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BoJ Rinban Tweaks Create Havoc For JGBs

Morning Briefing October 1st 2019

Tuesday’s main European releases see the manufacturing PMIs cross the wire, likely confirming the continued slowdown seen across the region in recent months. The main releases will come from France, Germany and finally the eurozone composite at 0900BST.

Eurozone flash September inflation data will be published at 1000BST, with chances of a downside surprise following sluggish German, French and Spanish data. There is a string of data expected in the US, mainly survey releases.

The Markit Manufacturing Index is poised to remain unchanged in the final September estimate from the preliminary 51.0 estimate. Construction spending is expected to rise to 0.5% in August from 0.1% in July. This comes amid increased demand for housing, particularly affordable homes.

The ISM Manufacturing index is expected to move to 50.0 from 49.1 in August, despite fears of a global manufacturing slowdown. The ISM Prices Paid index is slated to rise to 50.5 in September from 46 in August.

Global Economic Trading Calendar


BOND SUMMARY: JGBs provided the most interest on the back of latest tweaks to the BoJ’s Rinban ops & adjustments to its October Rinban outline which pressured the space early on, as bear steepening came to the fore for a 2nd consecutive session. The move extended in early afternoon trade, with a very weak 10-Year auction seen; widest 10-Year tail since ’15, avg. price was below exp. of low price (proxied by the BBG dealer poll) & the cover ratio edged lower, printing at levels not seen since ’16. Futures last 74 ticks lower.- T-Notes drifted lower as the regional equity markets & U.S. equity index futures edged higher, with the weak JGB auction applying further pressure. T-Notes -0-06 at 130-04, with bear steepening creeping in on the back of the JGB auction. Eurodollar futures 2.0-2.5 ticks lower thru the reds. The most notable flow saw steady selling of EDZ9. Worth remembering that the NY Fed has reduced the size of Tuesday’s overnight repo ops to $75bn (from the $100bn they were upsized to last week).- A tight session for Aussie Bond futures ahead of today’s RBA decision (with most looking for a cut). YM & XM unch. Bills +1 tick through the reds.

STOCKS: The major regional equity markets (that were open) ticked up alongside U.S. equity futures during Asia-Pac hours, aided by the positive lead from Wall St. & perhaps benefitting from no outright escalation of trade hostilities ahead of the week-long Chinese holidays that got underway today.- The Nikkei 225 was able to overcome some local issues: the imposition of the well-documented sales tax hike, as well as a less than inspiring BoJ Tankan survey.- Elsewhere, the ASX 200 edged higher ahead of the RBA MonPol decision, with most looking for a cut from the central bank. The energy and financial sectors were the only major groups trading lower at writing.- Nikkei 225 +0.7%, ASX 200 +0.4%.- S&P 500 futures +11, DJIA futures +90, NASDAQ 100 futures +39.

OIL: WTI & Brent print ~$0.50 above their respective settlement levels at writing, with the uptick in equity metrics helping to support the crude space after Monday’s sell off.- Monday saw OPEC Sec Gen Barkindo & various Saudi officials point to Saudi production being restored to levels seen before the recent high-profile attacks on Aramco facilities. Elsewhere, the latest RTRS survey suggested that OPEC oil output fell to an eight-year low in September, with the aforementioned attacks on Saudi facilities adding to the impact of the OPEC+ production pact and U.S. sanctions vs. Iran & Venezuela. Also on the supply front, the EIA noted that U.S. crude oil output fell by 276K bpd in July, to 11.81mn bpd. This represented a third monthly decline from the record production levels seen in April. Meanwhile, Russia revealed that it reduced its avg. oil output by 200K bpd in Sep (vs. the Oct ’18 baseline), a little below the 228K bpd requirement bestowed upon it under the OPEC+ pact.- Weekly API inventory data will draw attention later today.

GOLD: The yellow metal continues to tread lower, last -$5/oz at $1,467/oz, with fresh multi-year highs for the DXY applying some pressure.- The comes after bears remained in the ascendency on Monday, building on the recent momentum and forcing key technical breaks, which ultimately resulted in a close below the Sep 18 low & key bear trigger at $1,483.1/oz.- The July 19 high at $1,453.1/oz provides the next obvious level of downside interest.

FOREX: National holidays in China and Hong Kong limited the potential for major shocks, leaving the impending RBA monetary policy decision front and centre. The kiwi’s losing streak continued and NZD/USD printed a new YtD low, as a weak QSBO and the adoption of more aggressive RBNZ easing calls by several sell-side desks dented the NZD. Kiwi weakness filtered through into AUD to an extent.- USD was bid across the G10 currency board, with BBG trader sources pointing to demand from index funds after a good showing from the greenback on Monday. DXY rose to a fresh YtD peak at 99.51, a level not seen since May 2017.- KRW took a hit at the open as South Korean CPI slipped on a Y/Y basis for the first time on record. Subsequent recovery helped trim the won’s losses vs. USD.- BoJ Tankan indicated a drop in biz. sentiment & solid capex. Average USD/JPY rate assumed by major manufacturers for FY2019 was Y108.68 vs. Y109.35 in June.

Technical Analysis


Z9 Bund traded lower Monday but did find support off the low to maintain the current consolidative mood. The contract remains below last weeks high of 174.97 and the 61.8% level of Sep 3 – Sep 13 decline. The retracement, at 175.07 is an important pivot point. A failure to clear it suggests the recent recovery is a correction and that prices will likely return to 172.18, Sep 13 low. An upside break would instead attract bullish interest for 175.62 and higher.


EUROSTOXX50 traded higher yesterday as the bullish hold strengthens. This follows the reversal signal on Sep 25, a bullish hammer candle formation. The implications of the signal were that the pullback between Sep 20 – Sep 25 was corrective and more importantly that the correction was over. This now appears to be the case. Attention is on the Sep 20 high of 3578.04, the bull trigger for 3587.16, a Fibonacci projection. Key support lies at 3480.28.

Eurex Futures Market Close

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