ASIA FX: USD Gives Back Some Of The Earlier Tariff Induced Gains

Q4 GDP prints on Wednesday, including productivity, and Bloomberg consensus is forecasting a 0.6% quarterly rise bringing the annual rate to 1.3%. This would be the fastest quarterly rate since Q4 2022. The RBA believes the risks to growth are to the downside and expects Q4 rose 1.1% y/y but GDP should improve to 2.4% y/y by end-2025. With it seeing growth as “subdued” and productivity still a problem, the Q4 national accounts will be monitored closely.

• Forecasts on Bloomberg range from +0.4% q/q to +1.0% q/q resulting in annual growth of 1.1% to 1.7%. ANZ is in line with consensus at 0.6% q/q, whereas NAB, CBA and Westpac are slightly stronger forecasting 0.7% q/q.
• Q4 data suggest that household consumption should be faster with spending volumes rising 1.4% y/y up from 0.2% y/y in Q3.
• Public demand will make a lower contribution at 0.2pp with 0.1pp from government consumption and 0.1pp from GFCF. In Q3, these components contributed 0.3pp and 0.4pp respectively.
• Private investment is likely to be soft after capex fell 0.2% q/q and construction rose only 0.5% q/q. Q3 could be revised up though.
• The ABS said that net exports contributed 0.2pp up from 0.1pp, which was more than expected. This is the third straight quarterly positive.
• Inventories were flat on the quarter after detracting 0.4pp from Q3 quarterly GDP growth. 

• Tsys are rallying as markets react to the US imposing tariffs on Canada, Mexico, and China, alongside growing concerns over the US economy. Investors remain hopeful for more negotiations or an extension, but they seem to be slim now. Another round of US tariffs on steel and aluminum is set to take effect next week, raising the risk of retaliatory measures from Canada, Mexico, or China. TU is trading -03¼ at 103-19¾, while TY is trading -07+ at 111-20+, both above Monday's highs, however off this mornings highs.
• Tsys have outperformed stocks since Trump won the election, with a 2.1% return versus the S&P 500’s 1.6%, as 10yr yields hit its lowest since October amid trade war fears and expected Fed rate cuts. 
• Cash tsys are giving back some of this morning's moves, the curve has twist steepened, with yields now -1.5bps to +1bps. the 2yr is -1.5bps at 3.935%, while the 10yr is -0.4bps at 4.151%. The 2s10s is +1bps at 21.423.
• Projected rate cuts through mid-2025 gained some traction vs. this morning's levels (*) as follows: Mar'25 at -2.2bp (-1.4bp), May'25 at -11.9bp (-7.9bp), Jun'25 at -30.0bp (-22.7bp), Jul'25 at -40.5bp (-32.4bp).
• There is little on the calendar today.

JGB futures are weaker, -10 compared to settlement levels, after gapping lower in early afternoon trade following today’s 10-year auction results.

• The 10-year JGB auction delivered very poor results, with the low price falling well short of Bloomberg dealer pol expectations. Moreover, the cover ratio declined to 2.6566x, the weakest since October 2021, from 3.1809x in the previous auction and the tail lengthened dramatically to 0.21 from 0.03.
• This performance came despite the auction offering an outright yield 10-15bps higher than last month. Improving sentiment toward global long-end bonds and slightly less aggressive expectations of further near-term tightening by the BoJ didn’t appear to support demand.
• Cash US tsys have reversed early strength to be little changed in today’s Asia-Pac session.
• Cash JGBs are slightly mixed, with yield swings bounded by +/-1bp. The benchmark 10-year yield is 1.1bps higher at 1.425% after today’s supply.
• Swap rates are flat to 2bps lower, with a flatter curve. Swap spreads are mostly tighter.
• Tomorrow, the local calendar will see Jibun Bank Composite & Services PMIs alongside BoJ Rinban Operations covering 1-5-year and 10-25-year JGBs. BoJ Deputy Governor Uchida will also give a speech in Shizuoka.