MNI EUROPEAN MARKETS ANALYSIS: March BoJ Shift Not Fully Priced Despite Strong Wage Signs

US TSYS: Treasury Futures Steady, Trade In Tight Ranges Ahead Of 30Y Auction

• Jun'24 10Y futures are having another very quiet Asia trading session, ranges have remained very tight hitting lows on the open of 111-06, highs of 111-08+ and now trade right in the middle at 111-07+, +02 for the day.
• Looking at technicals, initial supports holds at 111-03+ (20-day EMA), below there 110-21 (Mar 4 low), to the upside, initial resistance is 112-04+ (Mar 8 highs) while above is 112-10+ (61.8% retracement of the Feb 1 - 23 bear leg)
• Cash yields are have slghly bull-flattened with the 2Y +0.4bp to 4.590%, 10Y -0.4bp to 4.147%, while the 2y10y is -0.797 at -44.557
• Looking ahead: Mortgage Applications and a Treasury bond sales the main focus is on Thursday's Retail Sales and PPI data.

STIR: $-Bloc Still Poised To Ease In 2024 Ahead Of Next Week’s FOMC Meeting

STIR markets within the $-bloc persist in foreseeing a notable easing cycle in 2024. In fact, over the past week, the pricing for the year-end official rate in NZ has eased by approximately 10-15bps. Conversely, year-end OIS pricing in the US, Canada and Australia are little changed. As for overnight developments, post the hotter-than-expected February US CPI:

• Fed Funds implied rates pulled back off session highs but held the bulk of post-CPI gains, in a step away from fully pricing a first cut in June.
• Ahead of next week’s FOMC meeting (March 19-20), US cumulative cuts: 0.5bp Mar, 4bps May, 19.5bps June and 34bps July.
• December 2024 expectations and the cumulative easing across the $-bloc stand at: 4.47%, -86bps (FOMC); 4.24%, -76bps (BOC); 3.87%, -45bps (RBA); and 4.85%, -65bps (RBNZ).

Figure 1: $-Bloc STIR (%)

Source: MNI – Market News / Bloomberg

JGBS: Choppy Session, Corporate Wage Outcomes Crossing, 20Y Supply Tomorrow

JGB futures are holding a downtick, -2 compared to the settlement levels, after a choppy Tokyo session.

• Today, the local calendar has been empty.
• However, several headlines have crossed today from a variety of Japanese companies and organizations outlining agreements made with unions on this year's wage demands. For the most part companies are stating that wage demands are being met in full. Headlines from industry heavyweight Toyota was one of the first to cross.
• Local media reported yesterday that if wage gains are 'significantly' above last year's 3.8% it will prompt a BoJ exit from NIRP. Still, a shift in March from the BoJ is by no means a sell-side consensus viewpoint at this stage.
• Cash US tsys are dealing ~1bp richer in today’s Asia-Pac session after yesterday’s 5-6bps cheapening following February’s US CPI print. Looking ahead, the main focus is on Thursday's Retail Sales and PPI data.
• Cash JGBs are slightly mixed, with yield movements bounded by +/- 1bp. The benchmark 10-year yield is 0.2bp lower at 0.768% versus the yearly high of 0.779% set yesterday.
• Swaps are slightly richer. Swap spreads are mixed.
• Tomorrow, the local calendar sees weekly International Investment Flow data, along with 20-year supply.

BOJ: Wage Momentum Appears Strong, But March BoJ Shift Not Fully Priced

A number of headlines have crossed so far today from a variety of Japanese companies and organizations outlining agreements made with unions on this year's wage demands. For the most part companies are stating that wage demands are being met in full. Headlines from industry heavyweight Toyota was one of the first to cross.

• A number of companies followed, while the Association of Metal, Machinery and Manufacturing workers stated they have secured an average pay rise of 5.32% (this body is affiliated with 60 unions) (BBG). This was reportedly a much larger rise than was seen last year.
• Rengo, the largest trade union federation in the country, will announce results on Friday in terms of preliminary aggregate estimates. The organization stated that demands this year are at 5.85%. Last year the demand was 4.49%, with the actual outcome of 3.8% delivered (BBG).
• One focus point will be the extent to which wage gains are delivered at small and medium sized enterprises, where profit margins are likely to be more challenging. This was a point raised by Chief Cabinet Secretary Hayashi, although it was added that momentum around wage hikes is strong.
• Local media reported yesterday that if wage gains are 'significantly' above last year's 3.8% it will prompt a BoJ exit from NIRP. Still, a shift in March from the BoJ is by no means a sell-side consensus viewpoint at this stage.
• In terms of market pricing, prevailing sentiment indicates a 60-70% probability of a move occurring in Mar/Apr, with 100% priced by June.

