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NZ bonds rallied and OIS pricing softened, post the slight Q3 headline CPI miss. NZD/USD tested fresh multi month lows.
HK/China equity market sentiment has been volatile, although major indices are up from session lows. Focus rests on a housing ministry led press conference tomorrow.
US Tsys have traded in narrow ranges, while JGBS have also been fairly quiet. BoJ board member Adachi delivered a similar message to other BoJ officials - emphasising gradual rate hikes with a view to realising its economic outlook.
Looking ahead we have UK inflation out, along with US trade prices.
Tsys futures have traded in narrow ranges throughout the day, and now trade little changed for the session. TU is +00¼ at 103-14¾, while TY is -00+ at 112-13+.
Looking at technicals the 10y contracts remains in a downtrend despite a small bounce. Initial support is 111-14 (50% retracement for the Apr - Sep bull leg), while initial resistance is at 112-21 (Oct 21 high).
Cash tsys curves did steepen a touch earlier however we now trade little changed for the session. The 2yr is 3.950%, while the 10yr is 4.034%.
Earlier today, the Fed's Bostic spoke where he mentioned he expects the US economy to slow this year but remain resilient, with GDP growth forecasted at around 2.6% in 2024 and 2% in 2025. He anticipates the Fed's benchmark interest rate to fall to 3%-3.5% in the long term, though the timing depends on labor market conditions and inflation, which he expects to remain volatile.
Fed fund pricing has held steady throughout the session, the market is pricing in 24.3bps of cut in November, or about 97% chance of a cut while 45.4bps is priced in by the December meeting. Looking further out the curve, the market is pricing 144bps of cut by Oct 2025.
Trump continues to firm as favorite for the upcoming Election with betting firm Polymarket now showing 58.1% vs 41.7% in his favor, while PredictIt has it a bit closer at a 54% change Trump will win, with both at the highest points post the last debate.
later today we have September import/export prices - which feed into the Fed's preferred PCE inflation gauge - and a Fox interview of Vice President Harris.
JGB futures are holding overnight gains, +20 compared to settlement levels.
Outside of the previously outlined core machine orders data, the market has had a speech from BoJ board member Adachi to digest. “It is appropriate for the BoJ to raise the policy rate gradually,” Adachi told business leaders in Takamatsu City. However, Adachi did not elaborate on when and how the Bank would raise the policy interest rate.
His stance is similar to those of Governor Ueda and Deputy Governor Uchida, as the BoJ is still emphasising gradual rate hikes with a view to realising its economic outlook.
Cash US tsys are little changed in today’s Asia-Pac session. Today’s US calendar includes September import/export prices - which feed into the Fed's preferred PCE inflation gauge - and a Fox interview with Vice President Harris.
Cash JGBs are flat to 1.5bps richer across benchmarks beyond the 1-year (+3.7bps). The benchmark 10-year yield is 1.2bps lower at 0.962%.
Swap rates are flat to 1bp lower.
Tomorrow, the local calendar will see Trade Balance data and the Tertiary Industry Index alongside 1-year supply. The MoF will also conduct a Liquidity Enhancement Auction covering 15.5-39-year OTR JGBs.
ACGBs (YM +4.0 & XM +5.0) are richer and near highs on another data-light Sydney session.
“Australia’s central bank is still running through the local implications of China’s stimulus measures as officials prepare the Reserve Bank’s latest update of forecasts for next month’s board meeting, Assistant Governor Sarah Hunter said.” (per BBG)
The latest round of ACGB May-34 supply saw the weighted average yield print 0.52bps through prevailing mids, extending the recent trend of firm pricing at ACGB auctions.
Cash US tsys are little changed in today’s Asia-Pac session after yesterday’s bull-flattener. Today’s US calendar includes September import/export prices - which feed into the Fed's preferred PCE inflation gauge - and a Fox interview with Vice President Harris.
Cash ACGBs are 5bps richer with the AU-US 10-year yield differential at +17bps.
Swap rates are 4-5bps lower, with the 3s10s curve flatter.
The bills strip has bull-flattened, with pricing +2 to +5.
RBA-dated OIS pricing is 2-5bps softer for 2025 meetings. A cumulative 7bps of easing is priced by year-end.
The local calendar will see the September Employment Report tomorrow. Consensus expects +25k jobs to be created with a steady unemployment rate of 4.2%.
Q3 NZ CPI came in slightly below forecasts at 0.6%q/q (mkt consensus was 0.7%, while the RBNZ projected a 0.8% rise). The Q2 outcome was 0.4%. In y/y terms inflation was 2.2%, in line with market expectations, while the RNZ projected a 2.3% rise. Tradables were slightly below expectations at -0.2%q/q (-0.1% forecast, -0.5% prior), while non-tradables were in line at 1.3%q/q (prior 0.9%). the RBNZ forecast non-tradables at 1.4%.
