JAPAN DATA: Offshore Investors Sell Both Local Stocks & Bonds, Japan Flows Muted
Offshore investors were meaningful sellers of both Japan equities and bonds last week. In the equity space we continue to see a paring back of the net long position built up earlier in the year. In the last 6 weeks we have seen net selling of near ¥6trln for this segment by offshore investors. This curbs cumulative inflows since the start of April to sub ¥6trln. Japan stocks have faltered in recent weeks, with early Oct trends taking us away from recent record highs. Offshore outflows, at the margin, has likely aided such trends.
- Net selling of local bonds by offshore investors was even larger last week, at nearly -¥2trln. This was the largest weekly outflow since Sep last year. Trend flows for this segment in recent months are fairly indifferent from a cumulative standpoint. JGB yields remain at risk of breaking higher, although recent auction outcomes have steadied sentiment from a demand standpoint.
- In terms of outbound Japan flows, we saw net selling of both overseas bonds and equities, although these shifts were modest. On the bond side, the dip in global bond returns (as US Tsy yields rose) may be a factor.
- IN the equity space, aggregate flows for local investors remains light.
Table 1: Japan Weekly Offshore Investment Flows
| Billion Yen | Week ending Sep 26 | Prior Week |
| Foreign Buying Japan Stocks | -963.3 | -1747.1 |
| Foreign Buying Japan Bonds | -1997.0 | 53.4 |
| Japan Buying Foreign Bonds | -162.0 | 816.7 |
| Japan Buying Foreign Stocks | -11.6 | -151.5 |
Source: Bloomberg Finance L.P./MNI
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US TSYS: Cash Open
TYZ5 is trading 112-10, down 0-06 from its close.
- The US 2-year yield opens around 3.633%, up 0.02 from its close.
- The US 10-year yield opens around 4.2575%, up 0.3 from its close.
- MNI: Congress returns to Washington, D.C. on Tuesday, after the Labor Day holiday. Lawmakers face a race to reach a deal on a continuing resolution to avoid a federal government shutdown ahead of the 30 September deadline, when funding is set to expire.
- Bloomberg - “Trump’s tariffs will stay in place until at least mid-October amid a legal fight, Capital Economics said. Should the president ultimately lose, Bloomberg Economics estimates the average US effective rate of 16.3% would be cut by at least half.”
- 10-Year Yields continue to find supply toward the 4.20% area, which signals the range might continue to dominate. A break of the recent lows around 4.18% would bring the bottom of the range towards 4.10% back into focus.
- Data/Events: S&P Manf. PMI, ISM Manf., Construction Spending
GOLD: Precious Metals Rise On Fed Cut Expectations
Gold and silver had another good day on Monday supported by market pricing of a September Fed rate cut approaching 90% after US core PCE prices printed in line with consensus but August consumer sentiment moderated. Friday’s payroll data will be key. Gold rose 0.8% to $3476.07/oz after a high of $3489.85. It is currently around $3480.9. The USD index was little changed.
- Bullion remains in an uptrend with the bull trigger at $3500.1, 22 April record high. Initial firm support is $3371.9, 20-day EMA.
- Silver rose 2.5% to $40.697 after reaching $40.799. It couldn’t hold breaks above initial resistance at $40.798. It is trading around $40.69 today. The metal continues to make higher highs and higher lows confirming the uptrend. Initial support is $38.363, 20-day EMA. Bloomberg reported that in August ETF buying of silver rose for the 7th straight month.
- Silver has also been added to the US list of critical minerals. It is a key component of solar panels.
- European equities were stronger with the Euro stoxx +0.3% and FTSE +0.1%. The S&P e-mini is down 0.1% so far on Tuesday after rising 0.2% on Tuesday. Oil rallied with WTI +0.9% to $64.61/BBL. Copper fell 0.4%.
JGBS: Futures Threatening Fresh Break Lower, 10yr Auction/BoJ Speech In Focus
JGB futures finished Monday trade at 137.24, -.06 versus settlement levels post the Tokyo close. Intra-session lows for Monday were at 137.21. Downside momentum in JGB futures was supported by offshore developments, with generally negative leads from EU and US markets. There may also be some nervousness creeping into markets ahead of today's 10yr debt auction. Recall last week there was quite a poor bid to cover ratio at the 2yr auction.
- In terms of JGB futures technicals, a bear threat remains present and the contract is trading closer to its recent lows. A resumption of weakness would signal scope for an extension towards 136.57, a Fibonacci projection.
- Before the 10yr auction we have August monetary base figures, while BoJ Deputy Governor Himino speaks at 10:30am local time. Focus will for the speech will be any hiking hints ahead of year end. The end Oct meeting has a market implied rate of just above 0.60%, against a current effective policy rate near 0.48%.
- In the cash JGB space, the 10yr yield ended yesterday at 1.635. The 10yr swap rate was last close to 1.445%.
