JGBS: Twist-Steepener Holds After Core CPI Beat
JGB futures are weaker and hovering near session lows, -9 compared to settlement levels.
- Japan's May nationwide CPI saw headline at 3.5%y/y, which was as expected (the April outcome printed at 3.6%). The ex-fresh food core measure rose 3.7%y/y (against a 3.6% forecast and 3.5% prior outcome). The measure, which excludes fresh food and energy, was 3.3%y/y, also above expectations and prior outcomes (3.2% forecast and 3.0% in April).
- Our Japan policy team noted, "Services prices, a key BOJ focus for assessing the strength of the wage-price cycle, rose 1.4% y/y in May, slightly up from 1.3% in April, but remained below the 2% mark, indicating weak momentum and the need for further gains to achieve the BOJ's inflation target sustainably."
- "AKAZAWA: JULY 9 IS NOT DEADLINE FOR JAPAN-US TRADE TALKS, TO EXAMINE WHAT KEPT FROM REACHING A TRADE DEAL" – BBG
- Cash US tsys have twist-steepened, with yields 2bps lower to 1bp higher, in today's Asia-Pac session after yesterday's holiday.
- Cash JGBs are mixed across benchmarks, with the curve steeper and yields 1bp lower to 3bps higher. The benchmark 20-year yield is 0.3bp higher at 2.376% ahead of Tuesday's supply.
- The swap curve has bear-steepened, with rates 1-3bps higher.
- On Monday, the local calendar will see Jibun Bank PMIs.
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AUSSIE BONDS: Cheaper, 70bps Of Easing Priced By YE, RBA Hauser Speech Tomorrow
ACGBs (YM -2.0 & XM -5.0) are weaker and near Sydney session lows on a data-light session.
- (AFR) “Reserve Bank of Australia governor Michele Bullock says the prospect of another leg-up in property values will not deter her from lowering interest rates, as economists argue housing has become so expensive that any future price upswing will be modest.” (See link)
- Cash US tsys have extended yesterday's bear-steepener, with yields flat to 2bps higher, in today's Asia-Pac session.
- Cash ACGBs are 1-5bps cheaper with the AU-US 10-year yield differential -6bps.
- The bills strip is mixed with late whites outperforming, with pricing -3 to +2.
- RBA-dated OIS pricing is flat to slightly softer across meetings today as the market continues to digest yesterday’s dovish tilt from the RBA. RBA-dated OIS pricing is now 8-20bps softer than yesterday’s pre-RBA levels.
- A 25bp rate cut in July is given a 68% probability, with a cumulative 70bps of easing priced by year-end.
- Tomorrow, the local calendar will see S&P Global PMIs (P) and a speech from RBA Hauser.
- The AOFM plans to sell A$800mn of the 2.75% 21 November 2028 bond on Friday.
FOREX: FX Wrap - USD Breaking Down
The BBDXY has had a range of 1217.80 - 1222.27 in the Asia-Pac session, it is currently trading around 1218. Ministry of Finance data shows the Chinese government deficit tipped CNY2.6tn in the year to April. This deficit is one of the largest on record and represented a 50% increase year on year. “The BOE may relax post-crisis rules that forced banks to separate retail and investment arms. HSBC, NatWest and Lloyds asked Chancellor Rachel Reeves last month to abolish ring-fencing, saying it made the British banking industry less competitive.”(BBG)
- EUR/USD - Asian range 1.1281 - 1.1340, Asia is currently trading 1.1230.The market is still expected to use dips as a buying opportunity and dips back towards 1.10 should see buyers remerge. Can it find upward momentum again ?
- GBP/USD - Asian range 1.3381 - 1.3435, Asia is currently dealing around 1.3430. Decent demand for GBP all through the Asian session has seen it break above 1.3400. The GBP is back to testing Pivotal Weekly Resistance in the 1.3500 area.
- USD/CNH - Asian range 7.2040 - 7.2198, the USD/CNY fix printed 7.1937. Asia is currently dealing around 7.2050. Sellers should be found on a bounce back towards the 7.2400 area again.
- Cross asset : SPX -0.38%, Gold $3305, US 10-Year 4.50%, BBDXY 1218, Crude oil $63.14
Data/Events : MBA Mortgage applications, Richmond Fed President Tom Barkin , Fed Governor Michelle Bowman to participate in a “Fed Listens” event.
Fig 1: GBP/USD Spot Weekly Chart
Source: MNI - Market News/Bloomberg
BUND TECHS: (M5) Remains Above Support
- RES 4: 132.56 High Feb 28 and a key resistance
- RES 3: 131.72/132.03 High May 7 / High Apr 7 and the bull trigger
- RES 2: 130.86 High May 9 Round number resistance
- RES 1: 130.75 Intraday high
- PRICE: 130.07 @ 05:39 BST May 21
- SUP 1: 129.72/13 Low May 19 / 15 and key short-term support
- SUP 2: 129.02 Low Apr 10
- SUP 3: 128.60 Low Apr 9 and a key support
- SUP 4: 128.19 Low Mar 27
Bund futures are still trading closer to their recent highs. Recent gains undermine a bearish theme and suggest the move down between Apr 22 - May 15, has been a correction. An extension higher would strengthen the reversal and open 130.86 next, the May 9 high. Further out, scope would be seen for a move towards 132.03, the Apr 7 high. Key short-term support has been defined at 129.13, the May 15 low.
