AUSSIE BONDS: ACGB Jun-35 Supply Faces A Lower Yield But A Much Steeper Curve

February card transaction data showed a moderate rise of 0.3% m/m in retail spending and that the recovery in consumption remains gradual and predominantly driven by grocery price increases. Westpac expects it to “strengthen over the coming months” though as mortgages are refinanced at lower rates following 175bp of RBNZ easing. It says that “around half of all mortgages will reprice over the next six months”. But global uncertainty could weigh on consumer confidence.

• Westpac observes that “the recovery in spending has been gradual. Despite increases in recent months, spending is only back around the levels we saw at this time last year”.
• “Spending in discretionary areas, like household durables and hospitality, has picked up, but gains have been more modest at this stage.”
• “Many borrowers have chosen to roll onto relatively higher cost floating rate or shorter-term mortgages in anticipation of further mortgage rate cuts.”
• Such a large share of mortgages rolling over in the next 6 months “could see sizeable falls in households’ debt servicing costs and boost their disposable incomes. As those lower borrowing costs ripple through the economy, we expect to see spending picking up over the coming months.”
• “However, we’re now watching event offshore. The increasingly rocky global backdrop could dent confidence. It could also affect financial conditions in New Zealand, and that could be important for spending appetites.”

The USD is slightly higher in the first part of Wednesday trade. The USD BBDXY index back close to 1267 in latest dealings, up around 0.10% from end NY levels on Tuesday. We are still close to recent lows (1264.63) and the simple 200-day MA for this index. We are seeing modest yen underperformance so far today as risk appetite stabilizes, but aggregate moves are modest overall. 

• US equity futures are in the green with modest tech outperformance. Eminis up around +0.30%, Nasdaq futures up 0.40%, slightly off best levels for the session. EU stock futures are also higher, re-opening 0.85% firmer. Hopes for a Ukraine/Russia ceasefire is helping sentiment, but tariff risks still persist. The RSI (14) on Eminis sits in oversold territory as well, which may also be inducing some short covering.
• US yields are off a little over 1bps for the middle part of the curve, after strong yield gain on Tuesday. Earlier headlines crossed that the US House had passed a Stopgap funding bill to avert a shutdown.
• USD/JPY was last back above 148.00, off around 0.20% in yen terms for the session so far. BoJ Governor Ueda is appearing before parliament at the moment, and noting that yields are set by the market and that the rise reflects views on the economy and inflation. He stated there is no big gap between the market and BOJ view (per BBG). Such a backdrop may aid JGB yields and therefore yen, although broader risk trends in the equity space may matter more in the near term.
• Earlier we had Japan PPI data close to expectations.
• AUD/USD and NZD/USD are a touch weaker. the A$ last under 0.6300, while NZD/USD was near 0.5710. EUR/USD is down slightly to 1.0910/15.
• The data calendar is light for the remainder of the Asia Pac session. 

Over the weekend, there were widespread press reports that a federal election would have been called for April 12 to avoid a mini budget having to be announced but had to be delayed because of Cyclone Alfred. Given the legal requirement that 33 days need to pass between the announcement and the vote, the time has now elapsed making a May poll the most likely. It has to be held by May 17. Recent polls have shown a narrowing between the two major parties but consistently point to a minority government outcome, which is likely to result in political instability. 

• Polls generally have the 2-party preferred vote split around 49:51 with some in favour of the incumbent Labor Party (ALP) and some the opposition coalition of Liberals and Nationals, leaving the average around 50:50. In the May 2022 election, the split was 52.1% for Labor and 47.9% the coalition.
• In terms of the primary vote, the average of the March polls has the coalition gaining 1.7pp from the May 2022 election to 37.4%, ALP losing 2.5pp to 30.1%, Greens gaining 0.8pp to 13%, One Nation 1.2pp to 6.2% and independents 1.7pp to 12.1%. The latest Essential survey suggests that undecideds are low at only 5% of the total.
• The ALP has 77 seats out of a total of 151 in the current parliament and a 2.1% swing against it would see the Coalition win 5 seats from it. This would leave it still the largest party in parliament but short of the 76 needed for a majority. It could form a coalition with the Greens, who currently hold 4 seats, or with left-leaning independents who have around 8 seats.