HKD: Edging Back Towards 7.8500, Short End Hibor Rates Still Below Recent Highs
Spot USD/HKD sits near 7.8495 in latest dealings, little changed for the session. Earlier lows in the pair came in at 7.8458, in the first stages of the NY/Asia Pac cross over. Headlines had crossed of further HKMA intervention as the top end of the peg band at 7.8500 was protected.
- The HKMA aggregate balance is projected to be lower come Monday, after the HKMA's fresh round of intervention, at around $114.5bn HKD by Monday. Recent highs in the aggregate balance were at 174.1bn HKD.
- Hibor rates were firmer at today's fixing, but the 1 week Hibor at 0.395% is still sub late June highs (when the first intervention episode occurred). The 1 month is also up but at 0.86% is also sub recent highs.
- The US-HK 3 month yield differential has ticked lower but at +257bps is still not arguing for sharp USD/HKD retracement. US yields obviously saw a decent bounce through Thursday's session thanks to the NFP beat.
- Earlier on the data front we had the June PMI print, which fell to 47.8 from 49.0. This helps underscore current economic softness/risks, which may leave the HKMA comfortable with only a gradual rise in local interest rates.
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CHINA: Bond Futures Mixed
- China's key bond futures are moving in the opposite direction today as the OMO maintained liquidity with a very modest withdrawal.
- The 10YR future is lower by -.03 at 108.63 having just breached the 100-day EMA of 108.64
- The 2YR future is up +.01 to 102.36 and remains below all major moving averages. The nearest being the 20-day EMA at 102.42.
- Bonds are seeing limited movement with the CGB10YR at 1.70. The CGB10YR has traded in a tight range of 1.61-1.71 since early April.
JGBS: Slightly Cheaper At Lunch
At the Tokyo lunch break, JGB futures are weaker, -19 compared to the settlement levels, and hovering near Tokyo session lows.
- (Bloomberg) -- Japan currently hasn’t received a letter from the US Trade Representative’s office, sent to trading partners as a deal deadline reminder, Japanese Chief Cabinet Secretary Yoshimasa Hayashi says in a regular press conference Wednesday.
- Japan's private sector experienced a loss of growth momentum in May, with the headline au Jibun Bank Japan Services Business Activity Index easing to 51.0 in May from 52.4 in April.
- Cash US tsys are flat to 1bp richer, with a flattening bias, in today's Asia-Pac session after yesterday's modest losses. The 10-year yield continues to find good support around 4.35/40%.
- Cash JGBs are flat to 1bp cheaper across benchmarks, with the futures-linked 7-year underperforming. The benchmark 10-year yield is 0.7bp higher at 1.501% versus the cycle high of 1.596% after yesterday's strong auction result.
- Swap rates are slightly higher. Swap spreads are mostly tighter.
AUSTRALIA DATA: Weak Productivity, Rising Compensation & ULC Above 5% y/y
There was no progress on the productivity front in Q1 with GDP per hour worked posting its second consecutive unchanged quarter leaving it down 0.9% y/y. A 0.2% q/q drop in Q2 is needed to reach the RBA’s May Q2 productivity forecast of -0.6% y/y, and so that remains possible but may be a little pessimistic. Unit labour costs growth rose again at 5.1% y/y up from 4.7% and the highest since Q2 2024.
Australia productivity vs ULC y/y%
Source: MNI - Market News/ABS
- Average compensation per employee rose 1.0% q/q, the second straight quarterly rise around 1% or above since Q3 2022. Annual growth picked up to 3.7% y/y from 3.5%. Q1 WPI inflation rose 0.2pp to 3.4% y/y. While wage growth is subdued it appears to be picking up and with weak productivity growth is not consistent with the RBA’s inflation target.
- Total employee compensation rose 1.5% q/q to be up 6.5% y/y in Q1, the highest in a year, after 2.0% & 6.0%.
- The current RBA GDP outlook and slower but steady hours worked doesn’t achieve sustained productivity growth of the historical average of 1%. If hours fall over the rest of 2025, then some solid growth can be realised above 2%.
- Unit labour cost growth would slow to around 2.5% y/y if hours worked continue to rise but if they fall then it will trough at around 0.5% y/y.
Australie average compensation per employee y/y%
Source: MNI - Market News/LSEG
