MNI EUROPEAN MARKETS ANALYSIS: Asian Equities Mostly Lower

• The USD was firmer in early trade on late Monday tariff remarks from US President Trump. There was no follow through though. US cash Tsys are 2-3bps richer today, having traded in a narrow range post the open.
• The Japan Services PPI rose, in line with market expectations, while the China 1yr MLF was held steady. Asian equities broadly declined, led by losses in technology and semiconductor stocks amid fresh US restrictions on Chinese investments. USD/CNH has edged higher as well.
• The BOK cut rates, helping local yields lower. The won was steady.
• Looking ahead, we have BoE and ECB speak. In the US, the Richmond Fed survey and house price data are releases among a busy data day. Fed speak also includes Barr and Barkin.

MARKETS

US TSYS: Tsys Futures Edge Higher, 10yr Yield At ytd Lows Ahead Of Fed Speak

• All tsys futures contracts are trading above Monday's highs, trading volumes being largely linked to rolls. TU +00⅜ at 102-30¼, while TY is +03+ at 109-31+, we trade just below 110-00 (High Feb 7 and the bull trigger) a break here would strengthen a bullish theme and open 110-19, a Fibonacci retracement. On the downside, a break back below 108-21+ (Feb 19 lows) would open a move to key short-term support at 108-04 (Feb 12 low) with clearance of this support reinstating a bearish theme.
• Overnight, Tsys options were skewed towards upside protection, matching the risk-off bid in early US session. Key flows included a short-term play targeting a the 10yr to hit 4.2% within a couple of weeks
• Cash tsys are 2-3bps richer today, having traded in a narrow range post the open. The 2yr is -2.1bps at 4.153% while the 10yr yield is trading at ytd lows of 4.377%. The 2s10s continues to flatten, last -1bps at 21.504, however still off the ytd lows of 16bps, set Feb 7th
• The 5yr is -2.3bps at 4.216% ahead of the $70b 5yr auction later tonight, last night the 2yr auction drew record indirect bidders.
• Projected rate cuts through mid-2025 steady to firmer vs. this morning levels (*) as follows: Mar'25 steady at -0.5bp, May'25 steady at -7.1bp, Jun'25 at -18.0bp (-17.3bp), Jul'25 at -25.6bp (-23.6bp).
• The Fed's Barr, Logan & Barkin are scheduled to speak later today
• Later today we have FHFA House Price Index, Conf. Board Consumer Confidence & Richmond Fed Manufact. Index

JGBS: Cash Bonds Richer Led By 7Y, Light Local Calendar Tomorrow

JGB futures are stronger, +44 compared to the settlement levels, but well off the session’s best level.

• Outside of the previously outlined services PPI, there hasn't been much by way of domestic drivers to flag.
• Later today, department store sales print, along with machine tool orders (both for Jan).
• “JGB futures quickly erased the pop higher earlier today as bond traders start focusing on Tokyo CPI this week and next month’s Bank of Japan decision. Although the BOJ is expected to leave interest rates unchanged in three weeks, it is likely to be a hawkish hold to set up a hike for April or May.” (per BBG)
• Cash US tsys are 2-3bps richer in today’s Asia-Pac session after yesterday’s modest gains.
• Beyond the 1-year, cash JGBs are 2-5bps richer across benchmarks, with the 7-year leading. The benchmark 10-year yield is 3.9bps lower at 1.391% versus the cycle high of 1.466%, set last week.
• BoJ accepts JPY399.9bn for Enhanced Liquidity Auction for 15.5-39-year JGBs.
• Swap rates are 1-2bps lower. Swap spreads are generally wider.
• Tomorrow, the local calendar will see Leading and Coincident Indices alongside BoJ Rinban Operations covering 3-25-year JGBs.

JAPAN DATA: Services PPI Above 3% Y/Y, But M/M Falls

The Japan services PPI edged up to 3.1%y/y in Jan. This was in line with market forecasts and compares to the revised 3.0% gain from Dec (which was originally reported as a 2.9% rise). The m/m shift was -0.5%, after a flat outcome in Dec. 

• The chart below plots this services PPI, which is the white line on the chart and reading to rhs, against headline CPI (reading to the lhs, the orange line).
• The services PPI is very close to recent cycle highs and consistent with elevated headline inflation pressures, even if m/m services PPI readings have lost some momentum in recent months. 

Fig 1: Japan Services PPI Versus Headline CPI Y/Y

Source: MNI - Market News/Bloomberg  

AUSSIE BONDS: Richer & At Session Highs Ahead Of CPI Monthly Tomorrow

ACGBs (YM +4.0 & XM +3.5) are stronger and at Sydney session highs.

