• Tsys futures are slightly off session highs, however ranges have been narrow. TU +01⅜ at 103-04⅞, while TY is +06+ at 110-30+ with initial resistance at 111-14 (Oct 25 high)
• There was an earlier block buy of UXY, DV01 $405k, and a large TY 113 call, x30,000, delta 21%
• Overall, Investors remain bearish ahead of the US presidential election, betting on further bond losses and increased volatility. Yields have already surged, with options traders targeting a potential 4.5% yield on the 10-year note. Elevated open interest in 10yr December 109.5 put options reflects hedging against a deeper bond selloff.
• Overnight In tsys options there was demand during US morning for volatility hedging, with stand-out flows including a $5m premium strangle position via TY Week 1 options. The BofA move Index has now reached it's highest in 12 month, as traders expected volatility to increase heading into the election.
• Cash tsys yields are flat to 1bps lower today, with the curve slightly flatter. The 2yr is -0.4bps at 4.092%, while the 10yr is -0.8bps at 4.246%.
• Focus turns to ADP employment data, GDP and Pending Home Sales.

JGBS: Mixed Ahead Of US ADP Data, Heavy Calendar Tomorrow Incl BoJ Decision

JGB futures are stronger and at session highs, +11 compared to settlement levels.

• Today, the local calendar has been light.
• Tomorrow, the BoJ will hand down its policy decision after its two-day MPM. All, but one of the 53 analysts surveyed by Bloomberg expect the current policy rate of 0.25% to be maintained, with market pricing aligning with this expectation.
• Since April, the BoJ’s guidance has indicated a gradual rate increase if economic activity and inflation trends align with the central bank’s projections.
• However, an additional precondition for future rate hikes has emerged, emphasising stability in overseas economies and financial markets. Given these factors, the BoJ appears inclined to monitor US economic stability and market volatility a bit longer before making further policy adjustments. (See MNI BoJ Preview here)
• Cash US tsys are little changed in today’s Asia-Pac session. The focus is now on today's ADP employment and GDP data.
• Cash JGBs are slightly mixed across benchmarks, with yields 1-2bps richer apart from the 1-year and 20-year+, which are 1-2bps cheaper. The benchmark 10-year yield is 1.5bps lower at 0.966%.
• Swap rates are 1-3bps lower, with the belly of the curve leading.
• Tomorrow, the local calendar will also see Retail Sales, International Investment Flow, IP and Housing Starts data.

AUSSIE BONDS: Slightly Cheaper, Limited Reaction To Q3 CPI, Focus On US Data

ACGBs (YM -1.0 & XM -1.5) are weaker and little changed after today’s Q3/September CPI release.

• Q3 trimmed mean CPI printed in line with expectations at 0.8% q/q and 3.5% y/y after an upwardly revised Q2 at 0.9% and 4.0%. This is consistent with the RBA’s Q4 forecast but the tick-up in services inflation is likely to mean the Board remains cautious and stays on hold over the rest of 2024.
• Problematically, services rose 1.1% q/q and 4.6% y/y up from Q2’s 1.0% and 4.5%, in line with Q4 2023, driven by rents, insurance and child care. Core services were also strong rising 1.3% q/q and 4.1% y/y after 1.0% and 4.1% y/y.
• Cash US tsys are little changed in today’s Asia-Pac session. The focus is now on today's ADP employment data, GDP and Pending Home Sales.
• Cash ACGBs are 1bp cheaper on the day. The AU-US 10-year yield differential is at +21bps.
• Swap rates are 1bp lower on the day.
• The bills strip is weaker, with pricing -1 to -3.
• RBA-dated OIS pricing is 1-3bps firmer on the day. A cumulative 3bps of easing is priced by year-end.
• Tomorrow, the local calendar will see Retail Sales, Terms of Trade, Building Approvals and Private Sector Credit data.

NZGBS: Slightly Cheaper, Awaiting US ADP Data

NZGBs closed slightly cheaper but in the middle of today’s range, with benchmark yields flat to 1bp higher. With the local calendar domestic today, local participants sought directional from US tsys. However, that was not forthcoming, with US tsys little changed in today’s Asia-Pac session, ahead of today’s ADP employment data, GDP and Pending Home Sales data.

