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The US S&P 500 closed at another record high, equity markets relieved that US CPI data revisions were benign. The US dollar was mostly sideways or softer despite higher bonds yields, AUD up slightly to 0.6515. Major Asian markets are closed for holidays today. The data calendar is light though we will hear more from the Fed.


RBA Governor Bullock and colleagues testified before Parliament’s House economics committee, concluding a week of extensive RBA communication. She said that the labour market is still tighter than is consistent with stable CPI, that services inflation needs to be quite a bit lower but that inflation doesn’t need to be within the 2-3% band before they can commence rate cuts. With markets closed in China, South Korea and Taiwan, it wasn’t surprising to see AUD/USD trade a very tight 0.6487-0.6500 range. But AUD/NZD was unexpectedly lively, sliding from 1.0655 to lows under 1.0600 (weakest since May 2023) as a local bank switched to a very hawkish RBNZ view. The ASX 200 closed virtually unchanged.



The US dollar was mostly softer against G10 currencies on Friday despite higher bond yields. EUR/USD rose fractionally to 1.0785. GBP/USD rose 0.1% to 1.2630. USD/JPY dipped to 149.02 with Treasury yields, then steadying unchanged at 149.30. AUD/USD spiked to a high of 0.6534 and starts the week around 0.6515, up 25 pips from Friday morning. NZD/USD was strongest in the G10, +0.9% to 0.6150. AUD/NZD extended its decline from 1.0605 to 1.0586 – a four-month low – before steadying around 1.0610.


The annual revisions to US CPI data (seasonal adjustments and index adjustments) garnered much more interest than usual, given the prior year’s adjustments were upward and large. This year saw minimal revisions overall, with December CPI revised to 0.2%m/m (was 0.3%), but ex-food and energy remaining at 0.3%.


Canadian labour data for January was firmer than expected. Unemployment fell to 5.7% (est. 5.9%, prior 5.8%), employment rose +37.4k (est. +15.k), although this was again driven by lower full-time labour (-11.6k) and higher part-time (+48.9k).


Interest rates 

The US 2yr treasury yield rose from 4.45% to 4.48%, while the 10yr yield rose from 4.15% to 4.18%, only briefly ruffled by the CPI data revisions. Markets price the Fed funds rate, currently 5.375% (mid), to be unchanged at the next meeting in March but a 70% chance of a cut by May. 


Australian 3yr government bond yields (futures) rose from 3.68% to 3.74%, while the 10yr yield rose from 4.14% to 4.18%. Markets currently price the RBA cash rate to be unchanged at the next meeting on 19 March, with a 75% chance of a cut in August. 


New Zealand rates markets price the OCR, currently at 5.50%, to have a 50% of a hike at the next meeting on 28 February, and a 100% chance of one in May.


Credit spreads saw a positive close to the week which has left Main a bp tighter at 58.5 and now back to within a bp of its ytd tights while CDX was also a bp tighter to 54 to be back to the levels seen late January. IG cash was quiet and primary volumes eased back for the Friday session with just a few deals across the EUR/US market.



Crude and liquids markets saw solid gains last week as Israeli PM Netanyahu dismissed a potential ceasefire and pressed on into southern Gaza while a fire broke out another Russian refinery, the Ilsky refinery, which is the second largest refinery in the Black Sea region. That’s the fifth refinery to suffer fire damage so far this year, attributed to Ukrainian drone attacks. The March WTI contract closed up 0.8% at $76.84 Friday while the April Brent contract closed up 0.7% at $82.19. In fuels markets, the March NY heating oil contract closed up 2.5% while the February European gasoil contract jumped another 3.5% to be up 12.88% last week. Repeated drone strikes in Baghdad were described as undermining “the established understandings” by the Iraqi PM’s office on X/ Twitter. And Houthi attacks increased through the week, forcing major shipping firms to describe the situation as deteriorating. OPEC will release its Monthly Oil Market Report on Tuesday and the IEA holds its 50th anniversary and ministerial meetings in Paris on Tuesday and Wednesday and will release its monthly on Thursday. The EIA released its Short-Term Energy outlook last week. The US DOE asked for offers for 3mb of sour crude for the SPR for delivery July 1-31 at the SPR’s Big Hill site. Offers are due by February 21 and need to be valid until February 28. Bloomberg noted that the SPR is “shunning” the light sweet crude that tends to be produced in the US because the “very thin oil … produced in the Texas Eagle Ford basin doesn’t blend well with the denser, mostly imported varieties currently sitting in the stockpile”.


Metals had a poor week last week with copper down 3.7% to $8,169, a far cry from the $8,600 level seen at the end of last year. Zinc also fell 6.1% last week to $2,300, down 13.5% year to date. Optimism about the Zambian copper mine discovered by Bill Gates-backed startup KoBold Metals saw the Zambian PM describing the Mingomba project as one that could become the world’s third largest copper mine when its fully operational and could produce “500,000 to 600,000 metric tonnes” per year versus Escondida at above 1mmmt/pa and Grasberg in Indonesia at about 770kmt in 2022. China LNY holidays appeared to weigh on sentiment through the week as did rising inventory too.


Iron ore markets fell Friday with the March SGX contract down 5c from the same time Friday at $127.10 while the 62% Mysteel index fell $1.35 to $126.60. The onset of the LNY holiday in China saw light trade and limited demand while poor sentiment surrounding the property market in China weighed on expectations.


Day ahead

Markets closed for Lunar New Year holidays today include China, Hong Kong, Singapore, Korea and Taiwan. Japan is also closed for National Foundation Day.


Multiple RBNZ policymakers are due to speak at the Finance and Expenditure Committee.


Super Bowl 58 between the San Francisco 49ers and the Kansas City Chiefs kicks off at 10:30am Syd in Las Vegas.


Richmond Fed president Barkin and Minneapolis Fed president Kashkari are due to speak at different events.

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