- There has been a modest risk off tone today but only in selected markets. US equity futures are down, while oil has risen a touch and gold is at fresh record highs. Israel launching strikes into Gaza, targeting Hamas, has raised Middle East geopolitical concerns.
- The USD index is higher, but traditional safe havens like yen, aren't outperforming. Cash US tsys are 1-2bps richer, with a steepening bias, after yesterday’s twist-flattening.
- In the EM space, Indonesian equities have slumped more than 6%. A variety of drivers look to be in play. This also comes ahead of tomorrow's central bank decision. Regional equities elsewhere have mostly tracked higher.
- Later US February housing data, IP/capacity and trade prices print. Euro area January trade, March ZEW survey and Canadian February CPI are also released.
MARKETS
US TSYS: Cash Bonds Slightly Richer, Focus On Tomorrow's FOMC
In today's Asia-Pac session, TYM5 is 110-23+, +0-04 from closing levels.
- Cash US tsys are 1-2bps richer, with a steepening bias, after yesterday’s twist-flattening. Yields finished 3bps higher to 3bps lower, pivoting at the 7-year.
- US tsy yields rose to their daily highs after Retail Sales data was released, with the market focusing more on the stronger control group sales, but the move wasn’t sustained and yields subsequently tracked lower.
- The focus remains on Wednesday's FOMC policy announcement. The majority of analysts expects the FOMC to leave its Dot Plot funds rate medians unchanged in March compared with the December meeting. That would imply the Fed is still pencilling in 50bp of cuts in 2025 (to 3.9%) and 2026 (to 3.4%), with a further 25bp cut in 2027 (to 3.1%).
- The BoJ Policy is also due tomorrow Japan time. The BoJ is expected to keep its policy rate at 0.50% in March, with no urgency for another hike after its January increase.
JGBS: Steady Ahead Of Tomorrow’s Policy Decision Double Header: BoJ & FOMC
JGB futures are weaker, -8 compared to settlement levels, after giving up early strength.
- Today, the local calendar has been empty, with the Tertiary Industry Index and Tokyo Condominiums for Sale data due later.
- Nevertheless, the focus remains on tomorrow’s BoJ Policy Decision. The BoJ is expected to keep its policy rate at 0.50% in March, with no urgency for another hike after its January increase.
- Analysts expect a gradual rate hike to 0.75% by July or September and 1.0% by early 2026, depending on SME wage trends. Market pricing reflects uncertainty, with only half of a 25bps hike factored in for June and a full hike not priced until October. (see MNI BoJ Preview here)
- Cash US tsys are 1-2bps richer in today’s Asia-Pac session. The focus is on Wednesday’s FOMC decision. The majority of analysts expect the FOMC to leave its Dot Plot funds rate medians unchanged in March compared with the December meeting.
- Cash JGBs are little changed across benchmarks out to the 30-year and 1.5bps cheaper beyond. The benchmark 10-year yield is 0.4bps higher at 1.517% versus the cycle high of 1.58%.
- Swap rates are 1-4bps higher out to the 30-year and flat beyond. Swap spreads are wider out to the 30-year.
BOJ: MNI BoJ Preview - March 2025: Policy Steady
EXECUTIVE SUMMARY
- The Bank of Japan (BoJ) is expected to keep its policy rate at 0.50% in March, with no urgency for another hike after its January increase.
- Strong Shunto wage negotiations saw a 5.5% rise, but broader wage pass-through is needed for sustained inflation above 2%.
- Analysts expect a gradual rate hike to 0.75% by July or September and 1.0% by early 2026, depending on SME wage trends.
- Market pricing reflects uncertainty, with only half of a 25bps hike factored in for June and a full hike not priced until December.
- A July hike remains the base case, but a weak yen or inflation risks could accelerate the timeline, while political instability may delay it.
- Full preview here
AUSSIE BONDS: Slightly Mixed, FOMC Decision (Wed) & Feb Jobs (Thu)
ACGBs (YM -1.0 & XM +1.5) are slightly mixed.
- Assistant Governor (Economic) Hunter spoke at the AFR banking summit about how monetary policy can be both forward-looking and data dependent given decisions are always made under uncertainty. The bank looks at the signal from data excluding the noise and uses that in determining its outlook which is then analysed under various scenarios and judgments.
