JGBS: Futures Firmer, July Real Wages Gain Revised Back To Negative

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'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. 

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