BONDS: NZGBS: Unchanged Despite US Tsy Rally After PPI

TYU6 is dealing at 108-29, -0-00+ from closing levels in today’s Asia-Pac session.

• MNI Techs (TYU6): Initial firm resistance to watch is 109-12+, the Jul 10 high. Clearance of it would be bullish and signal a possible short-term corrective reversal.
• Cash bonds finished Tuesday’s session showing a bull-steepener, with yields flat to 9bps, after lower-than-expected CPI data and geo-political headlines (Pres Trump pivoted on charging a 20% toll on shipping in the Strait of Hormuz previously announced in favour of investments from Gulf states).
• Overall headline CPI of -0.42% M/M was below the -0.2% expected and the lowest since April 2020. The Y/Y rate fell to a 3-month low 3.53% from 4.25% prior. Meanwhile, core had its first negative print since May 2020 albeit barely (-0.02% M/M) with Y/Y down to a 4-month low 2.59% from 2.85% prior and vs 2.8% consensus.
• US tsys did however pare gains after Fed Chair Warsh commented it was "not" his "view   that June CPI represents "Mission Accomplished", it's just "one data point." Warsh added "some that look at this morning's data and say, 'Oh, mission accomplished. Everything is swell.' That is not my view." Chicago Fed Goolsbee underscored this opinion on CPI, while encouraging, one data set does not make a trend.

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NZGBs are 2-3bps richer after US tsys finished Tuesday’s session showing a bull-steepener, with yields flat to 9bps, after lower-than-expected CPI data and geo-political headlines (Pres Trump pivoted on charging a 20% toll on shipping in the Strait of Hormuz previously announced in favour of investments from Gulf states).

• Overall headline CPI of -0.42% M/M was below the -0.2% expected and the lowest since April 2020. The Y/Y rate fell to a 3-month low 3.53% from 4.25% prior. Meanwhile, core had its first negative print since May 2020 albeit barely (-0.02% M/M) with Y/Y down to a 4-month low 2.59% from 2.85% prior and vs 2.8% consensus.
• US tsys did however pare gains after Fed Chair Warsh commented it was "not" his "view   that June CPI represents "Mission Accomplished", it's just "one data point." Warsh added "some that look at this morning's data and say, 'Oh, mission accomplished. Everything is swell.' That is not my view." Chicago Fed Goolsbee underscored this opinion on CPI, while encouraging, one data set does not make a trend.
• NZ retail card spending fell 1.4% m/m in June versus revised +1.6% in May.
• Swap rates are 3-4bps lower.
• RBNZ-dated OIS pricing is little changed across meetings. 22bps of tightening is priced for September, while February 2027 assigns 71bps.

Spot USD/CNH tracks near 6.7735 in early Wednesday dealings, just up from Tuesday intra-session lows (6.7691). Broader USD sentiment falter in US trade Tuesday as the softer CPI print weighed on US TSY yields. Losses were led by the front end, but finished up from lows as the Fed's Warsh stated it wasn't mission accomplished yet on inflation. For USD/CNH, mid June lows of 6.7539 are now back in focus, with the pair comfortably back under all key EMAs. The 50-day sits near 6.7970. Spot USD/CNY finished up at 6.7716 in Tuesday trade, while the CNY CFETS basket tracker was little changed at 102.51. CNH's Tuesday rise of 0.16% lagged broader USD index losses of just over 0.30% for the BBDXY and DXY indices. 

• Even with mid June lows for USD/CNH back within striking distance, implied vols for USD/CNH remain depressed. The 1 week is under 2%, the 1 month is at 2.15%, which is close to recent lows. Risk reversals aren't tracking higher, but haven't rolled over aggressively either. The 1 month is at 0.30 currently. This metric peaked just above 0.40 in late June.
• Today the local focus is on the data outcomes, with Q2 GDP due, along with June home prices and June activity data. The market expects Q2 GDP growth to slow to 4.5%y/y, from 5.0%. We did see weaker activity outcomes through Q2, but the market consensus for 2026 full year GDP growth has remained steady at 4.6%. Today's outcomes are generally expected to show IP resilience, but softer retail sales, fixed asset investment, which would continue recent trends.
• Fresh softness in domestic activity/consumption measures may see calls for policy support grow, but it will likely take a meaningful downside surprise today/much firmer easing expectations to derail the firmer yuan bias.
• The CNY fixing bias continues to point to yuan resilience/gains and will be watch for any signs of shifts from the authorities.