US TSYS: Marginally Cheaper In Asia

TYU3 deals at 111-02+, -0-02, a 0-07 range has been observed on volume of ~94k.

• Cash tsys sit 1-5bps cheaper across the major benchmarks, the curve has bear flattened.
• Tsys ticked lower through the Asian session as participants faded the post-NFP move on Friday, perhaps focusing on the lower than forecast unemployment rate and strong AHE print, as well as Gov. Bowmans Fedspeak over the weekend.
• Losses marginally extended as local equities softened and the USD firmed off session lows.
• Federal Reserve Governor Michelle Bowman on Saturday said she expects that additional rate increases will likely be needed to get inflation on a path down to the central bank's 2 percent target, adding that she will be looking for signs of slowing in consumer spending and signs that labor market conditions are loosening.
• There is a thin data docket on Monday, Fedspeak from Gov Bowman and Atlanta Fed President Bostic will cross.

JGBS: Futures Extend Recovery, Yields Off Recent Highs

Post the break, futures have tracked higher, we around session highs currently, last at 146.68, +32. Yields are mostly lower in the JGB and swap space.

• The 10yr JGB sits back under 0.63% at the time of writing, off by -2.5bps for the session. Lows have been closer to 0.62%, while highs have been marked near 0.64%. The 7yr is back sub 0.42%, seeing a slightly large move lower in yield terms. The 40yr has seen the largest move so far today, off by 3.5bps to 1.785%.
• In the swap space, the 10yr is back under 0.78%, recent highs rest above 0.81%. We have seen similar moves across the curve in terms of the 2yr to 7yr tenor space. Again, a slightly large move has been seen at longer dated tenors, like in JGBs. The 40yr is off by 2.5bps to be sub 1.35%.
• These moves are consistent with the US yield pullback on Friday post the NFP, although UST yield losses have been pared somewhat today, mostly at the front end (2yr +5bps to 4.81%). The 10yr yield sits slightly below session highs, last at 4.06%.
• The main macro news has been the BoJ Summary of Opinions out earlier today. The rough consensus appeared to be that enhancing the flexibility of YCC would allow the BoJ to continue monetary easing. This was deemed necessary as the inflation target hasn't yet been attained in a sustainable manner. There were varying views around the inflation backdrop, in terms of what were the key drivers and how might they evolve in the period ahead.

AUSSIE BONDS: Futures Firm On Monday, Cash Closed

XM (+0.13) and YM (+0.10) sit firmer on Monday, the impetus seen from the post-NFP richening in US Tsys on Friday aided the bid in early dealing. Futures held firmer through the session dealing in narrow ranges for the most part.

• A reminder that cash ACGBs were closed today for the observance of a bank holiday in NSW.
• The only local data of note today was ANZ-Indeed Job ads for July which rose 0.4% M/M.
• On Tuesday August Westpac Consumer Confidence crosses as does the NAB Business Survey and July Foreign Reserves. August Consumer Inflation Expectations round off the week's docket on Thursday.
• On Tuesday Australia sell A$100mn 2.5% 2030 Linkers and A$50mn 1.25% 2040 Linkers. Wednesday sees A$700mn 2.75% 2035 Bonds due for auction.
• The only RBA speaker due this week is tomorrow, RBA's Acting Head of Domestic Markets Schwartz crosses.

RBA: Positive Inflation Gap To Delay Monetary Easing

The RBA published its updated forecasts in Friday’s Statement on Monetary Policy. Between now and mid-2024, growth and inflation have been revised down. But with the inflation gap remaining positive, economic fundamentals signal that another rate hike may be needed by the end of the year and possiblly in H1 2024 too according to our policy reaction function. Easing is not yet on the horizon.

