MNI EUROPEAN MARKETS ANALYSIS: USD/Asia Pairs Higher As China/HK Equity Gains Stall

US TSYS: Treasury Futures Test Lows, Goldman See Only Four Rate Cuts

TYH4 is currently trading at 109-11, down - 05 from New York closing levels
Treasury futures opened slightly higher Friday morning, however pushed lower post Fed Gov Waller speech on the economy, where he reiterated what earlier speakers said around there being no rush to cut rates.

• Mar'24 10Y futures are just off Thursday lows (109-10) trading at 109-11, futures have continued to edge lower Post Fed speeches, initial support holds at 109-10 (low Feb 22) a break here opens a move to 109-05+ (lows Nov 28). Mar'24 2Y futures broke the Thursday lows, and have continued to drift lower now at 101-25 ¼, initial support holds at 101-24+ lows from Nov 27.
• Earlier there was a 4,690 Mar'24 5Y Block Sold at 106-08¼, DV01 $194k, which looked to aid the selling pressure, as it has now made fresh yearly lows and back to late November levels of 106-05+
• Elsewhere Goldman Sachs had dropped their forecast for a US rate cut in May, now expects only 4 cuts down from 5 prior.

AUSSIE BONDS: Front End Yields Continue To Climb, Jan CPI Out Next Wednesday

Aussie bond futures sit lower, YM off -.06, XM down -045. Cash government bond yields are around 2-5bps firmer across the curve, led by the front end.

• Spill over weakness has been evident from US TSYs. TYH4 is threatening a clean break sub Thursday lows. Fed speak has continued and generally pushed back against the idea of early rate cuts. Harker didn't rule out a cut in May but noted it wasn't the forecast and would rely on data surprising on the downside.
• Goldman Sachs also now has 4 cuts this year instead of 5 (with May no longer penciled in) in terms of its Fed outlook.
• For Aussie bond futures we remain with February ranges. YM lows came back on Feb 14 at 96.11 (last around 96.21).
• 2yr swap rates have firmed nearly 3bps but at 4.04% remain sub earlier Feb highs (in contrast to NZ). The 10yr swap rate is up 3bps to 4.25%.
• Looking ahead the data calendar holds Jan CPI next Wed (along with the RBNZ) as the next major domestic focus point.

NZGBS: Yields Firm On TSY Weakness, TD Now Expects RBNZ Hike Next Week

NZ government bond yields finished firmer, around +2-3bps across the benchmarks. There was slight outperformance at the front end, with the 2yr yield up nearly 3bsp to 4.945%.

• In the swap space, the 2yr is modestly higher, last at 5.1850% but this is through Mid Feb highs and back to highs last seen in Nov last year. The 10yr swap rate is 4.63%, nearly 2bps higher, but below earlier Feb highs.
• Markets largely shrugged off the much weaker than expected Q4 NZ CPI print, which fell nearly 2% and saw Q3 revised lower (-0.8% from initially reported as flat).
• A weaker US Tsys backdrop amid on-going Fed talk of push back to earlier rate cuts has likely aided the yield move. Also note Goldman Sachs now expects 4 cuts this year instead of 5 in the US (with the bank no longer expecting a cut in May).
• We also have the RBNZ next week, and headlines crossed from TD Securities with a view change. They now expect that the RBNZ would raise the OCR 25bps next week to 5.75%, and to 6% in May.
• Earlier NZ Finance Minister spoke in Sydney, where she spoke about the NZ Economy where she cast doubt on returning a budget surplus in 2027, and that Higher interest rates are starting to hit with unemployment rising.

FOREX: AUD & NZD Firm, USD Down Slightly Despite Softer US TSYs

The BBDXY sits slightly lower for the session, not deriving much benefit from a pull back in US TSY futures. The index last sat near 1241.70, only marginally below NY closing levels from Thursday.

• Japan markets have been out today due to a national holiday, hence no US cash Tsy trading. Still, a number of Fed speakers have pushed back against the idea of early rate cuts, while Goldman's now sees 4 cuts this year, down from 5. The bank no longer expects the easing cycle to start in May.
• USD/JPY has been quite steady, not drifting too far from the 150.50 level, which is where we started the session.
• The AUD has outperformed, up around 0.25%, last near 0.6575. Thursday highs at 0.6595 remain intact, but a weaker HK/China equity tone hasn't disrupted sentiment. Offshore dividend inflows have been cited by the sell-side this week as a potential AUD support point.
• For NZD/USD, we are back above 0.6200, but trailing AUD gains at the margin. The AUD/NZD cross has firmed back to 1.0600, but hasn't been able to hold gains above this level.
• At the start of the session Q4 retail sales volumes were much weaker than expected. However, there was no last negative impact on NZD. We also have the RBNZ next week, and headlines crossed from TD Securities with a view change. They now expect that the RBNZ would raise the OCR 25bps next week to 5.75%, and to 6% in May.
• Looking ahead to later today, we have ECB as the main focus point, headlined by Lagarde. In the US session, the calendar is light for data and there is no Fed speak.

