- BoJ hike odds have risen further for the January meeting, after Governor Ueda didn't push back on next week being a live policy meeting for the central bank. Yen has outperformed in the G10 space.
- US yields are slightly down as markets await the US CPI print later. NZ bond yields have continued to rise.
- In South Korea, impeached President Yoon was arrested, but the impact on financial markets hasn't been evident.
- Before US CPI prints, we have UK inflation data on tap.
MARKETS
- Tsys yields are holding steady throughout the session curves are a touch flatter, the belly is outperforming with the 7yr -1.6bps at 4.688%, the 2yr is -0.8bps at 4.358%, while the 10yr is trading -1.4bps at 4.778%
- Futures are steady with TY +01 at 107-12+. While the 2s10s curve is about 1bps lower at 41.327.
- Ranges have been narrow across all tenors ahead of CPI tonight. We have seen a 0.5-1bps cooling in rate cut expectations across the next few meetings
JGBS: Cash Bonds Cheaper, BoJ Ueda Adds To Weight To Hike Discussions
After a choppy Tokyo session, JGB futures are little changed, +1 compared to settlement levels.
- Japan likely to miss primary budget surplus target for FY2025, sources say "Japan is likely to miss achieving its goal of running a primary budget surplus by the next fiscal year, according to three sources with knowledge of fresh fiscal estimates, as the minority government faces increasing pressure for more spending.” RTRS
- Cash JGBs are flat to 2bps cheaper across benchmarks. The benchmark 10-year yield is 0.4bp higher at 1.250% after making a fresh cycle high of 1.253% today.
- The swaps curve has bear-steepened, with rates flat to 4bps higher.
- “BOJ Governor Ueda: Will raise rates and adjust the degree of monetary support if improvement in economy and price conditions continues” - RTRS
- BOJ-dated OIS pricing has shifted notably since BOJ Deputy Governor Himino's speech yesterday. The speech was interpreted as another indication that the policy board is leaning toward a 25bp rate hike at its upcoming meeting on January 23–24.
- Current OIS pricing indicates: a 69% probability of a 25bp hike in January; a cumulative 86% chance by May; and a full 25bp increase not fully priced in until May 2025.
- Tomorrow, the local calendar will see PPI data alongside 20-year supply.
JPY: Yen Up With January Hike Odds As Ueda Speaks In Tokyo
USD/JPY is moving lower, the pair last near 157.50/55, close to session lows. We are up around 0.30% in yen terms, comfortably the best G10 performer in what has been a muted session ahead of the US CPI print later.
- USD/JPY's down move has been aided by remarks by BoJ Governor Ueda in Tokyo (per BBG/Rtrs). Ueda stating that a rate hike decision will be made next week at the policy meeting. The Governor noting US economic developments and wage trends will be key watch points. He added that the recent branch managers meeting expressed positive trends around wage trends. See this BBG link.
- The comments largely echoed those made by Deputy Governor Himino yesterday, but no push back from Ueda on rate hike talk has likely encouraged markets to believe next week's meeting is a live one. Current OIS pricing indicates: a 69% probability of a 25bp hike in January; a cumulative 86% chance by May; and a full 25bp increase not fully priced in until May 2025. The Jan meeting odds have risen since Himino spoke yesterday.
- For USD/JPY levels, lows earlier this week were at 156.92, while the 20-day EMA is around 156.71.
AUSSIE BONDS: Slightly Cheaper, Subdued Ahead Of US CPI, Jobs Report Tomorrow
ACGBs (YM -2.0 & XM -2.0) are slightly cheaper after trading in a narrow range in today's data-light Sydney session.
- Cash US tsys are 1-2bps richer in today’s Asia-Pac session after yesterday’s directionless session. Focus turns to today’s CPI inflation data for December where rental inflation is expected to accelerate to an average figure that firmly rounds to 0.3% M/M in December.
- Cash ACGBs are 1-2bps cheaper with the AU-US 10-year yield differential at -15bps.
- Swap rates are 1-2bps higher.
- The bills strip -1 to -2 across contracts.
- RBA-dated OIS pricing is little changed across meetings today. A 25bp rate cut is fully priced for April (102%) now, with the probability of a February cut at 68% (based on an effective cash rate of 4.34%).
- Tomorrow, the local calendar will see the December Employment Report. The market is expecting +15k jobs with the unemployment rate nudging higher from 3.9% to 4.0%.
