WALLER: NOT SEEING NEED FOR FURTHER RATE HIKES

Mar-27 22:41



  • WALLER: NOT SEEING NEED FOR FURTHER RATE HIKES
  • WALLER: WOULD NEED TO SEE SOME DRAMATIC CHANGE ON INFLATION

Historical bullets

AUSSIE BONDS: Cheaper, 2Y & 5Y Tsy Supply Weigh, Light Local Calendar

Feb-26 22:38

ACGBs (YM -2.0 & XM -3.0) are cheaper after US tsys resumed their sell-off following a brief reprieve on Friday. US tsys finished the NY session with yields 2-4bps higher amid a flood of new corporate bonds and US tsy issuance. The 2- and 5-year tsy auctions both tailed.

  • According to MNI’s technicals team, the trend direction in 10-year tsy futures remains down with the TYH4 contract trading close to its recent lows. Price has pierced 109-17, 50.0% of the Oct - Dec bull cycle. A clear break of this retracement would strengthen the bearish condition and signal scope for an extension towards 108-19+, the 61.8% Fibonacci level.
  • The S&P 500 finished Monday down 0.4%. Goldman Sachs’ Mariotti said “All in all, while a resilient macroeconomic picture and a positive earnings season in the US have continued to support the bullish sentiment backdrop, investors are generally exposed to concentrated positions.” (AFR)
  • Cash ACGBs are 1-3bps cheaper with the AU-US 10-year yield differential 2bp lower at -15bps.
  • Swap rates are 1-3bps higher, with the 3s10s curve steeper.
  • The bills strip is cheaper, with pricing -1 to -3.
  • RBA-dated OIS pricing is flat to 2bps firmer, with meetings beyond June leading.
  • Today, the local calendar is empty, ahead of January CPI tomorrow.

CNH: USD/CNH Above 7.2100, Onshore Government Bond Yields Tracking Lower

Feb-26 22:26

USD/CNH pushed above 7.2100 by the NY session, with a firmer US yield backdrop aiding the move. We didn't breach highs from last Friday though, which came in just above 7.2140. For onshore spot we ended yesterday at 7.1975, so a decent wedge with respect to CNH levels. The CNY NEER (J.P. Morgan index) edged down slightly to 124.5.

  • Yield differentials continue to track in favor of the USD, the 2yr spread back to +267bps, levels last seen in Nov last year. China's 2yr government bond yield sits at 2.05%, just above recent lows, while the 10yr has fallen sub 2.40%, fresh cyclical lows.
  • Wider yield differentials against the US and EU are a factor behind corporates to keep more offshore earnings in foreign currency. Reuters noted that Jan saw a record month for bank purchases of dollars via swaps from clients (see this link for more details).
  • In the equity space, we finished lower for mainland stocks yesterday, amid modest northbound stock connect outflows. The Golden Dragon index rose 0.74% in US trade though, the fourth straight session of gains.
  • News flow is focused on government efforts to boost the private sector, while President Xi called for improving the momentum of the economic recovery late yesterday (see this link).
  • The local data calendar remains empty today.

NZD: AUD/NZD Reverses Monday's Move Higher, Holds Below 1.0600

Feb-26 22:14
  • AUD/NZD benefitted from the weaker NZD on Monday. The pair hit a high of 1.0634, still well within the 100 pips range traded last week before reversing that move, trading back to 1.0595, hovering near bottom of the yearly range. Key levels to watch include 1.0560/70 (YTD lows Feb 22/May 23, Yearly Lows) a break here could signal a move to 1.0474 (Dec 22 lows), to the upside are 1.0612 highs from Feb 22, above there 1.0650/55 (Feb 20 highs/ 20-day EMA). Currently, the 20 and 50-day EMAs are positioned at 1.0655/1.0705.
  • •Looking Ahead - NZ RBNZ OCR and AU CPI on Wednesday