- USD/JPY initially hit fresh lows sub 151.00, aided by stronger household spending data but has been supported on dips. FX trends are steady elsewhere.
- In afternoon dealings, JGB futures are weaker and at session lows, --36 compared to the settlement levels. BoJ-dated OIS pricing has firmed over the past week driven by signs that the BoJ will raise interest rates again.
- China and Hong Kong equities are higher, while in India, the RBI cut rates for the first time since 2020.
- Looking ahead the main focus will be on the US NFP. We have some minor EU data and ECB speak before hand. Also note Canadian jobs data is due.
MARKETS
- There has been very little to mention in tsys today, ranges have been narrow as investors await the U.S. jobs report for clues on Fed policy. TU is trading below the overnight lows -01¼ at 102-26⅜, while TY is -02 at 109-16+
- A bull phase in futures remains in play and Wednesday’s rally reinforces current conditions. TY Price has traded through the 50-day EMA of 109-10+. This highlights potential for a stronger reversal and sights are on 109.30, a Fibonacci retracement. On the downside, initial support to watch is 108-20+, Tuesday’s low. Clearance of it would signal a reversal and the end of a corrective cycle.
- The 10-year yield edged up 2bps to 4.43% on Thursday and has risen another 1bp today, to trade at 4.444%. The 2s10s has done little today but remains trading at ytd lows of 21.788.
- Markets expect payrolls to rise by 175K, though a whisper number of 200K suggests a small beat may not move Treasuries significantly.
- Projected rate cuts through mid-2025 consolidate vs. Thursday levels (*) as follows: Mar'25 at -3.9bp (-4.2bp), May'25 at -10.7bp (-11.9bp), Jun'25 at -20.2bp (-22.7bp), Jul'25 at -25.6bp (-29.1bp)
- Meanwhile, Dallas Fed’s Logan suggested rates may already be near neutral, with Fed Governor Kugler set to speak later Friday.
STIR: $-Bloc Markets Little Changed Over the Past Week, Except For Canada
In the $-bloc, rate expectations through December 2025 are little changed over the past week, except for Canada. Canada’s year-end expectations softened 21bps over the past week.
- Canada was at the forefront of President Trump’s tariff policies, with White House officials confirming 25% tariffs on Canada and Mexico and 10% on China at the start of the week. In response, Canada and Mexico announced retaliatory measures. However, within 24 hours, Trump agreed to delay the tariffs on Canada and Mexico by a month.
- The drop in Canada's Ivey PMI to the lowest since May 2020 last month was driven by a hit to suppliers from currency depreciation against the backdrop of an already-weak domestic economy and Donald Trump's tariff threats.
- Prime Minister Justin Trudeau has announced a Canada-U.S. Economic Summit to be held in Toronto on Friday, February 7. According to a press release from the Prime Minister’s Office, the summit will build on the work of the newly formed Council on Canada-U.S. Relations and bring together leaders from trade, business, public policy, and organized labour.
- Looking ahead to December 2025, the projected official rates and cumulative easing across the $-bloc are as follows: US (FOMC): 3.90%, -43bps; Canada (BOC): 2.34%, -66bps; Australia (RBA): 3.48%, -86bps; and New Zealand (RBNZ): 3.04%, -121bps.
Figure 1: $-Bloc STIR (%)
Source: MNI – Market News / Bloomberg
JGBS: Short-End Heavy After Rinban Showed Heavy Selling Ahead Of US Payrolls
In afternoon dealings, JGB futures are weaker and at session lows, --36 compared to the settlement levels.
- BoJ-dated OIS pricing has firmed over the past week driven by signs that the BoJ will raise interest rates again.
- Japan’s economic data, including wage growth and household spending, have shown unexpected strength this week, fuelling speculation that the BoJ may accelerate and extend its rate hikes beyond previous market expectations.
- Currently, markets assign a 2% probability to a 25bp hike in March, with a full 25bp increase now priced in by September—compared to last Friday when a hike wasn’t fully priced in until October.
- Cash US tsys are ~1bp cheaper in today’s Asia-Pac session ahead of today’s headline employment data for January, which is expected to slow to 170-180k from December’s strong 256k.
- Cash JGBs are flat to 3bps cheaper, with a flattening bias, across benchmarks. The benchmark 10-year yield is 2.3bps higher at 1.30% versus the cycle high of 1.301%.
- Details of today’s BoJ Rinban Operations showed that investors were big sellers of three-to-five-year bonds. The amount offered to the central bank was more than four times the amount bid by the BoJ.
