MNI ASIA MARKETS ANALYSIS: USD Gains Fade, But JPY Drop Holds

MNI (NEW YORK) -

HIGHLIGHTS:

• JPY slide holds after LDP leadership vote, but dollar gains fade as US stocks set for fresh closing highs
• Global curves steepen after JGB sell-off; OATs underperform after French PM resigns
• Federal US gov't shutdown keeps upcoming data slate thin, with focus on Fed speakers and French political developments

US TSYS: Bear Steepening In Line With Peers

The Treasury curve bear steepened Monday, aligning with global developments.

• Most of the uptick in yields was on the open, triggered by pressure in long-end JGBs following the surprise win in the LDP leadership election of Sanae Takaichi, who has been a proponent of fiscal expansion to support growth.
• Indeed, political intrigue was a pervasive theme on the day, with the French Prime Minister unexpectedly resigning, trigging a brief risk-off rally in core instruments including Treasuries.
• But apart from another move lower in mid-morning, yields were content to drift higher through most of the rest of the session, set to close near the highs.
• TY futures remain between near-term support/resistance levels - Dec 10-Yr futures (TY) down 9.5/32 at 112-12 (L: 112-11.5 / H: 112-19.5), remaining poised around support at 112-12+/01 50-day EMA / 50.0% of Jul 15 - Sep 11 upleg).
• Latest cash levels: The 2-Yr yield is up 2.1bps at 3.5966%, 5-Yr is up 3.1bps at 3.7462%, 10-Yr is up 4.5bps at 4.1637%, and 30-Yr is up 4.9bps at 4.7605%.
• There was no major data scheduled for publication Monday but the federal government shutdown (which seems not to be close to being resolved) ensures there will be limited releases the rest of the week: Tuesday brings Redbook retail sales, the NY Fed consumer expectations survey, and the Federal Reserve's consumer credit release.
• Additionally, nominal Treasury auction supply resumes with the first sale of the month ($58B in 3Y  Note).
• We hear from KC Fed's Schmid on the economic outlook and monetary policy after the cash close today, with Tuesday bringing Bostic, Bowman, Kashkari, and Miran.

MNI Europe Pi: Increasing Shorts In Schatz

European bond futures have mostly moved off the shortest-leaning/least long structural positioning seen in August and early September over the past week or two, with longs set and shorts covered over the course of last week. However positioning is very mixed across contracts, and some (Schatz, Gilt) have been going against the grain.

SOFR FIXES AND PRIOR SESSION REFERENCE RATES

US TSYS/OVERNIGHT REPO: SOFR Continues Downtick From Month-/Quarter-End

Secured rates continued to descend Friday from the month-/quarter-end highs in late September, with SOFR down 2bp to 4.18% (lowest since Sep 29, and vs 4.24% peak on Sep 30). All in all, repo markets showed relatively limited stress in September and through quarter-end despite reserves having fallen to below the $3T mark in the last couple of weeks. Rates could continue to descend today before stalling Tuesday on Treasury bill auction settlements ($17B net cash).

• Effective Fed funds rates have maintained their late-September 1bp uptick to 4.09%.

REPO REFERENCE RATES (rate, change from prev. day, volume):
* Secured Overnight Financing Rate (SOFR): 4.18%, -0.02%, $3018B
* Broad General Collateral Rate (BGCR): 4.16%, -0.01%, $1177B
* Tri-Party General Collateral Rate (TGCR): 4.16%, -0.01%, $1148B

New York Fed EFFR for prior session (rate, chg from prev day):
* Daily Effective Fed Funds Rate: 4.09%, no change, volume:  $95B
* Daily Overnight Bank Funding Rate: 4.09%, no change, volume:  $183B
 

US TSYS/OVERNIGHT REPO: ON RRP Takeup Dips, Remains Negligible

Overnight reverse repo takeup fell $3.6B Monday to $21.8B. 

• That's up from the multi-year low $8.4B posted Thursday after quarter/month-end takeup reversed, but overall takeup effectively remains negligible.
• ON RRP + reserves were under $3T as of last Wednesday, potentially getting nearer to the Fed's "ample" threshold of reserves from the current "abundant" regime.

BONDS: EGBs-GILTS CASH CLOSE: Curves Steepen Amid French Political Uncertainty

Long-end yields rose across EGB and Gilt curves, with OATs underperforming on renewed political/fiscal concern.

• The surprise resignation of Prime Minister Lecornu saw OAT spreads widen sharply, with President Macron giving his now ex-PM 48 hours to hold final discussions with political parties to see whether the ongoing budget impasse can be overcome.
• Other semi-core and periphery EGB spreads widened, but more modestly, and closed below session wides.
• More broadly, global curves steepened after longer-end JGBs underperformed following the election of a new Japanese PM overnight.
• On the day, the German curve twist steepened, while the UK's bear steepened.
• In data, Eurozone retail sales extended their recent tepid trend in August, while underlying Spanish industrial production momentum remains constructive despite two consecutive monthly falls.
• Tuesday's calendar includes German factory orders, and appearances by ECB's Nagel and Lagarde.

