CHINA: CPI Misses With LNY Distortions
- CPI YoY in January rose just 0.2%, missing the consensus forecast of 0.4% and down from 0.8% in December. The MoM edged up 0.2%, matching the December pace but falling short of the 0.3% forecasts. Core CPI slowed to 0.8% YoY, down from 1.2% driven by base effects and food prices.
- PPI remained negative, reflecting continued pressure on industrial profitability. Down 1.4% YoY, it was an improvement over December's 1.9% decline. However this is the 40th consecutive month of declines, reflecting weak domestic demand and overcapacity in manufacturing.
- Calls for monetary policy intervention remain with the PBOC pledging in its latest quarterly report to employ “flexible and efficient” cuts to interest rates and RRR to maintain an accommodative financial environment emphasizing a deepening coordination with fiscal policy to lower financing costs and boost domestic demand, according to Shanghai Securities News. Undoubtedly expectations will grow ahead of the National People's Congress in March.
- China bond futures are up modestly, the 10-Yr up +.06 at 108.53 and the 2-Yr flat at 102.47. The 2-Yr NDIRS has broken below major moving averages and could test the December lows.
- CGB 10-Yr is modestly lower in yield at 1.80% following liquidity injections this morning during the OMO.
- Look for further liquidity support ahead of the LNY and the 10-Yr to test below 1.80% .
CNY 2-Yr NDIRS vs 20, 50, 100 and 200-day EMA
source: Bloomberg Finance LP / MNI
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EUR: EUR/USD - Catches A Bid In Asia, Look For Sellers Back Toward 1.1665-95
The Friday night range was 1.1618 - 1.1660, Asia is currently trading around {EURUSD Curncy}. The pair is getting an early bounce in Asia as the USD gets sold on reports the FED is to potentially be indicted. We are firmly back in the 1.1450-1.1850 range which dominated the last 6 months of the year and we need a catalyst to get a break and some sort of a trend going again. It will be interesting to see how much of a headwind this news brings for the USD as it was just looking to build a head of team to test higher. On the day look for sellers to reemerge in EUR/USD back toward the 1.1665-1.1695 area.
- CFTC Data of last week shows Asset Managers slightly increasing their long positions in the EUR, +424 424(Last +416 483). The Leveraged community reduced their own longs slightly which have only recently been built up, +22279(Last +24505).
- The EUR/USD Average True Range for the last 10 Trading days: 44 Points
Fig 1 : EUR CFTC Data
Source: MNI - Market News/Bloomberg Finance L.P
AUSSIE BONDS: AU-NZ 10Y Differential At FV
The AU–NZ 10-year yield differential currently sits at +28bps, around 10–15bps below its recent peak of approximately +40bps, the widest since October 2020.
- The widening in the long-end spread has been mirrored by shifts in market expectations for the policy rate differential over the next year, as reflected in the AU–NZ 1-year forward 3-month swap (1Y3M) spread.
- A simple regression analysis of the AU-NZ 10-year yield differential against the AU-NZ 1Y3M spread over the past two years shows that the 10-year differential is around fair value based on the regression model.
Figure 1: AU-NZ: 10-Year Yield Differential Vs. FV
Source: Bloomberg Finance LP / MNI
USD: BBDXY - Knee-Jerk Lower To Start The Week On FED News
The BBDXY range Friday night was 1209.18 - 1213.00, Asia is currently trading around {BBDXY Index}. The USD was looking like it was reestablishing some upward momentum to start the year, but this morning's news of possible indictments on the FED have put a dent in that for now. The market's perception is that this is clear political pressure being brought to bare on the FED and so has worrying implications for its so-called independence. The USD has understandably had a knee-jerk lower in Asia, the question is if that move is enough considering what's at stake. On the day, I suspect rallies could remain heavy in the short-term as the market tries to work through what this means. First support is back between 1205-1207, the USD has lacked any clear direction for at least 6 months now and the wider 1185-1230 range looks set to continue for now. This lack of a trend is being reflected in the CFTC data which shows very little positioning in the USD to start the year.
- The Market Ear on X - "US flip from exceptionalism to expansionism is best case for a contrarian US dollar long" (Hartnett)
- Barchart on X - “Google Searches for Dollar "Debasement" soared last quarter to the highest level in history.”
- CFTC Data last week shows Asset managers turning slightly entering the first quarter, -1318(Last +1168). The Leveraged community has turned slightly long after rapidly reducing its short into the end of year, +821(Last +45).
- The BBDXY Average True Range for the last 10 Trading days: 381 Points
Fig 1: USD Index CFTC Data
Source: MNI - Market News/Bloomberg Finance L.P