- AOFM Bond issuance will issue A$700mn of the 2.75% 21 November 2027 bond on Friday.
BONDS: NZGBS: Another Heavy Session, Monthly Price Indictors Tomorrow
NZGBs closed 4-9bps cheaper, with the 5-year underperforming, as the fall-out from yesterday’s upbeat NZIER QSBO.
- Once again, today’s move reflected $-bloc underperformance, with the NZ-US and NZ-AU 10-year yield differentials ~6bps wider.
- Cash US tsys are flat to 1bp richer in today’s Asia-Pac session after yesterday’s directionless session. Focus turns to today’s CPI inflation data for December where rental inflation is expected to accelerate to an average figure that firmly rounds to 0.3% M/M in December.
- Swap rates closed 7-9bps higher.
- RBNZ dated OIS pricing closed flat to 7bps firmer across meetings, with late 2025 leading. 45bps of easing is priced for February, with a cumulative 103bps by November 2025. Pricing for the November meeting is some 35bps firmer than Friday’s closing level.
- Tomorrow, the local calendar will see food prices and a range of other monthly price indicators for December ahead of BusinessNZ Manufacturing PMI on Friday. December price data are likely to show inflation pressures remained subdued. That adds to the case for the RBNZ to deliver further easing.
- Tomorrow, the NZ Treasury plans to sell NZ$250mn of the 3.00% Apr-29 bond, NZ$175mn of the 3.50% Apr-33 bond and NZ$75mn of the 1.75% May-41 bond.
FOREX: Yen Marginally Higher As Ueda Speaks, Steady Trends Elsewhere
G10 FX trends have been quite muted in the first part of Wednesday trade. The USD BBDXY index was last near 1314 little changed for the session.
- Aggregate G10 moves are not much beyond 0.10% at this stage, as the market awaits the key US CPI release later.
- USD/JPY is marginally lower, but is close to 157.70/75 in latest dealings. Headlines from BoJ Governor Ueda have crossed, reiterating that a decision on whether to raise rates will be made next week (so largely echoing Deputy Governor Himino's remarks from yesterday). Yen moved slightly firmer as Ueda spoke, presumably due to the fact he didn't pushback on Himino's remarks.
- US yields sit modestly lower, the 10yr back under 4.78%. Regional equity sentiment is mixed, while US futures are close to flat at this stage.
- EUR/USD is back under 1.0300 marginally. Headlines from ECB's Lane have crossed (speaking in HK). Economic growth is expected to recover further and if inflation stabilizes around 2% rates will go to neutral. 3% policy is not the lower bound Lane added (per BBG). FX sentiment hasn't shifted though.
- AUD/USD was weaker in earlier trade, but at 0.6190/95 has recovered some ground.
- NZD/USD is back around 0.5605/10, but short of Tuesday intra-session highs. We have seen another sharp rise in onshore NZGB yields today. Earlier data from the Westpac/McDermott Miller employment confidence index highlighted: "Employment confidence picked up by 2.4 points to 91.6 in the December quarter, led by an improvement in perceptions of job availability."
- Looking ahead, ahead of the US CPI print, we get UK inflation data.
ASIA STOCKS: Asian Equities Mixed, Ahead Of US CPI Tonight
Asian markets traded mixed as investors awaited key US inflation data for clues on Federal Reserve policy. The MSCI Asia Pacific Index was little changed, with modest gains in Japan, South Korea, and Hong Kong, while Chinese equities were mixed. The PBOC injected significant short-term liquidity to ease a cash squeeze ahead of the Lunar New Year, highlighting its easing stance. Indian stocks extended gains, driven by energy and utility sectors, while foreign outflows from Indian equities continued in January. South Korea's unemployment rose to its highest level since mid-2021 amid political uncertainty. Meanwhile, oil prices steadied after recent declines, and the dollar consolidated after the previous session's losses. Overall, sentiment remained cautious ahead of the U.S. CPI report, which could shape global monetary policy expectations.
ASIA STOCKS: Foreign Investors Keep Selling Asian Equities To Start The Year
Outflows in all regions on Tuesday with Taiwan continuing to decent selling following chips restrictions being announced from the US, however, while Nvidia has announced they will plan to build a headquarters in Taiwan. India has had the worst start to the year with 2.6b of outflows so far.
- South Korea: Recorded outflows of -$148m yesterday, contributing to a 5-day total of -$287m. YTD flows are flat at $0. The 5-day average is -$57m, worse than the 20-day average of -$70m and the 100-day average of -$146m.
