MNI EUROPEAN OPEN: RBNZ Easing Pace Likely To Moderate

Feb-19 05:31By: Jonathan Cavenagh

Europe

EXECUTIVE SUMMARY

TRUMP FLOATS 25% TARIFFS ON US AUTO, DRUG, CHIP IMPORTS - BBG
FED RATES NEED TO STAY RESTRICTIVE - DALY - MNI BRIEF
BOJ TAKATA BACKS GRADUAL, VIGILANT HIKES - MNI BRIEF
CHINA FEB LPR TO REMAIN STABLE - MNI PBOC WATCH
AUSSIE WAGES GROW 0.7% Q/Q - MNI BRIEF
RBNZ CUTS OCR 50BP TO 3.75%, AS EXPECTED - MNI BRIEF

Fig 1: Australian Wages- Easing Y/Y Momentum

Source: MNI - Market News/Bloomberg

ENERGY (BBG): “BP Plc, in which activist investor Elliott Investment Management has built up a nearly 5% stake, is considering a potential sale of its lubricants business, according to people familiar with the matter.”

DEFENCE (BBC): “The British Army has said it is ready to deploy to Ukraine if requested by the government. This week, 2,500 UK troops from the Army's high readiness force, the First Division, have been taking part in a large Nato exercise in Romania - on a training area just 16 miles (25km) from the border with Ukraine.”

INFLATION (MNI BRIEF): The eurozone faces both upside and downside inflation risks, but the risk which should most worry the European Central Bank is a potential diversion of Chinese exports as a result of U.S. tariffs, ECB Executive Board member Piero Cipollone told an MNI Connect livestreamed event.

RUSSIA (BBG): “Secretary of State Marco Rubio told European allies that the US will keep sanctions on Russia in place at least until a deal to end the Ukraine conflict is reached, even as his boss, President Donald Trump, said he’ll probably meet Vladimir Putin to discuss a settlement before the end of February.”

UKRAINE (DW): “Commenting on the US-Russian talks on ending the war in Ukraine in Saudi Arabia, US President Donald Trump said he would not oppose the Europeans if they wanted to send peacekeepers to Ukraine to provide security guarantees in the event of a peace deal.”

UKRAINE (POLITICO): “European and other world leaders are planning to hold a second emergency summit in Paris on Wednesday as pressure grows to forge a cohesive response to Donald Trump's divisive plan to end the war in Ukraine.”

UKRAINE (BBC): “Russian Foreign Minister Sergei Lavrov has said his country won't accept peacekeeping forces from Nato countries in Ukraine under any peace deal, following high-level talks with the US in Saudi Arabia. "Any appearance by armed forces under some other flag does not change anything. It is of course completely unacceptable," he said.”

RUSSIA (BBC): “Three Americans and two Russians made up the two teams at the talks in Saudi Arabia that have underscored an end to Western isolation of Moscow. The men described the meeting as preparing the groundwork for broader "high-level" talks and agreed to reset their countries' diplomatic relations.”

RUSSIA (POLITICO): “Russia and the United States discussed possible cooperation on energy projects in the Arctic at a meeting in Saudi Arabia Tuesday, a top Russian negotiator told POLITICO.”

POLICY (POLITICO): “The European Commission is planning to introduce “Made in the EU” quotas and carbon product labels as it tries to revive ailing manufacturers while hitting climate targets. The proposals are laid out in a draft of the Commission's Clean Industrial Deal, obtained by POLITICO ahead of its Feb. 26 unveiling.”

TARIFFS (BBG): “President Donald Trump said he would likely impose tariffs on automobile, semiconductor and pharmaceutical imports of around 25%, with an announcement coming as soon as April 2.”

FED (MNI BRIEF): U.S. inflation is likely to resume its decline after a January bump higher that was related to seasonal factors and largely expected, Federal Reserve Governor Michael Barr said Tuesday.

FED (MNI BRIEF): U.S. monetary policy needs to stay restrictive until inflation slows to 2% and that progress has been slow and bumpy, Federal Reserve Bank of San Francisco President Mary Daly said Tuesday, signaling rates are likely to stay higher for longer for now.

