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Higher bond yields boosted the US dollar against JPY, reaching highs since November. AUD slipped to 0.6490 despite mostly upbeat equity sentiment. Today RBA Governor Bullock testifies at length before a parliamentary committee. Several Asian markets including China are closed for lunar new year while in the US we will see CPI revisions.


AUD was very quiet, around 0.6520/30. Australia’s data calendar was empty again. China’s January consumer and producer prices drew some attention, as the headline CPI reading of -0.8%yr was well below -0.5%yr consensus and was the weakest reading since September 2009. Much of the decline was driven by food prices though, with the core (ex-food and energy) CPI easing to +0.4%yr from +0.6%yr. PPI deflation was near expectations at -2.5%yr. The ASX 200 closed up 0.3% while the Shanghai Composite rose for a third straight day, 0.8%, having fallen the previous 6 sessions. Chinese markets are now closed for Lunar New Year until 19 February.  


The US dollar either rose or was flat versus G10 currencies on the day. EUR/USD roundtripped from 1.0780 to 1.0742 and back. GBP/USD recovered from a dip to 1.2572, returning to 1.2620. USD/JPY rose from 148.00 to 149.48 – a two-month high – aided by BoJ comments and higher Treasury yields. AUD/USD fell from 0.6525 to 0.6495 despite broadly positive global equity sentiment. NZD/USD fell -0.3% to 0.6095. AUD/NZD fell from 1.0670 to 1.0647 – a four-month low.


US weekly initial jobless claims were at 218k (est. 220k, prior revised to 227k from 224k). Continuing claims were at 1.871m (est. 1.875m, prior revised to 1.894m from 1.898m). Wholesale sales in December rose +0.7%m/m (est. +0.3%m/m, prior revised to -0.1%m/m from flat).


Richmond Fed president Barkin reiterated the need to be patient about the timing of rate cuts: “No one wants inflation to reemerge. And given robust demand and a historically strong labour market, we have time to build that confidence before we begin the process of toggling rates down.”


ECB Chief Economist Lane said: “In terms of an overall evaluation of our policy trajectory, we need to be further along in the disinflation process before we can be sufficiently confident that inflation will hit the target in a timely manner and settle at target sustainably,”


BoE official Mann said her vote for a rate hike was finely balanced, but that the UK would be later than the US and Eurozone in returning inflation to its target: “I am not convinced that the near-term deceleration in headline inflation will continue…A durable reduction in services inflation will get me from step one to step two. And it’s unclear to me right now, what would be the constellation that would take me to the next step. It’s not good monetary policy to boogie dance, meaning change up or change down in response to incoming data. So I don’t want to do that.”

Interest rates

The US 2yr treasury yield rose from 4.41% to 4.45%, while the 10yr yield rose from 4.09% to 4.15%. Markets price the Fed funds rate, currently 5.375% (mid), to have a 15% chance of a cut in March and an 70% chance of a cut by May.


Australian 3yr government bond yields (futures) rose from 3.63% to 3.68%, while the 10yr yield rose from 4.10% to 4.15%. Markets currently price the RBA cash rate to be unchanged at the next meeting on 19 March, with an 85% chance of a cut in August.


New Zealand rates markets price the OCR, currently at 5.50%, to be unchanged on 28 February, with an 80% chance of a rate cut in August.


There was little movement in risk markets last night and credit was no exception with Main and CDX each half a bp better at 59.5 and 55 respectively, US IG cash unchanged and primary split with solid volumes completed in Europe but just the sole issuer coming to market in the US. In Europe we saw 7 issuers price ~EUR7.5bn.


Israel PM Netanyahu’s outright dismissal of a potential cease fire plus a US drone strike on a high ranking Kataib Hezbollah official in Baghdad saw crude sharply higher. The March WTI contract is up 3.5% at $76.46 and the April Brent contract is up 3.3% at $81.81. The Feb gasoil contract was also up another 4% taking gains to 10% so far this week. The bosses of Maersk and Norden said on Thursday that they felt the threat level was continuing to escalate in the region while Mitsui OSK said the disruption “could last for a year”. US Central Command said that Houthi militants fired six anti-ship ballistic missiles from Yemen toward the Southern Red Sea on Wednesday. On the positive supply side though, ConocoPhillips said it saw another bumper year for US crude production, with the CEO Ryan Lance expecting nationwide production to expand by the equivalent of 300kb to 500kbpd after an 800kbpd rise in 2023. JP Morgan said it “continues to project a tightening market with prices rising from here by another $10” while StanChart noted the “market is much tighter than current prices might imply”. In fuel news, Shell plans to halt the main gasoline-making unit at Europe’s biggest oil refinery at the end of this week. The Shell Pernis refinery has the capacity to process around 400kbpd of crude. The work is expected to take about 6 weeks. 


Unusually mild US weather meant that gas storage draws were smaller than usual, adding to the pressure on natural gas prices. The March Henry Hub contract fell 4.5% to be down 11% so far this month.


Metals slumped as the week-long Lunar New Year holiday looms large, deepening the apparent slowdown in global demand. Copper is down another 1% at $8,226 with trade below $8,200 while zinc fell a hefty 3%, slamming below $2,400 to close at $2,328. There was little fresh news though global inventories of copper, nickel and zinc have all surged in recent days, adding to the negative sentiment. Global copper and nickel inventory are both up 13% so far this year. The weaker than expected China CPI added to the negative sentiment in metals. 


Iron ore markets saw gains as Chinese home purchase limits were wound back in Shenzhen. The March SGX contract is up 50c from the same time yesterday at $127.15 while the 62% Mysteel index is up $1.95 to $127.95. Shenzhen said it would lower the requirements for people without Hukou to buy property in the technology hub to 3 years of personal income tax from 5 years.

Day ahead

RBA Governor Bullock will deliver parliamentary testimony before the House of Representatives economics committee at 9:30am AEDT, with the Q&A session lasting about 3 hours.


Many markets are closed for Lunar New Year holidays today, including mainland China (until 19 February), South Korea and Taiwan but not Singapore or Hong Kong, which are closed Monday.


In the US we will see annual CPI revisions, which Fed Governor Waller recently mentioned as important data he would be watching. January CPI is due Tuesday.

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