AUSTRALIA DATA: Westpac Lead Index Signals Soft But Improving Growth
The Westpac lead index for December fell 0.02% m/m after rising 0.06% leaving the 6-month annualised rate slightly slower at 0.25% from 0.33%. This measure leads growth relative to trend by 3 to 9 months and it was positive throughout Q4 signalling some improvement in growth over H1 2025. Westpac expects GDP growth to reach 2.2% y/y by end-2025 but the first rate cut not until May.
- The improvement in the index from mid-last year has been driven by better consumer confidence, commodity prices in AUD, stronger equities and turnaround in dwelling approvals. The outlook for commodities and markets in 2025 is highly uncertain thus risking the pickup in the Westpac lead index.
- The market has almost 75bp of rate cuts priced in by year end which should support the economy-related variables in the index but the timing continues to be data-dependent and unclear.
- Westpac says that “the more positive growth signal still looks fairly tentative”, but the RBA will want to see signs of the labour market easing, whereas it stabilised in H2 2024 and some indicators even tightened, such as underemployment. It notes that there is still a chance of a February or April easing if core inflation moderates significantly more than expected.
Australia Westpac lead index vs real GDP %
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US TSYS: Tsys Futures Edge Higher Following PCE, Belly Of Curve Outperforms
- Tsys futures gave back a large portion of Friday's gains, however yields closed lower for the session. Front-end tsys under performed across the curve, re-flattening the curves from its widest levels of the day. Most gains were seen over the US morning session after November PCE data printed below estimates across both headline and core readings.
- TU closed +0-00⅜ at 102-22+, while TY closed +0-11+ at 108-31, where we currently trade this morning.
- Core PCE inflation was slightly softer than expected but still solid trend rates for supercore inflation appear to have helped anchor Fed rate expectations with markets only willing to pare so much of Wednesday’s reaction to a hawkish Fed.
- Cash tsys curves saw the 2s7s30s fly drop 8.3bps as the belly of the curves outperformed throughout the session. The 2yr closed -0.6bps at 4.31%, 7yr closed -5.5bps at 4.45%, 10yr closed -4.1bps at 4.522%. The 2s10s curve flattened -3.3bps to 20.772.
- The US has avoided a government shutdown, with the bill gaining enough votes to pass. The pill will now give the US enough funding through to March 14. Bill also provides billions for disaster relief and gives economic aid to farmers, however it does not include a suspension of the US debt limit, which President-elect Donald Trump sought
- In Treasury options, flows included A large options trade targeting a rise in US 10yr Treasury yields to around 5.4% by January 24 saw 50,000 February 103.00 puts bought for approximately $1.5m. This appears to be new risk, given the low prior open interest of 7,036 contracts at this strike. While in SOFR futures stand out flows included a large block sale in the Dec25 futures over the US morning session
- Later today we have durable goods orders and new home sales
JGB TECHS: (H5) Shallow Correction
- RES 3: 149.55 - High Mar 22 (cont)
- RES 2: 147.74 - High Jan 15 and bull trigger (cont)
- RES 1: 144.48/146.53 - High Nov 11 / High Aug 6
- PRICE: 142.59 @ 16:41 GMT Dec 20
- SUP 1: 141.88 - 1.618 proj of the Aug 6 - Sep 3 - 9 price swing
- SUP 2: 141.56 - 1.764 proj of the Aug 6 - Sep 3 - 9 price swing
- SUP 3: 141.05 - 2.000 proj of the Aug 6 - Sep 3 - 9 price swing
Markets slipped on the hawkish Fed, touching 141.87 on the way lower before rebounding back to flat on the dovish BoJ decision. Medium-term trend signals on the continuation chart continue to point south. A resumption of the trend would pave the way for a move towards 141.88 and 141.56, Fibonacci projection points on the continuation chart. A stronger recovery would open 144.48, the Nov 11 high. Further out, key resistance is at 146.53, the Aug 6 high (cont).
BONDS: ACGBs Track US Tsys Yields Lower, RBA Minutes Tomorrow
Aussie bonds yields have opened lower this morning, following gains in Treasuries after US November PCE data printed below estimates across both headline and core readings. There is nothing on the local calendar today, with focus turning to tomorrow's RBA Minutes of Dec. Policy Meeting.
- Bond traders are facing growing losses this year as the easing cycle is met with rising yields. The US 10yr yield has risen sharply since the Fed began rate cuts in September, marking the biggest jump in yields during the early stages of an easing cycle since 1989. Persistent inflation, resilient economic growth, and Fed signals for slower rate cuts in 2025 have kept long-term bond yields elevated. This environment has favored curve steepener strategies, with the US 2s10s hitting its steepest levels for the year on Dec 19, the AU 2s10s has largely tracked US curves, however trades slightly off its steepest levels as we head into year-end, currently at 47.50bps vs 56bps made Nov 7th.
- Cash ACGBs are currently trading 3.5bps to 6.5bps cheaper, with the curve bull-flattening this morning. The 2yr is -3.8bps at 3.938%, while the 10yr is -6.3bps at 4.429%. Bonds Futures are lower today, with YM +0.4 & XM at +0.65
- RBA dated OIS is trading little changed this morning, the first full cut is priced by April with 30.5bps currently priced, with a second full cut expected at the July meeting with 50.9bps currently priced, December 2025 meeting there is a cumulative 72.2bps of cuts priced.
- The AU-US 10yr spread is 3bps lower at -9.5bps
- Swap curves are little changed this morning, while the bill strip is +1 to +2
