AUSTRIA: Price Data Signal Return To Band, Services Remain Sticky Though
The RBA decision is February 18 including updated staff forecasts and the AUD OIS market has around an 80% chance of a 25bp rate cut and as MNI discussed last week, the RBA rarely doesn’t ease if the market expects it to. In terms of the data, Q4 inflation was lower than the RBA’s November forecasts but they will be key as to whether it has gained more “confidence that inflation is moving sustainably towards target” and here the core services outcome may be a problem.
- The RBA noted in the December minutes that “underlying inflation was still too high, underpinned by persistently high services price inflation”. Core services rose 1.1% q/q and 4.2% y/y in Q4 following 1.3% & 4.1%, signalling that they remain sticky as has been the case in other countries. December monthly services rose 3.7% y/y but down from 4.2%.
- Thus the domestically-driven services will be an important input into the February RBA decision and may make the tone around any easing sound very cautious.
- The S&P Global services PMI report for January is consistent with ongoing stickiness concerns. It noted that input costs increased sharply due to wages, AUD and higher supplier prices and as a result selling prices rose at their fastest in 6 months.
Australia services CPI y/y%
- January NAB business price/cost components were more neutral than the PMI but did signal a stalling in their moderation.
- Melbourne Institute inflation expectations and gauge for January are consistent with inflation returning to target.
- Our PCA CPI estimate, removes volatile components, eased 0.1pp to 2.7% in Q4, approaching the band mid-point.
- The AUD TWI is up 0.3% m/m in February to be down 1.6% y/y and with Q4 import prices rising only 0.2% q/q and still down 1.9% y/y, the currency is unlikely to be a concern. It is worth noting though that a 17.7% y/y drop in imported petrol prices has kept imported inflation subdued.
Australia monthly trimmed mean inflation y/y%
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ASIA STOCKS: Hong Kong & China Equities Struggle, Following PBOC Comments
Chinese equities are under pressure despite the PBOC's latest efforts to support the yuan, with early trading showing most indexes lower. Investors remain unimpressed as today's PBOC comments and Governor Pan's remarks offer little new information. The timing of the announcement, coinciding with onshore market closures, contrasts with prior morning interventions that lifted stocks. Underwhelming economic data and rising geopolitical tensions are further dampening sentiment.
- The Hang Seng China Enterprises Index fell as much as 1.9%, led by Shenzhou International (-5.2%) and Sunny Optical (-4.8%), making it one of Asia's worst performers. The HSCEI is down more than 18% since October 7, on track for its sixth consecutive daily decline and nearing a technical bear market.
- The HSI is 1.95% lower with HS Tech down 1.70%, while property stocks are lower, although outperforming the wider market, with the Mainland Property Index down just 0.60%. In mainland China equities, the CSI 300 is down 0.45%, while small-cap benchmarks are mixed.
- Broader Asian sentiment also weakened, with the MSCI Asia Pacific Index dropping 0.8%, while US equity futures are also trending lower with S&P 500 eminis 0.35% lower, while Nasdaq eminis are trading 0.40% lower.
- China Trade balance data is due out at some point during the session, with expectations of a $100.00b surplus, slightly above November's reading of $97.44b
MNI: CHINA 2024 EXPORTS +7.1% IN YUAN TERM: CUSTOMS
- CHINA 2024 EXPORTS +7.1% IN YUAN TERM: CUSTOMS
- CHINA 2024 IMPORTS +2.3% IN YUAN TERM: CUSTOMS
CNB: USD/CNH Drifting Lower Amid PBoC Stability Vow, Still Above Recent Lows
USD/CNH is holding close to session lows, last near 7.3500. This is a modest CNH gain of around 0.15%. USD/CNY is a down in the first part of dealing, but is holding above 7.3300 at this stage. Recent lows in USD/CNH were at 7.3132, recorded last Monday. The 20-day EMA support level continues to track higher, last around 7.3250.
- We saw a raft of headlines earlier following an FX markets meeting in Beijing. The headlines were largely in line with on-going rhetoric around FX markets. Critically the PBoC noted that the yuan will stay at a reasonable balance level and that it will prevent FX overshooting.
- It was also announcement that the cross-border macro prudential for local firms would be raised to 1.75 from 1.50. This allows local companies to raise more funds offshore and is designed to alleviate pressure on the yuan (by boosting the supply of offshore currencies onshore). The last time we had adjustment higher was in July 2023.
- PBoC Governor Pan also made comments, which crossed the wires. He reiterated the comments around the yuan, while also noting liquidity will remain supported via RRR and interest rate cuts. This is in line with previous rhetoric from the Governor. Pan stated focus should be on supporting consumers, which comes after Vice Premier He Lifeng made similar remarks late on Friday.
- Note we get retail sales data for Dec on Friday, as well as Q4 GDP.
- Headlines on Dec trade figures are also starting to cross.
