BOJ: Rinban Purchases

In Tokyo morning trade, JGB futures are stronger, +10 compared to settlement levels, after reversing weakness seen overnight on Friday.

• With the domestic calendar light today, the early strengthening appears driven by news from abroad. First, US President Biden has pulled out as the Democratic candidate for November’s election. Biden has endorsed VP Harris, but it is not a given that she will automatically be the party’s candidate.
• Cash US tsys are flat to 2bps richer in today’s Asia-Pac session, with a flattening bias.
• Secondly, headlines have crossed that China has cut the 7-day repo rate to 1.70% from the prior 1.80% (per BBG). This comes after the recent Third Plenum meeting and last week's softer data updates (with Q2 GDP weaker than forecast and retail sales slowing further). Note we have the 5yr and 1yr LPRs coming up soon.
• Trust banks and global funds led the buying of Japanese government bonds last month, according to the latest data from the Japan Securities Dealers Association released on Monday. (as per BBG)
• Cash JGBs are little changed, with yield movements bounded by +/- 1.5bps. The benchmark 10-year yield is 0.1bp lower at 1.042% versus the cycle high of 1.108%.
• The swaps curve has twist-steepened, with rates 1.5bps lower to 1bp higher. Swap spreads are tighter.

Oil prices fell sharply on Friday as the stronger USD (BBDXY index +0.2%), concerns re demand from China in addition to speculation of a Gaza ceasefire weighed on benchmarks. Crude is up moderately today though in the wake of President Biden’s decision not to stand for re-election which has pressured the USD (BBDXY -0.1%). The 10bp PBoC cut in the 7-day repo may also support oil in today’s trading.

• WTI’s September contract fell 3.3% on Friday to $78.60 to be down 2.5% in July. The benchmark fell to a low of $78.59, which was the softest since mid-June. It has started today 0.5% higher at $79.03.
• Brent was 3% lower at $82.56/bbl to be down 2.9% this month. The trend condition remains bullish but there is a corrective cycle. There has been a clear break of $83.96, 50-day EMA, which opens $82.31, a Fibonacci retracement. Initial resistance is at $87.95, July 5 high.
• Although oil prices have risen since Biden’s decision to stand aside and endorse VP Harris as the Democratic candidate in November’s election, she is seen as less supportive of the sector and may be more likely to challenge its environmental record. She sued oil companies when she was California’s attorney general and has been more critical of fracking than Biden, according to Bloomberg.
• On the weekend, Houthis launched a drone attack on Tel Aviv and the Israelis retaliated. Geopolitical tensions in the region are failing to ease. Tensions on the border with Lebanon also continue.
• Wildfires in Alberta Canada continue to threaten the oil sands with around 348kbd of output at risk, according to the Alberta Energy Regulator.

Headlines have crossed that China has cut the 7-day repo rate to 1.70% from the prior 1.80% (per BBG). This comes after the recent Third Plenum meeting and last week's softer data updates (with Q2 GDP weaker than forecast and retail sales slowing further).

• Note we have the 5yr and 1yr LPRs coming up later, in just over an hour. The market consensus rests with no change, although there is likely to be more focus on the outcomes now.
• USD/CNH has reversed course from earlier lows, the pair now back to 7.2880, versus earlier lows of 7.2781. This is a touch above late NY session highs from Friday trade.