AUSSIE BONDS: Roll-Impacted Dealings, Narrow Ranges, Light Local Calendar Tomorrow

In roll-impacted dealings, ACGBs (YM -7.2 & XM -7.7) are holding weaker and at or near Sydney session lows. Trading ranges have been however relatively narrow.

• There hasn’t been much in the way of domestic drivers to flag, outside of the previously outlined CBA Household Spending. This represented the final data update before the forthcoming RBA Policy Decision scheduled for next Tuesday.
• (Bloomberg) -- Australia’s household spending declined in February, the nation’s largest lender said, as the Reserve Bank’s interest-rate increase late last year weighed further on consumer activity. (See link)
• Cash US tsys are dealing ~1bp richer in today’s Asia-Pac session after yesterday’s 5-6bps cheapening following February’s US CPI print. Looking ahead, the main focus is on Thursday's Retail Sales and PPI data.
• Cash ACGBs are 7-8bps cheaper, with the AU-US 10-year yield differential 2bps higher at -12bps.
• Swap rates are 7-8bps higher.
• The bills strip has bear-steepened, with pricing -2 to -8.
• RBA-dated OIS pricing is flat to 5bps firmer across meetings, with late-24 leading. A cumulative 44bps of easing is priced by year-end.
• Tomorrow, the local calendar is empty.

NZGBS: Closed On A Weak Note, Net Migration Data & RBNZ Conway Speech Tomorrow

NZGBs closed on a weak note, with benchmark yields 4bps higher. With the domestic calendar light, local participants appear to have been content to follow the weak overnight lead from US tsys following hotter-than-expected US CPI data.

• NZGBs have matched their $-bloc counterparts today, after yesterday’s underperformance, with the NZ-US and NZ-AU 10-year yield differentials unchanged.
• Cash US tsys are dealing ~1bp richer in today’s Asia-Pac session after yesterday’s 5-6bps cheapening following February’s US CPI print. Looking ahead, the main focus is on Thursday's Retail Sales and PPI data.
• Swap rates closed 3bps higher.
• RBNZ dated OIS pricing is slightly firmer across meetings. A cumulative 63bps of easing is priced by year-end.
• Tomorrow, the local calendar sees Net Migration data, along with a speech from RBNZ Chief Economist Conway at a Kiwibank event.
• Tomorrow, the NZ Treasury plans to sell NZ$275mn of the 0.25% May-28 bond and NZ$225mn of the 2% May-32 bond.

FOREX: Yen Gains Pared Despite Signs Of Strong Wage Momentum

The USD BBDXY Index sits little changed for the Wednesday session so far, last near 1230.75. Overall ranges have been fairly tight in the FX space, with JPY, AUD and NZD all moderately higher at this stage.

• USD/JPY has again been a focus point, spending the first part of the session drifting lower. We hit session lows of 147.24, not long after headlines crossed that Toyota had agreed to the full union demands around this year's wage negotiations. Similar headlines from other major corporates followed.
• Wages momentum appears to be building, and recall local media reported yesterday that if wage gains are 'significantly' above last year's 3.8% it will prompt a BoJ exit from NIRP. Still, a shift in March from the BoJ is by no means a sell-side consensus viewpoint at this stage.
• Prevailing sentiment indicates a 60-70% probability of a move occurring in Mar/Apr, with 100% priced by June, based off market pricing.
• USD/JPY has firmed this afternoon, back to 147.55/60. Note there is an option expiry for NY cut close to session lows from earlier - Y147.25-35($1.6bln), which may have influence market price action.
• AUD and NZD have drifted higher with NZD outperforming modestly. Secon tier data outcomes didn't impact sentiment for either FX rate. NZD/USD was last near 0.6160, up around 0.20%, while AUD has edged above 0.6610.
• These moves come despite equity sentiment being mixed throughout the region, while iron ore prices are down sharply further. This may have helped curb AUD/NZD gains, with the cross back to 1.0730/35, against earlier highs near 1.0750.
• Looking ahead, we have UK data first up, headlined by monthly GDP, while crude stocks and a 30yr bond sale will be the focus in the US Session.

