JAPAN DATA: Oct Inflation Ticks Up But Services Still Sub 2% Y/Y
Japan Oct CPI was in line with market forecasts across the three inflation metrics, and a slightly tick up from the Sep outcome. Headline printed at 3.0%y/y, as did the core ex fresh food measure (both measures were 2.9% in Sep). The ex fresh food, energy measure edged up to 3.1%y/y from 3.0% prior. The chart below shows the trends of the three inflation measures. We remain wedged close to 3%y/y. Our policy team noted: Services prices – a key gauge for the BOJ in assessing the strength of the wage–price cycle – increased 1.6% y/y in October, up from 1.4% in September. BOJ officials noted that services inflation remains below 2% and has not accelerated sufficiently to ensure achievement of the price target. So, the outcome is unlikely to shift BoJ thinking. We await Ueda's speech On Dec 1.
- In terms of the detail, all of the measures in m/m terms were up 0.4%, while goods prices rose 0.3%m/m. Services posted a 04%m/m gain but these are often revised away.
- In terms of the segments, food rose 0.9%m/m after a 0.7% gain prior. The pace of fresh food gains did ease. Utilities rose 0.8%m/m, ending a four month run of declines. Household goods rose 1.3%m/m, after falling 0.7% prior. Entertainment was up 1.4%, after a 2.1% drop in Sep, but this segment tends to be volatile.
- In y/y terms we did see much of a shift from Sep outcomes.
Fig 1: Japan CPI Y/Y - Trends All Close To 3%
Source: Bloomberg Finance L.P./MNI
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GOLD: Gold & Silver Correction Continuing In APAC Session, Breached 20-d EMA
Profit taking in gold and silver begun on Tuesday has continued in Wednesday’s APAC trading with prices down 1.8% to $4052.3 and 1.0% to $48.21 respectively. The USD BBDXY is little changed but the slight decline appears to have provided a floor to the metals. Traders have been long, with the extent unclear due to the lack of CFTC positioning data due to the US government shutdown, and appear to be normalising those positions as both metals are in overbought territory.
- Gold prices fell to a low of $4004.26 as Asian markets opened, below support at $4021.6, 20-day EMA. It is currently trading above this level but another breach would open $3819.6, 2 October low. The correction is unwinding the overbought position.
- Silver reached a trough earlier at $47.550 below support at the 20-day EMA of $49.089. It continues to trade below this level opening up the 50-day EMA at $44.996. The market is smaller than gold which can exacerbate moves.
US TSYS: UST Yields Lower Again After Overnight Lead
TYZ5 has opened the Asia trading day at 113-24+ with limited price action at the open whilst bonds continued to grind lower in yield across longer maturities. If short end yields are most reactive to monetary policy and longer to growth, the bond markets appears to be suggesting that the government shutdown will trim growth expectations the longer it goes on.
- The US 2-Yr is barely to get off where it started at 3.45%.
- The US 5-Yr has moved lower by -1bp to reach 3.55%
- The 10-Yr has consolidated below 4.00%, rallying again overnight and is down a further 1bp to reach 3.95% in line with October 24 yield levels.
- The 30-Yr continues to outperform rallying -2.5bps overnight to reach 4.544%. The likely next inflection point could be the April lows of 4.40%.
With both the KOSPI and NIKKEI opening lower, markets will watch for signs of a pullback in risk sentiment given two very strong days this week already.
AUSSIE BONDS: ACGB Jun-35 Auction Absorbed With Less Demand Present
Today’s auction showed solid pricing for ACGBs, with the weighted average yield coming in 0.43bps below prevailing mid-yields, according to Yieldbroker. However, the cover ratio nudged lower to 2.9056x from 3.2958x at the previous auction.
- As noted in our preview, the current yield for this bond was approximately 20bps lower than the level of the previous auction and 60bps below the high recorded in early November 2024.
- The 3/10 yield curve was also slightly flatter than the previous auction and sat around 40bps below its recent high.
- Following the auction, both the cash line and XM are slightly richer.
