ASIA STOCKS: Large Outflows for the Week, Korea Bucking that Trend

There were some tentative signs in the Q1 labour market data that there is some stabilisation but at weak levels. There was a 0.1% q/q rise in employment driven by a 2.2% q/q jump in part-timers, indicating a cautionary move back into hiring. While the unemployment rate was stable at 5.1%, better than consensus, it appears that the rise in labour supply that was expected didn’t materialise. Thus the data is close enough to what the RBNZ expected in February and another 25bp rate cut on May 28 remains likely.

• Wage inflation slowed with the labour cost index rising 0.5% q/q, the slowest quarterly rate in four years, bringing the annual pace down to 2.9% from 3.3%, the lowest since Q4 2021. Private sector wages rose 0.4% q/q after 0.8% q/q in Q1 2024. 

NZ wages y/y%

• The RBNZ should be reassured that wages have adjusted to the lower inflation environment and spare capacity in the labour market.
• While part-time employment rose, full-time fell 0.5% q/q to be down 1.9% y/y. This is also reflected in the 0.3%q/q & 2.9% y/y drop in hours worked and the 0.2pp pickup in the underutilisation rate to 12.3%. While the labour market may have reached a turning point, both of these series show that it remains weak.
• The number of unemployed was flat in Q1 but still up 16.4% y/y, but this was the lowest quarterly change since Q2 2022. The number of people who say there isn’t enough work available rose 26.3% y/y, according to Statistics NZ.

NZ employment y/y%

TYM5 is trading 111-07, down 0-03 from its close. 

• The US 10-year yield opens around 4.325%, up 0.03 from its close.
• The US 2-year yield opens around 3.805%, up 0.02 from its close.
• (Bloomberg) -- Treasuries ended the session near highs of the day, after a strong 10-year note auction that stopped through the WI by over one basis point with a lower-than-average amount alloted to primary dealers.
• (Bloomberg) -- A 10-year Treasury auction today “went fantastic,” Deputy Treasury Secretary Michael Faulkender says on Fox Business. “We are not seeing any issues in Treasury markets, and our auctions continue to go very strongly,” Faulkender says.
• Asia is digesting the news that US Treasury Secretary Scott Bessent and US Trade Representative Jamieson Greer will meet with the Chinese government in Switzerland to restart trade talks between the two nations.
• The 10-year Yield range seems to be 4.10% - 4.45%, price has moved back to the 4.30% pivot and with more supply to come this week a good chance this level holds. Focus will be on the FOMC tonight and Powell's statement.
• Data/Event: US FOMC

USD/CNH saw earlier lows of 7.1892 as headlines crossed that US-China officials would talk in Switzerland on trade later this week. We started the session closer to 7.2100. We have stabilized somewhat since, last near 7.1970. Onshore spot ended yesterday at 7.2190, while the CNY CFETS basket tracker lost 0.25% to be back under 96.00 at the end of Tuesday trade.

• For USD/CNH technicals, we are close to lows from the start of the week at 7.1845. A fresh break lower could see the low 7.1400 region targeted, which we last saw Nov 7/8 in 2024. On the topside, yesterday's highs were at 7.2352, while the 200-day EMA is near 7.2520.
• Focus will be on the upcoming trade talks in Switzerland, with China comments stating it will not sacrifice its principles to seek an agreement (via BBG). China also urged the US side to show sincerity. On Fox News, US Tsy Secretary Bessent stated the talks will be about de-escalation and that current tariff levels are unsustainable.
• Note we may hear more from China officials this morning, as various officials will discuss market stabilization measures at a briefing ((am local time0. BBG notes: "Officials from the People’s Bank of China, the National Financial Regulatory Administration and the China Securities Regulatory Commission will speak at 9 a.m. local time about “a financial policy package to stabilize market and expectations,” according to a government notice on Tuesday."
• The local data calendar just has Apr FX reserves on tap today, which a re expected to rise versus March levels.