MNI EUROPEAN OPEN: A$ & Local Yields Down On Q4 CPI Miss

US TSYS: Yields Grind Lower, FOMC Tonight

TYH4 is trading at 111-29+, + 09 from NY closing levels.

Yields have been griding lower all day, front end slightly outperforming after underperforming overnight. China manufacturing PMI data miss, while US equity futures trend lower, potentially aiding the move.

• Cash yields moving lower, the 2y trade 1.9bps lower to 4.316%, while the 10y yield is 1.5bp lower trading at 4.017%.
• US 10Y Tsy futures broke out higher earlier, above yesterdays highs of 111-27+ and have held onto that move and remaining rangebound for the afternoon, trading back to Jan 17th levels of 111-28+.
• TYH4 are still trading within resistance levels of 112-01+ and from the highs of Jan 17th, while support remains back at 110-26 from Jan 19th
• Busy night for Data: Mortgage Applications, ADP Employment, MNI Chicago PMI and finally FOMC rate decision.

JGBS: Futures Sharply Weaker After BoJ Board Actively Discusses An Exit Policy

JGB futures are holding sharply lower, -27 compared to settlement levels, after the release of a relatively hawkish BoJ Summary Of Opinions for the January policy meeting. The session low for JBH4 has been 145.96, -48 versus settlement levels.

• (MNI) BoJ board members actively discussed an exit policy and a post-exit monetary policy at the Jan 22-23 meeting, the summary of opinions released on Wednesday showed. One BOJ board member said the conditions to terminate the negative interest rate policy are being met. While the other board members did not share the same view, some admitted conditions had elevated the probability of Japan's economy hitting the bank’s 2% price target, leaving the door open for the possible removal of the negative interest rate policy in future. (See link)
• There hasn’t been much in the way of domestic data drivers to flag, outside of the previously outlined Industrial Production and Retail Sales. Consumer Confidence and Housing Starts are due later today.
• Cash JGBs are cheaper out to the 20-year, with the 10-year underperforming. The benchmark 10-year yield is 2.5bps higher at 0.742% versus the Nov-Dec rally low of 0.555%.
• Swaps are also cheaper, with swap spreads tighter out to the 20-year and wider beyond.
• Tomorrow, the local calendar sees Weekly International Investment Flows and Jibun Bank PMI Mfg data, along with 10-year supply.

AUSSIE BONDS: Sharply Higher After Q4 CPI Undershoot, Focus Turns To FOMC Decision

ACGBs (YM +10.0 & XM +9.0) sit 6-7bps richer than pre-CPI data levels.

• ICYMI, Q4 CPI undershot market expectations printing +0.6% q/q (4.1% y/y) for Headline and +0.8% q/q (4.2% y/y) for Trimmed Mean versus expectations of +0.8% q/q and 4.3% y/y for Headline and +0.9% q/q and 4.3% y/y for Trimmed Mean.
• The moderation was driven by goods and tradeables though with services and non-tradeables both rising in line with Q3. The data is likely to mean that the RBA is on hold in February, dependent on revised staff projections, but maintains its tightening bias given the sticky nature of domestic price pressures.
• An extension of overnight strength in US tsys in today’s Asia-Pac session also likely assisted the local bid. Ahead of the FOMC decision later today, US tsys are 1-2bps richer across benchmarks.
• Cash ACGBs are 9-11bps richer on the day, with the AU-US 10-year yield differential 6bps tighter at +3bps.
• Swap rates are 9-10bps lower, with EFPs little changed.
• The bills strip has bull-flattened, with pricing +3 to +13.
• RBA-dated OIS pricing is 5-13bps softer for meetings beyond March, with a cumulative 56bps of easing priced by year-end.
• Tomorrow, the local calendar sees CoreLogic House Prices, Judo Bank PMI Mfg, Q4 Terms of Trade, Q4 NAB Business Confidence and Building Approvals data.

NZGBS: Closed On A Strong Note, FOMC Decision Later Today

NZGBs closed on a strong note, with benchmark yields 1-6bps lower, despite a mixed set of economic data releases.

• ANZ sentiment readings printed Business Confidence at 36.6 vs 33.2 prior, and Activity Outlook at 25.6 vs 29.3 prev.
• Job Ads fell 6.9% q/q in December, registering a sixth straight quarter decline.
• An extension of overnight strength in US tsys in today’s Asia-Pac session also likely assisted the local bid. Ahead of the FOMC decision later today, US tsys are ~1bp richer across benchmarks.
• Bloomberg reported that Finance Minister Willis commented in parliament that “the economy is at or near the bottom of the economic cycle”.
• The swaps curve has bull-flattened, with rates flat to 7bps lower.
• RBNZ dated OIS pricing flat to 4bps firmer across meetings, with August leading.
• RBNZ Governor Adrian Orr is scheduled to deliver a keynote speech on 16 February at the NZ Economics Forum. Mr Orr will speak about the changing drivers of inflation over the past couple of years and the shift from transitory to more stubborn underlying inflation.
• Tomorrow, the local calendar sees CoreLogic House Prices.
• Tomorrow, the NZ Treasury plans to sell NZ$250mn of the 4.5% May-30 bond, NZ$175mn of the 3.5% Apr-33 bond and NZ$75mn of the 2.75% May-51 bond.

