JGBS: Richer Ahead Of US CPI Data & FOMC Policy Decision, BoJ Decision On Friday
Jun-12 2024 04:52
JGB futures are holding richer and near session highs, +30 compared to settlement levels.
- Today's BoJ Rinban operations saw negative spreads and mostly lower offer cover ratios. At the margin, this generated some slight support for the market in the Tokyo afternoon session.
- Outside of the previously outlined PPI data, there hasn't been much in the way of domestic drivers to flag.
- Looking ahead, we anticipate that the BoJ will maintain its policy rate on June 14. Nevertheless, we expect a generally hawkish tone at the meeting, indicating the possibility of additional policy tightening in subsequent meetings, possibly as soon as July.
- The focus for the June meeting will likely be on the future pace of JGB purchases. It seems increasingly likely that the Policy Board will introduce new guidelines. (See MNI BoJ Preview Hidden PDF)
- Cash US tsys are little changed in today’s Asia-Pac session ahead of today’s US CPI data and the FOMC policy decision.
- Cash JGBs are richer, with yields flat to 3.2bps lower. The benchmark 10-year yield is 3.0bps lower at 0.997% versus the cycle high of 1.101%.
- Swap rates are ~1bp lower. Swap spreads are wider.
- Tomorrow, the local calendar will see Weekly International Investment Flow data and results of the Q2 BSI Large Company Survey. The MoF will also conduct a Liquidity Enhancement Auction for OTR 15.5-39-year JGBs.
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US TSYS: Treasuries Little Changed, Ranges Tight Ahead of US CPI Later This Week
May-13 2024 04:44
- Treasury futures ticked higher in early morning trading, before the long-end pared gains with weakness in JGBs contributing to the move. The 10Y contract is up (+ 01+) at 108-24, with intraday highs of 108-25+, while the 2Y contract is has held up throughout the day now trade near intraday highs, up ( + 00⅜) at 101-20.75.
- Looking at 10Y technicals, we still sit comfortably above initial support at 108-15+ (20-day EMA) a break here would open a retests of 107-04 (Apr 25 lows), while initial resistance is 109-06+/08+ (Channel top from Feb 1 high / 50-day EMA)
- Cash Treasury curve bull-steepened today, yields are about flat to 1bps lower, with the 2Y -0.9bps at 4.856%, the 10Y -0.2bp to 4.494% with the 2y10y -0.436 at -36.693.
- Looking across local rates markets: NZGBs yields are flat to 0.5bps lower, ACGBs are 1-2bps higher while JGBs are 1-4bps higher.
- The projected rate cut pricing cooled vs. late Thursday: June 2024 at -5% w/ cumulative rate cut -1.2bp (-2.5bp late Thu) at 5.307%, July'24 at -22% w/ cumulative at -6.7bp (-9bp late Thu) at 5.253%, Sep'24 cumulative -19.2bp vs. -22.4bp, Nov'24 cumulative -27.7bp -31.1bp, Dec'24 -40.9bp vs. -45bp.
- Looking Ahead: A slow start to the week, focus is on PPI and CPI on Tue/Wed
FOREX: USD/JPY Dips Supported Despite Lower BoJ Bond Buying, NZD Down With Inflation Expectations
May-13 2024 04:38
The USD BBDXY index sits just a touch higher for the session, last near 1254. We are down from earlier highs as the yen received some support after the BoJ reduced its bond buying pace modestly compared with late April.
- USD/JPY looked set to challenge the 156.00 level but the reduced pace of bond buying in the 5-10 tenor aided sentiment. The pair pulled back to 155.52, but didn't see any further follow through. We sit back at 155.75/80, unchanged for the session.
- Japan yields are marching higher, which is weighing on US-JP yield differentials, particularly at the back end of the curve. USD/JPY looks too high relative to such trends, see the chart below, although broader USD sentiment has mostly remained firmer today. Our Tokyo policy team notes the central bank could hasten the policy tightening process given the weak yen backdrop (see this link).
- USD/CNH has climbed above 7.2400 amid weaker data and fresh easing expectations. Higher US tariff prospects have weighed.
- NZD/USD is back close to 0.6000 post a further easing in Q2 inflation expectations. Some support was evident around this figure level though and the onshore rate impact has been limited. AUD/USD is also down, albeit outperforming NZD at the margins. The pair was last under 0.6600. We saw the AUD/NZD cross spike above 1.0990 on the weaker inflation expectations outcome but we have since lost momentum.
- Later the Fed’s Mester and Jefferson discuss central bank communications. In terms of data there is just US NY Fed 1-year inflation expectations for April. The Eurogroup meeting is being held and the ECB’s Buch is scheduled to speak. The focus this week will be on Wednesday’s US April CPI release.
Fig 1: USD/JPY & US-JP Yield Differentials
Source: MNI - Market News/Bloomberg
OIL: Prices Lower On Soft China Data, Reports This Week Should Clarify Outlook
May-13 2024 04:34
Oil prices are off today’s lows but are still down on the day. Brent is down 0.3% at $82.54 after falling to $82.26/bbl, while WTI is 0.2% lower at $78.08 after reaching $77.78. The latter has spent a reasonable amount of time below $78 today. With geopolitical tensions easing, markets are focused on fundamentals again and feel uncertain re the outlook. The USD index is slightly stronger.
- Data from China over the weekend have made oil markets wary re demand prospects. Lending data was disappointing and CPI inflation remained low.
- On the supply side, attention has shifted to the June 1 OPEC+ meeting where existing output cuts are expected to be extended into H2. Iraq said earlier that it wouldn’t agree to deeper cuts but then later confirmed it would abide with what OPEC+ decides. OPEC and the IEA release monthly reports this week with updated outlooks.
- Later the Fed’s Mester and Jefferson discuss central bank communications. In terms of data there is just US NY Fed 1-year inflation expectations for April. The Eurogroup meeting is being held and the ECB’s Buch is scheduled to speak. The focus this week will be on Wednesday’s US April CPI release.