Annual headline inflation is back within the RBNZ's 1-3% target band for the first time since early 2021. Non-tradabables inflation, a measure of domestic price pressures is still quite elevated in y/y terms, back to 4.9% for Q3. This is comfortably above longer term averages.
Still, measures of core inflation like the trimmed mean eased to 2.5%y/y in Q3 from 3.7%, while the weighted median was at 2.8% y/y in Q3 from 3.5% prior. Ex fuel, food and energy costs is back to 3.1%y/y from 3.4%.
This is likely to provide some re-assurance to the RBNZ of softening in aggregate price pressures. There will be watch points for the RBNZ in terms of the stickiness of domestic price pressures, but this is unlikely to prevent the central bank form easing further in the near term, as adjusts settings back closer towards more neutral levels.
Fig 1: Measures Of NZ Inflation (Pink is Headline, White is Non-tradables, Other Measures Are Trimmed & Weighted Median)
Source: MNI - Market News/Bloomberg
NZ Stats noted in terms of Q3 drivers: "Higher rent prices was the biggest contributor to the annual inflation rate, up 4.5 percent."
"Prices for local authority rates and payments increased 12.2 percent in the 12 months to the September 2024 quarter" "Prescription charges were reintroduced on 1 July 2024. Pharmaceutical product prices, which includes prescription charges, increased 17.0 percent over the quarter.
"While prices rose overall, a 6.5 percent fall in petrol prices across the country was the largest downwards contributor to the 0.6 percent quarterly movement.
"Early childhood education was also a partly offsetting factor, falling by 22.8 percent, due to the introduction of the FamilyBoost rebate."
RBNZ-dated OIS pricing closed 2-5bps lower following today’s CPI data, and 5-9bps softer across meetings on the day.
The market is pricing in 58bps of easing for the November meeting, with a cumulative 99bps by February and 161bps by July.
Relative to Australia, New Zealand's official rate is projected to be 60bps lower by July, despite currently sitting 43bps above Australia's cash rate.
Figure 1: Official Rate & OIS Pricing: AU vs. NZ (%)
NZGBs closed 3-5bps richer across benchmarks on the day, 2-4bps richer than pre-CPI levels.
Q3 NZ CPI came in slightly below forecasts at 0.6%q/q (mkt consensus was 0.7%, while the RBNZ projected a 0.8% rise). The Q2 outcome was 0.4%. In y/y terms inflation was 2.2%, in line with market expectations, while the RNZ projected a 2.3% rise.
Annual headline inflation is back within the RBNZ's 1-3% target band for the first time since early 2021. Non-tradabables inflation, a measure of domestic price pressures is still quite elevated in y/y terms, back to 4.9% for Q3. This is comfortably above longer-term averages.
Still, measures of core inflation like the trimmed mean eased to 2.5%y/y in Q3 from 3.7%, while the weighted median was at 2.8% y/y in Q3 from 3.5% prior.
Swap rates closed 4-7bps lower, with the 2s10s curve steeper.
RBNZ dated OIS pricing is 2-5bps softer after the CPI data and 5-9bps softer on the day across meetings. 58bps of easing is priced for the November meeting, with a cumulative 99bps by February.
Tomorrow, the local calendar is empty apart from the NZ Treasury’s planned sale of NZ$175mn of the 1.50% May-31 bond, NZ$250mn of the 4.25% May-34 bond and NZ$75mn of the 1.75% May-41 bond.
The USD sits away from earlier highs, particularly against higher beta plays. Some rebound in HK/China equities ahead of a Housing Ministry/PBoC meeting tomorrow has aided sentiment. The USD BBDXY index was last 1248.8, after getting close to 1250 in early trade.
NZD/USD weakness was an early focus point, after a slight downside miss for Q3 headline CPI in NZ. Implied rate cuts by the Feb meeting next year got close to 100bps post the print. RBNZ Assistant Governor Silk stated that the central bank has a lot of information to absorb before the Nov policy meeting. The headline inflation and core/non-tradable figures will be eyed closely.
For NZD we got to lows of 0.6040 (levels last seen in mid August). We sit higher now last near 0.6060, but still off 0.35% for the session. Early equity sentiment was weighed down by tech concerns, but as HK and China rebounded broader sentiment stabilized somewhat.
AUD/USD sits back at 0.6695, after getting to lows of 0.6668. RBA Assistant Governor Hunter stated that inflation expectations have not become de-anchored. Metal commodities are higher, but gains are less than 1% at this stage/
USD/JPY got to lows of 148.88 as BoJ board member Adachi spoke. He noted conditions are there for policy normalizations, but rate hikes must gradual and that financial conditions need to remain easy until inflation sustainably hits the 2% target. USD/JPY is back to 149.15/20, little changed for the session.
Equity trends outside of HK/China moves have mostly been negative. US futures do sit higher, but only up 0.10-0.20% at this stage. US yields sit close to unchanged.
