US TSYS: Narrow Ranges In Asia

TYU3 deals at 112-03+, 0-05, a 0-05 range has been observed on volume of ~60k.

• Cash tsys sit 1bp cheaper to flat across the major benchmarks. Light bear flattening is apparent.
• Tsys firmed off session lows as a firmer than expected Yuan fixing from the PBOC spilled over into an improving risk appetite.
• The move didn't follow through and tsys observed narrow ranges for the remainder of the Asian session.
• FOMC dated OIS price a terminal rate of 5.40% in November. There are ~60bps of cuts priced for 2024.
• Final Mfg PMI's for Eurozone and Germany headline in Europe today. further out we have the final read of S&P Global Mfg PMI and the latest ISM Survey.

JGBs: Futures Give Up Gains In Tokyo Afternoon Trade, 10-Year Supply Tomorrow

JGB futures are dealing cheaper and at session lows in Tokyo afternoon trading, -5 compared to settlement levels, ahead of 10-year supply tomorrow.

• There hasn’t been much in the way of domestic drivers to flag, outside of the previously outlined stronger Tankan survey and weaker Jibun Bank Mfg PMI.
• Tsys are holding cheaper, sitting a touch above the session low, in the Asia-Pac session. Ranges have been narrow with moves having little follow-through.
• The Japan breakeven inflation rate for the 10-year CPI-linked bonds fell 2 basis points to 1.13% on Monday from the previous business day, according to Bloomberg. (See link)
• Cash JGB curve twist steepens, pivoting at the 10-year zone with rates 0.4bp richer to 1.3bp cheaper. The benchmark 10-year yield is 0.6bp higher at 0.407%, below the BoJ's YCC limit of 0.50%.
• Swap rates are higher along the curve beyond the 1-year with the 30-year leading (1.0bp higher). Swap spreads are generally wider across the curve.
• Tomorrow the local calendar is light with Monetary Base data as the only release.
• Tomorrow does however see a MoF sale of Y2.7tn 10-Year JGBs. Since the previous 10-year auction, there have been notable developments that might dampen demand at tomorrow's auction. These include a lower outright yield, a flatter 2/10 yield curve, and a tapering off of demand at June’s 20-year and 30-year JGB auctions.

AUSSIE BONDS: Richer, Near Session Bests Ahead Of The RBA Decision Tomorrow

ACGBs sit near Sydney session highs (YM +4.0 & XM +4.0) ahead of the RBA policy decision tomorrow. The strengthening through the session comes despite generally stronger than expected domestic data (building approvals and home loan approvals) today.

• RBA-dated OIS pricing is 4-6bp softer across meetings today with a 32% chance of a 25bp hike currently priced versus 50% at Friday’s close. Terminal rate expectations have also softened since Friday. The market currently prices 45bp of additional tightening by Dec’23 versus 51bp on Friday.
• An Australian article by Terry McCrann suggesting a pause may have provided some support for a tapering in tightening expectations.
• Cash ACGBs a 4-7bp richer across benchmarks with the 3/10 curve steeper and the AU-US 10-year yield differential unchanged at +15bp.
• Cash US tsys sit 1bp cheaper to flat across the major benchmarks. Light bear flattening is apparent.
• Swap rates are 3-4bp lower with EFPs slightly wider.
• Bills pricing is +3 to +6 with the strip steeper.
• Ahead of the RBA policy decision tomorrow, the global calendar releases June S&P Global Mfg PMI data ahead of US ISM Mfg.

NZGBS: Twist Flattening, Outperforms The $-Bloc

NZGBs closed with a twist flattening of the 2/10 curve. Benchmark yields closed 2bp cheaper to 4bp richer with the NZ-US 10-year yield differential 3bp tighter at +75bp. NZGBs also slightly outperformed ACGBs with the 10-year yield differential -1bp at +61bp.

• Swap rates are 1-3bp lower with the 2s10s curve flatter. Implied swap spreads with the short-end tighter and the long-end wider.
• RBNZ dated OIS closed little changed out to Nov’23 but 4-10bp firmer beyond. Terminal OCR expectations sit at 5.66% with easing expectations out to May-24 at 21bp.
• In May, home-building approvals in NZ experienced a continued decline, signalling a slowdown in the construction sector that is expected to have an impact on the overall economy. The number of consents dropped to 45,159 over the 12-month period ending in May, reaching the lowest level seen since mid-2021 and representing a 12% decrease compared to the previous year, which marked a peak in the series.
• Tomorrow the local calendar sees the release of the NZIER QSBO Survey and June House Prices ahead of Wednesday's June Commodity Prices.
• Later today is slated to release June S&P Global Mfg PMI data ahead of US ISM Mfg.

