MNI EUROPEAN OPEN: Governor Waller Says Fed Should Wait For Data

TSYS: Treasury Futures Edge Lower, Curve Bear-Flattens

• Jun'24 10Y gapped lower this morning as Fed Reserve Gov Waller spoke where he mentioned the Fed should wait to see more data before cutting rates. Futures have continued to edge lower reaching a low of 110-20+, before recovering some of those loses to trade at 110-23+ down - 04 since NY closing.
• Looking at technical levels: Initial support lays at 110-08+ (Mar 21 low) while below here the 109-24+ (Mar 18 low/ the bear trigger), further down 109-14+ (Nov 28 low). While to the upside resistance holds at 110-30+ (Mar 21 & 22 high), above here 110-31+ (50-day EMA), while a break above here would open a retest of 111-24 (Mar 12 high).
• US Credit Rating Affirmed at AA+ by S&P With Stable Outlook
• Cash Treasury curve has bear-flattened on Thursday with the 2Y yield +3.9bps at 4.608%, 10Y +1.6bps to 4.206%, while the 2y10y -2.355 at -40.355.
• Thursday Data Calendar: Weekly Claims, GDP, PCE, PMI, UofM Sentiment.

JGBS: Twist-Flattener, Heavy Local Calendar Tomorrow Incl Tokyo CPI & 2Y Supply

JGB futures are stronger and at session highs, +17 compared to the settlement levels, after more than reversing the gap lower that followed the release of the BoJ Summary of Opinions for the March MPM.

• There hasn’t been much in the way of domestic drivers to flag, outside of the previously outlined BoJ Summary of Opinions (March MPM) and Weekly International Investment Flows.
• (Bloomberg) -- Japanese bonds suffered the heaviest selling by foreign investors in more than a year last week, as the country’s central bank raised its short-term policy rate for the first time in 17 years. (See link)
• This morning’s BoJ Rinban operations saw negative spreads and lower offer cover ratios (3-5-year: 1.43x, 5-10-year: 1.49x and 10-25-year: 2.52x). This appeared to generate some support in the early rounds of the Tokyo afternoon session.
• The cash JGB curve has twist-flattened, pivoting at the 2s, with yield movements bounded by +1.2bps (1-year) and -4.4bps (40-year). The benchmark 10-year yield is 1.8bp lower at 0.707% versus the YTD high of 0.801%.
• Swap rates are mostly lower. Swap spreads are tighter out to the 10-year and wider beyond.
• Tomorrow, the local calendar sees Tokyo CPI, Jobless Rate, Job-To-Applicant Ratio, Retail Sales, Industrial Production and Housing Starts data, along with 2-year supply.

AUSSIE BONDS: Slightly Richer After A Mixed Domestic Data Drop

ACGBs (YM +2.0 & XM +3.0) are holding slightly firmer going into the Easter long weekend. Today’s mixed result domestic data drop (Retail Sales, Consumer Inflation Expectations, Private Sector Credit and Job Vacancies) failed to be a market mover.

• (AFR) There is a lot of complaining about the Reserve Bank of Australia’s 13 interest rate rises. But remarkably, there is little serious financial stress among mortgage holders after more than 4 percentage points of cash rate rises since May 2022. (See link)
• Today’s came despite cash US tsys cheapening 1-5bps in today’s Asia-Pac session following aftermarket comments from the Federal Reserve Governor Waller.
• Fed Waller said the Fed should wait a "couple months" to get a better understanding of the trajectory of inflation. (See MNI link)
• Cash ACGBs are 2-3bps richer, with the AU-US 10-year yield differential unchanged at -24bps.
• Swap rates are 2-3bps lower.
• Bills are slightly mixed across the strip.
• RBA-dated OIS pricing is slightly mixed across meetings. A cumulative 38bps of easing is priced by year-end.
• The local market is closed until next Tuesday for the Easter long weekend.
• Later today, the US calendar sees Weekly Claims, GDP, PCE, PMI and UofM Sentiment.

NZGBS: Closed Richer Ahead Of Easter Weekend Despite A Cheapening In US Tsys

NZGBs closed 3bps richer and just off the session's best levels. This came despite cash US tsys cheapening 1-4bps in today’s Asia-Pac session following aftermarket comments from the Federal Reserve Governor Waller.

