US equity futures flat, US Treasury futures slightly higher, implying further modest downward pressure on yields. BofA fund manager survey shows record short positioning for the USD

It has been a very quiet start to the week with many markets closed, including the US for Presidents’ Day and some key Asian markets due to the Lunar New Year holidays. News flow has been light.

US S&P500 equity futures have traded mostly in positive territory since Asia opened but they are currently flat.  The Euro Stoxx 600 index closed up 0.1%. US Treasury futures are slightly higher, implying further downside pressure to yields following the decent fall in rates at the end of last week.

In currency markets, net movements since last week’s close have been small.  The only notable move has been a weaker yen, with USD/JPY up 0.5% to 153.50 and NZD/JPY up modestly to 92.6. This should be seen in the context of the strong rebound in the yen last week following the decisive Japan snap election result and traders readjusting positions.

Also in the mix, Japan GDP rose by a weaker than expected 0.1% q/q in Q4, following a contraction of 0.7% q/q in Q3, narrowly avoiding falling into technical recession. The weak backdrop will encourage PM Takaichi’s plans to offer additional fiscal support and reduce the sales tax on food, with soft consumer spending partly explained by high inflation that has crimped spending power. Pricing for BoJ rate hikes nudged a little lower, with only 4bps priced for the March meeting and 16bps priced for April.  BoJ Governor Ueda said Takaichi made no specific requests at their first regular meeting since the election.

The NZD has traded a tight range overnight of 20 pips and currently sits around 0.6035.  The AUD is flat from last week’s close at 0.7075 and NZD crosses show little net movement apart from against the yen, as noted.

The latest Bank of America fund manager survey showed their positioning to the US dollar was the most negative since at least 2012, when the survey began. Negative sentiment is consistent with that seen in the options market, where pricing of risk reversals reflect more demand for puts than calls on the USD against various majors, and widespread anecdotal evidence that investors are more inclined to hedge USD exposure than previously.

Domestic rates were pushed lower yesterday, catching up to the rally in offshore bond markets on Friday night.  Domestic data were ignored, showing a second consecutive PSI reading above the 50 mark and softer electronic car spending and housing market data, likely influenced by inclement summer weather in January.  NZGBs and swaps fell 3bps across the curve. The market is focused on Wednesday’s RBNZ MPS update, where there is strong consensus that the Bank will hold policy steady and revise higher its interest rate projections, but lingering uncertainty over the tone and language that Governor Breman will convey at her first policy meeting.

In the day ahead, monthly CPI indicators are released for NZ.  Top tier data tonight include the UK labour market and Canadian CPI figures.

Jason Wong is the senior Markets Strategist at BNZ Markets.