JAPAN DATA: Offshore Investors By Local Debt, Local Investors Outflows Mixed
Last week local investors purchased offshore bonds for the second straight week. Aggregate purchases are fairly modest though and if we look back to cumulative sums for the past few months, we are close to flat since the beginning of Oct. This fits with a broadly flat trend for global bond returns over this period. In the equity space, local investors remained modest net sellers of global stocks. This doesn't reverse the trend of net buying for this since mid November though. For Q4 to date, net selling has still been evident to the tune of nearly ¥2.4trln.
- In terms of offshore inflows into Japan asset, we saw strong buying of local bonds. This brings net inflows into this space over the past month to just over ¥2.7trln. This comes ahead of an expected BoJ rate hike tomorrow, while longer dated yields sit just off recent cycle highs.
- Offshore investors continued to buy local stocks, adding to holdings for the third straight week.
Table 1: Japan Weekly Offshore Investment Flows
| Billion Yen | Week ending Dec 12 | Prior Week |
| Foreign Buying Japan Stocks | 528.3 | 132.8 |
| Foreign Buying Japan Bonds | 1407.5 | -444.1 |
| Japan Buying Foreign Bonds | 356.4 | 456.3 |
| Japan Buying Foreign Stocks | -79.2 | -64.5 |
Source: Bloomberg Finance L.P./MNI
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AUSSIE BONDS: ACGB Jun-54 Auction Results
The AOFM sells A$300mn of the 4.75% 21 June 2054 Treasury Bond, #TB169:
- Average Yield (%): 5.0603 (prev. 4.8213)
- High Yield (%): 5.0625 (prev. 4.8250)
- Bid/Cover: 2.8500x (prev. 4.0533x)
- Allotted at Highest Accepted Yld as % of Bid at that Yld (%): 90.6 (prev. 64.7)
- Bidders: 49 (prev. 43), successful 19 (prev. 10), allocated in full 10 (prev. 5)
GOLD: Gold Continues Decline On Fed Uncertainty & Stronger USD
Gold has been pressured by the uncertainty over the 10 December Fed decision given the lack of clarity over the economic situation due to the prolonged government shutdown. On Monday, it was almost 5% below the 13 November peak as the pricing for a December rate cut has trended lower and is now around 45%. Data is gradually being released with Thursday’s September payrolls the focus this week. The stronger US dollar also pressured bullion (BBDXY +0.3%).
- Gold fell 1.0% to $4044.96 on Monday to be up 1.1% in November and has started Tuesday lower at $4037.0. It recovered somewhat from the intraday low at $4007.09, below initial support at $4032.3, 14 November low. A break below the 50-day EMA at $3927.5 would signal scope for a deeper retracement. Initial resistance is at $4264.7.
- FOMC members appear split between believing further easing is needed to restart the labour market and holding as inflation remains above target. The Fed’s Waller noted earlier today that the focus should be on jobs data and not inflation and that the fiscal position is not sustainable (this has been one of the drivers of the gold rally).
- Silver fell 0.7% to $50.220 off the intraday low of $49.581, just below the 20-day EMA at $49.604, and has started today around $49.91. While it is up 3.1% this month, it is over 8% below the 13 November peak. The trend remains bullish though with the bull trigger at $54.480.
US STOCKS: Russell Index-Breaks Below 2380-2400 Support, 2250-2300 Next Target
The Russell 2000 overnight range was 2334.27 - 2390.91, closing -1.96%. The Russell 2000 broke through properly below the 2400 support overnight, triggering a further wave of stops. The price action looks quite ugly and the break below the pivotal 2380-2400 support area signals the pullback could have further to go. The market piled into risk early looking for the end of year rally but this break lower has the potential to flush out a few more longs before we start that process. I see some decent Weekly support now back toward the 2250-2300 area where I would expect some demand to materialise initially. In the short-term though I suspect rallies will continue to be sold into as this correction plays out.
Fig 1: Russell 2000 Daily Chart
Source: MNI - Market News/Bloomberg Finance L.P