Looking ahead we have UK inflation out, along with US trade prices.
Asian equities are lower today with benchmarks across the region tracking the US markets lower following a drop in the Nasdaq -1%, S&P -0.76% & the Dow -0.75% overnight.
China & HK equities markets have seen decent volatility with investors still concerned over the lack of further stimulus measures, however it was announced that there would be a press briefing scheduled for Thursday from the housing minister which saw property stocks jump. The HSI is now +0.65%, CSI 300 -0.25%, while the Mainland Property Index is +4.90%.
Tech stocks are underperforming in the region with Tokyo Electron the worst performer, dropping almost 10%, while the likes of Samsung -1.65%, TSMC -0.95%, SK Hynix -0.90% contributing to the move lower.
The move lower in tech stocks comes after ASML shares plunged 16%, the most in 26 years, after reporting significantly lower-than-expected bookings of €2.6b in Q3 vs €5.39b expected. The company also cut its 2025 sales guidance, reflecting a slower recovery in the semiconductor industry amid customer caution and ongoing US-China trade tensions.
Japan's Nikkei is 2.05% lower, while the TOPIX trades down 1.10%. Earlier BoJ's Adachi emphasized the need for a gradual approach to raising interest rates while maintaining accommodative financial conditions until inflation consistently reaches 2%. His comments suggest the BOJ is likely to keep rates unchanged at its upcoming October meeting, with further rate hikes possibly delayed until 2024.
South Korean & Taiwan equity markets are both lower, influenced by weaker tech prices. The KOSPI trades -0.50%, while the TAIEX is -0.60%
Australian equities are slightly lower today, very little in the way of headlines out of the region. BHP has led the declines, erasing the past two session's gains, with the ASX200 0.20% lower. New Zealand's CPI came in at the lowest levels since July 2021, rate cut pricing firmed with the market now pricing almost 100bps of cuts across the next two meetings, the NZX50 is down 1.10%.
Taiwan saw strong inflows on Tuesday, as investors looked to jump back into Tech stocks, this move could largely be unwound today though following AMSL disappointing update overnight. Thailand continued it run of outflows to 14 straight sessions.
South Korea: Recorded inflows of +$192m yesterday, but over the past 5 sessions saw outflows of -$471m, while YTD flows are positive at +$10.02b. The 5-day average is -$94m, better than the 20-day average of -$219m but below the 100-day average of -$55m.
Taiwan: Posted inflows of +$1.07b yesterday, bringing the past 5 sessions to +$1.11b, although YTD flows remain negative at -$11.46b. The 5-day average is +$222m, slightly below the 20-day average of +$234m but above the 100-day average of -$159m.
India: Saw outflows of -$423m Monday with the past 5 sessions amounting to -$2.55b, while YTD flows stand at +$3.90b. The 5-day average is -$509m, which is worse than the 20-day average of -$169m but still higher than the 100-day average of +$72m.
Indonesia: Recorded inflows of +$22m yesterday, although the past 5 sessions netted outflows of -$227m. YTD flows are at +$2.85b. The 5-day average is -$45m, worse than the 20-day average of -$28m, but in line with the 100-day average of +$28m.
Thailand: Experienced outflows of -$71m yesterday, with the past 5 sessions resulting in -$226m. YTD flows remain negative at -$3.17b. The 5-day average is -$45m, below both the 20-day average of -$24m and the 100-day average of -$13m.
Malaysia: Recorded inflows of +$20m yesterday, bringing the past 5 sessions to -$16m. YTD flows are positive at +$564m. The 5-day average is -$3m, better than the 20-day average of -$20m and in line with the 100-day average of +$5m.
Philippines: Posted inflows of +$11m yesterday, bringing the past 5 sessions to -$7m, while YTD flows remain positive at +$80m. The 5-day average is -$1m, lower than the 20-day average of +$16m, but above the 100-day average of +$4m.
Brent Crude declined on Tuesday following claims by Israel it is not intending to attach Iran’s Oil production infrastructure.
Brent declined from Monday’s close of US$77.46 to close Tuesday at $74.25 and is training in Asia’s trading morning at $74.45.
WTI followed a similar trend falling from Monday’s close of US$73.83 to below $70 briefly before closing at $70.58 yesterday; and is up slightly this morning at $70.80.
Following the US’s warning to Israel about striking Iran’s oil production sites, Israel has stated that it will ‘act on its own assessments’ whilst it is claimed that Israeli Prime Minister Netanyahu has told President Biden he will confine any attacks to military targets.
Tuesday saw a release from the International Energy Agency noting that excess capacity from the OPEC+ nations is reaching records levels and that forecasts for 2025 are that the supply of oil to international markets poses downward risks to prices.
Positioning data in US Crude Futures has risen significantly in the recent period of volatility shows that oil producers have been effective in locking in prices at higher prices, to provide downside risk protection from falling prices.
