- Yen strength was dominate in late Wednesday US trade/early Asia Pac Thursday trade, with intervention by the authorities suspected. USD/JPY sits comfortably up from earlier lows, but is more than 400pips sub earlier highs in the week above 160.00.
- In the cash Tsy space, bonds are dealing 1-2bps richer in the Asia-Pac session. STIR markets within the $-bloc have softened after Fed Chair Powell and yesterday’s FOMC delivered a message that was less hawkish than feared.
- The S&P Global ASEAN manufacturing PMI for April eased 0.5 points to 51.0 indicating that there was growth in the sector but that it eased. South Korea's PMI eased as well, while Taiwan's rose further, indicating a solid but not spectacular global trade gorwth.
- Looking ahead we have Swiss CPI first up, followed by final PMI revisions for the EU. In the US, Challenger job cuts, Q1 productivity/ULC, March final durable orders and jobless claims print. The ECB's Lane also speaks.
MARKETS
US TSYS: Cash Bonds Dealing Slightly Richer Ahead Of Q1 Productivity Data
TYM4 is trading at 107-30+, -0-05 from NY closing levels, but off Asia-Pac session lows.
- Cash bonds are dealing 1-2bps richer in the Asia-Pac session.
- Two block trades of note have crossed in today’s session: A block of 2,050 contracts in 30-year bond June futures traded at a price of 120-02 on CBOT; and A block of 9,500 contracts in five-year bond June futures traded at a price of 105-01 on CBOT.
- Later today the US calendar will see the preliminary release for Q1 productivity. This will provide broader macro considerations of Tuesday’s higher-than-expected ECI. Strong productivity gains have offset labour costs in recent quarters but consensus sees productivity growth tailing off to 0.7% annualized in Q1.
- Beyond that, the market’s focus is likely centred on Friday’s US Non-Farm Payrolls release.
STIR: $-Bloc Easing Expectations Strengthen After FOMC, Mixed Moves Over Past Week
STIR markets within the $-bloc have softened after Fed Chair Powell and yesterday’s FOMC delivered a message that was less hawkish than feared. Over the past week, however, the NZ market has seen the biggest softening on the back of a weaker-than-expected Q1 Employment Report. The Canadian market has actually seen year-end official rate expectations over the past week.
- A “Higher for Longer” message was conveyed but the market focused on Powell’s comment in the press conference that "I think it's unlikely that the next policy rate move will be a hike".
- The key addition to this statement compared to March’s was "So far this year, the data have not given us that greater confidence. In particular, and as I noted earlier, readings on inflation have come in above expectations. It is likely that gaining such greater confidence will take longer than previously expected."
- And the next sentence, "We are prepared to maintain the current target range for" used to conclude "longer, if appropriate" - now it ends "as long as appropriate".
- Elsewhere, Bank of Canada Governor Tiff Macklem told lawmakers Wednesday that conditions for lowering interest rates are emerging but he's still looking for solid evidence that trend inflation is settling back to his 2% target. (see MNI link)
- December 2024 expectations and the cumulative easing across the $-bloc stand at: 4.97%, -36bps (FOMC); 4.51%, -49bps (BoC); 4.41%, -4bps from an expected terminal rate of 4.45% (RBA); and 5.12%, -39bps (RBNZ).
Source: MNI – Market News / Bloomberg
JGBS: Futures Unchanged, Market Closed Tomorrow
JGB futures are just above session lows and unchanged compared to the settlement levels.
- The domestic calendar has been relatively light today, with the previously outlined BoJ Minutes for the March meeting as the light.
- April’s Consumer Confidence Index has just been released showing a fall to 38.3; Est. 39.8.
- Today’s focus however has centred on the digestion of yesterday’s FOMC policy decision and suspected intervention by Japanese authorities to support the yen in NY trading. (See BBG link)
- The cash JGB curve has bear-steepened. The benchmark 10-year yield is 0.9bp higher at 0.900% versus the YTD high of 0.933%.
- A Liquidity Enhancement Auction for 1-5-year OTR JGBs is due later today.
- The swaps curve has twist-steepened, pivoting at the 20s, with rates -1bps to +4bps. Swap spreads are tighter out the 10-year and wider beyond.
