- It has been a slow session in Asia with no major moves across assets classes, focus seems to be squarely on US CPI due later today, with the market expecting a 2.7% y/y reading, up from 2.6% in October.
- Front-end tsys yields have edged slightly higher, however we remain within Tuesday's ranges. ACGB's are trading 2-6bps cheaper ahead of tomorrows AU Jobs data.
- In the FX space, the Yen has been the top performer, rising 0.30% however much like other assets remains within Tuesday's ranges. The NZD is the weakest G10 currency, trading 0.10% lower.
- Tsys futures are weaker ahead of US CPI later today, US consumer prices excluding food and energy probably rose 0.3% m/m last month, the same as in October, with expectations of another 0.3% reading today, while headline CPI is expected to rise to 2.7% from 2.6% in October.
- Ranges have been narrow and we currently trades within yesterday's levels across all contracts. TU is -00¾ at 103-02 and trading at session lows, TY is -04 at 110-28, just off lows of 110-27+.
- Cash tsys curves have bear-flattened, yields are 0.5-1.5bps higher across the curve. The 2yr is +1.4bps at 4.157%, 10yr is +1bps at 4.236%. The 2s10s is little changed at 7.433, off overnight highs of 9.321.
- Fed fund futures are currently pricing in 21.5bps of cuts for next weeks meeting, or a 86% chance of a 25bps cut. January is pricing in 27.4bps of cumulative cuts, while not until May is the market expecting another full cut, with 52.3bps currently priced.
- Treasury Secretary nominee Scott Bessent said he is “in complete agreement” with President-elect Trump that Fed Chair Jay Powell will serve out his full term.
- There will be a $39b Tsys auction of a November 2034 notes later today. While on the data front, first we have MBA mortgage Applications, although all eyes will be on CPI shortly after.
ACGBS: Subdued Session Ahead Of US CPI Today & AU Jobs Tomorrow
In roll-impacted dealings, ACGBs (YM -2.2 & XM -5.7) are cheaper on a data-light Sydney session. Andrew Hauser, RBA Deputy Governor, will give a speech at the ABE Annual Dinner aftermarket.
- Cash US tsys are ~1bp cheaper in today’s Asia-Pac session ahead of US CPI data later today.
- Cash ACGBs are 2-6bps cheaper on the day but remain 2-8bps richer, with a steeper curve, than yesterday’s pre-RBA levels.
- The AU-US 10-year yield differential is at -4bps, around its lowest since July.
- Swap rates are flat to 4bps higher, with the 3s10s curve steeper.
- The bills strip is little changed, with pricing flat to -1.
- RBA-dated OIS pricing is largely unchanged today but remains 3–12bps softer than pre-RBA levels observed yesterday. A 25bp rate cut is now more than fully priced for April, with market expectations at 115%. The market assigns a 60% chance to a 25bp cut at February’s meeting.
- Tomorrow, the local calendar will see the November Employment Report. Bloomberg consensus is forecasting a 25k rise in new jobs and a 0.1pp rise in the unemployment rate to 4.1%. The RBA continued to describe the labour market as tight in its December statement noting that some indicators had “stabilised”, including hours worked, underemployment and the youth unemployment rate.
NZGBS: Strong Outright & Relative Performance
NZGBs closed showing a bull-steepener, with benchmark yields flat to 3bps lower. The NZGB 10-year has outperformed its $-bloc counterparts, with the NZ-US and NZ-AU yield differentials 5bps tighter on the day. At +9bps, the NZ-US 10-year differential is around its lowest since mid-2021.
- The market appears to have benefitted from a positive spillover effect from ACGBs, following yesterday’s strong rally in the wake of the RBA decision. The local market was closed at the time of the announcement, amplifying the delayed impact.
- That said, today’s data was on the weak side. NZ manufacturing volumes fell 1.2% q/q in Q3 versus a revised +0.3% in Q2.
- Interestingly, Westpac’s forecasting model suggests that the NZ economy appears to be emerging from recession in Q4, with GDP seen to be increasing 0.2%. (per BBG)
- Swap rates closed 1-3bps lower, with the 2s10s curve steeper.
- RBNZ dated OIS pricing closed flat to 4bps softer. A cumulative 44bps of easing is priced by February, with 111bps by year-end 2025.
- Tomorrow, the local calendar will see Card Spending data ahead of BusinessNZ Manufacturing PMI and Net Migration on Friday.
