NEW ZEALAND: Sharp Terms Of Trade Decline But Exporters Doing Well

In post-Tokyo trade, JGB futures closed stronger, +15 compared to settlement levels, after US tsys finished 5-6bps richer after extending yield lows ahead of the NY open amid brief optimism an agreement over Hormuz Strait passage could be near.

• Oil prices are off their Monday lows but still down sharply after the US paused planned strikes on Iran to allow negotiations to take place.
• "The BOJ may skip a rate hike in September after the action, SocGen strategists said." - BBG
• “Japan's LDP is set to push ahead with plans to suspend the sales tax on food items, despite opposition from a former PM and other officials over how the tax cut would be funded." – BBG
• (Bloomberg) “Tuesday’s 10-year JGB auction is unlikely to excite investors, with the tenor sitting outside the sweet spot for curve-flattening trades and yields sitting below the 3% area. Moves in the JGB curve since the GPIF appointed three firms in May to trade Japanese government bonds on its behalf suggest the focus is firmly on the super-long end. That offers little support for today’s 10-year sale, especially after July’s tepid demand and with yields only about 10bps higher since then.”
• Today, the local calendar will see Monetary Base data alongside 10-year supply.

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ACGBs (YM +2.0 & XM +2.5) are stronger after cash US tsys finished 5-6bps richer after extending yield lows ahead of the NY open amid brief optimism an agreement over Hormuz Strait passage could be near. 

• Oil prices are off their Monday lows but still down sharply after the US paused planned strikes on Iran to allow negotiations to take place. Iran’s IRIB news agency reported that Iran will only allow its route through Hormuz which if it stands by this position is going to make finding a compromise difficult.
• (Bloomberg) - "Australia's housing downturn has further to run. Three straight RBA rate hikes, the confidence shock from the Iran war and changes to investor tax arrangements are likely to keep weighing on demand over coming months."
• Cash ACGBs are 1bp cheaper after being closed yesterday.
• The bills strip is little changed across contracts.
• RBA-dated OIS pricing shows modest tightening across all meetings, with the probability of a 25bp hike rising from 6% for August to 61% by December 2026.  
• Today, the local calendar will see ANZ-Indeed Job Advertisements and Household Spending data.
• This week, the AOFM plans to sell A$1000mn of the 3.75% 21 April 2037 bond on Wednesday and A$1000mn of the 1.50% 21 June 2031 bond on Friday.

TYU6 is dealing at 108-14+, +0-01 from closing levels in today’s Asia-Pac session.

• Cash bonds finished 5-6bps richer after extending yield lows ahead of the NY open amid brief optimism an agreement over Hormuz Strait passage could be near.
• Oil prices are off their Monday lows but still down sharply after the US paused planned strikes on Iran to allow negotiations to take place. Iran’s IRIB news agency reported that Iran will only allow its route through Hormuz which if it stands by this position is going to make finding a compromise difficult.
• At the same time, President Trump won’t accept tolls through the waterway. While crude fell sharply on Monday, the situation in the Middle East remains fragile and highly uncertain and so energy markets are likely to remain volatile.
• July's ISM Manufacturing report showed strong broad-based improvement, with the headline PMI rising to a 50-month high 55.6 from 53.3 prior (and vs 53.9 consensus). This corroborates other indicators of strong factory activity in the month and while well above-consensus, this had been telegraphed by a 51-month high ISM PMI equivalent in regional Feds' manufacturing surveys for the month.
• No surprises from the final US manufacturing PMI which was only revised a tenth higher to leave it unchanged from June at 53.9.

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