MNI EUROPEAN MARKETS ANALYSIS: USD Weighed By Higher Equities, NFP In Focus Later

US TSYS: Yields Drift Higher Ahead of US Payroll Data Tonight

TYH4 is trading at 112-22+, - 06 from NY closing levels.

Tsys futures have been grinding lower in Asia trading today ahead of US payroll data out later tonight, Cash yields higher by 1-2bp across the curve.

• Overnight TYH4 hit highest levels since late Dec at 113-06.5 (+28), this was well through initial resistance of 112-26.5, however we have failed so far to stay above these levels.
• Cash yields opened unch-0.5bp higher, and yields have continued to move higher throughout the day currently 1-2bps higher, the 2Y is trading at 4.221% (1.9bps higher), while the 10Y is 3.889% (1bp higher)
• JP Morgan was out earlier calling for investors to take profit on their long 5y treasury position, as the 5y surged this week amid regional banking concerns.
• Fed chair, Powell will appear on 60 Minutes Sunday evening at 7pm ET
• Data Tonight: Jan Employ Report, UofM Inflation Expectations, Dec Factory and Durable Goods orders.

FED: Fed Chair Powell To Appear On 60 Minutes This Sunday

Fed Chair Powell will be interviewed on 60 Minutes this Sunday (7pm ET). CBS notes " Scott Pelley interviews Fed Chair Jerome Powell after the U.S. central bank announced its decision to hold interest rates steady. Powell is asked about inflation risks and the economy, the timeline for cutting rates, and more.'

JGBS: Futures Holding In Positive Territory, Int. Payments On Govt. Debt Set To Double

JGB futures are holding richer, +17 compared to settlement levels, after rejecting an attempt to push lower early in the afternoon session. With the domestic calendar light (Monetary Base data as the only release), local participants have been largely sitting on the sidelines ahead of US Non-Farm Payrolls later today.

• Cash US tsys have also been trading in narrow ranges in today’s Asia-Pac session. Currently, they are dealing 1-2bps cheaper across benchmarks after being slightly richer earlier in the session.
• (RTRS) Japan faces more than a two-fold increase in annual interest payments on government debt to 24.8 trillion yen ($169 billion) over the next decade, draft government estimates seen by Reuters showed on Friday.
• The cash JGB curve has maintained its bull-flattening, but early yield declines have been slightly pared. Yields currently sit flat to 3bps lower. The benchmark 10-year yield is 2.3bps lower at 0.682% versus the Nov-Dec rally low of 0.555%.
• The BoJ Rinban Operations covering 1-10-year JGBs showed mixed results.
• The swaps curve is little changed. Swap spreads are wider.
• Next week, the local calendar sees Jibun Bank PMI Services & Composite and 10-year linkers supply on Monday, ahead of Labour and Real Cash Earnings on Tuesday.

AUSSIE BONDS: Subdued Trading Ahead Of US Payrolls, RBA Policy Decision On Tuesday

ACGBs (YM +2.0 & XM +2.5) remain richer. There hasn’t been much in the way of domestic drivers to flag, outside of the previously outlined Producer Prices and Home-Loan Values. Neither were market-moving. Ranges have been relatively narrow in the session as local participants await US Non-Farm Payrolls data later today.

• Cash US tsys have also been trading in narrow ranges in today’s Asia-Pac session. Currently, they are dealing 1-2bps cheaper across benchmarks.
• Cash ACGBs are 2-3bps richer, with the AU-US 10-year yield differential 3bps wider at +9bps.
• The May-34 ACGB auction went smoothly. The more dovish assessment of the RBA’s policy outlook, combined with a still elevated outright yield, a steeper curve, a low level of issuance, and the line’s inclusion in the XM basket all look to have contributed to today’s bidding.
• Swap rates are 2-4bps lower, with the 3s10s curve flatter.
• Bills are flat to +2, with the strip flatter.
• RBA-dated OIS pricing is 1-3bps softer for meetings beyond June, with a cumulative 63bps of easing priced by year-end.
• Next week, the local calendar sees Judo Bank PMI Services & Composite, MI Inflation Gauge, Trade Balance and ANZ-Indeed Job Advertisements on Monday. The week’s highlight is however the RBA Policy Decision on Tuesday.

