US OUTLOOK/OPINION: Jan PPI: PCE Categories In Focus After Upside CPI Surprise
Feb-12 22:06
Thursday's PPI report for January (0830ET) will, as Chair Powell reminded in his congressional testimony Wednesday, provide the main final input into January's PCE reading.
- Current expectations for the main PPI aggregates are for accelerations in overall M//M to 0.3% (0.2% prior), with ex-food/energy/trade seen up to 0.3% from 0.0% prior.
- We haven't seen analysis on the recalculated Relative Importance and Seasonal Adjustment Factors due for the PPI series which will be released simultaneously with the January data, but obviously this could impact the interpretation of the report.
- It's clear that the stronger-than-expected CPI report has pushed up expectations for the core PCE reading, with PPI likely to play a lesser role at this stage.
- Prominent PCE-related categories that use the PPI reading include airfares which decelerated in the CPI report (1.2% M/M in Jan from 3.0% prior), auto insurance which accelerated in CPI (2.0% from 0.5%), and healthcare services which decelerated in CPI to 0.0% from 0.2% with weak dental services prices. There's no equivalent to PPI / PCE portfolio services in CPI.
- As MNI noted earlier, Nomura revised up their January core PCE expectation to 0.351% M/M vs 0.28% pre-CPI. (As with CPI, the PCE series are due annual revisions as well, somewhat complicating the read-through from pre-compared with-post CPI readings - Nomura sees M/M core PCE revised lower in Nov and Dec by 1-2bp, with October revised up by 1bp)
- For the PCE-relevant inputs from the PPI report, Nomura look for higher portfolio management and health insurance (noting positive residual seasonality in January), with a decline in PPI physician services prices offset by an increase in hospital services.
- Rough consensus for core M/M PCE is somewhere in the mid-0.30% area, though post-CPI estimates vary widely. A figure in that area would mean a lower figure than January 2024's 0.498% M/M, and a softer Y/Y reading of 2.6% or 2.7% vs 2.8% in December.
- JPMorgan is estimating core PCE at 0.27% M/M going into the PPI report.
- TD currently projects 0.38% core PCE.
- Mizuho looks for 0.4% M/M core PPI and 0.5% headline, putting core PCE in the 0.3-0.4% range.
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NZD: NZD/USD Sees Small Bounce, Still Remains In Bearish Trend
Jan-13 22:05
- NZD/USD edged slightly higher on Monday, closing the session +0.22% at 0.5569, rebounding from multi-year lows but remaining under bearish pressure. The RSI at 31 signals persistent oversold conditions, while a weakening MACD suggests limited bullish momentum
- Technical indicators suggest bearish momentum, with spot trading below all key moving averages, the pair is at risk of testing the 13-year low of 0.5470 if it breaks below 0.5500. Initial support is 0.5543 (Jan 10 lows), while to the upside a break above 0.5643 (20-day EMA) before any sort of momentum change can occur.
- The NZ-US 2yr swap rose 6bps on Monday, closing at -87.5bps. On Friday it hitting a new yearly lows of -95.5bps just off all time lows of -100bps
- NZIER's Quarterly Survey of Business Opinion shows improved business confidence in Q4, with a net 16% of firms expecting economic improvement and 9% anticipating better trading in Q1. However, challenges persist, as 26% reported worse trading conditions in Q4, while 15% expect to raise prices in Q1.
- Leveraged funds raised their net short position on the NZD to 13,547 contracts a 15% jump from prior, the most in more than five years, while Asset managers saw 3% just in short positions, according to the latest Commodity Futures Trading Commission data for the week ended Jan. 7.
- No large nearby strikes Tues. Upcoming notable strikes: 0.5875 (NZD606m Jan. 15), 0.5885 (NZD453.7m Jan. 16), 0.6075 (NZD425.8m Jan. 15)
- The local calendar is empty today
BONDS: NZGBS: Heavy Open In-Line With US Tsys, QSBO Improves
Jan-13 22:02
In local morning trade, NZGBs are 4-5bps cheaper after another weak session for US tsys, albeit less so than Friday. US yields finished flat to 3bps higher across benchmarks.
- NY Fed consumer inflation expectations saw a mixed month for December, with the 1Y holding steady at 3.0%, the 3Y jumping 40bps to 3.0% and the 5Y falling 20bps to 2.7%. The 3Y measure is its highest since Nov 2023 and came amidst its highest uncertainty since May.
- Swap rates are 3-5bps higher, with the 2s10s curve flatter.
- RBNZ dated OIS pricing is 1-7bps firmer across meetings. 48bps of easing is priced for February, with a cumulative 120bps by November 2025.
- The NZIER Business Q4 Opinion Survey showed that a net 16% of businesses expect the economy to improve, vs 1% expecting it to get worse in Q3. This was the first positive outlook since Q2 2021. After seasonal adjustment, a net 9% of businesses expect the economy to improve, vs a revised 4% expecting deterioration in Q3. A net 26% of businesses reported a decline in their own trading activity in Q4.
- On Thursday, the NZ Treasury plans to sell NZ$250mn of the 3.00% Apr-29 bond, NZ$175mn of the 3.50% Apr-33 bond and NZ$75mn of the 1.75% May-41 bond.
JPY: Yen Crosses Up Off Lows, Following Equity Sentiment, BoJ Speech Today
Jan-13 21:54
Yen crosses were a focus point as Monday trade unfolded. From lows near 190.00, GBP/JPY recovered and sits back near 192 in early Tuesday dealings. This was still a 0.30% drop and the 5th straight fall for the pair. EUR/JPY fell by a similar amount but rebounded off 160.00 (last near 161.10). For USD/JPY, we were supported under 157.00 and track near 157.60 in early Tuesday dealings, after seeing little net change for Monday's session.
- As EU stocks recovered from session lows, yen crosses found some support. EU indices still finished down for Monday's session (-0.46%), while US markets were mixed, SPX firmer (+0.16%), but the Nasdaq weaker (-0.38%).
- Key yen crosses still sit below important support points. For GBP/JPY the 20-day EMA is back above 195.00, for EUR/JPY this level is back near 162.55.
- For USD/JPY, not much has changed from a technical standpoint, although upward momentum has waned to some degree. Focus will rest on downside support at the 20-day EMA at 156.71.
- US yields ticked higher on Monday, with US-JP yield differentials resuming uptrends in the aftermath of Friday's NFP beat, but this hasn't been a key driver of USD/JPY sentiment in recent sessions.
- Locally today, onshore markets return, with focus on a speech from BoJ Deputy Governor Himino in Kanagawa, which kicks off at 10:30am local time.
- On the data front, we have Nov BoP figures, along with bank lending for Dec out early. later on the Dec Eco watchers survey is out.