- Tomorrow, the NZ Treasury plans to sell NZ$250mn of the 0.25% May-28 bond, NZ$225mn of the 4.50% May-35 bond and NZ$25mn of the 2.75% Apr-37 bond.
JGBS: Subdued Session, Light Local Calendar Again Tomorrow, US CPI Later Today
JGB futures are holding weaker and mid-range, -10 compared to settlement levels.
- Outside of the previously outlined PPI data, there hasn't been much by way of domestic drivers to flag.
- Japan's wholesale inflation accelerated for three straight months as companies continued to pass on rising raw material and labour costs, data showed on Wednesday, keeping the central bank under pressure to raise interest rates again. The data for November comes ahead of the Bank of Japan's two-day policy meeting ending on Dec. 19, when some analysts expect it to raise short-term interest rates from the current 0.25%. (per RTRS)
- Cash US tsys are ~1bp cheaper in today’s Asia-Pac session ahead of US CPI data later today.
- Cash JGBs are slightly mixed across benchmarks, with swings bounded by +/- 1bp beyond the 1-year (+2.4bps) and shy of the 40-year (-2.4bps). The benchmark 10-year yield is 0.2bp higher at 1.073% versus the cycle high of 1.108%.
- The swaps curve has twist-steepened, with rates 1bp lower to 2bps higher. Swap spreads are tighter out to the 10-year and wider beyond.
- Tomorrow, the local calendar will see Weekly International Investment Flow and Tokyo Avg Office Vacancies data alongside an Auction for Enhanced-Liquidity 5-15.5 YR.
EQUITIES: Asian Equities Mixed As Market Remains Cautious Ahead Of US CPI
Asian markets are trading cautiously ahead of key US inflation data, which could influence the Fed's interest rate decision. China's Central Economic Work Conference has fueled optimism with signals of fiscal and monetary stimulus, though skepticism lingers due to past unmet policy promises. South Korean equities continued their rebound despite lingering political uncertainty. In Japan, producer-price inflation accelerated, adding pressure for policy normalization, while traders reduced bets on a near-term rate hike. Meanwhile, weak commodity prices and unrest in Mozambique have weighed on Australian mining stocks, while overall risk aversion has dampened sentiment across the region.
- Japanese benchmarks are slightly lower, with the Nikkei underperforming, last down 0.65%, while the TOPIX is 0.25% lower. South Korea's KOSPI is trading 0.65% higher, gains are being driven by smaller-cap stocks with the likes of Samsung & SK Hynix down 0.5%, while foreign investors have been better sellers of Transports, Chemical & Machinery names.
- China & Hong Kong equities are trading slightly higher with small-caps outperforming the wider markets. The HSI is 0.20% higher, the CSI 300 trades just 0.10%, while the CSI 1000 is up 1.25%.
- Australian shares fell to a near three-week low as mining stocks struggle following unrest in Mozambique, the ASX200 is 0.40% lower. New Zealands NZX 50 is 0.10% higher.
ASIA STOCKS: Asian Equity Flows Remain Muted
Flows have been muted recently, India has seen the strongest inflows over the past week.
- South Korea: Recorded inflows of +$129m yesterday, with a 5-day total of -$367m. YTD flows remain positive at +$4.15b. The 5-day average is -$73m, better than the 20-day average of -$123m and the 100-day average of -$154m.
- Taiwan: Experienced outflows of -$279m yesterday, with a 5-day total of +$887m. YTD flows are deeply negative at -$16.43b. The 5-day average is +$177m, better than the 20-day average of -$183m and the 100-day average of -$188m.
- India: Posted inflows of +$71m yesterday, with a 5-day total of +$2.53b. YTD flows remain positive at +$906m. The 5-day average is +$507m, much better than the 20-day average of +$134m and the 100-day average of -$11m.
- Indonesia: Recorded inflows of +$5m yesterday, with a 5-day total of +$41m. YTD flows remain positive at +$1.56b. The 5-day average is +$8m, better than the 20-day average of -$29m and the 100-day average of +$17m.
- Thailand: Local market closed for Constitution Day. YTD flows are negative at -$3.92b. The 5-day average is -$18m, slightly worse than the 20-day average of -$16m but better than the 100-day average of -$6m.