Gold is 0.2% higher in today’s Asia-Pac session, after closing 0.5% higher at $2662.58 on Tuesday.
The US Treasury curve bull flattened in post-holiday cash trading on Tuesday, with futures extending the rebound from Monday's lows. A sharp drop in oil prices starting late Monday on an apparent de-escalation in Iran-Israel tensions helped underpin a solid rally in the front US Treasury futures contract. WTI front futures fell 3.8% on Tuesday.
A risk-off tone in equities also helped support November Fed rate cut pricing, for which Fed Funds futures extended to a post-Oct 7 high (implying ~98% of a 25bp cut, vs ~88% Monday).
On that note, SF Fed's Daly reiterated it was a "reasonable thing" to cut one or two more times by the end of the year - overall a relatively cautious tone, in keeping with Monday's appearance by Gov Waller.
Lower rates are typically positive for gold, which doesn’t pay interest.
According to MNI’s technicals team, the recent short-term retracement in gold appears to have been a correction. The trend condition is unchanged and remains bullish. A continuation of gains would refocus attention on $2,690.2, a Fibonacci projection. Firm support lies at $2,626.9, the 20-day EMA.
South Korea’s unemployment rate rose marginally for September.
At +2.5%, the unemployment rate was up from +2.4% in August.
Market analysts expected a rise of +2.6%.
There was a rise in the number of employed (an extra 55,000) and a rise in the employment ratio (to +62.8%).
Having cut rates at its most recent meeting, today’s data likely shows that time is now on the BOK’s side and that at this stage, they may be on hold until 2025.
USD/CNH probed above 7.1400 in early dealings but couldn't test above intra-session highs from Tuesday (7.1434). We sit back lower now near 7.1260, a modest gain of close to 0.15%.
Sentiment has been aided by a rebound in HK/China stocks, although volatility continued into the lunch time break. The CSI 300 was lower, but the Shanghai Composite up. Property stocks have jumped ahead of a press conference with the Housing Ministry and PBoC scheduled for Thursday.
Concern in the background will continue in the lead up to the US election given improving odds for Trump, who on Tuesday reiterated his trade/tariff stance.
Spot USD/KRW got to fresh highs of 1367.2 in early dealings, but sits back lower now near 1362, so around 0.20% firmer for the session in won terms. Onshore equities are off 0.60%, but away from session lows. Sentiment in the tech space has taken a hit after bellwether ASML posted disappointing earnings guidance. Earlier South Korean data showed a tick up in the unemployment rate to 2.5% but this was below market expectations.
USD/TWD has remained range bound, holding under recent highs for now. The pair at 32.175 in latest dealings. The local central bank noted it sold just over $9bn in H1 in the FX market to curb TWD weakness.
South East Asian currencies are mostly firmer against the USD in the first part of Wednesday trade. MYR and IDR lead the gains, while PHP has been a laggard.
USD/IDR opened up noticeably softer, touching lows of 1510 before gradually recovering (we last track near 15545), still 0.20% firmer in IDR terms for the session. Sentiment has been buoyed around possible fiscal policy continuity, while some easing in Fed expectations has helped curbed US real yields, another rupiah positive. BI meets later and is expected to remain on hold.
USD/MYR is back sub the 4.3000 level, aided by a firmer yuan backdrop. Earlier highs were at 4.3162.
USD/THB has drifted lower but couldn't sustain break of the 20-day EMA near 33.25. We were last at 33.33. Onshore rhetoric from the government and business groups around the need for easier policy settings from the BoT continues. The Commerce Minister wants to see 50bps worth of cuts this year. An industry group also wants to see USD/THB stabilize in the 34-35 region. BoT meets later, the consensus is for no change, but our sense is the central bank may paint a more dovish outlook.
USD/PHP has remained supported, the pair last near 57.85/90. The BSP also meets later and is expected to cut rates by 25bps. Upside focus in the pair is likely to rest on the 58.00 level.
China’s Housing and Urban-Rural Development Minister Ni Hong will hold press conference this Thursday.
Central Bank Injects CNY581.4bn in OMO.
Chinese stocks were mixed today, sending a worrying signal that the stimulus plans are either insufficient or not being rolled out quick enough. Shanghai Comp +.40%, CSI 300 -0.24%, Shenzhen Comp -0.04%.
Foreign direct investment grew at a faster pace last quarter up +18.6% YoY, driven by basic metals, according to Investment Minister Rosan Roeslani in Tuesday briefing (source: BBG).
The likelihood of Sri Mulyani Indrawati continuing as Indonesia’s Finance Minister under the country’s new administration may help ease market concern over any potential changes in fiscal policy, according to Robeco (source: BBG).
Markets quiet ahead of Bank Indonesia rate decision today where only 11 of 40 economists surveyed predict a cut (source BBG)
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Please enter your details below.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.
Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
MNI (SYDNEY)
NZ bonds rallied and OIS pricing softened, post the slight Q3 headline CPI miss. NZD/USD tested fresh multi month lows.
HK/China equity market sentiment has been volatile, although major indices are up from session lows. Focus rests on a housing ministry led press conference tomorrow.
US Tsys have traded in narrow ranges, while JGBS have also been fairly quiet. BoJ board member Adachi delivered a similar message to other BoJ officials - emphasising gradual rate hikes with a view to realising its economic outlook.
Looking ahead we have UK inflation out, along with US trade prices.
Tsys futures have traded in narrow ranges throughout the day, and now trade little changed for the session. TU is +00¼ at 103-14¾, while TY is -00+ at 112-13+.
Looking at technicals the 10y contracts remains in a downtrend despite a small bounce. Initial support is 111-14 (50% retracement for the Apr - Sep bull leg), while initial resistance is at 112-21 (Oct 21 high).
Cash tsys curves did steepen a touch earlier however we now trade little changed for the session. The 2yr is 3.950%, while the 10yr is 4.034%.
Earlier today, the Fed's Bostic spoke where he mentioned he expects the US economy to slow this year but remain resilient, with GDP growth forecasted at around 2.6% in 2024 and 2% in 2025. He anticipates the Fed's benchmark interest rate to fall to 3%-3.5% in the long term, though the timing depends on labor market conditions and inflation, which he expects to remain volatile.
Fed fund pricing has held steady throughout the session, the market is pricing in 24.3bps of cut in November, or about 97% chance of a cut while 45.4bps is priced in by the December meeting. Looking further out the curve, the market is pricing 144bps of cut by Oct 2025.
Trump continues to firm as favorite for the upcoming Election with betting firm Polymarket now showing 58.1% vs 41.7% in his favor, while PredictIt has it a bit closer at a 54% change Trump will win, with both at the highest points post the last debate.
later today we have September import/export prices - which feed into the Fed's preferred PCE inflation gauge - and a Fox interview of Vice President Harris.
JGB futures are holding overnight gains, +20 compared to settlement levels.
Outside of the previously outlined core machine orders data, the market has had a speech from BoJ board member Adachi to digest. “It is appropriate for the BoJ to raise the policy rate gradually,” Adachi told business leaders in Takamatsu City. However, Adachi did not elaborate on when and how the Bank would raise the policy interest rate.
His stance is similar to those of Governor Ueda and Deputy Governor Uchida, as the BoJ is still emphasising gradual rate hikes with a view to realising its economic outlook.
Cash US tsys are little changed in today’s Asia-Pac session. Today’s US calendar includes September import/export prices - which feed into the Fed's preferred PCE inflation gauge - and a Fox interview with Vice President Harris.
Cash JGBs are flat to 1.5bps richer across benchmarks beyond the 1-year (+3.7bps). The benchmark 10-year yield is 1.2bps lower at 0.962%.
Swap rates are flat to 1bp lower.
Tomorrow, the local calendar will see Trade Balance data and the Tertiary Industry Index alongside 1-year supply. The MoF will also conduct a Liquidity Enhancement Auction covering 15.5-39-year OTR JGBs.
ACGBs (YM +4.0 & XM +5.0) are richer and near highs on another data-light Sydney session.
“Australia’s central bank is still running through the local implications of China’s stimulus measures as officials prepare the Reserve Bank’s latest update of forecasts for next month’s board meeting, Assistant Governor Sarah Hunter said.” (per BBG)
The latest round of ACGB May-34 supply saw the weighted average yield print 0.52bps through prevailing mids, extending the recent trend of firm pricing at ACGB auctions.
Cash US tsys are little changed in today’s Asia-Pac session after yesterday’s bull-flattener. Today’s US calendar includes September import/export prices - which feed into the Fed's preferred PCE inflation gauge - and a Fox interview with Vice President Harris.
Cash ACGBs are 5bps richer with the AU-US 10-year yield differential at +17bps.
Swap rates are 4-5bps lower, with the 3s10s curve flatter.
The bills strip has bull-flattened, with pricing +2 to +5.
RBA-dated OIS pricing is 2-5bps softer for 2025 meetings. A cumulative 7bps of easing is priced by year-end.
The local calendar will see the September Employment Report tomorrow. Consensus expects +25k jobs to be created with a steady unemployment rate of 4.2%.
Q3 NZ CPI came in slightly below forecasts at 0.6%q/q (mkt consensus was 0.7%, while the RBNZ projected a 0.8% rise). The Q2 outcome was 0.4%. In y/y terms inflation was 2.2%, in line with market expectations, while the RNZ projected a 2.3% rise. Tradables were slightly below expectations at -0.2%q/q (-0.1% forecast, -0.5% prior), while non-tradables were in line at 1.3%q/q (prior 0.9%). the RBNZ forecast non-tradables at 1.4%.
