BONDS: NZGBS: Another Heavy Session, Monthly Price Indictors Tomorrow
Jan-15 03:55
NZGBs closed 4-9bps cheaper, with the 5-year underperforming, as the fall-out from yesterday’s upbeat NZIER QSBO.
- Once again, today’s move reflected $-bloc underperformance, with the NZ-US and NZ-AU 10-year yield differentials ~6bps wider.
- Cash US tsys are flat to 1bp richer in today’s Asia-Pac session after yesterday’s directionless session. Focus turns to today’s CPI inflation data for December where rental inflation is expected to accelerate to an average figure that firmly rounds to 0.3% M/M in December.
- Swap rates closed 7-9bps higher.
- RBNZ dated OIS pricing closed flat to 7bps firmer across meetings, with late 2025 leading. 45bps of easing is priced for February, with a cumulative 103bps by November 2025. Pricing for the November meeting is some 35bps firmer than Friday’s closing level.
- Tomorrow, the local calendar will see food prices and a range of other monthly price indicators for December ahead of BusinessNZ Manufacturing PMI on Friday. December price data are likely to show inflation pressures remained subdued. That adds to the case for the RBNZ to deliver further easing.
- Tomorrow, the NZ Treasury plans to sell NZ$250mn of the 3.00% Apr-29 bond, NZ$175mn of the 3.50% Apr-33 bond and NZ$75mn of the 1.75% May-41 bond.
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OIL: Crude Slightly Lower On Lacklustre Risk Sentiment
Dec-16 03:52
After rising around 1.5% on Friday, oil prices are moderately lower during APAC trading today given lacklustre commodity and equity markets. WTI is down 0.5% to $70.96/bbl, just above the intraday low. Brent is 0.3% lower at $74.24/bbl after a low of $74.18. They were already trending lower before the mixed China data. The USD index is down 0.1%.
- China’s November IP growth was in line with expectations at 5.4% y/y but retail sales printed significantly lower at 3.0% y/y. Authorities have promised more stimulus to boost growth.
- Oil has found support from news that there may be tighter or increased sanctions on some oil producers. The US and its allies may reduce the Russian oil price cap according to Treasury Secretary Yellen. The EU is also looking at further sanctions on Russian oil. In addition, President-elect Trump is expected to tighten sanctions on Iran, which could reduce global output by 1mbd.
- The UAE has announced that it will reduce oil exports at the start of 2025 in an attempt to improve its quota compliance.
- Later preliminary December PMIs for the US and Europe print. The ECB’s Lagarde, Schnabel and de Guindos speak as well as the BoC’s Macklem. The key event for oil markets this week will be Wednesday’s FOMC decision. A 25bp cut is widely expected.
CNH: USD/CNH Drifting Higher Amid Cross Asset Headwinds, Friday Highs Intact
Dec-16 03:20
USD/CNH is drifting a little higher, last near 7.2880, up close to 0.10% for the session. We are still sub Friday intra-session highs of 7.2925. Onshore USD/CNY spot is also creeping higher, last above 7.2800
- Cross asset headwinds persist for CNH. The relentless fall in onshore CGB yields continues. We continue to make fresh lows, the 10yr near 1.70%. Equities are also down but remain broadly within ranges for the past few months.
- Today's data dump was encouraging in terms of house price falls moderating but the slowdown in retail spend in y/y terms will be disappointing, while fixed asset investment for private sector eased further. This will underscore further stimulus needs and not much strength outside of the industrial sector.
- Market expectations for CNH though remain fairly orderly though, at least in the near term. Implied vols are low for the 1month, sub 5%. The 3 month to 12 month tenors all sit high relative to recent history. The 12 month above 7%, as markets await next year's Trump administration outcomes.
- The data calendar is relatively quiet now, although between now and Christmas due we should get the 1yr MLF outcome. The market consensus is for no change from the current 2%.
CHINA: Yields Continue to Test Lower Despite Pledges To Stabilize/Support Mkts
Dec-16 03:08
- Various Chinese authorities have pledged to support the ailing economy through more effective fiscal policies and a focus on stability in the housing and equity markets.
- China New Services reported over the weekend quotes from the Vice Minister of the Housing Ministry saying that ‘the government will promote the recovery of the property market through measures such as increasing demand and controlling the supply of land for new development.’ (as per BBG).
- The Securities Regulatory Commission spoke of its intention to ‘enhance market monitoring for futures and spot trading, strengthen supervision of margin trading, derivatives and quantitative trading (as per SRC website)
- The Ministry of Finance said that it intends to deliver more effective and sustained fiscal policies next year and well as improved macroeconomic regulations, whilst increasing the issuance of local government special bonds whilst expanding the areas in which they invest.
- Whilst equity market weakness has been highly visible, the slow grind lower in yields may not have received the focus necessary as key technical levels were broken last week.
- CGB 10YR finished the week at 1.78%, 14bps lower on the week.
- For some time, market commentators had focused on 2.15% as a key level seen important to authorities.
- The PBOC is known to be protective of the steepness of the curve and what it represents as a health check for the overall economy.
- Some market observers interpreted the authorities comments on markets as suggesting that the potential for intervention to stop the grind lower in yields could be imminent.
- Technical analysis of the TFTH5 future confirms the positive bias in place with the 20-day EMA above the 50-day EMA.
- The CGB 10YR has ignored suggestions of intervention with a very strong open, the 10YR yield down -5.5bp at 1.726%
