AUSSIE BONDS: Dec-30 Supply See Weaker Demand

Japan headline Aug trade figures were mixed. Exports were -0.1%y/y, against a -2.0% forecast (-2.6% was the July outcome). On the import side, we fell -5.2%y/y, against a -4.1% forecast and -7.4% prior outcome. The trade deficit was -¥242.5bn, against a -¥512.6bn forecast, while July's print was -¥118.4bn. In seasonally adjusted terms the trade deficit was -¥150.1bn, which was also better than forecast, but sub recent cycle highs for the balance (+¥166.5bn in Feb). 

• Tariff impact was seen, with exports to the US down -13.8%y/y. To the EU exports rose 5.5%y/y, while to China exports were down a modest -0.5%y/y. The trade surplus Japan has with the US narrowed to ¥324bn. In Feb this year the surplus was at ¥918.5bn.
• Automobile exports fell 7.9% in August, the fifth consecutive decline following an 11.4% fall in July. Iron and steel exports dropped 14.9%, easing from July’s 21.0% fall. Auto exports to the US fell by 28.4%.
• Export growth for Japan was down in y/y terms for the fourth straight month. The chart below shows export growth for key Asian economies (Japan is the red line). Outside of Taiwan, which is the standout, the trends are broadly similar, albeit with China and South Korea managing to maintain positive y/y growth in recent months. 

Fig 1: Key Asian Economy Export Growth Trends - Y/Y  

Source: Bloomberg Finance L.P./MNI 

Gold reached another record high on Tuesday and also breached round number support at $3700. It reached $3703.07/oz before moderating to finish up 0.3% at $3689.98. It is currently around $3694.9, close to today’s high. Bullion has been supported by Fed rate cut expectations with a full 25bp priced in for Wednesday’s decision and two possibly three easings by year end. This drove the US dollar down further yesterday (BBDXY -0.5%) and yields slightly lower.

• With non-interest bearing gold up 7% this month in anticipation of easing, it will be looking to the updated Fed forecasts and Chair Powell’s comments to guide direction. He seems unlikely to signal consecutive cuts as uncertainty around the impact of higher US tariffs especially on inflation persists.
• The break above $3700 has opened resistance at $3705.2. The metal is in a primary uptrend. Initial support is at $3614.0, 11 September low.
• Silver fell 0.3% to $42.564 after reaching $42.972 and then declining to $42.259. It is currently around $42.59. Silver is also in an uptrend and broke above initial resistance at $42.778 but it wasn’t sustained. Initial support is at $40.432, 20-day EMA.
• Equities were weaker with the S&P down 0.1% and Euro stoxx -1.3% but the S&P e-mini is around 0.1% higher so far on Wednesday. Oil rallied with Brent +1.6% to $68.49/bbl. Copper fell 0.4%.

TYZ5 is trading 113-17, down 0-00+ from its close. 

• The US 2-year yield opens around 3.501%.
• The US 10-year yield opens around 4.028%.
• MNI BRIEF: Miran Sworn In As Fed Board Governor By Judge. White House economic adviser Stephen Miran was sworn in Tuesday as a member of the Board of Governors of the Federal Reserve System, just before the start of a Federal Open Market Committee meeting that is expected to end in an interest rate cut.
• (Bloomberg) -- Bond traders are stepping up options wagers that the Federal Reserve will deliver at least one half-point interest-rate cut across this year’s three remaining policy meetings
• 10-Year Yields continue to do work just above 4.00% as the market looks towards the FOMC tomorrow morning. The first buy-zone is now back towards the 4.20% area where I suspect decent demand should return initially. A sustained break through 4.00% is needed for the focus to then turn towards the 3.80% area. The market does seem confident and is pricing in a dovish outcome, the risk is Powell does not deliver.
• Data/Events: MBA Mortgage Applications, Housing Starts, FOMC Rate Decision