MNI EUROPEAN OPEN: RBA Feb Cut Nearly Fully Priced Post Q4 CPI
EXECUTIVE SUMMARY
- TRUMP AID FREEZE STIRS CHAOS BEFORE IT IS BLOCKED IN COURT - RTRS
- EU PROPOSES RUSSIAN ALUMINIUM BAN IN SWEEPING SANCTIONS PACKAGE - BBG
- MORE DATA NEEDED BEFORE HIKE - DEC BOJ MINUTES - MNI BRIEF
- AUSSIE Q4 TRIMMED CPI AT 0.5% Q/Q - MNI BRIEF
- RBNZ'S CONWAY SEES NEUTRAL AT 2.5-3.5% - MNI BRIEF
Fig 1: Australian Trimmed Mean Slows, But Services Still Sticky (Y/Y)
Source: MNI - Market News/Bloomberg
UK
POLITICS (POLITICO): “The Donald Trump administration cleared the way for controversial British former minister Peter Mandelson to become U.K. ambassador to Washington — putting to bed weeks of speculation that his posting could be blocked.”
POPULATION (BBC): “Net migration could fuel a rise in the UK population to 72.5 million by 2032, figures suggest. The Office for National Statistics (ONS) has projected a population growth of 7.3% between 2022 and 2032, compared with an increase of 6.1% over the previous 10 years.”
ECONOMY (BBG): "Rachel Reeves will pledge to go “further and faster” to boost the UK economy by unblocking new infrastructure projects, as she seeks to lure investors and win back business support after a rocky start to her tenure as Chancellor of the Exchequer."
EU
EU/RUSSIA (BBG): " The European Union is proposing a phased ban on imports of Russian aluminum as part of a broad sanctions package ahead of the third anniversary of the Kremlin’s invasion of Ukraine, according to people familiar with the matter."
CZECH (FT/BBG): " Czech National Bank Governor Aleš Michl wants to use billions of euros’ worth of the country’s reserves for Bitcoin, according to an interview with the Financial Times."
EU (MNI BRIEF): The European Commission singles out energy grids, digital infrastructures, AI industrial applications and critical medicines as priority areas for boosting competitiveness in line with key recommendations of the Draghi report, according to a leaked copy of its Competitiveness Compass to be released on Wednesday.
EU (POLITICO): “Posting on X, Kallas said that the pair “discussed global issues where the EU and US have the same interests, including Russia’s war in Ukraine, Iran’s malign influence and challenges posed by China.” “The EU and US are always stronger together,” added Kallas.”
ITALY (BBC): “Italian Prime Minister Giorgia Meloni says she has been placed under judicial investigation over Italy's surprise release of a Libyan citizen who had been wanted for war crimes by the International Criminal Court (ICC).”
FRANCE (POLITICO): “France’s Socialists have pushed budget talks to the brink of collapse in response to controversial comments made by Prime Minister François Bayrou about migration.”
GERMANY (POLITICO): ““I’m so angry about Elon Musk intervening for the far right and Elon Musk also not acting adequate to this killing of so many Jews and other people in Europe done by Germans in the past,” said Scholz, speaking in English to journalists on the sidelines of a campaign event in Berlin.”
DENMARK (BBC): “Denmark's Prime Minister Mette Frederiksen visited three European capitals on Tuesday, days after US President Donald Trump reiterated his interest in acquiring Greenland.”
DENMARK (POLITICO): “85 percent of Greenlanders don’t want Trump takeover, according to new polling conducted by research company Verian, for national newspaper Sermitsiaq in Greenland and media outlet Berlingske in Denmark.”
UKRAINE (POLITICO): “The European Union aims to speed up Ukraine’s membership in the bloc by opening two negotiating “clusters” during the first half of this year, a senior official said Tuesday.”
US
FED (MNI POLICY): Federal Reserve officials this week will leave the door open to resuming interest rate cuts as soon as March but will also signal a higher bar for reductions amid signs that inflation could be stuck uncomfortably above its target.
FISCAL (RTRS): "President Donald Trump's attempt to freeze hundreds of billions of dollars in federal aid was temporarily blocked in court on Tuesday, even as it sowed chaos throughout the government and stirred fears that it would disrupt programs that serve tens of millions of Americans."
POLLS (RTRS): "Americans have a dim view of some of President Donald Trump's early barrage of executive orders, including his attempt to do away with so-called birthright citizenship and his decision to rename the Gulf of Mexico, a Reuters/Ipsos poll found.