AUSTRALIAN DATA: Home Lending Drops But Has Strong Momentum

Housing finance in December was weak falling 4.1% m/m after a downwardly-revised +0.7%. The weakness was concentrated in lending for owner occupiers (-5.6% m/m) but investor loans also fell (1.3% m/m). But the weak end to 2023 follows four consecutive rises for owner-occupiers and nine for investors. Housing finance is still showing strong momentum and with soft building approvals, demand is likely to continue to push dwelling prices higher.

• The value of December home loans was 11.7% higher than a year ago with owner occupiers +7.4% y/y and investors +20.4% y/y. 3-month momentum is running at close to 40% annualised. The ABS observes that the share of lending going to investors has risen to 35.5% from 27.3% four years ago.
• The number of first time home buyers fell 8.4% m/m but were still up 12.9% y/y and the value of their loans fell 5.5% m/m but was +21% y/y.
• Value of new personal loans fell 2.4% m/m due to lower car loans.

Source: MNI - Market News/ABS

NZGBS: Little Changed, Narrow Ranges Ahead of US NFP Data, Q4 Jobs & Wages Data On Wednesday

NZGBs closed near session cheaps, with benchmark yields flat to 1bp lower after being 4bps lower earlier in the session following the positive lead-in from US tsys. With the local data drop failing to provide a domestic catalyst, trading ranges have been narrow ahead of US Non-Farm Payrolls data later today.

• The NZ-US 10-year yield differential ended the session 4bps wider, settling at +63bps. This places it near the midpoint of the range observed over the last 12 months, which has fluctuated between +40 and +85bps.
• In contrast, the NZ-AU 10-year yield differential is currently positioned towards the upper end of its recent trading range, registering at +54bps. Over the past three months, this differential has hovered within a range of +30 to +60bps. However, it's worth noting that the 12-month high for this differential stands at approximately +100bps.
• Cash US tsys have also been trading in narrow ranges in today’s Asia-Pac session. Currently, they are dealing ~1bp cheaper across benchmarks after being slightly richer earlier in the session.
• Swap rates are 2-4bps lower, with the 2s10s curve steeper.
• RBNZ dated OIS pricing is 1-2bps softer across meetings beyond May. A cumulative 96bps of easing is priced by year-end.
• The local calendar sees ANZ Commodity Price on Monday, ahead of 4Q Employment and Wages data on Wednesday.

FOREX: USD Off Slightly, A$ Recovers Some Ground, Despite Iron Ore Dip

The USD sits modestly lower in terms of the BBDXY, which last tracks near 1231.5. Earlier the index got sub the 1231 level and close to Jan 24 lows, but there was no follow through. Outside of an AUD rebound moves have been modest across the G10 space, as the market awaits NFP later.

• The A$ rebound has been aided by a better equity tone led by US futures in the tech space. China markets have been less supportive though. The active Iron ore contract in Singapore is back to a $126/ton handle, but this is above mid Jan lows.
• AUD/USD sits near 0.6600, which keeps us within recent ranges. After underperforming through Thursday today's moves may reflect some catch up.
• We had PPI and housing finance data earlier for AU but sentiment in the FX space didn't move on the prints.
• NZD/USD is also slightly higher, but hasn't rallied strongly past 0.6150. The 20 and 50-day EMAS sit near current spot levels, which may be acting as a near term resistance point.
• USD/JPY sits back in the 146.40/45 region and little changed for the session. The better US futures equity tone and slight uptick in US yields likely seeing some underperformance in yen relative the likes of AUD.
• The focus later will be on the January US non-farm payrolls which are expected to post a 185k increase with the unemployment rate rising 0.1pp to 3.8%. There are also final readings for Uni of Michigan consumer sentiment and durable goods orders. The BoE’s Pill and ECB’s Centeno speak.

CHINA EQUITIES: China Equities Mixed, Ahead Of US Payrolls

Hong Kong stocks are up today, but off highs from earlier, while China Mainland stocks have lagged the move and are now trading in the red. Early gains were spurred on by strong earnings from US Tech giants, pushing Heng Sang up as much as 1.5%. The PBoC has pledged 150b yuan worth of low-cost funds for lending to housing and infrastructure in the past month, this brings the outstanding amount of the program to 3.4 trillion yuan, according to the central bank statement.