Annual headline inflation is back within the RBNZ's 1-3% target band for the first time since early 2021. Non-tradabables inflation, a measure of domestic price pressures is still quite elevated in y/y terms, back to 4.9% for Q3. This is comfortably above longer term averages.
Still, measures of core inflation like the trimmed mean eased to 2.5%y/y in Q3 from 3.7%, while the weighted median was at 2.8% y/y in Q3 from 3.5% prior. Ex fuel, food and energy costs is back to 3.1%y/y from 3.4%.
This is likely to provide some re-assurance to the RBNZ of softening in aggregate price pressures. There will be watch points for the RBNZ in terms of the stickiness of domestic price pressures, but this is unlikely to prevent the central bank form easing further in the near term, as adjusts settings back closer towards more neutral levels.
Fig 1: Measures Of NZ Inflation (Pink is Headline, White is Non-tradables, Other Measures Are Trimmed & Weighted Median)
Source: MNI - Market News/Bloomberg
NZ Stats noted in terms of Q3 drivers: "Higher rent prices was the biggest contributor to the annual inflation rate, up 4.5 percent."
"Prices for local authority rates and payments increased 12.2 percent in the 12 months to the September 2024 quarter" "Prescription charges were reintroduced on 1 July 2024. Pharmaceutical product prices, which includes prescription charges, increased 17.0 percent over the quarter.
"While prices rose overall, a 6.5 percent fall in petrol prices across the country was the largest downwards contributor to the 0.6 percent quarterly movement.
"Early childhood education was also a partly offsetting factor, falling by 22.8 percent, due to the introduction of the FamilyBoost rebate."
RBNZ-dated OIS pricing closed 2-5bps lower following today’s CPI data, and 5-9bps softer across meetings on the day.
The market is pricing in 58bps of easing for the November meeting, with a cumulative 99bps by February and 161bps by July.
Relative to Australia, New Zealand's official rate is projected to be 60bps lower by July, despite currently sitting 43bps above Australia's cash rate.
Figure 1: Official Rate & OIS Pricing: AU vs. NZ (%)
NZGBs closed 3-5bps richer across benchmarks on the day, 2-4bps richer than pre-CPI levels.
Q3 NZ CPI came in slightly below forecasts at 0.6%q/q (mkt consensus was 0.7%, while the RBNZ projected a 0.8% rise). The Q2 outcome was 0.4%. In y/y terms inflation was 2.2%, in line with market expectations, while the RNZ projected a 2.3% rise.
Annual headline inflation is back within the RBNZ's 1-3% target band for the first time since early 2021. Non-tradabables inflation, a measure of domestic price pressures is still quite elevated in y/y terms, back to 4.9% for Q3. This is comfortably above longer-term averages.
Still, measures of core inflation like the trimmed mean eased to 2.5%y/y in Q3 from 3.7%, while the weighted median was at 2.8% y/y in Q3 from 3.5% prior.
Swap rates closed 4-7bps lower, with the 2s10s curve steeper.
RBNZ dated OIS pricing is 2-5bps softer after the CPI data and 5-9bps softer on the day across meetings. 58bps of easing is priced for the November meeting, with a cumulative 99bps by February.
Tomorrow, the local calendar is empty apart from the NZ Treasury’s planned sale of NZ$175mn of the 1.50% May-31 bond, NZ$250mn of the 4.25% May-34 bond and NZ$75mn of the 1.75% May-41 bond.
The USD sits away from earlier highs, particularly against higher beta plays. Some rebound in HK/China equities ahead of a Housing Ministry/PBoC meeting tomorrow has aided sentiment. The USD BBDXY index was last 1248.8, after getting close to 1250 in early trade.
NZD/USD weakness was an early focus point, after a slight downside miss for Q3 headline CPI in NZ. Implied rate cuts by the Feb meeting next year got close to 100bps post the print. RBNZ Assistant Governor Silk stated that the central bank has a lot of information to absorb before the Nov policy meeting. The headline inflation and core/non-tradable figures will be eyed closely.
For NZD we got to lows of 0.6040 (levels last seen in mid August). We sit higher now last near 0.6060, but still off 0.35% for the session. Early equity sentiment was weighed down by tech concerns, but as HK and China rebounded broader sentiment stabilized somewhat.
AUD/USD sits back at 0.6695, after getting to lows of 0.6668. RBA Assistant Governor Hunter stated that inflation expectations have not become de-anchored. Metal commodities are higher, but gains are less than 1% at this stage/
USD/JPY got to lows of 148.88 as BoJ board member Adachi spoke. He noted conditions are there for policy normalizations, but rate hikes must gradual and that financial conditions need to remain easy until inflation sustainably hits the 2% target. USD/JPY is back to 149.15/20, little changed for the session.
Equity trends outside of HK/China moves have mostly been negative. US futures do sit higher, but only up 0.10-0.20% at this stage. US yields sit close to unchanged.
