AUSTRALIA: Inflation Trending Lower, Wages Starting To Look Sticky
The next RBA decision is on April 1 and it is likely to keep rates at 4.1% after cutting them 25bp on February 18. Inflation-related data since the last meeting have generally been consistent with inflation returning sustainably to target, which could mean another rate cut in May. Q1 CPI data is released on April 30 and will be a key input into the meeting but the trimmed mean will remain the focus as headline continues to be distorted by government electricity rebates.
- February trimmed mean moderated to 2.7% y/y from 2.8%. It has now been below the top of the RBA’s band for three straight months. Headline also eased 0.1pp to 2.4% y/y.
- The RBA has been concerned about sticky services inflation. Monthly data suggest that it may have eased in Q1 with the January/February average at 3.6% y/y down from 4.2% in Q4.
- Q4 WPI showed that wage growth continued to moderate rising 0.7% q/q & 3.2% y/y down from 3.6% y/y. However, Q4 average compensation in the national accounts rose 1.1% q/q & 3.2% y/y up from 2.5% y/y, the highest quarterly increase since Q3 2023. ULC growth also picked up to 1.8% q/q & 4.7% y/y from 4.5% y/y.
- Monthly data suggest that there may not have been any further easing in wage growth with SEEK advertised salaries up 3.6% y/y in January & February, in line with Q4, and February NAB business labour costs up 1.5% 3m/3m, also in line with Q4. PMI respondents also noted that higher wage costs added to cost inflation in February.
Australia labour costs 3m/3m %
- The February NAB business survey reported a pickup in purchase costs to 1.5% 3m/3m from 1.1% in January and the composite PMI saw input cost inflation at its highest in seven months. But NAB final product prices rose 0.5%, slowest in four years, and PMI output inflation was at a fourth-month low.
- March Melbourne Institute inflation expectations fell 1pp to 3.6%, lowest since August 2021, and the February inflation gauge moderated 0.1pp to 2.2%.
Australia trimmed mean inflation vs MI inflation gauge %
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ASIA STOCKS: Asian Equities Mixed Following US Sell-Off On Friday
Asian stocks have traded mixed at the start of the week, with investors staying cautious following a Wall Street selloff triggered by weak economic data. The Hang Seng and mainland Chinese benchmarks remained range-bound, while a broad gauge of Asian equities edged lower after hitting a four-month high on Friday. The dollar weakened, with the euro gaining 0.5% after Germany’s conservative party secured an election victory.
- Chinese tech stocks, which have rallied this year on AI optimism and policy support, remained a key focus. Allianz Global Investors noted that China remains under-owned by foreign investors despite its innovation potential. Meanwhile, trade tensions persisted, with China’s Vice Premier He Lifeng raising concerns over new U.S. tariffs, and President Trump directing further restrictions on Chinese investment in strategic sectors. The HSI is -0.70%, while CSI 300 is -0.20%
- Japan is out today for a publica holiday, however Warren Buffett’s Berkshire Hathaway signaled plans to increase its stake in Japan’s five largest trading houses.
- South Korea's KOSPI dropped 0.60% as auto and chip stocks led declines. Samsung Electronics fell 1.37%, SK hynix lost 3.34%, and Hyundai Motor slipped 0.50%. However, POSCO Holdings rose 0.18%, and HMM surged 13.82%.
- Taiwan's TAIEX is 0.6% lower as global semiconductor stocks struggle, TSMC is down 1.40%, following the SOX dropping 3.28% on Friday.
- Australia's ASX 200 is flat with as mining and tech stocks struggle. Wisetech Global plummeted as much as 23% after director resignations over disagreements with its founder. New Zealand's The NZX 50 dropped 1.7%, with Summerset Group dropping 6.5%.
Looking ahead, Nvidia’s earnings on Wednesday will be a key risk event, as traders anticipate higher market volatility, given the company’s central role in the AI-driven rally. Other notable events include central bank decisions in South Korea and Thailand, along with U.S. consumer confidence data.
US TSYS: Tsys Futures Edge Lower, Cash Trading Closed
- Tsys futures are trading slightly lower today, however remain trading within Friday's ranges. Cash tsys trading has been closed with Japan out and with a lack of major data or headlines out during the session there isn't much to mention. Futures volumes has been largely tied with rolls. TU is -01⅜ at 102-27, while TY is -04 at 109-18
- TY recovered well off the intraday low of 108-21+ posted Wednesday, keeping the price clear of any test on 108-04 support. As such, markets are narrowing the gap with last week’s highs and may post a strong weekly candle at the close. Any further gains here would expose key resistance and the bull trigger at 110-00, the Feb 7 high. For bears, recent weakness resulted in a break of 108-20+, the Feb 4 low, signalling the end of the correction between Jan 13 - Feb 7. Moving average studies highlight a dominant downtrend. A resumption of weakness would open 108-00, Jan 16 low, and expose 107-06, Jan 13 low and bear trigger.
- Last week saw the short-end outperform, with the 1-3yr tenors ending -6bps richer, while the 10yr closed 4.5bps richer at 4.431%, we have only traded below here once this year, back on Feb 5th when we reached a yield of 4.418%. The 2s10s closed the week little changed at 23.5bps, although this is10bps flatter ytd.
- Fed-dated OIS saw a dovish trading following the risk-off move, bringing forward the first full 25bp of easing to the July meeting from the September meeting, while the market is now pricing in 45bp of easing is vs 37bp priced on Thursday.
- There isn't much on the calendar tonight, with just Chicago Fed Nat Activity Index & Dallas Fed Manf. Activity
FOREX: EUR Rebound Falls Short Of Jan High, But Broad USD Weakness Evident
The USD BBDXY index sits at in the low 1282 region dealings, just up from session lows of 1281.2. These levels were last seen back in mid Dec last year. EUR/USD has been the best performer in the G10 space, rising back through 1.0500, as market digested the Sunday German election results.
- The German election saw the conservative CDU/CSU win the most votes, which was in line with expectations. Focus now shifts to what type of coalition government will be formed. German equity futures opened down a touch before rallying over 1%, aiding EUR gains.
- For EUR/USD, the pair tracked equity futures higher, and moved through option expiries at the 1.0500 level. We reached highs of 1.0528, which was very close to the Jan highs of 1.0533, but we sit back lower now (last 1.0510/15, still +0.50% for the session).
- Other EU bloc currencies are also higher, up 0.35% for NOK, and 0.40% for SEK,
- Yen has lagged broader EU bloc currencies gains. We were last 149.20/25, little changed for the session. We did to fresh lows of 148.85, but we this move was short lived. Japan markets are out today, while the equity mood is better from a US futures standpoint, up around 0.50%. A number of regional equity markets are down, but not as much as implied by Friday session losses in the US.
- Some medical experts looked to play down fears of a fresh pandemic, after it was reported a new covid like virus that can reportedly transmit from bats to humans weighed on broader risk appetite on Friday (including US equities).
- AUD/USD and NZD/USD are both up by around 0.30-0.35%. AUD/USD at 0.6380 is still short of recent highs above 0.6400. NZD/USD is at 0.5760 is just under recent highs at 0.5773. Earlier data showed stronger than expected NZ retail sales volumes for Q4 last year, led by better discretionary spending.
- Looking ahead, we have the German IFO, final EU inflation, as well as BoE speak. We hear from the BoC as well. In the US we have the Dallas Fed survey.
