HKD: Steadies Near The Top End Of Band, Focus On pace Of Liquidity Withdrawal
Jun-05 04:07
Spot USD/HKD sits just off recent highs, last near 7.8455. Yesterday the pair reached 7.8475. The Hibor rate set saw fresh weakness in the 1 week, down slightly to sub 0.12%, fresh cycle lows. The 1 month eased 7bps to 0.70%, but is above recent lows. The 3 month was set at 1.77%, up nearly 2bps. The 12 month was up above 3.11%, continuing to move up from late May lows sub 3.0%.
- The US-HK 3 month rate differential is back to +256bps, well off recent highs above +300bps, but has steadied in recent sessions, see the chart below. greater adjustment may now be in the forward point space rather than the spot space, although sharp shifts haven't been evident in recent sessions, with 12 month still deeply negative at -1135pts.
- Nomura expects liquidity withdrawal to be modest as we approach the top end of the peg band. It notes: “The HKMA may prefer to see a low Hibor as a way to cushion Hong Kong’s economy and asset prices” (via BBG), adding "Some drivers of Hong Kong dollar inflows, such as US dollar weakness, IPO activity in the city and southbound equity flows have to moderate before a more sustainable liquidity withdrawal can take place".
- SCMP also notes that "Hong Kong’s huge multicurrency bond deal oversubscribed by global investors", see this link for more details.
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GOLD: Gold’s Rally Returns with Strong Gains Today
May-06 04:06
- Gold’s overnight rally continued into the Asia trading day delivering a +0.80% gain.
- With equities strong across the region, bonds quiet and the dollar stronger against regional crosses, it was a day possibly where gold could have fallen.
- With positioning much lighter in longs than previously and money managers more neutral than they have been in over a year, the rally today looked like the re-establishment of longs given the recent sell off.
- Gold markets will be actively watching the FED this week as expectations for rate cuts diminish following the stronger than expected labour market.
- Gold opened the day at US$3,334.12 and rallied to $3,359.70 by mid afternoon.
- Bolivia’s released details of its reserves today showing that the Central Bank are another of the ever growing list of Central Banks adding to their gold reserves having purchased 4.94 tons of locally-produced gold in the first quarter of 2025
AUSSIE BONDS: Cheaper But Subdued Trading With Japan Out, Apr-37 Supply Tomorrow
May-06 04:03
ACGBs (YM -3.0 & XM -6.0) are weaker and near Sydney session cheaps.
- Outside of the building approvals and household spending, there hasn't been much by way of domestic drivers to flag.
- Q1 HH spending volume data showed no growth on the quarter, in line with retail sales, to be up only 0.9% y/y after +1.6% q/q & 2.3% y/y in Q4, consistent with the view that the RBA is likely to ease 25bp on May 20. Private consumption in the national accounts is likely to be close to flat in Q1 when it is released on June 4.
- Cash US tsys dealings in today's Asia-Pac session with Japan out. TYM5 is slightly cheaper.
- Cash ACGBs are 3-6bps cheaper, with the 3/10 curve steeper.
- The bills strip has bear-steepened, with pricing flat to -5 across contracts.
- RBA-dated OIS pricing is flat to 3bps firmer across meetings today. A 50bp rate cut in May is given a 3% probability, with a cumulative 103bps of easing priced by year-end.
- Tomorrow, the local calendar will see Foreign Reserves data.
- The AOFM plans to sell A$1000mn of the 3.75% 21 April 2037 bond tomorrow and A$700mn of the 2.75% 21 November 2029 bond on Friday.
US TSYS: Asia Wrap - Futures Edge Lower
May-06 03:54
TYM5 has traded lower within a range of 110-30 to 111-03 during the Asia-Pacific session. It last changed hands at 110-30, down 0-03 from the previous close.
- Futures are trading lower in Asia as China returns from holidays, China’s April's PMI services unexpectedly dipped in April in signs that the US tariff war is hurting.
- The CAIXIN PMI services had printed above 51 for six successive months and market expectations were for a continuation of this theme and a print of +51.8.
- April's result of +50.7 is the lowest since September and could be an early warning sign that the economy is slowing quicker than first thought.
- Risk in Asia has traded on the backfoot for most of our session following on from the poor close in the US.
- No cash market today with a holiday in Japan.
- The 10-year Yield range seems to be 4.10% - 4.45%, price has moved above the 4.30% pivot and with more supply to come this week a push back to 4.45% is possible before the buyers come in.
- Data/Events : US Trade balance
