MNI EUROPEAN OPEN: Trump Versus Biden Rematch Looking More Likely

US TSYS: Treasury Futures Trade In Tight Ranges Off Earlier Lows

• Jun '24 10Y futures opened the day lower, touching a daily low of 111-03+. We have recovered the majority of that move to trade off -02 at 111-07+, well within Tuesday's ranges.
• Initial technical resistance at 111-11+ (38.2% retracement of the Feb 1 - 23 bear leg), a level we broke above on Tuesday but were unable to hold onto. A break above would open 111-24+ (High Feb 13), while to the downside, levels to include 110-05+/109-25+ (Low Mar 1 / Low Feb 23) and bear trigger.
• Treasury yields are largely unchanged on Wednesday, with the 2Y -0.4bps lower at 4.554%, the 10Y is -0.8bp lower at 4.145%, while the 2y10y is -0.168 at -40.918
• Trump has so far won 11 of 15 of the Republican Primary votes, with Haley winning Vermont.
• Looking Ahead: MBA Mortgage Applications, ADP Employment Change, JOLTS Job Openings, Wholesale Inventories MoM, Federal Reserve Releases Beige Book, While Fed Chair Powell Testifies Before Congress

JGBS: Futures Weaker, BoJ Expected To Revise Consumption & Factory Orders Down

JGB futures are holding in negative territory, -10 compared to settlement levels, after shunting lower early in the session following a report that Japan’s biggest bank saw a BoJ exit from negative rates in two weeks.

• Mitsubishi UFJ Financial Group Inc.’s view is much more definitive than the swap market, which rates the chances of BoJ Governor Kazuo Ueda changing policy this month at about 50%. When he changes course, it will have major implications for the 1,096 trillion yen government bond market and the nation’s currency. (See Bloomberg linkICYMI)
• (Bloomberg) -- The BoJ is expected to revise down its assessment of consumption and factory output this month, Reuters reports, citing 3 unidentified people familiar with its thinking.
• The local data calendar was empty today, ahead of January labor cash earnings tomorrow.
• US tsys are largely unchanged in today’s Asia-Pac session ahead of Fed Chairman Powell's semi-annual policy testimony to Congress scheduled for later today and Thursday.
• Cash JGBs are slightly cheaper, with yields flat to 1bp higher. The benchmark 10-year yield is 0.8bp higher at 0.714% versus the Nov-Dec rally low of 0.555% and the February high of 0.772%.
• Swap rates are slightly higher out to the 5-year and slightly lower beyond. Swap spreads are mixed.

AUSSIE BONDS: Richer & At Session Highs Ahead Of Fed Powell’s Testimony & ADP Employment Data

ACGBs (YM +6.0 & XM +7.5) sit richer at Sydney session highs. ACGBs are also holding 2-3bps richer than pre-GDP levels despite Q4 data printing in line with expectations at +0.2% q/q.

• However, annual growth did slow to 1.5% from 2.1% as higher rates, inflation and the unwind of pandemic-related pent-up demand weighed on growth. 2023 slowed to 2.1% from 2022’s 3.8%.
• Growth was driven by government spending, non-dwelling construction and net exports. While GDP was in line with the RBA’s forecasts, domestic demand was weaker. This report is unlikely to change their on-hold stance.
• Cash ACGBs are 5-8bps richer on the day, with the AU-US 10-year yield differential 2bps lower at -13bps.
• Swap rates are 5-8bps lower, with the 3s10s curve flatter.
• The bills strip has bull-flattened, with pricing flat to +7.
• RBA-dated OIS pricing is flat to 5bps softer across meetings, with late-24 leading. A cumulative 42bps of easing is priced by year-end.
• Tomorrow, the local calendar will see Trade Balance, Home Loans Value and Foreign Reserves data.
• Later today, MBA Mortgage Applications, ADP Employment Change, JOLTS Job Openings, Wholesale Inventories and Federal Reserve Releases Beige Book are due to be released. Fed Chair Powell will also testify before Congress.

NZGBS: Richer But Off Best Levels, Awaiting Fed Chair Powell’s Testimony Later Today

NZGBs closed 3-7bps richer, although short-end bonds retreated from the session's best levels. With US tsys largely unchanged in today’s Asia-Pac session ahead of Fed Chairman Powell's semi-annual policy testimony to Congress scheduled for later today and Thursday, the pullback from the day's highs could be attributed to position squaring, especially with the local economic calendar relatively light.

