MNI EUROPEAN OPEN: US Yields Recoup Some Losses, Dollar Supported On Dips

US TSYS: US Yields Recoup Some Of Wednesday's Losses

TYH4 is trading at 112-12+, + 02 from NY closing levels.

Not too much to speak about for Tsys today, we have remained rangebound all day, with a slight flattening of the curve occurring, cash yields are up 1-4.5bps.

• Slightly better selling in the front end of the curve in Asia trading as the 2Y yield is 4.5bps higher at 4.252%, while the 10Y yield is 2.6bps higher at 3.937%.
• Firms are pushing back their forecast for Fed cuts. Goldman Sachs has pushed back its forecast for the 1st Fed cut to May from March. It still expects 5cuts this year (BBG), with Abrdn sees fed cutting rates three times this year (BBG). This may be lending support to today's moves.
• TYH4 is still trading within initial resistance levels of 112-26+ from the highs of Jan 12th, while first support remains back at 110-26 from Jan 19th.
• Data Tonight: Weekly Claims, Flash PMIs, ISMs, followed by Non-Farm Payrolls on Friday

JGBS: Futures Richer & At Tokyo Session Highs After 10Y Supply

JGB futures are sharply higher, +30 compared to settlement levels, after dealing in a relatively narrow range in the Tokyo morning session. The catalyst for the move higher was a solid 10-year JGB auction. The low price matched wider expectations, the tail shortened, and the cover ratio improved to 3.648x from 2.904x at January’s auction. It is worth noting that the cover ratio has improved for two straight months after December’s cover was the lowest seen at a 10-year auction since 2021.

• Afternoon strength in JGB futures came despite a paring of yesterday’s post-FOMC gains in US tsys in today’s Asia-Pac session. US tsys are currently dealing 1-5bps cheaper across benchmarks. Market commentators have started to push back their forecast for Fed cuts.
• International Investment Flows and PMI Manufacturing data failed to be market-moving.
• Post-auction dealings have shown a change of fortune for cash JGBs. After cheapening in the morning session, JGBs are now 1-3bps richer across benchmarks, with the 10-year leading. The benchmark 10-year yield is 2.5bps lower at 0.707% versus the morning high of 0.747%.
• The swaps curve is dealing slightly richer beyond the 2-year. Swap spreads are wider.
• Tomorrow, the local calendar sees Monetary Base data, along with BoJ Rinban Operations covering 1-10-year JGBs.

AUSSIE BONDS: Little Changed & Near Cheaps, PPI Data & May-34 Supply Tomorrow

ACGBs (YM -1.0 & XM +0.5) sit little changed and near Sydney session cheaps as US tsys pare yesterday’s post-FOMC rally in today’s Asia-Pac session. Cash US tsys are dealing 1-4bps cheaper, with a flattening bias.

• Market commentators have started to push back their forecast for Fed cuts. Fed Chair Powell yesterday said policymakers were unlikely to pivot to rate cuts in March. Goldman Sachs has pushed back its forecast for the 1st Fed cut to May from March. They still expect 5 cuts this year (BBG). Aberdeen sees the Fed cutting rates three times this year (BBG). This may be lending support to today's US tsy moves.
• Today’s local data drop of House Prices, PMI, Terms of Trade, NAB Business Confidence and Building Approvals failed to be market-moving.
• Cash ACGBs are 1-2bps richer, with the AU-US 10-year yield differential 6bps higher at +6bps.
• Swap rates are flat to 2bps lower, with the 3s10s curve flatter.
• The bills strip has twist-flattened, with pricing -1 to +2.
• RBA-dated OIS pricing is 1-2bps softer across meetings. A cumulative 61bps of easing is priced by year-end.
• Tomorrow, the local calendar sees PPI and Home Loans data.
• Tomorrow, the AOFM plans to sell A$800mn of 3.75% 21 May 2034 bond.