- The local market is closed tomorrow for the Constitution Memorial Day holiday.
- US Non-Farm Payrolls are due for release on Friday.
- Overnight, labour market data gave mixed signals. JOLTs data showed further signs of easing labour market pressures. The number of job openings dropped to a three-year low and the quits rate fell to the lowest since August 2020. However, US private payrolls increased more than expected in April while data for the prior month was revised higher.
ASIA DATA: South Korea, Taiwan PMIs Point To Modest Global Trade Growth
As we have noted in the past, the average PMI prints for South Korea and Taiwan have a reasonable relationship with global trade growth. The chart below plots the update post this morning's PMI prints against y/y global trade volumes.
- The PMI average is holding close to recent highs, just under 50.0. Some slippage in the South Korean PMI, back to 49.4, has been offset by a further recovery in the Taiwan print, now up to 50.2. This is highs in the Taiwan PMI back to mid 2022.
- The detail in the South Korean PMI was ok, with output and new orders both rising. The detail for Taiwan showed a healthy rise in output (to 51.4), while new orders were also up.
- Overall, the PMI prints suggest a further modest recovery in global trade volumes. This is a positive for the global growth backdrop, although it is certainty not pointing to a v shaped recovery (like we saw in 2020) (see MNI Export Growth Recovering But Improvement Not Uniform).
Fig 1: Avg South Korean and Taiwan PMIs Versus Global Trade Volumes Y/Y
Source: MNI - Market News/Bloomberg
AUSSIE BONDS: Richer At Sydney Session Highs, Weak Domestic Data & Stronger US Tsys
ACGBs (YM +5.0 & XM +6.0) are richer at Sydney session highs. This move has been supported by disappointing domestic data, specifically in Building Approvals and Trade Balance, as well as an uptick in US tsys during today's Asia-Pacific session.
- Cash ACGBs are 6bps richer, with the AU-US 10-year yield differential 2bps higher at -15bps.
- Swap rates are 6bps lower.
- The bills strip has extended its bull-flattening post-data, with pricing flat to +6.
- RBA-dated OIS pricing is 2-7bps softer for meetings beyond September. The expected terminal rate sits at 4.41%.
- (AFR) Markets have pushed back the timing for the Reserve Bank of Australia’s first cash rate cut until after the next federal election, complicating Labor’s bid for a second term amid red-hot voter concern over the cost of living. (See link)
- The local calendar will see Judo Bank Composite & Services PMI and Home Loans data tomorrow. The RBA Policy Meeting Decision is due next Tuesday.
- Later today the US calendar will see the preliminary release for Q1 productivity. This will provide broader macro considerations of Tuesday’s higher-than-expected ECI. Strong productivity gains have offset labour costs in recent quarters but consensus sees productivity growth tailing off to 0.7% annualized in Q1.
AUSTRALIAN DATA: Building Approvals Show Dwelling Investment Still Weak
Total building approvals rose a lower-than-expected 1.9% m/m in March to be down 2.2% y/y after falling an upwardly revised 0.9% and 5.3% respectively. Private approvals were in line with Bloomberg consensus, it was the public sector that drove the weaker total. With Q1 approvals down 9% q/q while working age population grew 179k 3m/3m in March, we are likely to continue to see pressure on rents and house prices. Dwelling investment is also likely to remain a weak part of GDP.
- The increase wasn’t broad based across states with only Victoria and WA recording rises.
- Approvals for private houses rose 3.8% m/m in March after 12.4% to be up 7.3% y/y from -1.0%. Private apartments rose 3.6% m/m after falling 24.7% but are still weak on a year ago at -16.8% y/y.
- Total public dwelling approvals are volatile but they fell 65.3% m/m in March to be down 44.7% y/y. The Q1 average was 3% higher on a year ago.
- The value of an approval rose 4.2% y/y driven by higher construction costs.
Source: MNI - Market News/ABS
AUSTRALIAN DATA: Exports To China Soften, Commodity Volumes Robust Though
Australia saw strong goods exports to China from Q4 2022 through 2023 but they weakened over Q1 this year. In March they fell 14.5% y/y after falling 2.5% y/y and rising 12.3% y/y in December. Softer commodity prices have weighed on exports with growth to much of Asia weak. Shipments to the US have been strong though rising 8.8% y/y in March.