FOREX: USD Firmer, Weaker Equity Tone Helps, AUD Holding Losses Post CPI Miss

The USD has mostly traded on a positive footing as the FOMC comes into view. The BBDXY was last near 1237.35, slightly off session highs (1237.74). A weaker tone to US equity futures (Nasdaq off more than 0.8%), has aided the USD at the margins, as earnings disappointment from tech bellwethers weighed on sentiment. US yields sit down around 1-2bps across the benchmarks.

• AUD has been the weakest performer, off 0.45% in recent dealings near the 0.6570 level (lows were at 0.6559). We had a weaker than expected Q4 CPI print, which has weighed on local yields and market pricing for the RBA outlook.
• The slight downside miss on the China manufacturing PMI also hasn't helped the A$. Metal commodities are down for copper and iron ore.
• NZD/USD has been dragged down by AUD weakness, and broader risk off trends. The pair last new 0.6115 around 0.35% weaker versus end NY levels from Tuesday.
• USD/JPY sunk in early trade, dipping under 147.20, as the BoJ Summary Of Opinions from the Jan policy meeting struck a hawkish tone around exiting negative rates. Our Japan policy team provided its latest insight, "While the April 25-26 meeting remains the most likely timing for policy adjustment, there is still an outside chance the Bank of Japan could look to end its negative rates policy in March 18-19 due to strong wage and prices data, MNI understands (see this link)."
• The pair has recovered though to be back at 147.65, little changed for the session, albeit outperforming the other majors.
• EUR/USD sits near 1.0825, off around 0.25% for the session so far.
• The focus of today will be the Fed decision out later; no change in rates is expected (see MNI Fed Preview here). There are also January US ADP employment & MNI Chicago PMI, and Q4 employment cost index. German & French preliminary CPIs also print.

EQUITIES: ASX Hits New Highs, Tech Earnings Weigh On Indices

Asia equities have opened mostly lower today, but have recovered some of the early losses, Australia remains the standout in the region. US Equities futures are also lower today after being pulled down by tech names, with the Nasdaq 0.80% lower following disappointing earnings from Microsoft and Alphabet earlier, while Eminis trade 0.40% lower

• Japan equity indices are mixed today, after recovering most of this mornings sell off, with the Nikkei falling as much as 1% in early morning trading, we currently trade just 0.10% lower for the day, while the Topix is now higher by 0.25%. The majority of the weakness in Equities today is coming from the Tech names, which could be attributed to weak tech earnings in the US earlier. Also, it's important to note earlier this morning BoJ Summary of opinions were out, with a hawkish tone attached, contributing to weaker equity prices, as the JPY moved higher, and JGB futures had a sharp drop.
• Hong Kong & China indices are lower again today, market sentiment is still poor following the ordered liquidation of China Evergrande, while China data isn't helping with the manufacturing PMI missing slightly, and a lack of details surrounding the market-stabilization program announced last week. Currently the Hang Seng is 1 % lower, while poor tech earnings weigh on Heng Seng tech index, down by 1.25%. Note the China Mainland Property Index is 1.85% lower, while CSI 300 is 0.2% lower
• South Korea is slightly lower today, as Samsung's profit fall again weighing on the Kospi, currently trading 0.15% lower.
• In Taiwan, the Taiex is being pulled lower by tech names, currently trading 0.75% lower
• Australia equities hitting fresh new all time highs, as inflation expectation cools, with the market now pricing in a 70% chance of a rate cut in June, up from a 50% chance yesterday. The ASX200 currently trading up 1.00%.
• In SEA, the Philippines bourse is the standout, up over 1.25%, with a Q4 GDP beat helping at the margins.

OIL: Crude Lower Ahead Of Fed, Geopolitics Remain In Focus

Oil prices are moderately weaker ahead of the Fed decision later today. Brent has held above $82 during APAC trading and is currently down 0.4% to $82.18/bbl. WTI is also 0.4% lower at $77.52. Geopolitical tensions have supported crude this month and it looks set to rise around 7%. The USD index is up 0.2%.

• US President Biden said that he did not want a war with Iran after 3 US troops were killed following a drone attack by Iranian-backed militants, which has weighed on oil today. Concern that the conflict in the Middle East could spread to Iran following the incident had supported crude, and as a result attention will remain on the US’ response to the strike.
• Bloomberg reported that US inventories fell a larger-than-expected 2.49mn barrels last week after 6.67mn, according to people familiar with the API data. Gasoline stocks rose 584k but distillate fell 2.13mn. The official EIA data is out later today.
• The focus of today will be the Fed decision out later; no change in rates is expected (see MNI Fed Preview here). There are also January US ADP employment & MNI Chicago PMI, and Q4 employment cost index. German & French preliminary CPIs also print.

GOLD: Holding Pattern Ahead Of FOMC Meeting

Gold is slightly lower in the Asia-Pac session, after closing 0.2% higher at $2037 on Tuesday.

• Bullion, like most markets, remains in a holding pattern ahead of today’s FOMC policy meeting, which may steer on when the US central bank will start easing policy.
• Fed speakers have been in a blackout ahead of this week’s FOMC meeting.
• The market is currently assigning around a 40% chance to a 25bp rate cut in March. This compares to the near 70% chance seen a couple of weeks ago.
• Lower interest rates are typically positive for non-interest-bearing gold.