IRON ORE: VIEW: MS Sees Downside Risk To Prices From Reduced China Demand
Morgan Stanley sees iron ore prices trending down over the rest of 2023 as it expects a surplus in the commodity. Demand from China’s steel makers is already easing with the peak in production a month earlier than the last two years. China’s iron ore port inventories have been fairly stable but this could change as steel production is reduced further to catch up “with the reality of sluggish underlying demand” according to Morgan Stanley. (The Australian)
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CROSS ASSET: USD Ticks Away From Session Lows
Very modest cross-asset type flows seen, with USD/JPY moving away from session lows after bears failed to force a meaningful break of Monday’s low, while the BBDXY failed to challenge Monday’s base before ticking away from worst levels. This comes alongside U.S. Tsys cheapening, albeit somewhat incrementally.
US TSYS: Muted Start
Cash tsys are little changed across the major benchmarks in a muted start to Tuesdays dealing. Asia-Pac participants are digesting yesterday's weaker than expected ISM survey which saw tsys firm on Monday. TYM3 deals at 115-17, +0-02+, with a narrow 0-03 range observed thus far.
- The RBA monetary policy decision headlines in Asia-Pac today, the bank is expected to hold rates at 3.6%. The MNI preview is here.
BONDS: NZGBS: Westpac: HQLA Proposal, Potentially A Fresh Source Of Support
Westpac write “the RBNZ’s Liquidity Policy Review is expected to result in changes in NZ banks’ liquid assert portfolios, potentially requiring them to hold more NZGBs than at present. The review was started in February 2022, with the latest consultation document released in February 2023. There will be two further documents, and a finalised proposal is expected in 2024, with regulations expected to take effect in late 2025 or early 2026.”
- “In short, the RBNZ believes most bond types currently held as liquid assets would not be liquid in a stress event. ESAS balances and NZGBs are the primary instruments which would remain eligible. Kauris and LGFAs are a possibility. The RBMS, currently the second largest liquid asset holding, was noted as one example of an instrument which the RBNZ believes should be ineligible under the new regime.”
- “Should this prove to be the case, then the $30bn of RMBS’ currently held would need to be replaced with, all else equal, NZGBs. But there are only around $96bn NZGBs (ex-LSAP) outstanding, of which over half is held by non-residents.”
- “Consultations are still in the early stages, but it appears at first blush that NZGB swap spreads are likely to benefit from this regime change.”
