AUSSIE BONDS: Cheaper After Q1 CPI Beat
ACGBs (YM -1.0 & XM +2.0) slightly mixed on the day but 2-4bps cheaper after Q1 CPI slightly beat expectations.
- Q1 CPI and the March monthly print were above forecasts. The closely watched trimmed mean gauge of consumer prices, advanced 0.7% in the first quarter, from 0.5% three months earlier and compared with an expected 0.6% gain. On an annual basis, it rose 2.9% versus a forecast 2.8% increase.
- (ABS) "The main contributors to the quarterly CPI rise of 0.9 per cent were Housing (+1.7 per cent), Education (+5.2 per cent) and Food and non-alcoholic beverages (+1.2 per cent).”
- Cash US tsys are slightly mixed, with a flattening bias, in today’s Asia-Pac session after yesterday’s modest rally.
- Cash ACGBs are flat to 2bps richer on the day, with the AU-US 10-year yield differential at -1bp.
- Swap rates are flat to 4bps lower, with the curve flatter.
- The bills strip has bull-flattened, with pricing flat to +8.
- RBA-dated OIS pricing is 2-6bps firmer across meetings after the data. A 50bp rate cut in May as a 2% probability (10% before the data), with a cumulative 112bps (117bps before) of easing priced by year-end.
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AUD: Recent Ranges Still Holding, Positioning Biased For Lower A$ Levels
AUD/USD saw a brief dip to 0.6269 amid earlier risk off, but we are back near 0.6285/90 in latest dealings. Friday ranges (0.6312 - 0.6281) were tight considering the moves in Equities and US rates. A higher than expected print in the PCE data on Friday saw some significant moves lower in both equities and US yields. These moves have extended today, amid tariff/US growth fears, but spill over to the AUD remains fairly limited. The A$ is lagging yen gains though.
- More broadly, AUD/USD price action remains pretty directionless in the short term with the currency caught between wanting to go lower on negative risk sentiment and lower stocks, but with US yields also moving lower this has seen the USD also come under pressure.
- While stocks remain under pressure the bias may be for the AUD to continue to trade heavy, with scope for sellers to emerge towards 0.6300/10 on the day and a break of the support around 0.6250 could see momentum begin to pick up.
- Ultimately AUD/USD still seems stuck in a wider 0.6200 - 0.6400 range for now.
- This week we have the RBA but with the market not expecting any moves until we get more information from the quarterly CPI, attention will turn again this week to US data.
- Trumps tariffs will be front and centre but with lots of negative sentiment already in the price there is a high bar to exceed expectations. Hence the ISM prints this week particularly Services and then NFP will offer the most potential for movement.
- CFTC weekly data shows leveraged funds and Asset managers both continued to add to their respective AUD shorts, see the chart below.
Fig 1: AUD CFTC Positioning
Source: MNI - Market News/Bloomberg
CHINA: Gradual Recovery Continues with PMIs.
- The ongoing, gradual improvement in economic data was evident in today’s March PMI release.
- The Manufacturing PMI for March edged up to +50.5, from +50.2 in February, ahead of expectations.
- This was the highest reading since March last year.
- New orders were very strong, rising +51.8
- Large enterprises’ contribution was the biggest component.
- The employment component slipped to +48.2, from +48.6.
- The Non-manufacturing PMI improved also rising to +50.8, from +50.4 prior.
- Within the Non-manufacturing, the largest positive contributor was Business activity expectations which rose do +57.2, from +56.6.
- Employment contribution within non-manufacturing softened too from +46.5 in February, to +45.8.
- The data is consistent with the message coming from last week’s Boao Forum.
- The former deputy governor of the PBOC Hu Xiaolian to reporters that the “PBOC is spending more time to observe before cutting the reserve requirement ratio and rates.”
- Data has been slowly improving in China as the impact of stimulus measures is being felt.
CHINA PRESS: China To Buy CNY520 Billion A-shares Of State Banks
China’s four major state-owned banks announced plans on Sunday to raise up to CNY520 billion via A-share placements to boost core tier-one capital, Shanghai Securities News reported. The Ministry of Finance will subscribe to CNY500 billion, with the remainder allocated to other state-owned entities, the newspaper noted. The plan includes Bank of China, China Construction Bank, Bank of Communications and Postal Savings Bank of China, raising CNY165 billion, CNY105 billion, CNY120 billion and CNY130 billion, the newspaper said.
