AUSSIE BONDS: Roll-Impacted Dealings, Narrow Ranges, Light Local Calendar Tomorrow

In January euro area headline inflation eased to 2.7% from 2.9% in line with the ECB’s December forecast for Q2 2024. Core is stickier easing to 3.2% from 3.4% and above the ECB’s 3.2% Q1 2024 projection. The forecasts will be updated for the March meeting on March 7, and with recent CPI data moderating faster than expected there is a chance that achieving the inflation target could be brought forward. The market expects a rate cut by June.

• On the weekend Spain’s Governing Council member de Cos said that the March “projections will be key” in helping the ECB decide if it is confident that it will meet its 2% target and can thus start easing. Confidence that inflation targets will be met is something central banks globally are trying to establish.
• De Cos believes that disinflation is “advanced” and will continue over “coming quarters”.
• The dovish Bank of Italy Governor Panetta also thinks the move towards the ECB’s target is “advanced” and that the moderation towards 2% is “rapid” and that core hasn’t proven sticky. Current ECB forecasts don’t have headline inflation back around target until H2 2025 and core at the end 2025 but this may be brought forward given the moderate start to 2024 since Panetta sees downside risks to inflation. As a result he said that the “time for reversal of the monetary policy stance is fast approaching”.
• Bank of Portugal Governor Centeno is also positive about the inflation outlook but warned that easing should be gradual and that if it is rapid it signals that “something isn’t going well”. He also said that rates won’t return to the very low levels seen before this cycle as they are “perverse for economic growth and financial stability” and “ideally” rates will stabilise around neutral of “close to 2%”.

It's a slow day for equities, especially with most of Asia observing Lunar New Year. US Equity Futures remain largely unchanged as the market anticipates the US CPI release on Wednesday.

• In Australia, equities are trending lower today, currently down by 0.20%. Health stocks, particularly CSL due to disappointing Phase 3 AEGIS-II trial results, causing their equity of 5.10%. Miners are also contributing to the downturn, with the ASX Metals and Mining Index 0.66% lower at 5880. A crucial level to watch is 5800, and a break below could signal further weakness, possibly moving towards the year lows of 5600. WBC Consumer Confidence and NAB Business Confidence/Conditions are on the agenda for tomorrow, with Employment data due on Thursday.
• New Zealand equities have dipped after remarks from the RBNZ Governor and Deputy Governor, emphasizing persistently high inflation and the system's capacity to handle elevated interest rates. The NZX50 is down 0.72%. Looking ahead, 2yr Inflation expectations are due tomorrow, followed by House Sales and Food prices on Wednesday.
• Indonesia equities are trending higher today, up by 0.40%, driven by financials, especially Bank Mandiri, higher by 2.20% continuing it's strong performance following a positive earnings outlook announcement last week. Note that Indonesia's Presidential elections are held on Wednesday, which will be a public holiday.
• Philippines equities show a slight decline today off 0.20%, lacking significant earnings or market headlines. Investors might be looking to secure profits after the PSEi hit 1-year highs on Thursday. The PSEi has witnessed 130m of inflows this year, with 42m of that coming in the past week.

NZGBs closed 2-4bps cheaper across benchmarks but off the local session’s worst levels. Nevertheless, with the domestic calendar light, local participants have extended Friday’s sell-off, prompted by ANZ Bank's hawkish OCR forecast change. ANZ Bank now anticipates that the RBNZ will raise the official cash rate (OCR) by a cumulative 50bps (this month and in April) to 6.0%.

• The 2-year yield currently sits 30-35bps higher than last week's start. The 10-year yield is 20bps higher, with its yield differential with ACGBs 15bps wider.
• Swap rates are 3-5bps higher.
• RBNZ dated OIS pricing is 3-6bps softer across meetings out to August. That said, the cumulative easing priced by year-end has been pared to 51bps from a peak of 5.68% versus around 100bps of easing off 5.53% at the end of January.
• RBNZ Chief Economist Paul Conway will speak to the ANZ Investor Tour in Wellington tomorrow. There will be no new economic information or insights presented in this engagement.
• The NZ Government will deliver the Budget on May 30.
• Tomorrow, the local calendar sees Inflation Expectations, ahead of REINZ House Sales, Card Spending and Food Prices on Wednesday. The RBNZ Policy Decision is on 28 February.