• At the margin, stronger-than-expected Q4 Construction Work Done data and remarks from RBNZ Chief Economist Conway might have exerted pressure on the market. Conway reiterated the importance of maintaining rates at restrictive levels for an extended period to ensure core inflation consistently aligns with the 1-3% band.
• Swap rates are 3-5bps lower, with the 2s10s curve flatter.
• RBNZ dated OIS pricing is flat to 6bps softer across meetings, with Feb-25 leading. A cumulative 50bps of easing is priced by year-end.
• Tomorrow, the local calendar sees 4Q Mfg Activity data.
• Tomorrow, the NZ Treasury plans to sell NZ$300mn of the 4.5% Apr-27 bond, NZ$150mn of the 2.0% May-32 bond and NZ$50mn of the 1.75% May-41 bond.

FOREX: USD Off Earlier Highs, Equity Bounce in HK Helps Risk Appetite

G10 FX trends have been relatively contained today. Early USD strength wasn't sustained with the BBDXY unable to breach the 1242 level and we sit back near 1241 in recent dealings.

• A recovery in regional equity sentiment, led by a +2% gain in Hong Kong shares has seen AUD and NZD rebound from lows.
• US equity futures are higher, led by the tech but at +0.25% is only unwinding a modest part of yesterday's weakness. In the yield space, we are a touch lower in yield terms.
• USD/JPY sits just under 150.0, but ranges have been tight. Japan’s biggest bank sees a BoJ exit from negative rates in two weeks. Mitsubishi UFJ Financial Group Inc.’s view is much more definitive than the swap market, which rates the chances of BoJ Governor Kazuo Ueda changing policy this month at about 50%.
• AUD/USD is back to 0.6510/15, around 0.15% above end Tuesday levels in NY. The correlation with respect to HK equity moves has been evident today. Aussie looked through the on consensus Q4 GDP data. It rose 0.2% q/q and slowed to 1.5% y/y from 2.1%, but was in line with RBA forecasts. It showed a 0.5% q/q improvement in productivity.
• NZD/USD is lagging somewhat, but still up from earlier lows, last near 0.6090. NZD/JPY bounced off support at the 50-day EMA (near 91.06). AUD/NZD tried to push above 1.0700, but hasn't been able to do so convincingly. Earlier, Chief Economist for the RBNZ, Conway, noted that policy is likely to need to stay restrictive for some time and that household inflation expectations remain a watchpoint. He noted the RBNZ may be able to start easing sooner, but this would likely be contingent on the Fed easing in the second half of this year.
• Later, the UK budget release is in focus. UK construction PMI and Eurozone retail sales also cross. Then attention switches to the Bank of Canada decision and US Jolts, which will accompany the Fed Chair’s testimony.

ASIA STOCKS: Hong Kong Equities Surge Higher As Tech Leads The Way

Hong Kong and China equities are higher today, with Hong Kong equities making up for their underperformance on Tuesday. Tech names are leading the market higher, especially JD.com Inc, which is up 9.5% in anticipation of strong earnings due out during the US session later, while some short covering could be helping as well. While officials from the central bank, securities regulator and other ministries are scheduled to hold a press briefing this afternoon during the National People’s Congress, where more details on China’s economic policy plan for this year are expected

• Hong Kong Equities have surged higher today after lagging China Mainland stocks on Tuesday. Tech is the best-performing sector, with the HSTech Index up 3.79%, the HSI is up 2.33%, while the Mainland Property Index lags the move, although still trading 1.46% higher. In China, equity markets are higher, small-cap and growth names have led the way after underperforming on Tuesday, with the CSI1000 up 1.14%, ChiNext up 0.65%, while the CSI300 is 0.08% higher.
• China Northbound flows were -1.6b yuan on Tuesday, with the 5-day average to 1.42m, while the 20-day average sits at 2.76b yuan.
• Apple's iPhone sales plunge 24% over the first six weeks of this year, while the overall mobile markets shrank by 7% in the same period. The top share of the market went to Dongguan-based Vivo, who target the budget segment of the market. It was also reported that iPhone assembly partner Hon Hai Precision Industry Co, had reported a 18% slump in sales for the year.
• China has pledged to use the entire nations resources to speed up homegrown scientific breakthroughs. The government will increase spending on scientific and technology research by 10% to 370.8 billion yuan ($51.5 billion) in 2024, promote national champions and grant enterprises a central role in spearheading advances with particular focus on strategically critical areas from semiconductor manufacturing to quantum computing.
• Looking ahead, the NPC meeting will continue over the next few days although there is no set time frame, although expected to last about a week.

