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The RBNZ cut rates by 50bps as expected, but its higher implied OCR forecast profile (relative to market pricing) drove NZD and NZ rates higher. Australian Oct CPI was mixed, with headline lower but core firmer.
USD/JPY continues to track lower. JGB futures are weaker and not far from lows. The 40yr auction had poor metric.
Later revised US Q3 GDP, jobless claims, November MNI Chicago PMI, preliminary October durable orders, October trade, personal income/spending & PCE price indices print. The ECB’s Lane speaks.
There is very little happening in tsys today, ranges are narrow, most of the trading volumes look to be roll related ahead of the Thanks giving holiday. It is a busy US session for data tonight, with major focus on GDP revisions for Q3 and monthly PCE for October.
Futures are trading little changed, TU last +00¼ at 102-22⅜, while TY is +02+ at 110-13. The 10yr contract broke through resistance (20day EMA) on Monday and has held onto those gains, the moves were largely attributed to Scott Bessent being announced for Treasury Secretary.
Cash tsys yields are trading 0.5-2bps lower today, with the 2yr outperforming -1.7bps at 4.240%, while the 10yr is -1.4bps at 4.293%.
Traders are increasingly bearish, positioning for a potential surge in yields in the coming weeks. Demand for put options on 10yr futures, particularly in January and February contracts, has risen, with strikes targeting yields between 4.45% and 4.7%, yields not seen since April 2024. There was a large trade on Tuesday targeting yields as high as 4.9%, suggesting concern over renewed inflationary pressures linked to President-elect Donald Trump’s policies, including steeper tariffs.
Later today we have a busy session ahead of the Thanksgiving Holiday with MBA Mortgage Applications, GDP revisions for Q3, monthly PCE for October, Wholesale Inventories, Durable Goods Orders, Jobless Claims & MNI Chicago PMI
JGB futures are weaker and not far from lows, -14 compared to settlement levels, on a data-light Tokyo session.
The issuance of 40-year bonds today encountered a poor reception, with the actual high yield overshooting dealer expectations. As per the BBG poll, the anticipated yield was projected at 2.54% versus the realised yield of 2.55%.
Additionally, the cover ratio was lower at 2.2364x versus 2.5798x at the prior outing.
As noted in the auction preview, today’s yield was approximately 30bps higher than the prior auction, with the 20/40-year yield curve slightly steeper and near its steepest level in the past 12 months.
Given these factors, the auction outcome was viewed as disappointing.
Cash US tsys are flat to 1bp richer, with a steepening bias in today’s Asia-Pac session.
Cash JGBs are flat to 2bps cheaper across benchmarks beyond the 1-year, with the 40-year leading. The benchmark 40-year yield is 2.1bps higher at 2.64%.
Swap rates are 1bp lower to 2bps higher, with the belly outperforming.
Tomorrow, the local calendar will see Weekly International Investment Flow data alongside BOJ Rinban operations covering 3-25-year and Inflation-Indexed JGBs.
ACGBs (YM +1.0& XM +2.0) are slightly stronger but slightly cheaper after October’s CPI data. There was an initial spike richer, but that was quickly unwound.
October CPI printed at 2.1%, lower than expected but in line with September. However, the trimmed mean increased to 3.5% from 3.2%, the highest since July. The first month of the quarter has limited updates for services components.
The RBA is currently focusing on underlying and services measures due to the temporary decline in headline inflation from government electricity rebates. It also prefers the quarterly CPI data with Q4 out on January 29.
Cash US tsys are ~1bp richer in today’s Asia-Pac session.
Cash ACGBs are 1-2bp richer with the AU-US 10-year yield differential at +13bps.
Swap rates are flat to 2bps lower.
Bills strip pricing is flat to +2, with a flattening bias.
RBA-dated OIS pricing is flat to 3bps softer across meetings, with the mid-2025 leading the move.
A 25bp rate cut is not fully priced until July. It was May before the data.
Tomorrow, the local calendar will see Q3 Private Capital Expenditure data and a speech by RBA Governor Bullock at the CEDA Conference aftermarket.
October CPI printed at 2.1%, lower than expected but in line with September. However, the trimmed mean increased to 3.5% from 3.2%, the highest since July. The first month of the quarter has limited updates for services components. The RBA is currently focusing on underlying and services measures due to the temporary decline in headline inflation from government electricity rebates. It also prefers the quarterly CPI data with Q4 out on January 29.
Seasonally adjusted headline CPI rose 0.1% m/m and ex volatile items & holiday travel fell 0.2% m/m and moderated to 2.4% y/y from 2.7%, the lowest in almost three years.