- Cash US tsys are 1-2bps richer, with a steepening bias, after yesterday’s twist-flattening. The focus is on Wednesday’s FOMC decision. The majority of analysts expects the FOMC to leave its Dot Plot funds rate medians unchanged in March compared with the December meeting.
- Cash ACGBs are flat to 2bps richer with a flattening curve. The AU-US 10-year yield differential is at 10bps.
- Swap rates are flat to 1bp lower, with the 3s10s curve flatter.
- The bills strip is flat to -2.
- RBA-dated OIS pricing is flat to 2bps firmer across meetings today.
- Tomorrow, the local calendar will see Westpac Leading Index ahead of Thursday’s jobs data for February.
- The AOFM plans to sell A$800mn of the 4.25% 21 December 2035 bond tomorrow and A$700mn of the 2.75% 21 November 2029 bond on Friday.
RBA: ‘Data Dependency’ Reflects More Than Real-Time Data
Assistant Governor (Economic) Hunter spoke at the AFR banking summit about how monetary policy can be both forward looking and data dependent given decisions are always made under uncertainty. The bank looks at the signal from data excluding the noise and uses that in determining its outlook which is then analysed under various scenarios and judgement. In February, the focus was on the impact of US policy and scenario analysis was an important part of this assessment.
- “The links between data, forecast and policy sit at the heart of us saying that policy is ‘data dependent’.”
- Hunter said that during times of “heightened uncertainty”, there is more weight put on “real time data” relative to forecasts.
- Hunter noted that it takes 9 to 12 months for a rate cut to have its maximum effect on GDP growth with the response from dwelling investment particularly timely. Inflation takes longer though at around 18 to 24 months due to the stickiness of prices and the indirect effects from a change in monetary policy on employment and wages.
- The RBA’s model also shows that trade responds “relatively quickly” through the exchange rate channel.
- However, consumers’ reaction is “initially small but grows over time” according to RBA modelling. There is some offset from lower debt payments by less interest income and households tend to smooth their spending.
- The RBA believed that Q4 consumption data showed an underlying pickup relative to Q3 with items not impacted by discounting, such as eating out, showing stronger growth as incomes rose. Its business liaison responses were consistent with this.
- See Hunter’s speech here.
BONDS: NZGBS: Subdued Session, FOMC Decision (Wed) & Q4 GDP (Thu)
NZGBs closed little changed after dealing in relatively narrow ranges in today’s data-light local session.
- NZ-US and NZ-AU 10-year yield differentials closed 1-2bps wider.
- Cash US tsys are 1-2bps richer in today’s Asia-Pac session. The focus is on Wednesday’s FOMC decision.
- Swap rates closed unchanged after dealing 1-2bps higher earlier.
- RBNZ dated OIS pricing closed flat to 2bps firmer across meetings, with late 2025 leading. 24bps of easing is priced for April, with a cumulative 63bps by November 2025.
- Tomorrow, the local calendar will see Q1 Westpac Consumer Confidence and Q4 Current Account Balance data ahead of Q4 GDP on Thursday.
- On Thursday, the NZ Treasury plans to sell NZ$250mn of the 4.50% May-30 bond, NZ$200mn of the 4.25% May-36 bond and NZ$50mn of the 5.0% May-54 bond.
- The RBNZ will start the repurchase program of the Sep-25 inflation-indexed bond on March 21. The operation has no implications for monetary policy stance.
FOREX: USD Index Ticks Up With Middle East Tensions, Yen Underperforms Though
The USD has recovered some ground in the first part of Tuesday trade, the BBDXY index last near 1264.05, up close to 0.15% versus end NY levels from Monday's session.
- In the cross asset space, risk aversion has crept back into US equity futures, led by the tech side (down 0.55%). Eminis are off around 0.40%. There may be concerns around Middle East tensions, after Israel attacked Hamas in Gaza, while the US administration has stated it will continue to attack the Houthis in Yemen until the group stocks attacking sea traffic.
- Oil has nudged higher, while gold is up over 0.50%, last near $3016.
- Still, traditional FX safe havens like yen, aren't rallying versus the USD. USD/JPY was last 149.55/60, off around 0.25% in yen terms and through the 20-day EMA resistance point for the pair. Session highs were at 149.73. Helping cap gains may have been the softer US yield tone, although losses aren't much beyond 1bps at this stage.
