MNI ASIA MARKETS ANALYSIS: CORE CPI Accelerates, FOMC Awaited

US TSYS Ylds Lower Ahead FOMC, Bond Sale Stops Through, Core CPI Accelerates

• Currently, March'24 30Y futures trading at 119-15 (+15) -- still off this morning's post-CPI high of 120-09; March'24 10Y futures +7.5 at 110-18 vs 110-31.5 high. Initial technical resistance of 111-09+ (High Dec 7 and bull trigger) still intact.
• Curves holding flatter profiles (2Y10Y -4.955 at -52.848) with bonds outperforming since the $21B 30Y reopen sale stopped .3bp through: 4.344% vs. 4.347% WI.
• Trading desks had reported leveraged$ selling of CT30, real$ accounts selling off-the-run 30s into the post data rally, while unwinds of pre-auction short sets contributing to the post-auction bounce.
• Focus turns to Wednesday morning's PPI: MoM (-0.5%, 0.0%), YoY (1.3%, 1.0%), and of course the FOMC rate annc and SEP at 1300ET followed by Chairman Powell's presser at 1430ET.
• The Fed will likely lower its median "dot plot" estimate for policy interest rates at the end of 2024 to around 4.9%, former officials and staffers told MNI, as expectations build for the first rate cut to come as early as the first half of the year.
• "My expectation is that the median will probably show two 25-basis-point cuts next year," said ex-Boston Fed chief Eric Rosengren, whose own forecast is for two to three cuts starting as early as the second quarter.

NEWS

US (MNI): Core CPI Reaccelerates To 0.3% In Nov On Shelter
U.S. CPI rose 0.1% (0.097% unrounded) in November, a tad hotter than market expectations for no change, and core CPI reaccelerated to 0.3% (0.285% unrounded) from 0.2% (0.227% unrounded) a month earlier, in line with expectations, the Bureau of Labor Statistics reported Tuesday. The data isn't likely to alter expectations for the FOMC to keep rates on hold this week and the door open to hiking again if inflation progress stalls.

MNI Fed Preview - December 2023: All Downhill From Here
The FOMC will hold rates in December for a 3rd consecutive meeting and the 4th in the past 5, further cementing expectations that the hiking cycle is over. But while the updated projections will acknowledge scope for cuts in 2024 alongside lower inflation forecasts, the FOMC will likely attempt a modest pushback against the recent loosening of financial conditions. Meaningful changes to the Statement’s tightening bias are unlikely until least one or two more meetings from now, while Chair Powell is likely to warn that the FOMC is proceeding carefully and is prepared to tighten further if required.

US-CHINA (MNI): House China Select Committee Meeting To Consider New Report
MNI London: The Republican-controlled House of Representatives Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party is holding a business meeting on adopting a report which could dramatically alter the US-China trade relationship, if ratified by Congress and the White House

US (MNI): Yellen Says Inflation Last Mile Won't Be Tougher
U.S. Treasury Secretary Janet Yellen said Tuesday she doesn't see any evidence inflation is becoming stuck or that the `last mile' to the Federal Reserve's 2% goal will prove much more difficult to cover.

US (MNI): Biden Won't Accept GOP Holding Ukraine Aid "Hostage"
Wires carried comments from White House National Security Advisor, Jake Sullivan, stating that President Biden is, "prepared to find resolution on [US-Mexico] border issue, but won’t accept holding Ukraine aid hostage for ‘take it or leave it deal.’"

RUSSIA/FINLAND (MNI): Finland Government To Reopen Some Border Crossings w/Russia As Tensions Remain High
The Finnish gov't has confirmed that two road border crossings with Russia will be re-opened, weeks after Helsinki closed all checkpoints to non-goods traffic as the Russian gov't used the “instrumentalization of migration” in a hybrid attack against the Nordic nation.