RUSSIA (POLITICO): “American negotiators who met with Russian diplomats in Saudi Arabia on Tuesday said the two countries agreed on “four principles” that will move cease-fire talks between Russia and Ukraine forward — starting with the restaffing of embassies.”

RUSSIA (BBC): “Russian authorities have released an American national who was arrested at a Moscow airport earlier this month for cannabis possession, the US state department has confirmed.”

OTHER

JAPAN (MNI BRIEF): Bank of Japan board member Hajime Takata said on Thursday the BOJ needed to consider raising the policy interest rate to avoid creating excessively high expectations of continued monetary easing.

JAPAN (MNI BRIEF): Japan’s exports posted their fourth straight rise in January, up 7.2% vs. +2.8% in December, thanks to an increase in automobile and vessel shipments, data released by the Ministry of Finance showed on Wednesday.

AUSTRALIA (MNI BRIEF): The Australian Wage Price Index rose 0.7% q/q in Q4, 10 basis points lower than expected and 20bp down on Q3’s result, data from the Australian Bureau of Statistics showed Wednesday.

NEW ZEALAND (MNI BRIEF): The Reserve Bank of New Zealand monetary policy committee cut the Official Cash Rate a further 50 basis points to 3.75% on Wednesday, noting scope existed for further easing throughout 2025.

CHINA

LPRs (MNI PBOC WATCH): China's Loan Prime Rate is likely to remain unchanged in February as low inflation diminishes the effectiveness of traditional policy easing methods and lending stagnates, while ensuring the yuan's stability will also restrain the central bank.

HOUSE PRICES (MNI BRIEF): New commercial residential sales prices in first-tier cities fell by 3.4% year-on-year in January, narrowing from December’s 3.8% y/y decline, data from the National Bureau of Statistics showed on Wednesday.

PROPERTY (MNI): Advisors share their outlook for China's tier-one property markets. On MNI Policy MainWire now, for more details please contact sales@marketnews.com.

CHINA MARKETS

MNI: PBOC Net Drains CNY19.1 Bln via OMO Wednesday

MNI (BEIJING) - The People's Bank of China (PBOC) conducted CNY538.9 billion via 7-day reverse repos, with the rate unchanged at 1.50%. The operation led to a net drain of CNY19.1 billion after offsetting the maturity of CNY558 billion today, according to Wind Information.

The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.7442% at 09:44 am local time from the close of 2.3447% on Tuesday.
The CFETS-NEX money-market sentiment index, measuring interbank money-market liquidity, closed at 45 on Tuesday, compared with the close of 68 on Monday. A higher reading points to tighter liquidity condition, with 50 representing an equilibrium.

MNI: PBOC Sets Yuan Parity Higher At 7.1705 Weds; -1.10% Y/Y

MNI (BEIJING) - The People's Bank of China (PBOC) set the dollar-yuan central parity rate higher at 7.1705 on Wednesday, compared with 7.1697 set on Tuesday. The fixing was estimated at 7.2783 by Bloomberg survey today.

MARKET DATA

NEW ZEALAND Q4 PRODUCER INPUT PRICES -0.9% Q/Q; Q3 +1.9%
NEW ZEALAND Q4 PRODUCER OUTPUT PRICES -0.1% Q/Q; Q3 +1.5%

AUSTRALIA WAGE PRICE INDEX Q4 +0.7% Q/Q; EST. +0.8%; Q3 +0.9%
AUSTRALIA WAGE PRICE INDEX Q4 +3.2% Y/Y; EST. +3.2%; Q3 +3.6%

AUSTRALIA JAN. WESTPAC LEADING INDEX +0.12% M/M; DEC. -0.02%

JAPAN DEC. CORE MACHINE ORDERS -1.2% M/M; EST. +0.5%; NOV. +3.4%
JAPAN DEC. CORE MACHINE ORDERS +4.3% Y/Y; EST. +7.5%; NOV. +10.3%

JAPAN JAN. EXPORTS +7.2% Y/Y; EST. 7.7%; DEC. +2.8%
JAPAN JAN. IMPORTS +16.7% Y/Y; EST. 9.3%; EST. +9.3%; DEC. +1.7%
JAPAN JAN. TRADE BALANCE -Y2,758.8B; EST. -Y2,103.8B; DEC. +Y132.5B

