MNI EUROPEAN MARKETS ANALYSIS: Focus On US CPI Later

Feb-13 05:51By: Gavin Stacey

Europe

EXECUTIVE SUMMARY

Cash US tsys are 1-2bps cheaper in today's Asia-Pac session after yesterday's risk-off induced rally.
NZGB yields follow global bond yields lower despite solid manufacturing PMI print and rising inflationary expectations.
USD/JPY continues to be faded on any bounces as risk has turned lower.
During the Asian trading day today gold prices have staged a moderate rebound. On Thursday, the precious metal plunged more than 3%, crashing below the psychologically significant $5,000 per ounce mark to a near one-week low.
Friday’s focus shifts to Eurozone GDP, labour market and trade data, alongside remarks from BOE’s Pill. Globally, attention will centre on the US CPI release.

For the bond market, the next filter to assess the future path of interest rates by is Friday's CPI (see MNI CPI Preview here). According to our US team, consensus is for a modest pick up in core prices MoM helped by a typical start of year price reset and normalization of activity since the government shutdown.

Treasuries have shown their willingness to rally with most maturities approaching Friday near to weekly lows in yield, thereby making CPI a critical test.

Cash is weak in Asia today with yields up +1-1.5bps across the curve.

The 2-Yr is up +1.2bps at 3.47% : lower by -3.1bps for the week.
The 5-Yr is up +1.2bps at 3.673%: lower by -8.7bps for the week.
The 10-Yr is up +1.3bps at 4.113%: lower by -8.6bps for the week.
The 30-Yr is up +1.3bps at 4.749%: lower by -10.2bps for the week.

The US 10-Yr future has fallen -01 today to 112-24+ on reasonably high volumes, suggesting good two way flow.

The risks now are to a higher CPI. Yields have moved considerably lower over the week and if our US team are correct and and there is an acceleration in prices, yields could give back much of those gains Friday.

STIR: $-Bloc Pricing Little Changed Over Past Week

Interest-rate expectations across the $-bloc over the past week, looking out to December 2026, have been little changed.

The key data release across the $-bloc over the past week was Wednesday’s release of Non-Farm Payrolls. Nonfarm payrolls growth was far stronger than expected in January at 130k (cons 65k) after negligible two-month revisions of -17k (mainly in Nov). Private payrolls saw a larger beat, both with the 172k (68k cons) in January but with also a two-month revision of +49k (fairly evenly split over Dec and Nov).
The Household survey showed a stronger labor market than expected, with the unrounded unemployment rate of 4.283% not just below the consensus of 4.4% and 4.375% prior, but also the lowest since July.
Today sees the release of January CPI data.
The next major regional policy event is the RBNZ meetings on 18 February. No tightening is priced for February, while December 2026 assigns 43bps.
Looking ahead to December 2026, current market-implied policy rates expected are as follows: US (FOMC): 3.07%, -56bps; Canada (BOC): 2.27%, +2bps; Australia (RBA): 4.12%, +27bps; and New Zealand (RBNZ): 2.67%, +42bps.

Figure 1: $-Bloc STIR (%)

Source: Bloomberg Finance LP / MNI

JGBS: Early Risk-Off Induced Gains Pared Ahead Of US CPI

JGB futures are stronger, +9 compared to settlement levels, but hovering just above session cheaps.

MNI BRIEF: BOJ's Tamura See Higher Rate; No Timeframe: The Bank of Japan will continue raising policy interest rates to adjust the degree of monetary easing, said Board Member Naoki Tamura Friday, without committing to a specific timeframe. He added that inflation appears to be becoming more “endogenous and sticky,” reflecting the Bank’s targeted mechanism in which wages and prices rise interactively.
"Japanese government bonds are largely shrugging off the latest remarks from central bank board member Naoki Tamura as those of a hawk, but they are eventually vulnerable to losses as his comments -- especially around the neutral rate -- underscore how far the policy rate may have to rise in this cycle." - BBG
Cash US tsys are 1-2bps cheaper in today's Asia-Pac session after yesterday's risk-off induced rally. Focus is on the release of US CPI data later today.
Cash JGBs have twist-steepened across benchmarks, with yields 1bp lower (5-10-year zone) to 2bps higher (30-year).
Swap rates are 1-4bps higher, with a steeper curve.
On Monday, the local calendar will see Q4 (P) GDP alongside Industrial Production (Dec F) and Capacity Utilization (Dec).

