CNH: Steady CNH Start, Focus On Today's USD/CNY Fixing

In Tokyo morning trade, JGB futures hold overnight gains, +25 compared to settlement levels, sparked by weaker-than-expected US ISM data.

• Japan’s monetary base rose 0.9% in May from a year ago versus expectations of +2.2%.
• Cash JGBs are richer beyond the 1-year, with the futures linked 7-year outperforming (2.8bps richer). The benchmark 10-year yield is 2.3bps lower at 1.046% versus the cycle high of 1.101% set last week.
• Today’s 10-year auction held last month went poorly, with the tail lengthening and the cover ratio falling to 3.151x from 3.799x at April’s auction.
• The current 10-year auction is taking place with an outright yield of approximately 20bps higher than the early May offering.
• Traders will monitor today’s 10-year supply to gauge demand for Japanese bonds with BoJ’s monetary policy decision looming next week. The BoJ will likely keep the JGB purchase reduction plan flexible, dependent on market conditions, and avoid providing an exact number, said analysts at MUFG (per BBG).
• Swaps are richer, with rates ~1bp lower. Swap spreads are mostly wider.

The USD is marginally weaker in the first part of Tuesday trade. The BBDXY tracks under 1250, not too far from lows recorded in the first part of Monday trade.

• Cross asset wise US equity futures are higher, but only by around 0.1-0.15% at this stage. Regional equity sentiment is mostly weaker for Asia Pac markets that are open. US yields are a touch higher, with gains around 1bps across the benchmarks, following Monday's sharp dip (post weaker ISM data).
• The yen is underperforming at the margins, last near 156.15/20, slightly above end NY levels from Monday.
• AUD and NZD have ticked higher, but gains are under 0.1%. AUD/USD is near 0.6700, but hasn't been able to breach this figure level yet. NZD/USD is close to 0.6200.
• Coming up we have partials for Q1 GDP in Australia. Net exports (forecast is -0.7, versus 0.6 prior), along with the current account, inventories (0.7% forecast, prior -1.7%) and company profits (-0.9% forecast, versus 7.4% prior), are all due.

South Korea May CPI was a touch below market expectations. The m/m outcome was 0.1%, against a 0.2% forecast and flat outcome in April. headline was 2.7% y/y, versus 2.8% forecast and 2.9% prior. Core (ex food and energy) was 2.2%, in line with expectations but slightly lower than April's 2.3% print.

• Headline inflation is back near mid 2023 lows, while core is back to late 2021 lows, see the chart below.
• Core CPI y/y is now not too far from the BoK's target of 2%. The central bank noted in its most recent policy meeting there were high uncertainty regarding the inflation outlook (this year's core forecast is at 2.2%, headline 2.6%).
• In terms of the detail, food -0.7%m/m, which fell for the second straight month, was a drag, as were furnishings (-0.2%). 4 out of 12 sub indices recorded a firmer m/m pace compared to April. Clothing and transport both rose 0.6% m/m.
• The data, at the margin, adds to the BoK easing case in H2. Sticky household inflation expectations (still above 3%) aren't translating into an uptick in core pressures at this stage.

Fig 1: South Korea CPI Saw Further Deceleration In May

Source: MNI - Market News/Bloomberg