MNI EUROPEAN MARKETS ANALYSIS: Central Bank Themes Continue To Dominate In Asian Hours

US TSYS: Richer In Asia

TYH3 deals at 113-15, +0-07+, a touch off the top of its 0-08+ range on volume of ~89K.

• Cash Tsys sit 2-5bps richer across the major benchmarks, with the curve flattening.
• Local participants focused on the lack of firm pushback to the dovish market reaction to last week’s FOMC in Fed Chair Powell’s Tuesday address with the late NY corporate and Tsy supply-induced cheapening aiding entry.
• The richening held through the session with block trades in TU (+4.5K) TY futures (+1.5k) aiding the bid, although there was some interest in downside exposure via the TYH3 115.00/114.50 put spread (+2.5K).
• There was nothing in the way of meaningful macro headlines, and the space looked through U.S. President Biden’s State of the Union address.
• In Europe today there is a thin data slate, ECB speak from Elderson and Lagarde provide the highlight. Further out we have a number of Fed speakers including NY Fed President Williams, Gov Cook, VC Barr, Atlanta Fed President Bostic, Minneapolis Fed President Kashkari ('23 voter) and Gov Waller. We also have the latest 10-Year Tsy Supply.

JGBS: Flat To Firmer, Kishida Cognisant Of Market Impact When It Comes To New BoJ Governor

JGB futures are +3 into the bell, after sticking within the confines of their overnight range in what has been a limited Tokyo session. Cash JGBs are flat to 3bp richer, with a flattening impulse developing, while swap rates are little changed to 1bp lower, leaving swap spreads little changed through 5s, then wider beyond that point.

• JGBs initially looked through comments made by PM Kishida during the Tokyo lunch break, as he noted that he is considering the impact on the markets re: his choice of BoJ Governor, while flagging communication as a key trait for the successful candidate (given the normalisation task that faces them). The recognition that he is cognisant of the market impact re: the Governor choice may have supported the longer end of the curve in the afternoon.
• Elsewhere, there would have been little spill over from the results of the BoJ Rinban operations, which saw offer/cover ratios of 1.6-2.2x, remaining subdued, although the presence of the operations, coupled with a bid in U.S. Tsys, seemingly aided the bid in JGBs.
• There was also some focus on reports that pointed to Kishida teeing up a meting between the government, labour unions and businesses as his administration looks to generate meaningful wage growth.
• 10-Year JGBi supply is due tomorrow, with the latest preliminary machine tool orders, money supply and international security flow data also slated.

AUSSIE BONDS: Off Lows, RBA Terminal Reassessed

ACGBs moved off early Sydney cheaps as U.S. Tsys firmed (likely on the back of Asia-Pac participants looking to the lack of fresh hawkish rhetoric from Fed Chair Powell on Tuesday), leaving both YM & XM -2.0 at the close. Both contracts respected their overnight session lows on a test during early Sydney dealing. Cash ACGBs were 1.5-2.5bp cheaper, with a light flattening bias seen.

• Bills finished flat to -3 through the reds, while RBA dated OIS continued to show ~20bp of tightening for next month’s meeting, as terminal pricing held just above 3.95%. Meanwhile, the latest BBG survey saw the median RBA terminal rate view shift up to 3.85% from 3.60% (range 3.60-4.10%), in lieu of the tweaks to yesterday’s post-meeting statement.
• Local issuance matters provided the only real domestic points of note, with ACGB Nov-33 supply passing smoothly (see our post-auction bullet for more on that), while the semi side saw SAFA launch a new May-38 line (as much as A$1bn issued this time around), which is set to price on Thursday.
• Comments from Treasurer Chalmers went over old ground, pointing to notable economic headwinds, albeit with no expectations for a recession in Australia.
• Tomorrow’s domestic docket is empty, save weekly AOFM Note supply.