While services prices were not fully updated the component rose to 4.8% y/y, down marginally from October 2023’s 5.0% y/y.
The ABS reports that electricity prices fell 12.3% m/m and 35.6% y/y, a record. Auto fuel fell 11.5% y/y.
Rents rose 6.7% y/y, but without Commonwealth Rent Assistance they would have risen 8.1% y/y.
Fruit & veg prices rose 8.5% y/y due to lower supply for some items.
The ABS notes that the correction to childcare costs reduced annual CPI inflation by 0.05pp and trimmed mean by 0.02pp.
NZGBs closed 3-5bps cheaper after today’s RBNZ policy decision and release of updated forecasts.
The RBNZ cut rates 50bp to 4.25% as was widely expected as it felt “more confident to continue removing” policy restrictiveness given inflation is close to the target mid-point and underlying measures are “converging” on it. It published a revised set of forecasts, which if the economy develops close to its expectations it should be able to cut rates further.
The MPC only discussed a 50bp rate cut this month. The OCR path implies another 50bp in February, which Governor Orr confirmed in his press conference as policy is still restrictive.
Swap rates closed 4-10bps higher, with the 2s10s curve flatter.
The market had anticipated 55bps of easing at this policy meeting.
OIS pricing closed 4–9bps firmer across the meetings. For the February meeting, 41bps of additional easing is priced, compared to 95bps cumulatively (including today’s cut) before the decision.
The local calendar will see Filled Jobs and ANZ Business Confidence tomorrow. RBNZ Assistant Governor will also be before the Select Committee on MPS.
Tomorrow, the NZ Treasury plans to sell NZ$250mn of the 3.0% Apr-29 bond, NZ$175mn of the 3.5% Apr-33 bond and NZ$75mn of the 1.75% May-41 bond.
The RBNZ cut rates 50bp to 4.25% as was widely expected by economists and the market as it felt “more confident to continue removing” policy restrictiveness given inflation is close to the target mid-point and underlying measures are “converging” on it. It published a revised set of forecasts, which if the economy develops close to it expectations it should be able to cut rates further. Its OCR profile implies 50bp of easing in February.
The policy assessment was similar to October’s but did shift slightly more dovish with “future changes to the OCR” changed to “expects to be able to lower the OCR further”. The impact of lower import prices was added as well as global policy uncertainty adding to “increased economic and inflation volatility”.
The OCR profile has Q1 2025 50bp below the Q4 2024 average but then Q2 is 25bp below Q1 and Q4 is around 25bp below Q2. It suggests that easing has been frontloaded compared with August expectations with end-2025 around 25bp lower, end-2026 similar and the terminal rate still around 3.0%.
Inflation forecasts were revised down in the near-term reflecting the lower-than-expected Q3 outcome with H1 2025 averaging around 2% down 0.2pp, but H2 has been revised 0.2pp higher to around 2.5% and H1 2026 to 2.3%. Inflation doesn’t return to the 2.0% mid-point until Q2 2027 a year later than in August, but the difference is only 0.1pp and the error band widens the further out we look.
Growth has been revised lower across 2025, 2026 and 2027 averaging 0.6% rises per quarter.
Lower Q3 2024 unemployment has driven most of the downward revision in the unemployment rate across the forecast horizon. It is now expected to peak at 5.2% in Q1 2025 and then ease to 4.3% by Q2 2027.
The MPC only discussed a 50bp rate cut this month as that amount “felt right” given headline inflation is close to the target mid-point and excess capacity persists. The OCR path implies another 50bp in February, which Governor Orr confirmed in his press conference as policy is still restrictive, but it is contingent on the economy developing as the RBNZ expects.
A return to a “neutral world” is currently projected and hoped for. The RBNZ estimates the neutral rate at 2.5-3.5% with policy currently expected to return to the top of that range by end-2025 and the mid-point in 2027. Without a major shock, the MPC currently doesn’t expect policy to go below neutral.
Orr specifically ruled out rate hikes in the short-term.
The RBNZ expects core inflation to fall within the band given continued excess capacity. It also doesn’t expect headline to fall below target but Orr stated that the series is volatile and global factors could increase that over the medium-term.
Orr said that the MPC is in a “positive position” in terms of inflation and in the short-term it is happy with its monetary policy position. But in the medium-term volatility is expected to rise due to global trade shifts and climate change. Most central banks are preparing for this in 2026 and 2027.
The focus should be on the direction of growth forecasts rather than the size, and the RBNZ expects activity to begin recovering from next year.