• On a relative basis, the NZGB 10-year underperformed its US counterpart with the NZ-US yield differential 4bps wider at +20bps. Yesterday, the differential tightened to +16bps, just above July's low of +13bps, the narrowest level since mid-2021.
• Swap rates closed 2bps lower, with implied swap spreads ~3bps narrower.
• RBNZ dated OIS pricing closed 1-2bps softer for 2025 meetings. A cumulative 100bps of easing is priced by February, with 54bps by year-end.
• The local calendar will see ANZ Business Confidence tomorrow.
• Tomorrow, the NZ Treasury plans to sell NZ$175mn of the 3.0% Apr-29 bond, NZ$250mn of the 4.25% May-34 bond and NZ$75mn of the 1.75% May-41 bond.

FOREX: A$ & NZD TO Multi Month Lows Amid Lower HK/China Equities

Early modest USD softness has given away to dollar gains as the Asia PAC Wednesday session unfolds. Weakness is being led by AUD and NZD, both off around 0.25% at this stage, slightly up from session lows. The USD BDXY index is little changed, last near 1263. Earlier we were at lows of 1261.37, as US yields softened. 

• The weaker backdrop for HK and China equities is likely not helping AUD and NZD. The HSI off 1.86% at the lunchtime break. Lack of any positive follow through from fresh stimulus rumours from late yesterday, is notable today.
• Earlier we had Q3 CPI print in Australia, the main release today. We saw further improvement in headline y/y momentum, but service inflation remains stick. This suggests no reason for the RBA to cut rates in the near term, but this has provided only fleeting AUD support.
• The currency got to highs of 0.6571, before turning lower to hit fresh multi month lows of 0.6537. Metal prices are also down modestly for copper and iron ore.
• NZD/USD is down by a similar amount, last near 0.5955/60. Earlier lows were at 0.5951.
• USD/JPY was lower earlier, but sits back at 153.30/35 now, unchanged. US equity futures are off earlier highs, while US yields have largely reversed earlier weakness, another USD support point.
• Looking ahead, the October European commission survey, preliminary Q3 German/French GDP, October German unemployment and October German/Spain CPIs print. The ECB’s Schnabel and BoC’s Macklem speak, and the UK budget is announced. In the US, focus turns to ADP employment data, GDP and Pending Home Sales. 

ASIA STOCKS: China & Hong Kong Equities Drop On Stimulus Concerns

• Chinese stocks are lower today, with the CSI 300 falling as much as 1.1% and the HS China Enterprises Index down 1.95%, led by tech giants like Meituan, Alibaba, and JD.com. Investor sentiment was weighed down by concerns that China’s recent stimulus announcements may not be enough to sustain a lasting recovery. While China is reportedly considering a 10t yuan fiscal package, market participants remain cautious due to a series of underwhelming follow-ups to earlier announcements and concerns over broader structural issues like debt and demographics.
• Earnings reports also contributed to the negative market sentiment, with China Merchants Bank and Haier Smart Home reporting weaker-than-expected results. Investors are now focusing on the upcoming National People's Congress Standing Committee meeting, where additional fiscal stimulus could be confirmed.
• Equities in Hong Kong are performing worse than their mainland peers, tech stocks are the worst preforming with HSTech Index down 2.60% followed by HS Mainland Banking Index which is down 1.85%, while the benchmark HSI is 1.80% lower.

EQUITIES: Asian Equities Mixed, Japanese Equities Outperform

Asian markets are mixed today as investors exercised caution ahead of key US events, including next week’s presidential election and the Federal Reserve’s rate decision. Japan’s Topix Index gained around 1%, led by tech stocks following a strong performance from the Nasdaq. Mainland China, Hong Kong, and Australia saw declines. Chinese stocks faced pressure amid economic concerns, though property developers gained on reports of potential government stimulus.

