- The USD has recovered some ground amid various Trump tariff threats through the course of the day. After outperforming yesterday, yen is the weakest performer so far in Tuesday trade.
- For Tsys, sentiment has been quieter, with focus on the upcoming FOMC meeting. Tsys futures have given back a small portion of the overnight gains, although still trade near closing level from Monday.
- Asian shares, for those markets open (with several countries, including China, now on the LNY break), are mostly lower following Monday's AI related sell-off.
- Looking ahead, we have various US data points coming up, along with some Fed surveys (including the Richmond print). There is also some ECB speak.
MARKETS
US TSYS: Tsys Futures Slightly Lower, Focus On FOMC Tomorrow
- It has been a relatively quiet session today, following last nights sell-off in risk assets, focus is now on Wednesday FOMC meeting. Tsys futures have given back a small portion of the overnight gains, although still trade near closing levels, with TU -01⅜ at 102-27⅝, while TY is -06 at 108-31.
- Cash tsys curves have flattened a tough throughout the session, with the 2yr +1.7bps at 4.212%, while the 10yr is +1.6bps at 4.551%. The 2s10s unchanged at 33bps, while the 2s30s is -0.5bps at 58bps.
- President Trump’s Treasury pick, Scott Bessent, reportedly supports a universal tariff on US imports starting at 2.5%, with monthly increases of the same amount. Meanwhile, Trump has signaled a preference for significantly higher tariffs, stating they should be “much bigger” than 2.5%.
- Trump has also expressed eagerness to work with Congress on what he calls the largest tax cuts and reforms in US history. Speaking at a House Republican retreat in Florida, he emphasized avoiding delays in the budget process and said he is flexible on whether the changes are passed in one bill or multiple bills. Trump reiterated his campaign promises not to tax tips, Social Security, or overtime payments, stressing the goal of lowering taxes for all Americans, not just the wealthy.
- The majority of Asian markets will be out at some point this week for Chinese New Years, so expect trading to be on the quiet side, later tonight we have Durable Goods Orders, FHFA House Price Index, Conf. Board Consumer Confidence, Richmond Fed Manufact. Index as well as earnings from PACCAR, Sysco Corp, Synchrony Financial, Lockheed Martin Corp, Veradigm, Royal Caribbean, Polaris Inc., Boeing, NextEra Energy, JetBlue Airways, General Motors, Kimberly-Clark Corp, Invesco, Starbucks, Qorvo and Stryker Corp.
JGBS: Futures Holding Stronger After PPI Services Miss
JGB futures are stronger, +21 compared to settlement levels
- Outside of the previously outlined lower-than-expected PPI Services data, there hasn't been much by way of domestic drivers to flag.
- PM Ishiba’s government nominates female economist Junko Koeda to join the BoJ’s policy-setting board at the end of March.
- The market has priced in a policy rate of 0.75% by the end of the year and is increasingly focused on the possibility of rates reaching 1.0% or higher. Current pricing reflects expectations of continued modest hikes, though some analysts caution that market assumptions may be overly optimistic. The BoJ’s statement reiterated its willingness to adjust rates further if economic conditions warrant, but the lack of specific guidance has left room for speculation.
- Cash US tsys are 1-2bps cheaper in today’s Asia-Pac session after yesterday’s strong rally. The focus remains on Wednesday's FOMC policy announcement, no move is expected.
- Cash JGBs are flat to 2bps richer across benchmarks, with a flattening bias. The benchmark 10-year yield is 1.2bps lower at 1.201% versus the cycle high of 1.262%.
- Swap rates are flat to 1bp higher. Swap spreads are wider.
- Tomorrow, the local calendar will see BOJ Minutes of the Dec. Meeting and the Consumer Confidence Index alongside 5-year GX supply.
BOJ: MNI BoJ Review – January 2025: Another Step In Normalisation
EXECUTIVE SUMMARY
- The Bank of Japan's (BoJ) recent monetary policy developments, including the 24 January decision to raise the policy rate by 25bps to 0.5%, mark a continued shift toward normalisation. This decision, though widely expected, reflected the BoJ’s growing confidence in achieving its economic outlook, supported by upward revisions to inflation forecasts and expectations of strong wage growth.
- The BoJ’s decision was not unanimous, as Toyoaki Nakamura opposed the hike, reflecting lingering caution about the economic trajectory.
- Inflation forecasts were revised upward, with core inflation expected to reach 2.7% in FY2024, 2.4% in FY2025, and 2.0% in FY2026. This outlook supports the central bank’s guidance for further rate hikes, albeit at an unhurried pace.
- Analysts have noted that despite the hawkish shift in tone, Japan’s real policy rate remains deeply negative, suggesting minimal drag on economic activity. The BoJ’s emphasis on balancing inflation control with economic growth indicates that normalisation will proceed gradually.
