Trade jitters accentuated with biggest tap into Fed’s SRF since pandemic

Asia Market Update: Trade jitters accentuated with biggest tap into Fed’s SRF since pandemic; JP political parties wrangle for power.

General trend and developments

- US banks have now tapped the Fed's Standing Repo Facility (SRF) for more than $15B over the past two days – the most over a 2-day period since the pandemic. [Credit markets finally take center stage?]

- UST 2-years to three-year lows, 5-years to a one-year low and 10-years to 3.95%, lowest since April.

- Probabilities of a 50bps cut at the October FOMC rise to 5.3% from 0% day before.

- Asian stocks weak across the board amid the concerns and overall full valuations. Hang Seng underperformed -1.9% with the Nikkei -1.4%. (However, note that Korea’s Kospi was up against the trend and managed to break 4,000 for the first time, up 57% since its April 8th lows).

- Japan political power wrangle update: Center-right DPP leader Tamaki last night expressed disappointment over what he described as behind-the-scenes meetings between Takaichi’s LDP (196 seats) and right-wing Ishin no Kai (JIP, with 35 seats), undermining the potential three-way alliance between the LDP-JIP-DPP. The DPP’s 27 seats would put such a three-way coalition well above the 233 number required for an outright majority in the Lower House. Today, JIP’s co-leader Yoshimura put the chance of a coalition with the LDP at 50-50. Meanwhile, the two major parties, LDP and CDP, agreed to finally hold the PM vote on Oct 21st.

- Yen broke back through 150 vs USD for the first time since Takaichi won the LDP leadership race two weekends ago, which saw the Yen fall sharply to 153 handle from 147 the Friday before the vote.

- OIS overnight chances of a BOJ rate 25bp hike at the October meeting rose slightly to 16.5% vs 12.5% day before and December chances rose to 57.5% vs 53% day before.

- US equity FUTs -0.5% to -0.6% during Asia trading.

***Looking ahead (Asian-weighted releases, using Asian time zone)***

** Note: US releases scheduled for this week but postponed due to the govt shutdown: Sept PPI, Sept Retail Sales, Sept Housing Starts, Sept Building Permits.

Holidays in Asia this week

- Mon Oct 13th Japan, Thailand, US bond markets closed.

Headlines/economic data

Australia/New Zealand

- ASX opens -0.5% at 9,027.

- Australia sells A$800M v A$800M indicated in 1.00% Dec 2030 bonds, Avg Yield: 3.5254% v 3.6416% prior, bid to cover 2.76x v 4.24x prior.

China/Hong Kong

- Hang Seng opens -0.1% at 25,851; Shanghai Composite opens -0.1% at 3,912.

- China Daily: China slams 'baseless' US claims on trade rep's bilateral visit.

- US State Dept: China sanctions against Hanwha Ocean US unit is an attempt to undermine US and South Korea cooperation.

- (DE) EU's Dombrovskis: G7 Fin Mins have shared concerns over Chinese export controls and agreed to coordinate actions and short-term response.

- USTR Greer: China taking actions as if it wants to decouple; US govt taking more stakes in US rare earth manufacturers is possible - Fox Business.

- TTN Research Alert: Ahead of Nov 10th tariff détente expiration, Trump once again emphasized US is in trade war with China, while China has flipped its long-standing ordering to fight first, talk second – as in, fight to the end; the door to talks is open – signaling a harder public stance even as working-level channels meet.

- China Commerce Ministry (MOFCOM) on rare earth export controls: All licence applications for civilian use will be approved; Controls do not equate to export ban.

- China Commerce Min (MOFCOM) Wang Wentao: Decoupling is not a realistic or rational option; Recent fluctuations in US-China trade relations caused by restrictive measures from US side; Welcomes Apple in deepening cooperation with China - comments following meeting with Apple CEO Cook.

- China Foreign Ministry: Firmly oppose peddling China spy narratives that vilify China (asked about claims of spying on UK documents).

- (UK) Reportedly Chinese hackers accessed classified UK computer systems for more than a decade; China routinely accessed low- and medium-level classification information on UK govt - financial press.

- China PBOC sets Yuan reference rate: 7.0949 v 7.0968 prior.

- China PBOC Open Market Operation (OMO): Injects CNY165B in 7-day reverse repos; Net drains CNY244B v drains CNY376B prior.

Japan

- Nikkei 225 opens -0.9% at 47,848.

- Japan releases weekly flows data [period ended Oct 10th]: Foreign buying of Japan equities: ¥1.89T v ¥2.48T prior; Japan buying of foreign bonds:+¥596.4B v -¥923.0B prior.

- Follow Up: LDP and CDP agree to hold PM vote on Oct 21st - Japan press.

- Japan LDP's Takaichi sends offering to Yasukuni Shrine - Nikkei.

- Nikkei: JGB market is facing largest net supply glut in 20 years - update.

- Japan's Nippon Ishin's Co-Leader Yoshimura: Chance of coalition with LDP is 50-50 - financial press.

- LDP leader Takaichi said to name Katayama and Matsushima for cabinet positions - press.

- Bank of Japan (BOJ) Gov Ueda: We'll adjust the degree of our monetary support in accordance to the likelihood of our growth and inflation forecasts materializes; The global economy remains resilient so far.

- Japan Vice Fin Min Mimura: Divergent stablecoin rules lead market fragmentation.

- Japan ex-BOJ Exec Dir Shimizu: It is not known exactly how Japan's economy will react to new environment on interest rates, which is why BOJ has to be very careful in proceeding with policy normalization.