- Taiwan: Experienced outflows of -$352m yesterday, resulting in a 5-day total of -$3.87b. YTD flows are negative at -$2.57b. The 5-day average is -$773m, significantly worse than the 20-day average of -$188m and the 100-day average of -$126m.
- India: Posted outflows of -$495m yesterday, contributing to a 5-day total of -$2.06b. YTD flows are negative at -$2.62b. The 5-day average is -$411m, worse than the 20-day average of -$223m and the 100-day average of -$49m.
- Indonesia: Registered outflows of -$39m yesterday, with the 5-day total at -$94m. YTD flows are negative at -$244m. The 5-day average is -$19m, slightly better than the 20-day average of -$34m, but worse than the 100-day average of +$5m.
- Thailand: Recorded outflows of -$63m yesterday, resulting in a 5-day total of -$188m. YTD flows are negative at -$122m. The 5-day average is -$38m, worse than the 20-day average of -$11m and the 100-day average of -$6m.
- Malaysia: Posted outflows of -$55m yesterday, contributing to a 5-day total of -$203m. YTD flows are negative at -$261m. The 5-day average is -$41m, worse than the 20-day average of -$26m and the 100-day average of -$15m
- Philippines: Recorded outflows of -$15m yesterday, resulting in a 5-day total of -$38m. YTD flows are negative at -$52m. The 5-day average is -$8m, worse than the 20-day average of -$7m but equal to the 100-day average of $0m.
Table 1: EM Asia Equity Flows
COMMODITIES: Steady Trends Ahead Of Key US Data
Oil markets are tracking relatively steady in the first part of Tuesday trade, after losing some ground in Tuesday trade. Gold is likewise steady; copper is down a touch and iron ore is close to unchanged. Markets likely awaiting the key US CPI release later.
- The active Brent crude contract was last just under $80/bbl, while WTI was near $77.60/bbl. Brent lost 1.35% for Tuesday's session, while WTI lost slightly more, down 1.67%. The Wall Street Journal reported that President-elect Donald Trump is preparing a set of energy-related executive orders, to sign upon his inauguration on Jan 20, that would unwind Biden administration rules on offshore/onshore drilling on federal lands, tailpipe emissions, and LNG exports approval.
- Still, an industry report hinted at a further draw down in US stockpiles, which may aid sentiment from a supply standpoint. This comes after the US sanctions move late last week. The trend structure in WTI futures remains bullish, with sights on $79.59, the Jul 5 ‘24 high. On the downside, a reversal lower would expose the 20-day EMA, at $73.16.
- Gold is little changed, last near $2675/76. Recent highs near $2700 remain intact. Dips sub the 100-day MA (close to $2636) have been supported in recent weeks.
BOK: MNI BoK Preview-Jan 2025: 25bps Cut Aimed At Local Confidence
- The BoK is likely to cut interest rates a further 25bps at tomorrow's policy meeting, which take the policy rate to 2.75%. This is our firm bias and the sell-side economic consensus.
- The slump in domestic economic confidence following December political turmoil adds to downside economic risks. The economy was already softer prior to these outcomes, with the unemployment rate spiking late last year and jobs growth slowing.
- Financial stability concerns around FX/house prices/debt are unlikely to be strong enough to offset these headwinds.
- See our full preview here:
SOUTH KOREA: Unemployment Spike Adds To BoK Easing Case
Dec jobs data was weaker than expected for South Korea. The unemployment rose to 3.7%, well above the 2.9% forecast and prior 2.7% outcome. This is the highest unemployment rate since mid 2021, see the chart below. All else equal it adds to the case for further easing at tomorrow's BoK policy meeting. The participation rate edged down to 63.9% from 64.4% prior.
- In terms of jobs growth, we fell to -52k in y/y terms for Dec. This was after a 123ky/y rise for Nov. Dec's fall was the first since 2021.
- By industry manufacturing jobs growth fell to -2.2%y/y, remaining in negative territory. Construction jobs growth fell to -7.2%y/y, from -4.4%. Other industries saw softer growth relative to Nov trends.
Fig 1: South Korean Unemployment Rate Spikes In Dec
Source: MNI - Market News/Bloomberg
ASIA FX: KRW Steady After Yoon's Arrest, USD/IDR Higher, BI Seen On Hold
Asian FX moves haven't been large, as markets await the US CPI print later. The majors have mostly been steady, although yen is gaining ground this afternoon as speculation heats up of a rate hike next week. Regional equity trends have been mixed, China/HK markets weaker in the first part of trade, although only a fraction of yesterday's gains have been given back so far.