- Malaysia: Experienced outflows of -$27m yesterday, with a 5-day total of -$114m. YTD flows are negative at -$524m. The 5-day average is -$23m, better than the 20-day average of -$39m but worse than the 100-day average of -$7m.
- Philippines: Posted inflows of +$23m yesterday, with a 5-day total of -$4m. YTD flows remain negative at -$317m. The 5-day average is -$1m, better than the 20-day average of -$10m and the 100-day average of +$2m.
Table 1: EM Asia Equity Flows
OIL: Crude Higher; EIA Data, OPEC Report & US CPI Released Later
Oil prices are higher ahead of US data. They have been buoyed by news that the Biden administration is considering stricter sanctions on Russia’s oil exports before Trump takes office in January, which if enforced could reduce global supply. Brent is up 0.6% to $72.63/bbl, close to the intraday high, while WTI is also 0.6% higher around $69.00. The USD index is off its low but still down 0.1%.
- Crude has been range trading in recent weeks due to offsetting factors, including increased tensions in the Middle East and a pessimistic supply/demand outlook for 2025. The market continues to monitor data and policy developments in China.
- The EIA forecast a small crude deficit of around 100kbd in 2025 in its latest outlook. The shift from a surplus was driven by OPEC’s decision to delay its output normalisation to the start of April. OPEC’s monthly report is released today and the IEA’s, which tends to be less optimistic, is on Thursday.
- Bloomberg reported that US crude oil inventories rose 0.499mn last week after falling 1.23mn the week before, according to people familiar with the API data. Gasoline stocks rose 2.85mn and distillate +2.5mn. The official EIA data are out later today.
- November US CPI data is out later, which is expected to show headline ticking up to 2.7% y/y but core steady at 3.3% y/y. The Fed is currently forecast to cut rates 25bp on December 18. US November real earnings and federal budget balance are also out and the Bank of Canada decision is announced.
LNG: European Supply Risks Still At The Fore
Natural gas prices were moderately higher on Tuesday but are still down in December to date. European gas rose 1.8% to EUR 45.67, close to the intraday high of EUR 45.87, as purchasers took advantage of lower prices. They were also supported by unplanned outages in key supplier Norway. It is still down 4.5% this month.
- The weather outlook has become milder but wind-generated power is forecast to decline over the week. But the European supply situation remains uncertain going into year end when the deal with Ukraine to allow Russian flows expires, also the impact on EU transactions of US sanctions on Gazprombank is unclear.
- US natural gas prices rose 0.2% to $3.19 to be down 5.2% in December. Supplies remain ample and warmer weather is forecast for parts of the East Coast of the US for mid-December, according to the Commodity Weather Group.
- Softer gas demand in China due to weaker industrial growth and higher global prices have meant that it is reselling LNG, according to ENN Group. Also Japan has restarted some nuclear reactors which should reduce its gas demand.
FOREX: Limited FX Moves Ahead Of US CPI Data Later
Ahead of November US CPI out later today, there have only been restrained moves in G10 currencies. The BBDXY USD index is off its intraday low but still down 0.1%. The yen has made the largest move with USDJPY down 0.3% to 151.56 but off the intraday low of 151.42. Japanese corporate goods price inflation picked up but imported pressures fell.
- AUDUSD fell to 0.6369 in early trading continuing Tuesday’s sell off but it is now up 0.1% to 0.6384, after reaching 0.6389. RBA Deputy Governor Hauser speaks at 1800 AEDT at the ABE annual dinner. AUDJPY is 0.2% lower at 96.75 after falling to 96.62.
- NZDUSD is 0.1% higher at 0.5803 after falling to 0.5797 earlier. AUDNZD has been hovering around 1.10 for much of the session to be higher than before Tuesday’s RBA announcement.
- European currencies are little changed with ECB and SNB meetings on Thursday. EURUSD is around 1.0529, EURCHF 0.9301 and EURGBP 0.8243.
- APAC equities are mixed with the Hang Seng down 0.2%, CSI 300 flat and S&P e-mini up 0.1% and KOSPI +0.6%. Oil prices are higher with WTI +0.6% to $69.00/bbl. Copper is up 0.9% and iron ore is $105-106/t.
- November US CPI data is out later, which is expected to show headline ticking up to 2.7% y/y but core steady at 3.3% y/y. The Fed is currently forecast to cut rates 25bp on December 18. US November real earnings and federal budget balance are also out and the Bank of Canada decision is announced.