OTHER
JAPAN (MNI BRIEF): Most Bank of Japan board members emphasised the need for further wage overseas economic data before raising the policy interest rate at the December 18-19 meeting, the minutes showed on Wednesday.
AUSTRALIA (MNI BRIEF): Australian trimmed mean inflation printed at 0.5% q/q over Q4, 10 basis points lower than expected, and down from Q3’s 0.8%, data from the Australian Bureau of Statistics showed. The measure was 3.2% on a year-ended basis, down 30bp over Q3. Headline inflation was 2.4% y/y.
NEW ZEALAND (MNI BRIEF): The Reserve Bank of New Zealand estimates the neutral interest rate between 2.5-3.5%, below the Official Cash Rate’s 4.25% level, Chief Economist Paul Conway noted in a presentation on Wednesday.
CHINA
US/CHINA (BBG): " Microsoft Corp. and OpenAI are investigating whether data output from OpenAI’s technology was obtained in an unauthorized manner by a group linked to Chinese artificial intelligence startup DeepSeek, according to people familiar with the matter."
MARKET DATA
AUSTRALIA Q4 TRIMMED MEAN CPI +3.2% Y/Y; EST. +3.3%; PRIOR +3.6%
AUSTRALIA Q4 TRIMMED MEAN CPI +0.5% Q/Q; EST. +0.6%; PRIOR +0.8%
AUSTRALIA Q4 CONSUMER PRICES +2.4% Y/Y; EST. +2.5%; PRIOR +2.8%
AUSTRALIA Q4 CONSUMER PRICES +0.2% Q/Q; EST. +0.3%; PRIOR +0.2%
AUSTRALIA Q4 WEIGHTED MEDIAN CPI +3.4% Y/Y; EST. +3.5%; PRIOR +3.7%
AUSTRALIA Q4 WEIGHTED MEDIAN CPI +0.5% Q/Q; EST. +0.6%; PRIOR +0.9%
AUSTRALIA DEC. CONSUMER PRICES +2.5% Y/Y; EST. +2.5%; PRIOR +2.3%
AUSTRALIA DEC. TRIMMED MEAN +2.7% Y/Y; PRIOR +3.2%
MARKETS
US TSYS: Tsys Futures Slightly Higher Ahead Of FOMC Later
- It has been a quiet session so far for tsys, futures are all trading higher however ranges have been narrow. TU is +01 at 102-29⅜, while TY is +06 at 109-07.
- The medium-term trend remains bearish, however a bullish short-term cycle highlights a corrective phase and the TY contract is holding on to its recent gains. Attention is on 109-12+, the 50-day EMA - a level tested on Monday. A clear break of this EMA would strengthen a bullish theme and open 109-31, the Dec 18 high. The bear trigger is 107-06, the Jan 13 low. Initial support has been defined at 108-00, the Jan 16 low.
- Cash tsys yields are 1-2bps lower today, the belly is outperforming again, with the 7yr -1.6bps at 4.409%, while the 10yr is -1.2bps at 4.520%.
- Projected rate cuts through mid-2025 have eased vs. late Monday (*) levels as follows: Jan'25 at -0.1bp (-0.7bp), Mar'25 at -7.8bp (-8.3bp), May'25 at -15.4bp (-15.9bp), Jun'25 at -26.5bp (-27.9bp), Jul'25 at -32.1bp (-33.7bp).
- The Fed is expected to hold rates steady at 4.25%-4.5% this week, following three consecutive rate cuts since September. Policymakers aim to assess the impact of persistent inflation and President Trump’s bold economic policies on trade, taxation, and regulation. Powell will likely face questions about Trump’s influence on monetary policy, the “neutral rate,” and conditions for future rate changes. While inflation progress has stalled, December data offered some relief, and the Fed plans to retain flexibility for adjustments as needed. Powell’s press conference is set for Wednesday afternoon.
JGBS: Cash Bond Twist Flattener Ahead Of FOMC
JGB futures are little changed, +2 compared to settlement levels.
- In December 2024, the BoJ Board expressed caution about raising interest rates, yet proceeded with the rate hike a month later, the month's meeting minutes showed. A majority of BoJ members voted to maintain the uncollateralized overnight call rate at 0.25% while continuing government bond purchases of 4.9 trillion yen monthly.
