KRW: Spot USD/KRW To Play Upside Catch Up As Onshore Markets Return

ACGBs (YM +5.0 & XM +6.0) are stronger after US tsy yields declined alongside lower US equities.

• US tsy yields declined alongside lower US equities, with the 2-year yield reaching a low of 3.84%, before finishing 5bps lower at 3.86%. The yield curve flattened modestly with the 10-year yield down 7bps to 3.83%.
• The US ISM manufacturing index edged higher to 47.2 in August but was weaker than consensus estimates. The headline index remains depressed after registering a fourth consecutive month in contractionary territory. ISM reported companies were unwilling to invest in capital and inventory due to current federal monetary policy and election uncertainty.
• Judo Bank PMIs for August print: The Services Index rises to 52.5 from 50.4 in July, and the Composite Index rises to 51.7 from 49.9 in July.
• Cash ACGBs are 5-6bps richer, with the AU-US 10-year yield differential at +11bps.
• Swap rates are 5-7bps lower.
• The bills strip has bull-flattened, with pricing flat to +5.
• RBA-dated OIS pricing is 1-6bps softer across meetings. A cumulative 17bps of easing is priced by year-end.
• Today, the local calendar will also see Q2 GDP alongside the AOFM’s planned sale of A$1.2bn of the 4.25% 21 December 2035 bond.

Oil prices fell sharply on Tuesday as risk appetite deteriorated and the market focussed on OPEC plans to reduce its output cuts from next month. There is also optimism that Libyan production will resume. In the face of higher output, demand worries drove prices to their lowest since early January. The USD index rose 0.2%.

• WTI fell 4.5%to $70.22/bbl after a low of $70.10, breaking below the bear trigger at $70.88 and support at $70.43, February 5 low. This confirms, if sustained, the resumption of the bear cycle that began in April. The next level to watch is $68.92, December 13 low. It has started today slightly higher at $70.35.
• Brent is almost 5% lower at $73.72/bbl following a low of $73.51, below key support at $74.62. With the resumption of the downtrend, $73.16 is the next level to watch.
• Libya’s central bank believes that an agreement can be reached that will allow the country’s oil output to resume to usual levels after a political dispute cut it sharply. A resumption of production weeks before OPEC plans to increase output by 180kbd has worried markets at a time when data signal China’s economy remains lacklustre. There are growing doubts that China will meet its 2024 growth target.
• Algorithmic traders turned more bearish, which exacerbated Tuesday’s sell off, according to Bloomberg. Their net shorts in Brent are now around 64% compared to 46% at the start of the week based on estimates from Bridgeton Research. 

In local morning trade, NZGBs are 6-8bps richer as risk aversion dominated US markets as they returned from the long Labor Day weekend.

• US tsy yields declined alongside lower US equities, with the 2-year yield reaching a low of 3.84%, before finishing 5bps lower at 3.86%. The yield curve flattened modestly with the 10-year yield down 7bps to 3.83%.
• Equities fell (Nasdaq futures -3.4% and -2.4% in S&P Eminis) with Nvidia down 9.50% after being subpoenaed by the DOJ. The SOX Index fell 7.75%.
• A weaker-than-expected ISM report added to growth worries and catalysed heavy profit-taking heading into Friday's key jobs report.
• The US ISM manufacturing index edged higher, to 47.2 in August. The headline index remains depressed after registering a fourth consecutive month in contractionary territory.
• Projected rate cut pricing through year-end firmed 1-2bps vs. Friday close levels: Sep'24 cumulative -35bps (-33bps), Nov'24 cumulative -68bps (-66bps), Dec'24 -102bps (-100bps)
• The major focus in the US this week is Nonfarm Payrolls on Friday. Later today the BoC rate decision will also be watched.
• Swap rates are 7-8bps lower.
• RBNZ-dated OIS pricing is richer across meetings. A cumulative 71bps of easing is priced by year-end.
• Today, the local calendar will see ANZ Commodity Prices.