JGBS: Futures Lean On Post-Powell Bid In Tsys, Tokyo Reaction Eyed
The broader reaction Fed Chair Powell’s address supported JGB futures in late overnight dealing, with spill over from a firm bid in U.S. Tsys allowing the contract to more than unwind the pre-Powell downtick that had been observed. That left the contract +23 at the close of post-Tokyo trade.
- The post-Powell reaction will likely continue to filter through during the early rounds of Tokyo dealing.
- Today’s domestic docket is headlined by final manufacturing PMI data, Q3 capex readings, 10-Year JGB supply and an address from BoJ’s Noguchi.
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JGBS: Futures A Touch Lower Overnight, 10-Year Supply Due
JGB futures ultimately shed 4 ticks in overnight dealing, tracking gyrations in the longer end of the U.S Tsy curve, recovering from a brief and limited showing below Monday’s Tokyo low into the close.
- FI-relevant domestic headline flow has been rather limited since Monday’s close, which will leave Tokyo’s reaction to the cheapening in wider core global FI markets on Monday and set up for today’s 10-Year JGB supply at the fore during early Tuesday trade.
- Data from Japan's MoF confirmed that the Japanese authorities intervened in currency markets last month to the tune of Y6.3tn, setting a new record. Officials have repeatedly refused to clarify if they took action and signalled that stealth interventions were an option.
- The aforementioned round of 10-Year JGB supply headlines the domestic docket today (there will be more on that in our preview which will cross later). Elsewhere, final manufacturing PMI data is due, but that shouldn’t move the market.
JPY: Yen Loses Altitude Ahead Of FOMC Policy Review
Spot USD/JPY ground higher Monday, with pre-FOMC widening in U.S./Japan yield differentials exerting upwards pressure on the pair.
- The gap between yields on 2-Year U.S. Tsys & JGBs expanded 6.9bp, returning above the 450bp mark. 10-Year spread grew 3.6bp, flirting with 380bp. The yield on benchmark 10-Year JGBs remained below the BoJ's 0.25% ceiling.
- Another 75bp rate hike from the Fed is fully priced in, while the BoJ last week left its super-dovish monetary policy settings unchanged. Market activity surrounding the FOMC meeting will be a key driver of USD/JPY price action going forward.
- Data from Japan's MoF confirmed that the authorities intervened in currency markets last month to the tune of Y6.3tn, setting a new record. Officials repeatedly refused to clarify if they took action and signalled that stealth interventions were an option.
- USD/JPY last deals at Y148.67, down 4 pips on the day. Bears look for losses past Oct 27 low of Y145.11, while bullish focus falls on Oct 21 cycle high of Y151.95.
- The final reading of Jibun Bank M'fing PMI will cross the wires later today.
KRW: USD/KRW Not Moving As Closely With USD/CNH, Oct Trade Figures Out Today
1 month USD/KRW got close to 1430 overnight but closed just under 1427. Note onshore yesterday at 1424.65. Coming up this morning is October trade data, the market expects export growth to slip below 0% y/y, while the trade balance is forecast to improve modestly further to -$3.5bn from -$3.8bn (see this link for more details). Also due is the October manufacturing PMI (last was 47.3).
- Outside of the data prints, equity sentiment will be eyed. Tech equities underperformed broader market moves overnight. To recap, the Kospi rose 1.11% yesterday, putting it close to the 2300 level. Offshore investors added a further $180mn to local stocks, bring flows for October to just over +$2.1bn.
- Spill over from higher USD/CNH levels is also a risk. USD/KRW has had a lower beta to the recent up move in USD/CNH though, see the chart below. The better equity market backdrop in recent weeks has likely helped won outperformance relative to renewed CNH weakness.
- Finally, note the BoK minutes are out 4pm this afternoon local time.
Fig 1: USD/KRW 1 month NDF & USD/CNH - Past Month
Source: MNI - Market News/Bloomberg