- Swap rates are 1bp higher to 1bp lower. Swap spreads are mostly tighter.
JAPAN DATA: Dec Household Spending Surges, Matching Stronger Labor Earnings
Japan's Dec household spending outcome comfortably beat estimates. Real spending rose 2.7% y/y, versus a 0.5% BBG consensus forecast and -0.4% for Nov. Nominal spending was up 7%y/y, matching a solid gain in incomes, which fits with the recent labor earnings data beat from earlier this week. Spending rose 2.3% in real terms m/m.
- The chart below overlays real household spending y/y against real cash earnings (also in y/y terms). The y/y spending outcome was the firmest since August 2022.
- The positive trends to both series will be encouraging for the Japan authorities, as it looks to maintain positive real wage/spending trends this year. This is a key input to sustainably achieving the 2% BoJ inflation target.
Fig 1: Japan Real Household Spending & Real Labor Earnings Y/Y
Source: MNI - Market News/Bloomberg
STIR: BoJ Dated OIS Has Firmed Over the Past Week On Strong Data
BoJ-dated OIS pricing has firmed over the past week driven by signs that the BoJ will raise interest rates again.
- Japan’s economic data, including wage growth and household spending, have shown unexpected strength this week, fueling speculation that the BoJ may accelerate and extend its rate hikes beyond previous market expectations.
- Currently, markets assign a 2% probability to a 25bp hike in March, with a full 25bp increase now priced in by September—compared to last Friday when a hike wasn’t fully priced in until October.
Figure 1: BoJ-Dated OIS – Today Vs. Last Friday
Source: MNI – Market News / Bloomberg
AUSSIE BONDS: Drifted Cheaper Ahead Of US Payrolls
ACGBs (YM -5.0 & XM -4.0) are cheaper and near session lows during a typical pre-US payrolls Friday.
- Today, the local calendar will see Foreign Reserves data later.
- Cash US tsys are ~1bp cheaper in today’s Asia-Pac session ahead of today’s headline employment data for January, which is expected to slow to 170-180k from December’s strong 256k.
- Cash ACGBs are 4bps cheaper with the AU-US 10-year yield differential at -9bps.
- Swap rates are 3-4bps higher.
- The bills strip has bear-steepened, with pricing -2 to -6.
- RBA-dated OIS pricing is flat to 4bps firmer across meetings today. A 25bp rate cut is more than fully priced for April (131%), with the probability of a February cut at 89%.
- Based on historical patterns, it would be highly unusual for the RBA not to follow through on market expectations, especially since it has made no attempt—officially or unofficially—to steer expectations away from a cut, as it has done in the past.
- On Monday, the local calendar is empty, with Tuesday’s Westpac Consumer and NAB Business Confidence as the next data.
- Next Week, the AOFM plans to sell A$400mn of the 2.75% 21 May 2041 bond on Wednesday and A$700mn of the 1.50% 21 June 2031 bond on Friday.
BONDS: NZGBS: Sharply Cheaper As Market Plays Catch-Up After Holiday
NZGBs closed weaker, with benchmark yields rising 2-8bps in a session lacking local data.
- Today's movements largely reflect a catch-up after yesterday’s holiday, with NZ-US and NZ-AU 10-year yield differentials tightening by 1-2bps from Wednesday’s close.
- Cash US tsys are ~1bp cheaper in today’s Asia-Pac session ahead of today’s headline employment data for January, which is expected to slow to 170-180k from December’s strong 256k.
- NZ’s Foreign Minister Winston Peters suggests that the country needs to create an attractive economy and rules to draw in wealthy overseas investors, which could include allowing them to purchase homes.
- Swap rates closed flat to 9bps higher, with the 2s10s curve flatter.
- RBNZ dated OIS pricing closed 1-5bps firmer. 49bps of easing is priced for February, with a cumulative 120bps by November 2025.
- On Monday, the local calendar is empty. The next event is a State of the Economy presentation by Treasury Chief Economic Adviser Dominick Stephens next Wednesday. The next data release is Card Spending on Thursday.
FOREX: USD/JPY Supported On Dips, Yen Pares Weekly Gain, US NFP Later
Aggregate G10 FX moves have been modest so far in Friday Asia Pac trade. The BBDXY index was last around 1298. So far this week, dips in the index sub the 50-day EMA have been supported. This zone is around 1296.85, so close by to current levels, as US NFP approaches later.
- Early doors saw USD/JPY pressure to the downside. We tested just under 151.00. Yen gains were aided by stronger than expected household spending data. We rebounded from this level and pushed back above 151.70. We sit close to these levels in latest dealings.
