JGBS: Twist-Flattener As Long-End Unwinds Politically Induced Sell-Off

• RES 4: 129.66 High Jul 22  
• RES 3: 129.50 High Aug 5 and a key resistance    
• RES 2: 129.31 High Aug 6  
• RES 1: 129.20 High Sep 5  
• PRICE: 128.96 @ 05:42 BST Sep 8
• SUP 1: 128.25 Low Sep 4      
• SUP 2: 127.61 Low Sep 3 and the bear trigger
• SUP 3: 127.46 1.00 proj of the Aug 14 - 15 - 28 price swing  
• SUP 4: 127.13 1.236 proj of the Aug 14 - 15 - 28 price swing  

Bund futures rallied sharply higher Friday and this has resulted in a break of resistance at 128.87, the Aug 28 high and short-term bull trigger. The climb undermines a recent bearish theme and highlights a stronger reversal. Price has moved through the 129.00 handle, signalling scope for a climb towards 129.50, the Aug 5 high. Key support and the bear trigger has been defined at 127.61, the Sep 3 low.

Japanese equities have greeted the political news positively with strong gains, post PM Ishiba's decision to step down as leader. This injects fresh political uncertainty into Japan's broader economic outlook. Focus will now turn to the LDP leadership race. When Ishiba secured the PM position last Oct, the runner up was Sanae Takaichi. Via ABC news: "A Nikkei survey held at the end of August put Ms Takaichi as the most "fitting" successor to Ishiba."  Takaichi could arguably generate the most significant market reaction if she is successful becoming the new PM, as she has been outspoken in terms of being more dovish in terms of the BoJ outlook and looking to boost fiscal spending. Shenzhen's announcement that it will join Beijing and Shanghai in easing home-buying rules has given China's building shares a boost in Monday's trading. 

• China's key bourses are all higher, with the exception of the CSI 300 which is flat.  The Hang Seng is up +0.35%, Shanghai up +0.17% and Shenzhen up +0.45%.
• The Nikkei has started the week strongly with gains of +0.90%
• The TAIEX in Taiwan is higher by +0.45%
• The KOSPI's good run is continuing, up +0.17% today.
• The FTSE Malay KLCI was up only marginally in a shortened week last week and is higher by +0.48% today.
• The Jakarta Composite had a modest week last week, yet it up strongly today by +0.55%.
• The NIFTY 50 is up strongly Monday after key industries noted that the benefits from the GST cut will be passed onto consumers. The NIFTY 50 lags regional peers over the last three months as the sole index with falls yet starts this week off, up +0.32% to trade through key technical levels.

Oil prices fell sharply on Friday ahead of the weekend’s OPEC decision but given the cautious 137kbd increase in the output target from October, there appears to be a relief rally today. WTI is up 1.2% to $62.58/bbl after an earlier peak of $62.70 and Brent is 1.2% higher at $66.27/bbl after reaching $66.36. The USD index is slightly higher. 

• The latest OPEC production increase is significantly less than previous +400kbd rises but the continued rise in the output target signals that it is now focussed on regaining market share. The oil market may have been reassured by its cautious tone though as it said it could withdraw earlier output hikes.
• However, OPEC could still unwind its earlier 1.66mbd reduction in its target, which was scheduled to be in place until end-2026, but it will depend on “evolving market conditions”. The group has added 2.2mbd over the last five months.
• The IEA has forecast a record market surplus for 2026, which has pressured oil prices. The EIA short-term energy outlook is published Tuesday with the IEA and OPEC monthly reports on Thursday.
• Later August NY Fed 1-yr inflation expectations, July US consumer credit and German July trade & IP print. The focus of the week will be on Tuesday’s US payroll benchmark revisions, Wednesday’s August PPI and Thursday’s August CPI.