Source: Bloomberg Finance LP

JAPAN: Honda- BoJ Board Spots Don't Need To Be Filled With Reflationists - Rtrs

Headlines have crossed from Rtrs after an interview with Etsuro Honda, an economic advisor to Japan PM Takaichi (Honda was also an economic advisor to former Japan PM Abe). Honda states that there is scope for the BoJ to raise rates this year, but the next move is unlikely to come in March. Via Rtrs: "While acknowledging the chance of another rate hike this year, Honda said the BOJ will likely avoid raising rates in March as it needs to scrutinise the impact of its hike in December." Yen may have seen some negative spill over on this headline. USD/JPY is back to 153.30, versus earlier lows of 152.67, although broader cross asset also look a little better, with gold, silver and US equity futures all up from earlier lows. March BoJ hike odds, per OIS pricing, look a touch lower, but haven't got above 30% in recent sessions.

Honda also stated that upcoming BoJ board vacancies don't need to be filled by reflationists, as the country has exited deflation. Via RTrs: ""I don't necessarily think they need to be reflationists who are proposing powerful monetary easing," Honda said, when asked who should be chosen as new BOJ board members."
Honda added that he thinks Takaichi understands that the economy is in a different phase from the Abe era.
This is important in the context that Japan officials, including Takaichi, were stating late last year the country hadn't exited deflation. This is likely to reaffirm market viewpoints that the government may not push back on further BoJ policy normalization in 2026.
Rtrs added: "Sources have told Reuters the government is set to submit to parliament as early as February 25 a nominee to replace Asahi Noguchi, whose term ends on March 31. Another board member, Junko Nakagawa, will also see her term expire at the end of June. Nominees must be approved by both chambers of parliament."

JAPAN DATA: Offshore Investors Sell Bonds Ahead Of Election, Equity Inflows Up

Last week saw the first week of net outflows from local Japan bonds by offshore investors since the end of 2025. Compared to earlier Jan inflows, the outflow was modest though and cumulative net inflows 2026 to date still sit near ¥4.75trln. This of course came ahead of last weekend's Japan election. The price action in JGBs this week has been encouraging amid assurances around the fiscal/bond issuance outlook and expectations that the government won't stand in the way of BoJ policy normalization. The 10yr JGB is around 2.20%, while longer dated yields continue to correct of Jan highs (30yr back to 3.41%). Focus will be on whether we see further foreign interest come into this space for this past week.

Offshore interest in Japan equities continues, with a further firm inflow last week. This takes the consecutive weeks of net buying of Japan stocks to seven. Given the break higher in local stock indices this week, that trend may well have continued.
In terms of Japan outbound flows, we saw local investors selling offshore bonds. Since the start of the year cumulative outflows in this space have been close to flat. Global bond returns have picked up this week amid the US Tsy yield retreat.
Local investors continued to buy offshore stocks, albeit in more modest size compared to the prior week.

Table 1: Japan Weekly Offshore Investment Flows

Billion Yen	Week ending Feb 6	Prior Week
Foreign Buying Japan Stocks	543.2	494.6
Foreign Buying Japan Bonds	-464.1	2081.1
Japan Buying Foreign Bonds	-365.7	713.7
Japan Buying Foreign Stocks	162.7	454.6

Source: Bloomberg Finance L.P./MNI

AUSSIE BONDS: Richer But Off Bests Ahead Of US CPI Data, Curve Flattens Further

ACGBs (YM +5.5 & XM +6.5) are stronger but off session bests.

Cash US tsys are ~1bp cheaper in today's Asia-Pac session. Focus is on the release of US CPI data later today.
“Angus Taylor faces a byelection test in the NSW seat of Farrer after wresting leadership from Sussan Ley. One Nation will run a "strong candidate" in Farrer, and other parties including the Liberals, Nationals, and teals are also expected to contest. Taylor was entrusted by colleagues to salvage the Liberal Party with a strong victory in Friday's leadership ballot, beating Ley by 34 votes to 17.” - BBG
Cash ACGBs are 5-6bps richer with the AU-US 10-year yield differential at +64bps.
Cash 3/10 curve flattens to lowest since end-2024.
The bills strip has bull-flattened, with pricing flat to +4.
RBA-dated OIS pricing shows tightening across all meetings, with the probability of a 25bp hike rising from 16% for March to 93% by June and 148% by December 2026.
Tomorrow, the local calendar will be empty ahead of RBA Minutes of Feb. Policy Meeting on Tuesday.
Next week, the AOFM plans to sell A$1200mn of the 4.25% 21 October 2036 bond on Wednesday and A$800mn of the 3.25% 21 April 2029 bond on Friday.