CHINA/HONG KONG EQUITIES: China & HK Equities Mostly Lower, Home Prices Fall Less Than Dec

Hong Kong & China equity markets opened higher this morning, but as we head into the break, equities is largely lower with the property sector outperforming.

• Hong Kong Equities were higher on the open, HSI trade up about 1%, before quickly reversing to now trade down 0.24%, tech names lead the decline today with the HSTech Index 1.00% lower, while property are outperforming after Jan House price data saw a slight improvement on the Dec outcomes, with the mainland property index up 0.90%
• China equities are mixed today, the CSI300 is down 0.13%, while the Shanghai Composite hit 3,000 for the first time, before heading lower to trade flat for the day.
• As has been reported earlier this week the CSRC has banned some institutional investors from selling stock on the open and close of market, however the CSRC on Thursday says although it has taken measures to regulate "abnormal trading" it has not restricted the selling of stock in the market.
• The number of foreclosed properties for sale in China rose 48% in January up from 37% a year earlier signaling the country's ongoing economic slowdown, while these foreclosed residential properties were sold at an average discount of 23% in January.

ASIA PAC EQUITIES: Asian Equities Ride The Tech Wave Higher

Regional Asian Equities are higher today, tech has been the main driver of the move, otherwise a quiet day for markets.

• Japan equities are closed today for Emperors Day.
• Taiwan Equities saw $413m of foreign equity inflows on Thursday, almost erasing all outflows from the day prior as investors took profit ahead of Nvidia earnings. TMSC again leads the market higher up 0.87%, as the Taiex makes new all time highs to trade up 0.48% today.
• South Korean equities are also higher today and set for a fifth week of gains, as optimism over the "Corporate Value-up Programme" has driven markets higher, while the recent surge in global tech prices linked to AI names has also give the market a boost. There is however some concern that investors will start to take profit, with momentum in equity flows slowing as the 5-day average now sits at $190m, well below the 20-day average of $296m. The Kospi trade up 0.25% today.
• Australian Equities are higher today, the tech sector is trading well although it contributes little to the overall market the largest gainer was Block Inc, up 16.50%. Financials are contributing the most to the market led by CBA, while the ASX200 is 0.39% higher.
• Elsewhere in SEA, New Zealand Equities closed up 0.25%, Indonesia saw net selling by foreigners on Thursday contributing to their equity trading lower today, down 0.88%, Philippines equities are up 1.10%

Asian Equity Flows

• China Equities equities closed up for the 8th consecutive day on Thursday, as government support and policy changes help sentiment, foreign equity inflows were also positive at 3.7b yuan even though Institutional Investors are being banned from selling stock on the open and close, although the CSRC deny they are restricting selling.
• South Korean Equities more than covered Wednesday outflows (largest since Jan 17th) with $187m of inflows Thursday, this number however still sits below the 20 day average of $296m. On Thursday, the BoK decided to keep rates on hold at 3.5% for the ninth straight meeting. Expect equity flows to remain largely positive while semiconductor names continues to soar higher.
• Taiwan saw $413m of inflows on Thursday, largest on the back of strong demand for semiconductor names, this should continue while the sector remains hot.
• Indonesian equities marked the first day of outflows since Feb 5th as flows lose momentum with the 5-day average now $47.6m falling below the 20-day of $51.4.
• Indian equities hit new highs again on Thursday, momentum is still supportive as the 5 day average is $49.6m , well above the 20-day average of -$56.4m
• Thailand equities continue their run of inflows after the PM calling for a rate cut, although it's should be noted the Central Bank head has rejected these calls. However momentum remains strong The 5-day average is $65m, well above the 20-day average of just $8m of inflows.

Table 1: EM Asia Equity Flows

OIL: Off Thursday Highs, Tracking Down Slightly For Week

The first part of Friday trade has seen oil front month benchmarks soften. Brent was last near $83.25/bbl, down around 0.50% from end Thursday levels. If we hold at this level, we will finish the week marginally weaker. For WTI, we were last close to $78.20/bbl, off by a similar amount for the Friday session and also tracking lower for the week.

• At the margin a softer US Tsy futures backdrop has probably weighed on sentiment in the space so far today. US Fed officials, have for the most part pushed back against the idea of near term rate cuts.
• Fundamentally, Red Sea attacks look set to continue, with the Houthi leader saying the group is looking to 'Escalate' Red Sea operations. On Thursday we also had a lower-than-expected build in US crude stocks.
• Hence prices remain fairly close to recent highs on supply concerns. For Brent, late Jan highs at $84.80/bbl will be the upside focus.