• Based on the RBA’s forecasts, the output gap should close by Q1 next year and show spare capacity from Q2 on. With the inflation forecast to remain above the mid-point of the target band over the RBA’s forecast horizon to end 2025, the inflation gap remains positive and thus limits the potential for monetary easing.
• The equation estimates that rates may peak in mid-2024 at around 4.5% and then stay there over the rest of the year. This is higher than the May estimate and also than AUD OIS market pricing of a peak of 4.2% falling to 4% by year end.
• With house prices rising again, our equation that includes them is now in line with the first estimates that have the cash rate peaking at around 4.5% in mid-2024.

Source: MNI - Market News/Refinitiv/RBA

RBA cash rate estimations vs AUD OIS market pricing %

Source: MNI - Market News/Refinitiv/RBA/Bloomberg

NZGBS: Richer On Monday

NZGB's have finished dealing ~6bps richer across the major benchmarks on Monday, the short end of the curve marginally extended gains after a firmer start.

• Kiwi Bonds followed the impetus from US Tsys on Friday which richened after a mixed NFP report as participants looked through strong AHE and a drop in the unemployment rate, focusing on softer than expected headline numbers, negative revisions and softer hours worked.
• The domestic docket was empty today. Further out we have July Card Spending on Wednesday as well as Q3 Inflation Expectations. July Business NZ Mfg PMI and Food Price round off the week on Friday.
• Little meaningful macro news flow crossed through the session and ranges remained narrow for the most part.
• On Thursday we get the only scheduled issuance of the week. $275mn in 0.5% 2026, $150mn 2% 2032 Bonds and $75mn 2.75% 2037 bonds are all due for auction.
• As of yet there are no RBNZ speakers scheduled for this week.

EQUITIES: China Stocks Underperform, Weighed By Health Care & Real Estate

Regional equity sentiment is mixed in Asia Pac markets to start the week. US equity futures are tracking higher, Eminis were last near 4514, +0.35% firmer. This is still comfortably below pre NFP levels from Friday (~4560). Nasdaq futures are slightly outperforming, last at +0.50%. These moves come despite a yield recover in USTs today, which have unwound some of Friday's losses.

• At the break, China markets are underperforming. The CSI 300 down 0.7% at this stage. The Shanghai Composite off by 0.56%. Health care stocks are weaker after the authorities widened a corruption crack down in the sector. This sub index is down just over 3%.
• The CSI 300 real estate index is also weaker, down over 3% at the break. This sub index couldn't sustain a recent test above its simple 200-day MA.
• The HSI is around flat at the break. The HSTECH index is off by 0.26%. We did see a ~1% fall in the Golden Dragon Index on Friday in US trade.
• South Korean stocks tried to go higher in early trade, but losses have built as the session progressed. The Kospi is off by ~0.60%, the Kosdaq -2.2%. The Taiex is outperforming, rally around 1%, led by gains from TSMC.
• Japan stocks are higher, although more so for the Topix (+0.30%), with the Nikkei 225 near flat. The ASX 200 is down by around 0.30% at this stage.
• In SEA, trends are mixed. PCOMP is +0.74% higher, but Thai stocks are modestly underperforming, down ~0.30%.

FOREX: Yen Pressured, Antipodeans Firm In Asia

The Antipodeans have firmed in Asia and are the strongest performers in the G-10 space at the margins. Yen is pressured and is the weakest performer in the space.

• AUD/USD is up ~0.2% and sits at $0.6585/90. A bid in US Equity Futures has aided sentiment today in Asia. Technically bears remain in the driver seat, support comes in at $0.6514 (low from Aug 3) and $0.6485 (low from Jun 1). Resistance is at $0.6630 the high from Aug 2.
• Kiwi is also ~0.2% firmer benefiting from the improving sentiment driven by US Equity futures. NZD/USD sits a touch above the $0.61 handle, however Friday's post-NFP highs remain intact.
• Firmer US Tsy Yields have weighed on the Yen. USD/JPY has trimmed some of Friday's losses and sits a touch above the ¥142 handle. The latest BOJ Summary of Opinions has crossed this morning, one member noted that adjusting YCC has inherent difficulties and that the BOJ should take account of market functioning.
• Elsewhere in G-10, EUR and GBP are marginally softer however ranges remain narrow.
• Cross asset wise; 2 Year US Tsy Yields are up ~5bps. E-minis are ~0.4% firmer, the Hang Seng is ~0.4% lower. BBDXY is little changed on Monday.
• There is a thin data docket on Monday, German Industrial Production for June provides the highlight

