MNI EUROPEAN MARKETS ANALYSIS: USD Supported, HK Equities Up

• US House Republicans narrowly passed a budget blueprint, enabling potential extension of Trump’s 2017 tax cuts with $4.5t in tax reductions and a $4t debt limit increase, despite adding to deficits. US Yields rose in response, while the USD is mostly tracking higher.
• In Australia, January headline CPI inflation printed slightly lower than expected at 2.5% y/y, in line with December. However, the underlying trimmed mean rose 0.1pp to 2.8%, but still below the top of the RBA’s 2-3% band.
• Hong Kong equities surged, led by tech.
• Later the Fed’s Barkin and Bostic speak and January building permits/new home sales print. Also, March German GfK consumer confidence is released. 

MARKETS

US TSYS: Tsys Futures Sell-Off On Budget Blueprint

• Tsys futures have seen a reversal following the chances of the tax cuts rising as the house passed budget targeting safety net. TU is last -01 3/8 at 103-00+, while TY is trading -05+ at 110-11.
• Cash tsys curves are trading mixed, the belly is slightly underperforming. The 2yr is +2.7bps at 4.121%, while the 10yr is trading +2.9bps at 4.323%. The 2s10s is trading little changed at 20bps.
• House Republicans narrowly passed a budget blueprint, enabling potential extension of Trump’s 2017 tax cuts with $4.5t in tax reductions and a $4t debt limit increase, despite adding to deficits. The plan, which overcame internal resistance with Trump’s last-minute support, proposes $2t in spending cuts, predominantly to safety-net programs like Medicaid, though it faces Senate revisions and Democratic opposition for favoring the wealthy while slashing aid for the poor.
• Projected rate cuts through mid-2025 have cooled vs Tuesday levels (*) as follows: Mar'25 steady at -0.7bp, May'25 at -5.6bp (-8.2bp), Jun'25 at -19.6bp (-20.7bp), Jul'25 at -27.1bp (-28.6bp).
• Atlanta Fed President Raphael Bostic is scheduled to speak later today, while we also have a 7yr note auction, this follows a 2yr & 5yr auction so far this week.
• Later today, New Home Sales and building permits, then focus will turn to Nvidia's earnings.

EQUITIES: Magnificent 7 Stocks Struggle, Focus On Nvidia Today

• Tesla is leading losses among the Magnificent Seven, pushing the gauge of the group into correction territory, with the Bloomberg Magnificent 7 Price Return Index down 10% from its December high. Tesla fell 8.39% on Tuesday and has been the biggest laggard, driven by a 45% drop in European sales last month, while rivals saw rising EV demand.
• Amazon & Apple closed little changed, while all other names closed down over 1%
• Nvidia is set to report Q4 earnings on after the US close on Wednesday, with investors watching AI spending trends amid concerns that data center operators may slow expenditures. Analysts are focused on Nvidia’s transition from Hopper to Blackwell chips, which could temporarily impact sales.
• Key estimates include Q4 revenue of $38.25b (data center: $34.06b, gaming: $3.02b), adjusted EPS of $0.84, and a 73.5% gross margin. Q1 revenue is projected at $42.26b, with 2026 revenue estimates at $198.63b. BBG Consensus ratings shows 68 buys, 7 holds, and 1 sell, with an average price target of $174.96 (38.6% upside). Nvidia shares are up 60.2% YoY, and the stock has an implied 8.5% one-day move post-earnings.

JGBS: Richer But Off Bests As US Tsys Weigh

JGB futures are stronger, +20 compared to the settlement levels, but well off the session’s best levels.

