SOUTH KOREA: Yesterday's Rally Short-lived, as Bond Futures Reach Oversold

Gold has traded above round-number resistance at $3900/oz for most of Monday’s APAC session and has also broken above resistance at $3909.4, a Fibonacci projection. Today’s rally has resulted in another record high being reached at $3926.61. Bullion is currently 1.0% higher at $3926.3 helped by the ongoing US government shutdown with no near-term resolution apparent and the uncertainty it creates around the economy. This is outweighing the stronger US dollar (BBDXY +0.3%) and unchanged yields.

• Gold has benefited from safe-haven flows from the government shutdown as it not only weighs on US activity but also delays key data releases. Both are likely to make monetary policy decisions difficult as the outlook is even less clear. The market has almost 50bp of easing priced in by end 2025. Another senate vote to resolve the impasse will be held Monday.
• The prospect of further US rate cuts as well as uncertainty around the government shutdown and Fed independence mean that gold continues to make new highs and approach $4000/oz.
• Silver is up 01.0% to $48.47 after a high of $48.38, above resistance at 48.232. It fell to $47.962 early in the session.
• The S&P e-mini is up 0.3% and Nikkei +4.5% but ASX down 0.2%. A number of Asian markets are closed today. Oil prices are higher with WTI +1.5% to $61.81/bbl. Copper is down 0.3%.
• The Fed’s Schmid speaks later on the economy and monetary policy, and also the ECB’s Lagarde, Lane and de Guindos appear. August euro area retail sales print.

NZGB yields have shown a steepening bias as Monday's session has unfolded, consistent with US and JGB moves. The 2/10s curve was last +150bps, close to fresh highs since April of this year. Local news flows has been light, with all eyes on the RBNZ outcome this Wednesday.  While it is widely expected to cut rates further, economists are split between a 25bp and 50bp move. 10 out of the 25 analysts surveyed by Bloomberg are forecasting the larger reduction. The announcement won’t be accompanied by updated forecasts or a press conference (they are scheduled for November), but post-meeting speaking events should be announced this week.

• The 2yr swap rate is holding under 2.50%, so near recent cycle lows. A more dovish RBNZ this week is likely to see the market target a move into the 2.00-2.25% region. Moves back towards 2.75% may be faded on any hawkish surprise. The bias around 2yr swap still appears skewed lower until NZ growth is on a firmer footing. Market pricing per OIS RBNZ dated contracts show an implied rate of 2.67% for Wednesday's meeting, versus the current policy rate of 3.00% (so around 131% of a 25bps moved priced in), whilst the terminal rate into 2026 sits close to 2.25%, which is where we have been close to in recent weeks.
• The 2yr government bond yield was last around 2.72%, little changed today, while the 10yr is back above 4.22%, +2bps firmer. Both benchmarks remain within recent ranges.

AUDUSD fell to 0.6582 in early trading as USDJPY rose following news that Japan’s conservative Takaichi won the LDP leadership. The pair has recovered to be up 0.1% to 0.6609, close to the intraday high of 0.6612, aided by better risk appetite with equities generally stronger. The USD index is 0.3% higher. 

• The Melbourne Institute’s trimmed mean inflation gauge for September picked up 0.2pp to 2% in September to be 1.9% in Q3 up from Q2’s 1.5% and may be trending higher again. It is another sign that disinflation has stalled. The RBA’s tone was very cautious after its September on hold decision. The OIS market has around a 50% chance of a 25bp rate cut by end-2025.
• With the yen underperforming today driven by political developments, AUDJPY is 1.8% higher at 99.09, close to the intraday peak at 99.107, the highest since early November 2024.
• AUDNZD has range traded today after initially jumping to 1.1351. It is now down slightly to 1.1321 with much of Australia closed.
• AUDEUR is up 0.2% to 0.5635, around today’s high, and AUDGBP is +0.2% to 0.4911 after falling to 0.4894.
• The S&P e-mini is up 0.3% and Nikkei +4.5% but ASX down 0.1%. A number of Asian markets are closed today. Oil prices are higher with WTI +1.5% to $61.77/bbl. Copper is down 0.2% and iron ore is around $103.5/t.
• The Fed’s Schmid speaks later on the economy and monetary policy and also the ECB’s Lagarde, Lane and de Guindos appear. August euro area retail sales print.