- USD/CNH has remained very steady, the pair holding under 7.3500, while USD/CNY is remaining above 7.3300 for now. Rhetoric continues from the authorities around keeping the yuan stable and supporting local equities.
- We have seen a lot of headlines around former South Korean President Yoon's arrest, but little market impact. Spot USD/KRW was last just under 1460, slightly firmer in won terms for the session. Earlier data showed a spike in the unemployment rate, which should add the case for a BoK cut tomorrow.
- USD/TWD has risen back above 33.00, but remains sub recent highs. Taiwan equities are down over 1%. Headlines crossed from BBG of further restrictions on TSMC chip flows to China.
- USD/IDR has tested above 16300 but found selling interest. The trade surplus was lower than forecast amid slowing export growth. The BI is expected to remain on hold later.
- In SEA FX elsewhere, aggregate moves are quite muted.
- USD/INR is lower, off recent highs and back sub 86.50.
UP TODAY (TIMES GMT/LOCAL)
| Date | GMT/Local | Impact | Country | Event |
| 15/01/2025 | 0700/0700 | *** |  GB | Consumer inflation report |
| 15/01/2025 | 0700/0700 | *** | GB | Producer Prices |
| 15/01/2025 | 0700/0800 | *** |  SE | Inflation Report |
| 15/01/2025 | 0745/0845 | *** |  FR | HICP (f) |
| 15/01/2025 | 0800/0900 | *** |  ES | HICP (f) |
| 15/01/2025 | 0800/0900 |  EU | ECB's De Guindos at 15th Spain Investors Day | |
| 15/01/2025 | 1000/1000 | ** | GB | Gilt Outright Auction Result |
| 15/01/2025 | 1000/1100 | ** | EU | Industrial Production |
| 15/01/2025 | 1200/0700 | ** |  US | MBA Weekly Applications Index |
| 15/01/2025 | 1330/0830 | ** |  CA | Monthly Survey of Manufacturing |
| 15/01/2025 | 1330/0830 | ** | CA | Wholesale Trade |
| 15/01/2025 | 1330/0830 | *** | US | CPI |
| 15/01/2025 | 1330/0830 | ** | US | Empire State Manufacturing Survey |
| 15/01/2025 | 1400/0900 | * | CA | CREA Existing Home Sales |
| 15/01/2025 | 1420/0920 | US | Fed's Barkin | |
| 15/01/2025 | 1530/1030 | ** | US | DOE Weekly Crude Oil Stocks |
| 15/01/2025 | 1600/1100 | US | Fed's Williams | |
| 15/01/2025 | 1630/1630 | GB | BOE's Taylor Speech on Inflation Dynamics and Outlook | |
| 15/01/2025 | 1900/1400 | US | Fed Beige Book | |
| 16/01/2025 | 0030/1130 | *** |  AU | Labor Force Survey |
| 16/01/2025 | 0700/0700 | ** | GB | UK Monthly GDP |
| 16/01/2025 | 0700/0700 | ** | GB | Trade Balance |
| 16/01/2025 | 0700/0700 | ** | GB | Index of Services |
| 16/01/2025 | 0700/0800 | *** |  DE | HICP (f) |
| 16/01/2025 | 0700/0700 | *** | GB | Index of Production |
| 16/01/2025 | 0700/0700 | ** | GB | Output in the Construction Industry |
| 16/01/2025 | 0900/1000 | *** |  IT | HICP (f) |
| 16/01/2025 | 1000/1100 | * | EU | Trade Balance |
| 16/01/2025 | 1230/1330 | EU | Account of Dec 2024 ECB Monetary Policy Meeting | |
| 16/01/2025 | 1315/0815 | ** | CA | CMHC Housing Starts |
| 16/01/2025 | 1330/0830 | *** | US | Jobless Claims |
| 16/01/2025 | 1330/0830 | ** | US | WASDE Weekly Import/Export |
| 16/01/2025 | 1330/0830 | *** | US | Retail Sales |
| 16/01/2025 | 1330/0830 | ** | US | Import/Export Price Index |
| 16/01/2025 | 1330/0830 | ** | US | Philadelphia Fed Manufacturing Index |