• Cash US tsys are 2-3bps cheaper in today’s Asia-Pac session after yesterday’s solid gains. Earlier, the passage of the budget blueprint by the US House provided an upward backdrop for yields.
• "The House budget would pave the way for $4.5 trillion in tax cuts — about enough to pay for extending the expiring cuts but not enough to also cover Trump’s campaign promises for additional tax relief. The measure would add to the budget deficit despite calling for $2 trillion in overall spending cuts over ten years." (per BBG)
• "The Bank of Japan is likely to keep raising interest rates to 1% if the results of annual wage talks due mid-March come out as strong as last year, says Mizuho Securities economist Ryosuke Katagi." (per DJ via BBG)
• Cash JGBs are 1-3bps richer across benchmarks. The benchmark 10-year yield is 1.8bps lower at 1.355% versus the cycle high of 1.466% set last week.
• Swaps rates are ~1bp higher. Swap spreads are wider.
• Today, the local calendar will see Leading and Coincident Indices later.
• Tomorrow, the local calendar is empty apart from 2-year supply. Tokyo CPI is due on Friday alongside Retail Sales data. 

AUSSIE BONDS: Richer But Off Bests, Tracking US Tsys

ACGBs (YM +3.0 & XM +4.0) are richer but off session bests. 

• January headline CPI inflation printed slightly lower than expected at 2.5% y/y, in line with December. However, the underlying trimmed mean rose 0.1pp to 2.8%, but still below the top of the RBA’s 2-3% band. The first month of the quarter has limited updates for services inflation.
• The move away from the session’s bests, however, can be traced back to cash US tsys, which are currently 2-3bps cheaper in today’s Asia-Pac session. Earlier, the passage of the budget blueprint by the US House provided an upward backdrop for yields.
• "The House budget would pave the way for $4.5 trillion in tax cuts — about enough to pay for extending the expiring cuts but not enough to also cover Trump’s campaign promises for additional tax relief. The measure would add to the budget deficit despite calling for $2 trillion in overall spending cuts over ten years." (per BBG)
• Cash ACGBs are 3-5bps richer with the AU-US 10-year yield differential +3bps.
• The bills strip has bull-flattened, with pricing flat to +4.
• Tomorrow, the local calendar will see Private Capital Expenditure data and Michael Plumb, Head of Economic Analysis Department, deliver a speech at the ABE Annual Forecasting Conference, titled ‘Why is productivity important?’ 

AUSTRALIA: Function Signals Stable Rates On Persistent Positive Inflation Gap

The RBA cut rates 25bp to 4.10% at its February 18 meeting as the Q4 CPI data suggested that “inflationary pressures are easing a little more quickly” than it expected. It also updated its forecasts and extended them to Q2 2027. While Q2 2025 trimmed mean inflation was revised down 0.3pp to 2.7%, the rest of the forecast horizon had it stuck at this rate and no longer reaching the band mid-point. Our policy reaction function uses the 2.5% mid-point and the RBA’s projections to calculate the core inflation gap and as a result, it is not suggesting any further rate cuts, in line with “the Board remains cautious on prospects for further policy easing”.

• The equation uses the one quarter lead of the inflation gap using trimmed mean inflation.
• It also includes the contemporaneous output gap calculated with the RBA’s GDP forecasts, which were revised lower this month, and an estimated trend growth rate of 2.2%. This results in a negative output gap for around two years with it trending towards neutral over 2026. However, this is not enough to offset the positive inflation gap and signal further cuts.
• Thus the policy function has rates stable around 4.1% over 2025 resulting in Q4 2025 around 60bp higher than current AUD OIS market pricing.
• It is worth noting that econometric calculations are just estimates and not projections.

Australia policy reaction function with trimmed mean inflation %

AUSTRALIA DATA: Housing-Related Inflation Continues To Moderate

January headline CPI inflation printed slightly lower than expected at 2.5% y/y, in line with December. However, the underlying trimmed mean rose 0.1pp to 2.8%, but still below the top of the RBA’s 2-3% band. The first month of the quarter has limited updates for services inflation. The seasonally adjusted data is consistent with the RBA remaining cautious with it stating that “upside risks remain”.