EU (MNI): Hungary Willing To Drop Ukraine Funding Veto If All EU Funds Released
Bloomberg reporting that, according to Hungarian Prime Minister Viktor Orban's chief political advisor, "Hungary is prepared to lift its veto on a massive European Union funding proposal for Ukraine in return for billions in financing the bloc has been withholding from Budapest..."

ECB (MNI): MNI ECB WATCH: ECB To Hold Again As Hikes Off Table
The European Central Bank is expected to hold key interest rates at 4.00% this Thursday, amid questions over the timing of a first cut and the future of reinvestments from its Pandemic Emergency Purchase Programme.

EU (MNI): EU Nears Confiscating Profits On Russian Assets
The EU Commission is taking a first tentative step towards confiscating earnings on frozen assets belonging to the Russian central bank in order to be able to use these for the reconstruction and recovery of Ukraine, EU officials said Tuesday.

UK (MNI): BOE's MPC Converges On High-For-Long Message
Divisions within the Bank of England’s Monetary Policy Committee are narrowing ahead of this week’s meeting, with all but one member converging on the message that there is a risk high inflation will prove persistent and that it is too early to talk about cuts.

MNI BOE Preview - December 2023: Same as November?
There is a unanimous expectation amongst sell-side economists that the MPC will vote to keep Bank Rate on hold at 5.25% - with market pricing also endorsing this view and pricing a negligible chance of any other outcome. However, this week’s decision still has plenty to watch with the vote split and forward guidance likely to be the most obvious drivers of the initial market reaction.

SWITZERLAND: MNI SNB WATCH: Swiss Rates Set To Be Held As Inflation Dips
The Swiss National Bank is expected to hold its policy rate at 1.75% following Thursday’s monetary policy assessment, with policymakers in wait-and-see mode as price growth trends steadily downward.

MNI SNB Preview - December 2023: No Imminent Pressure
SNB likely to keep policy unchanged, with the policy rate at 1.75%. Inflation has slipped below 2%, meeting SNB target, but lower inflation expectations should still see inflation creeping higher ahead. Markets likely to focus on FX intervention messaging given recent CHF appreciation.

NORWAY: MNI NORGES BANK WATCH: Easing Inflation Makes Hike Tough Call
Easing inflation pressure has raised the chances that Norges Bank could leave its policy rate unchanged at 4.25% this week despite its having stated at the last meeting that it was likely to hike, but currency weakness makes it a tricky call.

MNI Norges Bank Preview: December 2023 - Room to Wait and See
The Norges Bank’s December meeting outcome is likely the closest call amongst all DM Central Banks reporting this week. After guiding for one additional rate hike in December at the September meeting, the guidance was softened in November and tied explicitly to macroeconomic outcomes

ITALY (MNI): Italy Delays ESM Vote To Boost EU Fiscal Rules Bargaining
The Italian government has decided to postpone until at least next week a debate over ratification of changes to the European Stability Mechanism treaty, a source from the Ministry of Parliamentary Relations told MNI, adding that whether the vote finally goes ahead will depend on the outcome of negotiations to overhaul the European Union’s Stability and Growth Pact.

JAPAN (NIKKEI): Kishida Set To Replace Chief Cabinet Secretary & Minister Of Economy
"According to senior officials in the ruling Liberal Democratic Party, there is a proposal to remove Matsuno and three ministers from the LDP faction at the center of the scandal: Yasutoshi Nishimura, minister of economy, trade and industry; Junji Suzuki, minister for internal affairs and communications; and Ichiro Miyashita, minister of agriculture, forestry and fisheries."

CHINA (MNI): China To Stress High-Quality Growth Over Stimulus
(MNI)Beijing - China will enhance the strength and coordination of its macro policies in a bid to expand domestic demand and push for a high-quality growth in 2024, according to a statement of the annual Central Economic Work Conference chaired by President Xi Jinping on Tuesday which indicated the country would not introduce further big stimulus but focus on policy efficiency.

