INDONESIA CENTRAL BANK: VIEW: Goldman Sachs Still Expects First Rate Cut In Q4
Bank Indonesia (BI) hiked rates 25bp to 6.25% at its April 24 meeting, which was not completely unexpected but consensus forecast no change. It hiked as a ‘pre-emptive and forward-looking’ move to ensure FX stability and keep inflation in the target band. Goldman Sachs believed BI would hike and so hasn’t changed its view following the move and still expects the first rate cut to be in Q4 2024, “assuming FX pressures ease as the Fed starts its monetary easing cycle”.
- “In the Q&A session, the Governor elaborated that the decision today was mainly driven by external developments, specifically higher uncertainty in the Federal Reserve's monetary policy easing path and heightened geopolitical tensions in the Middle East.”
- “The central bank now expects the Fed Funds rate to be 'higher-for-longer' -- revising its baseline projection (75% probability) for the Fed Funds rate to just one 25bp cut in Q4 2024 (likely in December, in BI's view), vs. an earlier expectation of 75bp of cumulative rate cuts by end-2024 at the time of the February meeting. The governor noted that risks are skewed towards no cuts by the Fed in 2024.”
- “In terms of the currency, BI expects USDIDR to be stable at around 16,200 in Q2, before appreciating to 16,000 and 15,800 in Q3 and Q4, respectively.”
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US TSYS: Treasury Futures & Volume Spike
- Jun'24 10Y futures have spiked on what so far seems to be no real catalyst, the 10y contract hit a high of 110-24, we trade off those highs now at 110-21. The 5Y contract followed the move hitting a high of 107-02 and now trades back at 107-00¾
- Volume for the the 10y spiked with about 21,000 contracts trading at 11.43 am AEST
JGBS: Futures Holding Weaker, Cash Bonds Little Changed
In Tokyo morning trade, JGB futures have slightly extended overnight weakness, -9 compared to settlement levels, after the release of PPI Services data for February. PPI Services printed in line with expectations at +2.1% y/y, unchanged from January.
- (Bloomberg) -- The Japanese government will take appropriate steps against excessive currency moves, without ruling out any measures, says Finance Minister Shunichi Suzuki. (See link)
- Cash US tsys are dealing slightly richer in today's Asia-Pac session after yesterday's 4-5bps cheapening across benchmarks.
- Cash JGBs are slightly cheaper, with yields flat to 1bp higher. The benchmark 10-year yield is 0.9bp higher at 0.743% versus the YTD high of 0.801% set on March 15.
- The swaps curve has twist-steepened, pivoting at the 20s, with rates 2bps lower to 3bps higher. Swap spreads are tighter out to the 10-year and wider beyond.
FOREX: Steady USD Trend, Suzuki Reiterates Kanda Comments On Yen FX
The BBDXY is little changed in the first part of Tuesday dealings. We were last near 1243.50. Overall, it has been a fairly muted start to G10 FX trading.
- USD/JPY sits unchanged, last in the 151.40/45 range. Earlier lows we are 151.31. Some yen support may have been evident from lower US cash Tsy yields, but there has been no follow through.
- We also had comments from FinMin Suzuki cross the wires a little while ago. They largely reiterated comments that Kanda made yesterday. The authorities will take appropriate moves against excessive FX moves and that FX moves should be stable and reflect fundamentals.
- Yen sentiment wasn't meaningfully shifted by the comments though. The Feb PPI in Japan printed as expected (2.1% y/y).
- AUD and NZD both sit a touch lower versus the USD. Earlier we had a consumer sentiment dip in Australia, but we remain off recent lows. AUD/USD was last near 0.6540, while NZD/USD is back under 0.6000, slightly underperforming the AUD and yen.
- Looking ahead there isn't much in the way of further Asia Pac risk events, although focus is again likely on the USD/CNY fixing in a little under an hour. We also have RBNZ Chief Economist Conway speaking later, although there will be no speaking notes published and the media will not be at the event.
