STIR: OIS Pricing Suggests RBA Cut In Feb Is A Done Deal

ACGBs (YM -3.0 & XM -4.5) are weaker after stronger than expected ISM services and JOLTS data weighed on US tsys and further eroded Fed rate cut risks. The subsequent bear-steepener (yields 2-7bps higher) and more hawkish Fed outlook hit stocks. 

• The NASDAQ dropped ~2%, the S&P 500 down ~1% and the Dow slipped ~0.5%. Nvidia opened with a better than 2% gain to an intraday record peak of $153 after bullish news from the CES trade show, but the stock reversed in the afternoon and plunged 6% to $140.14 at the close.
• Cash ACGBs are 3-5bps cheaper with the AU-US 10-year yield differential at -16bps.
• November CPI is released today and will likely be watched closely ahead of Q4 data on January 29. It will also include more updates for services components than the October release. Bloomberg consensus is forecasting the headline to pick up 0.1pp to 2.2%. The trimmed mean was 3.5% the previous month.
• Swap rates are 3-5bps higher, with the 3s10s curve steeper.
• The bills strip is -2 to -4 across contracts.
• RBA-dated OIS pricing is flat to 3bps firmer across contracts, with later 2025 leading. A 25bp rate cut is more than fully priced by April (100%), with a February cut at a 56% chance.
• The local calendar shows retail sales and trade balances tomorrow.
• AOFM Bond issuance is expected to resume in the week beginning 13 January 2025.

CNH rose a touch for Tuesday's session, outperforming the broader USD rebound. USD/CNH tracks close to 7.3400 in early Wednesday trade, with dips towards 7.3300 supported on Tuesday. Spot USD/CNY was little changed at 7.3280, just under the upper daily trading limit. Still, the CNY CFETS basket tracker fell 0.45% to 101.43 on Tuesday, continuing to correct off recent highs. 

• To the extent the USD/CNY fixing remains steady near 7.1900, it will continue to limit onshore spot upside above 7.3300. In turn the CNH-CNY basis, which has spent little time beyond 400pips in the past year, may be a headwind for USD/CNH if we rebound into the 7.3600/7.3700 region.
• Another focus point for markets is reduced liquidity in the offshore market, with implied yields surging. The 1 week for CNH is above 5%, while 1 month is above 4%. The overnight CNH Hibor got to 8.1%, the highest since June 2021.
• Recall on Monday headlines crossed around more planned bill sales in Hing Kong in January from the PBoC.
• Still, as we approach Trump's inauguration on Jan 20, dips in USD/CNH are likely to be supported. The 20-day EMA support zone has held since early Nov. This level rests at 7.3134 currently.
• The local data calendar is empty until tomorrows inflation print. Late yesterday Dec FX reserves printed, falling to $3.2trln, which was below expectations ($3.25trln) but we remain above 2023 lows for reserves. 

In local morning trade, NZGBs are 4-6bps cheaper after a data-induced heavy session for US tsys.

• US tsys drifted sideways for most of the session after establishing cheaps after the morning's data: The JOLTS report saw surprisingly elevated job openings in November, but the quits rate reversed a surprise increase from October. Job openings were 8090k (cons 7740k) in November after an upward revised 7,839k (initial 7,744k) in October.
• Headline ISM strengthened to 54.1, a little higher than the 53.5 expected (52.1 prior), with New Orders (54.2, 53.7 prior) and Employment (51.4, 51.5 prior) exactly matching survey expectations. But Prices Paid soared to 64.4 (57.5 expected, 58.2 prior), jumping by the most since January to the highest level in 22 months.
• The local calendar today will see the Dec ANZ commodity price series. The Nov rise was 2.9% m/m. Also note Australian monthly CPI is out.
• NZ house prices may show a modest recovery this year after failing to respond to falling interest rates in the final months of 2024, according to CoreLogic. (per BBG)
• Swap rates are 4-6bps higher.
• RBNZ dated OIS pricing is little changed. 51bps of easing is priced for February, with a cumulative 126bps by November 2025.