AUSSIE BONDS: RBA Gov. Bullock Continues To Push Against Mkt Expns For Cuts

• The NZD/USD is trading 0.4% lower to 0.5656, pressured by weaker-than-expected Q4 CPI data and rising bets on an RBNZ rate cut next month. The Kiwi is the worst performing G10 currency today.
• Non-tradeable inflation slowed to 0.7% q/q, the weakest since Q1 2021, softening rate expectations further, with swaps pricing in a 48bps now for the February meeting, from 44.5bps at Tuesday's close.
• Macro and leveraged funds increased short positions, adding to the kiwi's weakness. However, strong dairy auction results and an upgraded milk price forecast by ASB Bank offered a slight positive counterbalance, ABS now see's milk prices at $10.25kg for 2024-2025.
• AUD/NZD remains within recent ranges, after earlier making a session high of 1.1085, it currently trades up 0.25% for the session at 1.1075. 

NZGBs closed 1-2bps richer but off session bests.

• Nevertheless, NZGBs have outperformed their $-bloc counterparts, with the NZ-US and NZ-AU 10-year yield differentials 5-6bps tighter on the day.
• Q4 NZ CPI was close to Bloomberg consensus expectations at 0.5% q/q and 2.2% y/y after 0.6% & 2.2% in Q3, above the RBNZ’s November forecast of 0.4% & 2.1%.
• The RBNZ’s sector factor model estimate of Q4 core inflation eased 0.2pp to 3.1% y/y, close to the top of the 1-3% target band. Q3 was revised down 0.1pp to 3.3%. Given that headline CPI was impacted by volatile components such as airfares, the move lower in underlying inflation is good news and another 50bp rate cut in February remains the base case. But underlying non-tradeables inflation is proving sticky and will continue to be watched closely.
• Swap rates closed mixed, with the 2-year and 5-year 1bp lower and the 10-year 1bp higher.
• RBNZ dated OIS pricing closed 1-5bps softer across meetings, flat to 3bps softer than pre-CPI levels. 47bps of easing is priced for February, with a cumulative 112bps by November 2025.
• Tomorrow, the local calendar will see Net Migration data and the NZ Government’s 5-month Financial Statements.

Chinese & Hong Kong equities are lower today after Trump reiterated his consideration of a 10% tariff on Chinese goods, citing concerns over fentanyl shipments. While the 10% level is less aggressive than the previously threatened 60% tariffs, the remarks reignited concerns about potential trade tensions. The CSI 300 Index slipped 1%, ending a four-day rally, while the Hang Seng China Enterprises Index declined 1.55% and the HSI is 1.25% lower.

• China's luxury market sales fell by up to 20% in 2024, the steepest decline since 2011, as an economic slowdown weakened consumer confidence and spending. Watches, jewelry, and leather goods saw the sharpest declines, while even high-spending customers reduced purchases. Hainan's duty-free sales dropped 29%, with more Chinese shoppers opting for overseas purchases, particularly in Japan.
• Real estate stocks dragged the market further as Citi lowered earnings estimates and price targets for key players like China Overseas Land & Investment (-1.6%), Longfor Group (-2.6%), and Shenzhen Investment (-3.7%), citing soft market conditions and persistent sector-wide losses. Benchmark indices are also lower, with the Mainland Property Index down 1.75%, HS Property Index -1%, while the BBG China Property Developer Gauge is 2.45% lower
• The Harvest CSI 500 ETF reported a significant 4Q purchase of 1.39b shares, likely by China’s sovereign wealth fund, Central Huijin Investment. The fund now owns 44.2% of the ETF, worth an estimated 3.37bi yuan. Despite this, the ETF experienced outflows of 1.58b yuan during the quarter.

While optimism over U.S. trade policy has cooled, gradual tariff measures could ease the market's adjustment, though volatility remains high. The property sector’s challenges and a cautious outlook on stimulus add further headwinds to the Chinese market.