Market ignores chunky downside misses to US consumer confidence and durable goods orders data. Pricing of rate hike chance fades leading into RBNZ MPS today, now just priced at a 20% chance; strong analyst consensus for no-change

It has been another uneventful trading session, with flat US equities, small changes in US Treasury yields and currency markets well contained. Focus today will be on the RBNZ’s MPS where there is strong consensus for no change in rates, but nervousness that impatience by the MPC could trigger another rate hike.

US data releases overnight were much weaker than expected.  The Conference Board consumer confidence index fell for the first time in four months to 106.7 (115 expected) from a downwardly revised 110.9 in January. The “present situation” index fell by more than the “expectations” index and consumers’ views on the job market were also weaker.  A drop in aircraft orders saw durable goods orders plunge by over 6% m/m in January, but the ex-transportation figure was also weak, falling 0.3%, alongside downward revisions. On the positive side, core capital shipments, which feed into GDP, rose by 0.8%. The overall message was that business investment will likely be soft in Q1.

The data didn’t perturb the market, with US Treasuries and the USD tightly range-bound. The US 10-year rate has traded a range of less than 5bps overnight or indeed over the past 24 hours and currently sits near 4.3%, while the curve has a mild steepening bias.

Yesterday, Japan CPI inflation fell by less than expected, with the annual change falling from 2.6% to 2.2% in January (1.9% expected), while the core measure excluding fresh food and energy slipped to 3.5%. The upside surprise reflected a technical factor, with prices for foreign travel apparently surging 63%, however the jump didn’t reflect higher prices over the month, but higher prices over the past four years – the statistics agency chose that period as a point of reference, having stopped collecting the data during the COVID period. The market ignored the details as the reported figures suited the BoJ policy pivot narrative, seeing Japan’s 2-year JGB rate nudging up to its highest level since 2011 and the yen appreciated slightly.

That said, currency movements overall have been unusually small, with the yen’s outperformance over the past 24 hours only reflecting an insignificant 0.2% gain and the worst performing CAD down about 0.1%. The NZD has been contained within a 25pip range and currently sits at 0.6170, the same as this time yesterday.

Yesterday, global forces pushed up NZGB yields but working in the opposite direction was strong receive-side interest for 2-year swap, ahead of the RBNZ’s meeting today, which dragged most of the swap curve lower, resulting in some further bond-swap cheapening.  While NZGB yields were up 2bps across the curve, the 2-year swap rate fell 4bps to 5.18% while the 10-year swap rate was unchanged at 4.66%.

Fear of a 25bps hike today has been reduced over recent trading sessions, helped by last week’s dire retail sales figures – which suggest that the NZ economy might be in a deeper recession than previously thought – and the OIS market now only prices about a 20% chance of a hike, with a full hike by May given a 50% chance. Bloomberg’s survey of economists shows 22 out of 24 picking an on-hold decision.  In the likely event of a no-change decision, expect some downside pressure on short-rates and the NZD, although the Bank is widely expected to remain hawkish, expressing vigilance in achieving its 2% target, and will not want to see a significant market reaction.

While today’s focus will be on the RBNZ, ahead of that Australia’s monthly CPI indicator is released, but with the data heavily weighted to the goods sector for the January reading, not too much should be read into it.  Tonight sees the second estimate of Q4 GDP in the US, where the consensus is picking no change to the initial 3.3% annualised estimate, although there is more chance of a downward than upward revision.