ASIA PAC EQUITIES: Equities Mixed, Higher Wages & Stronger Yen Hurts Japan Equities

Asian equities markets are mixed as Japanese equities opened higher but turned negative due to yen strength following reports of Toyota meeting union demands to raise wages, causing speculation about a potential BoJ exit from NIRP. In South Korea, efforts to eliminate the "Korea Discount" are highlighted, with the Kospi just 0.05% higher; Taiwan plans measures to prevent irrational buying, and its equity market is unchanged after being up as much as 1.00%. Australian equities are slightly higher, with the ASX200 up 0.16%, while New Zealand's market closes down 0.17%. In Southeast Asia, Singapore equities are up 0.60%, Indonesia trades 0.30% higher after a two-day break, the PSEi in the Philippines is the top performer, up 1.30%, and Malaysia is the worst performer, down 0.96%.

• Japanese equities opened higher this morning but turned negative after strength in the yen. The yen has been strengthening after it was reported that Toyota will meet the union's demands to raise wages, including a bonus of 7.6 months of workers' salaries. It should be noted that Jiji stated that the BoJ would exit NIRP if this year's wage gains were significantly above last year's 3.8%. Since Toyota's announcement, multiple other firms have agreed to raise wages. The BoJ's decision to refrain from purchasing ETFs despite a market decline is fueling speculation that the bank might cease such acquisitions to enhance market health by improving liquidity and reducing price distortion, signaling a potential shift toward policy normalization. Currently, the Topix is down 0.50%, while the Nikkei 225 is down 0.40%.
• South Korean Financial Services Commission Vice Chairman Kim Soyoung said on Tuesday the importance of eliminating the "Korea Discount" by aiming to boost corporate valuations through initiatives encouraging retail investors and companies to utilize equities for wealth creation and capital, with plans to potentially ease taxes on dividend income and upgrade capital markets. Equities markets are mostly unchanged today with the Kospi just 0.05% higher, the top performer has been Samsung electronics which increased 0.70%
• Taiwan is looking to implement measures, such as financial inspections and heightened scrutiny on new ETFs, to prevent irrational buying, along with tighter regulations on marketing and ad campaigns by Internet influencers. The Taiwan equity markets are off earlier highs and the Taiex is now unchanged after being up as much at 1.00%
• Australian equities are slightly higher today, with household spending data showing a decline of 0.3% for the month, well below the prior month's gain of 3.1%. Financials are the top-performing sector, followed by consumer discretionary stocks, offsetting losses in miners. While China has announced earlier that they would lift the tariff imposed on Australian wine, with Treasury Wine Estate trading up 4.00% after the announcement. The ASX200 is 0.16%
• Elsewhere in SEA, NZ equities closed down 0.17% after food price data showed the smallest annual price jump since May 2021. Singapore equities are up 0.60%, Indonesia is back for their two-day break and is trading 0.30% higher and the top performer in the region in is the PSEi up 1.30%, while Malaysia is the worst performer in the region, down 0.96%.

ASIA EQUITIES: Hong Kong Equities Outperforms, China Vanke In Debt Swap Talks

• Hong Kong equities are slightly higher today with the HStech Index the top performer up 0.80%, while property names are down 0.69%, the Country Garden default doesn't seem to have had much of an impact as the Mainland Property Index is up 10.72% since March 7th. Elsewhere the Biotech Index is down 1.44%, while the HSI is up 0.24%. In China, equities indices are mostly lower with the CSI300 down 0.58%, the CSI1000 is up 0.41% while the ChiNext is down 0.42%
• China Northbound flows were 4.2 yuan on Tuesday, with the 5-day average at 3.38b, while the 20-day average sits at 3.02b yuan.
• In the property space, China Vanke is reportedly in discussions with banks for a debt swap that could avert its first-ever bond default, involving the conversion of tens of billions of yuan in bond holdings into secured debt. The talks, coordinated by China's financial regulators and the Shenzhen government, are ongoing, with the potential plan subject to change, and Vanke faces liquidity pressure amidst declining property sales and a Moody's credit rating downgrade to junk status. Elsewhere is has been reported that Country Garden onshore bondholders have not received coupon payment due on March 12th. China Garden plans to raise money for the payment within the 30-day grace period.
• Elsewhere, China may cut banks RRR and lower the MLF rate in the second quarter and also offer more pledged supplementary loans to meet capital requirements according to China Chief Economist Forum.