- In summary, the BoJ’s January decision underscores its incremental shift toward normalisation, buoyed by stronger inflation and wage growth forecasts. However, the path ahead remains uncertain, with the pace and timing of further hikes dependent on a confluence of domestic and international factors. While markets anticipate additional tightening, the BoJ's cautious stance suggests that normalisation will be measured and deliberate, ensuring that economic growth remains on track amidst evolving risks.
- Full review here:
AUSSIE BONDS: Richer Ahead Of Tomorrow’s Q4 CPI & FOMC (Thu Morning Local Time)
ACGBs (YM +6.0 & XM +5.0) are stronger but off session bests after business conditions improved in December.
- The NAB survey showed that conditions climbed 3 points to +6, reversing declines from the prior month and almost returning to its long-run average. Business confidence edged up 1 point to -2.
- Cash US tsys are 1-2bps cheaper in today’s Asia-Pac session after yesterday’s strong rally.
- Cash ACGBs are 5-6bps richer with the AU-US 10-year yield differential at -12bps.
- Swap rates are 5bps lower.
- The bills strip has bull-flattened, with pricing +2 to +7.
- Tomorrow’s Q4 CPI data could be pivotal in determining whether the RBA initiates a long-anticipated monetary easing cycle. It may also influence the timing of an election, which must be held by May 17. Economists predict the trimmed-mean CPI will have declined to 3.3%, marking its lowest level in three years.
- RBA-dated OIS pricing is 1-6bps softer across meetings today. A 25bp rate cut is more than fully priced for April (124%), with the probability of a February cut at 78% (based on an effective cash rate of 4.34%).
AUSTRALIA DATA: NAB Business Surveys, Business Conditions Improve
- Australian business conditions improved in December, rising 3pt to +6, driven by a recovery in retail as consumer spending strengthened and price pressures eased. Retail conditions turned positive for the first time since November 2023, while business confidence edged up 1pt to -2. Services sectors remained the strongest performers, and capacity utilization rose to 82.8%, above its long-term average, indicating robust demand.
- The report highlights softer wage pressures, with labor cost growth at 1.4%, ahead of key quarterly inflation data that may prompt the RBA to consider rate cuts.
- Focus will now turn to tomorrow's 4Q CPI, which is expected to show a drop to 2.5% from 2.8% y/y prior. RBA-date OIS is pricing in a 80% chance of a 25bps cut at the Feb meeting, firming 2bps this morning.
BONDS: NZGBS: Richer But Well Off Bests, Fin Min In Parliament Tomorrow
NZGBs closed 3-6bps richer, with a flatter 2/10 curve, but well off session bests. The local market was 7-8bps richer early after yesterday’s strong lead-in for US tsys. Cash US tsys are ~2bps cheaper in today’s Asia-Pac session.
- NZGBs slightly outperformed their $-bloc counterparts, with the NZ-US and NZ-AU 10-year yield differentials narrowing by 1-2bps. The NZ-US 10-year yield differential, now at -7bps, is edging closer to the cyclical low of -15bps recorded in December 2022—the lowest since late 2020.
- Swap rates closed 2-3bps lower.
- RBNZ dated OIS pricing closed 1-4bps softer across meetings, with late 2025 leading. 48bps of easing is priced for February, with a cumulative 113bps by November 2025.
- Tomorrow, Finance Min Willis speaks to the Select Committee on the Budget Policy Statement and Half-Year Economic and Fiscal Update. RBNZ Chief Economist Paul Conway will also present a speech titled: Beyond the Cycle: Growth and interest rates in the long run.
- On Thursday, the NZ Treasury plans to sell NZ$200mn of the 1.50% May-31 bond, NZ$200mn of the 4.25% May-36 bond and NZ$100mn of the 1.75% May-41 bond.
FOREX: Dollar Rebounds On Trump Tariff Threats
The USD has been on the front foot for much of today's Asia Pac session. The BBDXY index was last +0.40% and trading above 1302.00. The DXY was up around 107.9, +0.50%.
- A number of Trump related tariff headlines have crossed, which has aided broad based USD sentiment. Early comments saw Trump state tariffs would be imposed in the near future across a wide/key set of industries. These were followed by comments later on that Trump would want a much higher universal tariff rate than 2.5% (which according to the FT is what incoming Treasury Secretary Bessent is pushing for as an initial step on tariffs, before rising gradually).
- The comments reinforce that tariffs are front and centre of Trumps economic plans.
- US yields have ticked higher, although gains are not much 1-1.5bps across the key Tsy benchmarks. US equity futures are mixed, but not much beyond flat after Monday's sharp cash falls, led by the tech side (amid fresh AI competition fears from China). Regional equity markets are mixed.
