AUSTRALIA DATA: Yields Surge Post CPI, RBA Easing Not Priced Until May '26
Markets have reacted aggressively to the stronger than expected Q3 CPI report, which casts doubts on whether we will see an RBA cut before year end. AUD/USD got to highs of 0.6607, but sits back slightly lower now. Upside focus will rest on earlier Oct highs near 0.6630 ACGB yields have risen sharply, led by the front end, with the 3yr up 10bps at one stage. We have settled a little now, last at 3.53% (recent highs were marked around 3.60%, see the chart below).
- The 10yr is up 4bps to 4.21%. This leaves the AU 3/10s curve back to +67bps, fresh flats back to March of this year. RBA easing risks for Nov are almost back to flat per OIS pricing, while around 8bps of easing is priced for Dec. A full cut is now not seen until around the May meeting next year.
- The Q3 trimmed mean was higher than expected rising 1.0% q/q to be up 3.0% y/y up from 0.7% q/q (revised +0.1pp) & 2.7% y/y.
Fig 1: ACGB 3yr Yield, Back Close To Earlier Oct Highs
Source: Bloomberg Finance L.P./MNI
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CNH: USD/CNH - Stalls Toward The 7.1500 Resistance
The Friday night range was 7.1401 - 7.1473, Asia is currently trading around 7.1370. The USD’s bout of strength stalled as the data on Friday came in as expected. This saw the move higher in USD/Asia pause and open a little lower this morning, -0.10%. The market had a look toward its first resistance around 7.1500 after finding good demand sub 7.1000 last week. This week attention will be turning to the US payroll data if released, which will determine if this USD rally can extend or not. Above the 7.1600 area focus will turn back to the pivotal 7.2000/2200 area where sellers should remerge initially. For now though the USD bears look to regain control to start the week.
- “Xi Jinping is planning to use trade talks to push Donald Trump to formally declare the US opposes Taiwan’s independence, the WSJ reported.” - BBG
- The market piled into short USD/EM trades as their preferred vehicle to express USD weakness, the strong bounce since the FOMC as the market recalibrates its dovishness of US rate cuts has seen some of these positions being pared back.
- Bloomberg - “China’s Markets Shed ‘Uninvestable’ Tag as Global Funds Return. Global money managers are venturing back into China after years of aversion, piqued by a world-beating stock rally and the country’s advances in high-tech industries. All of this has been supportive for the yuan, which rose to 7.1 against the dollar this month — the strongest since November.”
- USD/CNY Options : Close significant option expiries for NY cut, based on DTCC data: 7.1100($640m). Upcoming Close Strikes : 7.1900($599m Oct 1) - BBG.
Fig 1 : USD/CNH Spot Daily Chart
Source: MNI - Market News/Bloomberg Finance L.P
JAPAN: 10-YR JGB Futures Up in Monday Trade
- The 10-Yr bond future is up +0.13 at 135.92 this morning, yet remains below all major moving averages. Above is the 20-day EMA of 136.35.
- The bond market had a fairly subdued week last with the 2-YR finishing the week at 0.92, +1bps higher for the week.
- Bonds are better bid Monday with yield up to half a bp lower in the front end.
- JGB 10-Yr is at 1.65% this morning having ended Friday +1bp for the week.
- A big week for data this week with Industrial Production, Retail Sales, Tankan, S&P PMIs and employment data.
- The NIKKEI hit all time new highs last week and is down Monday by -0.75%
GOLD: Gold & Silver Have Strong Week As More Fed Cuts Priced In
Gold prices finished last week up 2% with a 0.3% rise on Friday to $3759.98/oz supported by a weaker US dollar (BBDXY -0.3%) as the Uni of Michigan consumer data softened. Bullion is now up just over 9% in September. It reached a high of $3783.78 before moderating. It has started today around $3774.0.
- Resistance is at the record high of $3791.1 reached on 23 September with support the 22 September low of $3683.8. The bull cycle in gold remains.
- US PCE price indices for August printed in line with expectations, while income and spending were slightly higher. However, September Uni of Michigan September consumer sentiment was down on August and below consensus and near- and long-term inflation expectations moderated, which supported bullion. The market has almost another 25bp rate cut priced in for the October FOMC decision.
- Silver reached a new monthly high on Friday at $46.63 and was up 16% in September. It rose 2% to $46.08 at the end of the week and is currently around $46.48. The metal is still in an uptrend with the bull cycle extended last week as it rose 7% w/w. It breached a number of resistance levels on Friday.
- Equities rallied with the S&P up 0.6% and Euro stoxx +1.0% and the S&P e-mini is up 0.1% so far on Monday. Oil prices were higher with Brent +0.5% to $69.75/bbl. Copper rose 0.1%.