ASIA EQUITY FLOWS: China Equity Flows Increase As Market Sentiment Changes

• China equities saw another day of inflows with 4.2b yuan entering via the northbound connect. The onshore market did underperform HK equities however many equity indices have now entered technical bull markets as market sentiment changes. Equity flow momentum is also positive with the 5-day average 3.38b now sitting above the 20-day average at 3.02b yuan.
• South Korean equities marked the 4 out of the past 5 day of outflows, with the majority of outflows coming from the tech space. Equity markets are flat over the same period. The short term momentum is negative with the 5-day average now at -$131m, while the 20-day average is $135m down from $252m the prior 20 days.
• Taiwan equities saw inflows on Tuesday with $178m entering the market. Equities prices largely seemed to follow HK prices higher with semiconductor names the best performing. Short-term flow momentum is growing with the 5-day average now at $419m, well above the 20-day average at $306m
• Thailand equities continue to see outflows with the past 10 of 12 days seeing negative flows, with the SET down 1.63% over that time. The 5-day average now sits at -$9.25m, while the 20-day average is at -$8.85m.
• Philippines has marked the first day of outflows since Jan 30. Trade Data was released on Tuesday showing exports rising 9.1% from 7.4% prior, with the trade deficit now -$4.2b vs $4.7b expected.

Table 1: EM Asia Equity Flows

OIL: Higher, But Within Recent Ranges, Focus On US Inventory Data Later

Oil benchmarks remain within recent ranges. Brent (K4), was last near $82.40/bbl, up around 0.6% so far today. This is offsetting Monday's 0.35% fall, but we remain sub recent highs. WTI (J4) was last near $78.05/bbl, up 0.65%, and looking to end a run of four straight session falls for the benchmark. Like Brent though we remain largely range bound.

• OPEC+ supply weighed on sentiment during Tuesday trade. OPEC raised oil output 200,000 bpd to 26.6 mln bpd in February, it also overshot its production target by 200,000 bpd.
• At the margin broader USD strength/higher interest rates post the US CPI print, would have also been a headwind, like elsewhere in the commodity space.
• Some offset has come from reports earlier today that US crude inventories fell last week (see this BBG link for more details). We get official inventory figures in the US later today.

IRON ORE: Fresh Lows Back To Oct Last Year, $100/Ton Level Within Sight

• The technical focus will now shift to whether we can test the $100/ton, which we haven't been under since August of last year.
• There doesn't appear to be any fresh catalysts for today's fresh downshift. Familiar factors have been cited in terms of concerns around China's steel demand outlook, particularly as we enter what is typically the peak demand period.
• Some analysts have also noted the shift in focus from the authorities around China's growth priorities, which are more orientated towards tech, chips and AI and away from traditional drivers such as the property sector and infrastructure.
• On Friday we get the 1yr MLF decision in China, with no change expected. Feb house price data will also be out. We should also get new loans/aggregate finance data for Feb at some stage this week.

GOLD: Sharp Pullback After US CPI Data

Gold is little changed in the Asia-Pac session, after closing 1.1% lower at $2158.34 following Tuesday’s release of hotter-than-expected US CPI data. Bullion has now shed ~$40/oz off the all-time high posted last Friday.

• USD strength and a return higher for US yields drove price action. US Treasury yields finished 5-6bps higher across benchmarks, with projected rate cut pricing receding as the CPI data was deemed unlikely to provide the FOMC with confidence that inflation will return to 2% in the near term.
• CPI m/m (0.4% vs. 0.4% est), y/y (3.2% vs. 3.1% est); CPI Ex Food and Energy m/m (0.4% vs. 0.3% est) y/y (3.8% vs. 3.7% est). Meanwhile, Real Avg Hourly Earning y/y (1.1% vs. prior 1.3% (rev)).
• According to MNI’s technicals team, a further pullback would encounter first strong support at $2145.40 - the 23.6% retracement for the Feb - Mar up leg. Initial resistance is at $2195.2, the March 8 high.

SOUTH KOREA: Unemployment Rate Dips Back Close To 2023 Lows

South Korea's Feb unemployment rate fell to 2.6%, versus a 3.0% forecast (3.0% was also the prior outcome). This takes the unemployment rate back close to H2 2023 lows (2.5%).

• The participation rose, while y/y jobs growth was a respectable +1.2%, down slightly from Jan's +1.4% pace. This saw over 300k new jobs added for the second month in row. Jobs growth in y/y terms was fairly solid by industry outside of agriculture.
• The data should give some comfort to the BoK around the domestic backdrop. Note that the BoK minutes, out yesterday from the prior meeting, didn't suggest there was a need to rush rate cuts, at least according to one member. Note the next BoK meeting is on Apr 12.

ASIA FX: Most USD/Asia Pairs Higher, THB Softness Continues

USD/Asia pairs are mostly higher in the first part of Wednesday trade. USD/CNH has firmed back above 7.1900, amid onshore equity jitters. Modest USD gains have also been evident elsewhere, amid a mixed equity backdrop, along with carry over from a firmer USD in Tuesday trade post the CPI print. In terms of tomorrow's data events the calendar is quite light. We are still waiting for China new loans, aggregate finance data for Feb, while India trade figures are also due Thur/Fri this week.