- March merchandise exports fell 11.4% y/y in March with shipments to Japan (-24.6% y/y), Singapore (-12.5% y/y), Taiwan (-22.2% y/y) and India (-34% y/y) underperforming this as well as China mentioned above. Korea saw some improvement to -2.1% y/y and NZ to +6.2% y/y.
- In terms of Australia’s main commodities, there was an increase in export volumes of iron ore, semi-soft & thermal coal and LNG in March. Prices were lower for iron ore (around -13%, hard-coking & semi-soft coal (-18.4% & -2.7%) and LNG (--6.0%). Only thermal coal saw a rise in unit values but that was after falling sharply in February.
- The pick up in iron ore volumes was driven by China and Korea while to Japan they fell. Quantities of thermal coal to China, Taiwan and Korea rose but fell to Japan, while hard coking coal saw declines across Asian destinations.
Source: MNI - Market News/ABS
AUSTRALIAN DATA: Trade Surplus Narrows Sharply In Q1
Australia’s merchandise trade surplus unexpectedly narrowed to $5.02bn in March from the downwardly-revised $6.59bn due to weak export growth while import growth remained strong. Q1 saw a $2.57bn deterioration in the surplus from the Q4 average with exports down 0.9% q/q but imports up 6%. Trade data are nominal and Q1 saw a 2.1% q/q drop in export prices as commodity prices weakened.
Australia merchandise trade balance $mn
Source: MNI - Market News/ABS
- Exports rose 0.1% m/m in March to be down 11.4% y/y, the weakest since October 2023. The softness in March and Q1 was in non-rural goods with metal ores and coal declining but other mineral fuels and metals rising.
- Good imports rose 4.2% m/m, the third rise above 4% in the last 4 months, with both consumer and capital goods strong at +4.1% m/m and 8% respectively. Import growth is now up 12.3% y/y with consumer goods +7.3% and capital +16.8%.
Source: MNI - Market News/ABS
NZGBS: Closed On A Strong Note, US Q1 Productivity Later Today
NZGBs closed on a strong note, with yields 5-6bps lower. With the local calendar relatively light, today’s move can be linked to US tsys' reaction to a less hawkish-than-expected FOMC statement. While gains were pared into yesterday’s close, cash US tsys are 1-2bps richer in today’s Asia-Pac session.
- Today’s weekly supply showed solid demand metrics, with cover of 2.5-3.0x.
- The focus now turns to Friday’s US Non-Farm Payrolls release.
- Overnight, labour market data gave mixed signals. JOLTs data showed further signs of easing labour market pressures. The number of job openings dropped to a three-year low and the quits rate fell to the lowest since August 2020. However, US private payrolls increased more than expected in April while data for the prior month was revised higher.
- Swap rates closed 5-6bps lower.
- RBNZ dated OIS pricing closed 1-6bps softer across meetings. A cumulative 39bps of easing is priced by year-end.
- The local calendar is empty tomorrow.
- Later today the US calendar will see the preliminary release for Q1 productivity. This will provide broader macro considerations of Tuesday’s higher-than-expected ECI. Strong productivity gains have offset labour costs in recent quarters but consensus sees productivity growth tailing off to 0.7% annualized in Q1.
FOREX: Suspected Intervention Dominates Early Trade, But USD/JPY Up From Lows
Outside of yen weakness, G10 moves have been reasonably well contained in the first part of Thursday trade. The BBDXY USD index sits around 1259.40 in recent dealings, not too far from lows for the week. US yields are off a little over 1bps, as the market digests Powell's message from Wednesday (higher for longer, but next move unlikely to a hike). Equity sentiment is positive via higher US futures.
- A sharp yen rally was evident in NY/Asia Pac cross over, with USD/JPY falling from above 157.00 to 153.04. Since those lows we have generally tracked higher, albeit with a few further bouts of volatility.
- Session highs rest 156.28, and we were last near 155.85, down around 0.80% in yen terms. Currency Chief Kanda again stated no comment around whether the authorities had intervened. Given Japan markets are closed tomorrow and Monday it may take until next week to ascertain potential intervention efforts based off BoJ accounts data.