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is down 1.2bps at 2.007%, 5-Yr is up 0.3bps at 2.305%, 10-Yr is up 2.1bps at 2.719%, and 30-Yr is up 2.9bps at 3.296%.
• UK: The 2-Yr yield is up 2.6bps at 3.992%, 5-Yr is up 3.5bps at 4.153%, 10-Yr is up 4.6bps at 4.736%, and 30-Yr is up 5.4bps at 5.555%.
• Italian BTP spread up 0.8bps at 82.1bps / French OAT up 3.8bps at 85.1bps  

EUROPE OPTIONS: Largely Upside Lean In Euribor, Plenty Of Condors

Monday's Europe rates/bond options flow included:

• DUX5 107.10/107.00ps, sold at 6.25 in 3k (ref 107.03)
• ERH6 98.00/06/12/25 broken call condor with, the ERH6 98.25/43 call spread paper paid 0.5 for both on 1.75K
• ERH6/ERM6 98.12 put calendar 5K given at 1.5, selling the M6 to buy the H6.
• ERM6 98.375/98.50/98.75/98.875 call condor, bought for 1 in 10k
• ERM6 98.50/98.625/98.75/98.875c condor, bought for half in 10k (ref 98.07)
• 2RZ5 97.75/98.00cs vs 3RZ5 97.62/97.87cs, bought the 2yr for 2.75 in 2.5k
• SFIZ5 96.05/95.90ps 1x2, bought for 0.25 in 2k
• SFIH6 96.55/96.65cs, bought for 1 in 7.78k
• SFIF6 96.20/96.10ps vs 0NF6 96.30/96.20ps, bought the front for half in 5k

US Options Roundup - Oct 6 2025:
Monday's US rates/bond options flow included:

• TYZ5 114/116cs, bought for 13 in 5k
• SFRX5 96.43c, sold at 1.75 in 4k.
• SFRV5 96.31/96.37^^, sold at 1.5 in 2k
• SFRX5 96.25/96.43^^, traded 4.75 in 1.5k.
• SFRZ5 96.31/96.25/96.18p fly, bought for 0.25 in 2k
• SFRZ5 96.56/96.62cs, bought for half in 11k
• SFRZ5 96.25/96.37/96.43/96.56c condor, bought for 6 in 4k.
• SFRZ5 96.50/96.625cs, bought for 1 in 5k (on Block)
• SFRU6/Z6/H7/M7 96.875^, bought for 306.5 in 300 lots
• SFRU6 97.43/97.12/96.81p ladder, traded -0.75 in 5k.
• SFRU6 96.37p, traded for 8.5 in 2.5k.

• 2QZ5 96.50/96.37ps , traded 1.5 in 2k.

   

FOREX: JPY Slide Holds, But Gains Could be Limited Above Y150

• JPY slid sharply against all others Monday in the extended response to the surprise victory for Takaichi in the LDP leadership race. Trump congratulated the new Japanese PM, setting the leaders up for their first face-to-face summit on October 28th. Ahead of Takaichi's first formal actions in government, one of her primary policy advisers Honda stated that Takaichi wants the Bank of Japan to proceed "cautiously" on interest rates, and that an October rate hike is "difficult". While the comments appeared to pressure the Bank away from tightening policy, the view that a December hike is not a problem and that the currency is approaching levels deemed too weak helped boost the JPY off lows.
• The EUR traded weaker in early Europe, following the resignation of the French PM Lecornu - and bedding markets in for an extended period of political risk and
  budget brinkmanship. French equities also see weakness - with the CAC40 easily the underperformer in Europe. Next major support in EURUSD crosses at
  1.1646, the late Sept low. Weakness through here snaps the weak uptrend posted off the August 1st low.
• The USD's NY morning fade aided EURUSD and GBPUSD well off earlier lows, helping EURUSD almost entirely erase the PM resignation losses. EURGBP still
  traded heavy, however, meaning GBPUSD's rally has the price within range of the Friday high at 1.3486. It's fiscal and political risk that's likely a more primary GBP
  driver for the rest of this year - The front-end of the GBP vol curve provide a further signal for market concern over the Autumn Budget. The flatter
  front-end of the curve and the building premium for 2m implied vols shows markets building a risk premium into the event.
• We see GBP's driver as the fiscal policy mix ahead. The Gilt curve and, in particular, the longer-end has regained a sense of stability after being marked sharply higher at the beginning of September. How valid and long-lasting this proves to be should determine GBP/USD's ability to trade within range of 1.3525 (50% mid-Sept downleg) and make meaningful headway toward the bull trigger of the July 1st high at 1.3789.
• Australia's Westpac Consumer Confidence data is the Tuesday highlight, followed by German factory orders for August. US trade balance data was set for release Tuesday, however the extended government shutdown will keep that figure quiet for now. There remains very little pressure on either side to make concessions and rush toward a conclusion for the shutdown at this point - leaving markets with a core expectation for a further week or so of no Federal government activity.
• Various Fed speakers are due Tuesday, including Bostic, Bowman, Miran and Kashkari - who will be carefully watched for any suggestions that a prolonged government shutdown will hinder the US economy further, and require a more forceful response from the FOMC.

