JGBS: Twist-Steepener On A Subdued Data-Light Session Ahead Of US Payrolls

Chinese stocks opened higher but quickly turned lower as trade tensions weighed on sentiment. The CSI 300 Index fell 0.3%, led by declines in energy and utilities. Hong Kong stocks and Chinese e-commerce firms like JD.com dropped after the US Postal Service suspended inbound parcels from China and Hong Kong.

• Tungsten producers gained after Beijing announced export controls, and supermarket chain Pangdonglai saw a boost from strong Lunar New Year sales. Tech stocks, including the Star 50 Index, outperformed on AI optimism after DeepSeek’s new language model.
• Chinese software stocks, including Beijing Kingsoft Office, surged as traders returned from the holiday, driven by optimism over AI applications following DeepSeek’s release of a lower-cost large language model. In contrast, optical equipment makers declined amid concerns that reduced AI infrastructure spending could weigh on demand.
• Robotics-related stocks advanced after Unitree’s dancing robots gained attention during China’s Spring Festival Gala.
• Chinese Travel & Tourism stocks declined, with China Southern and Air China down ~4%, and Trip.com falling ~5%. However, regional tourism data was positive—Guangdong saw 80m visitors with ¥74b in tourism revenue (+7.5% YoY), Shanghai had 17.8m tourists (+6.1% YoY), and Beijing's retail sales from restaurants and stores hit ¥8.1b (+4.2% YoY).
• E-commerce & Logistics Hit by US Postal Suspension: Alibaba fell 2.1%, JD.com dropped 5.1%, and SF Holding declined as the US halted inbound parcels from China & Hong Kong, adding uncertainty to the sector.
• Elsewhere, China’s services activity slowed unexpectedly in January while maintaining its growth streak, according to the Caixin PMI, which fell to 51 from 52.2 (below the 52.4 forecast). The slowdown comes despite strong Lunar New Year demand, with firms citing market competition and trade uncertainties.

Outside of yen gains, G10 FX trends have been very muted in Wednesday trade to date. The BBDXY index sits little changed and above 1300 in latest dealings, despite a 0.65% rise in the yen (returning China onshore markets with higher USD/CNY levels has likely provided some offset). 

• Earlier we had a couple of support points for the yen. The labor cash earnings data was well above expectations, reinforcing positive wage trends as we progress through early 2025. Real wages have been back in positive y/y territory for two straight months. Japan's Economic Revitalization Minister Akazawa also stated that Japan is in a inflationary situation now. US-JP yield differentials continue to point to lower USD/JPY levels.
• Risk jitters also helped the yen. Headlines crossed of the US postal service cancelling packages from China and Hong Kong, which may be part of the recent tariff announcement by the US. This adds to uncertainty around US/China relations and weighed on China/HK aggregate equity indices.
• USD/JPY got to lows of 153.10, but sits slightly higher in latest dealings (153.35/40). This is close to Dec 18 lows from last year. A clean break sub 153.00 could see 152.55 targeted, a 61.8% retracement of the Dec 3 - Jan 10 bull leg.
• AUD and NZD haven't shifted much though. AUD/USD was last little changed near 0.6250, while NZD was up a touch to 0.5655. Earlier NZ jobs data showed spare capacity building in the labor market, although outcomes were close to market expectations.
• In the cross asset space, US equity futures hold weaker, down 0.40-0.50% for Eminis and Nasdaq futures, while US yields are close to unchanged.
• Looking ahead, the Fed’s Barkin, Goolsbee and Bowman appear and US January ADP employment, December trade and January services PMI/ISM print. Also the ECB’s Lane speaks and January European services/composite PMIs and euro area December PPI data are released. 

JGB futures are hovering near session lows, -14 compared to the settlement levels.

• The BoJ will raise its benchmark interest rate if its inflation outlook for price trend to rise toward 2% is realised, according to Kazuhiro Masaki, the head of the policy department at the central bank. (per BBG)
• Inflation-adjusted real wages, a barometer of household purchasing power, posted their second straight monthly rise in December, up 0.6% against November's 0.5%.
• Cash US tsys are little changed in today’s Asia-Pac session after yesterday’s modest rally. Focus in the US turns to today’s ADP private employment data ahead of Friday's headline NFP data for January, not to mention the US Tsy quarterly refunding announcement, S&P Global US Services PMI and ISM Services data.
• Cash JGBs are flat to 2bps cheaper across benchmarks, with a flattening bias. The benchmark 10-year yield is 1.3bps higher at 1.292% versus the fresh cycle high of 1.301% set earlier today.
• Swap rates are flat to 2bps higher. Swap spreads are mixed.
• Tomorrow, the local calendar will see Weekly International Investment Flow and Tokyo Avg Office Vacancies data alongside 30-year supply. BoJ Board Member Tamura will also give a speech in Nagano.