BUND TECHS: (M5) Oversold Trend Position But Remains Bearish

• RES 4: 134.94 High Dec 17            
• RES 3: 134.54 61.8% retracement of the Dec 2 - Jan 14 bear leg
• RES 2: 134.29 High Dec 20
• RES 1: 133.73 50.0% retracement of the Dec 2 - Jan 14 bear leg                 
• PRICE: 133.34 @ 05:38 GMT Feb 10 
• SUP 1: 132.53 20-day EMA      
• SUP 2: 131.00 Low Jan 16 / 24            
• SUP 3: 131.00/130.28 Low Jan 16 / Low Jan 15 and the bear trigger
• SUP 4: 130.44 Low Jul 5 ‘24 (cont)     

Bund futures remain in a bull cycle and the contract is holding on to its latest gains. The recent pause appears to be a flag formation - a bullish continuation signal. Price has recently cleared both the 20- and 50-day EMAs. The break higher confirms a resumption of the corrective bull cycle that started Jan 14. Sights are on 133.73, a Fibonacci retracement point. Firm short-term support has been defined at 131.00, the Jan 16 / 24 low.

•  Marriages in China plunged by a fifth to the lowest level on record last year, a setback to efforts by the government to reverse a demographic crisis threatening the world’s second-biggest economy. (source: BBG).
• In out data preview last week we forecast two different stories coming from the PPI and CPI data releases over the weekend, and that certainly was the case.  Mired in deflation, PPI’s print was weaker than consensus at -2.3% (consensus -2.2%; prior -2.3%) and was the 28th month in succession of decline speaks to the absence of pricing power that corporates have.  CPI however tells a different story rising +0.5% YoY (consensus +0.4 ; prior +0.1%)the first rise since August last year.  The largest contributor to the rise was food prices up +0.4% and services +1.1%. (source: MNI – Market News).
• China’s major bourses are starting off the week positively with the Hang Seng leading the way up 1.6%, CSI 300 +0.02%, Shanghai +0.39%, Shenzhen +0.63%.
• CNY: Yuan Reference Rate at 7.1707 Per USD; Estimate 7.3017
• Bonds:  Bond yields moved higher today with the CGB 10YR at 1.62%, +2bps. 

The RBA decision is published on February 18 and the AUD OIS market has a 90% chance of a 25bp rate cut with between 3 and 4 25bp moves by end-2025 and as MNI discussed last week, the RBA rarely doesn’t ease if the market expects it to. In terms of the data, inflation indicators have been lower than the RBA’s November forecasts, activity has been more mixed and the labour market stronger.

• The Citibank Economic Surprise Index has generally been in positive territory since mid-2024. It is also higher than in December. February to date has averaged 15.7 up from January’s 7.1 and December’s 7.6. Therefore, disappointing data is unlikely to be the reason for the RBA to begin easing.
• In terms of the RBA’s November forecasts, the picture is a little different. Inflation data have printed below its projections with both the trimmed mean and headline 0.2pp lower in Q4. To achieve its Q4 WPI forecast of 3.4% y/y, the index would have to rise 1.0% q/q, which seems unlikely as it would be the highest since Q4 2023.
• The RBA will provide an update at the February meeting and any change to the timing of achieving the 2.5% mid-point will be important. It is currently expected in Q4 2026.
• Activity data are suggesting a tentative recovery with Q4 household spending volumes rising 1.4% y/y and nominal imports of consumer and capex goods rising. The RBA forecasted Q4 consumption in the national accounts to rise 1.0% y/y, which requires around a 0.7% q/q increase, which Q4 consumer data suggests is certainly plausible. It has GDP rising 1.5% y/y in Q4, which needs a 0.8% q/q rise, which may still be too strong.
• The labour market has surprised analysts and the RBA to the upside with the unemployment rate in Q4 0.3pp below the RBA’s forecast and employment growth moderately stronger. 

Australia Citibank data surprise index

Source: MNI - Market News/Bloomberg