- AUD/USD is a little lower, last near 0.6370, down close to 0.20%. NZD/USD is back to 0.5815/20, with the Kiwi continuing to outperform the AUD. The AUD/NZD cross is back to 1.0955 fresh YTD lows. Lower AU-NZ yield differentials are a factor, while relative commodity price trends have also been moving in NZD's favor.
- EUR/USD was last back near 1.0910/15.
- Later US February housing data, IP/capacity and trade prices print. Euro area January trade, March ZEW survey and Canadian February CPI are also released.
AUDNZD: Breaks To Fresh YTD Lows Sub 1.1000, Key Data Releases On Thursday
The AUD/NZD cross continues to track lower, the pair last around 1.0955/60, fresh lows since the first half of Dec last year. The pair is sub all key EMAs, with the 200-day just above 1.1000. Dec lows last year were at 1.0933, while late Sep last year the pair printed at 1.0850.
- The move down in AUD/NZD has some sponsorship from lower AU-NZ 2yr swap spreads, see the chart below (swap spreads are green, AUD/NZD is white on the chart). Arguably though the move lower in the cross has been more dramatic than implied by this relative swap shift.
- The bias for relative swap spreads may still skewed to the downside given relative starting points for the RBA and RBNZ easing cycles. On Thursday we get Aust jobs data. The market expects +30k jobs growth and a steady unemployment rate (4.1%).
- On the same day, NZ Q4 GDP prints, which is expected to show economy emerged from recession (q/q growth forecast at 0.4%).
- The other line on the chart is relative Aust to NZ commodity prices (the orange line). This series has been trending in favor of NZD for sometime, but doesn't correlate as strongly with AUD/NZD short term moves as the AU-NZ 2sy swap spread does. Broadly NZ dairy prices have been outperforming Aust commodity prices for some time.
Fig 1: AUD/NZD Versus AU-NZ 2yr Swap Spread & Aust to NZ Commodity Prices
Source: MNI - Market News/Bloomberg
ASIA STOCKS: A Strong Day for Regional Stocks Whilst Indonesia Plunges.
Indonesia’s ongoing equity market malaise turned into a bloodbath today as the Jakarta composite cratered on fiscal concerns, weak FX and government intervention in the central bank.
- Indonesia’s Jakarta Composite is down -6.8% as year to date losses approach 15%. The move lower was enough to trigger trading halts whilst bonds and the currency suffer.
- In China however a strong day for the major indices with the Hang Seng leading the way up +1.80%, CSI 300 +0.15%, Shanghai +.10% and Shenzhen +0.30%
- In Korea, the KOSPI had a slow start to the day and never recovered, despite the positivity in China, and has traded around flat all day.
- Malaysia’s FTSE Malay KLCI however took guidance from China’s strength and has rallied throughout to be up +1.00%
- As India’s trading day gets under way, the NIFTY 50 is opening very strong, up 1% following yesterday’s gain of +0.50%.
ASIA STOCKS: Korea Enjoys Second Day of Big Inflows.
South Korea has recorded another day of solid inflows whilst outflows dominated elsewhere.
- South Korea: Recorded inflows of +$346m yesterday, bringing the 5-day total to -$858m. 2025 to date flows are -$5,203m. The 5-day average is -$172m, the 20-day average is -$192m and the 100-day average of -$119m.
- Taiwan: Had outflows of -$303m yesterday, with total outflows of -$3,266 m over the past 5 days. YTD flows are negative at -$14,010m. The 5-day average is -$653m, the 20-day average of -$548m and the 100-day average of -$197m.
- India: Saw outflows of -$98m as of the 13th, with a total outflow of -$702m over the previous 5 days. YTD outflows stand at -$15,932m. The 5-day average is -$140m, the 20-day average of -$294m and the 100-day average of -$201m.
- Indonesia: Posted outflows of -$54m yesterday, bringing the 5-day total to -$228m. YTD flows are negative at -$1,648m. The 5-day average is -$46m, the 20-day average is -$53m the 100-day average of -$33m.
- Thailand: Recorded outflows of -$39m yesterday, totaling -$188m over the past 5 days. YTD flows are negative at -$942m. The 5-day average is -$38m, the 20-day average of -$40m the 100-day average of -$19m.
- Malaysia: Experienced outflows of -$64m Friday, contributing to a 5-day outflow of -$303m. YTD flows stand at -$1,699m. The 5-day average is -$61m, the 20-day average of -$46m the 100-day average of -$33m.
