MNI ASIA OPEN: 10Y Yield Falls Below 3.9%, BOE, ECB Steady

US

FED (MNI): Every element of the December FOMC communications was more dovish than expected, spurring one of the biggest post-decision downward rate re-pricings and US dollar sell-offs in years.

• The forecast rate cuts in the Dot Plot were slightly dovish versus expectations, and the Statement made it surprisingly clear that the Fed is done hiking.
• And all of the peripheral surprises skewed dovish, including a slight pullback in some longer-run rate forecasts, and a very low 2023 inflation estimate.
• But the most remarkably dovish element of all may have been Chair Powell’s press conference, in which he delivered little pushback to market expectations of significant rate cuts next year, citing “great” progress in inflation - and openly discussed the fact that the topic of future easing came up at the FOMC meeting.

NEWS

INTERVIEW (MNI): New Inflation Baskets To Rebalance In Real Time
Real-time calibration of inflation baskets using consumer transaction data could be key to setting monetary policy in the future, by adjusting for changes in the quantity and even of the quality of items purchased, an economics professor leading a joint U.S.-Census-Bureau project to re-engineer official statistics told MNI.

INTERVIEW (MNI): Alberta Rides High Oil, BOC Relief-Ex Official
Canada's oil capital of Alberta will outperform next year on high crude prices, the expansion of the TMX pipeline and central-bank rate cuts likely to start in June that will support the country's fastest-growing population, a former top provincial finance official told MNI.

BOE (MNI): BOE Keeps Policy Rate Steady And Guidance Unchanged
The Bank of England Monetary Policy Committee gave no ground in its December decision, leaving the policy rate on hold at 5.25% with three of the nine members again voting for a 25 basis point hike and with the guidance suggesting that the policy rate will stay high-for-long unaltered.

ECB WATCH (MNI): Lagarde Says Cuts Not Discussed As Rates Held
The European Central Bank kept interest rates on hold Thursday and said inflation should fall below the 2% target in 2026, though President Christine Lagarde insisted that there had been no discussion of the timing of rate cuts.

EU (MNI): France, Germany Far Apart Ahead Of Fiscal Rules Talks
A last-ditch attempt to overhaul the European Union’s fiscal rules in time for parliamentary approval during the first half of next year looks to have an uncertain chance of success, with no agreement yet in a dispute between Germany and France over how to measure budget shortfalls under the EU’s Excessive Deficit Procedures, officials told MNI.

SECURITY (MNI): Axios: US Calls On Israel To End High Intensity Phase Of War
Axios reporting that, according to "two U.S. and Israeli officials," White House National Security Advisor Jake Sullivan has told Israeli Prime Minister Benjamin Netnayahu, and members of the Israeli war cabinet, that Israel's war against Hamas needs to, "transition to the next lower intensity phase in a matter of weeks, not months."

UKRAINE (MNI): Zelenskyy: This Is A Victory For Ukraine And All Of Europe
Ukrainian President Volodymyr Zelenskyy has stated on X that the European Council decision to open EU accession negotiations for Ukraine is "a victory for Ukraine. A victory for all of Europe. A victory that motivates, inspires, and strengthens."

EU (MNI): European Council Opens EU Accession Negotiations With Ukraine/Moldova
European Council President Charles Michel has confirmed that the European Council has voted to open accession negotiations with Ukraine and Moldova and granted candidate status to Georgia.

US TSYS Policy Pivot, 10Y Tsy Yield Falls to 3.8835% Low

• Cash Tsys remain stronger on heavy volumes after the close (TYH4>2.8M), 10Y yield fell to 3.8835% 5-month low as markets continue to react to Wed's FOMC steady rate annc, acknowledging inflation has eased but reiterated the Fed is "prepared to tighten policy further, if appropriate".
• Tsy futures receded slightly w/ EGBs, Gilts, position adjusts following the BOE and ECB steady rate annc's, little to no change to guidance.
• Still bid, Tsys pared support after lower than expected Initial Jobless Claims (202k vs. 220k est, 221k prior revised from 220k), Continuing Claims (1.876M vs. 1.879M est, prior 1.856M revised from 1.861M);
• Higher than expected Retail Sales Advance MoM (+0.3% vs. -0.1% est, prior -0.2% revised from -0.1%), Retail Sales Ex Auto MoM (0.2% vs. -0.1% est) Retail Sales Control Group (0.4% vs. 0.2% est) and
• Higher than expected Import Price Index MoM (-0.4% vs -0.8% est), YoY (-1.4% vs. -2.1% est); Export Price Index MoM (-0.9% vs. -1.0% est), YoY (in line w/ -5.2% est).
• Tsy 10Y futures traded at 112-19 (+22.5) after the close - still well within technical levels: resistance at 112-28.5 (1.618 proj of the Oct 19 - Nov 3 - Nov 13 price swing). Initial support well below at 111-09+ (High Dec 7 and a recent breakout level).
• Projected rate cuts for early 2024 gained momentum: January 2024 cumulative -5bp at 5.283%, March 2024 chance of rate cut climbs to -81.9% vs. -62% late Wednesday w/ cumulative of -25.5bp at 5.078%, May 2024 fully pricing in the first cut with cumulative -50.8bp at 4.824%, June'24 cumulative -76.8bp at 4.565%. Fed terminal at 5.33% in Feb'24.
• Friday Data Calendar: Fed Speak Returns, IP/Cap-U, S&P PMI, TIC Flow

OVERNIGHT DATA

• US JOBLESS CLAIMS -19K TO 202K IN DEC 09 WK
  
• US PREV JOBLESS CLAIMS REVISED TO 221K IN DEC 02 WK
• US CONTINUING CLAIMS +0.020M to 1.876M IN DEC 02 WK

Initial jobless claims unexpectedly fell to 202k in the Dec 9 week, vs consensus that it would remain steady vs the prior week at 220k (which ultimately was revised up 1k to 221k). That's the lowest reading since hitting 200k in mid-October, and the 2nd lowest reading in the past 11 months.