• Today, the local calendar has been light.
• Australian consumer confidence strengthened last week to mark its highest level since May 2022 as households cheered the RBA's first rate cut since the pandemic, according to ANZ and Roy Morgan Research.
• Cash US tsys are 2-3bps richer in today’s Asia-Pac session after yesterday’s gains.
• Cash ACGBs are 4bps richer with the AU-US 10-year yield differential at +2bps.
• Swap rates are 4bps lower.
• The bills strip has bull-flattened, with pricing flat to +5.
• Tomorrow, the local calendar will see January's CPI Monthly and Q4 Construction Work Done. The market expects Headline CPI to increase from 2.5% y/y to 2.6% y/y.
• The AOFM plans to sell A$800mn of the 3.75% 21 April 2037 bond tomorrow and A$700mn of the 1.75% 21 November 2032 bond on Friday.  

AUSSIE BONDS: AU-US 10Y Diff Sits In The Middle Of Range

The AU-US 10-year cash yield differential currently stands at +2bps, positioned in the middle of the ±30bps range that has largely held since November 2022.

• However, a simple regression of the 10-year yield differential against the AU-US 1-year forward 3-month swap rate (1Y3M) differential over the past year suggests the current spread is about 11bps above fair value, estimated at -9bps.
• The 1Y3M differential, a key gauge of expected relative policy trajectories over the next 12 months, has traded within a 15-20bps range this year and is currently at the upper end of that range.
• In early February, the 1Y3M differential had declined approximately 90bps since mid-September, falling from +55bps to -35bps. 

Figure 1: AU-US Cash 10-Year Yield Differential (%)

Source: MNI – Market News / Bloomberg

BONDS: NZGBS: Closed Richer But Underperformed US Tsys

NZGBs closed at session bests, with benchmark yields 3-4bps lower. 

• With the local calendar light, today’s strength appears tied to cash US tsys, which are 2-3bps richer in today’s Asia-Pac session after yesterday’s gains.
• Nevertheless, NZGBs have underperformed US tsys, with the NZ-US 10-year yield differential ~2bps wider versus yesterday’s close.
• Swap rates closed 3-4bps lower, with implied swap spreads little changed.
• RBNZ-dated OIS pricing is slightly firmer across meetings today, holding 1bp softer to 7bps firmer than last Wednesday’s pre-RBNZ policy decision levels. Currently, 26bps of easing is priced for April, with a total of 58bps expected by November 2025.
• Tomorrow, the local calendar will see NZ Treasury Chief Economic Adviser Dominick Stephens deliver a presentation on the State of the Economy.
• On Thursday, the NZ Treasury plans to sell NZ$225mn of the 3.00% Apr-29 bond, NZ$225mn of the 3.50% Apr-33 bond and NZ$50mn of the 1.75% May-41 bond.

FOREX: USD Can't Sustain Early Gains, As Yields Continue To Fall

The USD BBDXY index was firmer in the first part of Asia Pac Tuesday dealings, getting close to 1288.50. Carry over from Trump remarks late on Monday (progressing towards tariffs on Canada and Mexico) likely aided early USD demand, but the move has run out steam. We were last near 1286.5, just up from session lows. 

• US yields have continued to track lower in the Tsy space. We sit off a further 2-3bps, with the 10yr yield back to 4.375%. This is fresh lows back to mid Dec last year.
• The chart below shows the relative CITI economic activity surprise indices. The US (the orange line on the chart) is only above China at this stage, Japan (pink line), EU, the green line and the UK all sit higher than the US.
• Waning US yield momentum is helping curb upside USD from tariff threats. USD/JPY got to highs of 150.30 earlier, as onshore markets returned from yesterday's holiday. We sit back at 149.50 now, up around 0.15% in yen terms for the session. Levels wise, yesterday's low at 148.85 will be watched on the downside. Earlier data showed the services PPI rising in line with market estimates of 3.1% y/y.
• AUD and NZD haven't shifted much. AUD/USD was last near 0.6350, while NZD tracked around the 0.5735 region. Both currencies are up from earlier lows, but weakness in China and Hong Kong equities may be tempering the upside. Trump trade/investment risks remain in focus.
• USD/CAD got to 1.4279 earlier but is now back to 1.4245/50. EUR/USD has edged higher to 1.0470/75.
• Regional equities mostly track lower, while US futures sit marginally in positive territory for equities.
• Looking ahead, we have BoE and ECB speak. In the US, the Richmond Fed survey and house price data are releases among a busy data day. Fed speak also includes Barr and Barkin.  

