AUSSIE BONDS: Cheaper, RBA Leaves Policy Unchanged, Doesn't Rule Out More Hikes
Feb-06 2024 03:54
ACGBs (YM -7.0 & XM -8.0) are 2-4bps weaker and at Sydney session lows after the RBA left the cash rate unchanged at 4.35%, as widely expected. However, the statement was at the hawkish end of the spectrum. From the concluding paragraph of the statement:
- "Returning inflation to target within a reasonable timeframe remains the Board’s highest priority.”
- “The Board needs to be confident that inflation is moving sustainably towards the target range. To date, medium-term inflation expectations have been consistent with the inflation target, and it is important that this remains the case.”
- “While recent data indicate that inflation is easing, it remains high.”
- In terms of forecast details and assumptions: the cash rate is at its peak and holds there till June; assumes a 3.9% cash rate in Dec‘24, 3.4% Dec’25; Unemployment Rate peaking at 4.4% in mid-25; and Inflation at 2-3% target in 2025.
- There will be a press conference at 1530 local time.
- Cash ACGBs are 5-6bps cheaper on the day, with the AU-US 10-year yield differential unchanged at +2bps.
- Swap rates are 5-7bps higher on the day, with the 2s10s curve steeper.
- The bills strip has bear-steepened, with pricing -1 to -8.
- RBA-dated OIS pricing is 1-4bps firmer across meetings after the RBA decision.
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USDCAD TECHS: Corrective Rally Falters
Jan-05 2024 21:00
- RES 4: 1.3482 200-dma
- RES 3: 1.3469 50-day EMA
- RES 2: 1.3409 1.0% 10-dma envelope
- RES 1: 1.3399 High Jan 05
- PRICE: 1.3327 @ 16:08 GMT Jan 05
- SUP 1: 1.3177 Low Dec 27
- SUP 2: 1.3093 Low Jul 14 and key support
- SUP 3: 1.3002 2.0% 10-dma envelope
- SUP 4: 1.2992 50.0% retracement of the 2021 - 2022 bull phase
The broader USDCAD trend outlook remains bearish, and with the Friday rally sold, focus could again turn lower. The 50-day EMA resistance above at 1.3469 has held, keeping the over-arching downtrend intact. The pair last week cleared a bear trigger at 1.3480, the Dec 4 low. Furthermore, all key short-term retracement points have been breached. On any return lower, sights are on 1.3093, the Jul 14 low and a key support.
US TSYS: Markets Roundup: Tsys Weaker After Noisy Dec NFP, Weak ISM Discounted
Jan-05 2024 20:53
- Treasury futures holding weaker after the bell, near the middle of a wide session range following this mornings headline NFP data. Mar'24 10Y futures -11 at 111-20.5 vs. 111-06.5 low; curves steeper: 3M10Y +6.503 at -133.760, 2Y10Y +4.017 at -34.770.
- Deemed "noisy", the higher than expected jobs gain was tempered by down revisions for the two prior releases (Dec jobs gain of 216k vs. 175k est, prior down-revised to 173k from 199k).
- Coupled with lower than expected ISM services data (50.6 vs. 52.5 est), ISM Services Employment (43.3 vs. 51.0 est) and Services New Orders (52.8 vs. 56.1 est) underlying rates gapped higher (10Y yield fell to 3.9513% low from 4.0971% high). Support gradually evaporated through midday with underlying futures holding weaker into the close with 10Y yield at 4.0476% (+.0489%).
- The vast U.S. services sector is set to sustain modest growth in coming months despite a surprisingly poor end to last year, with possible Federal Reserve rate cuts helping to stimulate demand later in the year, Institute for Supply Management chair Anthony Nieves told MNI Friday.
- Traders tentative as they await next week's CPI and PPI inflation measures on Thursday and Friday respectively.
CANADA: Analysts On Dec Labour Report [2/2]
Jan-05 2024 20:33
- GS: “Given softer activity data and continued progress on inflation (including in non-shelter core services) we continue to think that the BoC will deliver 25bps cuts at its April and June meeting, followed by quarterly cuts until reaching a terminal rate of 3.25% in 2025Q3.”
- RBC: “The BoC will still be cautious about pivoting to rate cuts too quickly - and wage growth is still running above the pace historically consistent with their 2% inflation target. But our own expectation is that the economic backdrop is soft enough for inflation to continue to move lower and that the BoC will start to push the overnight rate lower around mid-year this year.”
- TD: “It will be difficult for the BoC to draw any firm conclusions given the noisy tone of today's report, but we expect the Bank to view the sharp acceleration in LFS wages with a few grains of salt, given the large divergence against alternative measures of wage growth. [..] Our broader bias here is still for Canadian investors to be more sensitive to downside surprises than positive ones, as investors appear eager to embrace a more aggressive easing profile in Canada. With that in mind, 2s5s and 2s10s look too inverted.”