- Yen is unwinding some of Monday's outperformance (off around 0.85%). USD/JPY was last 155.80/85, back above the 50-day EMA (in the low 155.00 region). Yesterday's intra-session lows were at 153.72. Earlier data showed weaker than expected PPI services, up 2.9%y/y, versus 3.2% forecast.
- AUD/USD is down 0.70%, last near 0.6250 and close to session lows. This puts us back close to the 20-day EMA support point. Earlier data showed Dec NAB business conditions rose to +6 form +3 in Nov. Confidence was weaker though and in negative territory.
- In NZ, NZD/USD is off by 0.60%, last tracking under 0.5660. ERU/USD is down 0.55% to 1.0430/35.
- Looking ahead, we have various US data points coming up, along with some Fed surveys (including the Richmond print). There is also some ECB speak.
EQUITIES: Asian Equities Fall On DeepSeek Fears
Asian shares declined amid concerns over inflated valuations in the AI sector following the rise of DeepSeek, a Chinese AI startup offering cheaper alternatives. The MSCI Asia Pacific Index fell 0.6%, with Japan’s tech stocks among the hardest hit. The dollar strengthened after President Trump advocated for steep universal tariffs and announced plans for levies on foreign semiconductors, metals, and pharmaceuticals. Meanwhile, Chinese markets were closed for the Lunar New Year holidays, leaving traders to assess slowing economic momentum. Indian small-cap stocks extended their bear market losses, while Japan’s semiconductor and AI-adjacent companies saw significant declines.
- Japanese semiconductor and AI-related stocks slumped, led by Advantest (-18% over two days), SoftBank (-6.7%), and Tokyo Electron. The DeepSeek AI model raised fears of falling semiconductor demand and AI infrastructure investments, which also dragged power generation stocks lower. The TOPIX is now trading unchanged, while Nikkei is -1.25% lower.
- Chinese markets were closed for the Lunar New Year, but investors are concerned about a slowdown in economic recovery despite recent stimulus. Developers like China Vanke saw some gains in Hong Kong after government support was pledged, but broader market sentiment remains cautious. The HStech Index is 0.75% higher, while the HSI is trading 0.15% higher.
- Indian small-cap stocks entered a bear market, with the NSE Nifty Smallcap 250 Index dropping over 20% from its peak amid concerns over economic and earnings slowdowns. Foreign funds have been pulling out, compounding losses in recent months.
- DeepSeek’s rise sparked a selloff in US tech stocks, with Nvidia losing $589b in market value overnight, the largest single-stock wipeout ever. Investors are closely watching major tech earnings this week to restore confidence in the AI sector as profit growth expectations weaken.
EQUITIES: HK Equities Slightly Higher, Chinese Semiconductor Stocks Struggle
- The Hang Seng Tech Index is showing optimism heading into the Lunar New Year, buoyed by the potential for cheaper AI costs benefiting Chinese firms through DeepSeek. However, Chinese tech bulls face uncertainty as Hong Kong markets close until next Monday, leaving the sector exposed to potential volatility from US mega-tech earnings, where cautious outlooks could weigh on the Nasdaq. This poses a challenge to the recent positive divergence seen on Monday. Still, the golden cross from October supports a favorable near-term outlook for HSI tech stocks.
- On Monday, the Philadelphia SE Semiconductor Index Fell 9.15% following the DeepSeek headlines. Hong Kong listed Chinese semiconductor stocks are struggling here in Asia, with SMIC down 5.6%, Hua Hong Semiconductor -4.2% & HG Semiconductor -6.5%
- Mainland Chinese equity markets are closed today. HK benchmarks are trading mostly higher, with HS Tech Outperforming, up 0.80%, while the HSI trades just 0.25% higher.
OIL: Trump’s Threats Unlikely to Move OPEC+ Next Week.
- In a show of contempt towards the new President, it is widely expected that next week’s OPEC+ meeting will see no changes to the outlook for supply.
- President Trump last week turned his attention to OPEC+ demanding more supply to bring the price of oil down.
- Oil prices responded with 2% declines in Monday’s trading.
- WTI opened at US$73.15 and has hovered around that level in today’s trading with low volumes.
- Brent opened at US$77.08 again where it has stayed at in today’s trading.
- A drone attack on Russia’s Ryazan oil refinery by drones has halted refining. The Ryazan refinery has a capacity of 17 tons/year of output.
Gold’s Fortunes in the Hands of USD.
- Despite the safe-haven status it enjoys, gold suffered yesterday as the USD gained as markets came to grips with the latest tariff threats, and a tech route saw a flight to the dollar.
- With President Trump threatening tariffs on steel, aluminum and copper imports, the USD gained – which typically limits the upside for gold prices.
- The tech route wiped $1trillion from the NASDAQ on fears that the US may not have the AI superiority it thinks, giving support to the USD.