- TTN Research Alert: Japan’s succession drama now turns on math, machinery, and minutiae: who can count to 233 in the Lower House, who can still mobilize voters without Komeito’s ground troops, and who understands the fine print that decides budgets, bond authorizations, and the PM's own selection.

- Japan's Innovation Party (JIP) Co-Representative Fujita: Will have another round of discussions with LDP on Fri, Oct 17th.

- Japan DPP Head Tamaki (opposition party) said to be disappointed over 'two-faced' agreement between LDP, Nippon Ishin - press.

Korea

- Kospi opens -0.4% at 3,732.

- South Korea Sept Export Price Index M/M: 0.6% v 0.6% prior; Y/Y: +2.2% v -1.1% prior.

- South Korea Sept Unemployment Rate: 2.5% v 2.6%e.

- South Korea Fin Min now says it is not certain whether the US will accept South Korea's position regarding upfront investment - Yonhap.

Other Asia

- Malaysia Sept Trade Balance (MYR): 19.9B v 16.8Be.

- Malaysia Q3 Advance GDP Y/Y 5.2% v 4.2%e.

- Taiwan lawmakers pass NT$550B special budget for national resilience - financial press.

- Singapore Sept Non-Oil Domestic Exports Y/Y: +6.9% v -2.1%e.

- India Foreign Ministry: Not aware of any conversation between PM Modi and US Pres Trump on Weds (Oct 15th).

- India govt: If India and China stop buying Russian oil, it will cause oil prices to shoot up and create volatility in the market - press.

North America

- (US) 5-year Treasury yield declines to lowest since Oct 2024.

- *Follow up: Banks tapped the Federal Reserve’s short-term lending facility (SRF) for more than $15B over the past two days; Most over 2 days since pandemic - FT.

- (US) Fed's Kashkari (non-voter in 2025; voter in 2026): It's too soon to know the impact of tariffs on inflation; The impact is taking longer than expected.

- (US) Fed's Miran (FOMC voter, dovish dissenter): Do not see recession as a result of renewed US-China tensions.

- (CA) Canada Oct CFIB Business Barometer: 46.3 v 50.3 prior.

- (US) Fed's Waller (voter): Rate cuts beyond Oct will depend on data; Labor market contradicts signs of stronger growth.

- (US) USTR Greer: China taking actions as if it wants to decouple; US govt taking more stakes in US rare earth manufacturers is possible - Fox Business.

- (CA) Canada Sept Annualized Housing Starts: 279.2K v 257.5Ke.

- (US) Oct New York Fed Services Business Activity: -23.6 v -19.4 prior (lowest since 2021).

- (US) OCT PHILADELPHIA FED BUSINESS OUTLOOK: -12.8 V +10.0E; New Orders: 18.2 v 12.4 prior; Prices Paid: 49.2 v 46.8 prior; Employment: 4.6 v 5.6 prior.

- (US) OCT NAHB HOUSING MARKET INDEX: 37 V 33E.

- (US) WEEKLY EIA NATURAL GAS INVENTORIES: +80 BCF VS. +78 BCF TO +81 BCF INDICATED RANGE.

- (US) Reportedly Trump will speak with Putin before he meets with Zelensky today - Axios.

- (CA) Canada PM Carney: We're engaged in deep negotiations with the US on several sectors.

- (US) DOE CRUDE: +3.5M V -1ME; GASOLINE: -0.3M V -0.5ME; DISTILLATE: -4.5M V -1ME.

- (US) SEPT FEDERAL BUDGET BALANCE: $198B V $50.0BE.

Europe

- (EU) ECB's Scicluna (Malta): Would need to be convinced on another rate cut; We'll have much more data in Dec; Price effects of US tariffs are still unclear.

- (RU) US Pres Trump: Just concluded my telephone conversation with Russia Pres Putin; congratulated me on Middle East peace; High level advisor meetings to be next week led by Sec State Rubio, then will I will meet with Putin in Budapest to try to bring war to end - Truth Social.

- (DE) German Bundesbank Monthly Report: Sees Q3 GDP stagnating at best.

- (FR) FRANCE PM LECORNU SURVIVES 2ND ROUND OF CONFIDENCE VOTE (AS EXPECTED).

- (RU) Russia Pres Putin: Oil demand is growing; Russia will produce 510Mt of oil this year, -1% vs 2024.

- (UK) Chancellor Reeves: Not going to be introducing a wealth tax in Budget; On bank tax - wants to ensure UK is competitive internationally but everyone pays fair share.

- (EU) ECB acting member Dolenc (Slovenia): Next ECB move could be a hike or a cut; Inflation risks more or less balanced - press interview.

- (DE) EU's Dombrovskis: G7 Fin Mins have shared concerns over Chinese export controls and agreed to coordinate actions and short-term response.

Levels as of 01:20 ET

- Nikkei 225 -1.4%, ASX 200 -0.8%, Hang Seng -1.9%; Shanghai Composite -1.3%; Kospi +0.4%.

- Equity S&P500 Futures -0.6%; Nasdaq100 -0.5%; DAX -1.3%; FTSE100 -0.4%.

- EUR 1.1682-1.1713; JPY 149.90-150.45; AUD 0.6462-0.6493; NZD 0.5716-0.5736.

- Gold +1.8% at $4,381/oz; BTC -1.8% at $109,110; Crude Oil -0.2% at $57.33/bbl; Copper -0.6% at $4.9535/lb.