GOLD: Back-To-Back Gains, But Trend Still Down

Gold is little changed in the Asia-Pac session, after closing 0.6% higher at 1919.35 on Friday.

• Economic data was mixed on Friday with real personal spending stagnant in May after downward revisions in April, indicating a notable decline in consumer spending during Q2. On the other hand, the UofM's consumer sentiment index showed signs of improvement towards the end of June.
• US tsys finished trading ahead of the weekend mixed with yields 4bp cheaper to 4bp richer. The short end underperformed with the 2-year yield finishing 4bp higher. Yields at the long end declined on slowing inflation, with the US tsy curve inverting to -106bp.
• The positive close Friday snaped a ten-session losing streak for gold, but the bounce looked shallow at current levels. According to MNI’s technical team, the outlook remains negative absent any break of $1930.61 - the June 27 high - and the 100-dma of $1944.47.
• Elsewhere, Bloomberg reported that money managers have decreased their bullish gold bets by 8,154 net-long positions to 86,472, weekly CFTC data on futures and options show.The net-long position was the least bullish in 15 weeks.

OIL: Crude Holding Above Key Levels, Many H2 Uncertainties

Oil is trading in narrow ranges during the APEC session and is holding onto its gains from Friday. WTI is sustaining levels above $70 and is currently around $70.69/bbl. Brent has reached its 50-day simple moving average and has held above $75 today. It is currently about $75.50, close to the intraday high of $75.53. The USD index is down 0.1%.

• Oil has found some support in recent sessions as the market looks to H2 2023, which is forecast to move into deficit as OPEC cuts output and the US refills the SPR. Saudi’s 1mbd cut starts this month and is expected to continue into August. Demand worries are never far away though and uncertainty regarding Russian supply.
• Asian refiners expect Saudi Arabia to reduce prices for August deliveries.
• Later US manufacturing PMI/ISM for June print and are expected to be steady. There are also US May construction, June vehicle sales and European/UK June manufacturing PMIs.

FOREX: Kiwi Firms In Asia

The kiwi is the strongest performer in the G-10 space at the margins in Asia today, firming after a stronger than forecast Yuan fix by the PBOC boosted sentiment.

• NZD/USD prints at $0.6150/55, the pair is ~0.4% higher today and sits a touch above the 20-Day EMA ($0.6141) which has provided resistance in recent sessions.
• The AUD has erased early losses of as much as 0.3% to deal little changed. Pressure came as Australian yields fell as Tuesday's RBA meeting came into view before paring losses as risk appetite improved through the session.
• Yen is marginally pressured, USD/JPY is up ~0.2% however the pair remains well within recent ranges. The Q2 Tankan Survey signalled stronger Q2 growth and cooler inflation.
• Elsewhere in G-10; NOK and SEK are ~0.2% firmer, however liquidity is generally poor in Asia. EUR and GBP are little changed.
• Cross asset wise; US equity futures are little changed, regional equities are firmer and the Hang Seng is up ~1.7%. BBDXY is down ~0.1% and US Tsy Yields are little changed thus far.
• There is a thin docket in Europe today, further out we have the latest ISM Survey.

RBA Dated OIS Softer Ahead Of Policy Decision Tomorrow

RBA-dated OIS pricing is 4-6bp softer today ahead of the RBA policy decision tomorrow.

• A 35% chance of a 25bp hike is currently priced versus 50% at Friday’s close.
• Terminal rate expectations have also softened since Friday. The market currently prices 45bp of additional tightening by Dec’23 versus 51bp on Friday.
• Expectations for easing are currently minimal, as indicated by the 6bp priced in by May 2024. This aligns with a recent article from the Australian Financial Review (ICYMI), which highlights economists' predictions of a longer gap between the peak of the RBA's cash rate and the first interest rate cut. The article cites persistent inflation in the services sector and a robust labor market as reasons behind this expectation. (See link)

Figure 1: RBA-Dated OIS – Terminal Rate Expectations

Source: MNI – Market News / Bloomberg