Fig 1: Relative EASIs, US Data Outcomes Underwhelm In February 

Source: Citi/MNI - Market News/Bloomberg 

ASIA STOCKS: Asian Equities Lower As Tech Stocks Struggle, BOK Cuts Rates

Asian equities broadly declined, led by losses in technology and semiconductor stocks amid fresh US restrictions on Chinese investments. The Hang Seng Tech Index fell on the open before paring loses as investors looked to buy the dip, while TSMC and Samsung Electronics weighed on Taiwan and South Korea. The BOK cut rates, but the Kospi still ended lower. Australia saw weakness in consumer stocks following disappointing results from a number of companies.

• China & Hong Kong equities plunged on the open with the HS Tech Index down over 4% at one stage, however we have seen a strong reversal with the index now trading flat for the session. Investors seem to largely ignoring both the slump in the SOX and Nasdaq overnight and the headlines out about Trump tightening chip controls. The CSI 300 is 0.40% lower, while the HSI is -0.60%, property and consumer staples are the worst performing sectors with both sectors trading roughly 1% lower.
• Japan's Nikkei 225 is 1% lower, with tech stocks leading declines due to concerns over US semiconductor restrictions on China. However, trading houses like Mitsubishi Corp. and Marubeni gained after Berkshire Hathaway reaffirmed confidence in the sector. The broader TOPIX is trading better, although still down 0.20% for the session.
• South Korea's Kospi declined 0.4%, even as the BOK cut rates to 2.75%, as expected. Semiconductor stocks weakened amid US-China chip tensions, with Samsung Electronics and SK Hynix underperforming.
• Taiwan's TAIEX is 0.8% lower, with TSMC among the biggest drags on worsening US-China chip restrictions. Investors turned cautious following Trump’s latest executive order targeting Chinese investments.
• Australia's ASX 200 is 0.60% lower as corporate earnings drove stock-specific volatility, with consumer stocks the worst performing. Viva Energy and Johns Lyng plunged after weak earnings, Adairs tumbled 12%, extending Monday’s losses after reporting 1H25 EBITDA of A$39.1M, well below the A$61.5M consensus estimate,  Domino’s fell 11% after reiterating a 1H loss, citing ongoing weakness in France and Japan, while Zip surged 16% after providing strong full-year revenue guidance, posting record cash earnings, and reporting a 40.3% YoY increase in US TTV, reinforcing confidence in its FY25 two-year targets. In New Zealand, Ryman Healthcare tumbled 23% after resuming trade post NZ$1 billion capital raise.

ASIA: Foreign Investors Dump Asian Equities

Decent outflows across the Asian region on Monday, South Korea & Taiwan were hit after the SOX sold off 3.3% on Friday, and has again sold off 2.60% overnight. India's outflows continued, and have now also erased the large inflow seen on Wednesday, while Indonesia saw its largest outflow since June 2024.

• South Korea: Recorded -$216m in outflows yesterday, bringing the 5-day total to -$433m. YTD flows remain negative at -$1.91b. The 5-day average is -$87m, slightly worse than the 20-day average of -$85m and the 100-day average of -$106m.
• Taiwan: Posted -$576m in outflows yesterday, bringing the 5-day total to -$338m. YTD flows remain negative at -$2.613b. The 5-day average is -$68m, worse than the 20-day average of -$4m but better than the 100-day average of -$65m.
• India: Recorded -$396m in outflows Friday, bringing the 5-day total to -$679m. YTD outflows remain heavy at -$11.538b. The 5-day average is -$136m, better than the 20-day average of -$236m and the 100-day average of -$240m.
• Indonesia: Posted -$213m in outflows yesterday, bringing the 5-day total to -$350m. YTD flows remain negative at -$931m. The 5-day average is -$70m, worse than the 20-day average of -$37m and the 100-day average of -$34m.
• Thailand: Saw -$41m in outflows yesterday, bringing the 5-day total to -$115m. YTD flows remain negative at -$266m. The 5-day average is -$23m, worse than the 20-day average of -$1m and the 100-day average of -$19m.
• Malaysia: Registered -$55m in outflows yesterday, bringing the 5-day total to -$139m. YTD flows are negative at -$968m. The 5-day average is -$28m, worse than the 20-day average of -$24m and in line with the 100-day average of -$28m.
• Philippines: Recorded -$11m in outflows yesterday, bringing the 5-day total to -$41m. YTD flows remain negative at -$187m. The 5-day average is -$8m, worse than the 20-day average of -$4m and the 100-day average of -$6m.

