US TSYS: Tsys Futures Steady Ahead Of Retail Sales

After a choppy Tokyo session, JGB futures are little changed, +1 compared to settlement levels.

• Japan likely to miss primary budget surplus target for FY2025, sources say "Japan is likely to miss achieving its goal of running a primary budget surplus by the next fiscal year, according to three sources with knowledge of fresh fiscal estimates, as the minority government faces increasing pressure for more spending.” RTRS
• Cash JGBs are flat to 2bps cheaper across benchmarks. The benchmark 10-year yield is 0.4bp higher at 1.250% after making a fresh cycle high of 1.253% today.
• The swaps curve has bear-steepened, with rates flat to 4bps higher.
• “BOJ Governor Ueda: Will raise rates and adjust the degree of monetary support if improvement in economy and price conditions continues” - RTRS
• BOJ-dated OIS pricing has shifted notably since 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.
• Current OIS pricing indicates: a 69% probability of a 25bp hike in January; a cumulative 86% chance by May; and a full 25bp increase not fully priced in until May 2025.
• Tomorrow, the local calendar will see PPI data alongside 20-year supply.

Asian markets traded mixed as investors awaited key US inflation data for clues on Federal Reserve policy. The MSCI Asia Pacific Index was little changed, with modest gains in Japan, South Korea, and Hong Kong, while Chinese equities were mixed. The PBOC injected significant short-term liquidity to ease a cash squeeze ahead of the Lunar New Year, highlighting its easing stance. Indian stocks extended gains, driven by energy and utility sectors, while foreign outflows from Indian equities continued in January. South Korea's unemployment rose to its highest level since mid-2021 amid political uncertainty. Meanwhile, oil prices steadied after recent declines, and the dollar consolidated after the previous session's losses. Overall, sentiment remained cautious ahead of the U.S. CPI report, which could shape global monetary policy expectations.

G10 FX trends have been quite muted in the first part of Wednesday trade. The USD BBDXY index was last near 1314 little changed for the session. 

• Aggregate G10 moves are not much beyond 0.10% at this stage, as the market awaits the key US CPI release later.
• USD/JPY is marginally lower, but is close to 157.70/75 in latest dealings. Headlines from BoJ Governor Ueda have crossed, reiterating that a decision on whether to raise rates will be made next week (so largely echoing Deputy Governor Himino's remarks from yesterday). Yen moved slightly firmer as Ueda spoke, presumably due to the fact he didn't pushback on Himino's remarks.
• US yields sit modestly lower, the 10yr back under 4.78%. Regional equity sentiment is mixed, while US futures are close to flat at this stage.
• EUR/USD is back under 1.0300 marginally. Headlines from ECB's Lane have crossed (speaking in HK). Economic growth is expected to recover further and if inflation stabilizes around 2% rates will go to neutral. 3% policy is not the lower bound Lane added (per BBG). FX sentiment hasn't shifted though.
• AUD/USD was weaker in earlier trade, but at 0.6190/95 has recovered some ground.
• NZD/USD is back around 0.5605/10, but short of Tuesday intra-session highs. We have seen another sharp rise in onshore NZGB yields today. Earlier data from the Westpac/McDermott Miller employment confidence index highlighted: "Employment confidence picked up by 2.4 points to 91.6 in the December quarter, led by an improvement in perceptions of job availability."
• Looking ahead, ahead of the US CPI print, we get UK inflation data.