Market Wrap.
In place of hike.
Today saw a notable pick-up in data releases in Australasia and globally.

For Australia, the key aspect was a sharper slowing of inflation which triggered sharp repricing of yields across the curve and saw ASX 200 hit an all-time high.
China’s official NBS Jan. PMIs lifted from Dec. readings but were Manufacturing remained well below 50 and with further concerns over the property sector weighed on domestic and regional markets.

NZ Jan. business survey from ANZ saw a firm lift in confidence but a slip in the outlook.

Overall, sentiment across markets was cautious ahead of FOMC and the heavy data and event calendar into the end of the week.

Critically, ahead of next week’s new look RBA policy announcement (with the updated projections within their Statement on Monetary Policy and inaugural post announcement Press Conference), AU 4Q CPI posted a lower reading than consensus and notably under prior RBA profiles.
Headline 4Q CPI of +0.6%q/q and +4.1%y/y (market est. +0.8%q/q and 4.3%y/y, prior 5.4%y/y) was well below the RBA profile of 4.5% and the average of the Trimmed mean measure came in at 4.2%y/y (consensus 4.4%y/y, RBA 4.5%y/y),
The Dec. monthly CPI Indicator was also aligned with the slowing profile for inflation with a reading of 3.4%y/y (est. 3.7%y/y, prior 4.3%y/y).

Short end yields fell some -15bps with 10yr yields sliding around -13bps with the AU-US 10yr spread narrowing to flat (from 10bps yesterday) as AU bonds outperformed.
Pricing of a potential first RBA cut shifted to June (from August) and markets priced some -64bbps of cuts into the Dec. RBA meeting (from -48bps).
As noted, ASX 200 hit new highs, gaining over 1% on the day. Although AUD underperformed, it found solid support against USD around 0.6560 and against NZD in front of 1.0725 which contained its slippage.

AU Dec. Private Credit was in line with consensus at +0.4%m/m (prior also +0.4%m/m) and 4.8%y/y (prior 4.7%y/y) and continues to reflect depressed sentiment in businesses but stability in housing.

China’s official January PMIs may have lifted from Dec. and overall were in line with consensus. The Composite Index rose to 50.9 (prior 50.3), aided by Services at 50.7 (est. 50.6, prior 50.4), but markets remained focused on the fifth reading under 50 in the Manufacturing Index at 49.2 (est. 49.3, prior 49.0).
Despite the edging up in January, media and markets continue to wring their hands over the demise of Evergrande and the stressed property sector.

H. Seng slipped -1.39% and Shanghai closed -1.48%. Dalian Bulk futures were under pressure with coking coal down over -4% and Iron Ore some -3% as their main session slide continued in post settlement trading.

NZ January ANZ Business Outlook slipped to 35.6 (prior 29.3) whilst Confidence continued its post-election gains to 36.6 (highest since 2014, prior 33.2) in a generally mixed, if solid, report.
Despite the markedly improved confidence, reported activity slipped for most firms, notably in retail and construction and reflect expectations for softness in GDP to continue in early 2024.

Although inflation profiles are easing, the pullback is seen as gradual.

After yesterday’s relatively hawkish tomes from RBNZ Chief Economist Conway, RBNZ Governor Orr is now scheduled to deliver a keynote speech to an Economic Forum at the University of Waikato, on 16^th Feb, so less than 2 weeks before the February OCR meeting and publishing of their MPS (28^th Feb).

Japanese data were overshadowed by the Chinese PMI data and AU CPI but showed disappointing activity with Dec. Retail Sales slipping -2.9%m/m (est. +0.2%m/m) and Dec Industrial Production missing with a rise of +1.8%m/m (est. +2.5%m/m).
However, the BoJ’s effective minutes from their meeting last week signalled discussions around improvements in conditions and so the potential of tweaking their polices from NIRP. Consequently, JGB yields ticked higher (10yr +1.5bps to 73.2bps) despite the broader tones across bond markets.

European markets were focused upon national level CPI releases.
French Preliminary headline CPI dipped -0.2%m/m to 3.1%y/y (est. 3.3%y/y) with harmonised CPI at 3.4%y/y (est. 3.6%), However German State releases suggest a tick up in the coming National reading of around +0.2%m/m (est. +0.1%m/m and 3.0%y/y, down from prior 3.7%y/y).
In the event, Germany’s Preliminary national CPI data for January undershot consensus.
Despite a +0.2%m/m lift (est. +0.1%m/m, headline CPI pulled back to 2.9%y/y (est. 3.0%y/y) and Harmonised CPI pulled back to 3.1%y/y (est. 3.2%y/y) and is setting markets up for a low read for Eurozone CPI tomorrow.

Germany’s Dec. Retail Sales data were surprisingly soft, slipping -1.6%m/m (est. +0.6%m/m) though the prior month was heavily revised to -0.8%m/m from a slump of -2.5%m/m initially. The overall outcome remains notably weak.
Of lesser impact was an improved unemployment profile. Rather than rising 11k and hitting 5.9%, Jan. unemployment dipped -2k and remained at 5.8% (Dec. revised to 5.8% from 5.9%).

AUD and NZD stabilised from earlier weakness, as did EUR, as USD struggled to sustain gains.
AUD remains -0.35% at 0.580, NZD -0.3% at just above 0.6115 and EUR -0.1% at 1.0835 but are off their earlier lows.
GBP and JPY are around -0.15% at 1.285 and 147.85.

US yields edged up from earlier lows with US 10yr little changed at 4.03% (had spiked to 3.99% into European trading) with 2yr at 4.32% (-1.5bps).
10yr Gilt yields remain -2bps at 3.88%, 2yr -1bp at 4.33% with 10yr Bund yields -4bps at 2.235%, 2yr -1.5bps at 2.51%.
European stocks were close to unchanged ahead of the US open.

