OIL: Oil Price Rise Tempered By Disappointing China PMI
Oil prices are up today buoyed by data showing a US crude drawdown, but they are off their intraday highs weighed by another disappointing China manufacturing PMI. WTI rose above $72 today to reach a peak of $72.29/bbl and is currently 0.5% higher at $72.05. Brent exceeded $75 earlier to make a high of $75.22/bbl but is now around $74.96 to be up 0.4% today. The USD index is 0.2% lower providing support to dollar-denominated crude.
- The Caixin manufacturing PMI for December disappointed, just as the China Federation one did earlier in the week. It printed at 50.5 down from 51.5 in November, and below consensus at 51.7.
- Bloomberg reported that US inventories fell 1.4mn barrels last week but gasoline rose 2.2mn and distillate 5.7mn, according to people familiar with the API data. The official EIA data print later today.
- The impact of stimulus on the China economy, global growth, sanction adjustments by the new US administration and its support of the domestic oil sector, the likelihood of OPEC beginning to normalise output and geopolitical developments are likely to be the key factors monitored by the oil market for now.
- Later US jobless claims, November construction spending and S&P Global final December manufacturing PMI, European December manufacturing PMIs and euro area November M3 data print.
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BONDS: NZGBS: Bull-Flattener, NZ-US 10Y Diff. Near Lowest Since Mid-2021
NZGBs closed showing a bull-flattener, with benchmark yields flat to 4bps lower.
- The NZGB 10-year slightly outperformed on the day, with the NZ-US and NZ-AU 10-year differentials 1-2bps tighter. At +10bps, the NZ-US differential sits near its tightest levels since mid-2021.
- NZ export volumes fell for a second straight quarter, adding to signs of a mid-year recession. Exports of goods dropped 1.8% in the third quarter from the previous three months, Statistics New Zealand said. Imports rose 3%, meaning net exports — which are comparable to measures used in the gross domestic product report — fell 4.8% from the second quarter, when they dropped 7.9%. (per BBG)
- Swap rates closed 3-7bps lower.
- RBNZ dated OIS pricing closed flat to 2bps softer, with late-2025 leading. 42bps of easing is priced for February, with a cumulative 94bps by November 2025.
- Tomorrow, the local calendar will see ANZ Commodity Prices. The RBNZ also appears before a Select Committee for its Annual Review.
- On Thursday, the NZ Treasury plans to sell NZ$200mn of the 3.00% Apr-29 bond, NZ$250mn of the 4.25% May-34 bond and NZ$50mn of the 2.75% Apr-37 bond.
JGBS AUCTION: Poor 10Y Auction
The 10-year JGB auction delivered disappointing results, with the low price falling short of expectations at 98.34, according to the Bloomberg dealer poll. The cover ratio dipped to 3.1156x from 3.133x in the previous auction, while the tail lengthened to 0.05 from 0.04, indicating softer demand.
- This underperformance came despite the auction offering an outright yield 10bps higher than last month, just below the July cyclical high.
- However, the 2s/10s yield curve had flattened by roughly 5bps from the previous month, nearing its lowest point since mid-2023.
- Weaker sentiment toward global long-end bonds—though somewhat improved from two weeks ago—and expectations of further near-term tightening by the BOJ appear to have weighed on demand.
- In early afternoon Tokyo trading, the cash 10-year JGB is largely unchanged from pre-auction levels, while JGB futures are flat against settlement levels but hovering near session lows.
JGBS AUCTION: 10-Year JGB Auction Results
The Japanese Ministry of Finance (MoF) sells Y1,993.4bn 10-Year JGBs:
- Average Yield: 1.084 (prev. 0.997%)
- Average Price: 98.37 (prev. 0.997)
- High Yield: 1.089% (prev. 1.002%)
- Low price: 98.32 (prev. 99.08)
- % Allotted At High Yield: 20.3093% (prev. 66.2276%)
- Bid/Cover: 3.1156x (prev. 3.1333x)
