JGBS: Yields Extend Retreat From Yesterday’s Peaks

The USD index sits a touch off Tuesday session highs, last near 1212. Cross asset trends have focused on gold volatility, although this hasn't spilled over much to the majors, with moves at 0.20% or less at this stage (AUD and NZD are ticking up). US equity futures have been supported on dips, while US Tsy yields continued to bias lower, which could be capping US upside, although this most recent BBDXY index bounce has come with the real US 10yr yield falling back to 1.70% (not far off Sep lows). Policy initiatives from the new Japan government have been the other focus point, but again Japan wide asset moves are not significant, with further details awaited. 

• Japan's Growth Strategy Minister Minoru Kiuchi stated that the focus now is compiling an economic stimulus package, albeit with on eye still on fiscal discipline (DJ) (and diverse funding sources). Various ministers are being consulted, with a focus on helping tariff impacted sectors, along with cost of living relief. Kiuchi stated that no timeline is set on when the economic package will compiled.
• Following Rtrs reported: "JAPAN'S NEW PM TAKAICHI IS PREPARING ECONOMIC STIMULUS EXPECTED TO EXCEED LAST YEAR'S 13.9 TRILLION YEN ($92.2 BILLION), SOURCES SAY", although details aren't finalised yet, with the package potentially out next month.
• USD/JPY has held under 152.00 today, but dips to 151.50 have been supported. Japan equities are modestly higher, while JGB yields are drifting slightly lower.
• AUD and NZD have ticked up, likely aided by the rise in US equity futures. Local news flow has been light. AUD/USD is back around 0.6500, while NZD/USD has edged up to 0.5750, with upside focus to rest at the 0.5760 region (also note the 20-day EMA is at 0.5770/75).
• Later UK September CPI data print and ECB President Lagarde and Board members Buch and de Guindos speak.

Oil has found support today from data showing a US inventory drawdown and news that the US and India are close to a deal to gradually reduce India’s Russian oil imports and US tariffs. Less Indian consumption of Russian crude would increase its demand for other sources boosting prices. WTI is up 1.7% to $58.23/bbl following a high of $58.38, remaining below the 50-day EMA at $61.76. Brent is 1.5% higher at $62.26/bbl after reaching $62.47 (50-day EMA $65.35). 

• A US-India trade deal is apparently close to completion which would allow the current 50% US duties to be reduced to around 15%, according to Bloomberg citing Mint. US President Trump has said recently that Indian PM Modi had agreed to ending imports of Russian oil. Mint is saying that the agreement could be announced at the 26-28 October ASEAN meeting.
• Oil has also found support from Tuesday’s announcement that a million barrels with delivery in December and January will be purchased for the US’ SPR, which reached a low in July 2023 and was only 17% higher last week.
• After rising the previous week, Bloomberg reported US oil inventories fell 3mn barrels last week, according to people familiar with the API data. Product stocks were also lower with gasoline down 0.2k and distillate 1mn. The official EIA data is out Wednesday.
• Later UK September CPI data print and ECB President Lagarde and Board members Buch and de Guindos speak. 

JGB futures are slightly stronger, +2 compared to the settlement levels, but well off session lows.

• Headlines have crossed from Japan's Growth Strategy Minister Minoru Kiuchi. Kiuchi stated that the focus now is compiling an economic stimulus package, albeit with one eye still on fiscal discipline (DJ) (and diverse funding sources). Various ministers are being consulted, with a focus on helping tariff impacted sectors. Kiuchi stated that no timeline is set for when the economic package will be compiled. Early focus for markets for the new Takaichi regime is fiscal stimulus, in terms of size and how it will be funded (particularly with parallels drawn with the Abenomics-like policy set).
• Cash US tsys are slightly richer in today's Asia-Pac session.
• Cash JGBs are flat to 1bps richer across benchmarks, but significantly better than early session yield highs, as the market digested today’s news on the fiscal policy.
• The benchmark 30-year yield is 0.6bp lower at 3.125% versus the session high of 3.148%. (see chart) Notably, the current yield is more than 20bps below the cycle high of 3.351%, hit shortly after Takaichi was announced as the LDP leader.
• Swap rates are little changed.
• Tomorrow, the local calendar will see Weekly International Investment Flow data alongside Auction for Enhanced-Liquidity 15.5-39 YR.

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