JGBS: Slightly Richer Ahead Of 20Y Supply

In Tokyo morning trade, JGB futures are stronger, +8 compared to settlement levels.

• Japan’s current-account balance is a surplus of 4.48t yen in September, compared with the median estimate of a surplus 2.46t yen.
• Cash JGBs are 1bp cheaper to 1bp richer across benchmarks, with a steepening bias. The benchmark 30-year yield is 0.6bp higher at 3.147%, 20-25bps below its cyclical high. (see chart)
• “The 30-year bond auction doesn’t come at an ideal time, given the government is expected to announce a new economic stimulus package, and there’s speculation around the size of the supplementary budget, which could potentially increase JGB issuance, says Keiko Onogi, senior JGB strategist at Daiwa Securities”. - via BBG
• The previous 30-year JGB auction delivered mixed results. The low price fell short of dealer expectations of 99.15, per the Bloomberg survey. However, the cover ratio increased to 3.4110x from 3.30806x. On the other hand, the auction tail shortened significantly to 0.17 from 0.18, indicating an improvement in bidding strength.
• The 2/30 curve remains within its well-established range ahead of today's supply. 

Source: Bloomberg Finance LP

The S&P(ESZ5) overnight range was 6792.75 - 6865.75, SPX closed +1.54%, Asia is currently trading around 6865.00. Risk built on its early gains overnight as sentiment turns positive on the shutdown ending. This morning stocks have opened a little higher, E-minis(S&P) +0.10%, NQZ5 +0.12%. There are quite a few commentators calling that the low last week and this should now be the catalyst to start the year end “Santa Rally”. For my mind the issues that contributed to last week's pullback are still alive and kicking but this year it has been prudent to not fight this bull market when it goes on a run. Should risk build on this return of positive sentiment then dips should be supported and we could have another look at the year's highs in the year-end rally.

• Lance Roberts points out on X that, “Perfect timing to end the Government shutdown as today starts the strongest part of the year-end run.  Look for a dip in early December as mutual funds distribute gains and income.” See Graph Below.
• Bloomberg is reporting that, “Corporate buybacks are tracking close to last quarter’s levels even before Nvidia reports results, signaling continued momentum for the stock market into year-end.” {NSN T5IL79GPL3YW <GO>}

Fig 1: S&P 500 Index Daily Chart

Source: MNI - Market News/@LanceRoberts

Despite lower rate cut and higher inflation expectations, Westpac consumer confidence surprisingly jumped 12.8% m/m to 103.8 in November, the highest since January 2022 and the largest monthly rise since Covid-impacted September 2020. Finally optimists exceeded pessimists, reflected in the “time to buy a major item” rising almost 15%. If sustained, then it is likely to reflect further recovery in the domestic economy and possibly a wealth effect from rising house prices.

• On Monday, RBA Deputy Governor Hauser noted that growth is already close to potential and thus the economy to capacity. While these concepts are difficult to estimate, any pickup in growth could potentially add to inflation. This large jump in confidence adds to the risk of that and the chance that rates won’t be cut further.
• Consumers don’t always behave in line with their survey responses and so monthly household spending data will be monitored closely to see if there is an increase in expenditure consistent with the pickup in confidence. October prints on 4 December with November 12 January.
• House prices are expected to rise with expectations +0.3% m/m to 172.4, a new record high. However, time to buy a home remains soft at 96.4. 

Australia Westpac consumer confidence

Source: MNI - Market News/LSEG