- Demand to borrow Japanese bonds surged amid speculation of investors closing out bearish positions. The benchmark repurchase-agreement rate dropped to its lowest since August, signalling stronger demand to borrow bonds. The BoJ's bond lending surged to a 10-month high, with ¥8.6 trillion loaned out so far this week, to ease bond shortages. (per BBG)
- Cash US tsys are 1-2bps richer in today’s Asia-Pac session ahead of today’s FOMC meeting.
- The cash JGB curve hast twist-flattened, pivoting at the 5-year, with yields 1bp higher to 5bps lower. The benchmark 10-year yield is 1.1bp lower at 1.191% versus the cycle high of 1.262%.
- The swaps curve has bull-flattened, with rates flat to 5bps lower. Swap spreads are mostly tighter.
- Tomorrow, the local calendar will see International Investment Flow data alongside BoJ Rinban Operations covering 5-10-year, 25-year+ and Inflation Linked JGBs.
AUSSIE BONDS: Holding Richer After Q4 CPI Miss, FOMC Later Today
ACGBs (YM +7.0 & XM +5.0) are sharply richer after today’s Q4 CPI data came in slightly below expectations across most metrics.
- Q4 trimmed mean inflation rose 0.5% q/q driving a moderation in the annual rate to 3.2% from an upwardly revised 3.6% in Q3. It excluded electricity and fuel prices and the increase was driven by recreation while housing (new dwellings -0.2% q/q) helped to offset it.
- Cash ACGBs are 5-7bps richer with the AU-US 10-year yield differential at -15bps.
- Cash US tsys are ~1bp richer in today’s Asia-Pac session ahead of today’s FOMC meeting.
- Swap rates are 6-7bps lower, with the 3s10s curve steeper.
- The bill strip pricing is +5 to +8.
- The RBA noted in the December minutes that “underlying inflation was still too high, underpinned by persistently high services price inflation”. Q4 data hasn’t improved this.
- Services inflation moderated to 4.3% y/y in Q4 from 4.6% but is still elevated and in line with the trend since Q4 2023.
- RBA-dated OIS pricing is 3-8bps softer across meetings on the day. A 25bp rate cut is more than fully priced for April (138%), with the probability of a February cut at 92% (effective cash rate of 4.34%).
- Tomorrow, the local calendar will see Q4 Terms Of Trade data.
BONDS: NZGBS: Closes At Bests After Spillover From ACGBs
NZGBs ended the session at their strongest levels, 1-2bps richer, supported by a post-CPI spillover from ACGBs. ACGBs gained 6-8bps after Australia's Q4 CPI came in slightly below market expectations, reinforcing the likelihood of an RBA rate cut on February 18.
- The local market was slightly cheaper before the Australian CPI release, with key domestic drivers being Finance Minister Willis' appearance at a parliamentary select committee hearing and a speech from RBNZ Chief Economist Paul Conway.
- Conway noted that easing domestic pricing intentions and the recent drop in inflation expectations pave the way for further easing, as outlined in the November Monetary Policy Statement. However, he cautioned that given ongoing uncertainty, the RBNZ will need to "feel our way" as the OCR approaches neutral.
- Swap rates closed 2-3bps lower.
- RBNZ dated OIS pricing closed flat to 5bps softer across meetings, with November 2025 leading. 48bps of easing is priced for February, with a cumulative 117bps by November 2025.
- The local calendar will see Trade Balance and ANZ Business Confidence data tomorrow.
- Tomorrow, the NZ Treasury plans to sell NZ$200mn of the 1.50% May-31 bond, NZ$200mn of the 4.25% May-36 bond and NZ$100mn of the 1.75% May-41 bond.
FOREX: A$ Down As Feb Nearly 100% Priced For A Cut, USD Softer Elsewhere
The USD has lost some ground as Wednesday Asia Pac trade unfolds. The BBDXY index was last back under 1300, off a little over 0.10%. Aggregate G10 moves have remained fairly well contained so far. A lot of Asia markets are closed today, including China/HK and Singapore, which has curtailed liquidity, whilst the FOMC is due later in the Wednesday US session.
- The A$ has seen the largest swings, thanks to the Q4 CPI miss (for both headline and trimmed mean). AUD/USD got to lows of 0.6227, but sits slightly higher in latest dealings near 0.6240 (off around 0.25%). Market pricing for the Feb RBA meeting is close to 95% priced (Westpac joined two other local banks in forecasting a rate move in Feb). April is more than 100% priced. AU-US yield differentials are lower, but haven't seen a sharp move so far today.
