JAPAN DATA: Local Investors Buy Offshore Bonds In Size
The standout for last week's investment flows was Japan buying of overseas bonds, see the table below. The +¥1.65trln in net buying was the fourth straight week of net buying for this segment. It was also the largest weekly flow since mid May. The trend for buying offshore bonds has been reasonably firm in recent months, with just under ¥8trln of net purchases of offshore bonds since the start of May. This positive backdrop fits with the continued rise in global bond returns. The chart below overlays the rolling 12 week sum of net bond purchases against global bond returns.
- Elsewhere, we saw local investors sell overseas stocks. Local investors have now sold offshore stocks in seven out of the last eight weeks. Last week's small net purchase briefly interrupted this selling trend.
- In terms of inflows into Japan assets, offshore investors remained net buyers of local stocks. This has been the dominant trend in this space going back to the start of April. We have only had one week of outflows during this period.
- Offshore investors sold local bonds last week, after strong net buying in the week prior.
Table 1: Japan Weekly Offshore Investment Flows
| Billion Yen | Week ending July 4 | Prior Week |
| Foreign Buying Japan Stocks | 611.7 | 651.3 |
| Foreign Buying Japan Bonds | -164.6 | 1059.1 |
| Japan Buying Foreign Bonds | 1656.8 | 182.8 |
| Japan Buying Foreign Stocks | -512.7 | 190.6 |
Source: Bloomberg Finance L.P./MNI
Fig 1: Japan Offshore Bond Purchases & Global Bond Returns
Source: Bloomberg Finance L.P./MNI
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US TSYS: Cash Open
TYU5 is trading 110-05, unchanged from its close.
- The US 2-year yield opens around 4.0075%, unchanged from its close.
- The US 10-year yield opens around 4.478%, unchanged from its close.
- MNI US-CHINA: Bloomberg reports: "US-China trade talks in London will continue tomorrow”, according to a person familiar with the talks. Talks to resume at 10am in London" [0500ET]. Today's meeting began just after 1pm local time (0800ET), though there were basically no headlines emerging from the talks themselves. Little market reaction to the news that talks would continue - an extension into Tuesday was seen as a distinct possibility.
- Bloomberg - “The $119 billion in Treasury refunding that starts Tuesday and concludes Thursday is another factor that can push 10-year yields above the 4.50% threshold as investors prepare for the coupon issuance.”
- The 10-year yield held its support around the 4.35% area last week. While this level holds focus will remain on potentially extending higher, CPI tomorrow will be a very important input.
- Data/Events: NFIB Small Business Optimism
US STOCKS: The Grind Higher Continues
The ESM5 Overnight range was 5995.25 - 6027.75, Asia is currently trading around 6013. US stocks continue to defy gravity and remain supported on any dips, they open slightly higher in early Asian trading.
- (Bloomberg) - “After a tentative start Monday morning, US stocks are continuing the rise toward an all-time high that Friday’s jobs data made possible. Even so, equity risk remains skewed to the downside because the details of that report demonstrated that the US economy is slowing more than investors seem to appreciate.”
- Bloomberg - “ The positive feedback loop stemming from falling volatility means a melt-up is likely into next Friday’s June option expiration, barring the outcome of a few notable risk events later this week.”
- Overnight decent demand saw the S&P close back above the 6000 area as it begins to eye the all time highs.
- Momentum type funds and share buybacks have kept the market well supported as an underweight market has been forced to reenter. Share buybacks are set to enter their blackout period in the middle of June, will this signal the potential for a pullback ?
In the short-term stocks look overbought, this however has not stopped the grind higher. The first buy-zone is back towards the 5600/5700 area where demand could be expected.
Fig 1: SPX Daily Chart
Source: MNI - Market News/Bloomberg Finance L.P
GOLD: Lower USD Drives Gold Higher, Silver Continues To Rally
Gold prices were slightly higher as the US dollar fell (USD BBDXY -0.2%) and US yields were lower. Bullion rose 0.5% on Monday to $3325.63/oz to be up just over a percent this month. It reached a high of $3338.19 before moderating somewhat. It has started today’s trading slightly higher at $3325.8.
- Gold’s bullish theme remains with medium-term trend signals bullish. Initial resistance is at $3403.5, 5 June high, with the bull trigger at $3500.1. Monday’s low of $3293.64 held above initial support is at $3240.0, 50-day EMA.
- Silver continued climbing higher posting a 2.2% increase to $36.76 to be up 11.5% in June. It reached a high of $36.89, above initial resistance at $36.71 opening up $36.99. Silver is currently slightly higher at $36.79. Last week the metal rose above the key bull trigger marking an important medium-term bullish development.
- Equities finished little changed with the S&P up 0.1% but Euro stoxx down 0.2%. The S&P e-mini is currently up 0.1%. Oil and copper prices rose another percent.