- Outside of proximity to US NFP, a steadier yen backdrop has likely reflected some stability in US-JP government yield differentials. A Japanese government official also played down the earlier household spending beat, staying one-off year end demand was a factor. The USD/JPY RSI (14) is also close to oversold conditions.
- Elsewhere we did see a brief blip higher in AUD and NZD, but there hasn't been any follow through. China and HK equities are higher but trends elsewhere in the region are mixed from an equity standpoint. AUD/USD was last 0.6280/85, unchanged, while NZD was close to 0.5675/80.
- US equity futures are down slightly, while US yields are up slightly, last around 1bps firmer across the Tsy benchmarks.
- Looking ahead the main focus will be on the US NFP. We have some minor EU data and ECB speak before hand. Also note Canadian jobs data is due.
ASIA STOCKS: Hong Kong & China Equities Higher As Tech Leads The Way
- Chinese stocks gained on Friday, showing resilience despite potential tariff risks. ETF inflows have supported onshore markets, while DeepSeek's AI momentum continues to drive sentiment. Gains were broad-based, spanning CSI 300 to CSI 2,000, with even property stocks rising on stable January sales data.
- Major benchmarks in Hong Kong & China are all higher today, small-cap is outperforming large cap with the CSI 1000 & 2000 both up about 1.80%, while the CSI 300 trade 1.15% higher, while Hong Kong's HSI is 1.20% higher.
- Chinese property stocks climbed as January sales data showed signs of stabilization. HSBC noted that home sales in 30 cities were largely flat y/y, with some gains in major cities during Lunar New Year. The Bloomberg Intelligence gauge of developers rose 2.5%, with Shimao (+7.1%), China Vanke (+5.9%), and Sunac (+7.6%) leading gains. Shenzhen’s housing market saw a 60% y/y jump in sales.
- Chinese tech stocks in Hong Kong are nearing a bull market, fueled by AI enthusiasm after startup DeepSeek launched a low-cost AI model. The Hang Seng Tech Index is 2.25% higher today and up 20% from its January low, with Xiaomi, Li Auto, and Kingdee leading gains. Relief over smaller-than-expected US tariffs helped sentiment, though Morgan Stanley remains cautious on China’s semiconductor sector. Southbound flows into Hong Kong tech stocks increased in January, supported by AI momentum.
ASIA STOCKS: Asian Equities Mixed, Chinese Tech Stocks Rally, NFP Later
- Asian equities are trading mixed today, with Chinese tech stocks leading gains, while Japan and South Korea faced selling pressure. The Hang Seng Tech Index surged 2.8%, entering a technical bull market, as optimism over DeepSeek’s AI advancements fueled buying in China’s internet firms. The CSI 300 rose 1.6%, and the Hang Seng gained 1.3%, supported by ETF inflows and hopes for further stimulus.
- Japan’s Nikkei is 0.4% lower, while the TOPIX is 0.50% lower, pressured by a stronger yen following hawkish Bank of Japan comments on interest rates. South Korea’s Kospi declined 0.55%, with Samsung & SK Hynix both trading lower. Taiwan’s Taiex (+0.4%) and Australia’s ASX 200 remained stable, while Indonesia’s JCI is 2.1% lower to be the worst performing market.
- Market sentiment remains cautious ahead of US nonfarm payrolls, expected to show 175,000 new jobs. A strong reading could dampen Fed rate-cut hopes, while a weak print may raise concerns about US economic momentum. Treasuries were steady, while gold and oil edged higher.
ASIA STOCKS: Equity Flows Mixed, Ytd Flows Remain Negative Across All Regions
Small inflows into both Taiwan & South Korea on Thursday as Tech stocks outperform. India continues to see outflows, and has now seen almost $9b in outflows this year.
- South Korea: Recorded +$248m in inflows yesterday, reducing the 5-day total to -$826m. YTD flows remain negative at -$1.04b. The 5-day average is -$165m, worse than the 20-day average of -$54m and the 100-day average of -$148m.
- Taiwan: Posted +$382m in inflows yesterday, reducing the 5-day total to -$885m. YTD flows are negative at -$2.68b. The 5-day average is -$177m, worse than the 20-day average of -$160m and the 100-day average of -$111m.
- India: Recorded -$132m in outflows Wednesday, leading to a 5-day total of -$633m. YTD outflows remain significant at -$8.85b. The 5-day average is -$127m, better than the 20-day average of -$385m but worse than the 100-day average of -$162m.
- Indonesia: Posted -$143m in outflows yesterday, bringing the 5-day total to -$183m. YTD flows are negative at -$431m. The 5-day average is -$37m, worse than the 20-day average of -$16m and the 100-day average of -$13m.
