JGBS: Futures Little Changed Overnight, US Tsys Bear-Steepen

• Over the weekend China’s February PPI and CPI was released showing deflation is firmly entrenched in the economy.
• PPI has been stuck firmly negative for multiple years now, showing the challenges companies face after 29 consecutive months of decline.
• For CPI it was the first time it had fallen back into deflation in over a year.
• Data across the region has been distorted by an earlier than usual Lunar New Year impacting the year on year data.
• Despite this consumer inflation is still at lows in recent months with core down and services inflation in decline.
• CPI declined -0.7%, down from 5% in January, worse than consensus of -0.4%.
• Food prices declined -3.3%, consumer goods down -0.9%, services down -0.4% and new energy vehicles down 6%
• China has set its inflation target at the lowest level in two decades  at 2% for 2025 as authorities recognizes the challenges ahead.
• The numbers put pressure on the authorities to act with a fiscal and monetary response and it is anticipated that policy changes could be announced soon.
• The Government has set the GDP target for 2025 at 5% with increased spending and bond issuance for regional governments agreed. 

RBA-dated OIS pricing is flat to 2bps softer across meetings today. 

• Nevertheless, pricing remains mixed compared to February’s pre-RBA Decision levels—meetings through May are 3-4bps firmer, while those beyond are 1-16bps softer.
• A 25bp rate cut in April is given a 9% probability, with a cumulative 65bps of easing priced by year-end (based on an effective cash rate of 4.09%). 

Figure 1: RBA-Dated OIS – Today Vs. Pre-RBA Levels

Source: MNI – Market News / Bloomberg

• RES 3: 96.501 - 76.4% of the Mar 14 - Nov 1 ‘23 bear leg
• RES 2: 96.207 - 61.8% of the Mar 14 - Nov 1 ‘23 bear leg
• RES 1: 95.740/851 - High Mar 4 / High Dec 11 
• PRICE: 95.570 @ 14:40 GMT Mar 7
• SUP 1: 95.420/95.300 - Low Feb 13 / Low Jan 14  
• SUP 2: 95.275 - Low Nov 14  (cont) and a key support
• SUP 3: 94.640 - 1.0% 10-dma envelope

Aussie 10-yr futures have faded sharply off the mid-week high, opening a small gap with first resistance. For bulls, a confirmed reversal and a breach of 95.851, the Dec 11 high, would instead reinstate a bull cycle and refocus attention on resistance at 96.207, a Fibonacci retracement point. A stronger bearish theme would expose 95.275, the Nov 14 low and a key support. Clearance of this level would strengthen a bearish condition.