CHINA (MNI): China Should Set 2024 Deficit Above 3.4% - Advisor
MNI (Beijing) - China should target a budget deficit-to-GDP ratio above 3.4% in 2024, with central government moderately raising leverage to help ease local fiscal pressures, one of the experts who spoke to Premier Li Qiang in an economic symposium earlier in July said at the CCXI China Credit Outlook Conference on Tuesday

OVERNIGHT DATA

US DATA BRIEF (MNI): US Core CPI Reaccelerates To 0.3% In Nov On Shelter

• U.S. CPI rose 0.1% (0.097% unrounded) in November, a tad hotter than market expectations for no change, and core CPI reaccelerated to 0.3% (0.285% unrounded) from 0.2% (0.227% unrounded) a month earlier, in line with expectations, the Bureau of Labor Statistics reported Tuesday.
• The data isn't likely to alter expectations for the FOMC to keep rates on hold this week and the door open to hiking again if inflation progress stalls. (See: MNI FED WATCH: On Hold Again As Rate Cut Speculation Builds)

• US NOV CPI 0.1%, CORE 0.3%; CPI Y/Y 3.1%, CORE Y/Y 4.0%
  
• US NOV ENERGY PRICES -2.3%
• US NOV OWNERS' EQUIVALENT RENT PRICES 0.5%

• CPI Unrounded - Nov 2023
• Unrounded % M/M (SA): Headline 0.097%; Core: 0.285% (from 0.227%)
• Unrounded % Y/Y (NSA): Headline 3.137%; Core: 4.007% (from 4.031%)

• Core Goods / Services CPI - Nov 2023
• Core goods -0.30% M/M (-0.09% prior), contributing -0.08pp to core CPI
• Core services 0.47% M/M (0.34% prior), contributing 0.35pp to core CPI
• That's a 2-month high for core services (and the 2nd highest since Feb 2023), 2-month low for core goods.

• Supercore CPI Unrounded - Nov 2023
• Core services excl OER & primary rents: 0.44% M/M after 0.22%. Latest 3mth avg of 0.42% M/M
  
• Core services excl all shelter: 0.47% M/M after 0.37%. Latest 3mth av of 0.45% M/M

US NOV. BUDGET DEFICIT AT $314B VS DEFICIT $248.5B YR AGO

• US REDBOOK: DEC STORE SALES +3.2% V YR AGO MO
• US REDBOOK: STORE SALES +3.4% WK ENDED DEC 09 V YR AGO WK

MARKETS SNAPSHOT

• Key market levels of markets in late NY trade:
• DJIA up 178.96 points (0.49%) at 36583.68
• S&P E-Mini Future up 18 points (0.38%) at 4696.25
• Nasdaq up 89.5 points (0.6%) at 14521.16
• US 10-Yr yield is down 2.7 bps at 4.2063%
• US Mar 10-Yr futures are up 7/32 at 110-17.5
• EURUSD up 0.0028 (0.26%) at 1.0793
• USDJPY down 0.59 (-0.4%) at 145.57
• WTI Crude Oil (front-month) down $2.65 (-3.72%) at $68.67
• Gold is down $1.95 (-0.1%) at $1980.01
• European bourses closing levels:
• EuroStoxx 50 down 3.58 points (-0.08%) at 4536.61
• FTSE 100 down 2.12 points (-0.03%) at 7542.77
• German DAX down 2.69 points (-0.02%) at 16791.74
• French CAC 40 down 7.98 points (-0.11%) at 7543.55

US TREASURY FUTURES CLOSE

• 3M10Y -2.648, -119.33 (L: -125.561 / H: -115.562)
• 2Y10Y -4.764, -52.657 (L: -53.575 / H: -47.715)
• 2Y30Y -4.475, -43.021 (L: -45.714 / H: -36.647)
• 5Y30Y -0.463, 7.421 (L: 5.828 / H: 10.834)
• Current futures levels:
• Mar 2-Yr futures down 1/32 at 102-4.625 (L: 102-03.875 / H: 102-11.375)
• Mar 5-Yr futures up 3.25/32 at 107-2.25 (L: 106-29.25 / H: 107-13)
• Mar 10-Yr futures up 7/32 at 110-17.5 (L: 110-07.5 / H: 110-31.5)
• Mar 30-Yr futures up 16/32 at 119-16 (L: 118-25 / H: 120-09)
• Mar Ultra futures up 19/32 at 127-10 (L: 126-09 / H: 128-18)