• Hong Kong indices are still trading in the green today, however far from the highs in early morning trading. The Mainland housing index was up as much as 4.6% on the back of the central bank statement overnight, we have drifted lower throughout the day to trade up 2.6% higher. Elsewhere the tech index was pushed higher this morning on the back of strong earnings from US Tech giants and news that Tencent has been given regulatory approval for their DnF game, the index at one point was 2.35% higher, traders have looked to lock in profit prior to US payroll tonight, and we currently trade just 0.44% higher.
• China Mainland indices lagged the move higher this morning, briefly trading in the green, before we saw traders look to book profits and we now trade down for the day, the CSI300 is -0.70% lower while the ChiNext lower by 2.00%. Investors are still cautious around recently policy announcements about supporting the markets, while China Evergrande ordered liquidation weighs of the minds of investors.

ASIA EQUITIES: Tech Earnings Spur Stocks Higher, As We Await Payrolls Tonight

Asia equities are higher today, supported by moves higher overnight in US stocks. Earnings out post US close for some US tech Giants have helped push futures higher, with the Nasdaq up 1.00%, while Eminis trade 0.55% higher. There has been some selling, as indices are off highs from earlier as traders look to book profits ahead of US payrolls later tonight.

• Japan equities indices are all higher today, largely in part from moves higher in the US overnight. Still some trouble in Japan's banking sector as Aozora fell as much as 18% this morning on losses on their US property exposure. Nikkei currently 0.80% higher, while the Topix trade 0.55% higher.
• Australian Equities move higher after yesterday's fall, PPI data for 4Q came out earlier at 4.1%, up from 3.8%. Currently the ASX200 is trading 1.40% higher led by Real Estate and tech stocks.
• South Korea is up 2.20% today with $820m in equity inflows today after expectations of a regulatory change will boost their valuations, after the Finance Minister yesterday spoke about resolving the "Korea Discount", bumper earnings from Naver this morning coupled with strong earnings from US giants Amazon and Meta earlier spurred a moved higher in tech names. South Korean CPI was also out before, showing inflation had eased more than expected coming in at 2.8% vs 2.9% exp.
• Taiwan equities move higher largely being led by tech names, Taiex up 0.30%
• In India the benchmarks have opened higher, the Nifty up over 1% at this stage. Positive reception around yesterday's interim budget aiding sentiment. Lower fiscal borrowing is expected to aid the private sector
• Elsewhere in SEA, there is little in way of Data, markets are moving higher in unison mostly on the back of higher US stocks.

OIL: Crude Tentatively Rises After Sinking On Gaza Ceasefire Reports

Oil prices are moderately higher during APAC trading today after falling over 2% on Thursday. The greenback is slightly lower and risk sentiment has improved but the focus is on US payrolls due later and any developments in the Middle East. Brent is up 0.7% to $79.25/bbl but off the intraday high of $79.44. WTI is 0.7% higher at $74.30/bbl off the $74.47 high but is currently down 4.8% on the week.

• Oil fell sharply on Thursday following mixed reports that progress is being made on a ceasefire deal between Israel and Hamas brokered by the US, Qatar and Egypt. The market remains on edge re any further Houthi strikes on Red Sea shipping and how the US will respond to an attack on its troops which killed three. CBS News reported that there will be a number of strikes against Iranian facilities in Syria and Iraq.
• OPEC+ met yesterday and said that it will decide in early March whether to extend its production cuts into Q2. According to Bloomberg output was reduced 490kbd in January. Non-OPEC supply remains robust keeping a lid on price rises from geopolitical incidents.
• The focus later will be on the January US non-farm payrolls which are expected to post a 185k increase with the unemployment rate rising 0.1pp to 3.8%. There are also final readings for Uni of Michigan consumer sentiment and durable goods orders. The BoE’s Pill and ECB’s Centeno speak.

GOLD: Sharply Higher Ahead Of US Payrolls, Regional Bank Concerns Helped Rally

Gold is little changed in the Asia-Pac session, after closing 0.8% higher at $2054.99 on Thursday.

• Bullion was supported by a slide in the USD and lower US Treasury yields, which came following friendly economic data.
• Initial Jobless Claims unexpectedly rose by 9k last week to 224k, while Q4 Non-Farm Productivity growth exceeded expectations. It showed a robust annualised increase of 3.2%. Consequently, unit labour costs, at an annualised rate of 0.5%, turned out to be weaker than anticipated. This marks the second consecutive quarter of subdued performance in unit labour costs.
• Focus now turns to Non-Farm Payrolls data later today.
• US regional bank concerns with respect to commercial property losses also helped the precious metal by spurring traders to price in a more rapid pace of Federal Reserve interest-rate cuts. Lower borrowing costs are positive for the non-yielding metal.
• TD Securities noted that macro traders in gold are historically underinvested for a cutting cycle. “In fact, our estimates of discretionary trader positioning points to notable short acquisitions over the last weeks, which could suggest that macro traders have been caught in a bear trap following the slew of hot data releases. This sets the stage for substantial outperformance in the yellow metal on the horizon, and our simulations of future price action suggest that imminent CTA buying activity could potentially kick off the start of a pain trade for macro traders.”