House prices are forecast to rise 7% per year, less than in the past due to debt-to-income and LTV ratios as well households continuing to struggle due to rising unemployment and monetary policy lags.
The main focus today has been the NZD bounce post the RBNZ's 50bps cut. Yen has also continued to rally. Trends elsewhere have been relative steady. The USD BBDXY is little changed, last near 1287.3, off a touch versus end NY levels from Tuesday.
NZD/USD got to highs of 0.5882, post the as expected 50bps RBNZ cut. The statement implied further cuts into 2025, but not as much as the market had priced pre the meeting.
We did see a brief NZD/USD pull back during the press conference as RBNZ Governor Orr stressed the central bank was now projecting more cuts compared to the August review. Still, NZ rates are higher for session., +4-10bps for swap rates. NZD/USD was last near 0.5865, up close to 0.50% for the session. We are still some distance from resistance at 0.5915/0.5920 (20-day EMA/Nov 20 highs) though.
AUD/USD sits unchanged at this stage, last at 0.6475. The Oct monthly CPI print was mixed, headline softer, but core re-accelerating in y/y terms.
USD/JPY continues to track lower, last near 152.30, off around 0.50% for the session. This continues Tuesday's outperformance theme. There has been no fresh major macro news today. On-going speculation around a Dec hike is likely helping (amid supportive domestic services inflation and likely firm wage gains again next year). The simple 200-day MA isn't far away at 152.00. The 50-day EMA is at 151.50.
In the cross asset space, US equity futures are slightly lower, while regional equities are mixed. US yields sit down a touch, so likely benefiting the yen at the margins.
Later revised US Q3 GDP, jobless claims, November MNI Chicago PMI, preliminary October durable orders, October trade, personal income/spending & PCE price indices print. The ECB’s Lane speaks.
JPY/KRW is pushing to fresh highs since late Oct in the pair. We last near near 9.1780. Since Oct though we have largely been in a 8.95 to 9.20 range. We are above all key EMAs, while the simple 200-day MA is back near 8.97, which has been a support point through Nov to date. The 50-day EMA is close to 9.0930. Upside focus is likely to rest on a test aback above 9.2000.
Relative yield/rate differentials are in favour of further upside in JPY/KRW. The chart below overlays this pair against the 2yr JP-SK swap rate differential. While we are still at -219bps, so firmly in favor of South Korea in an outright sense, the trend has shifted strongly in Japan's favour in recent months.
Such trends may continue into early 2025, as the BoJ looks to adjust policy rates further, while the bias around the BoK outlook is skewed towards further cuts (albeit with an expected on hold outcome tomorrow).
Other factors into 2025 may also skew risks in the pair higher. Greater trade tensions/fresh tariffs from the US would be more likely to hurt won sentiment than the yen in a relative sense (although both currencies could weaken against the USD under such a scenario).
Fig 1: JPY/KRW Versus Japan-South Korea 2yr Swap Rate Differential
Chinese equities are on track to end three days of negative returns, with the CSI 300 trading 0.95% higher at the break. Equities initial opening lower however, turned higher following Industrial Profits falling 10% marking the third month straight months of declines as worsening producer-price deflation and sluggish factory output overshadowed the impact of recent stimulus measures, with traders now expecting the PBoC to cut RRR to add liquidity and aid growth.
Tech has been the top performing sector for the CSI 300 today, trading up 2.45%, led by the likes of GoerTek & Luxshare after Huawei announced a new flagship phone. Hong Kong listed equities are also broadly higher, the HSTech Index is 0.80% higher, while the broader HSI is 0.45% higher, property stocks are trading mixed.
China's industrial profits fell 10% y/y in October, marking a third consecutive monthly decline despite recent stimulus efforts. Weak domestic demand, persistent deflation, and stagnant factory output overshadowed early signs of recovery, such as steady infrastructure investment and a drop in unemployment. Adding to concerns, U.S. President-elect Donald Trump's tariff threats pose new risks to China's export sector.
Asian markets are trading mixed today as investors weigh US trade policies and weaker corporate earnings. Korean chipmakers and Japanese automakers fell amid concerns over US tariffs and subsidies, while Chinese stocks declined as industrial profits dropped 10% in October, highlighting economic pressure. The HSI approached a two-month low, with auto stocks underperforming but Chow Tai Fook surging on a share buyback plan.
A stronger Yen is weighing on Japanese equities today, the USD/JPY was last -0.24% at 152.71. The TOPIX is -0.85%, while the Nikkei is 0.75% lower.
