JGBS: Trading To Resume After Yesterday's Holiday

In local morning trade, NZGBs are 5-6bps richer after a dovish tilt from Fed Chair Powell in his Jackson Hole speech revived rate cut expectations for September. US tsys and US equities rallied sharply on Friday, while the DXY slumped. 

• Fed Chair Powell stated that "with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting out policy stance," and that opened the door for a 25 bp rate cut on September 17.
• Boston Fed President Collins: Sep cut not a done deal as "risks on the two sides have come into rough balance. So, that is a really complex context for monetary policy, when you could see the unemployment rate rising and you could see higher inflation. You know, my baseline is not one that is as concerned about inflation expectations rising at the moment. Earlier in the year, I had more concerns about that.
• NZ Retail sales ex. Inflation rose 0.5% q/q (estimate -0.3%) in Q2.
• Swap rates are 4bps lower.
• RBNZ dated OIS pricing is little changed across meetings. 17bps of easing is priced for October, with a cumulative 35bps by November 2025.

Oil prices moved in a narrow range on Friday but finished higher for the third consecutive day and for the week. They found support from increased prospects of a Fed rate cut in September and the stalling in progress towards peace in Ukraine. Fed Powell said on Friday “with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance”.

• WTI rose 0.4% to $63.77 and has started the week around $63.75. It fell to a low of $63.31 before rising to $63.93. It was up 2.9% last week but still down 6.5% in August. Short-term gains appear corrective. Initial support is at $61.29, 13 August low, with resistance the 50-day EMA at $63.85.
• Brent was 0.2% higher at $67.79 off the intraday low of $67.42. The benchmark touched $68.00 but the move was brief. Brent rose 3% last week but is down 5.5% this month and remains in a bear cycle. Initial support is at $65.01, 13 August low, while key resistance is at $72.83.
• After talks between Presidents Trump and Putin and Trump and Zelenskyy and other European leaders, Russia has stated it needs to agree to any security guarantees and appears hesitant about a Putin-Zelenskyy meeting. Trump has again threatened Russia with “massive sanctions or massive tariffs or both” if an agreement isn’t reached in two weeks but a decision would be made then whether to take these steps or admit “it’s your fight” and do nothing. 

The Friday night range was 146.58-148.74, Asia is currently trading around 147.05. USD/JPY collapsed lower with US yields as the markets initial interpretation of Powell’s speech was taken to be quite dovish. Was it that dovish ? That remains to be seen but the price action was again clear, the market is still very quick to sell USD’s. Price is very quickly back to testing its recent support towards 146.00, the demand has been pretty solid back towards here all of August, lets see if it can continue to hold. A sustained break below here would see short-term direction turn lower again. CFTC data shows leveraged accounts again added to JPY shorts so this reaction to Powell would not have been welcome and a break sub 145/146 would add pressure.

• (Bloomberg) -- “JBank of Japan Governor Kazuo Ueda said he expects a tight labor market to keep upward pressure on wages, reflecting his view that stable inflation is set to take hold. “Wage growth is spreading from large enterprises to small and medium enterprises,” Ueda said Saturday.”
• “The leaders of Japan and South Korea met on Saturday and pledged to enhance cooperation between the two countries, saying economic and security challenges require them to step up bilateral relations.” - BBG
• Options : Close significant option expiries for NY cut, based on DTCC data: 147.00($939m).Upcoming Close Strikes : 148.00($942m Aug 26), 147.95($885m Aug 27), 148.00($793m Aug 27)  - BBG.
• CFTC data shows last week asset managers have begun to add to their JPY longs after a consistent period of reduction +71379( Last +60866), leveraged funds though again used the dip to add to their newly built short JPY position -50848(Last -41257).
• Data/Event : Leading Index, Dept. Store Sales

Fig 1 : JPY CFTC Data

Source: MNI - Market News/Bloomberg Finance L.P