GOLD: Modest Data Prints Keep Fed Cut Open Helping Gold To Rally
Gold prices unwound a large share of Tuesday’s loss on Wednesday. They had been pressured by a lack of commitment by Fed speakers to a December cut but then rallied 1.2% yesterday to $3979.57/oz, close to the intraday high of $3990.46. While ADP employment rose after two monthly declines signalling stabilisation, the gain remained modest. Friday’s scheduled payrolls are unlikely to be released due to the ongoing government shutdown and so the ADP is important to gauge labour market conditions ahead of the 10 December Fed decision.
- Gold received support from the softer US dollar but looked through higher yields. Around 15bp of easing is priced in for the next Fed meeting.
- In terms of data, ADP employment rose 42k in October after falling 29k and 3k the previous two months. Gold looked through services indices as the S&P Global services PMI was lower than expected but ISM services higher but the employment component remained in contractionary territory.
- Bullion is down 0.5% this week but has traded in a range below initial resistance at $4046.2, 31 October high, and support at $3886.6, 28 October low, given the uncertainty around the December Fed. With the 20-day EMA breached, there is scope for the 50-day EMA at $3867.3 to be tested, which would strengthen a short-term bear theme.
- The impact of China’s decision at the start of the week to remove the tax exemption on retail gold sales will be monitored. However, the largest state owned bank Industrial and Commercial is planning a depository at HK’s international airport consistent with HK’s aim to be a global gold centre. PBoC gold demand is also expected to continue.
- Silver also rallied rising 1.8% to $48.013, just off the high of $48.277, but is still down 1.4% this week.
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JGB TECHS: (Z5) Bearish Trend Sequence Intact
- RES 3: 140.08 High Jun 13
- RES 2: 139.05 High Aug 4
- RES 1: 137.30 - High Sep 8 and key short-term resistance
- PRICE: 135.69 @ 16:25 BST Oct 06
- SUP 1: 135.67 - Low Sep 26
- SUP 2: 135.39 - 1.618 proj of the Aug 4 - Sep 2 - Sep 8 swing (cont.)
- SUP 3: 134.69 - 2.000 proj of the Aug 4 - Sep 2 - Sep 8 swing (cont.)
A bear threat in JGB futures remains present despite the intraday spike Monday. The contract pulled well off the intraday high, keeping the bias negative for now. The latest sell-off has also resulted in a break of support at 136.19, the Sep 4 low and a bear trigger. Clearance of this level confirms a resumption of the downtrend and opens 135.39 next, a Fibonacci projection. Key short-term resistance has been defined at 137.30, the Sep 8 high.
JGBS: Futures Little Changed Overnight, 30Y Supply Today
In post-Tokyo trade, JGB futures closed little changed, +1 compared to settlement levels.
- US tsys traded heavily as fiscal policy concerns resurfaced again, this time from overseas. In Japan, the LDP elected Sanae Takaichi as its leader. She supports "Abenomics" and fiscal stimulus. In France, PM Lecornu abruptly resigned, adding to concerns over another crisis in the government and increasing doubt on bringing the deficit under control.
- MNI BRIEF: BOJ: Mixed Wages, Prices May Cloud Rate Hike. The Bank of Japan reported mixed views on wage hikes for fiscal 2026 and on corporate price-setting behaviour, key areas of focus for policymakers. The findings are likely to overshadow prospects for a rate hike this month, although market expectations for an October move have weakened following the outcome of the ruling Liberal Democratic Party's presidential election.
- "Deutsche Bank turns Neutral On Yen From Bullish On Takaichi Win: "Sanae Takaichi's victory in the LDP leadership race is a big surprise for markets. Our base case is for knee-jerk losses in the JPY towards 150, but we do not see the JPY trending much weaker." – BBG.
- Today, the local calendar will see Household Spending and Leading/Coincident Index data alongside 30-year supply.
AUSSIE BONDS: Little Changed After Yesterday's Holiday
ACGBs (YM +0.5 & XM flat) are little changed despite US tsys finishing Monday’s session with a bear-steepener (yields 1-4bps higher). The move aligned with 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 Monday, with the French Prime Minister unexpectedly resigning, triggering a brief risk-off rally in core instruments including Treasuries.
- 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.
- Cash ACGBs are 3-5bps cheaper, after being closed yesterday, with the AU-US 10-year yield differential at 23bps.
- The bills strip slightly stronger.
- RBA-dated OIS pricing is little changed across meetings today. A 25bp rate cut in November is given a 39% probability, with a cumulative 13bps of easing priced by year-end (based on an effective cash rate of 3.60%).
- Today, the local calendar will see Westpac Consumer Confidence and ANZ-Indeed Job Advertisements.
- The AOFM plans to sell A$1200mn of the 4.25% 21 March 2036 bond on Wednesday.