Looking ahead we have UK inflation out, along with US trade prices.
Asian equities are lower today with benchmarks across the region tracking the US markets lower following a drop in the Nasdaq -1%, S&P -0.76% & the Dow -0.75% overnight.
China & HK equities markets have seen decent volatility with investors still concerned over the lack of further stimulus measures, however it was announced that there would be a press briefing scheduled for Thursday from the housing minister which saw property stocks jump. The HSI is now +0.65%, CSI 300 -0.25%, while the Mainland Property Index is +4.90%.
Tech stocks are underperforming in the region with Tokyo Electron the worst performer, dropping almost 10%, while the likes of Samsung -1.65%, TSMC -0.95%, SK Hynix -0.90% contributing to the move lower.
The move lower in tech stocks comes after ASML shares plunged 16%, the most in 26 years, after reporting significantly lower-than-expected bookings of €2.6b in Q3 vs €5.39b expected. The company also cut its 2025 sales guidance, reflecting a slower recovery in the semiconductor industry amid customer caution and ongoing US-China trade tensions.
Japan's Nikkei is 2.05% lower, while the TOPIX trades down 1.10%. Earlier BoJ's Adachi emphasized the need for a gradual approach to raising interest rates while maintaining accommodative financial conditions until inflation consistently reaches 2%. His comments suggest the BOJ is likely to keep rates unchanged at its upcoming October meeting, with further rate hikes possibly delayed until 2024.
South Korean & Taiwan equity markets are both lower, influenced by weaker tech prices. The KOSPI trades -0.50%, while the TAIEX is -0.60%
Australian equities are slightly lower today, very little in the way of headlines out of the region. BHP has led the declines, erasing the past two session's gains, with the ASX200 0.20% lower. New Zealand's CPI came in at the lowest levels since July 2021, rate cut pricing firmed with the market now pricing almost 100bps of cuts across the next two meetings, the NZX50 is down 1.10%.
Taiwan saw strong inflows on Tuesday, as investors looked to jump back into Tech stocks, this move could largely be unwound today though following AMSL disappointing update overnight. Thailand continued it run of outflows to 14 straight sessions.
South Korea: Recorded inflows of +$192m yesterday, but over the past 5 sessions saw outflows of -$471m, while YTD flows are positive at +$10.02b. The 5-day average is -$94m, better than the 20-day average of -$219m but below the 100-day average of -$55m.
Taiwan: Posted inflows of +$1.07b yesterday, bringing the past 5 sessions to +$1.11b, although YTD flows remain negative at -$11.46b. The 5-day average is +$222m, slightly below the 20-day average of +$234m but above the 100-day average of -$159m.
India: Saw outflows of -$423m Monday with the past 5 sessions amounting to -$2.55b, while YTD flows stand at +$3.90b. The 5-day average is -$509m, which is worse than the 20-day average of -$169m but still higher than the 100-day average of +$72m.
Indonesia: Recorded inflows of +$22m yesterday, although the past 5 sessions netted outflows of -$227m. YTD flows are at +$2.85b. The 5-day average is -$45m, worse than the 20-day average of -$28m, but in line with the 100-day average of +$28m.
Thailand: Experienced outflows of -$71m yesterday, with the past 5 sessions resulting in -$226m. YTD flows remain negative at -$3.17b. The 5-day average is -$45m, below both the 20-day average of -$24m and the 100-day average of -$13m.
Malaysia: Recorded inflows of +$20m yesterday, bringing the past 5 sessions to -$16m. YTD flows are positive at +$564m. The 5-day average is -$3m, better than the 20-day average of -$20m and in line with the 100-day average of +$5m.
Philippines: Posted inflows of +$11m yesterday, bringing the past 5 sessions to -$7m, while YTD flows remain positive at +$80m. The 5-day average is -$1m, lower than the 20-day average of +$16m, but above the 100-day average of +$4m.
Brent Crude declined on Tuesday following claims by Israel it is not intending to attach Iran’s Oil production infrastructure.
Brent declined from Monday’s close of US$77.46 to close Tuesday at $74.25 and is training in Asia’s trading morning at $74.45.
WTI followed a similar trend falling from Monday’s close of US$73.83 to below $70 briefly before closing at $70.58 yesterday; and is up slightly this morning at $70.80.
Following the US’s warning to Israel about striking Iran’s oil production sites, Israel has stated that it will ‘act on its own assessments’ whilst it is claimed that Israeli Prime Minister Netanyahu has told President Biden he will confine any attacks to military targets.
Tuesday saw a release from the International Energy Agency noting that excess capacity from the OPEC+ nations is reaching records levels and that forecasts for 2025 are that the supply of oil to international markets poses downward risks to prices.
Positioning data in US Crude Futures has risen significantly in the recent period of volatility shows that oil producers have been effective in locking in prices at higher prices, to provide downside risk protection from falling prices.
