JGBS: Futures Firmer, July Real Wages Gain Revised Back To Negative
JGB futures are showing a modest positive bias in the first part of Friday trade. We were last 135.85, +.03 versus settlement levels. Earlier highs were at 135.94, while we sit up from Thursday lows of 135.67. US Tsy futures sit a touch higher, which may be imparting some modest positive spill over to JGBs.
- Data outcomes have likely aided the JGB moves. Earlier we had the Tokyo CPI print, which came in well below forecast. The headline and core measures printing at 2.5%y/y. Services prices were down in the month, but still up 2.0% y/y.
- Elsewhere headlines crossed that Japan's July wages data have been revised lower. Via Rtrs: "Japan revised real wages in July to a 0.2% fall from a previously reported growth of 0.5%", while nominal growth was revised down to 3.4%y/y, after originally being reported as a 4.1% gain.
- The trend in real wage y/y momentum is positive, but is coming from a noticeably lower base that originally thought.
- These outcomes today are likely to reinforce, at the margin, the BoJ's wait and see approach.
- In the cash JGB space, yields are lower at the back end of the curve, but losses are only around 1bps at this stage. The 10yr is down a touch but still close to 1.65%. The 2/30s JGB curve is around +220bps, flattest levels since late July.
- Next week the main focus will be on the Tankan survey out on Wednesday. The market expects a resilient to slightly better backdrop large manufacturing firms, while capex is seen at +11.0% (prior was 11.5%).
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AUSSIE BONDS: Yields Extend Gains, But Follow Through Limited, OIS +1-2bps
Government bond yields have extended gains post the July CPI beat, albeit with limited follow through. The front end move was beyond 3bps before being pared. The 3yr yield was last near 3.42%. The 10yr remains close to 4.32% in latest dealings, fading a move above 4.34% post the data.
- Headline CPI was +2.8%y/y, versus 2.3% expected, while the trimmed mean rose 2.7%y/y prior was 2.1%. Given this is the first month of the quarter and it doesn't contain updates on most of the services components, the market may be treating the print with some degree of caution.
- In the futures space, 3yr (YM) was off 4.5bps to 96.55 not long after the data. 10yr futures were holding at -2bps.
- OIS dated RBA contracts are around 1-2bps firmer verus pre data levels.
CHINA: Industrial Profit Declines Continue
- China's Industrial Profit in July declined, marking a third consecutive month.
- China Industrial Profits YoY contracted -1.5%, following -4.3% in June.
- This is the seventh monthly decline out of the prior 12.
- The Year to date result of -1.70% was in line with the prior month's result of -1.8%.
- The Year to date Industrial Company's Profit was CNY4.02tn.
FOREX: AUD Crosses - Consolidate Recent Gains, CPI Gives A Bump
US Equities once again found buyers on the dip as the market concentrates selectively on the positives of a potentially more dovish Fed. This morning US futures have opened slightly higher, ESU5 +0.05%, NQU5 +0.07%. The AUD was helped by the return in risk appetite at the end of last week and is consolidating those recent gains, This morning's CPI has given them a nudge higher to start the day.
- EUR/AUD - Overnight range 1.7917 - 1.7976, Asia is currently trading around 1.7925. The area just above 1.8100 has seen decent supply cap it the last few months, a sustained move above 1.8100 is needed to see the move extend higher. The pair has drifted back towards 1.7900 where some demand has returned, next support is back towards the 1.7800 area.
- GBP/AUD - Overnight range 2.0742 - 2.0793, Asia is trading around 2.0750. The pair consolidated yesterday and is approaching the pivot toward 2.0700 within its wider range where you could expect some demand first up.
- AUD/JPY - Overnight range 95.55 - 95.84, Asia is trading around 95.50. The pair continues to grind higher back towards the 96.00 area. This pair’s direction will be determined by the market's ability to follow on with this risk-on move or not. A sustained move back above 96.50 would turn the trend higher again but until then sellers should be around looking for this move to top out.
- AUD/NZD - Overnight range 1.1076 - 1.1095, the cross is dealing in Asia around 1.1090. The dovish RBNZ has seen the Cross surge higher breaking back above 1.100 convincingly. This move continues to now see dips supported as it looks to build momentum to push higher.
Fig 1: GBP/AUD spot 2H Chart
Source: MNI - Market News/Bloomberg Finance L.P