• The seasonally-adjusted CPI ex volatile items and holiday travel rose 0.3% m/m to be up 2.9% y/y in January. The 3-month annualised rate increased to 3.1% from 1.2%.
• Headline seasonally adjusted rose 0.6% m/m last month, the highest monthly rate since August 2023. It was boosted by higher fruit prices due to disappointing harvests but also due to the Queensland electricity rebate.
• The ABS notes that the decline in electricity prices was smaller in January at -11.5% y/y up from -17.9% y/y in January. Without government rebates, electricity prices would have been down 1.2% y/y after 0.9% in December.
• The easing in housing inflation has been a key reason for the moderation in inflation which allowed the RBA to cut rates last week. Rents rose 5.8% y/y down from 6.2% due to higher vacancy rates. New dwellings rose 2.0% y/y down from 2.3%, the lowest since June 2021. The ABS observes that builders are discounting to attract customers and that supply chain flows have improved.
• Food & non-alcoholic drink prices increased 3.3% y/y up from 2.7%, as fruit prices rose 12.3% y/y.
• Auto fuel prices fell in January to be down 1.9% y/y after -1.4% y/y.

Australia CPI y/y%

BONDS: NZGBS: Richer But Well Off Bests As US Tsys Cheapen On Budget Passage

NZGBs closed 1-2bps richer but well off the session’s best levels. 

• With the local calendar light, today’s turnaround can be traced back to cash US tsys, which are currently 2-3bps cheaper in today’s Asia-Pac session. Earlier, the passage of the budget blueprint by the US House provided an upward backdrop for yields.
• "The House budget would pave the way for $4.5 trillion in tax cuts — about enough to pay for extending the expiring cuts but not enough to also cover Trump’s campaign promises for additional tax relief. The measure would add to the budget deficit despite calling for $2 trillion in overall spending cuts over ten years." (per BBG)
• Swap rates closed 2-4bps lower, with the 2s10s curve flatter.
• RBNZ dated OIS pricing is flat to 3bps softer. 26bps of easing is priced for April, with a cumulative 62bps by November 2025.
• Tomorrow, the local calendar will see ANZ Business Confidence.
• Tomorrow, the NZ Treasury plans to sell NZ$225mn of the 3.00% Apr-29 bond, NZ$225mn of the 3.50% Apr-33 bond and NZ$50mn of the 1.75% May-41 bond.

FOREX: USD Recovers Some Ground, Aided By Higher Tsy Yields

The USD BBDXY index has tracked higher as the Wednesday Asia Pac session has unfolded but remains within recent ranges. The index was last 1286.8, up a little over 0.15% versus end Tuesday levels in US. 

• There has been some focus on US Tsy yields, with moves of +2-3bps firmer across the benchmarks. We opened a little weaker, with the 10yr getting close to 4.28%, but it is now around 4.32%.  
• Impetus for the yield move appeared to come from the passage of the budget blueprint by the US House. "The House budget would pave the way for $4.5 trillion in tax cuts — about enough to pay for extending the expiring cuts but not enough to also cover Trump’s campaign promises for additional tax relief." (per BBG).
• USD/JPY got to lows of 148.63 in early dealings, but now sits back in the 149.50/55 region, around 0.30% weaker in yen terms. EUR/USD is back close to 1.0500.
• AUD/USD has drifted down to be under 0.6330, off by a similar amount to yen. The Jan CPI came and went without much FX market impact. The headline eased, but core ticked up. We will get more information at the second month print of the quarter (for Feb), as this will include more services inflation updates. NZD/USD is off by a similar amount to AUD, last at 0.5710/15.
• US equity futures are higher, up by 0.30-0.40%.  Hong Kong markets are also much higher, but this hasn't aided higher beta FX much. Note early tomorrow morning Asia Pac time get Nvidia earnings.
• Looking ahead, EU data is second tier, but we do have some ECB speak, including Lagarde. In the US, new homes data prints, along with Fed speak from Barkin and Bostic.   

