JPY: Cycle Highs In Sight For USD/JPY, Data Galore Today
USD/JPY added a handful of pips Tuesday as the impact of firmer U.S. Tsy yields prevailed. Still, the yen fared well amid relatively fragile risk sentiment.
- Data beats in the U.S. (consumer confidence & JOLTS) boosted hawkish Fed expectations, sending U.S. Tsy yields higher and allowing the greenback to more than erase its earlier losses.
- With U.S. Tsys faltering, U.S./Japan 10-Year yield spread widened ~2bp, while 2-Year gap was up ~3bp come the end of the day.
- U.S. equity benchmarks retreated, while the VIX index climbed. A poor showing on Wall Street may have generated some demand for safer currencies, albeit the CHF traded on a softer footing.
- Spot USD/JPY trades at Y138.78, little changed on the day, after a foray above the Y139.00 mark yesterday. The next topside target is provided by Jul 14 cycle high/round figure of Y139.39/140.00. Bears look for a dip through Aug 23 low of Y135.82.
- Japan's data dump today includes flash industrial output, retail sales, consumer confidence & housing starts.
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AUSSIE BONDS: Futures Nudge Lower To Start The Week
Aussie bonds have started the new week a touch below their late overnight levels, with YM -0.5 & XM -2.0, as global core FI markets look through weekend news flow headlined by softer than expected official manufacturing PMI data out of China & bubbling Sino-U.S. tensions surrounding Taiwan (fleshed out in earlier bullets).
- A quick reminder that cash ACGB markets are closed on Monday owing to the observance of a state holiday in NSW.
- Bills run 3bp lower to 1bp higher through the reds, twist flattening.
- Note that the weekend saw the release of latest round of CoreLogic house price data, which revealed a 1.4% M/M fall in July, representing the swiftest rate of headline decline observed since the 1980’s.
- Looking ahead, Monday’s domestic highlights include ANZ job ads data, Melbourne Institute inflation readings and the final S&P m’fing PMI print. Note that the Chinese Caixin manufacturing PMI print will provide a source of offshore interest during Monday’s session.
JGB TECHS: (U2) Pierces Key Level on Intraday Basis
- RES 3: 151.13 - High Mar 3
- RES 2: 150.61 - High Jul 29
- RES 1: 150.55 - 76.4% Dec - Jun Downleg
- PRICE: 150.53 @ 15:46 BST Jul 28
- SUP 1: 149.00 - 1.0% Lower Bollinger Band
- SUP 2: 147.15 - Low Jun 14
- SUP 3: 146.82 - Low Jul 14 2015
JGBs made further gains through the 200-dma into the weekly close, putting prices north of the key resistance at 150.55 on an intraday basis. This marks a step change in the technical outlook and tilts the near-term risks to a broader recovery. Further strength opens levels not seen since March at 151.13.
US TSYS: TYU2 Little Changed Early This Week
TYU2 operates around late NY levels, last dealing +0-00+ at 121-05, with e-minis a touch softer early on. It would seem that the latter is softening on the back of weaker than expected official Chinese manufacturing PMI data released over the weekend (which saw a slump back into contractionary territory), in addition to continued Sino-U.S. tensions surrounding the potential journey to Taiwan by U.S. House Speaker Pelosi (note that Taiwan was not on her initial trip itinerary released over the weekend, while China conducted military drills in the Taiwan Strait as some of the more nationalist Chinese press outlets issued warnings re: any such visit). Elsewhere, Minneapolis Fed President Kashkari (’23 voter) stressed the Fed is a long way from where it needs to be in its fight against inflation, flagging his surprise re: the market’s interpretation of the central bank’s language.
- To recap, the long end of the curve more than unwound its pre-NY weakness on Friday, with the curve twist flattening as the major benchmark yields finished 2bp cheaper to 3bp richer, pivoting around the 3- to 5-Year zone, while 10s proved to be the strongest point on the curve.
- Some stronger than expected national GDP data out of Europe provided pressure during early London dealing (German data was the exception to that particular rule), while firmer than expected CPI data out of Europe also helped the move lower. Marginal beats across the PCE data suite and ECI print helped Tsys tap a fresh session low in early NY dealing before a bit of a base was found, with that move accelerating further on the back of a slower than expected rate of expansion in the latest MNI Chicago PMI print.
- Note that space moved away from best levels into the bell as the month-end vol. ensued. This left the space comfortably off of extremes at the close.
- Caixin manufacturing PMI data out of China headlines the Asia-Pac docket, with the final manufacturing PMI prints out of Europe also due before U.S. hours. The ISM manufacturing survey and final S&P m’fing PMI print provide the highlights of Monday’s NY data docket.