US 10Y FUTURE TECHS: (H4) Trend Structure Remains Bullish

• RES 4: 112-16 1.50 proj of the Oct 19 - Nov 3 - Nov 13 price swing
• RES 3: 112-03 1.382 proj of the Oct 19 - Nov 3 - Nov 13 price swing
• RES 2: 111-19 1.236 proj of the Oct 19 - Nov 3 - Nov 13 price swing
• RES 1: 111-09+ High Dec 7 and the bull trigger
• PRICE: 110-18 @ 1430 ET Dec 12
• SUP 1: 109-25+ 20-day EMA
• SUP 2: 108-18+ Low Nov 27 and a key short-term support
• SUP 3: 107-22 Low Nov 14
• SUP 4: 107-11+ Low Nov 13 and a reversal trigger

The trend direction in Treasuries remains up and the latest pullback is considered corrective. Moving average studies are in a bull-mode position and this highlights an uptrend. 110-25, the 1.00 projection of the Oct 19 - Nov 3 - Nov 13 price swing, has recently been cleared. This reinforces the bull theme and a continuation higher would open 111-19, the 1.236 projection. Initial key support is at 108-18+, the Nov 27 low.

SOFR FUTURES CLOSE

• Current White pack (Dec 23-Sep 24):
• Dec 23 steady at 94.613
• Mar 24 -0.010 at 94.795
• Jun 24 -0.020 at 95.10
• Sep 24 -0.025 at 95.430
• Red Pack (Dec 24-Sep 25) -0.02 to +0.015
• Green Pack (Dec 25-Sep 26) +0.035 to +0.050
• Blue Pack (Dec 26-Sep 27) +0.050 to +0.055
• Gold Pack (Dec 27-Sep 28) +0.045 to +0.050

FIXES AND PRIOR SESSION REFERENCE RATES

SOFR Benchmark Settlements:

• 1M +0.00505 to 5.36483 (+0.00480/wk)
• 3M +0.00689 to 5.38606 (+0.02002/wk)
• 6M +0.01714 to 5.32936 (+0.05439/wk)
• 12M +0.03258 to 5.13074 (+0.11062/wk)

• Secured Overnight Financing Rate (SOFR): 5.32% (+0.00), volume: $1.577T
• Broad General Collateral Rate (BGCR): 5.30% (+0.00), volume: $614B
• Tri-Party General Collateral Rate (TGCR): 5.30% (+0.00), volume: $600B
• (rate, volume levels reflect prior session)

• Daily Effective Fed Funds Rate: 5.33% (+0.00), volume: $102B
• Daily Overnight Bank Funding Rate: 5.32% (+0.00), volume: $258B

RRP Usage Near Unchanged Despite Jump In Counterparties

• RRP usage was near unchanged today at $838B (-$1B) for still close to last week’s average of $829B.The recent low still stands at $769B on Dec 1.
• The mostly flat move on the day is despite the number of counterparties jumping from 82 (a joint low that was last lower in Apr-2022) to 97 (highest since Nov 22).

PIPELINE: Corporate Debt Issuance Stalls Ahead FOMC

• Date $MM Issuer (Priced *, Launch #)
  
• 12/12 No new US$ issuance Tuesday
• $2.75B Priced Monday
• 12/11 $1B *National Bank of Canada 5Y +137.5
• 12/11 $1B *Community Health Systems 8NC3 10.875%
• 12/11 $750M *Ally Financial 6NC5 +260

EGBs-GILTS CASH CLOSE: Gilts Outperform Ahead Of Fed/ECB/BoE

EGBs and Gilts strengthened Tuesday, ahead of multiple key central bank decisions in the coming two days.