MARKETS

US TSYS: Tsys Futures Stead Ahead Of FOMC Minutes

Tsys futures are slightly lower today, ranges are narrow while volumes are low. TU is -00¼ at 102-21⅞, while TY is -00+ 108-26+
There has been very little in the way of US headlines throughout the session. The RBNZ cut rates for 50bps, while BOJs Takata spoke earlier where he reiterated that the central bank is in a position to adjust policy rates further if the outlook is met. Takata stated that risks of big market moves have been lowered, giving the central bank more flexibility.
Cash tsys yields are flat to 1bps lower. The 2yr is -0.8bps at 4.297%, while the 10yr is -0.4bps at 4.564%.
MNI's preview of the Minutes includes what to watch for upon release; MNI's FOMC Hawk-Dove Spectrum, and key highlights of FOMC participant commentary since the January meeting. PDF here
Later today we have Housing stars, Building Permits, & FOMC meeting minutes.

JGBS: Bull-Steepener Turns Into Bear-Steepener After BoJ Takata

JGB futures are slightly weaker and near session cheaps, -3 compared to settlement levels.

The key local driver for the market was a speech by BoJ board member Takata. He reiterated that the central bank is in a position to adjust policy rates further if the outlook is met.
He added that further policy adjustments should still in gradual (in the aftermath of the Jan hike), but noted such shifts need to be taken to avoid upside inflation risks (with the weaker yen and wage hikes a risk). The central bank is closer to achieving its inflation target as well. Monetary conditions remain easy Takata noted, even after the Jan hike.
Cash US tsys are flat to 1bp richer in today’s Asia-Pac session.
Cash JGBs have shifted from a modest bull-steepener earlier in the session to a mild bear-steepener, with yields now flat to 1bp higher across benchmarks. The benchmark 10-year yield is 1.2bp higher at 1.442% after hitting a fresh cycle high of 1.446%.
Swap rates are 1-5bps higher, with the 20-year underperforming. Swap spreads are wider.
Tomorrow, the local calendar will see weekly International Investment Flow data alongside the Auction for Enhanced-Liquidity 5-15.5-year.

AUSSIE BONDS: Little Changed After Q4 Wages Data, Jobs Data Tomorrow

ACGBs (YM -1.0 & XM -1.5) sit modestly weaker after today’s release of Q4 Wages data.

The Q4 wage price index (WPI) rose 0.7% q/q and 3.2% y/y down from the upwardly revised Q3 0.9% q/q & 3.6% y/y. Q4 was in line with yesterday’s updated RBA forecasts and its statement that “wage pressures have eased”.
The quarterly increase in Q4 was 0.1pp below consensus and the lowest since Q1 2022. However, with productivity growth falling, the RBA pointed out that unit labour costs remain elevated.
Cash US tsys are flat to 1bp richer in today’s Asia-Pac session.
Cash ACGBs are flat to 2bps cheaper, with the AU-US 10-year yield differential at -3bps.
Swap rates are flat to 1bp lower, with the 3s10s curve steeper.
The bills strip is little changed.
The local calendar will see January jobs data tomorrow, with the market expecting +20k and an unemployment rate of 4.1%, +0.1ppt.
Yesterday, RBA Governor Bullock noted the labour market’s unexpected strength and cautioned that market expectations for further rate cuts are not guaranteed.
RBA-dated OIS pricing is 1-7bps firmer than yesterday’s pre-RBA levels, with mid-2025 leading the rise. A 25bp rate cut in April is given an 18% probability, with a cumulative 44bps of easing priced by year-end.

BONDS: NZGBS: Closed Cheaper Following RBNZ Gov. Orr’s Presser

NZGBs closed 1-3bps cheaper, settling near the middle of today’s ranges after reversing gains from an earlier rally of 4-5bps following the RBNZ policy decision. The shift came after Governor Orr’s press conference tempered market sentiment.

