JAPAN DATA: Jobless Rate Edges Up, Job-To-Applicant Ratio At Recent Lows

The Q3 Tankan survey printed in line with expectations and Q2 but FY25 capex intentions increased 1pp to 12.5%. Large company business conditions have been moving sideways at a solid level since the start of last year, especially for the non-manufacturing sector. USDJPY is higher on the data rising to 148.15 up from 147.82 before the data and equities are lower. Respondents see USDJPY around 145.68 in FY25.

• The large manufacturers’ index rose 1 point to 14 in Q3 while the outlook for Q4 is forecast to deteriorate 2 points. The series has not been affected by new US tariffs and the 2025 average is slightly higher than 2024’s.
• Non-manufacturers’ conditions were steady at 34, well above the series average of +7.3, with the outlook at 28.
• Small non-manufacturers are also outperforming manufacturers with the index at 14 (down 1 point) compared to +1 (stable). The outlook for both sectors improved 1 point.
• The September BoJ summary of opinions showed a bias towards a resumption of tightening.

Japan Tankan - large enterprises business conditions

Source: MNI - Market News/LSEG

The S&P(ESZ5) overnight range was 6693.00 - 6743.50, SPX closed +0.41%, Asia is currently trading around 6716. The stock market continues to grind back towards its all-time highs brushing off concerns of an imminent US shutdown. This morning US futures have opened lower on our open as the shutdown looks to be executed, E-minis(S&P) -0.35%, NQZ5 -0.40%. The stock market continues to look way overdone but has brushed off every hurdle thrown at it including what was supposed to be its worst month of the year. The market is clearly still in an uptrend and dips continue to be supported for now, as we head into what is seasonally a positive period of the year. Discretionary Traders remain underweight and will be dragged back in to participate in the year end rally.

• Brian Sullivan on X: “It can be an uncomfortable thing because so many people and families are worried about their paychecks, but markets tend to go UP in government shutdowns. It's because shutdowns 1) don't involve all of the government and 2) tend to be short and 3) the economy actually tends to keep growing. Weird but true.”
• Lance Roberts on X: “We are moving into the seasonally strong period of the year for equity fund flows.” See Graph Below.
• Bloomberg - “Sell Rest of World Replacing Sell US as Tariff Trade: The “sell America” theme that came to the fore when tariff turmoil was at its extremes in April has faded away. Now, the more likely investor response to President Donald Trump’s trade policies is to consider reducing non-US assets.”
• Daily Chartbook on X: "Our Sentiment Indicator, which measures US equity investor positioning, has rebounded to -0.6 this week from its low of -0.9 four weeks ago. None of the nine positioning measures in our indicator are in 'stretched' territory." - GS Morgan.

Fig 1: Weekly Equity Fund Flows

Source: MNI - Market News/@LanceRoberts

TYZ5 is trading 112-13+, down 0-02+ from its close. 

• The US 2-year yield opens around 3.612%.
• The US 10-year yield opens around 4.158%, up 0.01 from its close.
• 10-Year yields remain subdued below 4.20% as the market prices in a US shutdown, I suspect buyers continue to be around 4.20% initially and look to fade the move higher. The jobs data if released will be key this week and if not then the ADP starts to take on a lot more relevance. 
• MNI FED: Vice Chair Jefferson: Softening Labor Market May Need Support. Fed Vice Chair Jefferson gave a speech early Tuesday morning that suggested a monetary policy outlook in line with that of most of the rest of the Fed leadership, including Chair Powell. As such we would guess he is among the 9 FOMC participants who anticipate making a further 2 25bp rate cuts by year-end to a median 3.6%, the same outlook that we think is shared by the core of the FOMC.
• MNI US DATA: JOLTS Reaffirms "Low Hiring, Low Firing" Labor Market Narrative. Job openings were relatively steady in August in the latest JOLTS report, totaling 7,227k (SA, vs 7,200k consensus) with July's slightly upwardly revised to 7,208k (from 7,181k). But secondary metrics suggested further loosening in labor market conditions, and while there was no marked deterioration in the month, overall the report bolstered the prevailing "low hiring, low firing" narrative.
• Data/Events: MBA Mortgage Applications, ADP Employment Change, S&P Global US Manufacturing PMI, ISM Manufacturing, Construction Spending