Australian shares advanced, led by gains in consumer discretionary and mining stocks, as inflation data eased concerns over RBA policy shifts, the ASX200 is 0.60% higher, trading just shy of all time highs. New Zealand equities are also higher, with the NZX50 up 0.40% following a 50bps cut from the RBNZ, however this was expected.
Semiconductors stocks in the region tracked global peers lower, following Qualcomm cooling on a takeover of Intel, while the sector also saw some headwinds following comments from Vivek Ramaswamy calling the Chips Act “wasteful.”
Foreign investors have again been better sellers of South Korean equities today, with $130m of outflows from tech names, they have however been buying services, financials and communication stocks, the market is currently let with a net outflow of $40m.
Meanwhile, weaker-than-expected earnings from Dell and HP weighed on Asian tech hardware makers, though HP's strength in printers provided a bright spot for Japanese peers. Overall, regional sentiment remains cautious amid lingering macro uncertainties.
Overnight the Philadelphia Stock Exchange Semiconductor Index (SOX) fell 1.20%, while the Nasdaq rose 0.63% and the Magnificent 7 rose by 1.37%, further underpinning the rally in semiconductor stocks may be slowing.
The weakness in the sector overnight looks to be on the back of Qualcomm's takeover interest in Intel cooling, which saw Intel's stock close down 3.30%, to be the 2nd worst performing stock in the SOX, while Monolithic Power Systems was the worst performing, falling 4.79% and now trades down 36.5% for the past month, this follows mixed earnings results on Oct 30th and continue price downgrades from analysts. While Analog Devices erased earlier gains after company reported fourth-quarter results that beat expectations however gave an outlook that is seen as mixed.
Asian Semiconductor stocks are also struggling today, with the BBG Semiconductor Index trading 0.60% lower, with Samsung down 2.25% and SK Hynix down 3.5%. Taiwan's TSMC is holding up well, and trades unchanged, while Hon Hai is down 1.75%.
Oil is little changed during APAC trading today as a 60-day truce between Israel and Hezbollah began at 0200 GMT. Brent is up 0.1% to $72.86/bbl, close to the intraday high, and WTI is moderately higher at $68.80/bbl after a low of $68.58. The USD index is down 0.1% but still 2.2% higher in November, which has weighed on dollar-denominated crude.
The market will be focussing now on not just today’s EIA data, but also the weekend’s OPEC meeting. There have been comments that the non-OPEC supply outlook is not conducive for OPEC+ to begin reducing its output cuts suggesting that they are likely to be delayed further.
The ceasefire between Israel and Hezbollah will be monitored closely with both sides attacking in the hours before the truce was due to begin.
A petroleum industry group has estimated that Trump’s 25% tariff on imports from Canada could impact almost 4mn barrels of Canadian oil and would increase US gasoline prices, according to Bloomberg.
Bloomberg reported a significant 5.9mn US crude inventory drawdown last week, according to people familiar with the API data. Stocks at Cushing fell 700k, while products rose with gasoline up 1.8mn and distillate 2.5mn. The official EIA data is out later today.
Later revised US Q3 GDP, jobless claims, November MNI Chicago PMI, preliminary October durable orders, October trade, personal income/spending & PCE price indices print. The ECB’s Lane speaks.
Gold is 0.2% higher in today’s Asia-Pac session, after closing 0.3% higher at $2633.15 on Tuesday. Bullion briefly spiked higher earlier in the session on headlines of a possible further escalation in tensions between Russia and Kyiv.
The FOMC minutes were largely taken in the market's stride given the lack of any overtly hawkish messaging. Lower rates are typically positive for gold, which doesn’t pay interest.
According to MNI’s technicals team, Monday’s sharp pullback is considered corrective, for now, and the long-term trend condition remains bullish. Resistance to watch is $2,721.4, Monday's high. Clearance of this level would be a bullish development. Key support is $2,536.9, the Nov 14 low.
Silver slightly outperformed, with the gold-silver ratio at 86.2, around 1% below Monday's 2½-month high.
Medium-term bullish conditions in silver remain intact, although the corrective cycle that started on Oct 23 is still in play, exposing $28.446, a Fibonacci retracement. Initial firm resistance to watch is $31.287, the 50-day EMA.
China’s October Industrial Profits declined 10% y/y, the third decline in a row.
Industrial profits for September had declined -27.1% y/y.
With factory output soft and PPI at -2.9% y/y for October today’s result was little surprise.
This was one of the first examples of how businesses are reacting to the significant stimulus announcements recently.
Whilst still contracting, the evidence does point to some improvements and next weeks PMI’s will provide a further update as to the impact the policies are having.