SOUTH KOREA DATA: Jan CPI A Touch Below Expectations, Core Y/Y Back To Early 2022 Levels

Jan CPI was a touch below expectations. The m/m was 0.4%, same as BBG consensus and versus a flat outcome in Dec. In y/y terms we were 2.8%, versus 2.9% expected and 3.2% prior. The core, ex food & energy metric was 2.5% y/y, versus 2.7% forecast and 2.8% prior.

• The chart below plots headline and core CPI y/y trends. After a brief blip higher in headline pressures in Q3 last year, we have resumed the downtrend in both metrics.
• In terms of the detail for Jan: in m/m terms drags came from transport (-0.8%) and furnishings (-0.2%). Health (+1.1%) and food (+1.4%) and miscellaneous goods & services (2.4%) were the main positives.
• In y/y terms 9 out of 12 categories saw weaker y/y momentum for Jan relative to Dec. 2 were unchanged and only 1 saw a y/y pick up.
• The South Korean FinMin noted after the release that inflation might rebound to around 3% in Feb/Mar (Rtrs).
• BoK Governor Rhee also noted yesterday that the central bank needs to keep a restrictive stance for a long time to bring inflation down. Hence, this print, while showing an encouraging trend, is unlikely to prompt a policy pivot in the near term.
• Note the next BoK meeting is on Feb 22.

Fig 1: South Korea Headline & Core Inflation Y/Y

Source: MNI - Market News/Bloomberg

ASIA FX: KRW Rallies On +2.7% Equity Gain & $1bn In Net Equity Flows

USD/Asia pairs are all lower, bar USD/CNH, where volatility remains very muted. KRW and IDR, the higher beta plays, have been the standouts, but gains have been evident across the board. Better regional equity sentiment (ex China) and carry over from lower US yields on Thursday is driving the moves ahead of NFP later in the US. Coming up Monday we have more PMI prints, including the Caixin services in China, Thailand CPI and Indonesia Q4 GDP.

• USD/CNH has maintained tight ranges, the pair last near 7.1900, as volatility remains very low. Local equities have been volatile, but ultimately sit down comfortably down in the early part of afternoon trade. More support for housing and fresh gaming approvals not enough to push us into positive territory at this stage.
• 1 month USD/KRW sits near 1320 in recent dealings, fresh multi week lows back to mid Jan. The Kospi has surged over 2.7% amid a combination of better tech momentum led by the US and the recent comment from Finance Minister around resolving the "Korea Discount" clear positives. Offshore investors have added over $1bn to local equities so far today. Earlier we had slightly weaker than expected Jan inflation data.
• USD/IDR sits sharply lower in the early part of Friday dealing. Spot is under 15700, last near 15670, around 0.60% stronger in IDR terms. Broader risk moves are certainly helping IDR. The chart below plots spot against the US 10yr real yield. This week's correction lower has aided rupiah sentiment, with an eventual Fed easing cycle (even with push back this week on a March kick off) seen as a key IDR positive by the authorities as we progress through 2024.
• USD/PHP sits back sub 56.00 in the first part of Friday dealing (last at 55.90). We are back close to mid Jan levels and around 0.40% stronger in PHP terms so far today. PHP has benefited from the broader USD pull back, aided by lower US teal yields. The improved global equity, plus lower oil prices is another positive. Local equities are also pushing higher, the PCOMP threatening to break to fresh multi month highs (last near 6700). PHP has benefited from the recent turn higher, albeit with a lower beta to such moves in recent months. Offshore investors have added modestly to local shares this week.
• USD/THB sits near 35.30 in recent dealings, stronger by 0.40% in baht terms. We aren't too far away from late Jan lows in the pair at 35.27. The 200-day EMA sits slightly lower at 35.23, the simple 200 MA further south at 35.15. Note we get Jan CPI data on Monday, with headline forecast at -0.95% y/y (prior -0.83%), while core is projected steady around 0.60% y/y. The on Wednesday we get the BoT decision. No change is expected by the consensus at this stage (current policy rate at 2.50%).