SOUTH KOREA: FWDS Reprice Rate Expectations following BOK
The cut in interest rates yesterday by the BOK was anticipated by forecasters yet forward rate expectations prior to the meeting, less convinced.
In the period since 20 Feb this year (the 20th saw PPI steady at 1.7% and Consumer Confidence weak) up to the day prior to the BOK meeting, the 3 month forward 1 month (NDIRS) had priced in 7bps of cuts and a full cut priced by 6 months.
The market has repriced overnight with very limited now priced in and a further cut no longer fully priced in until further out. Per the MIPR function on BBG, the market has the 1yr ahead policy rate at around 2.40%, so less than 2 cuts priced in.
- This is despite Governor Rhee indicating in the press conference that the ‘market view’ was for two to three more cuts this year (including February's). If his comment on ‘market view’ is correct, there appears scope for forward markets to re-price in NDIRS space leading up to the next BOK meeting on April 17.
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CHINA: Futures Jump as Industrial Profit Decline Continues. (Corrected)
{CH} China:
• The PBOC conducted its daily OMO this morning injecting CNY175bn ahead of the Lunar New Year break, just as China data showed that decline in Industrial Profits is now into it’s third year with a decline of -3.3% for December.
• The benchmark 10YR future jumped +0.365 in this morning’s trade to be at 109.405.
• Having edged towards the 20-day EMA last week, today’s moves sees the contract break out above all major technical levels with key levels being 20-day EMA 109.05, 50-day EMA 108.40, 100-day EMA 107.55 and 200-day EMA 106.60.
• China’s 5YR future jumped +0.295 and the 2YR future jumped +0.142.
• The Lunar New Year holidays sees China out Jan 28-Feb 04 inclusive and it is likely that the Central Bank will provide liquidity leading into the holiday period which could see the resumption of the upward trend.
CHINA: Futures Jump as Industrial Profit Decline Continues.
- The PBOC conducted its daily OMO this morning injecting CNY175bn ahead of the Lunar New Year break, just as China data showed that decline in Industrial Profits is now into it’s third year with a decline of -3.3% for December.
- The benchmark 10YR future jumped +0.365 in this morning’s trade to be at 109.405.
- Having edged towards the 20-day EMA last week, today’s moves sees the contract break out above all major technical levels with key levels being 20-day EMA 109.05, 50-day EMA 108.40, 100-day EMA 107.55 and 200-day EMA 106.60.
- China’s 5YR future jumped +0.295 and the 2YR future jumped +0.142.
- The Lunar New Year holidays sees China out Jan 28-Feb 04 inclusive and it is likely that the Central Bank will provide liquidity leading into the holiday period which could see the resumption of the upward trend.
- Key data out next week: Industrial Profits Jan 27, PMI’s 27 Jan.
JGBS: Cash Bonds Little Changed After Friday’s BoJ Rate Hike
At the Tokyo lunch break, JGB futures have swung further into positive territory and are near session highs, +15 compared to the settlement levels.
- Cash US tsys are dealing 2-5bps richer in today’s Asia-Pac session, with a flattening bias, after finishing Friday mildly stronger.
- US stock futures are dealing lower ahead of key earnings week, with the S&P 500 down 0.9% and the Nasdaq down ~0.50%.
- “In a social media post on Sunday, Trump said he ordered an emergency 25% tariff on all Colombian goods coming into the US, which will be raised to 50% in a week. Oil, gold, coffee and flowers top the list of exports, according to Colombia’s tax authorities.” (per BBG)
- “After Bank of Japan Gov. Kazuo Ueda pledged to keep raising interest rates at his news conference on Friday, the guessing game has begun for the next hike. BMI, a unit of Fitch Solutions, expects the BoJ to raise interest rates by another 0.25% this year and 0.25% in 2026.” (per BBG)
- Cash JGBs are little changed across benchmarks. The benchmark 10-year yield is 0.3bp lower at 1.228% versus the cycle high of 1.262%.
- Swap rates are 1bp higher to 1bp lower. Swap spreads are mixed.
