JGBS: Cheaper After Holiday But Off Worst Levels

Asian markets are mixed today, South Korea’s Kospi surged 2.1% to its highest level since September, driven by gains in Samsung, SK Hynix, and LG Energy after Intel’s rally fueled chip optimism. Meanwhile, Hong Kong stocks retreated as Baidu’s earnings disappointed and the recent tech rally showed signs of exhaustion, with analysts warning of a potential pullback. Investors remain cautious after Donald Trump threatened fresh 25% tariffs on autos, semiconductors, and pharmaceuticals, weighing on Japanese and Taiwanese stocks. Despite geopolitical concerns, Chinese investors continued to pour money into Hong Kong equities, with Tuesday’s inflows marking the largest daily purchase since early 2021, as per BBG.

• Semiconductors: Intel’s 16% rally overnight boosted sentiment around chips, the SOX also closed 1.68% higher, the move came on the back of speculation of a breakup deal involving TSMC and Broadcom. South Korean semiconductor stocks are higher on growing expectations for the K-Chips Act, which would increase tax deductions for facility investments. Samsung rose 3.4%, SK hynix gained 4.05%, and Hanmi Semiconductor soared 9.50%. Meanwhile, China’s semiconductor stocks extended gains, with Morgan Stanley highlighting increasing self-sufficiency in 2025. TSMC and Japanese chip stocks faced pressure after Trump threatened 25% tariffs on semiconductor imports.
• Chinese robotics stocks jumped after Unitree’s CEO forecasted significant industry growth by year-end. The AI-driven rally in Hong Kong tech stocks, fueled by DeepSeek’s advancements and Xi Jinping’s meeting with business leaders, faced resistance as Baidu’s weak earnings triggered profit-taking.
• NAB tumbled over 8% on weaker earnings, while HSBC hit an 11-year high before slipping ahead of earnings.
• Key Benchmarks: Japan's Nikkei -0.5%, while TOPIX is -0.40%, Hong Kong's HSI -0.30%, China's CSI 300 +0.40%, Taiwan's TAIEX is flat, South Korea's KOSPI is +2.1%, Australia's ASX 200 -0.85% while New Zealand's NZX 50 -0.15%.

The USD BBDXY index sits down a touch, but at 1289.2, is comfortably within recent ranges. Earlier USD gains, led against the NZD post the RBNZ cut, have been unwound. 

• Earlier, we heard from US President Trump that 25% tariffs on autos/chips and pharma products were likely as soon as April 2. FX market impact was minimal though.
• Australian wages data continued to show an easing trend, consistent with the RBA's viewpoint and starting the easing cycle yesterday. AUD/USD didn't react though. AUD/USD saw lows of 0.6342, dragged by a softer NZD and early HK/China equity market weakness. NZD has recovered though, and China equities are back in the green. HK markets are comfortably up from lows. The A$ was last near 0.6360/65, close to recent highs at 0.6374.
• NZD/USD got to lows of 0.5678 post the RBNZ, but now sits back at 0.5715/20, more than +0.50% higher from these earlier lows. The central bank cut 50bps as expected, but suggested a slower easing pace going forward. This, along with the recovery in HK/China equities helped the NZD rebound.
• The AUD/NZD printed fresh highs of 1.1175, but sits back at 1.1120/25 now, below pre RBNZ levels.
• USD/JPY has largely been range bound, although has found selling interest above 152.00. We were last 151.75/80, close to session lows. Earlier the BoJ's Takata stated that further gradual policy adjustments can take place. This supported the yen, but only modestly.
• In terms of US yields, we are little changed at the back end, slightly lower for the 2yr.   
• Looking ahead, the FOMC meeting minutes are published and the Fed’s Jefferson speaks. In terms of data, there are January US housing starts/permits, NY Fed February services, UK January CPI/PPI and euro area December current account.

With the RBA saying in its February meeting statement that the labour market “tightened a little further in late 2024” and Governor Bullock admitting that it was the strongest argument for rates to be left on hold, January jobs data on Thursday are likely to be watched closely. Holidays though could make it volatile. Bloomberg consensus is forecasting a 20k rise in employment after December’s 56.3k and a 0.1pp tick up in the unemployment rate to 4.1%.

• Employment forecasts range from +5k to +40k but local banks are all expecting it to print below consensus. ANZ and CBA are projecting +10k and NAB and Westpac +15k.
• There is a significant probability that people took time off between jobs in January to coincide with summer holidays. Thus any volatility needs to be looked through. In January 2024, employment rose only 2k and then jumped 113.9k in February.
• Forecasters are split over whether the unemployment rate will be unchanged at 4.0% (11 analysts on Bloomberg) or increase to 4.1% (14 analysts). CBA, NAB and Westpac are all in line with consensus at 4.1%, while ANZ expects it to be unchanged at 4.0%.
• The participation rate is expected to be steady at 67.1%, an equal record high.
• Given that the RBA looks at a range of labour market indicators, the trend in hours worked, the underemployment and youth unemployment rates will also be important.