- Gold fell 1% and trading today has oscillated around where bullion closed yesterday.
- Opening at US$2,740.81 gold barely moved today to trade down to $2,739.84.
INDIA: RBI Injects Liquidity into System to Avert Cash Squeeze
- India’s RBI announced plans to inject INR600bn via bond purchases, and INR500bn via the swaps market on January 30, to ease a liquidity squeeze. A further INR500bn will be injected via reverse repo.
- India’s NIFTY 50 has bounced back from yesterday’s very weak day to be +0.25% higher in early trade.
- INR: the rupee was under pressure from a strengthening USD, weaker by -.215 at 86.52.
- Bonds: new liquidity measures announced by the RBI has given rise to lower yields with the IGB 10YR down by 4bp this morning at 6.645%
ASIA FX: USD Firmer In Holiday Light Markets, As Trump Tariff Threats Continue
All three North East Asian markets are closed today for the LNY. South Korean markets return this Friday, while Taiwan markets return next Monday. China is out from today until next Wednesday. The bias though has been for a stronger USD in those markets still trading. Trump tariff threats continue to dominate sentiment in the near term from an FX standpoint.
- Broader USD gains have been fuelled by fresh Trump tariff headlines, although fresh direct threats against China don't appear evident so far. Trump stated he would want a far higher universal tariff than 2.5%. USD/CNH got to highs of 7.2846, but sits back slightly lower now. We are close to the 50-day EMA resistance area. The 20-day EMA resistance is closer to 7.3000, which has marked highs in the past week.
- 1 month USD/KRW NDF has risen around 0.90%, last in the 1446/47 region. Session highs rest close to 1449. There is a cluster of recent highs at 1455 then 1475 before we test late 2024 cycle highs above 1486.
- 1 month USD/TWD NDF is also higher, last above 32.93, but is only around 0.35% weaker in TWD terms, so displaying a much lower beta compared to KRW. This fits with historical norms, although liquidity will be much lighter in both markets given onshore holidays.
UP TODAY (TIMES GMT/LOCAL)
| Date | GMT/Local | Impact | Country | Event |
| 28/01/2025 | 0745/0845 | ** |  FR | Consumer Sentiment |
| 28/01/2025 | 0900/1000 | ** |  EU | ECB Bank Lending Survey |
| 28/01/2025 | 1000/1000 | * |  GB | Index Linked Gilt Outright Auction Result |
| 28/01/2025 | 1330/0830 | ** |  US | Durable Goods New Orders |
| 28/01/2025 | 1355/0855 | ** | US | Redbook Retail Sales Index |
| 28/01/2025 | 1400/0900 | ** | US | S&P Case-Shiller Home Price Index |
| 28/01/2025 | 1400/0900 | ** | US | FHFA Home Price Index |
| 28/01/2025 | 1400/0900 | ** | US | FHFA Home Price Index |
| 28/01/2025 | 1430/1530 | EU | ECB's Cipollone in panel on future of markets | |
| 28/01/2025 | 1500/1000 | *** | US | Conference Board Consumer Confidence |
| 28/01/2025 | 1500/1000 | ** | US | Richmond Fed Survey |
| 28/01/2025 | 1530/1030 | ** | US | Dallas Fed Services Survey |
| 28/01/2025 | 1630/1130 | ** | US | US Treasury Auction Result for 2 Year Floating Rate Note |
| 28/01/2025 | 1630/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 28/01/2025 | 1700/1800 | EU | ECB's Lagarde to meet with Ursula von der Leyen | |
| 28/01/2025 | 1800/1300 | ** | US | US Treasury Auction Result for 7 Year Note |
| 29/01/2025 | 0030/1130 | *** |  AU | CPI Inflation Monthly |
| 29/01/2025 | 0030/1130 | *** | AU | CPI inflation |
| 29/01/2025 | 0700/0800 | * |  DE | GFK Consumer Climate |
| 29/01/2025 | 0700/0800 | ** |  SE | Private Sector Production m/m |
| 29/01/2025 | 0700/0800 | SE | Flash Quarterly GDP Indicator | |
| 29/01/2025 | 0800/0900 | *** |  ES | GDP (p) |
| 29/01/2025 | 0830/0930 | *** | SE | Riksbank Interest Rate Decison |
| 29/01/2025 | 0900/1000 | ** | EU | M3 |
| 29/01/2025 | 0900/1000 | ** |  IT | ISTAT Consumer Confidence |
| 29/01/2025 | 0900/1000 | ** | IT | ISTAT Business Confidence |
| 29/01/2025 | 1200/0700 | ** | US | MBA Weekly Applications Index |
| 29/01/2025 | 1330/0830 | ** | US | Advance Trade, Advance Business Inventories |
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