• Core FI started the session on the front foot, with softer-than-expected UK wage data setting the stage for Gilt outperformance throughout the day. German/Eurozone ZEW surveys showed improved investor expectations, but the reading was shrugged off.
• The knee-jerk reaction from largely in-line US inflation data saw Bunds and Gilts touch session highs in early afternoon trade, but the move swiftly reversed as increasing attention was put on a robust "supercore" CPI reading ahead of Wednesday's Federal Reserve decision.
• Both the German and UK curves leaned bull steeper on the day.
• Periphery EGB spreads closed mostly tighter to Bunds, with Greece lagging.
• With little on the European docket Wednesday, all attention will be on US data and the Fed decision after the European close - ahead of the ECB (MNI preview here) and BoE (MNI preview here) decisions on Thursday.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 0.1bps at 2.709%, 5-Yr is down 2.5bps at 2.21%, 10-Yr is down 4.4bps at 2.226%, and 30-Yr is down 5.9bps at 2.401%.
• UK: The 2-Yr yield is down 8.5bps at 4.529%, 5-Yr is down 10.7bps at 4.04%, 10-Yr is down 11.1bps at 3.967%, and 30-Yr is down 7.4bps at 4.474%.
• Italian BTP spread down 1.6bps at 177.8bps / Spanish down 1.4bps at 101.5bps

FOREX Greenback Consolidates Moderate Weakness Ahead of December FOMC

• Despite some volatile price action over the US inflation data, the USD index sits just 0.20% lower on the session as we approach the APAC crossover. Potential profit-taking evident as resistance at 104.26 failed to give way across the Friday/Monday sessions and as markets await tomorrows FOMC meeting.
• US headline data surprised very moderately to the upside and appears to have supported early greenback weakness across, however, a more benign unrounded core figure did initially prompt the USD to come under a brief bout of additional weakness. Price action saw USDJPY briefly print a low of 144.74 from an earlier 146.18 high, although the pair has since consolidated around 145.65.
• G10 currency adjustments remain small on the day, given the fact that the data is unlikely to alter the FOMC’s thinking before tomorrow’s decision and the release of its latest set of projections.
• Both the Euro and the Swiss Franc are among the best performers amid the softer dollar, with both the ECB and SNB meetings also this week.
• More broadly, however, EURUSD maintains a softer tone and is trading just above its recent lows. Price has recently pierced support at the 50-day EMA - at 1.0774 and a sustained break of this average would strengthen a bearish theme and open 1.0693, the Nov 14 low. On the upside, initial resistance is at 1.0820, the 20-day EMA.
• UK GDP and US PPI data will precede tomorrow’s Fed meeting/presser, where the FOMC will hold rates in December for a 3rd consecutive meeting, further cementing expectations that the hiking cycle is over.

WEDNESDAY DATA CALENDAR

Date	GMT/Local	Impact	Flag	Country	Event
13/12/2023	0700/0700	**		UK	UK Monthly GDP
13/12/2023	0700/0700	**		UK	Index of Services
13/12/2023	0700/0700	***		UK	Index of Production
13/12/2023	0700/0700	**		UK	Trade Balance
13/12/2023	0700/0700	**		UK	Output in the Construction Industry
13/12/2023	1000/1100	**		EU	Industrial Production
13/12/2023	1000/1000	**		UK	Gilt Outright Auction Result
13/12/2023	1200/0700	**		US	MBA Weekly Applications Index
13/12/2023	1330/0830	*		CA	Household debt-to-income
13/12/2023	1330/0830	***		US	PPI
13/12/2023	1530/1030	**		US	DOE Weekly Crude Oil Stocks
13/12/2023	1900/1400	***		US	FOMC Statement
14/12/2023	2145/1045	***		NZ	GDP
14/12/2023	2350/0850	*		JP	Machinery orders