THB: USD/THB Steady Amid Lack Of Fresh Downside Catalysts
Spot USD/THB is a little higher in the first part of Thursday trade, last near 32.30. This keeps us firmly within recent ranges, with late July lows near 32.11. On the topside, we have the 20-day EMA close to 32.42, while the 50-day at 32.58 is likely of more significance, as we have spent little time above this resistance level since mid April of this year.
- Yesterday's dovish 25bps hike is likely not helping at the margins. The 1y1y THB NDIRS is sub 1% for the first time since late 2021 (see the chart below). The US-TH yield differential backdrop has ticked higher but is within recent ranges.
- Elsewhere, the local equity backdrop remains firm, but upside momentum has stalled somewhat today. We did see offshore investors sell local stocks to the tune of over $200mn yesterday. At the same time, gold continues to track recent ranges.
- All in all these aren't necessarily negative THB factors, but may not be positive enough to drive USD/TWD towards late July lows. Upticks in the par are still likely to be faded given more the more bearish USD backdrop.
Fig 1: Thailand 1y1y NDIRS Sub 1%
Source: Bloomberg Finance L.P./MNI
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US TSYS: Asia Wrap - Quiet Session Looking Toward CPI
The TYU5 range has been 110-20+ to 110-25 during the Asia-Pacific session. It last changed hands at 110-23, down 0-01 from the previous close.
- The US 2-year yield is trading around 3.898%.
- The US 10-year yield is trading around 4.433%.
- The 10-year yield is again testing the 4.40/45% pivot within its wider 4.10% - 4.65% range. The market is clearly worried about inflation and the CPI this week will be a critical input into the market's thinking. A sustained close back above the 4.45% area could see more longs pared back, above here and the focus will turn back to the 4.65% area.
- Lance Roberts(RIA) - “Tuesday’s CPI and Wednesday’s PPI reports will be very helpful in appreciating how tariffs are impacting inflation. Thus far, there has been a negligible effect. However, the June reports will fully capture a period when the tariffs were being enforced. If data continues to be on the weak side, we suspect the Fed will become more dovish. However, higher-than-expected inflation data may allow them to continue to postpone rate cuts.”
- MNI US OUTLOOK/OPINION: Analysts See Core CPI On Cusp Of 0.2% or 0.3% M/M In June. Ahead of tomorrow’s US CPI release, we note that the broad Bloomberg consensus looks for both core and headline CPI inflation at 0.3% M/M in June although unrounded estimates suggest a risk of rounding lower.
JAPAN: 30yr JGB Yield Correlation With Other G7 Yields Elevated
Fiscal spending concerns are not just present in Japan, but in much of the G7 markets. Pressure points come from the recently passed US tax bill, whilst the UK government is grappling with how to balance spending priorities amid revenue constraints. Germany is also moving away from fiscal restraint, whilst broader EU trends are looking at increased defense spending as well.
- The chart below plots the 30yr government bond yields for these economies. We have mostly been trending higher over the past 6-12 months. Japan, an historical laggard in this space, has now caught up with the level of German 30yr yield levels.
- The second chart presents the correlations between the 30yr JGB yield and those of the rest of the G7. The correlations are presented as a rolling 6 month window.
- Outside of JGB and Italian yields, the correlations have been trending higher of late and sit close to cyclical highs. This provides scope for spill over from high JGB yields and vice versa to Japan from other G7 markets.
Fig 1: G7 30yr Government Bond Yields
Source: Bloomberg Finance L.P./MNI
Fig 2: JGB 30yr Yield Correlations With Other 30yr G7 Yields
Fig 2: JGB 30yr Yield Correlations With Other 30yr G7 Yields
CHINA: Bond Futures Up in the Morning Session
- China's bond futures have rallied this morning to take back yesterday's losses.
- The 10yr is up +0.13 to 108.86, just below the 50-day EMA of 108.90, with the 100-day EMA below at 108.80.
- The 2yr is up +0.03 at 102.41 to remain below all major moving averages. The nearest being the 20-day EMA of 102.46
- Bonds remain stable with the CGB10yr at 1.66%