Korea seeks to bolster its position in the semi-conductor global supply chain with a fiscal support package announced to the value of US10bn (source: MNI – Market News).
A survey of manufacturers in Korea falls to 66 from 71 for the month ahead as to their general outlook for the economy (source: MNI – Market News).
Korea’s KOSPI was under pressure today falling -0.50%.
KRW: very muted today ahead of the BOK tomorrow. Little changed at 1,397.72
Bonds: saw lower yields ahead of tomorrow’s BOK decision (MNI expects no change) with yields 1-2bp lower. KTB 10-year 2.88%
As the 10-year government bond in Korea hits yield levels not seen since late 2021, the question investors are asking is what are the catalysts for the next move in rates and what does that mean for the curve?
The KTB 2034 hit lows today of 2.88%, not seen since late 2021.
For the KTB 2027 at 2.76%, you must revisit early 2022 for similar levels.
The 3s10s curve, known for its flatness, has oscillated around in the +12-15bps for some time.
In July the South Korean government began the process for a KRW26 trillion aid package for 2025.
As it progresses through the various approval processes, there have been ongoing rumours it could be raised significantly.
Today an announcement was made by the Ministry of Finance that an additional KRW14 trillion will be made available to support domestic semi-conductor industries, and rumours are there could be further fiscal support to come on top of what is currently announced.
Using BBG’s functionality, analysis shows that 78bps of cuts are factored into market pricing over the next 12 months, consistent with the guidance coming from key BOK members.
If short end rates have fully factored in the expected rate cuts for next year, what could a steepening of the curve due to new government issuance look like?
The largest adjustment in the 10-year in Korea came as the COVID support excesses were unwound from markets with the 10-year in Korea moving higher in yield from 1.18% to 4.40%.
At today’s yield of 2.88%, a surge in government issuance could have limited technical support, pushing the 10-year back higher.
However, whilst issuance will have an impact on yields, the direction of the 10-year will continue to be correlated to the inflation backdrop and whether government policies can arrest the current decline.
With many market strategists suggesting that incoming US President Trump’s policies could be inflationary for the global economy, is it possible that for the first time in some time, there could be a meaningful steepening in the Korea curve as inflation returns at a time issuance is ramping up.
Data at the start of the session on South Korean business sentiment highlighted deteriorating manufacturing sentiment. The headline manufacturing read of 66 (lows back to early 2023) doesn't suggest much near recovery in GDP growth. This is line with current BoK and government thinking though, with growth expectations skewed lower in recent months.
Our BoK preview noted earlier we still expect the central bank to be on hold tomorrow though, given FX weakness/financial stability concerns.
Another part of the manufacturing survey looks at the export outlook. The chart below plots manufacturers' export expectations and full month export growth.
It is pointing to a further slowing in y/y export growth momentum for Nov/Dec. Recall though the first 20-days of export figures for Nov showed growth up 5.8%y/y.
Export growth may have still slowed in the final part of Nov. Another possibility is actual export growth is front running due to trade concerns for 2025. Note we get full month Nov trade figures on Dec 1.
Fig 1: South Korea Exports & Manufacturers' Export Expectations
Source: MNI - Market News/Bloomberg
UP TODAY (TIMES GMT/LOCAL)
Date
GMT/Local
Impact
Country
Event
27/11/2024
0700/1500
**
CN
MNI China Money Market Index (MMI)
27/11/2024
0745/0845
**
FR
Consumer Sentiment
27/11/2024
0930/1030
*
DE
GFK Consumer Climate
27/11/2024
1200/0700
**
US
MBA Weekly Applications Index
27/11/2024
1330/0830
***
US
GDP
27/11/2024
1330/0830
***
US
Jobless Claims
27/11/2024
1330/0830
**
US
Durable Goods New Orders
27/11/2024
1330/0830
**
US
Advance Trade, Advance Business Inventories
27/11/2024
1445/0945
***
US
MNI Chicago PMI
27/11/2024
1500/1000
***
US
Personal Income and Consumption
27/11/2024
1500/1000
**
US
NAR Pending Home Sales
27/11/2024
1500/1000
**
US
US Bill 04 Week Treasury Auction Result
27/11/2024
1500/1000
*
US
US Bill 08 Week Treasury Auction Result
27/11/2024
1530/1030
**
US
DOE Weekly Crude Oil Stocks
27/11/2024
1630/1130
**
US
US Treasury Auction Result for 7 Year Note
27/11/2024
1700/1200
**
US
Natural Gas Stocks
27/11/2024
1800/1900
EU
ECB's Lane dinner remarks at conference on "Macroeconomic modelling frontiers for research and policy"
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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.
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