JGBS: Long End Leads Rally, BOJ Ueda Fails To Signal Oct Hike

The NIKKEI in Japan declined today as political uncertainty increased after Prime Minister Shigeru Ishiba’s key power broker announced his intention to resign with local media suggesting other key power brokers within the LDP are intending to quit. The move higher in developed market bond yields has seen a cautious day in Asia with China down across major bourses, whilst the bounce back in Jakarta continues. 

• The NIKKEI is down in the Tokyo trading day by -0.80%, after yesterday's gains of +0.29%
• The major bourses in China are all down with the Hang Seng down -0.40%, CSI 300 down -0.88%,  Shanghai down -0.96% and Shenzhen down -0.93%.
• The TAIEX in Taiwan is up marginally by +0.10%.
• The KOSPI has done very little today with gains of +0.08%
• In Malaysia, the FTSE Malay KLCI rose a mere +0.09%
• The Jakarta Composite is up +0.90% today after yesterday's gains of +0.85%.
• The Straits Times in Singapore is down -0.25% whilst the PSEi in the Philippines is down -0.80%
• The NIFT 50 has had a quiet start up just +0.08% after yesterday's losses of -0.18%

JGB futures have maintained a negative bias, with the Sep future last near 137.34, -.18 versus settlement levels. We haven't tested sub 137.20 so far (session lows rest at 137.23). Broader trends have been skewed towards weaker futures with US 10yr futures back to flat after initially opening firmer. Aussie bond futures are down sharply, aided by a better Q2 GDP outcome. 

• The initial impetus in the cash JGB space was for steeper curves, led by the 20-40yr tenors. We sit away from session extremes though. The 10yr outright yield was last near 1.63%, little changed for the session.
• The 30yr was close to 3.26%, earlier highs were around 3.29%. The 2/30s JGB curve was last around +240bps (sessions highs were at +242bps). The 40yr was last up 3bps, near 3.50%, the 20yr around 2.67%, up 3bps.
• BOJ Governor Ueda met with PMI Ishiba to discuss the economy/markets. Ueda reiterated they will raise rates if the economy, prices move in line with forecasts.
• Domestic politics will remain in focus as well: "JAPAN LDP'S ASO SET TO CALL FOR EARLY PARTY ELECTION: MAINICHI" - BBG.
• The strong focus for tomorrow will be on the 30yr debt auction. 

The BBDXY has had a range of 1206.85 - 1208.92 in the Asia-Pac session, it is currently trading around 1208, +0.10%.  The USD has again found some solid demand around the 1200 area and is again attempting to bounce higher off this base. A sustained break below 1197/1195 is needed to regain the momentum lower and retest the year's lows. The USD is looking comfortable for the moment above this support, not sure we get any clear direction though until the market sees what the NFP print is.

• EUR/USD -  Asian range 1.1625 - 1.1645, Asia is currently trading 1.1630. The pair is drifting back towards its first support around 1.1550, firmly within its wider 1.1350-1.1850 range.
• GBP/USD - Asian range 1.3361 - 1.3394, Asia is currently dealing around 1.3370. The pair collapsed in response to moves in UK bonds. Price is now testing its support around 1.3350, a sustained break below here opens up a move back to 1.3100, the USD’s bounce will add to the sterling's headwinds.
• USD/CNH - Asian range 7.1354-7.1453, the USD/CNY fix printed 7.1108, Asia is currently dealing around 7.1450. Sellers should be around on bounces while price holds below the 7.2200/2500 area and the PBOC manages the fix lower. Above 7.2500 and we could see a test of the USD Shorts.
• Cross asset : SPX +0.10%, Gold $3535, US 10-Year 4.283%, BBDXY 1208, Crude Oil $65.41
• Data/Events : Italy HCOB PMI’s, EZ HCOB PMI’s & PPI, France HCOB PMI’s, Spain HCOB PMI’s, Germany HCOB PMI’s

Fig 1: GBP/USD Spot 2H Chart

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