ASIA STOCKS: China & Hong Kong Equities Struggle, Tech Stocks Lead Losses

RBA-dated OIS pricing is 4-9bps softer across meetings after today’s Q4 CPI data, with August leading. 

• Q4 CPI measures printed 0.1pp below consensus with underlying measures trending towards the top of the RBA’s 2-3% band but still “some way” from the 2.5% mid-point. The data should increase the RBA’s “confidence that inflation is moving sustainably towards target” as annual rates printed 0.2pp below its November forecasts. There will be updated projections at its February 18 meeting and the timing of 2.5% trimmed mean inflation will be important for its decision.
• A 25bp rate cut is more than fully priced for April (135%), with the probability of a February cut at 91% (based on an effective cash rate of 4.34%). February was at 76% before the data. 

Figure 1: RBA-Dated OIS – Post-CPI Vs. Pre-CPI

Source: MNI – Market News / Bloomberg

• It has been a quiet session so far for tsys, futures are all trading higher however ranges have been narrow. TU is +01 at 102-29⅜, while TY is +06 at 109-07.
• The medium-term trend remains bearish, however a bullish short-term cycle highlights a corrective phase and the TY contract is holding on to its recent gains. Attention is on 109-12+, the 50-day EMA - a level tested on Monday. A clear break of this EMA would strengthen a bullish theme and open 109-31, the Dec 18 high. The bear trigger is 107-06, the Jan 13 low. Initial support has been defined at 108-00, the Jan 16 low.
• Cash tsys yields are 1-2bps lower today, the belly is outperforming again, with the 7yr -1.6bps at 4.409%, while the 10yr is -1.2bps at 4.520%.
• Projected rate cuts through mid-2025 have eased vs. late Monday (*) levels as follows: Jan'25 at -0.1bp (-0.7bp), Mar'25 at -7.8bp (-8.3bp), May'25 at -15.4bp (-15.9bp), Jun'25 at -26.5bp (-27.9bp), Jul'25 at -32.1bp (-33.7bp).
• The Fed is expected to hold rates steady at 4.25%-4.5% this week, following three consecutive rate cuts since September. Policymakers aim to assess the impact of persistent inflation and President Trump’s bold economic policies on trade, taxation, and regulation. Powell will likely face questions about Trump’s influence on monetary policy, the “neutral rate,” and conditions for future rate changes. While inflation progress has stalled, December data offered some relief, and the Fed plans to retain flexibility for adjustments as needed. Powell’s press conference is set for Wednesday afternoon.

Outside of A$ weakness (and spill over NZD weakness), G10 FX moves are relatively muted so far in Wednesday trade. The USD BBDXY index was last little changed at 1301.35/40.

• AUD/USD sits at 0.6230/35, just up from session lows (0.6227). The Q4 CPI print was softer than expected, raising the odds of a Feb cut to around 90% (we were around 76% pre Data). Westpac is now calling for a Feb cut, joining ANZ and CBA in forecasting the start of the RBA easing cycle then.
• AU-US yield differentials are lower, but haven't seen a dramatic move. The 2yr AU-US swap differential is -41bps, we were -34bps at the start of the session. This is above recent lows for the spread. This policy differential (priced by the market) in 1 yr's time is little changed at -32.5bps.
• Downside focus for AUD/USD is likely to rest on Jan 21 lows at 0.6209.
• NZD/USD is lower, last under 0.5660, off close to 0.20%. Earlier the RBNZ's Conway stated that further easing from the central bank is likely (as they signalled late last year). The AUD/NZD cross is lower, back near 1.1010/15, close to late Dec lows.
• USD/JPY is a touch higher, last near 155.75/80, but remains within recent ranges. Monday highs were just short of 156.00. The BoJ Dec Mins were released earlier, with "Many members pointed out that economic activity and prices had been developing in line with the Bank's outlook at the meeting." This obviously came before the central bank raised rates at the Jan policy meeting.
• In the cross asset space, US equity futures are down a touch, while regional equity markets are higher, although few are open given the LNY break in Asia. US yields are down a touch.
• Outside of Japan consumer confidence later, there is little in the way of data in Asia Pac markets, with focus on headline around tariff risks. We have many markets including China shut for LNY, while the FOMC is also later in US time on Wednesday.