EM ASIA CREDIT: LG Energy Solutions: Q2 results strong

At the Tokyo lunch break, JGB futures are stronger, +6 compared to the settlement levels, after reversing overnight weakness.

• A few Bank of Japan board members supported steadily reducing the Bank’s JGB holdings, though concerns over moving too quickly were also raised, according to the summary of opinions from the June 16-17 policy meeting released Wednesday.
• One member said the BoJ should normalise the amount of outstanding JGB holdings as soon as possible to “increase, at the earliest possible time, the capacity in financial markets to absorb shocks.”
• Services Producer Price Index (SPPI) rose 3.3% y/y in May, slightly easing from a revised 3.4% in April, indicating that firms are continuing to pass on higher costs.
• BoJ board member Naoki Tamura signalled a more hawkish stance on Wednesday, suggesting the Bank’s 2% inflation target could be achieved earlier than expected and calling for a steady normalisation of monetary policy and the BoJ’s balance sheet.
• Cash JGBs are 1-3bps richer across benchmarks, with the 20-year leading. The benchmark 20-year yield is 2.6bps lower at 2.329% versus the cycle high of 2.596%.
• Swap rates are 1-3bps lower. Swap spreads are mixed.

ACGBs (YM flat & XM +0.5) are trading little changed on the day after today’s release of May CPI data. 

• The monthly CPI indicator rose 2.1% y/y in May, 20bps below expectations, while the annual trimmed mean measure fell 40bps to 2.4%.
• The headline CPI result marked the lowest reading since October 2024, while the trimmed mean was at its lowest level since November 2021, potentially reinforcing expectations that inflationary pressures are easing more broadly. While the RBA monitors the monthly read, it prefers the more complete quarterly data.
• The largest contributor to the annual increase was food and non-alcoholic beverages (+2.9%), followed by housing (+2.0%) and alcohol and tobacco (+5.9%).
• Cash US tsys are modestly cheaper in today’s Asia-Pac session after yesterday’s modest gains.
• Cash ACGBs are 1bp richer with the AU-US 10-year yield differential at -16bps.
• The bills strip is modestly stronger, with pricing +1 to +2.
• RBA-dated OIS pricing is slightly softer across meetings today. A 25bp rate cut in July is given a 90% probability, with a cumulative 80bps of easing priced by year-end.

A huge reversal in oil has given the JPY longs some reprieve, but a much improved risk backdrop could continue to see these positions challenged in the crosses after the initial pullback. 

• EUR/JPY - Overnight range 167.92 - 168.70, Asia is trading around 168.25. The pair found some initial demand around 168.00 overnight. The dips have been very well supported recently, after a good move higher though we might see some reversion back to the mean. First support is back towards 167.00 where demand should emerge once more.
• GBP/JPY - Overnight range 196.96 - 197.58, Asia trades around 197.20. Considering the pullback in USD/JPY cross-JPY remains well supported. Look for dips to remain supported in the short-term, first support back towards the 196.00/196.50 area.
• NZD/JPY - Overnight range 86.97 - 87.60, Asia is currently dealing 87.20. NZD/JPY continues to see buyers on dips, a sustained break is needed above 88.00 for the market to gain momentum and turn its focus back to the 90.00 area.
• CNH/JPY - Overnight range 20.1636 - 20.2567 Asia is currently trading around 20.1900. A big reversal from the 20.50/20.60 resistance area. A sustained close above here needed to change the direction of this pair.

Fig 1 : CNH/JPY Daily Chart

Source: MNI - Market News/Bloomberg Finance L.P