JPY: JPY Crosses - Sharp Reversals As Risk Sentiment Stabilizes
JPY crosses are normally the favourite vehicles to express/hedge against times of extreme volatility, so the big bounce in global assets has seen a similar move in the JPY. The escalation in US-China tensions is also fueling speculation that Beijing will accelerate stimulus, thus adding to the markets reversal in market sentiment. US Steel (X) shares sink 12% after Trump said he didn’t want a Japanese company to buy the Pittsburgh-based steelmaker.
- EUR/JPY - Overnight range 159.48 - 162.20, Asia has drifted lower to test below 161.00. The Nikkei is up 8% this will make JPY longs nervous, watch if price tests above overnight highs towards 162.20 to have another leg higher. The 165/66 area should find solid resistance.
- GBP/JPY - Overnight range 184.39 - 189.82, Asia has drifted back to 1.8825 where buyers have reemerged. The size and pace of the move would have caught the market on the back foot and shorts would be nervous. First resistance 190/92.
- AUD/JPY - Overnight range 86.66 - 91.32, Asia has drifted back to the 89.80 area before finding some demand. The 92/94 area is very strong resistance but the key day reversal would have shorts nervous.
- CNH/JPY - Overnight range 19.5465 - 20.1500, Asia pulled back to around 19.90 before finding some demand. The central bank has apparently been telling dealers to reduce USD purchases this caused an initial dip in the pair. But yet another fix higher in USD/CNY though adds credence to the view the PBOC is going to slowly manage the currency lower.
Fig 1: CNH/JPY Spot:
Source: MNI - Market News/Bloomberg
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AUSSIE BONDS: Yields Down, Confidence Up
ACGBs (YM +7.0 & XM +7.0) are stronger after the release of today’s consumer and business confidence data.
- March Westpac consumer confidence jumped 4.0% m/m to 95.9, the highest in three years, boosted by the RBA’s 18 February 25bp rate cut, the start of an easing cycle. It also revised down 2025 underlying inflation projections and said that it has “more confidence that inflation is moving sustainably towards the midpoint” of the band after lower-than-expected Q4 CPI. Cost-of-living has been the main concern for households and both of these developments appear to have reassured them that their financial situation will improve.
- NAB business confidence continued its trend of oscillating around the zero mark with it falling to -1 in February from January’s +5. Business conditions were one point higher at +4 driven by profitability and trading but most components only saw small moves. Prices were encouraging signalling a further moderation in inflation in Q1 but costs picked up.
- Cash US tsys are 2-3bps richer after yesterday’s robust bull-steepener.
- Cash ACGBs are 7-8bps richer with the AU-US 10-year yield differential at +19bps.
- Swap rates are 8-9bps lower, with the 3s10s curve steeper.
- The bills strip has bull-flattened beyond the first contract, with pricing flat to +10.
- RBA-dated OIS pricing is 1-7bps softer across meetings today.
CROSS ASSET: Risk Appetite Stabilizes, Eminis Oversold On RSI
Cross-asset sentiment has stabilized somewhat. Focus remains in the equity space. After being down 1%, US Eminis now sit -0.10% weaker (we did get back close to flat). Nasdaq futures are still down 0.35%, but likewise up from earlier lows.
- There doesn't appear to be a fresh news flow/macro catalyst for this turnaround. Headlines so far today have focused on talks in the Middle East around the Ukraine conflict, but nothing concrete has emerged. US President Trump is also reportedly calling congress members to help avert a government shut down later this week.
- For Eminis the RSI (14) is now at 28.5, so in oversold territory based off this metric. This may have induced modest short covering, although the oversold condition has been threatened since late Feb, see the chart below.
- US yields are away from earlier lows, the 10yr back close to 4.18% (earlier we got to 4.15%). The USD has recovered some ground against the safe havens, with USD/JPY back above 147.00, but AUD and NZD losses have been pared.
- USD/CNH is sub 7.2450. Hong Kong equities have recouped some of the earlier losses seen (although the HSI is only modestly in the red). Mainland share markets are only down a touch, offering some outperformance.
- Bitcoin is back close to flat, while gold is also higher, while oil losses are back near flat.
Fig 1: US SPX Futures - Oversold Based Off RSI (14)
Source: MNI - MArket News/Bloomberg
STIR: RBA Dated OIS Pricing Softer Today But Mixed Vs. Pre-RBA Decision Levels
RBA-dated OIS pricing is 1-7bps softer across meetings today.
- Nevertheless, pricing still remains mixed compared to February’s pre-RBA Decision levels—meetings through May are 1-2bps firmer, while those beyond are 2-20bps softer.
- A 25bp rate cut in April is given an 11% probability, with a cumulative 69bps of easing priced by year-end (based on an effective cash rate of 4.09%).
Figure 1: RBA-Dated OIS – Today Vs. Pre-RBA Levels
Source: MNI – Market News / Bloomberg