• Fed Waller said the Fed should wait a "couple months" to get a better understanding of the trajectory of inflation, but he still expects the central bank to begin reducing the target range for the federal funds rate this year. (See MNI link)
• The move away from session cheaps was likely aided by decent demand metrics at today’s weekly supply. Bid cover ratios printed 2.25x to 2.92x for the Apr-29 and May-34 lines respectively.
• ANZ Business Confidence lost 11.8 points from a month earlier to 22.9 in March.
• (Bloomberg) -- NZ appointed Carl Hansen and Prasanna Gai to the Reserve Bank Monetary Policy Committee, Finance Minister Nicola Willis says in an emailed statement. (See link)
• Swap rates closed 2-5bps lower, with the 2s10s curve steeper.
• RBNZ dated OIS pricing closed 2-3bps softer for meetings beyond May. A cumulative 71bps of easing is priced by year-end.
• The local market is closed until next Tuesday for the Easter long weekend.
• Later today, the US calendar sees Weekly Claims, GDP, PCE, PMI and UofM Sentiment.

FOREX: USD Index Higher, Supported By Yields, NZD Hits Fresh YTD Low

The USD index sits a touch higher for the session, the BBDXY last near 1244. The USD spiked higher at the open, amid a slump in US Tsy futures, as the Fed's Waller pushed back on early rate cuts.

• US yields are slightly off session highs but still around 1-4bps firmer across the benchmarks, led by the front end (2yr back to 4.605%).
• NZD/USD has been the weakest performer making fresh YTD lows near 0.5980. Outside of the US yield move we have seen quite soft consumer and business sentiment readings, pointing to a weaker economic backdrop.
• AUD/USD is also lower, but only marginally. The pair last near 0.6530/35. A rebound in HK/China equity sentiment (post yesterday's President Xi meeting with US executives) has helped.
• USD/JPY has tracked recent ranges, last near 151.35/40. The BoJ Summary Of Opinions largely in line with recent BoJ rhetoric. We did see the cabinet secretary also warn around excessive yen moves, but this was in line with recent comments by the FinMin.
• Looking ahead, German retail sales figures are out. Later in the day, final readings for Q4 US GDP, initial jobless claims, MNI Chicago PMI and pending home sales are all scheduled, alongside Canada January GDP.

CHINA & HK EQUITIES: HK & China Equities Head Higher, Markets Awaits Property Results

Hong Kong and China equities are higher today, with tech names surging higher to be the top-performing sector. There is a raft of corporate earnings due out today, following on from a busy day on Wednesday the major focus today is the property names including China Vanke and Country Garden, while some of China's largest banks have reported an increase in bad loans due to the prolonged property downturn. Elsewhere President Xi met with US CEOs where he pitched China as a good investment, the US has asked allies to tighten servicing of chip gear in China.

• Hong Kong equities are higher today, with HSTech Index the top performer up 3.65%, the Mainland Property Index opened down 2.00%, however has recovered all of those loses to now trade up 1.35%, HSI is up 1.63% while the HS China Enterprises is up 2.20%. In China, equities markets are lagging the moves by HK listed stocks the small-cap CSI1000 up 2.82%, ChiNext up 1.88%, while the large-cap CSI300 is up 1.22%
• China Northbound flows were -7.2billion yuan on Wednesday, with the 5-day average at -1.22billion, while the 20-day average sits at 1.81 billion yuan.
• In the property space, Sunac China FY revenue beats estimates, while Country Garden Services reported a 85% slump in net income for 2023. China's largest state-owned banks, including Bank of Communications and Industrial & Commercial Bank of China, are experiencing an increase in bad loan ratios due to the prolonged property downturn, with pressure to maintain asset quality amidst sluggish home sales and developer liquidity. Despite scant profit gains and narrowing interest margins, their resilience in the face of a slowing economy heavily reliant on bank lending remains a focal point for investors.
• Chinese President Xi Jinping met with American business leaders, including figures from companies like Blackstone and Qualcomm, aiming to restore confidence in China's economy and maintain stable relations with the US. Xi emphasized the importance of cooperation between the two countries while addressing concerns about domestic economic issues and geopolitical tensions, amidst ongoing disputes and uncertainties in US-China relations.
• The US is urging its allies to impose stricter restrictions on servicing chipmaking equipment in China, as part of efforts to hinder Beijing's semiconductor development goals. American officials are particularly concerned after Huawei's recent launch of a 5G smartphone powered by an advanced Chinese-made chip, which still relied on equipment from US and Dutch suppliers. This move reflects ongoing US efforts to limit China's access to advanced technology, with Washington pressing for tighter controls on servicing equipment deployed at blacklisted Chinese entities.
• Looking ahead, Hong Kong has Budget Balance later today, while China has 4Q BoP Current Account Balance on Friday

ASIA PAC EQUITIES: Asian Equity Markets Mostly Lower, Yen Intervention Risk Grow

Regional Asian equities are mostly lower today, with Australia the top performer, the ASX hit new all-time highs despite a slowdown in retail sales in Feb, while New Zealand also rose following a drop in consumer and business confidence. Japanese markets face growing risk of government intervention in FX markets, impacting exporters. Foreign investors turn to selling regional equities as outflows increase, South Korean equities have been the exception. Malaysian & Philippines markets are closed, while most others will be closed tomorrow for Good Friday.

