NEW ZEALAND: Households Remain Cautious

RBA-dated OIS pricing is slightly firmer across meetings ahead of today’s Q4 CPI data. 

• However, current pricing remains 3-10bps softer compared to levels seen prior to the release of November’s Monthly CPI data in early January.
• Economists are divided on the timing of the first RBA rate cut, with opinions split between February and Q2. This makes today’s CPI data a critical focus.
• While the headline CPI is expected to rise by 0.3% q/q, bringing the annual rate down to 2.5% from 2.8%, the market’s attention will likely centre on the underlying trimmed mean and services inflation. These components will be scrutinised as government electricity rebates are expected to weigh on the headline figure.
• A 25bp rate cut is more than fully priced for April (121%), with the probability of a February cut at 76% (based on an effective cash rate of 4.34%).

Figure 1: RBA-Dated OIS – Today Vs. Yesterday

Source: MNI – Market News / Bloomberg

Oil prices rose moderately on Tuesday driven by the persistent threat of an increase in protectionism. Oil is the most important Canadian export to the US and the US imports over half of its crude from Canada. President Trump has threatened 25% tariffs from Saturday, which would likely increase domestic fuel prices. They have been trending lower since mid-January but are still higher on the month. 

• WTI rose 1.1% to $73.98/bbl after reaching $74.31 and then falling to $72.93. The 50-day EMA is at $72.16, clearance of this would signal scope for a deeper retracement. While the benchmark is down 0.9% so far this week, it is still up 3.8% on the month. It has started today slightly lower at $73.90. Initial and key resistance is at $79.48.
• Brent is 0.7% higher at $77.63/bbl after a high of $78.18 followed by a low of $76.85, remaining above the 50-day EMA at $76.01. It is down 1.1% this week but up 4% in January. Initial resistance is at $82.63, January 15 high.
• Bloomberg reported that US inventories rose 2.86mn barrels last week, according to people familiar with the API data. There has been a sharp increase of flows from Canada to beat the February 1 introduction of tariffs. Gasoline stocks rose 1.89mn while distillate fell 3.75mn. Official EIA data is released later today.
• Tightened sanctions on Russia and expectations of greater enforcement of those against Iran had boosted prices earlier in January. Crude fell yesterday following reports that Russia is attempting to avoid sanctions by shipping crude to India on restricted vessels anyway. The EU has proposed further measures on Russian banks and shadow fleet tankers. 

• RES 3: 147.74 - High Jan 15 and bull trigger (cont)
• RES 2: 146.53 - High Aug 6 
• RES 1: 142.73/144.48 - High Dec 9 / High Nov 11  
• PRICE: 141.06 @ 16:12 GMT Jan 28
• SUP 1: 140.00 - Round number support
• SUP 2: 139.38 - 2.764 proj of the Aug 6 - Sep 3 - 9 price swing
• SUP 3: 138.87- 3.000 proj of the Aug 6 - Sep 3 - 9 price swing    

A clear downtrend in JGB futures remains intact and the latest fresh cycle lows reinforce this condition. Note too that moving average studies on the continuation chart are in a bear-mode setup, highlighting a clear downtrend. The move down exposes the 140.00 psychological handle next. For bulls, a reversal would open 142.73 and 144.48, the Dec 9 and Nov 11 high respectively. For now, short-term gains are considered corrective.