ASIA STOCKS: Asian Equities Mixed, HK Tech Surges

• Japan’s markets weakened, with the Nikkei and Topix indices each dropping 1%, dragged down by declines in major firms like Tokyo Electron and Mitsubishi UFJ Financial. This followed US economic data showing a sharp drop in consumer confidence, raising concerns about the global economic outlook, alongside a stronger yen tied to expectations of continued Bank of Japan rate hikes. 
• South Korea’s KOSPI trading near flat, weighed by growth concerns despite gains in some sectors, while Taiwan’s Taiex edged up 0.2%. Australia’s S&P/ASX 200 fell 0.4%
• Sector-specific movements included gains in Chinese robotics stocks after Unitree’s showcase of its upgraded G1 robot, alongside rises in Hong Kong real estate and consumption stocks ahead of an annual budget announcement. Chinese telecom shares also advanced following calls from Premier Li Qiang for faster innovation. 
• Japanese real estate and home construction stocks rose on hopes of US Fed rate cuts boosting housing demand. 
• Overall, sentiment remained cautious as investors awaited key events like Nvidia’s earnings and further clarity on US trade policies

ASIA STOCKS: Heavy Outflows In Asian As Tech & Semiconductor Stocks Get Hammered

A heavy day of outflows on Tuesday, as semiconductor and tech names take another beating. The SOX was again down 2.30% overnight, so expect the outflows to continue. Taiwan saw a $1.5b outflow, while India has now seen over $12b in outflows ytd.

• South Korea: Recorded -$247m in outflows yesterday, bringing the 5-day total to -$663m. YTD flows remain negative at -$2.16b. The 5-day average is -$133m, worse than the 20-day average of -$110m and the 100-day average of -$104m.
• Taiwan: Posted -$1.56b in outflows yesterday, bringing the 5-day total to -$2.24b. YTD flows remain negative at -$4.17b. The 5-day average is -$448m, significantly worse than the 20-day average of -$101m and the 100-day average of -$87m.
• India: Recorded -$660m in outflows Monday, bringing the 5-day total to -$760m. YTD outflows remain heavy at -$12.2b. The 5-day average is -$152m, better than the 20-day average of -$253m and the 100-day average of -$248m.
• Indonesia: Posted -$100m in outflows yesterday, bringing the 5-day total to -$474m. YTD flows remain negative at -$1.03b. The 5-day average is -$95m, worse than the 20-day average of -$42m and the 100-day average of -$34m.
• Thailand: Saw -$100m in outflows yesterday, bringing the 5-day total to -$215m. YTD flows remain negative at -$367m. The 5-day average is -$43m, worse than the 20-day average of -$5m and the 100-day average of -$19m.
• Malaysia: Registered -$62m in outflows yesterday, bringing the 5-day total to -$185m. YTD flows are negative at -$1.03b. The 5-day average is -$37m, worse than the 20-day average of -$26m and the 100-day average of -$28m.
• Philippines: Recorded -$10m in outflows yesterday, bringing the 5-day total to -$47m. YTD flows remain negative at -$196m. The 5-day average is -$9m, worse than the 20-day average of -$4m and the 100-day average of -$6m.

Table 1: EM Asia Equity Flows

OIL: Crude Holding Onto Losses With Demand & Supply Outlooks Highly Uncertain

Oil prices are slightly higher today but have held onto the bulk of Tuesday’s sharp losses which were driven by global demand worries. Brent is 0.2% higher at $73.15/bbl after a low of $73.07, while WTI is up 0.3% to $69.11 after dipping below $69.00 briefly earlier. The USD index is 0.1% higher, which may be weighing on dollar-denominated crude.

• Concerns over the strength of China’s economy are ongoing but after weak US consumer confidence and other surveys, markets are worried that uncertainty and US trade policies are weighing on US sentiment and thus growth.
• The supply outlook is also highly uncertainty with it still not clear what the impact of sanctions will be on global exports. Russia and Iran have been able to avoid them by increased vessel-to-vessel transfers. OPEC and US production plans are also unknowns at this point.
• Bloomberg reported that US crude inventories fell 600k barrels last week after rising 3.3mn the week before, according to people familiar with the API data. Gasoline increased 500k, while distillate fell 1.1mn. The official EIA data is out later today. Inventories have been impacted by scheduled refinery maintenance and Canadian producers increasing flows to the US to beat tariff deadlines.
• Later the Fed’s Barkin and Bostic speak and January building permits/new home sales print. Also March German GfK consumer confidence is released. 