- The BoJ minutes from the March meeting came and went without impacting sentiment greatly. (see this link).
- AUD/USD is up modestly, last near 0.6530, while NZD is down a touch, last around the 0.5925 region. The AUD/NZD cross has made fresh highs of 1.1028. We had NZ and Aust data earlier on building activity and trade, but sentiment wasn't shifted.
- Looking ahead we have Swiss CPI first up, followed by final PMI revisions for the EU. In the US, Challenger job cuts, Q1 productivity/ULC, March final durable orders and jobless claims print. The ECB's Lane also speaks.
ASIA PAC EQUITIES: Hong Kong Markets Rally On Return, US Futures Higher
Asia Pac equity markets have been mixed, with Hong Kong gains a standout. China markets remain closed until the start of next week. US equity futures are higher, close to best levels in recent dealings. Eminis up around 0.50%, Nasdaq futures slightly outperforming at +0.65%.
- A downtick in US yields is likely helping broader sentiment, although Tsy futures are off post FOMC highs. Powell was less hawkish than feared and noted the next policy move was unlikely to be a hike.
- Hong Kong markets have re-opened to positive momentum. We sit up 2.2% at the break for the HSI. Gains have been fairly broad based, with the tech sub index up 4%. Positive carry over from the end April Politburo meeting (which emphasized aiding demand) is likely helping today's moves.
- The US has sanctioned firms in China for support around Russia's war effort, while Huawei Lab has reportedly been barred by US regulators from approving tech use in US markets (per BBG). Still, these announcements haven't impacted broader sentiment.
- Elsewhere, Japan markets sit a touch higher. Focus remains on yen volatility, as the authorities look to have intervened at the start of the Asia Pac/late NY session.
- The Taiex and Kospi are both tracking lower. This follows a sharp fall in the SOX in US trade, amid disappointing earnings.
- The ASX 200 is tracking 0.40% higher in Aust.
- In SEA, trends are mixed. Indonesian markets are off 1.50%, while trends are more positive elsewhere.
OIL: Crude Regains Some Of Yesterday’s Losses
Oil prices are higher during today’s APAC trading after falling close to 3.5% yesterday. Brent is up 0.6% to $83.95/bbl, close to the intraday high, and WTI is also 0.6% higher at $79.49. This moderate recovery has been supported by a softer greenback (USD index -0.4%).
- A large US crude stock build of 7.27mn barrels spooked markets on Wednesday resulting in the sharp sell off. Prices fell through support levels signalling that they could decline more. Gasoline stocks rose 344k while distillate fell 732k as refinery utilisation fell 1pp to 87.5%.
- While Fed Chair Powell said that another hike is unlikely, the “higher for longer” stance has also worried markets as it could mean weaker oil demand with the US driving season approaching.
- On the supply side, April OPEC output was only 50kbd lower than March signalling that the group’s agreed cuts have still not been fully implemented, according to Bloomberg. Iraq and Libya increased production while Iran and Nigeria reduced it.
- Later US Challenger job cuts, Q1 productivity/ULC, March final durable orders and jobless claims print. The ECB’s Lane speaks and European April manufacturing PMIs are released.
GOLD: Steady After Yesterday’s Post-FOMC Rally
Gold is little changed in the Asia-Pac session, after closing 1.5% higher at $2319.56 on Wednesday.
- Wednesday’s move came after Fed Chair Powell and the FOMC delivered a less hawkish message than feared.
- The key addition to this statement compared to March’s was "So far this year, the data have not given us that greater confidence. In particular, and as I noted earlier, readings on inflation have come in above expectations. It is likely that gaining such greater confidence will take longer than previously expected."
- And the next sentence, "We are prepared to maintain the current target range for" used to conclude "longer, if appropriate" - now it ends "as long as appropriate".
- While a “Higher for Longer” message was conveyed, the market focused on Powell’s comment that "I think it's unlikely that the next policy rate move will be a hike".
- US treasury yields were down over double digits before profit-taking set in.
- The focus now turns to Friday’s US Non-Farm Payrolls release.
- Overnight, labour market data gave mixed signals. JOLTs data showed further signs of easing labour market pressures. The number of job openings dropped to a three-year low and the quits rate fell to the lowest since August 2020. However, US private payrolls increased more than expected in April while data for the prior month was revised higher.