FX OPTIONS: Expiries for Oct07 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1650-65(E2.2bln), $1.1695-10(E869mln), $1.1750(E1.3bln), $1.1820(E2.3bln)
• USD/JPY: Y149.25($667mln), Y149.75($811mln), Y150.00($747mln), Y150.60($525mln), Y151.00($776mln)
• AUD/USD: $0.6675-90(A$630mln)

EQUITIES Tech Discretionary Names Lead As S&P Set For Fresh Closing High:

Equities had a constructive session Tuesday, with the S&P 500 set to post another record high close. Tech (+0.8% - S&P 500 subsector) and consumer discretionary stocks (+1.0%) outperforming. Consumer stapes (-0.7%) and real estate (-1.0%) lagged.

• Overall it was a tech story again: Tesla led consumer discretionary gains (+5%) as it shared hints that it would unveil a new product Tuesday, and Advanced Micro Devices soared 24% (38% at the high) after announcing a deal to supply OpenAI.
• Futures-wise, S&P Eminis are eyeing next resistance at 6812.29 (2.382 proj of the Aug 20 - 28 - Sep 2 price swing).

Below gives key levels of markets in afternoon NY trade: - DJIA down 86.14 points (-0.18%) at 46669.52 - S&P E-Mini Future up 25.5 points (0.38%) at 6789 - Nasdaq up 181 points (0.8%) at 22959.5

Prior European bourses closing levels: - EuroStoxx 50 down 22.99 points (-0.41%) at 5628.72 - FTSE 100 down 12.11 points (-0.13%) at 9479.14 - German DAX down 0.51 points (0%) at 24378.29 - French CAC 40 down 109.76 points (-1.36%) at 7971.78

EQUITY TECHS: E-MINI S&P: (Z5) Northbound

• RES 4: 6831.38 2.500 proj of the Aug 20 - 28 - Sep 2 price swing
• RES 3: 6819.25 1.500 proj of the Aug 1 - 15 - 20 price swing
• RES 2: 6812.29 2.382 proj of the Aug 20 - 28 - Sep 2 price swing
• RES 1: 6800.00 Round number resistance and Friday’s high
• PRICE: 6786.50 @ 14:24 BST Oct 6
• SUP 1: 6684.22 20-day EMA
• SUP 2: 6624.25 Low Sep 25
• SUP 3: 6566.78 50-day EMA
• SUP 4: 6506.50 Low Sep 5 

A bull cycle in S&P E-Minis remains intact. The contract traded to a fresh cycle high last week to confirm a resumption of the uptrend and maintain the positive price sequence of higher highs and higher lows. Sights are on 6812.29, a Fibonacci projection. Initial support to watch is at the 20-day EMA, at 6684.22. It has recently been pierced, a clear break of it would signal scope for a deeper pullback, potentially towards the 50-day EMA, at 6566.78.

DATA/EVENTS CALENDAR

Date	GMT/Local	Impact	Country	Event
06/10/2025	2100/1700		US	Kansas City Fed's Jeff Schmid
07/10/2025	2330/0830	**	JP	Household spending
07/10/2025	0600/0800	**	DE	Manufacturing Orders
07/10/2025	0645/0845	*	FR	Foreign Trade
07/10/2025	1230/0830	**	CA	International Merchandise Trade (Trade Balance)
07/10/2025	1230/0830	**	US	Trade Balance
07/10/2025	1230/0830	**	US	Trade Balance
07/10/2025	1255/0855	**	US	Redbook Retail Sales Index
07/10/2025	1400/1000	*	CA	Ivey PMI
07/10/2025	1405/1005		US	Fed's Miki Bowman
07/10/2025	1430/1030		US	Fed Governor Stephen Miran
07/10/2025	1500/1100	**	US	NY Fed Survey of Consumer Expectations
07/10/2025	1530/1130		US	Minneapolis Fed's Neel Kashkari
07/10/2025	1610/1810		EU	ECB Lagarde Speech at Business France Event
07/10/2025	1700/1300	***	US	US Note 03 Year Treasury Auction Result
07/10/2025	1900/1500	*	US	Consumer Credit
07/10/2025	2005/1605		US	Fed Governor Stephen Miran
08/10/2025	-		NZ	Reserve Bank of New Zealand Meeting
08/10/2025	2330/0830	**	JP	average wages (p)
08/10/2025	2350/0850		JP	Balance of Payments
08/10/2025	0100/1400	***	NZ	RBNZ official cash rate decision