from a month earlier (62.7%) in July.
• The highlight of the week will be Wednesday's RBNZ decision, where the MPC is likely to cut rates 25bp to 3% after pausing in July. It will also release updated forecasts, and Governor Hawkesby will hold a press conference. On Thursday, he will appear before a parliamentary committee to talk about the latest Monetary Policy Statement
• Swap rates closed 2-3bps higher.
• RBNZ dated OIS pricing closed little changed across meetings. 23bps of easing is priced for this week, with a cumulative 41bps by November 2025.
• Tomorrow, the local calendar will see PPI data.
• On Thursday, the NZ Treasury plans to sell NZ$225mn of the 4.50% May-30 bond, NZ$175mn of the 4.50% May-35 bond and NZ$50mn of the 1.75% May-41 bond.

The Asia-Pac USD/JPY range has been 147.08-147.58, Asia is currently trading around 147.40, +0.15%. USD/JPY again found good demand on a 146 handle. Price continues to hold above the support area between 146.00/147.00, a sustained move below this support is needed to turn the momentum potentially lower again. While this plays out it looks to be more range trading within the wider 146.00-151.00 range. CFTC Data shows leveraged funds have bought this dip in USD/JPY betting the support remains intact.

• (Bloomberg) -- “Japan, the European Union, and South Korea are waiting for the US to implement concessions on tariffs, with Japan’s chief trade negotiator Ryosei Akazawa saying “the bleeding hasn’t stopped” for the country’s car industry.”
• "Japan’s CPI may show that inflation eased. But with rice prices still high and wage growth strong, price pressures are building. That puts the Bank of Japan on course to reduce stimulus." - BBG
• "Japan plans to tighten oversight of foreign workers with specialist expertise, after reports some are engaged in work not permitted by their visas, Kyodo said." - BBG
• Options : Close significant option expiries for NY cut, based on DTCC data: 146.00($385m), 148.40($354m).Upcoming Close Strikes : 146.80($1.19b Aug 21), 150.00($1.06b Aug 21) - BBG.
• CFTC data shows last week asset managers maintained their JPY longs +60866( Last +60532), leveraged funds used the dip to add to their newly built short JPY position -41257(Last -29308).

Fig 1 : JPY CFTC Data

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

The AUD/USD has had a range of 0.6507 - 0.6521 in the Asia- Pac session, it is currently trading around 0.6520, +0.18%. US Equities momentum higher seemed to stall and the USD drifted lower again into the weekend. The AUD continues to consolidate around 0.6500, firmly in the middle of its 0.6350-0.6650 range with no clear direction. Risk has opened trade a little firmer in our session E-minis +0.15%, NQU% +0.25%.

• AU MNI: Productivity Roundtable This Week, Also Survey Data. The federal government’s productivity round table will be held this week from August 19 to 21 with RBA Governor Bullock scheduled to speak on the first day. In the August RBA press conference, she said that she will speak on how increasing productivity growth improves economic resilience. In terms of data, the focus will be on survey releases.
• (AFR - Mark Trevarthen) "Having witnessed at close quarters the changing behaviour of bond markets across four decades now, it has become increasingly clear that Australia has matured into a high-quality destination, and the market is expanding to reflect this, not only through the broader range of corporates coming to the market to issue Australian dollar bonds, but also the wider investor base beyond Australian shores, with offshore participation in primary issuance and the secondary market increasing significantly in the past year."
• Options : Closest significant option expiries for NY cut, based on DTCC data: 0.6475(AUD541m), 0.6500(AUD424m), 0.6575(AUD395m). Upcoming Close Strikes : 0.6515(AUD744m Aug 19), 0.6600(AUD1.34b Aug 21) - BBG
• CFTC Data shows Asset managers added to their shorts -67449(Last -60729), the Leveraged community though reduced their own shorts -10121(Last -13997).
• AUD/JPY - Asia-Pac range 95.77 - 96.15, Asia is trading around 96.10. The pair found good demand last week towards 95.50, price is now firmly back into the 94.50-97.50 range looking for clearer direction.

Fig 1: AUD CFTC Data

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