AUSTRALIA: NZ Q4 CPIs Signal Lower Australian Core But Upside Risks To Services

Jan-23 00:24

Given the very high correlations between NZ and Australian CPIs and their major components, there is information to be gained about the upcoming Q4 Australian data on January 29 from NZ’s Q4 data. Given government electricity subsidies, it is difficult to compare the headline measures. But the NZ data suggest there will be further moderation in Australia’s trimmed mean inflation but possible upside risks to services, which is a particular focus of the RBA’s.

Australia vs NZ underlying CPI y/y%

Source: MNI - Market News/Refinitiv
  • The RBNZ’s factor sector model of core inflation showed a moderation in Q4 to 3.1% y/y from 3.3%. It has a 90% correlation with Australia’s trimmed mean CPI, which was 3.5% in Q3.
  • Services inflation in the two economies also has a 90% correlation. This is where the upside risk may lie with NZ services CPI up 4.8% y/y in Q4 from 4.3%. Also, the RBNZ’s core non-tradeables only fell 0.1pp to a still elevated 4.6% y/y and has proven sticky as it is only 1pp below its Q2 2023 peak. Insurance premiums have been a problem in both Australian & NZ.
  • A moderation in Australia’s core inflation will be welcomed but given the services CPI has picked up 0.3pp since its Q1 2024 trough of 4.3% y/y and Q3 market services was steady at 4.1% y/y, another sticky read in Q4 would likely concern the RBA. Other OECD countries are finding it difficult to get services inflation significantly below 4%.
  • Australia’s goods inflation has been running above NZ’s. In Q3 it was 1.4% y/y compared with 0.7% y/y. NZ’s moderated 0.1pp and core tradeables 0.2pp in Q4 and so there could be further easing in Australia too. 

Australia vs NZ services CPI y/y%

Source: MNI - Market News/Refinitiv

Historical bullets

STIR: BOJ Dated OIS Slightly Softer Than Pre-Dec MPM

Dec-24 00:02

BOJ-dated OIS pricing is marginally softer than pre-Dec MPM levels.

  • Nevertheless, pricing remains 3-13bps firmer beyond January versus pre-October MPM levels, with the September/October 2025 contracts showing the strongest gains.
  • Market expectations currently indicate: a 37% probability of a 25bp hike in January; a cumulative 95% chance by May; and a full 25bp increase not fully priced in until June 2025.
  • A full 25bp hike had been priced by May before the December MPM.

 

Figure 1: BOJ-Dated OIS – Today Vs. Pre-BOJ MPM (October)

 

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Source: MNI – Market News / Bloomberg

JGB TECHS: (H5) Shallow Correction

Dec-23 23:45
  • RES 3: 149.55 - High Mar 22 (cont)
  • RES 2: 147.74 - High Jan 15 and bull trigger (cont)  
  • RES 1: 144.48/146.53 - High Nov 11 / High Aug 6 
  • PRICE: 142.24 @ 16:29 GMT Dec 23
  • SUP 1: 141.88 - 1.618 proj of the Aug 6 - Sep 3 - 9 price swing 
  • SUP 2: 141.56 - 1.764 proj of the Aug 6 - Sep 3 - 9 price swing
  • SUP 3: 141.05 - 2.000 proj of the Aug 6 - Sep 3 - 9 price swing   

Markets slipped on the hawkish Fed, touching 141.87 on the way lower before rebounding back to flat on the dovish BoJ decision. Medium-term trend signals on the continuation chart continue to point south. A resumption of the trend would pave the way for a move towards 141.88 and 141.56, Fibonacci projection points on the continuation chart. A stronger recovery would open 144.48, the Nov 11 high. Further out, key resistance is at 146.53, the Aug 6 high (cont). 

JGBS: Futures Weaker Overnight With US Tsys, BOJ Minutes Due

Dec-23 23:29

In post-Tokyo trade, JGB futures closed weaker, -9 compared to settlement levels, after a heavy NY session for US tsys. Benchmark yields finished 3-7bps higher, with the 7-year leading.

  • Projected US rate cuts into early 2025 were steady to slightly lower vs. yesterday’s open (*) as follows: Jan'25 steady at -2.1bp, Mar'25 -11.7bp (-13.7bp), May'25 -16.0bp (-18.8bp), Jun'25 -23.4bp (-25.3bp).
  • Little reaction to a flurry of mixed data: November posted improved home sales figures compared with a soft October, but revised New home sales came in roughly as expected at 664k on a seasonally-adjusted annualized rate, up from 627k prior (upwardly revised from 610k), following on from data showing a 4.8% M/M increase in existing home sales in November to the highest level since March at 4.15M.
  • Headline durable goods orders figure of -1.1% M/M, the "miss" vs -0.3% expected was offset by an upward revision to the prior growth reading to 0.8% from 0.3%. Transportation equipment - a typically volatile category - led the decline, falling -2.9% M/M, with nondefense aircraft/parts down 7.0%.
  • Today, the local calendar will see BOJ Minutes of Oct. Meeting and Dept Store Sales alongside an Auction for Enhanced-Liquidity 15.5-39 YR.