- NZD/USD fell in sympathy with AUD, but also sits up from session lows, last near 0.5660/65. Earlier the RBNZ's Conway stated that further easing from the central bank is likely (as they signalled late last year).
- The AUD/NZD cross is back in the 1.1015/20 region, post CPI lows were at 1.1007, levels last seen in Dec 2024.
- Regional equity markets, which are open, are higher, while US futures are also a touch firmer, but have been largely range bound. US yields sit slightly lower, with losses around 1bps or slightly more.
- USD/JPY is a touch lower, last near 155.30 but remains within recent ranges. Monday highs were just short of 156.00 and today we got to 155.79 in earlier dealings. The BoJ Dec Mins were released earlier, with "Many members pointed out that economic activity and prices had been developing in line with the Bank's outlook at the meeting." This obviously came before the central bank raised rates at the Jan policy meeting.
- Looking ahead, we have the Fed decision as the main focus point. No change is expected but the tone will be watched in terms of the outlook. Before the Fed, the BoC is expected to cut rates by 25bps.
EQUITIES: Aus & Japanese Equities Higher, Focus Turns To FOMC & Earnings
Asian equities are higher today, tracking Wall Street’s tech-led rebound, as focus shifted to the Fed's rate decision and US Big Tech earnings. Japan and Australia led gains, while most regional markets were closed for Lunar New Year. The MSCI Asia Pacific Index rose 0.2%, with Sony and Toyota among the biggest boosts.
- Japanese stocks rebounded as Nvidia’s 8.9% rally helped ease concerns over DeepSeek’s AI model impact. The TOPIX is 0.75% higher, while the Nikkei is trading 0.80% higher
- Australia's ASX 200 jumped 0.80% after cooler-than-expected inflation data boosted expectations of an RBA rate cut in February. Tech led gains (+2.3%), while uranium stocks rebounded. BHP and Rio Tinto fell, but Fortescue gained 1%.
- US equity futures are trading mixed today, with the NASDAQ up 0.10% while Dow Futures down 0.05% lower, this follows the NASDAQ jumping 2% overnight, while the S&P 500 closed 0.90% higher.
- Markets are watching the Fed's rate decision on Wednesday, where rates are expected to remain unchanged but Powell’s guidance on a possible March cut will be key. Major US tech earnings from Tesla, Microsoft, and Meta are due the same day, followed by Apple on Thursday. The ECB will also announce its policy decision on Thursday, alongside Eurozone GDP and unemployment data. Other notable releases include US Q4 GDP (Thursday), PCE inflation, and employment cost index (Friday), which will shape expectations for Fed policy in 2025.
OIL: Crude Range Trading As Markets Wait For EIA Data & Fed Decision
Crude has held onto most of Tuesday’s gains and traded in a narrow range during the APAC session with much of the region closed for holidays. WTI is down 0.2% to $73.64/bbl following a low of $73.56, while Brent is 0.2% lower at $77.33/bbl after reaching $77.27. Benchmarks are holding above their 50-day EMAs. Markets remain alert to US tariff news. The USD index is down 0.1% ahead of the Fed decision later today.
- Bloomberg reported that US inventories rose 2.86mn barrels last week, according to people familiar with the API data. There has been a sharp increase of flows from Canada to beat the February 1 introduction of tariffs. Gasoline stocks rose 1.89mn while distillate fell 3.75mn. Official EIA data is released later today and a stock build would be the first since mid-November.
- Oil is the most important Canadian export to the US and over half of US crude imports come from Canada. President Trump has threatened 25% tariffs from Saturday, which would likely increase domestic fuel prices.
- Bloomberg observes that WTI futures prices are signalling market tightness with the prompt spread 85c/barrel in backwardation.
- The Fed is expected to leave rates unchanged today (see MNI Fed Preview). The BoC is forecast to cut rates 25bp to 3%. December US trade and inventories, estimated Q4 Spanish GDP and December euro area M3 also print.
Gold Competes with USD as Tariff Trade Favourite.
- Gold bounced back from Monday’s decline to post a strong day on Tuesday.
- Gold had suffered at the hands of a strong USD but ultimately overnight it’s ‘safe-haven’ status prevailed, rallying to regain most of Monday’s losses.
