OIL: Crude Down Sharply As Markets Worry About Global Demand

NZGBs are 1bp richer in local morning trade after US tsys finished Friday mildly stronger. 

• Surprisingly, the S&P Global US composite PMI fell in the January flash, showing its lowest since April, after 55.4 in December, which marked a 32-month high.
• However, firms' expectations of output over the coming year remain strong looking at policies under the second Trump administration. Inflationary pressures saw a four-month high which helped limit the dovish reaction from the headline services miss.
• Meanwhile, U.Mich long-run inflation expectations were trimmed in the final January release from what had been a particularly sharp increase to the highest since 2008. 3.2% is still elevated though, having twice in the past three months exceeded what had been a typical 2.9-3.1% range since mid-2021.
• Focus this week is the FOMC policy announcement on Wednesday.
• BNZ Job ads index fell 2.1% m/m (22% y/y) following a 1% increase in November.
• It is expected to be a subdued session given Auckland Anniversary and Australia Day holidays.
• Swap rates are unchanged.
• RBNZ dated OIS pricing is unchanged. 47bps of easing is priced for February, with a cumulative 109bps by November 2025.

• RES 3: 96.501 - 76.4% of the Mar 14 - Nov 1 ‘23 bear leg
• RES 2: 96.207 - 61.8% of the Mar 14 - Nov 1 ‘23 bear leg
• RES 1: 95.615/851 - High Dec 31 / High Dec 11 
• PRICE: 95.510 @ 15:51 GMT Jan 24
• SUP 1: 95.275 - Low Nov 14  (cont) and a key support 
• SUP 2: 94.477 - 1.000 proj of the Dec 11 - 23 - 31 price swing
• SUP 3: 94.495 - 1.0% 10-dma envelope

The Aussie 10-yr futures contract continues to trade below the Dec 11 high of 95.851, and has traded through the Dec low. A stronger bearish theme would expose 95.275, the Nov 14 low and a key support. Clearance of this level would strengthen a bearish theme. For bulls, a confirmed reversal and a breach of 95.851, the Dec 11 high, would instead reinstate a bull cycle and refocus attention on resistance at 96.207, a Fibonacci retracement point.  

We've just published our preview of the January FOMC meeting:

FedPrevJan2025.pdf

• The FOMC will keep the benchmark Fed funds rate on hold on January 29 for the first time in four meetings, as it shifts to a more patient phase of its easing cycle after delivering 100bp of cuts.
• The forward guidance adopted in December points to a data-dependent approach to assessing the “extent and timing” of additional rate adjustments. To this end, there has been only limited inflation and labor market data since then, while the Trump administration’s policies and their potential impact on the economic outlook are still in a formative stage.
• With minimal Statement changes expected and no new rate/macro projections, the focus will be on Chair Powell’s press conference which will likely repeat the same themes heard six weeks earlier.
• As such, the risks to the market reaction to the meeting lean slightly dovish in the context of only one more full rate cut being priced for the cycle.
• While he won’t be able to add any additional commentary on the Fed’s response to prospective fiscal/trade/immigration policy shifts, we suspect Powell will remain optimistic on the inflation trajectory and reiterate that 50bp of cuts remain the FOMC’s baseline scenario this year. In other words, the bias toward easing remains intact.
• Additionally, Powell probably won’t completely rule out another cut as soon as the next meeting in March, while being careful to couch any future moves as data- and outlook- dependent, and emphasizing that the Fed can afford to be patient so long as the economy and labor market remain solid.

Note to readers: MNI’s separate preview of sell-side analyst summaries to follow on Monday Jan 27