NZGBS: Strength Given Up As US Tsys Post-FOMC Rally Is Pared

NZGBs closed 3-4bps richer but well off the session’s best levels. There hasn’t been much in the way of domestic drivers to flag, outside of the previously outlined CoreLogic residential property prices. However, weekly supply saw lacklustre demand metrics, with cover ratios ranging from 1.32x to 1.88x. That likely contributed to the through-the-session cheapening.

• That said, the key driver of the move away from the session’s best levels was likely to have been today’s partial give-back of yesterday’s post-FOMC gains in US tsys. They are currently dealing 2-4bps cheaper across benchmarks in today’s Asia-Pac session.
• Firms are pushing back their forecast for Fed cuts. Goldman Sachs has pushed back its forecast for the 1st Fed cut to May from March. They still expect 5 cuts this year (BBG). Aberdeen sees the Fed cutting rates three times this year (BBG). This may be lending support to today's moves.
• Swap rates closed 1-3bps lower, with the 2s10s curve flatter.
• RBNZ dated OIS pricing closed flat to 4bps softer across meetings, with Oct-Nov leading. A cumulative 94bps of easing is priced by year-end.
• Tomorrow, the local calendar will see ANZ Consumer Confidence and Building Permits data.

FOREX: USD Up From Earlier Lows, A$ Underperforms

JPY and NZD are modestly higher against the USD, but the rest of the G10 block has struggled as Thursday session has unfolded so far. The BBDXY got close to 1235.7 in earlier trade, but we now sit back near 1237, down only slightly for the session.

• Cross asset focus has been on some modest recover in US yields post Wednesday's slump. Some sell-side names have shifted out their expectation for when the Fed starts cutting. The front end has led the moves, the 2yr up nearly 4bps to 4.24%.
• This has likely kept USD/JPY dips supported to a degree. For this pair, we saw lows of 146.48, but we sit back near 146.75 now. Earlier highs were at 147.08.
• NZD has firmed back to 0.6125, but remains within recent ranges (highs for the session at 0.6141). Some support likely evident from the better US equity futures tone, with Nasdaq futures up close to 0.45%.
• The same can't be said for AUD, last near session lows in the 0.6555/60 region. Earlier highs came close to 0.6580. This underperformance may reflect market pricing around potential RBA cuts in Q2 of this year post yesterday's Q4 CPI update. Metals prices are mixed, with iron ore slightly higher, while copper is down.
• The AUD/NZD cross is back close to 1.0700, near Jan lows.
• EUR/USD has spent most of the session fairly close to 1.0800.
• Looking ahead, there is US Q4 productivity/ULC, jobless claims, January manufacturing PMI/ISM as well as European PMIs and euro area January CPI. The Bank of England meets and is expected to leave rates unchanged. ECB’s Lagarde and Lane make appearances.

CHINA EQUITIES: Equities Rebound, After Vice FinMin Pledges Support For Economy

Hong Kong and Mainland China Equities are higher today, erasing early morning moves after Comments from the Vice Finance Minister around continuing to develop the chip and tech sectors has likely aided sentiment in this space. The minister also stated that broader fiscal policy will continue to aid the domestic demand recovery. The CSI 300 rebounding to +0.75%, Hang Seng up 1.35%, while the tech Index is up 3.20%

• Hong Kong, is being led higher by the tech index, trading 3.20% higher so far, as they brush of poor earnings from some of the Big US Tech stocks this week. The HSTECH sub index may also be seeing some support around the 3000 level, which has marked recent lows. Elsewhere the property index is trading 0.75% higher, after being down 1.1% at one point after new home sales from the nation’s largest developers tumbled and “underwater mortgage” levels in Hong Kong surged to a two-decade high.
• China had PMI data out earlier, holding steady at 50.8, markets initially didn't react positively to the PMI data, with all major benchmarks trading lower on the day, however once the Vice Finance Minister spoke markets keeping changed directions, CSI 300 now up 0.75%, ChiNext up 1.90%.