Bloomberg Finance LP

BONDS: NZGBS: Richer With A Flatter Swap Curve After Higher Infl Expns

NZGBs closed 4-5bps richer across benchmarks, albeit slightly off session bests.

NZ 2yr ahead inflation expectations rose to 2.37% (for the Q1 print) from 2.28% prior. This was the highest since Q1 2024 for the print. The trough in 2yr ahead inflation expectations was near 2.0% in the second half of 2024, and we remain well off end 2022 highs of 3.62%.
1yr ahead inflation expectations posted a firmer rise to 2.59% from 2.39%, but likewise remain well off end 2022 highs (just above 5.0%). The data point to an edging up in inflation expectations, but not a pace that is likely to alarm the RBNZ around the need to shift rates higher in the near term (the RBNZ meets next Wed, Feb 18).
Cash US tsys are ~1bp cheaper in today's Asia-Pac session after yesterday's risk-off induced rally. Focus is on the release of US CPI data later today.
NZ-US and NZ-AU 10-year yield differentials finished ~1bp wider.
Swap rates closed 2-4bps lower, with a flatter 2s10s curve and wider implied swap spreads.
RBNZ-dated OIS pricing closed little changed across meetings. No tightening is priced for February, while December 2026 assigns 42bps.
On Monday, the local calendar will see the Performance Services Index and Card Spending data.

Bloomberg Finance LP

NEW ZEALAND: Inflation Expectations Edge Up But From Low Levels

New Zealand 2yr ahead inflation expectations rose to 2.37% (for the Q1 print) from 2.28% prior. This is highs back to Q1 2024 for the print, but the trend rise has been very modest over this period. The trough in 2yr ahead inflation expectations was near 2.0% in the second half of 2024, and we remain well off end 2022 highs of 3.62%. The chart below plots the 2yr ahead inflation expectations versus the NZ 2yr swap rate (which is the white line). 1yr ahead inflation expectations posted a firmer rise to 2.59% from 2.39%, but likewise remain well off end 2022 highs (just above 5.0%). The data point to an edging up in inflation expectations, but not a pace that is likely to alarm the RBNZ around the need to shift rates higher in the near term (the RBNZ meets next Wed, Feb 18).

The 5yr and 10yr inflation expectations edged a little higher to around 2.30%. The cash rate expectation was at 2.58% for 1yr ahead, versus 2.31% prior.

Fig 1: NZ 2yr Ahead Inflation Expectations & NZ 2yr Swap Rate

Source: Bloomberg Finance L.P./MNI

FOREX: USD - BBDXY Trying To Bounce Off 1180

The BBDXY has had a range today of 1181.81 - 1183.05 in the Asia-Pac session; it is currently trading around 1182. The USD continues to hold above 1178-1180 and with risk turning lower it is attempting to move higher. We have seen this movie before with respect to a potential correction in risk and recency bias tends to dismiss it evolving into anything more. The market is very bearish the USD and if we should get some form of a deeper correction in risk and the USD finds demand as a hedge, the market is not positioned for this. Most shorts will be eagerly awaiting the potential ruling by the Supreme court on the Tariffs next week, 20 February. On the day, the first resistance is toward the 1185-1187 area and then 1195 where I suspect we could see sellers return. A sustained break below 1175-1180 is needed to potentially signal the start of another leg lower targeting 1150 first and then potentially 1115.

EUR/USD - Asian range 1.1863-1.1873, Asia is currently trading 1.1870. The pair traded sideways below 1.1900 albeit with a heavy tone. Price action remains constructive, can it build a base above 1.1800 and then find the momentum to push on? On the day, the first support is back toward 1.1820-1.1850 and then the 1.1750 area. A sustained move back above 1.1925-1.1940 is needed to give it the thrust it needs to have another look toward the 1.2000 area. Quite a lot of optionality is expiring in the 1.1800-1.1850 area today.
GBP/USD - Asian range 1.3612-1.3627, Asia is currently dealing around 1.3620. The pair is trading pretty poorly considering how weak the USD has been. GBP continues to look like 1.3580-1.3730 to me for now as we wait to see how the big USD trades as risk stumbles, could CPI today give it the nudge it needs ?
Cross asset : SPX -0.05%, Gold $4975, US 10-Year 4.11%, BBDXY 1182, Crude Oil $62.75
Data/Events : Germany Wholesale Price Index, Spain CPI, EZ GDP/Trade Balance/Employment

Fig 1: GBP/USD Spot Daily Chart