OIL: US Stock Drawdown Supports Crude In Uncertain World, EIA Data Out Later
Mar-26 04:10
Oil prices are moderately higher following data showing a large crude stock drawdown in the US last week. Markets tentatively sold off on news of a partial Ukraine-Russia ceasefire deal but the trend hasn’t continued today as Russia has conditions and US President Trump said that the Russians may be “dragging their feet” on settling an agreement. Positive risk sentiment has also supported crude today.
- WTI is up 0.3% to $69.18 after a high of $69.45 earlier. The benchmark is struggling to hold breaks above the 50-day EMA at $69.33. Brent is off its intraday peak of $73.37, but is hovering around initial resistance at $73.17 to be 0.2% higher at $73.18. The USD index is 0.1% higher.
- Oil price moves have been muted and the market is likely waiting for what US tariffs are actually imposed on April 2. It has been concerned that increased trade protectionism will reduce global demand. Trump has said that he’s likely to be more lenient than reciprocal but doesn‘t want too many exceptions. Thus uncertainty remains heightened.
- Bloomberg reported that there was a US crude inventory drawdown of 4.6mn barrels last week, according to people familiar with the API data. Products continued to decline with gasoline down 3.3mn and distillate 1.3mn. The official EIA data is out today.
- Later the Fed’s Kashkari and Musalem appear and preliminary US February durable goods data print. The ECB’s Cipollone participates in a panel and UK February CPI and the government spring budget statement are released.
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CHINA: China's 10YR Bond Future Down for Third Day.
Feb-24 03:55
- China’s main bond futures headed in different directions at the start of the week.
- China’s 10YR bond future is down -.18 at 108.075, marking the third trading day in a row of declines.
- The move lower sees the 10YR future inching towards the 100-day EMA of 108.02, with the 50-day EMA being dragged lower at 108.61.
- The 2YR bond future is up +0.05 today at 102.62, below all major technical levels.
- Cash market is weaker today also with government bonds up to 1bp higher in yield across most maturities.
- Equity markets too are down today with key bourses down by -0.10% to -0.50%
- This week sees the decision on the 1-year Medium Term Lending Facilities with market expectations for now change at 2.00%, but with an increase in volume from CNY200bn to 300bn
BONDS: NZGBS: Closed Mid-Range With A Bull Flattener
Feb-24 03:45
NZGBs closed showing a bull-flattener, with benchmark yields 2-5bps lower. Nevertheless, NZGBs finished mid-range, with the 10-year underperforming its Australian counterpart.
- The AU-NZ 10-year differential finished at -9bps compared to the recent high of +10bps in early November, which marked the highest level since August 2022. However, a simple regression analysis of the AU-NZ 10-year yield differential against the AU-NZ 1Y3M spread over the past 18 months shows that the 10-year differential is around 14bps above fair value based on the regression model.
- NZ Q4 2024 retail sales (ex inflation) were stronger than forecast, rising 0.9% q/q, against a 0.5% market expectation. This was the firmest q/q print since the end of 2021. This shows the impact of RBNZ easing beginning to benefit parts of consumer spending.
- Swap rates closed 3-6bps lower, with the 2s10s curve flatter.
- RBNZ dated OIS pricing closed little changed out to August but 3-5bps firmer beyond. 27 bps of easing is priced for April, with a cumulative 58 bps by November 2025.
- Tomorrow, the local calendar is empty.
- On Thursday, the NZ Treasury plans to sell NZ$225mn of the 3.00% Apr-29 bond, NZ$225mn of the 3.50% Apr-33 bond and NZ$50mn of the 1.75% May-41 bond.
AUSSIE BONDS: AU-NZ 10Y Yield Differential Too High
Feb-24 03:17
The AU-NZ 10-year yield differential is 5bps lower today, standing at -12bps compared to the recent high of +10bps in early November, which marked the highest level since August 2022.
- The recent decline in the 10-year yield differential between Australia and New Zealand has mirrored a similar move in the AU-NZ 1-year forward 3-month swap rate (1Y3M) spread.
- However, a simple regression analysis of the AU-NZ 10-year yield differential against the AU-NZ 1Y3M spread over the past 18 months shows that the 10-year differential is around 12bps above fair value based on the regression model (-11bps compared to a fair value of -23bps).
- The 1Y3M differential is a proxy for the expected relative policy path over the next 12 months.
Figure 1: AU-NZ: 10-Year Yield Differential Vs. FV
Source: MNI – Market News / Bloomberg
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