US TSYS: Cash Bonds Slightly Richer After Yesterday’s Heavy Session

• In out data preview last week we forecast two different stories coming from the PPI and CPI data releases over the weekend, and that certainly was the case.
• Mired in deflation, PPI’s print was weaker than consensus at -2.3% (consensus -2.2%; prior -2.3%) and was the 28th month in succession of decline speaks to the absence of pricing power that corporates have.
• CPI however tells a different story rising +0.5% YoY (consensus +0.4 ; prior +0.1%)the first rise since August last year.
• The largest contributor to the rise was food prices up +0.4% and services +1.1%.
• Core rose 0.6% YoY from 0.4% in December.
• The MoM figures sees CPI rising +0.7%.
• Authorities will be heartened by the CPI numbers, given the focus on improving consumption in the economy whilst being conscious of the distorting effect of the Lunar New Year holidays would have had on this month’s release. 

RBNZ-dated OIS pricing is 2–10bps firmer than pre-Q4 Labour Market data levels from last Wednesday.

• The Q4 unemployment rate rose 0.3pp to 5.1%, aligning with both consensus expectations and the RBNZ’s forecast. This marks the highest level since the Covid-impacted Q3 2020. Employment declined 0.1% q/q, bringing the annual drop to 1.1% after a revised -0.6% in Q3. Wage growth continues to moderate, hovering around or below 3%.
• As the data largely matched the RBNZ’s November projections—which included a forecasted 50bp rate cut in Q1 2025—another 50bp cut on February 19 remains likely.
• Markets are pricing in 48bps of easing for February, with a total of 120bps expected by November 2025.

Figure 1: RBNZ Dated OIS Today vs. Pre-Data (%)

Source: MNI – Market News / Bloomberg

Japan's Dec current account in seasonally adjusted terms, printed ¥2731.6bn, close to market expectations and versus ¥3033.4bn prior. The trade balance, on a BoP basis was ¥62.3bn, below forecasts of ¥227.7bn (per the BBG consensus). In seasonally adjusted terms the trade balance was back in surplus though (¥214.1bn). This was the first such surplus since 2021. 

• The current account balance sits just off cycle highs in Dec, which is plotted below against the trade balance (which in millions of yen, not billions).
• Other data showed a bias to sell offshore debt in December, particularly in terms of the EU. There was a record amount of Italian debt sold, while outflows were also noted from Germany and France. Fiscal concerns a likely driver of such outflows. 

Fig 1: Japan Current Account & Trade Balance Trends (Yen) 

Source: MNI - Market News/Bloomberg