JAPAN DATA: Core Machine Orders Dip In April, Weaker Exports May Weigh
Japan April core machine orders fell sharply, but in line with market projections. We were down -9.1%m/m (-9.5% forecast and following a 13.0% gain in March). In y/y terms, we were slightly better than forecasts at +6.6% (+4.2% was projected, while 8.4% was the March outcome).
- The chart below plots core machine orders y/y (the white line on the chart) against a Japan Capex (ex software), which is also in y/y terms. It's still painting a fairly resilient backdrop in the earlier stages of Q2.
- Still, this comes ahead of trade headlines, with earlier data showing faltering export growth. The second chart below plots the machine orders against export growth (y/y), which is the orange line on the chart.
Fig 1: Japan Core Machine Orders & Capex (Y/Y)
Source: Bloomberg Finance L.P./MNI
Fig 2: Japan Core Machine Orders & Exports (Y/Y)
Source: Bloomberg Finance L.P./MNI
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FOREX: AUD Crosses - US Downgrade Gives AUD Some Headwinds
The AUD has opened in Asia under pressure in the crosses as the market digests the US downgrade by Moody’s.
- EUR/AUD - Friday night range 1.7402 - 1.7477, Asia is trading around 1.7455. Good demand was found towards the 1.7250 area, can it build a base from which to push higher again ? First resistance should now be found back towards the 1.7600 area.
- GBP/AUD - Friday night range 2.0693 - 2.0756, Asia is trading around 2.0770. A sustained break back above 2.0800 is needed to signal a base is potentially in and the uptrend is set to resume, support back towards 2.0500 has proven to be solid a break is needed through here to see further unwinding of longs.
- AUD/JPY - Overnight range 93.13 - 93.50, Asia is trading around 93.00. The area towards 96.00 proved to be solid resistance. Support is again being challenged back towards the 93.00 area. There should be some demand around 92.00/93.00 first up but a sustained close back below 91.50/92.00 would turn the focus back towards the lows again.
AUD/NZD - Overnight range 1.0864 - 1.0900, the cross is dealing in Asia around 1.0880. The Cross has finally found some supply just above 1.0900, support is seen back towards 1.0800. A sustained break above 1.0900 would turn the focus higher.
Fig 1: AUD/JPY spot Hourly Chart
Source: MNI - Market News/Bloomberg
US STOCKS: US Downgrade See's Risk Open Lower In Asia
The ESM5 Overnight range was 5924.75 - 5977.50, Asia is currently trading around 5935. This morning risk is opening up under pressure as the market continues to digest the downgrade by Moody’s late Friday.
- Bloomberg - “Morgan Stanley predicts the US equities comeback will stall due to decelerating revenue growth from mega cap companies and waning earnings momentum. “ It’s hard to justify the numbers”, said Lisa Shalett. ”
- "Companies issued gloomy outlooks in the first quarter due to Trump’s global trade offensive despite better-than-feared results. Big Tech stocks in particular have gone from safe bet to a question mark."(BBG)
- "Walmart should “eat the tariffs” and stop trying to blame them as the reason for raising its prices, Trump wrote in a Truth Social post. Bessent said he spoke to CEO Doug McMillon and that the retailer will absorb some of the costs."(BBG)
- The initial knee-jerk on the downgrade news has been lower, but with Moody’s really only catching up to S&P and Fitch is this news really that significant ?
- The price action last week showed how underweight investors had been and in the short-term you would expect dips to be supported.
- The SPX has had a huge bounce from its lows on 4800 handle, without any pause and has left a generally bearish and underweight market completely wrong-footed.
In the short-term though this move is starting to look a little overdone. Look for demand to materialize once more back towards the 5700 area as momentum funds and corporate buybacks dominate the flow for now.
Fig 1: SPX Daily Chart
Source: MNI - Market News/Bloomberg
AUSSIE BONDS: Modestly Cheaper, US Tsys Digest Moody's Downgrade
ACGBs (YM -2.0 & XM -3.0) are slightly weaker as US tsy 10-year futures (TYM5) react in early Asia-Pac dealings to late Friday news that Moody's Ratings downgraded the US credit score.
- Cash US tsys are slightly mixed, with a steepening bias, in today’s Asia-Pac session.
- Bloomberg - "Moody's Ratings downgraded the US credit score to Aa1 from Aaa due to an increase in government debt and a higher interest burden."
- "The move follows downgrades by Fitch Ratings and S&P Global Ratings, with Moody's citing a decline in fiscal metrics that can no longer be counterbalanced by the US' economic and financial strengths."
- Cash ACGBs are 1-3bps cheaper with the AU-US 10-year yield differential at +1bp.
- The bills strip is flat to -2.
- The local calendar will be empty until tomorrow’s RBA Policy Decision. A 25bp cut to 3.85% is widely expected.
- RBA-dated OIS pricing is little changed across meetings today. A 25bp rate cut in May is given a 94% probability, with a cumulative 77bps of easing priced by year-end (based on an effective cash rate of 4.09%).
- This week, the AOFM plans to sell A$1200mn of the 4.25% 21 December 2035 bond on Wednesday and A$800mn of the 2.75% 21 November 2028 bond on Friday.