ASIA EQUITIES: Asia Equities Mostly Lower, Higher PMIs Help Some Markets

Asia equities are mostly lower today, largely on the back of the FOMC rate decision and Powell's comments around not cutting in March. While regional PMI prints have mostly been to the upside for Jan, helping some local markets.

• Japan equity indices are lower across the board today, the biggest news coming out is from Aozora Bank, as their shares plunged 21.5% on the back of losses in their US commercial property exposure, this coming on the back of NY Community Bancorp slashing it's dividend and stockpile reserves, due to bad loan exposure to US property, causing the stock to fall 38%. Currently the Topix is 0.75% lower, while the Nikkei trades 0.90% lower
• South Korea equities indices are higher today as PMI data showed a return to growth 51.2 up from 49.9 in Dec, while headlines out earlier from the Finance Minister around resolving the "Korea Discount" in stock markets are helping push the Kospi higher, currently up 1.50%
• Taiwan PMI out earlier improved from last month at 48.8 vs 47.1, the Taiex is currently trading flat.
• Australia equities have ended their winning run by giving all gains from yesterday back, after Powell dampened hope of a US rate cut in march, the ASX200 is trading lower by 1.20%, elsewhere in Aus the 3Y hit 3.50% for the first time since June, while a rate cut is fully priced in for June.
• Elsewhere in SEA, PMI data has been released showing Indonesia the standout in the region coming in at 52.9 vs 52.2, equities higher by 0.70%, elsewhere Thailand's PMI data improved from last month, but still showing signs production is contracting 46.7 vs 45.1, equities lower by 0.40%, while Philippines PMI fell to 50.9 vs 51.50 last month with equities lower by 0.65%

OIL: Crude Up Moderately Following Wednesday’s Sharp Fall

Oil prices are off Wednesday’s lows during APAC trading today. Continued geopolitical uncertainties with better risk sentiment have supported crude. WTI is up 0.7% to $76.38/bbl but off the intraday high of $76.50 and Brent is 0.7% higher at $81.08 after reaching a high of $81.20. A slightly lower US dollar has also provided some support.

• The US said that is shot down Iranian drones and a Houthi missile in the Gulf of Aden off Yemen’s coast. Threats to shipping in the area are yet to abate. Also, an expected US response to the killing of 3 soldiers is keeping markets alert. Iran has denied supplying the weapons and has warned against retaliating.
• Total US production rose 5.7% in the latest week, rebounding from weather-impacted closures. But strong US output over recent months has been one of the factors keeping a lid on oil prices.
• Bloomberg is reporting that the problems in the Red Sea are pushing European diesel prices higher due to the longer routes to avoid the area. Europe has found other sources of refined products since it banned Russian diesel following its invasion of Ukraine.
• Later there is US Q4 productivity/ULC, jobless claims, January manufacturing PMI/ISM as well as European PMIs and euro area January CPI. The Bank of England meets and is expected to leave rates unchanged. ECB’s Lagarde and Lane make appearances.

GOLD: Slightly Stronger But Still Below Yesterday’s ADP Employment-Induced High

Gold is slightly higher in the Asia-Pac session, after closing 0.1% higher at $2039.52 on Wednesday following the FOMC Policy Decision.

• The bullion market experienced considerable volatility during the session, marked by a peak of $2055.92. This surge in gold occurred as the USD dollar weakened and US Treasury yields declined due to disappointing US economic data. ADP Employment showed a change of 107k vs. 135k est (prior down revised to 158k from 164k), ahead of Friday’s Non-Farm Payrolls for January.
• However, later in the session, there was an intraday resurgence in the USD and yields as Fed Chair Powell expressed reservations about the possibility of a Fed rate cut in March.
• The market is now assigns around a 35% chance to a 25bp rate cut in March. This compares to the near 70% chance seen a couple of weeks ago.