JGBS: Futures Testing Cycle Lows Post Ueda Speech, Dec Hike Odds Near 80%
JGB futures are holding close to session lows in latest dealings, last 134.50, -.63 versus settlement levels, as BoJ Governor Ueda said a rate hike in Dec would be considered. For 10yr futures, we are challenging the Nov 19 and cycle low of 134.56. A clean break lower points to the low 134.00 region , (with 134.04 being the 1.0% 10-day DMA envelope). Market implied BoJ rates for the Dec meeting sit around 0.675%, (roughly a 79% chance of hike in Dec). We were at 0.535% this time last week.
- Bank of Japan Governor Kazuo Ueda said on Monday that the BOJ will consider the pros and cons of raising the policy interest rate and make decisions as appropriate at its Dec. 18-19 meeting. He added that that raising the policy interest rate under accommodative financial conditions should be seen as easing off the accelerator toward stable economic growth and price developments, rather than applying the brakes on economic activity.
- Ueda also expressed confidence in the wages outlook, while noting downside risks for both the US and Japan economies have lessened.
- In the cash JGB space we are around 5-6bps higher for 5-20yr tenors. The 10yr outright yield is at 1.86%, fresh cycle highs. The 2yr is around 1.00%, while the 30 is up 4bps to 3.39%. Th 2/30s curve is little changed at +237.5bps.
- Earlier data on Capex was weaker than forecast but was largely ignored by the market.
- Note tomorrow we have a 10yr JGB auction.
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
AUSSIE 10-YEAR TECHS: (Z5) Returns Lower
- RES 3: 95.982 - 76.4% retracement Sep’24 - Nov’24 downleg
- RES 2: 95.960 - High Apr 7 (cont.)
- RES 1: 95.900 - High Oct 17
- PRICE: 95.670 @ 16:16 GMT Oct 31
- SUP 1: 95.510 - Low Sep 3
- SUP 2: 95.415/95.300 - Low May 15 / Low Jan 14
- SUP 3: 95.275 - Low Nov 14 (cont) and a key support
Aussie 10-yr futures slipped lower Wednesday on the back of hotter-than-expected Australian inflation. This returned prices lower despite nascent signs of a technical recovery as recently as last week. The sustainability of the pullback will be dependent on prices holding above key short-term support at 95.510, the Sep 3 low. Near-term resistance remains 95.780, the Sep 12 high. A clear break of this level signals scope for a continuation higher and opens 95.960, the 76.4% retracement level for the Sep’24 - Nov’24 downleg.
AUSSIE 3-YEAR TECHS: (Z5) Struck by Strong CPI
- RES 3: 97.796 - 1.618 proj of the Sep 3 - 12 - 15 price swing
- RES 2: 96.780 - High Jun 26 (cont)
- RES 1: 96.700 - High Sep 12
- PRICE: 96.375 @ 16:13 GMT Oct 31
- SUP 1: 96.280 - Low May 15 (cont.)
- SUP 2: 95.900 - Low Jan 14 (cont.)
- SUP 3: 95.760 - Low 14 Nov ‘24
Having bounced well on the back of the mild US CPI print, Aussie 3-yr futures reversed course Wednesday on strong domestic inflation data containing RBA cut pricing through 2026. This keeps prices well below prior resistance at 96.615, the Sep 12 high, and refocuses attention on 96.280 as the next major support.
FED: Gov Waller: Still Advocating For A December Rate Cut
Gov Waller, one of the FOMC's more prominent doves, makes clear in an appearance on Fox Business that he supports a follow-up rate cut in December. He makes reference to Chair Powell's press conference comment that the Fed could skip a cut at the December meeting due in part to a lack of official government data during the federal shutdown (Powell: “what do you do if you are driving in the fog? You slow down").
- Waller says today: "Right now, we know that the labor market has been weak... We know inflation is going to come back down. Inflation expectations are anchored, and in that world, the standard of central bank wisdom is to look through it and proceed with worrying about the labor market. So in my view, we should just look at what the data is telling us and proceed on policy that way.... So this is why I'm still advocating that we cut policy rates in December, because that's what all the data is telling me to do. The fog might tell you to slow down. It doesn't tell you to pull over to the side of the road. You still have to go. You may want to be careful, but it doesn't mean to stop, and ... the right thing to do with policy is to continue cutting."
- This is of particular interest since he appeared to suggest he would have a more cautious outlook on further easing after cutting in October.