• In Japan, equities are lower due to rising risk of government intervention in the FX market, particularly affecting exporters. The yen remains steady at 151.36 to the dollar, with Assistant Governor Tokiko Shimizu of the Bank of Japan expecting inflation to remain around 2%, emphasizing accommodative policy and plans to maintain current JGB purchases Several companies are trading without right to the next dividend which has impacted equity prices. The Topix is down 1.34%, while the Nikkei is slightly above 40,000, down 1.22%.
• South Korean equities are slightly lower today. Finance Minister Choi Sang-mok highlighted export-driven recovery but cautioned about high prices and borrowing costs, aiming to stabilize inflation at 2%. President Yoon Suk Yeol expressed hope for the Bank of Korea's active role in financial market stabilization. The Kospi is down 0.10%.
• Taiwanese equities are lower today with foreign investor flows negative for 7 of the past 10 days. Interest rate swaps declined as the central bank hinted at holding rates in June after a March hike. CB Governor Yang Chin-long suggested unchanged rates in June if CPI stays between 2%-2.5%. The Taiex is down 0.32%.
• Australian equities made fresh all time highs earlier, touching the 7,900 mark, we closed just off those levels and up about 1% for the day. Miners and Real estate names are the top performers. Earlier, Private sector credit beat estimates at 0.5% m/m vs 0.4%m/m expected, while Retail Sales missed estimates coming in at 0.3% vs 0.4% m/m down from last month of 1.1%.
• Elsewhere in SEA, New Zealand Equities are higher, the NZD made fresh YTD lows after consumer and business confidence showed a steep drop while Singapore equities are down 0.30%, Indonesian equities are down 0.40%, Indian equities are up 0.80%, while Malaysia and Philippines equity markets are closed for the day.

OIL: Crude Headed For Strong Q1 Rise

Oil prices are higher during APAC trading today after being little changed on Wednesday but they are off their intraday highs. Prices recovered after dipping on Governor Waller’s comments that the Fed should wait before easing. WTI is up 0.5% to $81.72/bbl after approaching $82, and Brent is 0.3% higher at $86.36 after reaching a high of $86.58. The USD index is unchanged.

• Oil prices look likely to end March around $10/bbl higher than the end of 2023 or around 13% higher. March itself probably saw an increase just over 5% on the month. Prospective Fed easing, geopolitical tensions, improved demand prospects and OPEC supply cuts buoyed prices but there remains a lot of uncertainty around China’s consumption and OPEC members’ quota compliance. Sentiment is positive going into Q2 though.
• OPEC has extended its 2mbd output cuts to end June and quotas will be reconsidered in June. Next week’s review meeting is unlikely to result in any changes, as delegates have already said that they aren’t necessary.
• The US said it destroyed 4 Houthi drones that were targeting a warship in the Red Sea.
• EIA data showed a 3.17mn barrel crude inventory build despite a small drawdown being expected, which weighed on oil prices at the start of the APAC session. Gasoline stocks increased 1.3mn barrels after drawdowns over the past weeks, but distillate fell 1.19mn. Refinery utilisation rose 0.9pp to 88.7%.
• Later final Q4 US GDP, jobless claims, March MNI Chicago PMI & Uni of Michigan consumer sentiment print.

GOLD: Third Straight Session Of Gains

Gold is unchanged in the Asia-Pac session, after closing 0.7% higher at $2194.79 on Wednesday.

• Wednesday’s move was the third straight session of gains.
• Today’s softness appears tied to aftermarket comments from the Federal Reserve Governor Waller. Fed Waller said the Fed should wait a "couple months" to get a better understanding of the trajectory of inflation, but he still expects the central bank to begin reducing the target range for the federal funds rate this year. (See MNI link)
• Cash US tsys are 1-5bps cheaper in today's Asia-Pac session.
• Bullion sits just below of its all-time high of $2200.89 ahead of Friday’s release of US PCE deflators, the Federal Reserve’s preferred inflation gauge. That said, the scope for any major surprises should be limited in Good Friday trading, with the CPI and PPI figures feeding into that release.
• According to MNI’s technicals team, sights remain on $2230.1 next, a Fibonacci projection. Key short-term trend support has been defined at $2146.2, the Mar 18 low.