OIL: Prices Hold Onto Gains On Further Risks To Supply

Oil prices are down slightly during Monday’s APAC session holding onto most of Friday’s gains as tensions in the Black Sea increase the risk to Russian shipments. WTI is 0.1% lower at $82.72/oz while Brent is also -0.1% to $86.14. US yields are higher and the USD index is up slightly.

• Brent reached an intraday high of $86.73 early in trading and has been trending down since. The low was $86.12. WTI’s high was $83.30 before reaching a low of $82.71.
• According to Bloomberg, 15-20% of Russian crude shipments go through the Black Sea and most of its grain. On the weekend, a drone hit a Russian tanker.
• Later today Saudi Aramco announces Q2 earnings which may also include its outlook for the oil market. Late last week Saudi Arabia said its output cuts would be extended to the end of September and may even be deepened.
• Fed’s Bostic and Bowman speak at the Fed Listens Event later on Monday. Bank of England chief economist Pill also speaks. In terms of data, there are only US June consumer credit and German June IP. The focus of the week will be on US July CPI on Wednesday.

GOLD: Bullion Lower After Fed’s Bowman Suggested Further Tightening

Gold prices rose strongly as the dollar softened following the mixed US July payroll data, which increases the chance of the Fed being on hold at its next meeting on September 20. Bullion reached a peak of $1946.83/oz on Friday and during the APAC session today of $1946.80 but it has eased since then and is now 0.2% lower at $1938.30, as US equity futures are stronger and US yields higher. The USD index is flat.

• Gold prices remain well below resistance at $1972.40, the July 31 high. They broke the 50-day simple moving average earlier but are trading below it again.
• The July US CPI prints on Wednesday the outcome of which is likely to influence bullion. It is expected to show annual headline inflation picking up with core steady. On the weekend, the Fed’s Bowman said that the FOMC may need to hike further to contain inflation.
• Fed’s Bostic and Bowman speak at the Fed Listens Event later on Monday. Bank of England chief economist Pill also speaks. In terms of data, there are only US June consumer credit and German June IP.

ASIA FX: USD/CNH Rebounds On Equity Weakness, KRW Outperforms

Outside of USD/KRW, most USD/Asia pairs have had a positive bias today. USD/CNH has risen back above 7.2000 on local equity market weakness. USD gains have been modestly elsewhere, not showing much follow through from the softer USD tone post the NFP print on Friday. Tomorrow, we get China July trade data. Taiwan trade data is also out, along with South Korea current account/BoP figures. Philippines June trade figures also due.