Gold is 0.2% higher in today’s Asia-Pac session, after closing 0.5% higher at $2662.58 on Tuesday.
The US Treasury curve bull flattened in post-holiday cash trading on Tuesday, with futures extending the rebound from Monday's lows. A sharp drop in oil prices starting late Monday on an apparent de-escalation in Iran-Israel tensions helped underpin a solid rally in the front US Treasury futures contract. WTI front futures fell 3.8% on Tuesday.
A risk-off tone in equities also helped support November Fed rate cut pricing, for which Fed Funds futures extended to a post-Oct 7 high (implying ~98% of a 25bp cut, vs ~88% Monday).
On that note, SF Fed's Daly reiterated it was a "reasonable thing" to cut one or two more times by the end of the year - overall a relatively cautious tone, in keeping with Monday's appearance by Gov Waller.
Lower rates are typically positive for gold, which doesn’t pay interest.
According to MNI’s technicals team, the recent short-term retracement in gold appears to have been a correction. The trend condition is unchanged and remains bullish. A continuation of gains would refocus attention on $2,690.2, a Fibonacci projection. Firm support lies at $2,626.9, the 20-day EMA.
South Korea’s unemployment rate rose marginally for September.
At +2.5%, the unemployment rate was up from +2.4% in August.
Market analysts expected a rise of +2.6%.
There was a rise in the number of employed (an extra 55,000) and a rise in the employment ratio (to +62.8%).
Having cut rates at its most recent meeting, today’s data likely shows that time is now on the BOK’s side and that at this stage, they may be on hold until 2025.
USD/CNH probed above 7.1400 in early dealings but couldn't test above intra-session highs from Tuesday (7.1434). We sit back lower now near 7.1260, a modest gain of close to 0.15%.
Sentiment has been aided by a rebound in HK/China stocks, although volatility continued into the lunch time break. The CSI 300 was lower, but the Shanghai Composite up. Property stocks have jumped ahead of a press conference with the Housing Ministry and PBoC scheduled for Thursday.
Concern in the background will continue in the lead up to the US election given improving odds for Trump, who on Tuesday reiterated his trade/tariff stance.
Spot USD/KRW got to fresh highs of 1367.2 in early dealings, but sits back lower now near 1362, so around 0.20% firmer for the session in won terms. Onshore equities are off 0.60%, but away from session lows. Sentiment in the tech space has taken a hit after bellwether ASML posted disappointing earnings guidance. Earlier South Korean data showed a tick up in the unemployment rate to 2.5% but this was below market expectations.
USD/TWD has remained range bound, holding under recent highs for now. The pair at 32.175 in latest dealings. The local central bank noted it sold just over $9bn in H1 in the FX market to curb TWD weakness.
South East Asian currencies are mostly firmer against the USD in the first part of Wednesday trade. MYR and IDR lead the gains, while PHP has been a laggard.
USD/IDR opened up noticeably softer, touching lows of 1510 before gradually recovering (we last track near 15545), still 0.20% firmer in IDR terms for the session. Sentiment has been buoyed around possible fiscal policy continuity, while some easing in Fed expectations has helped curbed US real yields, another rupiah positive. BI meets later and is expected to remain on hold.
USD/MYR is back sub the 4.3000 level, aided by a firmer yuan backdrop. Earlier highs were at 4.3162.
USD/THB has drifted lower but couldn't sustain break of the 20-day EMA near 33.25. We were last at 33.33. Onshore rhetoric from the government and business groups around the need for easier policy settings from the BoT continues. The Commerce Minister wants to see 50bps worth of cuts this year. An industry group also wants to see USD/THB stabilize in the 34-35 region. BoT meets later, the consensus is for no change, but our sense is the central bank may paint a more dovish outlook.
USD/PHP has remained supported, the pair last near 57.85/90. The BSP also meets later and is expected to cut rates by 25bps. Upside focus in the pair is likely to rest on the 58.00 level.
China’s Housing and Urban-Rural Development Minister Ni Hong will hold press conference this Thursday.
Central Bank Injects CNY581.4bn in OMO.
Chinese stocks were mixed today, sending a worrying signal that the stimulus plans are either insufficient or not being rolled out quick enough. Shanghai Comp +.40%, CSI 300 -0.24%, Shenzhen Comp -0.04%.
Foreign direct investment grew at a faster pace last quarter up +18.6% YoY, driven by basic metals, according to Investment Minister Rosan Roeslani in Tuesday briefing (source: BBG).
The likelihood of Sri Mulyani Indrawati continuing as Indonesia’s Finance Minister under the country’s new administration may help ease market concern over any potential changes in fiscal policy, according to Robeco (source: BBG).
Markets quiet ahead of Bank Indonesia rate decision today where only 11 of 40 economists surveyed predict a cut (source BBG)
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