- Philippines: Saw inflows of +$6m yesterday, with net inflows of +$14m over the past 5 days. YTD flows are negative at -$213m. The 5-day average is +$3m, the 20-day average of -$3m the 100-day average of -$7m.
OIL: Crude Continues To Climb On Geopolitical Developments
Oil prices have trended gradually higher during APAC trading today as the geopolitical risk premium grows. Brent is up 0.3% to $71.26 and WTI 0.3% higher at $67.75, both below initial resistance levels. Both benchmarks are slightly off their intraday peaks. The USD is up 0.2%.
- Crude has found support from rising geopolitical tensions with the US targeting Houthi rebels in Yemen and saying it will blame Iran for any attacks on Red Sea shipping. In addition, Israel is striking Gaza again as Hamas won’t release the remaining hostages. Also presidents Putin and Trump will speak later on Tuesday about Ukraine.
- Supply trends remain a focus given OPEC is likely to stick to its output normalisation plans in April and the US intends to increase production. The IEA still expects excess supply in 2025. Today US industry-based oil inventory data is released, which has recently shown a crude stock build but a product drawdown.
- The effectiveness of stricter enforcement of sanctions on Iran is unclear as it has found ways around restrictions on its shadow fleet. But tighter sanctions could reduce global supply by 1mbd, which is substantial. It was the 9th largest producer in 2022.
- Later US February housing data, IP/capacity and trade prices print. Euro area January trade, March ZEW survey and Canadian February CPI are also released.
Gold Consolidates Above $3,000
- Gold’s seemingly relentless march higher continues as the $3,000 barrier is breached and new highs achieved.
- Opening at $3,000.67, gold appeared set for a quiet day before a surge after lunch to reach new highs of $3,015.13, before settling at $3,010.50
- Gold’s rally appears to have been supported by news reports of fresh military strikes on Hamas by Israel which could ultimately unwind any gains made towards a ceasefire.
- Up over 15% year to date, golds ongoing rally has been fuelled by expectations for interest rate cuts, inflation concerns and tariff risks.
- Stockpiles of US gold exchange warehouses recorded their biggest decline in three months, following a three-month frenzy ahead of the implementation of tariffs.
INDONESIA CENTRAL BANK: MNI BI Preview-Mar 2025: Weaker IDR Likely To Drive Hold
Download Full Report Here
- Bank Indonesia (BI) meets on Wednesday and is expected to keep rates steady at 5.75% given the continued weakness in the rupiah but it is a close call with BI wanting to support growth especially considering the negative impact of heightened uncertainty on global growth from US trade policy. 10 out of 36 respondents on Bloomberg are forecasting a 25bp rate cut.
- Rupiah weakness, especially its underperformance relative to other Asian currencies and response to equity volatility, is likely to worry BI, especially given the increase in portfolio outflows which drove a drop in FX reserves.
- BI has a number of policy tools. It has used macroprudential measures to support growth and lending for some time and has money market deepening instruments and intervenes in the market to manage the currency.
ASIA FX: CNH & KRW Edge Lower, 200-day MA Support Still Intact For USD/CNH
In North East Asian FX markets, we have seen some modest USD gains emerge as the Tuesday Asia Pac session unfolds. This fits with the majors, where the USD is mostly stronger. These moves come despite a generally positive equity tone for the Asia Pac region.
- USD/CNH has been supported sub 7.2300 so far today. This leaves 200-day MA support at 7.2215 still intact. The CNY fixing moved back above 7.1700 and at face value didn't provide any fresh support for yuan appreciation. Local equity markets are stronger, but only just. USD/CNH was last near 7.2350, so still within striking distance of recent lows.
- Spot USD/KRW was softer in early trade, but found support ahead of 1440, the pair last near 1448, off around 0.25% in KRW terms. Local equities were higher in the first part of trade, but now sit back close to flat. Lower US equity futures in the tech space aren't helping. At the same time renewed risks of conflict in the Middle East, with Israel launching fresh strikes on Hamas in Gaza, is adding to general risk aversion. Still, traditional safe havens like yen aren't rallying so far today.
- Headlines also crossed earlier from the acting US Ambassador to South Korea around the need to reduce the US trade deficit with South Korea. This comes ahead of South Korea officials visiting the US to discuss trade and other issues later this week.