GOLD: Early Rally Fails as Gold Falls. 

• Having hit new highs of US$2,956.19 overnight gold opened at $2,914.76 in Asia trading and rallied.
• The rally quickly ran out of steam as gold was unable to reach last night’s highs and peaked at $2,930.09.
• It subsequently fell back below where it opened to $2,913.76.
• In the US overnight, risk off sentiment prevailed as equities trended lower as data showed the US consumer confidence was weaker and the Dallas Fed Services lower giving a bid to US Treasuries with futures back at mid -December highs.
• Weak data suggesting rate cuts usually drives gold higher but as bullion continues to hit new highs (up over 10% year to date) it is not surprising that some profits are being booked.
• The key drivers for gold remain positive with a deteriorating geopolitical environment due to the threat of tariffs, potential rate cuts and Central Banks resuming gold purchases.

ASIA FX: USD/Asia Pairs Mostly Ticking Higher With Firmer US Yields

Asia currencies are mostly holding lower against the USD. In NEA, CNH has edged down, while KRW is away from best levels against the USD. USD/IDR is threatening an upside test of 16400, while THB has also softened ahead of the BoT later.

• USD/CNH has risen back to 7.2600, but remains sub yesterday's highs above 7.2700. Local equities are tracking higher, albeit with a lower beta compared to Hong Kong moves. US Tsy yields have recovered some ground after the US House passed a budget measure, which could see tax cuts extended. Yen is around the weakest performer in the G10 space.
• USD/KRW dipped sub 1430 early, but now tracks back in the 1433/34 region. Local equities are higher but broader USD gains, including against higher beta FX, is likely a constraint.
• USD/IDR got close to 16400 in early dealings, but sits slightly lower now. We continue to see offshore outflows from local equities, while 5yr CDS levels are also tracking higher.
• USD/THB is continuing to recover ground ahead of the BoT decision later. We were last in the 33.75/80 region, off around 0.25% in baht terms so far today. The sell-side consensus for the BoT decision later is no change, although some forecasters are projecting a 25bps cut. Market pricing has the policy rate 2.00% in 3 month time and around 1.75% in a year's time. • Hence a cut may not drive a huge THB reaction. US-TH government bond yields are just up from recent lows, close to +211bps. Local equities remain very weak, albeit modestly higher today.
• USD/PHP is steady, last near 57.90. The BSP stated yesterday it would manage volatility in PHP spot and forwards (including through swaps). This steady trend leaves PHP a modest outperformer so far today. 

CHINA: The Control of Liquidity is Pushing Yields Gently Higher

• On January 10 the PBOC paused their policy of purchasing government bonds in place to support liquidity.
• That week, the close for the CGB 2yr hit a low of 1.03% and the 10YR 1.59%
• Since that time two major themes have become evident.   The provision of significant liquidity leading into the earlier than usual Lunar New Year holiday, and the gradual withdrawal since.
• A controlled rise in the Overnight interbank rate has accompanied this withdrawal of liquidity post Lunar New Year.  
• This has resulted in a gradual, measured ascent of bond yields with the CGB 2yr today at 1.45% and the CGB 10yr at 1.76%.
• As China’s top legislature begins its annual parliamentary meeting on March 5, expectations for policy announcements are high.
• With the policy setting for monetary policy deemed accommodative going forward,  China could cut its policy rates early next month.
• The controlled rise in interest rates comes at a time when demand for bonds (and bond funds) has been growing, particularly from retail investors concerned about the property market.   Notwithstanding the recent rebound in local equities, which could also be drawing away funds from the local bond market.
• A cut in interest rates could see bond yields move lower again and the gradual rise in yields in advance of monetary policy changes, appears a sensible policy intervention to avoid a bubble arising in bonds.  