• USD/CNH has mostly spent the session on the front foot. The pair is back above 7.2000, which is above highs that prevailed on Friday. Local equities have been weighed down by fresh weakness in health care stocks (amid a corruption crack down), while real estate stocks are also weaker. the CNY fixing remained on the strong side, but the error term wasn't as wide as last Thurs/Fri.
• 1 month USD/KRW had a brief dip sub 1300, before support emerged. The pair back to 1301/02 at the time of writing. The brief dip appeared to coincide with headlines that NPS had sold an Australian utility asset. However, higher USD/JPY and USD/CNH levels, along with a weaker equity tone, have combined to weigh on the won, Still, the pair is comfortably sub pre NFP highs from Friday (just above 1310).
• Spot USD/HKD has backed away for recent highs, the pair last tracking near 7.8060. Recent highs have come in around the 7.8120 level, which is just above the 20-day EMA, ~7.8100. The pullback is in line with some softer USD sentiment post Friday's NFP print, although USD/CNH has generally tracked higher so far today. On the data front we get July FX reserves later, the prior read was $417.3bn. Friday delivers Q2 GDP revisions.
• Prolonged political uncertainty and low inflation have seen the USD/THB rise 0.2% today to around 34.84. According to the Bangkok Post, Pheu Thai currently has at most 263 of the 500 House of Representatives seats. If it forms with the PPRP and UTN, pro-military parties, then it would have 310 seats and need only 66 senators. Cooperating with those parties though would probably mean that it would lose the support of some of its pro-democracy partners.
• The Rupee has firmed in early dealing, trimming Friday's losses to sit at 82.71/73. The pair closed at its highest level since mid-May on Friday at 82.8475 as recent pressure on the Rupee extended despite an RBI intervention in FX markets earlier in the week. The first 3 business days of August saw a moderate outflow from Indian equities by foreign investors. There was a net outflow of $152mn. The highlight of the week is the RBIs latest monetary policy decision on Wednesday, no change to policy is expected. Industrial Production also crosses on Friday, and is expected to tick lower to 5.0% Y/Y from 5.2% Y/Y.
• The ringgit is little changed in early dealing on Monday, USD/MYR sits well within recent ranges and there has been little follow through on moves thus far. USD/MYR prints at 4.5510/35, the pair consolidated recent gains on Friday and finished little changed from opening levels erasing losses seen early in the week. There is a light data calendar this week, Jul 31 Foreign Reserves are due today and June Industrial Production crosses tomorrow.
• The SGD NEER (per Goldman Sachs estimates) has firmed in early dealing this morning, the measure sits a touch off the base of the recent range. We sit ~0.5% below the top of the band. USD/SGD is sitting a touch above the $1.34 handle. On Friday June Retails Sales were softer than forecast, printing at 1.1% Y/Y against an estimate of 2.1% Y/Y. Due today we have July Foreign Reserves, there is no estimate and the prior read was $331.19bn. The final read of Q2 GDP is due on Friday to round off the week's docket.
• Q2 Indonesian GDP growth was stronger than expected rising 3.9% q/q after falling 0.9% the previous quarter. It is now 5.2% higher than a year ago up from 5% in Q1. Growth was around the government’s 5-5.3% forecast despite higher rates, uncertain global environment and lower commodity demand. USD/IDR is off last week’s highs but is up slightly in today’s trading (last near 15180 for spot).

THAILAND DATA: Inflation Low, THB Under Pressure

Thailand’s headline CPI inflation remained low in July at 0.4% y/y from 0.2% and lower than expected, which has put upward pressure on USDTHB reaching 34.75. Underlying inflation was in line with expectations at 0.9% y/y but lower than June’s 1.3%. The Bank of Thailand sounded less hawkish following its August 2 rate hike to 2.25% and these data and growth uncertainties suggest that that may be the peak. While the BoT still sees upside risks to inflation, it expects it to remain in the 1-3% target band. Also the risks are now stemming from the impact of El-Nino on food prices rather than from increased demand.

• The Commerce Ministry said that there was downward pressure on inflation from lower food and fuel prices and base effects. The latter is likely to keep annual inflation rates low and the ministry expects it to remain below 1% over the rest of 2023.

Source: MNI - Market News/Refinitiv

INDONESIA DATA: Stronger Q2 Growth Driven By Domestic Demand

Q2 Indonesian GDP growth was stronger than expected rising 3.9% q/q after falling 0.9% the previous quarter. It is now 5.2% higher than a year ago up from 5% in Q1. Growth was around the government’s 5-5.3% forecast despite higher rates, uncertain global environment and lower commodity demand. USDIDR is off last week’s highs but is up slightly in today’s trading. Thus, Bank Indonesia is likely to keep rates at 5.75% for now and easing is still some way off.

• 2024 is expected to be supported by higher government spending due to February’s elections while exports are likely to be softer given lacklustre global demand. These predictions played out already in Q2 with government spending up 10.6% y/y and exports down 2.75%.
• In terms of domestic demand, private consumption and GFCF also improved rising 5.2% y/y and 4.6% respectively. The domestic components were helped by “higher public mobility” due to religious holidays and bonuses according to the government.