• USD/CNH has firmed back above 7.1900. The pair got to highs 7.1960, but we sit lower now. Onshore equities have struggled, although losses are modest at this stage. Reports of troubled property developer Country Garden missing a yuan bond payment has weighed in the space. A steady yen trend, along with a slightly less aggressive CNY fixing bias have also likely curbed CNH sentiment.
• 1 month USD/KRW has drifted higher, last near 1312. This is around 0.20% weaker in won terms. Local equities are higher but away from best levels. Earlier we had data on the unemployment rate, which fell to 2.6% (against a 3.0% forecast). This suggests the domestic labor market backdrop remains resilient. For the 1 month NDF, 1305,, which has marked recent lows remains intact.
• USD/THB gaped higher at the open, the pair got to highs of 35.76, but we sit slightly lower now, last near 35.68. This is still a baht loss of 0.30%. Some of this reflects catch up with USD strength post yesterday's onshore spot close, but still baht losses are larger than those seen elsewhere in the region. Local equities remain largely in a sideways range, while portfolio flows have been negative for both equities and bonds in terms of offshore investors in recent sessions. There are also reports that PM Srettha could vacate the finance ministers post due to his busy travel schedule (see this link for more details).
• Indonesian markets have returned but spot USD/IDR is holding close to recent lows, last near 15575. This is seeing some modest rupiah outperformance relative to the recent rebound in US yields. In February, Indonesia's consumer confidence index declined from the previous month's five-month high of 125.0 to 123.1 in Feb. The index for current economic conditions fell to 110.9, this decrease was driven by reduced confidence in current income, job availability, and durable goods purchases.

INDONESIA: Indonesian Sov Curve Bear Steepens, Consumer Confidence Falls

Indonesian USD sovereign debt curve has bear steepened today with yields 1-5bps higher. Indonesia is back from their break, consumer confidence falls.

• The 2Y yield is 1bps higher at 4.90%, 5Y yield is 4bps higher at 4.88%, the 10Y yield is 3.5bps higher at 4.97%, while the 5-year CDS is down 1bp to 68bps.
• The Indon to US Treasury spread difference has continued it's move tighter after edging wider late last week. The spread difference for the 2yr is 31.5bps, 5yr is 29.5bps, while the 10yr is 82bps.
• In cross-market moves, the USD/IDR is 0.14% lower, the JCI is 0.32% higher, Nickel has risen to 4 month highs now trading at $18,580 up 0.20% while US Tsys yields are unchanged
• In February, Indonesia's consumer confidence index declined from the previous month's five-month high of 125.0 to 123.1 in Feb. The index for current economic conditions fell to 110.9, this decrease was driven by reduced confidence in current income, job availability, and durable goods purchases. While the consumer expectations index increased to 135.3, indicating greater optimism about future income and jobs, although confidence in current business activity remained subdued.
• Looking ahead: Indonesia to Sell 90D - 30Y Bonds at 5.30pm local.

PHILIPPINES: Philippines Sovereign Debt Yields Edge Higher

The Philippines USD sovereign debt curve are flatter today, with yields 1-3bps higher outperforming the moves in US Treasury on Thursday after CPI beat expectations coming in at 3.2% vs 3.1% expected.

• The 2Y yield is 1bps higher at 4.775%, 5Y yield is 2.5bps higher at 4.90% the 10Y yield is 2bp higher at 4.985%, while 5yr CDS is down 1bp to 65.50bps
• The Philip to US Treasury spread difference widen late last week, but have been able to close the gap slightly to start this week with he spread difference for the 2y is 19bps, the 5yr is 31.5bps, while the 10yr is 84bps.
• Cross-asset moves: the USD/PHP is up 0.16%, PSEi Index is 1.41% higher, Corporate Credit curve is 2-6bps tighter over the week with better buying at the 4-5yr maturity, while US Tsys yields are unchanged.
• During his three-day visit to Germany, Philippines' Marcos secured investment agreements exceeding $4 billion, covering projects like a partner hospital, an innovation think-tank hub, a digital healthcare partnership, collaborations in various sectors, and a memorandum of agreement for rehabilitating degraded farmlands. Additionally, investments were pledged for a vehicle manufacturing facility, including military-grade armored personnel carriers, and the establishment of data centers for a digital insurance platform serving the Philippines and the ASEAN region.
• Looking Ahead: Nothing on the Calendar Today or Thursday. On Friday Overseas cash remittances and Budget Balance are due out.