JGBS: Futures Down Post Bessent BoJ Comments, 2/30s Curve Continues To Flatten
JGB futures hold weaker, last at 136.04, -.18 versus settlement levels. Negative spill over has been evident from comments made by US Tsy Secretary Bessent (via X: "The Government’s willingness to allow the Bank of Japan policy space will be key to anchoring inflation expectations and avoiding excess exchange rate volatility."), along with a sharp fall in Aussie bond futures (post the CPI beat), have been factors in play. We haven't broken sub 136.00 yet, while recent highs above just above 136.30.
- In the cash JGB space, firmer yield trends are evident for the belly of the curve, with 5-7yr up more than 1bps, like wise for the 1yr (although liquidity is poorer at this benchmark).
- The 10yr is higher, but 20-40yrs are softer in yield terms, off close to 2bps, the 30yr under 3.05% is back challenging 100-day EMA support. These moves are seeing the 2/30s curve flattening trend continue, now +210bps.
- Bessent's earlier remarks also helped push USD/JPY lower. Bessent is essentially arguing, in our view, the government shouldn't push back on BoJ normalizing policy, as if they do it risks slipping behind the inflation curve.
- Market pricing for tomorrow's meeting outcome is a touch firmer, but still only +5bps of hike risks priced in. A full hike is not priced in until around March next year.
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US STOCKS: S&P(ESZ5) - Bounces Back Toward 6700, Breaking 3 Day Losing Streak
The S&P(ESZ5) Friday night range was 6657.00 - 6703.75, SPX closed +0.59%, Asia is currently trading around 6710. The stock market ended its 3 day retracement on Friday and had a healthy bounce as US data came in as expected with no smoking gun with respect to inflation. This morning US futures have followed through trading higher on our open, E-minis(S&P) +0.20%, NQZ5 +0.25%. The stock market continues to look way overdone and is in what is supposed to be a difficult seasonal period, the last 2 weeks of September in particular. In saying that, if that was the pullback it was very shallow ! The market is clearly still in an uptrend and dips continue to be supported for now.
- Wei Li(CIS BlackRock) on LinkedIn - “I don’t know if this is a bubble, but even a bubble can grow and grow before it bursts.” Fundamentals are really good, I am not changing overweight in ai and tech+, which means studying anatomies of past bubbles and signposting them in the current ai super cycle will be the MOST IMPORTANT thing to risk taking.”
- Adam Taggart on X: “David Einhorn on AI: “The numbers that are being thrown around are so extreme that it’s really, really hard to understand them...I’m sure it’s not zero, but there’s a reasonable chance that a tremendous amount of capital destruction is going to come through this cycle.”
- Daily Chartbook on X: "It's helpful to look at the S&P compared to its 200-day moving average. The current number ... is at 10%, but that's not when we've seen local tops. We've generally seen local tops when this number is somewhere between 13% an 15% ... that would imply 6,950." - @fundstrat. See Graph Below
- Barchart on X: “Foreigners now have the highest allocation to U.S. Stocks in history.”
Fig 1: S&P 500 - More To Go
Source: MNI - Market News/@dailychartbook/fundstrat
CHINA: Central Bank Injects CNY48.1bn via OMO
- The PBOC issued CNY288.6bn of 7-day reverse repo at 1.4% during this morning's operations.
- Today's maturities CNY240.5bn.
- Net liquidity injects CNY48.1bn.
- The PBOC monitors and maintains liquidity in the interbank system through the issuance of reverse repo.
- The CFETS Pledged Repo Deposit Institutions 7 Day Weighted is at 1.47%, from prior close of 1.55%.
- The China overnight interbank repo rate is at 1.32%, from the prior close of 1.30%.
- The China 7-day interbank repo rate is at 1.50%, from the prior close of 1.58%.
MNI: CHINA PBOC CONDUCTS CNY288.6 BLN VIA 7-DAY REVERSE REPO MON
- CHINA PBOC CONDUCTS CNY288.6 BLN VIA 7-DAY REVERSE REPO MON