US ADP Employment change, 4Q Employment Cost Index and Chicago PMI data are released ahead of the key event of the day, the FOMC’s policy decision.

AU CoreLogic house price index, Dec dwelling approvals and 4Q Import/export prices are released with NZ also receiving CoreLogic house price data.
China’s Caixin PMIs and broader regional PMIs are released tomorrow as well.

WE GET

AU: CoreLogic Hse. Px., (F) Manu PMI, 4Q Imp/Exp. Px., NAB 4Q Biz. Survey & Bldg. Apps. (1^st), 4Q PPI & Home Loans (2^nd), (F) PSI, MI Infl. Gauge, Job Ads. & Trade (5^th), 4Q Real Ret. Sales & RBA Policy/SoMP/Press Conf. (6^th), RBA Bullock (in Parl.) (9^th)

NZ: CoreLogic Hse. Px. (1^st), ANZ Cons. Conf. & Bldg. Permits (2^nd), ANZ Commodity Px. (5^th), 4Q Labour/Unemployment/Wages (7^th), REINZ (tbc)

EZ: (F) Manu PMI, EZ CPI & EZ Unempl. (1^st), Ge Trade, (F) Services PMI, EZ Sentix Survey & EZ PPI (5^th), Ge Fact. Orders, ECB Inf. Exp. & Ret. Sales (6^th), Ge Ind. Prod. (7^th), ECB Bulletin (8^th), Ge (F) CPI (9^th)

UK: (F) Manu PMI, BoE MPC & MPR & DMP Inf. Exp. (1^st), (F) Serv. PMI (5^th), BRX Sales (6^th), RICS Hse. Px. & Jobs Survey (8^th), Employment/Earnings (13^th), CPI/RPI/PPI (14^th), 4Q GDP. Mthly Prod. & Trade (15^th)

US: ADP Empl., Chic. PMI & FOMC (31^st), 3Q Productivity/Unit Lab. Costs, Claims, (F) Manu. PMI & Manu ISM (1^st), NFP/Employment, U. Mich. Cons. Sent. & Infl., Fact. Orders & Services ISM (2^nd), (F) Serv. PMI & Service ISM (5^th), Trade Balance (7^th), Claims & Wholesale Inv. (8^th), CPI Revisions (9^th), NY Fed 1yr Infl. Exp. (12^th), NFIB & CPI (13^th)

WESTPAC PUBLICATIONS

AU 4Q 2023 CPI : Suggest the inflation dragon may have been tamed.
Justin Smirk

· Headline 4Q CPI rose +0.6%q/q and 4.1%y/y with Trimmed mean +0.8%q/q and 4.2%y/y and Weighted Mean of +0.9%q/q and 4.4%y/y all slowing faster than RBA anticipated.

· The faster moderation than RBA and markets expected reflect a 6-month annualised pace of 3.5%y/y (lowest since Sept. 2021) and put Westpac’s end 2024 3.2%y/y target in easy reach.

· Westpac maintains its end 2024 forecast of 3.2% for headline CPI, but after further appraisal of the data (As inflation eases) risks clearly now lie to the downside.

The Final Piece Fits a Puzzle on Hold : CPI sealed the deal for RBA to keep the cash rate on hold.
Luci Ellis

· Data flow since Nov. and 4Q CPI (below Nov. RBA forecasts) indicate that the RBA will keep policy on hold next week and unlikely to raise rates further this cycle.

· RBA upside concerns that inflation may not come down as desired have not come to pass. Housing gains are losing steam and productivity has picked up.

· RBA will have the advantage of viewing updated forecasts in SoMP and discuss the outlook and risks over the newly extended 2-day meeting.

NZ Jan. ANZ Business Outlook : Confidence continued to rise, though limited momentum in activity.
Satish Ranchhod

· Business sentiment remained perky in early 2024. Confidence rose to 36.6 in January, its highest level since 2014, and outlook remains positive, though dipped to 25.6 from 29.3.

· Although inflation expectations are dropping back (4.28% from 4.61%), 50% of firms plan to raise prices.

AU Dec Private Credit : Subdued end to a subdued year as economy slows.
Andrew Hanlan

· Dec. private credit rose +0.4%m/m and 4.8%y/y (4.7%y/y in Nov.) to remain at recent soft pace with notable slowing of business credit as sentiment is downbeat.

· Housing credit grew 4.1%y/y, crimped by higher rates, business 6/6%y/y but down sharply from 13.8%y/y in Oct. 2022, personal credit grew 1.2%y/y.

AU Business Investment : Investment to stall in 2024.
Andrew Hanlan

· Business investment to stall in 2024 as firms respond to weak household demand. State trends and labour developments pointers to soft investment outlook.

Macro FX Trade Ideas : Tactical and medium-term strategic trade ideas.
Sean Callow, Richard Franulovich, Imre Speizer, Tim Riddell

· Open trades:

Short EUR/GBP

· Open orders:

Long DXY.

US Presidential Election 2024 : Biden vs Trump 2: Where it stands.
Sean Callow

· Key dates into the election. Less uncertainty than usual as to who nominees will be.
A focus on policies of Biden and Trump rather than potential candidates.

NZGB Tender Preview : Preview of weekly NZGB tenders and observations on NZGB market.
Imre Speizer

· Thursday's tender of $500m nominal NZGBs, comprising NZD250m 2030, NZD175m 2033 and NZD75m 2051 nominal bonds, plus NZD30m 2035 linkers, could be mixed.

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