The RBNZ’s MPC cut the cash rate by 50bps to 3.75%, in line with unanimous forecasts, bringing total easing to 175bps.
Governor Orr noted that while underlying inflation remains above the target band, its expected decline will allow for further easing. The RBNZ anticipates additional 25bp cuts at both the April and May meetings, provided economic conditions evolve as projected.
The MPC is not in a hurry to bring rates to around 3% as there are still some domestic inflation pressures, but they should dissipate.
RBNZ Governor Adrian Orr will front a Finance & Expenditure Select Committee on MPS tomorrow at 0810 NZT.
Swap rates closed 1-2bps higher.
RBNZ dated OIS pricing closed little changed across meetings. 49bps of easing had been priced for today, with a cumulative 115bps by November 2025.
Tomorrow, the NZ Treasury plans to sell NZ$250mn of the 4.50% Apr-27 bond, NZ$200mn of the 4.25% May-34 bond and NZ$50mn of the 1.75% May-41 bond.

FOREX: NZD Rebounds From Post RBNZ Dip, USD Modestly Softer Elsewhere

The USD BBDXY index sits down a touch, but at 1289.2, is comfortably within recent ranges. Earlier USD gains, led against the NZD post the RBNZ cut, have been unwound.

Earlier, we heard from US President Trump that 25% tariffs on autos/chips and pharma products were likely as soon as April 2. FX market impact was minimal though.
Australian wages data continued to show an easing trend, consistent with the RBA's viewpoint and starting the easing cycle yesterday. AUD/USD didn't react though. AUD/USD saw lows of 0.6342, dragged by a softer NZD and early HK/China equity market weakness. NZD has recovered though, and China equities are back in the green. HK markets are comfortably up from lows. The A$ was last near 0.6360/65, close to recent highs at 0.6374.
NZD/USD got to lows of 0.5678 post the RBNZ, but now sits back at 0.5715/20, more than +0.50% higher from these earlier lows. The central bank cut 50bps as expected, but suggested a slower easing pace going forward. This, along with the recovery in HK/China equities helped the NZD rebound.
The AUD/NZD printed fresh highs of 1.1175, but sits back at 1.1120/25 now, below pre RBNZ levels.
USD/JPY has largely been range bound, although has found selling interest above 152.00. We were last 151.75/80, close to session lows. Earlier the BoJ's Takata stated that further gradual policy adjustments can take place. This supported the yen, but only modestly.
In terms of US yields, we are little changed at the back end, slightly lower for the 2yr.
Looking ahead, the FOMC meeting minutes are published and the Fed’s Jefferson speaks. In terms of data, there are January US housing starts/permits, NY Fed February services, UK January CPI/PPI and euro area December current account.

ASIA STOCKS: Equities Mixed, Kospi Surges On K-Chips Act, HK Stocks Slip

Asian markets are mixed today, South Korea’s Kospi surged 2.1% to its highest level since September, driven by gains in Samsung, SK Hynix, and LG Energy after Intel’s rally fueled chip optimism. Meanwhile, Hong Kong stocks retreated as Baidu’s earnings disappointed and the recent tech rally showed signs of exhaustion, with analysts warning of a potential pullback. Investors remain cautious after Donald Trump threatened fresh 25% tariffs on autos, semiconductors, and pharmaceuticals, weighing on Japanese and Taiwanese stocks. Despite geopolitical concerns, Chinese investors continued to pour money into Hong Kong equities, with Tuesday’s inflows marking the largest daily purchase since early 2021, as per BBG.

Semiconductors: Intel’s 16% rally overnight boosted sentiment around chips, the SOX also closed 1.68% higher, the move came on the back of speculation of a breakup deal involving TSMC and Broadcom. South Korean semiconductor stocks are higher on growing expectations for the K-Chips Act, which would increase tax deductions for facility investments. Samsung rose 3.4%, SK hynix gained 4.05%, and Hanmi Semiconductor soared 9.50%. Meanwhile, China’s semiconductor stocks extended gains, with Morgan Stanley highlighting increasing self-sufficiency in 2025. TSMC and Japanese chip stocks faced pressure after Trump threatened 25% tariffs on semiconductor imports.
Chinese robotics stocks jumped after Unitree’s CEO forecasted significant industry growth by year-end. The AI-driven rally in Hong Kong tech stocks, fueled by DeepSeek’s advancements and Xi Jinping’s meeting with business leaders, faced resistance as Baidu’s weak earnings triggered profit-taking.
NAB tumbled over 8% on weaker earnings, while HSBC hit an 11-year high before slipping ahead of earnings.
Key Benchmarks: Japan's Nikkei -0.5%, while TOPIX is -0.40%, Hong Kong's HSI -0.30%, China's CSI 300 +0.40%, Taiwan's TAIEX is flat, South Korea's KOSPI is +2.1%, Australia's ASX 200 -0.85% while New Zealand's NZX 50 -0.15%.