MNI RBA Review - February 2023: +25bp, More Hikes On The Way

EXECUTIVE SUMMARY

• The RBA hiked rates 25bp to 3.35%, as was widely expected. This brought the cash rate to above the mid-point of the central bank’s estimated range for neutral. The statement was more hawkish and made it clear that rates need to rise further and by more than 25bp, as inflation worries came to the fore.
• A hike in March now seems a given but there is a question whether the Board will pause in April and hike again in May after the Q1 CPI data on April 26 or hike at both meetings bringing rates to 4.1%. An April break would require very clear communication that the cash rate has not yet reached its peak.
• From the references in the meeting statement, it seems that the RBA's forecasts are broadly unchanged compared to November. Inflation is expected to be "around 3%" in H1 2025 but there was no mention of the trimmed mean or wages projections, which will be included in Friday's Statement on Monetary Policy.
• Click to view full review:RBA Review - February 2023.pdf

NZGBS: Uptick In Tsys Allows Move Off Lows

NZGBs finished 4.5-6.5bp cheaper on Wednesday, with a light bear flattening impulse developing as the day wore on. Swap rates were 5-8bp higher, also flattening, leaving swap spreads little changed to a touch wider across the curve.

• The initial cheapening impulse, derived from the trans-Tasman feedthrough from yesterday’s RBA decision, moderated on the back of a bit of a bid in U.S. Tsys during Asia-Pac dealing, as regional participants looked to the lack of firm pushback from Fed Chair Powell vs. the dovish reaction to last week’s FOMC.
• RBNZ dated OIS nudged higher on the day, showing 58bp of tightening for later this month, alongside a terminal OCR of just over 5.25%.
• Local headline flow was dominated by Prime Minister Hipkins unwinding some of ex-PM Ardern’s policies, including the income insurance scheme, while he increased the minimum wage in line with CPI. Hipkins stressed that “the government is refocusing its priorities to put the cost of living front and centre of our new direction,” while underscoring the need for “increased support for business, increased support for those on low incomes and a reprioritization of our work program to shift it to the bread-and-butter issues New Zealanders want us focused on.”
• The latest ANZ Truckometer reading provides the only economic data point on tomorrow’s local docket, although that won’t be a market mover.

FOREX: Muted Asian Session

The greenback has dealt in narrow ranges in today's Asian session. There has been little meaningful moves across G-10 FX.

• USD/JPY is little changed, last dealing at ¥131.15/25. Dec Trade Balance printed marginally higher than expectations this morning. There was little reaction in the pair to comments from PM Kishida as he noted that he is considering the impact on the markets re: his choice of BoJ Governor, while flagging communication as a key trait for the successful candidate.
• AUD/USD has dealt in narrow ranges today, currently a touch off best levels at $0.6960/65. The pair has been pressured at the margins as Iron Ore futures in Singapore continue to weaken, down ~0.2% today.
• AUD/NZD is a touch above $1.10 having broken through the key level in early trading. A close above this level opens further upside in the cross.
• Kiwi is also little changed having firmed off session lows, resistance was seen ahead of the 50-day EMA. NZD/USD prints at $0.6325/30. ANZ lowered their Fonterra 2022-23 milk price forecast this morning to $8.50/kg, adding pressure at the margins in early trade. PM Hipkins announced the minimum wage will rise in line with CPI in April.
• EUR and GBP are little changed today having respected tight ranges.
• In Europe today there is a thin data slate. Further out we have a number of Fed speakers on the wires.

FX OPTIONS: Expiries for Feb08 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0500-15(E759mln), $1.0735-50(E1.3bln), $1.0800-15(E621mln)
• USD/JPY: Y130.00($595mln), Y132.85-00($801mln)
• EUR/JPY: Y140.25-26(E1.3bln)
• EUR/GBP: Gbp0.8850-70(E825mln), Gbp0.8900(E673mln), Gbp0.8950(E501mln)
• AUD/USD: $0.7190(A$1.4bln)
• USD/CNY: Cny6.6500($650mln), Cny6.7390-00($869mln)

ASIA FX: USD/Asia Pairs Up From Earlier Lows

USD/Asia pairs haven't been able to sustain lower levels, with most pairs recovering from earlier lows. Equity sentiment has been mixed throughout the region, while the USD has had a quiet session against the majors. Tomorrow we may get China aggregate finance data (9-15th of Feb is the release window), while Thailand consumer confidence is out, along with Taiwan CPI.

