JGBS: Twist-Steepener After No Surprise From Natl CPI

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 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 

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).