JGBS: Dec Hike Odds Firm Post Ueda, JGB Futures Near Recent Lows
JGB futures sit weaker in the aftermath of BoJ Gov Ueda's speech, with arguably more hawkish headlines crossing than dovish. Ueda said a hike would be considered at the Dec meeting and that policy tightening, at this juncture, would be adjusting the degree of accommodative policy settings, rather than tapping the brakes (see below for more details).
- We were last 134.68, -.45 versus settlement levels. This brings Nov 19 lows of 134.56, back into play (session lows so far today are at 134.66). Dec hike odds are also higher, see the chart below. The implied rate is now close to 0.67% (versus an effective policy rate of 0.477%). The implied rate was at 0.623% at the end of last week. Current market odds of a Dec hike are around 76%.
- JGBs are firmer across the curve, with the back end outperforming. 10-40yr tenors are around 4bps higher. The 10yr is around 1.85% so around fresh cycle highs. The 5-7yr tenors are also up close to 4bps. The 2yr yield has probed above 1.00%, but sits slightly lower now, last up around +2bps.
- It is a similar backdrop for swap rates. The 10yr last at 1.67%.
- In terms of Ueda, via our policy team: Bank of Japan Governor Kazuo Ueda said on Monday that raising the policy interest rate under accommodative financial conditions should be seen as easing off the accelerator toward stable economic growth and price developments, rather than applying the brakes on economic activity, while adding: Ueda expressed confidence in continued wage growth, saying that corporate profits, the source of wage hikes, are expected to remain high overall even after taking into account the impact of tariff policies.
- On external growth: “That said, in light of the developments to date, it appears that downside risks to the economy overall have decreased. The end of the [U.S.] federal government shutdown in mid-November will also lead to reduced uncertainty,” Ueda added.
- He also said that adverse effects in the U.S. have not materialised to a considerable degree so far.
Fig 1: Dec BoJ Meeting Market Implied Yield
Source: Bloomberg Finance L.P./MNI
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AUSSIE 10-YEAR TECHS: (Z5) Returns Lower
- RES 3: 95.982 - 76.4% retracement Sep’24 - Nov’24 downleg
- RES 2: 95.960 - High Apr 7 (cont.)
- RES 1: 95.900 - High Oct 17
- PRICE: 95.670 @ 16:16 GMT Oct 31
- SUP 1: 95.510 - Low Sep 3
- SUP 2: 95.415/95.300 - Low May 15 / Low Jan 14
- SUP 3: 95.275 - Low Nov 14 (cont) and a key support
Aussie 10-yr futures slipped lower Wednesday on the back of hotter-than-expected Australian inflation. This returned prices lower despite nascent signs of a technical recovery as recently as last week. The sustainability of the pullback will be dependent on prices holding above key short-term support at 95.510, the Sep 3 low. Near-term resistance remains 95.780, the Sep 12 high. A clear break of this level signals scope for a continuation higher and opens 95.960, the 76.4% retracement level for the Sep’24 - Nov’24 downleg.
AUSSIE 3-YEAR TECHS: (Z5) Struck by Strong CPI
- RES 3: 97.796 - 1.618 proj of the Sep 3 - 12 - 15 price swing
- RES 2: 96.780 - High Jun 26 (cont)
- RES 1: 96.700 - High Sep 12
- PRICE: 96.375 @ 16:13 GMT Oct 31
- SUP 1: 96.280 - Low May 15 (cont.)
- SUP 2: 95.900 - Low Jan 14 (cont.)
- SUP 3: 95.760 - Low 14 Nov ‘24
Having bounced well on the back of the mild US CPI print, Aussie 3-yr futures reversed course Wednesday on strong domestic inflation data containing RBA cut pricing through 2026. This keeps prices well below prior resistance at 96.615, the Sep 12 high, and refocuses attention on 96.280 as the next major support.
FED: Gov Waller: Still Advocating For A December Rate Cut
Gov Waller, one of the FOMC's more prominent doves, makes clear in an appearance on Fox Business that he supports a follow-up rate cut in December. He makes reference to Chair Powell's press conference comment that the Fed could skip a cut at the December meeting due in part to a lack of official government data during the federal shutdown (Powell: “what do you do if you are driving in the fog? You slow down").
- Waller says today: "Right now, we know that the labor market has been weak... We know inflation is going to come back down. Inflation expectations are anchored, and in that world, the standard of central bank wisdom is to look through it and proceed with worrying about the labor market. So in my view, we should just look at what the data is telling us and proceed on policy that way.... So this is why I'm still advocating that we cut policy rates in December, because that's what all the data is telling me to do. The fog might tell you to slow down. It doesn't tell you to pull over to the side of the road. You still have to go. You may want to be careful, but it doesn't mean to stop, and ... the right thing to do with policy is to continue cutting."
- This is of particular interest since he appeared to suggest he would have a more cautious outlook on further easing after cutting in October.
