MNI EUROPEAN OPEN: Who Will Replace Brainard?

US TSYS: Richer In Asia, Cross-Market Flows Dominate

TYH3 deals at 112-07, +0-05+, a touch off the top of the 0-11+ range on volume of ~138K.

• Cash Tsys sit 1-2bp richer across the major benchmarks.
• Cross-market flows from ACGBs dominated in early dealing, as Tsys initially followed ACGBs lower pre-Australian labour market report.
• An unexpected uptick in Australian unemployment then saw ACGBs unwind early losses facilitating a recovery from session lows in Tsys.
• Pockets of screen buying in TY futures aided the bid, with a block buyer in FV futures also noted.
• The richening held through the remainder of the session.
• ECB speak from Panetta headlines the European session. Further out we have PPI, Jobless Claims, Housing Starts and the Philadelphia Fed Manufacturing Index. Cleveland Fed President Mester and St Louis Fed President Bullard will cross. We also have the latest 30-Year TIPS supply.

JGBS: Move Away From Session Cheaps Holds Into Close

JGBs recovered from session cheaps after futures initially extended on their overnight session downtick, with spill over from a bid in wider core global FI markets providing some impetus early on.

• Futures are -13 into the bell, while cash JGBs deal either side of unchanged with little in the way of uniform direction noted. 10s have been limited by their proximity of the upper boundary of the BoJ’s YCC settings.
• Domestic headline flow continues to be centred on all things BoJ, with the latest Nikkei survey revealing that all 20 respondents said that “the Bank will likely revise the yield curve control tool sometime this year.”
• Elsewhere, there was confirmation that the government’s choices for the BoJ leadership positions will appear in their respective lower house hearings on 24 February.
• 5-Year JGB supply went well, even with the coupon on the new line being adjusted lower (0.2% vs. last month’s new 0.3% line), adding a fresh firming bias to afternoon trade.
• Local data flow generated a slightly narrower than expected trade deficit for January (although we still saw the widest headline monthly trade deficit on record), alongside softer than expected core machine orders, although that didn’t move the needle for the space.
• Tomorrow’s local docket is virtually empty.

JGBS AUCTION: 5-Year JGB Auction Results

The Japanese Ministry of Finance (MOF) sells Y2.0329tn 5-Year JGBs:

• Average Yield: 0.216% (prev. 0.393%)
• Average Price: 99.92 (prev. 99.55)
• High Yield: 0.216% (prev. 0.399%)
• Low Price: 99.92 (prev. 99.52)
• % Allotted At High Yield: 87.9205% (prev. 81.0659%)
• Bid/Cover: 3.977x (prev. 3.661x)

JGBS AUCTION: 12-Month Bill Auction Results

The Japanese Ministry of Finance (MOF) sells Y2.84768tn 12-Month Bills:

• Average Yield: -0.0959% (prev. -0.0616%)
• Average Price: 100.096 (prev. 100.062)
• High Yield: -0.0859% (prev. -0.0318%)
• Low Price: 100.086 (prev. 100.032)
• % Allotted At High Yield: 33.7376% (prev. 50.5907%)
• Bid/Cover: 3.816x (prev. 4.396x)

AUSSIE BONDS: Labour Market Report Sparks A Sharp Reversal

Aussie rates futures extended overnight session weakness ahead of domestic employment data, before reversing sharply on an unexpected uptick in unemployment and a soft headline employment figure.

• While the January employment data appeared to deliver tentative signs of labour market cooling, post-data briefings by the Big-4 banks all signalled caution re: taking a firm view. Factors deemed to be in play included “seasonal patterns”, “a greater than usual ‘holiday effect’” and the fact that “the ABS reported “more people than usual with a job indicating they were starting…work later in the month.”
• YM and XM were -10.0 to -13.0 early, only to surge 15-16bp before closing +2.0 and -2.0, respectively.
• AU/U.S. 10-year yield differential is 4bp lower at -2bp, narrowing post-data.
• Swap rates also reversed the early push higher, with the 3s10s curve 4bp steeper.
• Bills closed 1-6bp, bull steepening, also more than reversing early losses.
• Immediate RBA-dated OIS was a tad lower with an 88% chance of a 25bp hike priced for next month. Terminal rate expectations (Sep/Oct-22) continued to fluctuate between 4.10%-4.22%, closing at 4.12%. It traded near the top of the range pre-data.
• ANZ now forecasts the RBA cash rate target peaking at 4.10% in the current cycle.
• Supply matters headline locally tomorrow.

NZGBS: Mid-Session Rally On AUS Jobs Data

Today delivered another session of U.S. Tsy-induced weakness in the morning, followed by a solid short-end-led rally sparked by market-friendly Antipodean data.

• Today’s major catalyst was the weaker-than-expected Australian employment data. NZGBs yields were up as much as 7-8bp ahead of the release. By the end of trading the 2-year benchmark had managed to reverse that move, closing 2.5bp richer. Further out, NZGBs rallied but not enough to completely wipe anyway morning weakness with the 5-year benchmark yield ending up 2bp and the 10-year benchmark up 5bp.
• Swap moves were less dramatic with the mid-session turnaround equating to a -4bp move in the 2-year rate and a -0.5bp move in the 10-year. The 2s10s curve was 7bp steeper on the day.
• RBNZ-dated OIS now shows just under 50bp of tightening for this month's meeting, continuing the recent pull lower. Terminal OCR pricing saw a more prominent move, declining to sub-5.35% versus the week’s high of ~5.50%.
• KiwiBank suggested that the RBNZ should stand pat at this month’s meeting, in lieu of Cyclone Gabrielle, although the bank does still expect the RBNZ to ultimately deliver a hike. This view weighed on the OIS strip ahead of the Australian data.
• The NZ Debt Management Office successfully sold NZ$200mn May-28, NZ$150mn Apr-33 and NZ$50mn Apr-37 with cover ratios of 3.48x, 2.57x and 2.72x, respectively (more than smooth passage after last week's uncovered auction in the belly).

