GOLD: Even Gold Suffers With Tariffs

Q4 productivity growth was not as bad as the RBA was expecting but it still fell for the third consecutive quarter to be down 1.2% y/y, a deterioration from Q3’s -0.6% y/y. Today RBA Deputy Governor Hauser identified productivity growth as the key issue. Monetary policy cannot do anything about it and can only react to it. He also said it may be the reason why wage growth is slowing despite the strong labour market. 

• The RBA forecast productivity to fall 1.9% y/y in Q4 and it has it improving to+0.7% y/y in Q4 2025 and reaching its historical average in H1 2026, but it has consistently revised down its expectations. While it is a long-term concept, its weak performance could result in less monetary easing.
• Hours worked continued to outpace GDP growth rising 0.7% q/q in Q4, the fourth consecutive rise. In 2024, they were 1% above 2023 resulting in no improvement in productivity over the year.
• With productivity growth falling 1.2% y/y in Q4, then wage growth consistent with inflation at the RBA’s band mid-point of 2.5% is only 1.3% compared with Q4’s WPI at 3.2% y/y, assuming productivity continues to contract at around the same rate as the end of 2024.
• Unit labour costs (ULC) rose 1.6% q/q to be up 4.7% y/y tentatively implying that the moderation in ULC’s has stalled as the recent trough was 4.5% in Q3. ULC growth eased to 5.1% in 2024 from 6.6% but remains well above the 2.8% series average.

Australia productivity vs ULC y/y%

NZGBs closed showing a bear-steepener, with benchmark yields 6-11bps higher. 

• “Governor Adrian Orr unexpectedly resigned without giving a reason for his sudden departure. Orr will officially leave the bank on March 31, and Deputy Governor Christian Hawkesby will be Acting Governor until then. Finance Minister Nicola Willis will appoint a temporary governor from April 1 for a period of up to six months, following a recommendation from the RBNZ Board.” (per BBG)
• The ANZ World Commodity Price Index rose 3% month-over-month in February.
• Cash US tsys have twist-steepened, with yields 2bps lower to 2bps higher, in today’s Asia-Pac session after yesterday’s heavy session.
• Trump, in his address to Congress, praised the drop in interest rates and pledged to balance the federal budget. He urged Congress to pass tax cuts and mentioned discussions with major US car companies.
• Swap rates closed 5-9bps higher, with the 2s10s curve steeper.
• RBNZ dated OIS pricing is 1-6bps firmer across meetings today.
• Tomorrow, the local calendar will see CoreLogic Home Values, Volume of All Buildings data and Government 7-Month Financial Statements.
• The NZ Treasury plans to sell NZ$250mn of the 0.25% May-28 bond, NZ$200mn of the 4.25% May-36 bond and NZ$50mn of the 1.75% May-41 bond tomorrow.

• Ahead of the NPC headlines are emerging as to potential policy amendments to support the Chinese economy.
• Policies that potentially impact the bond market include a 5% growth target, a lower CPI target, a 4.4% rise in fiscal spending and the issuance of CNY1.3tn of ultra long term treasury bonds, up from CNY1 trn in 2023 and an increase in the 2025 quota on local government special bonds to CNY4.4tn, from CNY3.9tn.
• Surprisingly the market has not reacted to the increased supply risk and has seen bond future rally today.
• China’s 10YR bond future is up by +.10 to 108.445, from yesterday’s close of 108.345.
• Having trended away from the converging 20-day EMA of 108.53 and 50-day EMA of 108.50, today’s rally sees the 10YR approaching these levels.
• China’s 2YR future remains unchanged at 102.61, below the 200-day EMA of 102.63.
• Despite the proposed longer dated issuance to come, cash bonds have hardly moved with the CGB10YR at 1.75% and the 30YR unchanged at 1.89%
• The major economic release for today was the Caixin PMI services which was up at +51.4 and on the 7th sees the trade data for February