- Spot USD/TWD is relatively steady, holding around 33.00. This is close to recent highs and maintaining an uptrend for the pair.
ASIA FX: USD/IDR Higher On Onshore Equity Slump, Steady Trends Elsewhere
South East Asia currencies have been mixed in the first part of Tuesday. Focus has been on IDR, which has weakened amid a very sharp slump in onshore equity markets, the JCI off over 6% at this stage.
- USD/IDR was last near 16460/65, off around 0.40% in IDR terms. The 1 month NDF is up over 0.60%, last near 16480/85. Spot is close to recent highs, but the market is likely to be on guard in terms of BI intervention risks. Recent cycle highs in the pair were close to 16600.
- The local stock market is back close to the 6000 level, levels last seen in 2021. It seems only trading halts have prevented further weakness. Multiple factors appear to be in play in terms of the equity market slump. Yesterday a major builder missed local bond payments. SCMP also highlights concerns over changes to the military law, which would allow military personnel to hold civilian related positions. Some analysts are also highlighting softer domestic earnings as we head into a holiday period, particular for the consumer sector. Offshore investors have remained consistent net sellers of local stocks.
- Elsewhere, there is little changes in terms of USD/Asia shifts. USD/SGD is near 1.3320/25, showing some modest SGD weakness, in line with G10 FX moves.
- USD/PHP is at 57.30, while USD/THB is back at 33.60, which is still above recent lows for the pair.
- Malaysian markets are out today.
India update on ND Swaps Pricing Vs. Pre-RBI February Meeting Levels
- Whilst the Indian bond market has been stoic in the face of global bond market volatility with cash bonds steady, swaps markets have been quietly repricing over recent trading sessions.
- For last night’s close, the swaps curve doesn’t have a full rate cut priced in for the next meeting on April 9, only 20bps but has a full rate cut priced in by the following meeting.
- The government bond curve has 66bps of cuts priced in over the next 12 months.
- A 25 bps cut at the next meeting is given a 81% probability according to the swaps pricing.
- Government bond yields have been incredibly resilient with the 10YR trading in a tight 3bps range for some time and currently is 6.69%
- Yesterday the RBI announced that “based on assessment of the liquidity conditions, it is decided that the notified amount for the daily Variable Rate Repo (VRR) auction to be conducted on March 18, 2025, Tuesday, between 10:00 AM and 10:30 AM will be ₹1,50,000 crore.” (source: RBI)
UP TODAY (TIMES GMT/LOCAL)
| Date | GMT/Local | Impact | Country | Event |
| 18/03/2025 | 0930/0930 |  GB | Consumer Price inflation weight update | |
| 18/03/2025 | 1000/1000 | ** | GB | Gilt Outright Auction Result |
| 18/03/2025 | 1000/1100 | * |  EU | Trade Balance |
| 18/03/2025 | 1000/1100 | *** |  DE | ZEW Current Expectations Index |
| 18/03/2025 | - |  US | FOMC Meetings with S.E.P. | |
| 18/03/2025 | 1230/0830 | *** |  CA | CPI |
| 18/03/2025 | 1230/0830 | *** | US | Housing Starts |
| 18/03/2025 | 1230/0830 | ** | US | Import/Export Price Index |
| 18/03/2025 | 1255/0855 | ** | US | Redbook Retail Sales Index |
| 18/03/2025 | 1315/0915 | *** | US | Industrial Production |
| 18/03/2025 | 1530/1130 | ** | US | US Treasury Auction Result for 52 Week Bill |
| 18/03/2025 | 1700/1300 | ** | US | US Treasury Auction Result for 20 Year Bond |
| 19/03/2025 | 2350/0850 | ** |  JP | Trade |
| 19/03/2025 | 2350/0850 | * | JP | Machinery orders |
| 19/03/2025 | 0001/0001 | * | GB | Brightmine pay deals for whole economy |
| 19/03/2025 | 0300/1200 | *** | JP | BOJ Policy Rate Announcement |
| 19/03/2025 | 0430/1330 | ** | JP | Industrial Production |
| 19/03/2025 | 1000/1100 | *** | EU | HICP (f) |
| 19/03/2025 | 1100/0700 | ** | US | MBA Weekly Applications Index |
| 19/03/2025 | 1200/1300 | EU | ECB de Guindos In Madrid | |
| 19/03/2025 | 1300/1400 | EU | ECB Elderson At European Financials Conference |
3413 words