Table 1: EM Asia Equity Flows

Oil Steadily Gains Throughout the Asian Trading Day.

• Despite OPEC+ intending to limit supply to support prices, Iraq seems determined to kick start exports from its semi-autonomous region of Kurdistan.
• The resumption of supply will see up to 185,000 barrels a day delivered via a pipeline to Turkey that has been dormant for almost two years.
• The Iraqi oil minister claimed Monday that the exports could start as early as this week and that the volume will still stay within the OPEC+ limits currently capping supply.
• President Trump (when asked) indicated that planned tariffs on Mexico and Canada, which could impact oil supply, are on time and ‘moving along rapidly.’
• The US has announced a new range of sanctions on Iran’s ships linked to the transport of oil, a breach of global sanctions against the country.
• As pressure on Russia shows signs of working, India’s Bharat Petroleum is set to launch a global tender for the supply of one year’s supply of WTI from March, in a bid to remove their reliance on Russian oil.
• WTI had opened at US$70.92, heading to a low of $70.71, before rallying into the afternoon session in Asia to reach $71.19.
• Brent opened at $74.74 and was strong all day, reaching $75.21.
• A potential catalyst for Oil’s next moves could be the ongoing discussions between US and Russia on Ukraine in a bid to stop the war.
• An agreement with Russia could result in an easing of sanctions, allowing the flow of Russian oil into global market

SOUTH KOREA: FWD Expectations Modest as Bonds Rally. 

• The BOK meeting today resulted in a cut in rates.
• Comparing prices back to 18 February (just prior to weak consumer confidence and early export data), market pricing shows that forwards have moved lower than current.
• On a one-month forward horizon, the probability of a further 25 bp has moderated post the meeting.
• A further full rate cut is not priced in until five months. The curve flattens out around 2.50% over a longer time frame.
• Bonds have rallied further with the 3YR -2bp lower at 2.61%.
• Korea’s 10YR bond future is up +.38 to 118.92, breaking through the 20-day EMA of 118.26.
• Korea’s 3YR bond future is up +0.08 to 106.78, remaining at the mid-point of the converged 20-day and 50-day EMA of 106.71, and the 100-day EMA of 106.62

MNI BOT Preview FEB 2025: Rate Cut Deferred.

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• The February call appears close with the moderation in growth and CPI within the BOT band.
• The performance of the currency has improved.
• Expectations for cuts from the US Federal Reserve are now moderating.
• We agree with consensus of no change at the February meeting.  

THAILAND: Exports Up, But Front Loading May Be A Driver, Trade Deficit Rewidens

Thailand customs trade figures were better than expected for export and import growth in Jan. Exports rose 13.6%y/y, versus 7.4% forecast and 8.7% prior. Imports were also comfortably above forecasts at 7.9%, (2.5% projected and 14.9% prior). The trade deficit was slightly wider than forecast at -$1880mn (-$1500mn was forecast and -$11mn was the Dec outcome). 

• The Thailand Commerce Ministry expects solid export growth in Q1, although this may reflect front loading ahead of tariff fears. Headlines have crossed that Thailand will seek way to improve its trade position with the US, per BBG (which currently sits at a deficit from the US standpoint).
• This may cloud the export outlook to a degree for Thailand, which has been a bright spot for GDP growth.
• The trade position continues to struggle to return to pre Covid surplus levels. The Jan deficit takes us back to early 2024 lows, see the chart below. This is on a customs basis though, with the BoP measure painting a better picture. 

Fig 1: Custom Thailand Trade Deficit Persists 

Source: MNI - Market News/Bloomberg 

ASIA FX: USD/CNH Edges Higher Amid Equity Dip, US Investment Curbs/Trade Threats

The bias has been for North East Asia currencies to lose ground against the USD, although overall losses have been modest so far. 

