ASIA STOCKS: Weak Day for China as Others Trend Sideways

Japan Sep futures tested above 139.00 in early trade, but sit back at 138.68, +.60 in latest dealings. After spiking early in response to the US Tsy futures rise we have settled into a tight range for much of the session after dipping back under 138.80. 

• In the cash JGB space, yields are holding lower, but are away from worst levels. The 10yr was last close to 1.505%, earlier we got to 1.472%. This was lows back to early July in yield terms. For the 2-7yr tenors we are 5-7bps off in yield terms. For the 20-40yr tenors we have seen a steadier backdrop.
• Focus remains on the fiscal backdrop, particularly as opposition parties continue to push for sales tax cuts. So far the LDP has resisted such moves as it is worried around what the market impact could be on further fiscal position deterioration.
• Note tomorrow we get the 10yr debt auction locally.
• On the data front today we just had the July monetary base data. Focus will be on Wednesday's June labor cash earnings figures. 

The BBDXY has had a range of 1209.26 - 1211.89 in the Asia-Pac session, it is currently trading around 1209, -0.11%. The USD, with a huge rejection of the 1220/1230 area on Friday, had a knee-jerk reaction lower to the huge move in US rates as the market's view on growth and interest rate cuts is re-evaluated. With US Equities now beginning to look vulnerable to a potential reappraisal of the growth outlook, the USD’s utilisation as a safe haven will again come back into the conversation. While the USD has fallen over 10% this year its role as a safe haven has come squarely into question, should the correction lower in risk begin to expand this premise will again be tested.

• EUR/USD -  Asian range 1.1551 - 1.1596, Asia is currently trading 1.1579. The pair has bounced nicely off the important 1.1300/1.1400 area. There should be sellers initially towards 1.1650/1.1700 as the market decides how to trade the USD. 
• GBP/USD - Asian range 1.3254 - 1.3293, Asia is currently dealing around 1.3285. This pair bounced nicely off the 1.3100/1.3200 support area. I would suspect sellers would be around on a bounce back towards 1.3400 initially.
• USD/CNH - Asian range 7.1801 - 7.1958, the USD/CNY fix printed 7.1395, Asia is currently dealing around 7.1800. Sellers should be around on bounces while price holds below the 7.2200/2500 area and the PBOC manages the fix lower. Above 7.2500 and we could see a test of the USD Shorts.
• Cross asset : SPX +0.35%, Gold $3361, US 10-Year 4.243%, BBDXY 1209, Crude Oil $67.16
• Data/Events : Spain Unemployment, EZ Sentix Investor Confidence,

Fig 1: GBP/USD Spot 120min Chart

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

The NZD/USD had a range of 0.5903 - 0.5923 in the Asia-Pac session, going into the London open trading around 0.5920, +0.03%.  US Yields collapsed in response to the NFP data which sparked a kneejerk response lower in the USD. This was also a very bad day for US stocks which finally look to be pulling back from elevated levels. The question for the NZD going forward is does the USD see sellers quickly return in response to the move in rates, or can the USD rise from the ashes and return as a safe haven. NZD/USD bounced nicely off its 0.5850 support but would suspect sellers would return on any bounce back toward 0.6000 initially as the market decides how best to trade the USD.

• “AUCKLAND JULY AVERAGE HOUSE PRICE FALLS 2.4% Y/Y: BARFOOT" - BBG
• NEW ZEALAND: Labour Market Data Likely Deteriorated In Q2. The focus of the week will be the Q2 labour market data published on Wednesday. It is expected to show that it weakened in the quarter after some signs of stabilisation in Q1. The unemployment rate is forecast to rise 0.2pp to 5.3% more than the RBNZ’s 5.2% May projection. If the data print is as weak as or weaker than the Bloomberg consensus, then a rate cut on August 20 is likely.
• Options : Closest significant option expiries for NY cut, based on DTCC data: none. Upcoming Close Strikes : 0.5970(NZD3496m Aug 7). - BBG
• CFTC Data shows Asset Managers again reduced their newly built longs in NZD +3903(Last +5034), the Leveraged community reduced their shorts slightly -6250(Last -7328).
• AUD/NZD range for the session has been 1.0930 - 1.0959, currently trading 1.0950. The Cross continues to consolidate on a 1.09 handle as the pair tries to build some momentum to move higher.

Fig 1: NZD CFTC Data

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