EQUITIES: Dip Buyers Emerging?

Regional equities have rebounded today, particularly the higher beta plays. The late US equity rally from Wednesday has helped, while US futures have tracked higher in the first part of trade today (Eminis +0.15%, Nasdaq +0.37%). Talk of China efforts to boost consumption is likely to have aided sentiment for China bourses and across the region.

• The HSI is up 2.20% at this stage, with the China Enterprise Index slightly better at +2.50%. With both indices 8-10% off Jan highs, dip buyers may be starting to emerge.
• Onshore the CSI 300 is up around 1%. Yesterday a speech by Xi Jinping from late last year was released, stressing efforts to boost lower and middle income consumption this year. Local papers reported the President calling on local governments to do more to boost consumption.
• Elsewhere, tech plays in South Korea (1.88%) and the Taiex (0.88%) are firmer. Offshore investors have added +$133.1mn to local shares in Korea. Japan stocks are +0.77% for the Nikkei at this stage.
• The ASX 200 is +0.80%, while Indonesian stocks are the only major bourse within the region lower, off 0.2% at this stage. A big onshore property developer, Waskita, is seeking to delay a bond payment, which has weighed on sentiment at the margin.

GOLD: Bullion Stabilises After Wednesday’s Post-Retail Sales Slump

Gold prices are up 0.2% to $1840.50/oz after falling a percent on Wednesday following the strong US retail sales report driving up yields and the USD. Bullion reached a high today of $1842.64 following a low of $1834.56. The USD DXY is down 0.2%.

• Gold is now trading below its 50-day simple moving average as better US data and Fed comments point to further tightening. Wednesday’s low of $1830.66 has now formed initial support.
• Later today the Fed’s Mester, Bullard and Cook all speak. A hawkish tone from these officials would send bullion down further. In terms of data, there will be more detail on the inflation front from the January PPI, which is expected to see a pickup in monthly increases but the annual rates should ease. There are also January housing starts & permits, jobless claims and Philadelphia and NY business indices for February.

OIL: Crude Rising On Hopes Of Increased Demand From China

Oil prices are higher today as the market is hoping for economic stimulus in China. They fell on Wednesday in the wake of a strong US crude stock build and robust US retail sales. Brent is up 0.5% today to $85.80/bbl after falling 0.35% yesterday and WTI is up 0.6% to $79.09 after -0.7%, both are close to their intraday highs.

• Brent remains above its 100-day simple moving average while WTI is approaching its 100-day MA. Brent and WTI have been holding above the February 9 support levels.
• The US EIA reported a significant 16.28mn build in crude inventories after 2.42mn the previous week. The stock build this year is being driven by a reduction in refining due to maintenance and December’s cold snap and so the usually refined crude is being stockpiled despite lower imports and higher exports.
• The UAE energy minister pointed to the US crude stockpiling as an indicator that there is plenty of supply. It is unlikely that OPEC+ will change its output quotas any time soon.
• The IEA revised up its 2023 oil demand forecasts by 0.1mbd to 2mbd.
• Later today the Fed’s Mester, Bullard and Cook all speak. In terms of data, there will be more detail on the inflation front from the January PPI, which is expected to see a pickup in monthly increases but the annual rates should ease. There are also January housing starts & permits, jobless claims and Philadelphia and NY business indices for February.

FOREX: USD Pressured On Firmer Equities

The greenback is softer in Asia-Pac today as firmer US and Regional equities have boosted risk sentiment.

• AUD was pressured in the immediate aftermath of the January Australian Labour Market report. The unemployment rate ticked higher to 3.7% from 3.5%. AUD/USD fell, finding support below $0.6880.
• Local banks have played down the weakness in the Australian Labour report, as the ABS figures noted a larger than usual increase in the number of unemployed who had a job to go to in the future. This suggests that we may see a rebound in Feb.
• Losses were pared as rising equities boosted risk sentiment, with the AUD/USD rising above $0.69 handle lasting printing $0.6920/25.
• NZD/USD prints at $0.6305/10, ~0.4% firmer today. Kiwi was pressured in early trade, Kiwibank noted that they felt given the impact of Cyclone Gabrielle the RBNZ shouldn't hike rates next week. Support was seen below $0.6260, before a ~0.8% trough to peak rally sees the pair deal above its 200-Day EMA.
• USD/JPY has moderated some of yesterday's gains, and is testing its 200-day EMA. The pair is ~0.3% softer, last printing ¥133.75/85. January Trade Balance printed ~¥3.5tn deficit, which was narrower than expectations.
• The USD weakness has helped EUR and GBP tick higher. Both are ~0.2% firmer. NOK and SEK are benefiting from improved risk sentiment both up ~0.3%.
• Cross asset wise; Hang Seng is up ~2% and e-minis are ~0.2% firmer. BBDXY is down ~0.2%. 10 Year Us Treasury Yields are ~2bps lower.
• ECB speak from Panetta headlines the European session. Further out we have US PPI, Jobless Claims, Housing Starts and Philadelphia Fed Manufacturing Index. Cleveland Fed President Mester and St Louis Fed President Bullard will also cross.

FX OPTIONS: Expiries for Feb16 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0750-60(E540mln)
• USD/JPY: Y128.50($550mln)
• EUR/GBP: Gbp0.8930-50(E976mln)
• NZD/USD: $0.6200(N$671mln)
• USD/CAD: C$1.3435-50($1.1bln), C$1.3550($906mln)