ASIA STOCKS: JP PM Spooks Markets, Rotation out of Tech Growing

Futures sit at 136.29, -0.4 versus settlement levels, little changed in the post lunch break period at this stage. We remain close to recent highs, with US Tsy futures trading with a positive bias (all eyes on the 10yr yield and whether we can break under 4.00%), imparting some positive spillover (although JGBs are lagging). The 20yr auction was digested relatively smoothly by the market. Domestic political uncertainty continues, with lack of agreement on holding the PM election on Oct 21, although this isn't weighing on JGB sentiment at this stage. 

• The current rally in futures comes in the context of the firm downtrend that’s dominated prices since mid-September. Key short-term resistance has been defined at 137.30, the Sep 8 high. The latest sell-off, however, resulted in a break of support at 136.19, the Sep 4 low and a bear trigger.
• We would expect JGB futures to lag US moves. The US-JP 10yr government bond yield spread is down a further 2bps today to +235bps, close to recent lows.
• The outright 10yr JGB yield is little changed at 1.66%, while the 20 and 40yr tenors are off 2bps, the 30yr off 3.5%. The 20yr yield is just under 2.70%. The auction saw a bid to cover ratio of 3.56 versus a 12 month average of 3.25.
• Political uncertainty continues around who will be the new PM, with headlines crossing a short while ago that the parliamentary committee has failed to agree to hold the new PM election on Oct 21 (which was speculated on yesterday). Meetings between the LDP and minor parties are continuing today.
• Looking ahead, Aug core machine orders print tomorrow. Note we also hear from BoJ Board member Tamura. 

TYZ5 traded up during the trading day in Asia reaching a high of 113-15+  from the open of 113-11 unable to provide meaningful follow on from the overnight rally in the US.  

•  The US 2-Yr is at 3.468%, down -1.5bps today.
• The US 5-Yr is at 3.592% having closed prior to Columbus day at 3.626% and down -1.5bps today.  
• The US 10-Yr is down -2.3bps to 4.011% having failed to test 4.00% prior. It had looked likely to remain in the 4.00% - 4.20% range for now, seeking a fresh catalyst to break out and will be watched closely overnight to see if it can break below and hold sub 4.00%.  
• The US 30-Yr is down -2.3bps at 4.611%
• The Fed Chairman Powell's comments continued to echo through markets today with him indicating that the outlook for inflation and employment appears to have changed little since September, keeping intact expectations for two more rate cuts this year.
• Key data in the calendar for later is Empire Manufacturing which is forecast to decline -1.8 following -8.7 in September and Real Average Hourly Earnings.

Oil fell around 1.5% on Tuesday on fears current US-China trade tensions could reduce energy demand as the IEA increased its expectations of 2026 excess supply in the market. Lower-than-expected September China inflation also added to demand concerns. Crude was pressured by these developments today trading within a narrow range. Fed easing expectations and associated softer US dollar (BBDXY -0.2%) following Chair Powell’s comments have likely provided a floor in the APAC session. 

• WTI is down 0.3% to $58.53/bbl off the intraday low of $58.37, just above support at $58.22. Brent is 0.5% lower at $62.10/bbl after falling to $62.02 holding above initial support at $62.00, 10 October low.
• US industry stock data are released later on Wednesday and the EIA data on Thursday, delayed a day due to the Monday holiday, and will be monitored given the focus on supply/demand trends. When supply exceeds demand it will appear in higher inventories.
• IEA revised up its 2026 market surplus forecast with excess supply expected to be 4mbd as it reduced demand projections moderately but increased non-OPEC supply by 200kbd for 2026. At 700kbd, consumption is below historical averages. The forecasts suggest downside risks for oil prices.
• Later the Fed’s Miran, Waller and Schmid speak and the Beige book is released. The ECB’s de Guindos, Buch and Donnery, and BoE’s Breeden and Ramsden also appear. US October Empire manufacturing and August euro area IP print.