JGBS: Futures Weighed By Tsys, Limited Impact From Dovish BBG BoJ Story
JGB futures finished post Tokyo trade at 142.97, unchanged versus settlement levels. We saw a brief spike higher to 143.06, on BBG headlines that the BoJ sees little risk in waiting to hike rates further. However, follow through proved fleeting.
- We remain within recent ranges for the 10yr future, with yesterday's lows at 142.79.
- We likely saw some negative spill over from softer US Tsy futures through Wednesday trade. The US Tsy curve steepened. We had close to expected US CPI figures.
- For cash JGB yields, the 10yr closed yesterday just under 1.080%. We remain close to recent highs near the 1.10% level in yield terms. The 10yr swap rate was last close to 1.04%.
- Locally today we have offshore investment flows, along with Tokyo office vacancies.
- There is the enhanced liquidity auction for 5-15.5yr today as well.
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CHINA: Central Bank Governor Seeks to Expand FDI.
- PBOC Governor Pan Gaosheng’s report to the National People’s Congress showed his ongoing commitment to expanding channels for foreign investors in domestic capital markets.
- China’s focus and commitment in encouraging foreign investment has been ramping up since 2023 following foreign direct investment (“FDI”) flows falling year on year by almost 10%.
- In February 2024, the State Council released a plan entitled “the Action Plan to Solidly Promote High-Level Opening Up and Make Greater Efforts to Attract and Utilize Foreign Investment.”
- The plan included expanding access to investing in key industries, ensuring equal participation for foreign companies in government tender processes and facilitation of cross border flows.
- The Governor reiterated in his report that China’s accommodative monetary policy stance will be maintained, ensuring that sufficient credit will be available for suitable projects in the property and technology sectors.
- He also provided commitments to improving tools to respond to abnormal stock market fluctuations.
- He fell short of offering details of what the expansion of channels would look like.
LNG: Gas Prices Higher With Demand Picking Up
Natural gas prices were higher on Monday with Europe rising 3.7% to EUR 43.97, levels not seen since the end of October, to be up 8.3% in November to date. Cold weather and continued lack of wind to drive electricity have resulted in faster-than-average November inventory drawdowns and thus price are higher.
- A cold snap is forecast for the end of November in northwestern Europe, which is likely to result in further gas drawdowns. Storage is currently around 93% full, the seasonal lowest in three years, according to Bloomberg.
- Refilling scheduled for spring/summer 2025 is in focus with the premium over the 2025/2026 winter widening, which Bloomberg reports is unusual, but European regulations require that storage be at a certain level by the start of the heating season on October 1. This means that it may be competing with Asia for global supplies as it meets its cooling needs during the summer.
- US natural gas rose 10.5% to $2.95 to be almost 9% higher this month. The rally was driven by lower production and forecasts for lower temperatures from Maxar. Mild weather has weighed on gas demand and thus prices and EBW Analytics described Monday’s move as a “relief rally”. BOK Financial noted that there are significant short positions in the market.
- US output had been cut due to persistently low prices and Appalachian supply is now over 10% lower than a year ago, according to Bloomberg.
- North Asian LNG rose 0.5% as it competes with Europe, South America and north Africa for global supplies.
AUSSIE 10-YEAR TECHS: (Z4) Downtrend Persists
- RES 3: 96.975 - High Mar 14
- RES 2: 96.501 - 76.4% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 1: 96.207 - 61.8% of the Mar 14 - Nov 1 ‘23 bear leg
- PRICE: 95.405 @ 15:56 GMT Nov 11
- SUP 1: 95.285 - Low Nov 01
- SUP 2: 94.722 - Low Jul 2
- SUP 3: 94.589 - 1.0% 10-dma envelope
Aussie 10-yr futures remain weak on the back of the recent stellar domestic jobs numbers, prompting prices to come under further pressure with the US election results. This firms the downtrend, with prices well through 95.850, as well as the Apr 26 low of 95.430. Bearish price patterns expose 94.722 on further weakness, ahead of vol-band based support at 94.589.
