STIR: RBA Dated OIS Pricing Softer Today But Mixed Vs. Pre-RBA Decision Levels

Asian equities are mixed today as trade tensions weighed on sentiment, with US-China tariffs and US Postal Service suspending inbound parcels from China adding to uncertainty. Investors remain cautious amid signs of slowing Chinese services activity and a weakening yuan, though Goldman Sachs sees potential for a 14% rally in the MSCI China Index if Beijing delivers strong stimulus.

• Chinese stocks fell as investors returned from the Lunar New Year break, reacting to escalating US-China trade tensions. The CSI 300 dropped 0.6%, while the Hang Seng China Enterprises Index slumped 2%. Tech shares outperformed, led by AI software firms after DeepSeek’s release of a lower-cost large language model, though AI hardware stocks weakened on concerns about reduced infrastructure spending.
• Japanese stocks erased early gains as the yen strengthened on expectations of further BOJ rate hikes following strong wage data. The Nikkei is 0.20% lower after rising 0.8% earlier, while the Topix trade flat with banks like Mizuho and MUFG benefiting from rate hike speculation.
• In South Korea the Korea Development Bank announced plans to create a ₩34 trillion ($25.5b) tech fund to support sectors like batteries and biotech, pending parliamentary approval. The KOSPI is trading 1.20% higher today. Taiwan's TAIEX is 1.75% higher as  TSMC trade 1.90% higher.
• Australia's ASX 200 rebounded 0.55% after Monday’s losses, tracking Wall Street gains. Mining stocks outperformed, with BHP, Fortescue, and Rio Tinto rising over 2%. Gold stocks also gained as the gold price hit a record $2,845/oz.

Building spare capacity in the NZ labour market is helping to bring wage inflation down. In Q4 full-time employment fell 0.3% q/q to be down 1.7% y/y after -0.9% y/y in Q3 and hours worked fell 0.5% q/q and 1.9% y/y after -1.1% y/y. The number of unemployed rose further and is now up 26.8% y/y. At the same time, the working age population rose 0.3% q/q but annual growth has moderated sharply to 1.3% y/y, 2pp below the peak. There are also signs of this capacity impacting the labour force with the participation rate trending lower over the last 18 months with it now 1.4pp below its Q2 2023 peak. This has been driven by young people who helped to cover the post-pandemic labour shortages. 

NZ hours worked vs full-time employment y/y%

Source: MNI - Market News/Refinitiv

ACGBs (YM flat & XM +2.5) are slightly richer but well off Sydney session cheaps on a data light day.

• Australia’s S&P Global PMIs: Composite Index rises to 51.1 from 50.2 in December, while Services Index rises to 51.2 from 50.8 in December.
• ACGBs opened cheaper despite the positive lead in from US tsys but have subsequently moved away from session cheaps.
• Cash US tsys are little changed in today’s Asia-Pac session.
• Cash ACGBs are flat to 3bps richer after being 2-4bps cheaper earlier. The AU-US 10-year yield differential is at -13bps versus -8bps early.
• Swap rates are 1-3bps lower, with the 3s10s curve flatter.
• The bills strip is little changed.
• RBA-dated OIS pricing is little changed across meetings today. A 25bp rate cut is more than fully priced for April (134%), with the probability of a February cut at 91% (based on an effective cash rate of 4.34%).