BONDS: NZ-US 10Y Differential Back At Lowest Since Mid-2021
NZGBs closed showing a bull-steepener, with benchmark yields flat to 3bps lower. The NZGB 10-year has outperformed its $-bloc counterparts, with the NZ-US and NZ-AU yield differentials 5bps tighter on the day.
- At +9bps, the NZ-US 10-year differential is around its lowest since mid-2021.
- A simple regression analysis of the 3-month forward swap rate spread (1Y3M) over the past year indicates the 10-year yield differential is close to its estimated fair value of +7bps.
- Notably, the regression error has fluctuated within a range of ±20bps over the past year, highlighting some variability in the relationship.
- The 1Y3M differential continues to be a key driver of market expectations for long-term yield convergence.
Figure 1: NZ-US 10-Year Yield Differential
Source: MNI – Market News / Bloomberg
EQUITIES: US Equity & Credit Yield Differential Tests GFC Levels
- The earnings yield on S&P 500 stocks is trailing BBB-rated corporate bond yields by 130bps, marking the most negative spread since the GFC and now testing dot-com bubble levels. This unusual dynamic highlights stretched equity valuations, with the S&P 500 and Nasdaq 100 trading at record-high multiples, driven largely by the Magnificent Seven stocks.
- Corporate credit yields are trading in line with their median for the past 20 years, while earnings yields on stocks are well below its historical median.
- As stretched as equity valuations may seem at the moment, there for now seems to be little to stop them trading higher, earnings from the Magnificent seven has been solid, banks continue to increase their yearly target for the S&P 500,
- S&P price to book value is trading at levels never seen before, last 5.2, the next highest was 5.16 made during the dot com bubble burst, see chart.
RBA: MNI RBA Review-December 2024: Confidence Key To Easing
- The RBA left rates unchanged at 4.35% as expected but the tone of the statement shifted in a dovish direction. The phrase “not ruling anything in or out” was removed from the statement, which is likely the first step towards easing. The Board is also no longer “vigilant to upside risks to inflation”.
- Governor Bullock made it very clear that she doesn’t know when the easing discussion will begin and when there will be a cut, and that the Board will remain data driven. Quarterly CPIs are not the only information it will look at but also monthly jobs and consumption data.
- The next RBA meeting is on February 18, which will include an updated outlook, and Q4 CPI is on January 29 and Q4 retail sales volumes on February 3. Q4 wages and GDP will print before the April 1 meeting.
- A 25bp rate cut is now more than fully priced for April, with market expectations at 117%. Expectations for the September meeting have softened by 50bps since mid-November, reflecting concerns about weakening domestic economic growth.
- See full review here.
UP TODAY (TIMES GMT/LOCAL)
| Date | GMT/Local | Impact | Country | Event |
| 11/12/2024 | 1000/1000 | ** |  GB | Gilt Outright Auction Result |
| 11/12/2024 | 1200/0700 | ** |  US | MBA Weekly Applications Index |
| 11/12/2024 | - | *** |  CN | Money Supply |
| 11/12/2024 | - | *** | CN | New Loans |
| 11/12/2024 | - | *** | CN | Social Financing |
| 11/12/2024 | 1330/0830 | *** | US | CPI |
| 11/12/2024 | 1330/0830 | * |  CA | Intl Investment Position |
| 11/12/2024 | 1445/0945 | *** | CA | Bank of Canada Policy Decision |
| 11/12/2024 | 1530/1030 | CA | BOC Governor Press Conference | |
| 11/12/2024 | 1530/1030 | ** | US | DOE Weekly Crude Oil Stocks |
| 11/12/2024 | 1800/1300 | ** | US | US Note 10 Year Treasury Auction Result |
| 11/12/2024 | 1900/1400 | ** | US | Treasury Budget |
| 12/12/2024 | - |  EU | European Central Bank Meeting | |
| 12/12/2024 | - |  CH | Swiss National Bank Meeting | |
| 12/12/2024 | 0030/1130 | *** |  AU | Labor Force Survey |
| 12/12/2024 | 0700/0800 | *** |  SE | Inflation Report |
| 12/12/2024 | 0830/0930 | *** | CH | SNB PolicyRate |
| 12/12/2024 | 0830/0930 | *** | CH | SNB Interest Rate Decision |