ASIA DATA: Domestic Demand Drives New Orders Growth
The S&P Global ASEAN manufacturing PMI for April eased 0.5 points to 51.0 indicating that there was growth in the sector but that it eased. In addition, the outlook is weak. However new orders growth improved to its strongest since mid-2023 but foreign orders continued contracting. There was lower employment for the first time in 6 months. While costs rose “sharply”, the increase wasn’t passed on in full. A number of countries saw declining PMIs but the Philippines recorded the largest improvement. Indonesia and the Philippines are driving ASEAN manufacturing activity.
- Indonesia’s manufacturing PMI eased to 52.9 from 54.2 to be below the Q1 average with output and orders growth slower. Export orders were “subdued”. Inventories rose in anticipation of a pickup in output despite confidence in the outlook falling to its lowest in 4 years. There was a “broad-based” rise in raw material costs and the weak rupiah boosted imported inflation. Manufacturers passed these onto customers and inflation is “only slightly lower than March’s 21-month high”.
- Thailand continued to be the region’s underperformer with the PMI declining to 48.6 from 49.1, indicating that activity contracted at a faster pace at the start of Q2. It has been negative for 9 straight months and new orders for 10. Export sales are at their weakest for over 3 years. Confidence is above the pre-Covid averages though and employment stabilised suggesting activity may improve. Cost and selling pressures were below average in April.
- Manufacturing improved in the Philippines with the PMI rising to 52.2 from 50.9 in March driven by a pickup in orders growth, which drove increased purchasing and hiring. Export orders also improved. Inflationary pressures were restrained which is good news for BSP.
- See S&P Global PMI releases here.
Source: MNI - Market News/Bloomberg
SOUTH KOREAN DATA: CPI Momentum Eases, Core Back To 2.3% Y/Y, PMI Off Recent Highs
Earlier South Korean CPI printed a touch weaker than expectations. M/M was flat against a 0.1% forecast and 0.1% prior outcome. Headline rose 2.9%y/y against a 3.0% forecast and 3.1% prior. Core (ex food and energy) was 2.3% y/y, in line with market forecasts but still slightly off March's 2.4% pace.
- The trend improvement in core CPI continues, not too far off the 2% BoK inflation target. The headline trend has been more sporadic, but still encouraging, see the chart below. The authorities are likely to want to see consumer inflation expectations also ease (which have been wedged above 3% in recent months).
- In terms of the detail, food prices fell 1.2% m/m, as the main drag. Transport rose 0.9% m/m, while recreation also climbed 0.5% m/m, as offsets. Other sub categories saw either flat or modest gains for the most part.
- In y/y terms, trends were mixed. Food, at 5.9%, is still the firmest pace, but is off earlier 2024 highs. Clothing at 5.3% is the next strongest, but also decelerating. Transport y/y momentum continued to pick up though to 2.9%, after being negative late in 2023/earlier this year.
- Also out was the April manufacturing PMI. We eased back to 49.4 from 49.8 in March. Still, the output sub index was 50.1 from 49.8 in March, while new orders also rose from March levels.
Fig 1: South Korean Headline & Core CPI Y/Y Trends
Source: MNI - Market News/Bloomberg
INDONESIA DATA: April Inflation Holds Steady Within BI Target Band
Indonesia’s April CPI printed close to expectations at 3.0% y/y for headline and 1.8% y/y for core, unchanged from March. Both measures are within Bank Indonesia’s 1.5-3.5% target band but look they may have troughed. State administered prices were a moderate 1.5% y/y while volatile food prices remained elevated at 9.6% y/y.
- Bank Indonesia (BI) hiked rates 25bp to 6.25% in April to stabilise the rupiah but also to ensure that imported inflation doesn’t become a problem (February import prices fell 1.7% y/y). Respondents in the April S&P Global PMI noted that the weak currency was increasing their costs.
- USDIDR rose after BI’s hike though to a peak of 16283. It has fallen 0.3% today to 16205 on the back of a weaker USD following Fed Chair Powell saying a rate hike is unlikely.