- Thailand: Saw +$17m in inflows yesterday, reducing the 5-day total to -$51m. YTD flows are negative at -$287m. The 5-day average is -$10m, better than the 20-day average of -$13m and the 100-day average of -$16m.
- Malaysia: Registered -$6m in outflows yesterday, bringing the 5-day total to -$68m. YTD flows are negative at -$761m. The 5-day average is -$14m, better than the 20-day average of -$35m but worse than the 100-day average of -$26m.
- Philippines: Recorded +$3m in inflows yesterday, bringing the 5-day total to +$32m. YTD flows remain negative at -$93m. The 5-day average is +$6m, better than the 20-day average of -$4m and the 100-day average of -$2m.
Table 1: EM Asia Equity Flows
OIL: A Down Week for Oil as Trump Pledges to Lower Prices.
- President Trump turned his attention to OPEC+ overnight pledged to increase production, driving down prices.
- Trump said, “We are going to have more liquid gold coming out of the ground than anybody’s ever seen before,” he said at a breakfast in Washington (source: BBG).
- These remarks overshadowed news that the US Treasury secretary sanctioned an international network known to facilitate shipments of Iranian oil into China.
- The sanctions capture individuals, specific vessels and companies operating in China, UAE and India.
- Unsurprisingly Oil headed lower throughout the trading session for and is looking to have one of the softest weeks of 2025 thus far.
- WTI finished opened at $70.61in the Asian trading session, rising gradually throughout the day to $70.84.
- WTI for the week is on track to fall by -3.85% for the week, one of the biggest falls for 2025.
- Brent opened at $74.31 and tracked gradually higher throughout the day to reach $74.57.
- For the week, Brent is on track to be down almost 2.8%.
- Sales of Russia’s flagship oil product, the URAL, has seen prices collapse amid signs that US measures are hurting Russia.
- Canadian oil pipeline company Trans Mountain is the country’s key in the tariff war as it’s pipeline feeds the Pacific coast, rather than the US.
- Trans Mountain said yesterday in a business development update that the potential diversion of oil from the US to their pipeline bound for Asia, could have hugely positive impacts for the company.
Gold's Rise Resumes in Asian Trading.
- Gold’s six days of gains came to an end overnight as prices moderated ahead of a big Friday for economic data in the US.
- Opening at $2,856.45 in the Asian trading day, gold bucked overnight trends to rally most of the day, reaching $2,868.40.
- For the week, gold is on track to deliver a 2.50% gain.
- Citibank analysts released research suggesting that global tensions triggered by Trump’s desire to levy tariffs, will drive investors to the ‘safe haven’ of gold.
- Citibank suggests that gold prices could hit US$3,000 in the first half of the year which would add to an already strong year for bullion.
- UBS’s strategists hold a similar view forecast $3,000 over the next 12 months..
- Several key Central Bank’s restarted their buying programs last year in a sign that the demand cycle for gold is set to continue.
- Gold’s fortunes in Friday’s trading are likely to hinge on the raft of significant economic data expected overnight in the US, and the insight it will give for the direction of interest rates.
INDIA: RBI Cuts Rates for First Time Since 2020.
- In his first monetary policy meeting as Governor, Sanjay Malhotra delivered India’s first rate cut since 2020 in an attempt to arrest the slowing growth.
- The six member panel voted unanimously to cut rates 25bps to 6.25%, a move that the majority of economists predicted.
- The monetary stance has remained at neutral, consistent with our view that the rate cutting cycle in India will be shallow.
- With inflation still above the RBI target of 4%, its trajectory has been slowing, providing the window to cut in today’s meeting.
- The new Governor has not been as public in presenting his views, making it difficult for market analysts interpret his intentions.
- Last weekend the government announced their budget with significant tax relief to the middle class and today’s rate cut will add to that level of support for the broader economy.
INDIA: Bond Market Reacts to Rate Cut
- Indian government bonds are weak post today’s rate cut indicating traders were expecting more from the RBI.
- India’s 10YR government bond is higher in yield by +4bps to 6.697% in early trading.
- The RBI voted to keep its stance at neutral, consistent with MNI’s view, disappointing traders who expected a more accommodative approach from the new Governor.
- Whilst growth is slowing, the combination of tax cuts and moderate rate cuts seemingly are the approach going forward in lieu of an aggressive easing cycle.
- Whilst growth has moderated and on present forecasts will hit 6.7%, relative to regional peers this growth outlook remains robust.