• USD/CNH tried to sustain a break below 6.7800 in early trade, but we now sit back above 6.7860. Onshore equities have struggled for upside traction, albeit with modest losses so far. The CNY fixing was close to neutral.
• 1 month USD/KRW is back towards the upper end of its recent range, last near 1259. Moves above 1260 have drawn selling interest in recent sessions. The +1.25% gain for local equities hasn't led to much currency support. Dec current account data didn't shift market sentiment earlier.
• USD/INR blipped lower on a hawkish +25bps rate hike, with the central bank still focused on withdrawal of accommodation, with some in the market looking for a shift to neutral. Still, this proved to be a short lived INR positive, with support around the 82.60 level. We now sit back at 82.70/75.
• USD/IDR is lower, back to 15120/25. We are very close to the 20-day EMA (15109), while the 200-day sits slightly higher at 15130. The rupiah's rebound is broadly in line with moves elsewhere in South East Asia, but is away from earlier session lows near 15100. Jan consumer confidence printed, coming in at 123.0, from 119.9 prior. We are at 5 month highs, but still below 2021 highs near 129.0.
• USD/THB opened lower this morning, but found some support around the 33.40 level. We last tracked close to 33.53, around 0.25% stronger in baht terms versus yesterday's close. Still the pair is in new higher range of 33.40/33.75, compared to 32.60/33.00 through much of late January/early Feb. On the upside the 50-day EMA comes in close to 34.00, while the 20-day is around 33.26 on the downside. Portfolio outflows are a short term baht headwind, while the BoT minutes suggested further hikes are coming.

EQUITIES: China/HK Struggle, South Korea & Taiwan Higher On Better Tech Sentiment

It has been a mixed bag for regional equities today. Heavyweights China/HK have struggled for upside traction, likewise for Japan shares. US futures are close to flat currently, but this follows a positive session through Tuesday. Sentiment, elsewhere in the region, has been more positive though.

• The HSI is down slightly currently, with the tech sub index off -1.60% at this stage. China mainland stocks are a touch weaker compared to HSI, down around 0.25% at this stage.
• Headline flow has been light, with China looking for closer ties with Taiwan, while Biden's State of The Union stressed the US doesn't want conflict with China. Fitch revised its 2023 GDP forecast for China to 5%, but this is in line with other estimates.
• The Nikkei 225 sits -0.45% lower at this stage, with Japan looking at revising travel rules for China visitors this month.
• The Kospi and Taiex have performed better. The Kospi up 1.23%, the Taiex +1.44%, which is line with the rebound in major tech indices through Tuesday's session.
• Indian shares are holding up, +0.50% for the Nifty at this stage, despite a hawkish +25bps hike from the RBI earlier.

GOLD: Prices Range Trading Post-Payrolls

Gold prices are 0.2% higher rising to $1877.15/oz after rising 0.3% on Tuesday. Bullion has been trading in a narrow range after falling sharply following the very strong payrolls report on Friday. It didn’t react strongly to Fed Powell’s comments as he talked about disinflation but also that rates needed to rise further. The USD is down slightly today.

• Gold is in a corrective cycle and trend conditions remain bearish. Support is at $1861.40, the February 3 low, and resistance remains at $1899.90, the 20-day EMA. Prices are holding above the 50-day simple MA.
• Later today the highlight of the calendar is a number of Fed speakers, as the only data is wholesale inventories. Any dovish comments would be supportive of bullion.

OIL: Crude Tracking Sideways After Strong Rally

Oil prices are range trading today after rising strongly on Tuesday due to positive demand developments and some supply outages. WTI is up 0.2% to $77.30/bbl and Brent is +0.1% to 83.75/bbl. The US is slightly weaker today.

• WTI oil prices are approaching their 50-day simple MA while Brent is above. Resistance for WTI is at $78.39, the 50-day EMA, and support is at $72.25. Brent is close to resistance at $84.08, while support lies at $79.10.
• The oil market wasn’t rattled by Fed Powell’s comments as he talked about disinflation but also that rates needed to rise further. It was more interested in the EIA cutting its US crude output forecast for 2024.
• Later today the highlight of the calendar is a number of Fed speakers, as the only data is wholesale inventories. EIA US fuel stock data is also released. The API data showed a 2.2mn bbl drawdown after several weeks of build.