• Japanese stocks are higher with the Topix Index rising about 1%, supported by gains in the tech sector after a strong performance from the Nasdaq in the U.S. Investors were also optimistic ahead of earnings from Hitachi, the 2nd largest component of the TOPIX. Financial stocks contributed to the gains, marking a third consecutive day of advances for the sector. Looking at index options, traders are positioned for further upside in both the Nikkei & Topix but see more upside in the TOPIX with the $2,900 strike calls having the most open interest for the Nov. 8 maturity, a 7% upside from current levels.
• Taiwan's TAIEX is slightly higher today, with TSMC up 0.50% contributing to the majority of the index's gains today, this follows an almost 4% drop in their shares after reports surfaced that the company may have violated US trade restrictions with China. TSMC reportedly suspended shipments to China's chip designer Sophgo after a chip it made was found in a Huawei AI processor, which is subject to U.S. export controls. South Korea's KOSPI is 0.70% lower today, the largest weighting in hte KOSPI is Samsung, the company has struggled since June, dropping over 30% from highs vs Apple which is trading little changed.
• Australian equities are lower, with the ASX 200 falling 0.70%, despite a decline in inflation to 2.8%, which brought headline inflation back within the RBA's target range. Investors were not impressed by the inflation drop as core inflation remained elevated at 3.5%, suggesting continued price pressures in areas like recreation, food, and insurance. Mining stocks saw gains supported by a climb in iron ore prices. However, financials and retail sectors were weaker. Supermarket giant Woolworths fell sharply by 5.8% after issuing a profit warning for FY25. Star Entertainment shares plunged 11.3% following a reported $1.6 billion loss for FY24 due to challenging trading conditions and regulatory issues. New Zealand's NZX50 is 0.40% lower, with the three largest weighting (WBC, ANZ, Fisher & Paykel) dropping roughly 1% each.

OIL: Crude Higher Today, December OPEC Meeting In Focus, EIA Data Later

Oil has posted modest gains during APAC trading today. Brent is 0.4% higher at $71.40/bbl, close to the intraday high, and WTI is up 0.6% to $67.60/bbl after a low of around $67.30. The USD has recovered to be down only slightly now.

• OPEC is due to meet on December 1 which will be monitored closely to see if the group delays its current plans to begin a gradual increase in output from December, which would push prices lower. Bloomberg says that traders are divided as to whether the current plan will go ahead.
• Westpac believes that Brent will trade in the high $60s in the not-too-distant future now that most of the geopolitical risk premium has unwound.
• Bloomberg reported that US oil inventories fell 600k barrels last week, according to people familiar with the API data. Gasoline stocks fell -300k and distillate 1.5mn. The official EIA data is out later today.
• Later the advanced release of US Q3 GDP and October ADP employment are out. GDP is forecast to rise 2.9% q/q saar, in line with Q2.
• The October European commission survey, preliminary Q3 German/French GDP, October German unemployment and October German/Spain CPIs print. The ECB’s Schnabel and BoC’s Macklem speak, and the UK budget is announced. 

Gold Hits New Record High On US Election Uncertainty & Expected Rate Cuts

Spot gold rose to a fresh record high of $2,782/oz today amid on-going safe haven demand ahead of the US election, with polls continuing to point to a close outcome and betting putting Trump well ahead. Upcoming key US data is also driving bullion higher. The USD index is flat.

• The yellow metal is currently up by 0.1% on the day to $2777.50, just below the intraday high and above resistance at $2,767.1, a Fibonacci projection point. Above here, sights are on the $2,800.0 handle next.
• Analysts at Saxo Bank note that gold trades are up given prospects of Trump 2.0, which may bring greater policy disruption, trade tariffs and increased geopolitical risk.
• Later the advanced release of US Q3 GDP and October ADP employment are out. GDP is forecast to rise 2.9% q/q saar, in line with Q2. Payrolls on Friday are a focus but are likely to be impacted by recent hurricanes. The Fed is expected to cut rates 25bp on November 7 and gold has rallied on expectations of further easing.
• The October European commission survey, preliminary Q3 German/French GDP and October German/Spain CPIs print. The ECB’s Schnabel and BoC’s Macklem speak, and the UK budget is announced.