AUSTRALIA DATA: Better Headline GDP, But Slowing Private Demand Contribution

RBA-dated OIS pricing has firmed by around 11–21bps across meetings since the release of December’s stronger-than-expected labour market data on 22 January. 

• Employment rose by 65.2k m/m in December (vs +27k expected), following a revised -28.7k in November. The unemployment rate fell to 4.1% (vs 4.3% expected) from 4.3%.
• Last week’s firmer-than-expected Q4 trimmed mean CPI print (3.4% y/y vs 3.3% expected) reinforced the repricing ahead of tomorrow’s RBA policy decision.
• OIS now reflects materially tighter policy expectations across the curve.
• A 25bp hike tomorrow is priced at a 77% probability (up from 32% pre-jobs), with cumulative tightening probability of 166% by June (vs 88% pre-jobs) and 229% by December 2026 (vs 152% pre-jobs).

Figure 1: RBA-Dated OIS – Current Vs. Pre-Jobs

Source: Bloomberg Finance LP / MNI

• CHINA JAN RATINGDOG MANUFACTURING PMI 50.3 VS 50.1 IN DEC

A generally weak start to the Asia trading week sees equity bourses mixed and bond yields ticking higher.  The move lower in metals Friday was huge and today's influences is likely impacted by re-positioning and liquidity requirements for funds, possibly part of the driver for higher yields in the Asia trading day.  

Cash is up in yield +0.6bps to 2.0bps with the long end underperforming as the curve steepens further above 1-Yr highs.  The current environment remains challenging given a White House Friendly new Chairman (lower rates) who wants to reduce the balance sheet (steeper curves).  This remains the speculation, and 2s10s could test +80 in the coming days. 

• The 2-Yr is flat at 3.529%
• The 5-Yr is up +1.2bps at 3.802%
• The 10-Yr is up +1.8bps at 4.257%
• The 30-Yr is up +2bps at 4.894%

Futures are modestly down across maturities with the 10-Yr down -02 at 111-24+, retaining its position below all major moving averages.  

Futures are pointing down modestly for US equities and as pressure on gold / silver etc continues, the push pull of liquidity vs risk sentiment will make directional calls for bonds difficult in the coming days.