RBNZ: “Scope” To Cut Further In Response To Tariff Impact
Apr-09 02:47
The RBNZ cut rates 25bp to 3.5% as was widely projected, due to significant spare capacity and a weaker outlook from “global trade policy” which should result in inflation staying close to the target mid-point. It also said that the economy had broadly developed as it expected in February when it forecast 50bp of easing in Q2. It sees “scope’ for further easing if “appropriate” and will be determined by “the outlook for inflationary pressure over the medium term”. At this stage further easing in May is likely, but size is less clear.
- “On balance” US tariffs are a downside risk to NZ growth and CPI inflation. Most of the MPC believed that trade policy announcements shifted risk around NZ’s inflation outlook to the downside, but some thought that they had increased uncertainty and as such risks “remain balanced at this stage”.
- It also noted that the recent weakening of the NZD would “help to cushion the immediate effect” for lower demand for NZ exports. It added that lower oil prices would not only reduce NZ inflation but also “support domestic consumption”. WTI is down another 3.5% today to be almost 20% lower in April.
- Tariffs will take time to be felt by the global economy and the possibility of further changes to what has only been recently announced adds to the uncertainty of their effect. The response of global supply chains is also unclear.
- The RBNZ observed that higher export prices and weaker kiwi had helped to support primary producers and add to NZ growth but private consumption and residential investment remain weak. However, the full effect of monetary easing to date is yet to be felt.
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CHINA: Bond Futures Unfazed By Headlines from NPC.
Mar-10 02:35
- Despite media reports on RRR cuts and monetary policy easing, China’s bond futures have remained in a tight range in Monday’s trading.
- China’s 10YR future is up just +0.02 to 107.745.
- The 10YR future sits at the approximate midpoint of the 100-day EMA of 108.04 and the 200-day EMA of 107.56.
- China’s 2YR future is up by just +0.01 at 102.44 has trended below the 200-day EMA of 102.62 for some time, following a recent sell off.
- China’s 10YR government bond is unchanged today at 1.84% against a 3-month trading range of 1.59% to 1.93%.
- Over the weekend, China’s February CPI and PPI were released and whilst impacted by Lunar New Year holidays, report a very weak environment for prices.
- The PBOC Governor Pan hinted at RRR cuts and monetary policy easing at the NPC.
- The challenge will be to ensure that any policy changes don’t lead to further inflation of the bond market, a challenge over the last year.
- In recent weeks, there has been some positive signs in the equity market prompting some suggestions that a bond equity switch is the likely driver of outcomes in the near term.
AUSSIE BONDS: Subdued Session On A Data-Light Day
Mar-10 01:56
ACGBs (YM -1.0 & XM -1.5) are modestly cheaper on a data-light session.
- Cash US tsys are 2-3bps richer across benchmarks in today’s Asia-Pac session as Asian traders digest Friday’s US jobs data and remarks from Federal Reserve Chair Jerome Powell.
- Cash ACGBs are 1bps cheaper with the AU-US 10-year yield differential at +14bps.
- Swap rates are flat to 1bp higher.
- The bills strip is flat to -2 across contracts.
- RBA-dated OIS pricing is little changed across meetings today.
- Nevertheless, pricing remains mixed compared to February’s pre-RBA Decision levels—meetings through May are 3-4bps firmer, while those beyond are 1-14bps softer. A 25bp rate cut in April is given a 9% probability, with a cumulative 64bps of easing priced by year-end (based on an effective cash rate of 4.09%).
- This week, the AOFM plans to sell A$300mn of the 2.75% 21 May 2041 bond tomorrow and A$800mn of the 3.50% 21 December 2034 bond on Wednesday.
CROSS ASSET: US Related Assets Struggle, As Trump Doesn't Rule Out Recession
Mar-10 01:51
US exceptionalism trades continue to be unwound in the first part of Monday trade. However, we are away from recent extremes for key benchmarks (US equity futures, Tsy yields and the USD index). Weekend comments from US President Trump, which didn't rule out a US recession this year, have weighed on US related assets.
- BBG notes: "Asked on Fox News’ Sunday Morning Futures whether he’s expecting a recession this year, Trump said, “I hate to predict things like that. There is a period of transition, because what we’re doing is very big.” (see this link for more details).
- Measures of US recession probability risks have ticked higher, with Polymarket odds firming back towards recent highs. The US policy uncertainty index sits off recent elevated levels.
- US equity futures opened sharply weaker, Eminis down over 1%,although losses are now back at -0.50%. We are still above recent lows. In contrast, EU futures have opened higher, up over 0.80% at this stage.
- US tsys yields have ticked lower, the 10yr off close to 3bps, last near 4.27%, while the 2yr was back under 4%.
- The USD has softened, with the yen outperforming. The BBDXY index is off a further 0.10% to 1266.6. We are just up from recent lows for this index (1264.80). USD/JPY has slumped to 147.30, eyeing a re-test of 147.00.
- Earlier comments from Trump stated he thinks a government funding lapse probably won't happen. He also expressed optimism around Ukraine talks and TikTok's sale.
