JGBS: Market Quickly Reverses Initial Weakness After Poor 30Y Auction
JGB futures are sharply stronger and at Tokyo session highs, +46 compared to settlement levels, after quickly reversing initial weakness following today’s poor 30-year auction.
- The 30-year JGB auction delivered poor results, suggesting weak investor demand. The low price fell short of dealer expectations, per a Bloomberg survey. Moreover, the cover ratio fell to 2.9215x from 3.0739x, and the auction tail lengthened significantly to 0.49 from 0.30.
- “Recent auctions in Japan, Australia, and South Korea have shown weak demand, and investors are demanding more compensation to hold long-dated bonds due to growing anxiety about fiscal deficits. The trend of higher global yields is a warning sign from investors that governments cannot keep borrowing at the pace they did when interest rates were close to zero.” (per BBG)
- Cash US tsys are ~1bp cheaper in today's Asia-Pac session after yesterday's strong data-induced rally. The focus is now on today's weekly jobless claims, trade balance, and unit labour costs data.
- Cash JGBs are 2-7bps richer across benchmarks, with a flatter curve. The benchmark 30-year yield is 6.8bps lower at 2.883% after today's supply.
- Swap rates are 2-5bps lower.
- Tomorrow, the local calendar will see Household Spending and Coincident/Leading Index data.
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BOBL TECHS: (M5) Pierces The 20-Day EMA
- RES 4: 120.20 High Dec 12 ‘24 (cont)
- RES 3: 120.000 Psychological round number
- RES 2: 119.960 High Apr 7 and the bull trigger
- RES 1: 119.780 High Apr 22
- PRICE: 119.150 @ 05:32 BST May 6
- SUP 1: 119.010 Low May 5
- SUP 2: 118.647 50-day EMA
- SUP 3: 118.060 Low Apr 10
- SUP 4: 117.680 Low Apr 9 and a key support
A bull cycle in Bobl futures remains in play and the recent steep sell-off between Apr 7 - 9 is considered corrective. Gains in early April rally resulted in a break of key resistance at 119.040, the Feb 28 high, strengthening bullish conditions. Sights are on the 120.000 handle next. On the downside, firm support lies at 117.680, the Apr 9 low. The 20-day EMA, an important S/T support, at 119.088, has been pierced. The 50-day EMA is at 118.647.
ASIA STOCKS: China Shares Up Post Holidays.
In their first trading day back post the five day Labour Day holidays, China’s major bourses all rose as expectations that the US trade war could ease. The equity gains are after Treasury Secretary Scott Bessent’s said the US could see some “substantial progress in the coming weeks” in trade talks with China and President Donald Trump‘s suggesting that said he is willing to lower tariffs on China at some point.
- China’s Shenzhen Composite lead the way as the index rose +1.90% whilst Shanghai and CSI 300 were up +0.95%. The Hang Seng was strong today also rising +0.65%.
- The FTSE Malay KLCI fell -0.33% today following on from yesterday’s fall of -0.19% leaving the index down over 6% year to date.
- The Jakarta Composites good run continues rising +0.95% following yesterday's gains of -0.19% to leave it down just -2.5% year to date
- The FTSE Straits Times rose a modest +% whilst the PSEi in the Philippines climbed +0.75%.
- India’s NIFTY 50 is down -0.25% in the morning trade following on from yesterday’s rise of +0.47% on trade deal optimism. Year to date the NIFTY 50 is up over 3% setting it apart from its regional peers.
THAILAND: Core At Bottom Of Band As Headline Goes Negative
Core CPI inflation printed at the bottom of the Bank of Thailand’s 1-3% target band in April. It rose a stronger-than-expected 1.0% y/y from 0.9%. This measure is likely to be the focus with headline impacted by government subsidies as well as lower vegetable and global oil prices. It fell to -0.2% y/y from +0.8% y/y in March, weaker than expected. After cutting rates in both February and April, further monetary easing is likely this year.
Thailand CPI y/y%
- The Bank of Thailand (BoT) is concerned about the impact of US trade policy on Thailand, especially if there isn’t a deal to reduce the proposed 36% tariff. Also, the stand-off between China and the US could put downward pressure on Thai inflation if China reduces prices to find other markets.
- The government expects inflation to stay negative in May. BoT expects headline inflation at 0.2% to 0.5% in 2025 and was revised down due to lower oil prices and government policy.
- Energy prices were down 6.7% y/y in April after -0.9% y/y as the state subsidised fuel and global oil prices fell sharply over the last few months with WTI almost 18% lower in April. Core inflation excludes private road transport and accommodation costs and so is not impacted by these factors.
- Food prices rose 1.6% y/y in April but down from 2.35% with eggs & vegetables declining over the year helped by increased supply.
