AUSSIE BONDS: Richer With US Tsys, Tariff Related Volatility, US Payrolls Looms

• RES 3: 97.190 - High May 5 2023
• RES 2: 96.730/932 - High Sep 17 / 76.4% of Mar-Nov ‘23 bear leg 
• RES 1: 96.260/360 High Jan 29 / High Dec 11  
• PRICE: 96.210 @ 16:34 GMT Feb 04
• SUP 1: 95.830 - 1.000 proj of the Dec 11 - 20 - 31 price swing  
• SUP 2: 95.760 - Low 14 Nov ‘24
• SUP 3: 95.480 - Low Jan 11 2023 and a major support 

A bear cycle in Aussie 3-yr futures remains intact and short-term gains are considered corrective. On the upside, a clear reversal higher would signal scope for an extension towards 96.360, the Dec 11 high. The recent move down reinforces the bear theme and the contract has traded through the December low. A deeper sell-off would refocus attention on 95.760, the 14 Nov ‘24 low. 

ACGBs (YM -5.0 & XM -2.0) are cheaper despite US tsys finishing near the bottom of the session range.

• US tsys richened after JOLTS data, job openings were lower than expected in Dec at 7.6m (cons 8.00m) after an upward revised 8.156m (initial 8.098m) in Nov.
• Focus turns to Wednesday morning's ADP private employment data ahead of Friday's headline NFP data for January.
• 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.
• Cash ACGBs are 2-4bps cheaper with the AU-US 10-year yield differential at -8bps.
• Swap rates are 1-3bps higher, with the 3s10s curve flatter.
• The bills strip bear-steepened, with pricing -1 to -5.
• RBA-dated OIS pricing is flat to 3bps firmer across meetings today. A 25bp rate cut is more than fully priced for April (132%), with the probability of a February cut at 90% (based on an effective cash rate of 4.34%).
• The AOFM announced yesterday the issue by syndication of a new 4.25% 21 March 2036 Treasury Bond. The issue will be of a benchmark size and priced today. Initial price guidance is a spread of 2 to 5bps to XMH5. 

The Q4 unemployment rate rose 0.3pp to 5.1%, in line with consensus and the RBNZ, to be its highest since the Covid-impacted Q3 2020. Employment fell 0.1% q/q to be down 1.1% y/y after -0.6% & -0.6% in Q3, which was revised lower. Wages growth continues to moderate and is either near 3% or under. Given the data printed close to the RBNZ’s November forecasts, which also suggested a 50bp rate cut in Q1 2025, another 50bp on February 19 remains likely.

NZ unemployment rate %

• There is growing spare capacity in the labour market with the Q4 underutilisation rate rising to 12.1% from 11.6% in Q3 and 10.7% a year ago. Thus it is not surprising that hours worked fell for the fourth straight quarter down 0.5% q/q and 2.5% y/y. The number of unemployed grew 5.4% q/q & 26.8% y/y after -24.4% y/y in Q3.
• Job shedding was focused in full-time jobs, another sign of weakness in the labour market. Any cautious hiring is occurring in the part-time sector with PT jobs rising 0.2% q/q to be up 1.4% y/y.
• The labour cost index rose 0.6% q/q with the annual rate moderating to 3.3% from 3.8%, the lowest since Q1 2022. Private wages rose 0.6% q/q, slightly higher than the RBNZ forecast, to be up 2.9% y/y down from 3.4% in Q3.
• The minimum wage is set to rise only 1.5% on April 1, while lower inflation and labour demand should continue to weigh on other wages, which should make the RBNZ comfortable that inflation is sustainably within its 1-3% band.

NZ wages y/y%

Source: MNI - Market News/Refinitiv