- Inflation has moderated from the October peak (caused by a spike in food prices) yet remains above the RBI’s 4% target.
- For that reason, the RBI has no option but to be careful and we see this rate cycle as been short with 1-2 more cuts at best.
SOUTH KOREA: Governor Rhee Injects Fresh Uncertainty Into BoK Outlook
- Despite the political turmoil in Korea of late, financial markets took comfort from a well regarded Central Bank and its ability to maintain markets.
- At the last BOK meeting (January 16) market expectations were for a cut in interest rates, and the BOK surprised most by remaining on hold.
- The BOK Governor Rhee in his subsequent press conference was at pains to point out that the BOK is in a rate cutting phase.
- Since that time there has not been a finalization of the political malaise gripping Korea, and economic data has surprised to the upside.
- Yet in an interview on Thursday on BBG TV, Governor Rhee pushed the emphasis onto the government saying, “ That is why I’m emphasizing more fiscal stimulus is necessary,” he said when asked by the BBG journalist about mounting speculation for a rate cut at the February 25 meeting.
- Governor Rhee added a further that a rate cut this month is by no means a done deal.
- A Central Bank Governor’s reputation is dependent on their ability to carefully and successfully guide the markets expectations as they navigate managing the economy.
- The market reaction has been for short term implied policy rates to tick up. The 3 month is back to 2.90%, up 4bps, while the 6 month is up to 2.66%, alos +4bps firmer. The 1yr outlook still implied around 50bps worth of further BoK cuts.
INDONESIA: January FX Reserves Resilient Despite Currency Defense.
- Indonesia’s FX reserves for January were a touch higher at US$156.1bn, from $155.7bn in December.
- Since the US election last year and the accompanying USD strength, the Central Bank (Bank Indonesia) has on multiple occasions entered into markets to defend the currency.
- The rupiah is on of the worst performers of its regional peers down -3.6% over the last three months and with current forecasts for 75bps of cuts in 2025 to support growth, the challenge for the BI seems likely to remain.
- Yet for now, FX reserves remain resilient and are a confidence boost to the Central Bank.
ASIA FX: NEA FX Trends Steady, Taiwan Data Coming Up, China Inflation On Sunday
In NEA FX markets, FX trends have been very steady in for CNH, KRW and TWD. USD/CNH is tracking near 7.2900 currently. Onshore USD/CNY spot is little changed, last near 7.2860. The pair opened above 7.2900, but this short lived. Local equities are again rallying strongly, the CSI 300 back above 3900, but this is doing little for yuan sentiment. Spot USD/KRW is in the 1447/48 region, no change for the session. USD/TWD is close to 32.81, down a touch so far in Friday trade. Coming up in a little while is Taiwan inflation and trade data for Jan. This Sunday we get China Jan inflation data.
- Focus is likely to remain on tariffs from a USD/CNY standpoint. China's measures are due to kick in next Tuesday on Feb 10. The China side is keen to negotiate per our onshore policy team.
- USD/KRW spot has had stronger correlations with CNH moves than JPY in recent months, so may follow yuan trends more so than yen in the period ahead.
UP TODAY (TIMES GMT/LOCAL)
| Date | GMT/Local | Impact | Country | Event |
| 07/02/2025 | 0700/0800 | ** |  DE | Trade Balance |
| 07/02/2025 | 0700/0800 | ** | DE | Industrial Production |
| 07/02/2025 | 0745/0845 | * |  FR | Foreign Trade |
| 07/02/2025 | 0745/0845 | FR | Wages Data for Q4 | |
| 07/02/2025 | 0800/0900 | ** |  ES | Industrial Production |
| 07/02/2025 | 0845/0945 |  EU | ECB's De Guindos remarks in 'VI Encuentro Economico-Asegurador' conference | |
| 07/02/2025 | 1200/1300 | EU | ECB to publish report on R* | |
| 07/02/2025 | 1215/1215 |  GB | BOE's Pill at National MPC Agency briefing | |
| 07/02/2025 | 1330/0830 | *** |  CA | Labour Force Survey |
| 07/02/2025 | 1330/0830 | *** |  US | Employment Report |
| 07/02/2025 | 1425/0925 | US | Fed Governor Michelle Bowman | |
| 07/02/2025 | 1500/1000 | ** | US | Wholesale Trade |
| 07/02/2025 | 1500/1000 | ** | US | U. Mich. Survey of Consumers |
| 07/02/2025 | 1700/1200 | US | Fed Governor Adriana Kugler | |
| 07/02/2025 | 2000/1500 | * | US | Consumer Credit |
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