OIL: Crude Holds Onto Gains, Sanction Developments Being Monitored

Oil prices are moderately higher after rising Monday/Tuesday on reports that OPEC is considering a further delay to output normalisation due to begin in April. Brent is flat at $75.85/bbl after an intraday high of $76.07 and WTI is 0.1% higher at $71.90/bbl following a peak of $72.11. The USD index is slightly lower.

With market attention currently on the supply side, US inventory data out later today is likely to be monitored closely. There has been a substantial crude build since President Trump’s inauguration as flows from Canada rose sharply to beat tariff deadlines. Also, planned refining maintenance may also contribute to higher inventories.
The US is tightening sanctions against Iran but oil exporters and consumers continue to find ways around them. Bloomberg reported that imports into China of Iranian crude rose 86% m/m to 1.74mbd in February with increased tanker-to-tanker transfers and other terminals. The US is aiming for Iran’s shipments to be under 10% of current levels.
Chevron’s exports of Venezuelan oil are also being considered by the new US administration.
Also on the supply side, talks have begun between the US and Russia on Ukraine but a peace is a long way off with Ukraine so far being excluded, Russia not accepting NATO peacekeepers but the US fine with them, and the G7 looking at tightening the current oil price cap on Russian exports.
A Ukrainian strike on a Russian pipeline is expected to reduce flows from Kazakhstan to the Black Sea by close to a third while repairs are underway, according to Bloomberg.
Later the FOMC meeting minutes are published and the Fed’s Jefferson speaks. In terms of data, there are January US housing starts/permits, NY Fed February services, UK January CPI/PPI and euro area December current account.

Gold Retreats after Hitting New Highs

Gold’s relentless rise continued overnight, marching towards $3,000 / ounce.
Opening the Asian session at $2,935.21, gold moved higher all day to a high of $2,939.65, before slipping back to $2,929.00
A research report from Goldman Sachs set a revised target for gold to $3,100. The key determinant for the revised price is the resumption of gold purchases by Central Banks globally. (per BBG)
Vanguard's S&P 500 ETF growth over the last year has taken it to be the largest exchange-traded fund, with nearly $632 billion in assets according to BBG.
Data released from the State Agency Singapore show that gold shipments from the Southeast Asian nation to the US was over 10 tonnes for the month of January, up 25% from December last year.
Usually in periods of USD strength gold declines however in recent days the underlying support for gold as a tariff and inflation hedge is evident as it continues to rise.

UP TODAY (TIMES GMT/LOCAL)

Date	GMT/Local	Impact	Country	Event
19/02/2025	0700/0700	***	GB	Consumer inflation report
19/02/2025	0700/0700	***	GB	Producer Prices
19/02/2025	0900/1000	**	EU	EZ Current Account
19/02/2025	1000/1000	**	GB	Gilt Outright Auction Result
19/02/2025	1000/1100	*	EU	labour costs
19/02/2025	1200/0700	**	US	MBA Weekly Applications Index
19/02/2025	1330/0830	***	US	Housing Starts
19/02/2025	1355/0855	**	US	Redbook Retail Sales Index
19/02/2025	1800/1300	**	US	US Treasury Auction Result for 20 Year Bond
19/02/2025	1900/1400		US	FOMC Minutes
19/02/2025	1900/1400	***	US	FOMC Minutes
19/02/2025	2200/1700		US	Fed Vice Chair Philip Jefferson
20/02/2025	0030/1130	***	AU	Labor Force Survey
20/02/2025	0700/0800	**	DE	PPI
20/02/2025	1000/1100	**	EU	Construction Production
20/02/2025	1100/1100	**	GB	CBI Industrial Trends
20/02/2025	1330/0830	*	CA	Industrial Product and Raw Material Price Index
20/02/2025	1330/0830	***	US	Jobless Claims
20/02/2025	1330/0830	**	US	Philadelphia Fed Manufacturing Index