AUSSIE BONDS: Fed Williams And Capex Fail To Spark A Market Move
ACGBs are slightly weaker after comments from NY Fed President Williams and Q4 Capex data fail to spark much of a market reaction, with follow through from the minutes covering the latest FOMC meeting the likely driver. YM is -4.0 and XM is -3.0, both just off worst levels
- Capex spending rises a better-than-expected 2.2% Q/Q in Q4 with the 5th estimate of investment plans for 2022/23 at A$158.7bn, +1.9% above the 4th estimate. The first estimate for 2034/24 investment expectations came in at A$129.7bn, up 11% on 2022/23. Likely taming the market’s reaction is the fact that, in periods of high inflation, interpretation is more difficult because the price/volume split is unknown.
- ACGB cash yields and swap rates are ~4bp higher across the curve.
- Bills are 2-4bp softer through the reds.
- RBA-dated OIS firms 3-4bp for meetings beyond June with the terminal rate at ~4.26%, after yesterday's flattener flow-driven session in the wake of soft WPI data (Fed minutes a potential catalyst here as well). March meeting pricing remains at a 95% chance of a 25bp hike.
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AUD: NAB: Now Seen Above $0.70 In Q1; $0.75-0.80 In H2 2023
NAB note that “AUD/USD has spent some time above $0.70 already this year, aided by a weaker USD and big CNY gains, the latter as markets moved to price in a quicker China growth rebound from the end of its zero covid strategy.”
- “We expect the implied loss of U.S. global growth leadership to persist.”
- “This together with recent downside surprises on inflation and average hourly earnings data, maintains market confidence the Fed can be cutting rates before 2023 is out (still contrary to the Fed’s own public rhetoric).”
- “AUD/USD is seen spending much of H123 above $0.70, with our end–Q1 forecast revised to $0.71 from $0.70 and end-Q2 to $0.74 from $0.72.”
- “AUD is now seen moving into a $0.75-0.80 range in H223 (end-2023 forecast of $0.78 but which allows for a breach of 0.80 at some point).”
- “Any significant deterioration in risk sentiment represents a downside risk to AUD and one source of volatility. The RBA meanwhile only promises to be a major influence on the currency if it delivers something other than two more 25bp rate hikes in this cycle, pausing thereafter (which is NAB’s call).”
JGBS: A Touch Firmer To Start
Monday’s bid in the belly to intermediate zone of the cash JGB curve rolls into Tuesday, despite the cheapening witnessed in core global FI markets since, with the major benchmarks running 0.5-1.5bp richer, with the 5- to 7-Year zone leading. Futures have firmed a little from late overnight session levels as a result, but the move remains modest, leaving the contract -17.
- Swap rates are mixed on the day, dealing either side of, but close to, flat.
- Local data has seen a steady rate of contraction in the flash m’fing PMI survey, while the rate of expansion observed in the services release accelerated, leaving the composite reading in expansionary territory for the first time since October (assuming the general direction of travel is maintained in the final releases). S&P Global noted that “Japan’s private sector kicked off 2023 on a more positive note, as signalled by activity returning to growth territory in January. However, similar to trends recorded over much of the past six months, a divergence between the manufacturing and services sectors has remained. While manufacturing firms continued to face muted customer demand, service providers made sustained gains from the travel subsidy programme and recent relaxation of COVID measures.”
- Looking ahead, continued post-BoJ reshuffles will likely provide the focal point of Tuesday’s price action.
US TSYS: Mixed, But Little Changed To Start
A mixed start for Tsys on Tuesday. Cash Tsys are 0.5bp richer to 0.5bp cheaper across the major benchmarks. TYH3 deals at 114-24+, +0-02+, with a narrow 0-02 range observed this morning.
- Participants will also have one eye on JGBs as post-BOJ positioning continues to dominate in Asia.
- A reminder that the Lunar NY Holiday will affect liquidity today, with China, Hong Kong & Singapore out.