SOUTH KOREA: Futures Rally as Yields Lower Post Cut.

• Korean futures are stronger again today, posting their fourth straight day of gains.
• Korea’s 10YR future is up +.48 at 119.30, following last nights close of 118.82
• The 10YR has broken through the 20-day EMA of 118.34 over the last few trading sessions.
• Korea’s 3YR future is up +.08 at 106.85, following last nights close of 106.77.
• The move sees the 3YR above the converged 20-day and 50-day EMA at 106.72
• Government bonds are stronger again today, with yields lower across the curve with the 10YR leading the rally.
• KTB 10YR is lower in yield by -4.5bps at 2.75%.
• Government bonds had rallied leading into the BOK decision with the KTB 2YR below base rate and the cut in rates sees convergence of the 2YR and the base rate. 

• The Korean market can at different times exhibit higher than regional peers correlation to US yields. At a time when US rate expectations are unclear, and very little priced in both the bond market and forwards, the forwards market and the  2YR bond yield will be looking for a catalyst from either domestic economic data or US Federal Reserve to define its next trend.
• If Governors comment that there are 2-3 cuts priced in (including February) is correct, there appears scope for bond markets to re-price leading up to the next BOK meeting on April 17.

UP TODAY (TIMES GMT/LOCAL) 

Date	GMT/Local	Impact	Country	Event
26/02/2025	0700/0800	**	SE	PPI
26/02/2025	0700/0800	*	DE	GFK Consumer Climate
26/02/2025	0700/1500	**	CN	MNI China Money Market Index (MMI)
26/02/2025	0745/0845	**	FR	Consumer Sentiment
26/02/2025	0800/0900	**	ES	PPI
26/02/2025	1200/0700	**	US	MBA Weekly Applications Index
26/02/2025	-		EU	ECB's Lagarde and Cipollone in G20 FMs and CB Governors meeting
26/02/2025	1330/0830	*	CA	Capital and repair expenditure survey
26/02/2025	1330/0830		US	Richmond Fed's Tom Barkin
26/02/2025	1500/1000	***	US	New Home Sales
26/02/2025	1530/1030	**	US	DOE Weekly Crude Oil Stocks
26/02/2025	1630/1630		GB	BOE's Dhingra lecture on Trade fragmentation and monetary policy
26/02/2025	1630/1130	**	US	US Treasury Auction Result for 2 Year Floating Rate Note
26/02/2025	1700/1200		US	Atlanta Fed's Raphael Bostic
26/02/2025	1800/1300	**	US	US Treasury Auction Result for 7 Year Note
27/02/2025	0030/1130	*	AU	Private New Capex and Expected Expenditure
27/02/2025	0745/0845	**	FR	PPI
27/02/2025	0800/0900	**	SE	Economic Tendency Indicator
27/02/2025	0800/0900	***	ES	HICP (p)
27/02/2025	0800/0900	***	CH	GDP
27/02/2025	0900/1000	**	EU	M3
27/02/2025	0900/1000	**	IT	ISTAT Consumer Confidence
27/02/2025	0900/1000	**	IT	ISTAT Business Confidence
27/02/2025	1000/1000	**	GB	Gilt Outright Auction Result
27/02/2025	1000/1100	*	EU	Consumer Confidence, Industrial Sentiment
27/02/2025	1230/1330		EU	Publication of MonPol Meeting Account
27/02/2025	1330/0830	*	CA	Current account
27/02/2025	1330/0830	*	CA	Payroll employment
27/02/2025	1330/0830	***	US	Jobless Claims
27/02/2025	1330/0830	**	US	WASDE Weekly Import/Export
27/02/2025	1330/0830	**	US	Durable Goods New Orders
27/02/2025	1330/0830	***	US	GDP