MYR: USD/MYR Down, Bond Yields Up at Morning Open

July labour market data print on Thursday and while Bloomberg consensus is looking for a 20k increase in employment and a stable unemployment rate of 4.1%, we see risks to this outlook but not from the cycle but seasonal patterns. If this occurs, then August is likely to show a rebound. The underemployment and youth unemployment rates plus hours worked are additional indicators monitored the RBA monitors.

• Given that July included school holidays and recent patterns have shown an increase in unemployed during holiday months as people take time off between jobs, then there is a risk that employment is lower and the unemployment rate higher than expected. This volatility will need to be looked through and a clearer picture will only be available when September data print.
• July 2023 saw employment rise only 1.9k followed by August increasing sharply by 62.9k. The unemployment rate rose 0.2pp and then fell 0.1pp.
• New population growth estimates add to the uncertainty.
• Employment expectations for July range from a drop of 5k to a rise of 50k. ANZ is forecasting a 5k fall due to the seasonal pattern mentioned above, while CBA & Westpac are in line with consensus, and NAB above at +30k. Q2 averaged 41.9k/month.
• Unemployment rate forecasts are between 4.0% and 4.2% with NAB & Westpac at consensus and ANZ & CBA higher at 4.2%.
• The participation rate is expected to be steady at 66.9%.

The Australian Office of Financial Management (AOFM) will today sell A$800mn of the 3.50% 21 December 2034 bond, issue #TB168. The line was last sold on 26 June 2024 for A$600bn. The last sale drew an average yield of 4.2235%, at a high yield of 4.2250% and was covered 4.2250x. There were 33 bidders, 10 of which were successful and 5 were allocated in full. The amount allotted at the highest yield as a percentage of the amount bid at that yield was 69.2%.

• This week's ACGB supply is around the recent average weekly issuance range, with A$700mn of the 2.25% 21 May 2028 bond due to be issued on Friday.
• According to the June 2024 Issuance Program Update, the AOFM plans to: conduct 2 Treasury Bond tenders most weeks; and hold 1-2 Treasury-indexed bond tenders each month. Issuance of Treasury Bonds in 2024-25 is expected to be around $90 billion. Around $2 billion will consist of Green Treasury Bond tenders.
• The previous round of ACGB Dec-34 supply saw the recent run of strong pricing at ACGB auctions continue with the weighted average yield printing through prevailing mids. There was also a strong increase in the cover ratio to 4.2250x from 3.1763x at the 17 January auction. The lower number of successful and allocated in full bidders also suggested a solid level of demand by a certain group of investors.
• Several factors will likely influence today's auction bidding. The current outright yield is around 25bps lower than the June auction and approximately 100bps lower than the November peak.
• Conversely, the 3/10 yield curve is 20bps steeper than during June’s auction, and currently sitting near the mid-point of the range it has traded in over the past year.
• Also on the positive side, the line is included in the XM basket and there has been a notable improvement in sentiment towards global bonds recently. This is exemplified by the US tsy 10-year yield, which recently hit its lowest level this year, some 90bps below its April peak.
• While some factors may limit the overall strength of bidding, there is an expectation of continued firm pricing at today's auction.
• Results are due at 0200 BST / 1100AEST.

Natural gas prices were lower on Tuesday across regions but still higher in August. European gas prices fell 0.7% to EUR 39.37 after reaching a high of EUR 40.43 to be almost 10% higher this month. Ukraine’s incursion into Russian territory had rattled markets, but flows through Ukraine to Europe haven’t yet been disrupted by the development. Increased risks in the Middle East have also boosted energy prices, and while the geopolitical risk premium moderated yesterday, tensions there are likely to provide a floor.

• European storage levels are seasonally high, but with the start of the heating season on October 1 markets will be sensitive to any supply disruptions. With manufacturing PMIs continuing to show contracting activity, industrial demand is likely to stay soft. On the supply side, Norwegian flows have been consistent but maintenance is scheduled for end August.
• US natural gas prices fell 1.1% to $2.16 to be up 6.3% this month. Excess supply still remains an issue with inventories at high levels. Seasonal cut backs in output are being increased due to low prices. The south and west of the US is forecast to have higher-than-average temperatures into the second half of August, which may boost cooling demand.
• North Asian prices were 0.3% lower but 8.1% higher in August to date, as demand remains strong.