JAPAN DATA: Local Investors Continue To Buy Offshore Equities
Offshore momentum into local stocks picked up last week. Flows of ¥753bn were the strongest weekly inflows since the first part of October last year. Broader Japan equity momentum has been positive in recent weeks in terms of the Topix, although the Nikkei has struggled. Both indices remain sub late 2024 highs. In the bond space, offshore inflows were positive, but noticeably slower from the prior week. On Friday last week we had the BoJ rate hike, although this was well telegraphed/priced by the market in the lead up to the result. Evidence this week's suggests local investors have picked up the pace of local bond buying, with focus on whether offshore investors follow suit.
- In terms of Japan outbound flows, we saw continued purchases of offshore bonds, for the third straight week, albeit at a reduced pace.
- Japan local investors extended the positive run of flows to offshore equities to the seventh straight week. Still, this only partially reverses the outflows since in Oct/Nov and early December. Since the start of October last year, cumulative outflows have been just over -¥2.3trln. Renewed concerns around AI (amid fresh competition from China) along with some earnings uncertainty has created jitters in global equities since the start of the week. Japan investor trends will be watched in this space.
Table 1: Japan Weekly Offshore Investment Flows
| Billion Yen | Week ending Jan 24 | Prior Week |
| Foreign Buying Japan Stocks | 753.0 | -69 |
| Foreign Buying Japan Bonds | 127.2 | 875.2 |
| Japan Buying Foreign Bonds | 178.0 | 818.4 |
| Japan Buying Foreign Stocks | 217.2 | 489.8 |
Source: MNI - Market News/Bloomberg
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JGB TECHS: (H5) Returns Lower
- RES 3: 149.55 - High Mar 22 (cont)
- RES 2: 147.74 - High Jan 15 and bull trigger (cont)
- RES 1: 144.48/146.53 - High Nov 11 / High Aug 6
- PRICE: 142.13 @ 15:59 GMT Dec 30
- SUP 1: 141.65 - Low Dec 30
- SUP 2: 141.56 - 1.764 proj of the Aug 6 - Sep 3 - 9 price swing
- SUP 3: 141.05 - 2.000 proj of the Aug 6 - Sep 3 - 9 price swing
Markets slipped on the hawkish Fed and are yet to fully recover, touching 141.65 on the way lower. Medium-term trend signals on the continuation chart continue to point south. A resumption of the trend would pave the way for a move towards 141.56, a Fibonacci projection point on the continuation chart. A stronger recovery would open 144.48, the Nov 11 high. Further out, key resistance is at 146.53, the Aug 6 high (cont).
LNG: Gas Prices Rise As January Forecast To Be Cold
US gas prices rose sharply on forecasted colder weather in January. European February gas prices jumped to EUR 49.00 at the start of Monday’s trading and then eased to finish up 0.5% at EUR 48.23. They are up 0.9% this month and 23% higher than the mid-December low. There is significant uncertainty going into 2025 with the January 1 expiry of the deal allowing Russian gas to transit through Ukraine.
- US natural gas (February contract) rose over 15% on Monday to $3.92 after a high of $4.20 earlier, 24% higher than Friday’s close. It is now up 22.2% in December. The increase was driven by an expected increase in heating fuel demand as the National Weather Service is forecasting a significant probability of lower-than-average temperatures in the east and Midwest over the coming two weeks, according to Bloomberg.
- Freezing weather could also disrupt US gas production in Appalachia, believes AnalytixAI.
- Forecasters are also expecting mid- and northern-Europe’s winter to shift colder in January with possibly less wind, which will impact power generation and increase demand for gas. The cold snap could last into February, believes Maxar. Temperatures in Mediterranean Europe are forecast to be around average. Current storage levels are now below 75%.
- Bloomberg estimates that around 5% of Europe’s gas consumption would be impacted by the cessation of Russian flows through Ukraine, which now looks likely. They are expected to be replaced by supplies from Norway and LNG imports from the US.
AUSSIE 10-YEAR TECHS: (H5) Soft Close
- RES 3: 96.975 - High Mar 14
- RES 2: 96.501 - 76.4% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 1: 96.207 - 61.8% of the Mar 14 - Nov 1 ‘23 bear leg
- PRICE: 95.555 @ 15:55 GMT Dec 30
- SUP 1: 95.460 - Low Dec 20
- SUP 2: 95.275 - Low Nov 14
- SUP 3: 94.734 - 1.0% 10-dma envelope
Aussie 10-yr futures recovered well having slipped into the Monday close, undermining early December strength. This works against the previous short-term bull cycle. A continuation higher would refocus attention on resistance at the 96.207 level, a Fibonacci retracement. On the downside, a stronger bearish reversal would instead expose 95.275.