- Opening at US$2,740.81and doing very little in the morning session, it’s fortunes changed rallying for most of the afternoon to finish at $2,763.31.
- President Trump said Monday evening that he ‘wants to impost across the board tariffs that are much bigger than 2.5%” and that he has in his mind what the number will be to protect the country.
- Gold now turns its attention away from tariffs for a moment as the Federal Reserve meets this week to decide the next move for interest rates.
- The current market consensus is for the Fed to stay on hold at this week’s meeting.
- As gold is not interest baring, a cut in rates is considered good for gold as the cut reduces the cost of financing.
UP TODAY (TIMES GMT/LOCAL)
| Date | GMT/Local | Impact | Country | Event |
| 29/01/2025 | 0700/0800 | * |  DE | GFK Consumer Climate |
| 29/01/2025 | 0700/0800 | ** |  SE | Private Sector Production m/m |
| 29/01/2025 | 0700/0800 | SE | Flash Quarterly GDP Indicator | |
| 29/01/2025 | 0800/0900 | *** |  ES | GDP (p) |
| 29/01/2025 | 0830/0930 | *** | SE | Riksbank Interest Rate Decison |
| 29/01/2025 | 0900/1000 | ** |  EU | M3 |
| 29/01/2025 | 0900/1000 | ** |  IT | ISTAT Consumer Confidence |
| 29/01/2025 | 0900/1000 | ** | IT | ISTAT Business Confidence |
| 29/01/2025 | 1200/0700 | ** |  US | MBA Weekly Applications Index |
| 29/01/2025 | 1330/0830 | ** | US | Advance Trade, Advance Business Inventories |
| 29/01/2025 | 1415/1415 |  GB | BOE's Bailey at Treasury Select Committee | |
| 29/01/2025 | 1445/0945 | *** |  CA | Bank of Canada Policy Decision |
| 29/01/2025 | 1530/1030 | ** | US | DOE Weekly Crude Oil Stocks |
| 29/01/2025 | 1900/1400 | *** | US | FOMC Statement |
| 30/01/2025 | - | EU | European Central Bank Meeting | |
| 30/01/2025 | 0030/1130 | ** |  AU | Trade price indexes |
| 30/01/2025 | 0630/0730 | ** |  FR | Consumer Spending |
| 30/01/2025 | 0630/0730 | *** | FR | GDP (p) |
| 30/01/2025 | 0700/0800 | ** | SE | Retail Sales |
| 30/01/2025 | 0700/0800 | ** | DE | Import/Export Prices |
| 30/01/2025 | 0800/0900 | ** | SE | Economic Tendency Indicator |
| 30/01/2025 | 0800/0900 | *** | ES | HICP (p) |
| 30/01/2025 | 0800/0900 | ** |  CH | KOF Economic Barometer |
| 30/01/2025 | 0900/1000 | *** | IT | GDP (p) |
| 30/01/2025 | 0900/1000 | *** | DE | GDP (p) |
| 30/01/2025 | 0930/0930 | ** | GB | BOE M4 |
| 30/01/2025 | 0930/0930 | ** | GB | BOE Lending to Individuals |
| 30/01/2025 | 1000/1100 | ** | EU | Unemployment |
| 30/01/2025 | 1000/1100 | * | EU | Consumer Confidence, Industrial Sentiment |
| 30/01/2025 | 1000/1100 | *** | EU | EMU Preliminary Flash GDP Q/Q |
| 30/01/2025 | 1000/1100 | *** | EU | EMU Preliminary Flash GDP Y/Y |
| 30/01/2025 | 1000/1000 | ** | GB | Gilt Outright Auction Result |
| 30/01/2025 | 1000/1000 | ** | GB | Gilt Outright Auction Result |
| 30/01/2025 | 1315/1415 | *** | EU | ECB Deposit Rate |
| 30/01/2025 | 1315/1415 | *** | EU | ECB Main Refi Rate |
| 30/01/2025 | 1315/1415 | *** | EU | ECB Marginal Lending Rate |
| 30/01/2025 | 1330/0830 | * | CA | Payroll employment |
| 30/01/2025 | 1330/0830 | *** | US | Jobless Claims |
| 30/01/2025 | 1330/0830 | ** | US | WASDE Weekly Import/Export |
| 30/01/2025 | 1330/0830 | *** | US | GDP |
| 30/01/2025 | 1345/1445 | EU | ECB Governing Council Meeting press conference |