• USD/CNH is probing above 7.2600, but hasn't been able to sustain this break so far. The 100-day EMA resistance point is close by, which may be acting as a constraint on upside momentum. Local equities are weaker, amid on on-going US trade/tariffs threats.
• Indeed, some nervousness may be creeping into markets given some of the negative news flow around US/China trade/tariff related issues. We have heard the US pressing Mexico to impose tariffs on China imports, potential levies on China ships, investment curbs from China into key sectors like tech in the US, and a potential ramping up/tightening of semiconductors curbs that the Biden administration put in place (limiting chip exports from the US to China).
• USD/CNH implied vols and risk reversals are relatively steady though.
• Spot USD/KRW sits a little higher in latest dealings, the pair last near 1431.0, off around 0.10% in won terms. Lows have been at 1428.7. This leaves the pair comfortably within recent ranges though. The BOK decision has come and gone without much impact on the won. BoK Governor Rhee noting that the market viewpoint for 2-3 cuts this year (including the one delivered today) is not that different from BoK assumptions. The South Korea 1y1y forward rate is little change so far today, last near 2.55%, still up from recent lows around 2.43/2.44%.
• USD/TWD is up, last back to 32.75/80, but still well short recent highs above 33.00. 

ASIA FX: SEA FX Modestly Weaker, Sharp Equity Falls Offsetting Lower US Yields

In South East Asia FX, we have seen the USD trade with a slightly firmer bias, compared with steadier trends for the G10 currencies. Part of this is catch up post yesterday's onshore spot closes. Regional equities are mostly lower as well, following a softer Monday lead from some of the global benchmarks. Weakness in Thailand and Indonesia has been particularly prominent so far today. Equity outflows from offshore investors have also remained a feature since the start of the week. 

• USD/THB has rebounded back towards 33.650, off around 0.40% in THB terms. This follows yesterday's dip to multi month lows sub 33.40. We had customs trade data earlier, which showed firmer export and import growth, although the imports may be front loaded due to tariff concerns. The customs trade deficit rewidened. The Thai authorities stated they will look at ways to reduce the trade surplus with the US, including importing more commodities. Thailand equities are weaker, the SET continuing to track lower, now back to late 2020 levels.
• USD/IDR has firmed back above 16300, last near 16320/25, up around 0.30%. This continues to drive a wedge between IDR and the softer US yield backdrop. Recent highs for USD/IDR 16400 remain intact though. Local equities are off over 2%.
• USD/PHP is back close to 57.90, while USD/MYR was last above 4.4100.
• USD/INR is firmer since the open, but hasn't been able to retest resistance at 87.00 so far. We were last 86.85/90. 

UP TODAY (TIMES GMT/LOCAL) 

Date	GMT/Local	Impact	Country	Event
25/02/2025	0700/0800	***	DE	GDP (f)
25/02/2025	0920/0420		US	Dallas Fed's Lorie Logan
25/02/2025	1000/1000	*	GB	Index Linked Gilt Outright Auction Result
25/02/2025	1100/1100	**	GB	CBI Distributive Trades
25/02/2025	1300/1400		EU	ECB's Schnabel at BOE's Annual Conference on Balance Sheet
25/02/2025	1330/0830	**	US	Philadelphia Fed Nonmanufacturing Index
25/02/2025	1355/0855	**	US	Redbook Retail Sales Index
25/02/2025	1400/0900	**	US	S&P Case-Shiller Home Price Index
25/02/2025	1400/0900	**	US	FHFA Home Price Index
25/02/2025	1400/0900	**	US	FHFA Home Price Index
25/02/2025	1400/0900	**	US	FHFA Quarterly Price Index
25/02/2025	1400/0900	**	US	FHFA Quarterly Price Index
25/02/2025	1400/1400		GB	BOE's Pill remarks at BEAR Conference
25/02/2025	1500/1000	***	US	Conference Board Consumer Confidence
25/02/2025	1500/1000	**	US	Richmond Fed Survey
25/02/2025	1530/1030	**	US	Dallas Fed Services Survey
25/02/2025	1645/1145		US	Fed Governor Michael Barr
25/02/2025	1800/1300		US	Richmond Fed's Tom Barkin
25/02/2025	1800/1300	*	US	US Treasury Auction Result for 5 Year Note
26/02/2025	0030/1130	***	AU	CPI Inflation Monthly
26/02/2025	0030/1130	***	AU	Quarterly construction work done
26/02/2025	0700/0800	**	SE	PPI
26/02/2025	0700/0800	*	DE	GFK Consumer Climate
26/02/2025	0700/1500	**	CN	MNI China Money Market Index (MMI)
26/02/2025	0745/0845	**	FR	Consumer Sentiment
26/02/2025	0800/0900	**	ES	PPI
26/02/2025	1200/0700	**	US	MBA Weekly Applications Index
26/02/2025	-		EU	ECB's Lagarde and Cipollone in G20 FMs and CB Governors meeting
26/02/2025	1330/0830	*	CA	Capital and repair expenditure survey
26/02/2025	1330/0830		US	Richmond Fed's Tom Barkin