GOLD: Bullion Steady Post Waller Speech, Trades Within Weekly Ranges

Gold continues to trade around $2025/oz, just above where it closed on Thursday and around the mid-point of its range this year, the USD is little changed after seeing some movement while Fed’s Gov Waller spoke earlier.

• Gold is currently headed for a modest weekly gain, off the weekly highs of 2035 after comments throughout the week and earlier today from Fed Gov Waller where they reiterated that there is no rush to cut rates, but that if data changes a May wouldn't be off the table.
• Gold is moving well below resistance at $2065.50, February 1 high, and it needs to clear this level in order for the bullish theme to be reinstated, while currently trading just below the 50-day SMA of $2032.55
• Looking at technicals, we trade slightly below initial resistance of $2034.9/2065.5 - High Feb 22 / Feb 1, while to the downside initial support is at $1984.3 - Low Feb 14
• Thursday marked the biggest one-day outflow since Oct'23 for SPDR Gold Shares ETF
• There is little in the way of data or fed speeches today.

CHINA DATA: House Prices Still Fall, But At Slower Pace Compared To Dec

Jan house price data saw a slight improvement on the Dec outcomes. New home prices fell -0.37% m/m, versus -0.45% in Dec. Existing home prices were down -0.68% m/m, versus a -0.79% fall in Dec.

• Still for new home sales this marks the 8th straight month of price falls. For used homes this was the 9th straight monthly drop.
• In y/y terms new home prices were down -1.24% y/y (versus -0.89% in Dec). For existing homes, we are down -4.45% (versus -4.07% in Dec).
• By city, we had new house price falls in 56 cities in Jan (62 Dec). For existing homes, it was 68 (versus 70 in Dec). There were 11 cities where new home prices rose (7 in Dec), while 2 cities recorded a rise for existing homes (up from none in Dec).
• By large city, Beijing new and existing home prices were down slightly in the month. In Shanghai, new home prices rose 0.4%, but for existing homes we fell -0.8% m/m.
• It is likely too soon to draw positive biases around the house price outlook, it does suggest some stabilization as we progressed from 2023 into 2024. The caveat is that the LNY period carried mixed trends for housing transactions.

ASIA FX: USD/Asia Pairs Firm Amid Weaker US TSYs, Less Supportive Equities

USD/Asia pairs are higher today, albeit to varying degrees. USD/CNH spot has firmed a touch, as the HK/onshore equity rally has lost some momentum. KRW gains have also stalled, while in SEA THB has lost around 0.40%. General push back from Fed speakers on early rate cuts is helping USD sentiment, although IDR is a modest outperformer. Next week starts off reasonably quiet from a data standpoint.

• USD/CNH has firmed modestly, last near 7.2080, up a touch from end Thursday levels in NY. Earlier highs in the week were above 7.2170. Yield differentials are shifting back in favor of the USD but the authorities are likely to guard against aggressive depreciation pressures. The local equity rally has stalled somewhat today. On the data front, the Jan house price drop was less than Dec, but it might be too early to turn more positive on the sector.
• 1 month USD/KRW has firmed a touch, but has mostly had a quiet session in the first part of Friday trade. Positive equity spill over to the FX has slowed, with the Kospi back to flat. The 1 month NDF was last near 1327, up from Thursday intra-session lows near 1322.
• USD/THB is firmer, back close to the 36.00 level. This is around 0.40% weaker in baht terms. We remain within recent ranges, with the recent test sub the 20-day EMA near 35.80, not proving sustainable. Recent highs rest at 36.185. Customs trade data showed a wider than expected trade deficit at -$2.8bn, which saw the baht weaken to 36.025, but there was follow through.
• Malaysian PM has commented on the weaker ringgit backdrop. The PM said the fall earlier this week (back to lows since 1998) was concerning and that the government has asked the central bank to monitor the situation. Spot USD/MYR has firmed modestly today, back above 4.7800, which comes after the pair briefly traded above 4.8000 earlier in the week. Note all time highs back in 1998 for the pair were at 4.8850. MYR's low carry and uncertainty around the growth outlook, may keep offshore inflows limited, at least until the Fed cycle turns more dovish. Still, with the currency now drawing the PM's focus, we may see the 4.8000 level as somewhat of a near term line in the sand. On the downside, note the 20-day EMA sits back near 4.7600.
• The rupiah has outperformed. Spot USD/IDR remains under 15600, not too far off Feb lows. Better risk appetite in the global equity space is likely helping at the margins. Onshore 5yr CDS is trending lower. Weakness in local equities isn't hurting sentiment.