AUSSIE BONDS: Twist-Steepener Aligns With Global Bonds, RBA Gov Speech Tomorrow

Over the weekend, data out showed that the Chinese economy is mired in deflation with both the PPI and CPI now in negative territory. PPI has been stuck firmly negative for multiple years now, showing the challenges companies face after 29 consecutive months of decline.  For CPI it was the first time it had fallen back into deflation in over a year.

• China’s main indexes were all lower with the Hang Seng down the worst performer down -2.1%, CSI 300 down -0.83%, Shanghai down -0.59% and Shenzhen down -0.44%.
• Korea’s KOSPI ignored the down day in China to post a +0.43% gain as it approaches key technical levels.
• Malaysia’s FTSE Malay KLCI took the lead from China, falling -0.19% continuing last week’s trend that saw a decline of -1.74%.
• Indonesia’s Jakarta Composite too was dragged lower by -0.54%, despite putting in one of the weeks in recent memory rising +5.8%.
• Other key markets were mixed with Singapore’s FTSE Straits Times down -0.16%, Thailand’s SE Thai down -1.00% whilst The Philippine Stock Exchange Index is up 1.00%.
• India’s NIFTY 50 is opening in a positive mood, up +0.33%, following on from last week’s gain of +1.93%. 

The USD BBDXY index sits up from earlier lows, last near 1268.5. Earlier we got to 1265.328, as dollar sentiment was weighed by US growth/recession concerns. Safe havens JPY and CHF have been the outperformers, although sit away from best levels. 

• Weekend comments from US President Trump, which didn't appear to rule out a recession, given the large economic transitions the administration is embarking on, hurt US equity futures from the open. Eminis sunk more than 1%, but sit better now, last off -0.45%.
• US Tsy futures spiked, but likewise, sit off highs. US 10yr yields opened near 4.255%, but sit back near 4.28% now.
• USD/JPY got to lows of 147.09, but sits back at 147.60 in latest dealings, still 0.30% stronger in yen terms. USD/CHF was last near 0.8785, up around 0.15% in CHF terms.
• We had Japan labor earnings data, where the headline figures were below expectations. Weaker bonus payments compared to Dec appeared to be in play. Underlying details on core pay was still firm.
• AUD/USD and NZD/USD have been range bound. The A$ was last near 0.6305/10. Session lows were at 0.6296, with a weaker yuan/softer China/HK equity backdrop not helping sentiment. Weekend data on China inflation showed CPI and PPI in negative territory. NZD/USD was last at 0.5710/15.
• USD/CAD has been relatively steady, last around the 1.4365 level. The new Prime Minister for Canada will be Mark Carney the former head of the BOC and BoE.
• EUR/USD got to highs of 1.0871, but sits back in the 1.0830/35 region now, little changed. EU equity futures are up around 0.80%, continuing to highlight relative EU outperformance compared to the US.
• Looking ahead, we have second tier EU data, while in the US it is just the NY Fed Survey of Consumer Expectations print on tap. 

ACGBs (YM -3.0 & XM -3.0) are cheaper and near the session’s worst levels on a data-light session. 

• Cash US tsys are 2-3bps richer across benchmarks in today’s Asia-Pac session as Asian traders digested Friday’s US jobs data and remarks from Federal Reserve Chair Jerome Powell.
• Cash ACGBs are 2-3bps cheaper with the AU-US 10-year yield differential at +15bps.
• Swap rates are 1-2bps higher.
• The bills strip is flat to -2 across contracts.
• RBA-dated OIS pricing is little changed across meetings today.
• Nevertheless, pricing remains mixed compared to February’s pre-RBA Decision levels—meetings through May are 3-4bps firmer, while those beyond are flat to 14bps softer. A 25bp rate cut in April is given a 9% probability, with a cumulative 64bps of easing priced by year-end (based on an effective cash rate of 4.09%).
• Tomorrow, the local calendar will see Westpac Consumer and NAB Business Confidence data.
• This week, the AOFM plans to sell A$300mn of the 2.75% 21 May 2041 bond tomorrow and A$800mn of the 3.50% 21 December 2034 bond on Wednesday.