EM ASIA CREDIT: Hanwha Aerospace (SAMAER, NR) invests in U.S. drone tech

Outside of yen gains, G10 FX moves have been fairly modest in the first part of Wednesday dealings. The USD BBDXY index is little changed, last around 1300.50. Yen is outperforming, up 0.25% at this stage.

• USD/JPY has tested back sub 154.00, not far off Jan 27 lows at 153.72 (today's low being at 153.89, but we sit higher now).
• We had two support points for yen so far today. The earlier labor cash earnings data was well above expectations, reinforcing positive wage trends as we progress through early 2025. Japan's Economic Revitalization Minister Akazawa also stated that Japan is in a inflationary situation now. US-JP yield differentials continue to point to lower USD/JPY levels.
• Earlier we had NZ Q4 labor force data which was close to expectations. NZD/USD is up a touch from end Tuesday levels, last near 0.5655/60. AUD/USD is also a touch firmer, last close to 0.6255/60.
• Other majors are little changed. The Fed's Jefferson is peaking. His prepared remarks point to further gradual reduction in rates, but signaled no urgency to change stance quickly.
• US yields are up a little over 1bps at this stage. US equity futures are in the red, with Alphabet earnings from late on Tuesday disappointing.
• Coming up we have China Caixin services PMI out as the main data event risk for the remainder of today's Asia Pac session. China markets also re-open after the LNY break with the CNY fixing to be in focus. 

RBNZ dated OIS pricing is 1—2bps firmer after the Q4 Labour Market Report.

• The Q4 unemployment rate rose 0.3pp to 5.1%, in line with consensus and the RBNZ, to be its highest since the Covid-impacted Q3 2020.
• Employment fell 0.1% q/q to be down 1.1% y/y after -0.6% & -0.6% in Q3, which was revised lower.
• Wages growth continues to moderate and is either near 3% or under. Given the data printed close to the RBNZ’s November forecasts, which also suggested a 50bp rate cut in Q1 2025, another 50bp on February 19 remains likely.
• 49bps of easing is priced for February, with a cumulative 128bps by November 2025.

Figure 1: RBNZ Dated OIS Post-Data vs. Pre-Data (%)

Source: MNI – Market News / Bloomberg

Natural gas prices were lower on Tuesday with Europe down 2.7% to EUR 52.35 but off the intraday low of EUR 51.29. China’s tariffs on US LNG weighed on European prices, as the decision is likely to increase US LNG shipments to Europe which eased supply concerns in the region. 

• With European storage at around 53% and summer futures months above next winters, Italy has brought forward refilling auctions so that if February/March prices are lower they can be taken advantage of. The contractual year begins April 1.
• US gas fell 3.9% to $3.22 after a low of $3.17. China’s 15% tariff on imports of US LNG weighed on prices as well as forecasts for milder weather around mid-February in the southern US.
• 10% tariffs on US imports from China came into effect on Tuesday and China retaliated including 10-15% tariffs on oil, coal, LNG and agricultural machinery imports from the US. Chinese buyers with long-term contracts with US suppliers are likely to onsell their shipments and with inventories low in Europe, they are likely to be willing purchasers. Around 6% of China’s LNG imports came from the US in 2024, according to Bloomberg. Most US LNG exports are destined for Europe.