JGBS: Futures Sitting Richer But Off Israeli Strike Highs, BoJ To Scale Back JGB Buying

ACGBs (YM flat & XM +2.0) sit slightly richer after dealing in relatively narrow ranges in today’s Sydney session. With the domestic calendar empty today, trading has been all about consolidating yesterday’s post-RBA rally ahead of the FOMC Decision later today.

• Cash ACGBs are flat to 2bps richer, with the AU-US 10-year yield differential 2bps higher at -23bps.
• Swap rates are 1-3bps lower.
• The bills strip is slightly mixed, with pricing +1 to -1.
• RBA-dated OIS pricing is little changed. Given that OIS pricing aligned with the unanimous consensus among Bloomberg analysts, expecting a status quo decision yesterday, minimal market reaction in front meetings was anticipated. Likewise, year-end easing expectations have only slightly softened to 38bps compared to 36bps before the decision.
• Where there has been a notable reaction has been in terminal rate expectations. Before yesterday's meeting, the anticipated terminal rate stood at the effective cash rate of 4.32%. However, following the RBA's decision to remove the explicit tightening bias, there has been a softening of 5bps to 4.27%.
• Tomorrow, the local calendar sees the February Employment Report along with Judo Bank PMIs (Mar P). Consensus expects a 40k increase in Jobs, with the Unemployment Rate falling from 4.1% to 4.0%.

Oil prices have traded in a narrow range to be down moderately during APAC trading today but are still up more than 2% on the week. WTI is 0.2% lower at $82.57/bbl, close to the intraday high, and Brent is also down 0.2% to $87.25. The market is waiting for the Fed decision out later today. While it is widely expected to be on hold this month, concerns that rate cuts will be delayed and thus pressure demand have weighed on crude. The USD index is flat.

• Supply developments are being watched closely given geopolitical issues and the IEA’s shift to forecast a deficit this year.
• Bloomberg reported a 1.52mn barrel crude inventory drawdown last week, a lot more than expected, according to people familiar with the API data. While distillate stocks rose 500k, gasoline fell a further 1.6mn pointing to robust demand. The official EIA data is out later today.
• JP Morgan has estimated that Ukrainian attacks on Russian refineries have reduced its capacity by 900kbd and it could take weeks or even months for it to come back on line. As a result, Russia will increase its crude exports from western ports by almost 200kbd which may rise if there are further attacks. Lower refining demand in Russia would normally put downward pressure on oil prices, but the market has added a geopolitical risk premium as Ukraine continues to target energy infrastructure.
• Later the Fed decision and projections are announced (see MNI Fed Preview). Also, the ECB’s Lagarde, Lane and Schnabel all appear. In terms of data, UK CPI/PPI for February print.

Outside of fresh yen weakness, overall G10 FX moves have been fairly muted. The BBDXY sits marginally higher, last near 1241, largely on account of fresh weakness.

• USD/JPY pushed through 151.00 in the first part of Wednesday trade. We have held above that level since and as we approach the cross over with EU/London the pair has hit fresh highs for the session at 151.45./50
• The is nearly 0.40% weaker in yen terms versus end levels in NY on Tuesday. Focus remains on 2023 highs at 151.91, although this may raise fresh intervention risks. Japan markets have been closed today for a local holiday, which has likely kept rhetoric absent.
• Depressed vol levels and the sharp push higher in risk reversals in the pair points to upside USD/JPY pressures, with markets not expecting an aggressive BoJ tightening cycle and still accommodative financial conditions.
• EUR/JPY continues to track higher, the pair last at 164.60, fresh highs back to 2008.
• NZD/USD is a little lower sub 0.6050, despite better current account data for Q4. We also had a rise in consumer confidence. We sit marginally above recent lows, while headlines crossed from the IMF stating there is scope for the RBNZ to cut later this year.
• AUD/USD has outperformed NZD at the margins, last near 0.6530, close to unchanged for the session. Higher commodity prices, coupled with weaker NZ dairy prices likely helping the move. The AUD/NZD cross is above 1.0800, to fresh highs back to late Jan.
• The main focus coming up later we will be the FOMC.