JGBS: Twist-Steepener After No Surprise From Natl CPI
In Tokyo morning trade, JGB futures are stronger, +24 compared to settlement levels, after closing the overnight session with an uptick.
- Japan's headline CPI rose 3.6% year-on-year last month, driven in part by surging rice prices, lending support to the central bank’s cautious approach to rate hikes. Meanwhile, core CPI—excluding fresh food—climbed 3.2% in March from a year earlier, in line with the median forecast of economists surveyed by Bloomberg.
- “The faster increase in inflation comes despite a drag from the government's utility subsidies, with food prices increasing 7.4% from a year earlier and rice prices rising 92.1% from a year earlier.” (per BBG)
- Nonetheless, uncertainty from ongoing tariff talks with the US will keep the market focus firmly on trade headlines.
- Cash US tsys are closed today for the Good Friday holiday after yesterday’s bear-steepener.
- Cash JGBs have twist-steepened across benchmarks, pivoting at the 20-year, with yields 1bp lower to 1bp higher. The benchmark 10-year yield is 1.3bps lower at 1.303% versus the cycle high of 1.596%.
- Swap rates are 1-2bps lower. Swap spreads are mixed.
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OIL: Crude Slightly Higher So Far Today As Geopolitical Uncertainty Remains High
Oil prices were lower on Tuesday driven by optimism of a deal with Russia on Ukraine but news that President Putin will not agree to a full ceasefire has not had a significant impact on crude as US data showed an inventory build. It has started APAC trading only slightly higher as the market waits for today’s Fed decision. The USD index is currently moderately higher.
- WTI fell 1.3% to $66.70/bbl after a low of $66.56. It is currently around $66.79. A bearish condition persists and any moves higher appear corrective. Initial support is at $65.22, 5 March low, while resistance is $68.37, 17 March high.
- Brent is down 0.9% to $70.42 to be 3.3% lower this month. So far today it is little changed. The benchmark remains in a downtrend with initial support at $68.33, 5 March low, and key medium-term support at $67.87.
- While the Fed is not expected to change rates later on Wednesday, its dot plots will be watched closely for its thinking about the outlook, especially given heightened uncertainty. Oil price moves may be limited today as a result.
- Bloomberg reported that there was a US crude inventory build of 4.59mn barrels last week, according to people familiar with the API data. However, there was a product stock drawdown of 1.71mn barrels for gasoline and 2.15mn for distillate. The official EIA data is out later on today.
JAPAN DATA: Core Machine Orders Below Forecast, Off Late 2024 Highs
Japan Jan core machine orders were below forecasts. In m/m terms we fell -3.5%, versus a -0.1% forecast and prior was -0.8% for Dec. In y/y terms, we were still up 4.4%, but sub the 6.6% market consensus. This was little changed from the Dec read of 4.3%.
- The chart below plots the core machine orders (the white line), against Japan CAPEX (ex software). Capex came off the boil in Q4 of last year. The early Jan trend for core machine orders doesn't suggest Q1 has seen a dramatic turnaround.
- For manufacturing and non-manufacturing orders y/y outcomes are still positive but sub late 2024 highs.
- The next focus point from a capex standpoint is likely to be the Tankan survey, which for Q1 will print on April 1.
Fig 1: Japan Core Machine Orders (white Line) & Japan Capex (Orange Line) Y/Y
Source: MNI - Market News/Bloomberg
US TSYS: Cash Bonds Slightly Cheaper Ahead Of FOMC Decision
In today's Asia-Pac session, TYM5 is 110-22+, -0-03 from closing levels.
- Yesterday, TYM5 traded 110-14 low/110-29 high, still inside initial technical levels according to MNI’s technicals team: resistance above at 111-25 (Mar 11 high), support below at 110-12.5/110-00 (Low Mar 6 & 13 / High Feb 7).
- Cash US tsys are flat to 1bp cheaper, with a steepening bias, in today’s Asia-Pac session.
- The focus remains on Wednesday's FOMC policy announcement. The majority of analysts expects the FOMC to leave its Dot Plot funds rate medians unchanged in March compared with the December meeting. That would imply the Fed is still pencilling in 50bp of cuts in 2025 (to 3.9%) and 2026 (to 3.4%), with a further 25bp cut in 2027 (to 3.1%).
- Yesterday, projected rate cuts through mid-2025 closed steady to softer vs. yesterday morning’s levels (*) as follows: Mar'25 steady at -2bp, May'25 at -5.4bp ( -6bp), Jun'25 at -18.2bp (-19.7bp), Jul'25 at -26.7bp (-28.7bp).