- Annual inflation is being driven by food prices such as rice and meat. The monthly increase was due to transport, gold jewellery and some food items. Rice prices fell on the month in April.
Source: MNI
ASIA FX: USD/Asia Pairs Mostly Lower Post FOMC
USD/Asia pairs are mostly lower in the aftermath of a softer dollar/lower US yield backdrop post the US FOMC. China markets remain closed until next Monday. USD/CNH has fallen, now back under 7.2400. NDF gains against the USD have been more muted but still evident as the first part of Thursday trade has unfolded. Tomorrow, we have Thailand CPI in focus, along with Singapore retail sales.
- USD/CNH has been sold on upticks to 7.2450, but is seeing some support sub 7.2350. We were last near 7.2370. Stronger yen levels in late Wednesday US/early Thursday Asia Pac trade helped CNH, but follow through has been limited. With China markets out there is no onshore spot anchor. Hong Kong markets returned today, with positive equity sentiment evident. Part of this reflects optimism around the outlook following the recent Politburo meeting.
- 1 month USD/KRW sits marginally lower versus end NY levels on Wednesday. The pair was last around 1374.50. This keeps us within recent ranges. We had earlier comments from officials vowing to curb excessive volatility given the FOMC meeting and on-going Middle East concerns. On the data front, the April CPI was a touch below expectations. The April PMI also eased further but some of the detail around output and new orders was encouraging.
- Spot USD/IDR sits a touch above session lows, last near 16205. It is a similar backdrop for the 1 month NDF. A fresh high above 16300 for spot (Apr highs of 16288) may have been avoided at least in the near term. Still, the 20-day EMA is back at 16086.3, so a further rally is still needed to turn the technical tide. The less hawkish than feared US FOMC outcome, particularly in terms of Powell comments has helped pull US yields away from recent highs. ID-US 10yr differentials sit close to multi month highs, last near +260bps. Indonesia’s April CPI printed close to expectations at 3.0% y/y for headline and 1.8% y/y for core, unchanged from March
- Elsewhere, we have seen solid gains for spot THB, up around 0.40%. This puts USD/THB back under 37.00, last near 36.90. PHP is up around 0.35%, leaving USD/PHP, in the 57.55/60 region. This is still up from recent lows sub 57.50.
UP TODAY (TIMES GMT/LOCAL)
| Date | GMT/Local | Impact | Flag | Country | Event |
| 02/05/2024 | 0630/0830 | *** |  | CH | CPI |
| 02/05/2024 | 0630/0830 | ** | | CH | Retail Sales |
| 02/05/2024 | 0715/0915 | ** |  | ES | S&P Global Manufacturing PMI (f) |
| 02/05/2024 | 0745/0945 | ** |  | IT | S&P Global Manufacturing PMI (f) |
| 02/05/2024 | 0750/0950 | ** |  | FR | S&P Global Manufacturing PMI (f) |
| 02/05/2024 | 0755/0955 | ** |  | DE | S&P Global Manufacturing PMI (f) |
| 02/05/2024 | 0800/1000 | ** | | IT | PPI |
| 02/05/2024 | 0800/1000 | ** |  | EU | S&P Global Manufacturing PMI (f) |
| 02/05/2024 | 1230/0830 | *** |  | US | Jobless Claims |
| 02/05/2024 | 1230/0830 | ** | | US | WASDE Weekly Import/Export |
| 02/05/2024 | 1230/0830 | ** | | US | Trade Balance |
| 02/05/2024 | 1230/0830 | ** | | US | Preliminary Non-Farm Productivity |
| 02/05/2024 | 1230/0830 | ** |  | CA | International Merchandise Trade (Trade Balance) |
| 02/05/2024 | 1245/0845 | | CA | BOC's Macklem appears at House finance committee. | |
| 02/05/2024 | 1400/1000 | ** | | US | Factory New Orders |
| 02/05/2024 | 1430/1030 | ** | | US | Natural Gas Stocks |
| 02/05/2024 | 1530/1130 | ** | | US | US Bill 04 Week Treasury Auction Result |
| 02/05/2024 | 1530/1130 | * | | US | US Bill 08 Week Treasury Auction Result |
| 02/05/2024 | 2015/2215 | | EU | ECB's Lane lecture at University of Stanford |