OIL: Oil Set for Weekly Gain as Tariffs Take Centre Stage. 

NZGBs closed 4-9bps cheaper, with the 5-year underperforming, as the fall-out from yesterday’s upbeat NZIER QSBO. 

• Once again, today’s move reflected $-bloc underperformance, with the NZ-US and NZ-AU 10-year yield differentials ~6bps wider.
• Cash US tsys are flat to 1bp richer in today’s Asia-Pac session after yesterday’s directionless session. Focus turns to today’s CPI inflation data for December where rental inflation is expected to accelerate to an average figure that firmly rounds to 0.3% M/M in December.
• Swap rates closed 7-9bps higher.
• RBNZ dated OIS pricing closed flat to 7bps firmer across meetings, with late 2025 leading. 45bps of easing is priced for February, with a cumulative 103bps by November 2025. Pricing for the November meeting is some 35bps firmer than Friday’s closing level.
• Tomorrow, the local calendar will see food prices and a range of other monthly price indicators for December ahead of BusinessNZ Manufacturing PMI on Friday. December price data are likely to show inflation pressures remained subdued. That adds to the case for the RBNZ to deliver further easing.
• Tomorrow, the NZ Treasury plans to sell NZ$250mn of the 3.00% Apr-29 bond, NZ$175mn of the 3.50% Apr-33 bond and NZ$75mn of the 1.75% May-41 bond.

• Total equity flows for Asian markets for 2024

BOJ-dated OIS pricing has shifted notably following BoJ Deputy Governor Himino's speech yesterday. The speech was interpreted as another indication that the policy board is leaning toward a 25bp rate hike at its upcoming meeting on January 23–24.

• Himino shared his views on two factors – the momentum of domestic wage growth and US President-elect Donald Trump’s policies. These align with points raised by Governor Kazuo Ueda in December, where he identified them as pivotal in determining the timing of the next rate hike.
• Current OIS pricing has largely returned to pre-December MPM (Monetary Policy Meeting) levels. On Monday, pricing was 1–6bps softer across meetings compared to pre-December MPM levels, with January 2025 leading the decline.
• Market expectations currently indicate: a 62% probability of a 25bp hike in January; a cumulative 83% chance by May; and a full 25bp increase not fully priced in until May 2025.
• On Monday, only a 28% probability of a 25bp hike in January was priced, with a full 25bp increase not fully priced until June 2025.

Figure 1: BOJ-Dated OIS – Today Vs. Pre-BOJ MPM (December)

Source: MNI – Market News / Bloomberg