ASIA PAC EQUITIES: Asian Equities Rebound After A Slow Start

Regional Asian equities are mostly higher on Wednesday after a slow start to trading. Tech names are leading the market higher; JD.com Inc has earnings out during the US session but has surged almost 10% higher in anticipation, pulling other tech names up with it. Crypto has recovered some of Tuesday's losses, helping risk assets. There have been few market headlines today, while South Korea had CPI out earlier, coming in at 3.1% vs. 3.0% YoY. Australia also released 4Q GDP data, which came in line with expectations at 1.5% YoY.

• Japan equities are mixed today, with bank stocks again as top performers. The Topix Bank Index is up 0.81%, tech stocks weighed on the market earlier but have seen some rebound throughout the day, with the Nikkei 224 down just 0.10% after being down as much as 0.83%; the Topix is 0.30% higher.
• South Korean equities are slightly lower, although well off earlier lows as tech stocks rebound. There have been -$320 million of foreign equity outflows throughout today, after just $12 million of inflows on Tuesday. The Kospi is down 0.25%.
• Taiwan equities are higher today, after earlier reports that the Taiwanese Ministry of Economic Affairs opened a consultation on draft amendments to extend and enhance tax incentives for small and medium enterprises (SMEs). Semiconductor names opened lower this morning; however, they managed to grind higher throughout the day with TSMC up 1%, the Taiex now trading 0.65% higher for the day.
• Australian equities closed higher today; Financials were the top-performing sector offsetting weakness in the mining space. Australia had 4Q GDP data coming in line with expectations at 1.5% YoY. The ASX 200 closed up 0.12%.
• Elsewhere in SEA, NZ finished up 0.36%, Indonesia's JCI has managed to creep back above the support level of 7,250, to trade at 7,276 up 0.40% although foreign equity outflows have been negative for 7 of the past 8 days. Thailand SET is up above 1.00%, while India is off highs, down 0.30%.

OIL: Crude Little Changed, Looking For Direction From Fed’s Powell

Oil prices are little changed during APAC trading ahead of Fed Chair Powell’s testimony later today. Crude markets are concerned that easing will be delayed thus weighing on energy demand and adding upward pressure to the greenback. So, they will be monitoring Powell’s comments closely. The USD index is flat.

• Benchmarks have held the losses of the last two days. WTI is up 0.2% today to $78.34/bbl, close to the intraday high. It fell briefly below $78 to a low of $77.99. Brent is up 0.2% to $82.22, also close to the day’s high, and back above $82 after falling early in the session to $81.85.
• Bloomberg reported that US crude stocks rose 423k barrels last week according to people familiar with the API data. The trend of crude builds and product drawdowns continued with gasoline falling 2.8mn and distillate -1.8mn barrels. The official EIA data is out today.
• OPEC+ cuts have been extended to the end of June and Saudi Arabia has now surprisingly raised prices for its main grade shipped to Asia.
• Later the focus will be on Fed Chair Powell’s testimony before Congress. The Fed’s Daly and Kashkari also speak and the Beige Book is published. In terms of data, February ADP employment, January JOLTS job openings and euro area January retail sales print. The BoC meets and the ECB’s Buch appears.

GOLD: Slightly Weaker After Hitting A New All-Time High On Tuesday

Gold is slightly weaker in the Asia-Pac session, after closing 0.6% higher at $2128.04 on Tuesday after hitting a new all-time high of $2141.79.

• According to MNI’s technicals team, the break of the prior high at $2135.4 (Dec 4) reinforced a bullish condition and signalled scope for a climb towards $2177.6 (Fibonacci projection).
• Tuesday’s gains were driven by lower Treasury yields along with some mild net USD weakness.
• Geopolitical tensions and a pullback for equity markets added support for bullion.
• The market's focus now turns to Fed Chairman Powell's semi-annual policy testimony to Congress today and Thursday as well as NFP on Friday.
• TD Securities point to macro funds and momentum buying by commodity trading advisors further contributing.