• Continuing claims were 3k lower than expected for the Dec 2 week at 1,876k - but a tick higher from the prior week which was revised 5k lower (1,856k). While this may suggest a resumption of the trend higher since September, it remains below the cycle high of 1,925k set in the Nov 17 week
• Fed Chair Powell at Wednesday's post-FOMC decision press conference pointed to "claims are low" as one reason to think the labor market had come into better supply-demand balance.
• It wasn't clear whether he was referencing continuing or initial claims - which tell slightly different stories at this stage, though rising continuing claims are likely reflecting reduced labor market churn. The initial claims reading belongs more into the "tight" than "loose" labor market camp as the Fed enters 2024.

• US NOV. RETAIL SALES RISE 0.3% M/M; EST. -0.1%
• US NOV. RETAIL 'CONTROL GROUP' SALES RISE 0.4% M/M; EST. +0.2%

• US NOV IMPORT PRICES -0.4%
• US NOV EXPORT PRICES -0.9%; NON-AG -1.0%; AGRICULTURE +0.2%

• Still bid, Tsys paring support (TYH4 112-10, +13.5) after lower than expected Initial Jobless Claims (202k vs. 220k est, 221k prior revised from 220k), Continuing Claims (1.876M vs. 1.879M est, prior 1.856M revised from 1.861M).
• Higher than expected Retail Sales Advance MoM (+0.3% vs. -0.1% est, prior -0.2% revised from -0.1%), Retail Sales Ex Auto MoM (0.2% vs. -0.1% est) Retail Sales Control Group (0.4% vs. 0.2% est).
• Higher than expected Import Price Index MoM (-0.4% vs -0.8% est), YoY (-1.4% vs. -2.1% est); Export Price Index MoM (-0.9% vs. -1.0% est), YoY (in line w/ -5.2% est).
• Tsy 10Y futures still well within technical levels: resistance at 112-28.5 (1.618 proj of the Oct 19 - Nov 3 - Nov 13 price swing). Initial support well below at 111-09+ (High Dec 7 and a recent breakout level).

• Atlanta Fed GDPNow Q4 estimate, raised to +2.6% from +1.2%

MARKETS SNAPSHOT

• Key market levels of markets in late NY trade:
• DJIA up 95.76 points (0.26%) at 37197.67
• S&P E-Mini Future up 6.75 points (0.14%) at 4770
• Nasdaq up 7 points (0%) at 14748.08
• US 10-Yr yield is down 8.8 bps at 3.9282%
• US Mar 10-Yr futures are up 19.5/32 at 112-16
• EURUSD up 0.0116 (1.07%) at 1.0992
• USDJPY down 0.98 (-0.69%) at 141.9
• WTI Crude Oil (front-month) up $1.99 (2.86%) at $71.45
• Gold is up $6.45 (0.32%) at $2033.36
• European bourses closing levels:
• EuroStoxx 50 up 8.97 points (0.2%) at 4539.16
• FTSE 100 up 100.54 points (1.33%) at 7648.98
• German DAX down 13.82 points (-0.08%) at 16752.23
• French CAC 40 up 44.63 points (0.59%) at 7575.85

US TREASURY FUTURES CLOSE

• 3M10Y -6.987, -145.752 (L: -150.408 / H: -138.911)
• 2Y10Y -5.244, -46.671 (L: -47.275 / H: -35.166)
• 2Y30Y -9.095, -34.645 (L: -35.147 / H: -16.894)
• 5Y30Y -6.565, 13.745 (L: 13.745 / H: 26.359)
• Current futures levels:
• Mar 2-Yr futures up 5.25/32 at 102-26.125 (L: 102-23.75 / H: 103-01.5)
• Mar 5-Yr futures up 12.25/32 at 108-14.25 (L: 108-06.5 / H: 108-24.5)
• Mar 10-Yr futures up 20/32 at 112-16.5 (L: 111-31.5 / H: 112-28)
• Mar 30-Yr futures up 1-26/32 at 123-15 (L: 121-23 / H: 123-29)
• Mar Ultra futures up 2-24/32 at 132-24 (L: 129-31 / H: 133-09)

US 10Y FUTURE TECHS: (H4) Impulsive Bull Rally

• RES 4: 114-00 Round number resistance
• RES 3: 113-12+ 1.764 proj of the Oct 19 - Nov 3 - Nov 13 price swing
• RES 2: 112-28+ 1.618 proj of the Oct 19 - Nov 3 - Nov 13 price swing
• RES 1: 112-23 Intraday high
• PRICE: 112-18+ @ 11:30 GMT Dec 14
• SUP 1: 111-09+ High Dec 7 and a recent breakout level
• SUP 2: 110-02 20-day EMA
• SUP 3: 109-31+ Low Dec 11 and key short-term support
• SUP 4: 109-12 50-day EMA

Treasuries rallied yesterday and the contract is firmer once again today. Resistance at 111-09+, the Dec 7 high, has been cleared. This confirms a resumption of the uptrend and confirms an extension of the price sequence of higher highs and higher lows. Sights are on 112-28+ next, a Fibonacci projection. On the downside, key short-term support has been defined at 109-31+, the Dec 11 low. First support is at 111-09+.

SOFR FUTURES CLOSE

• Current White pack (Dec 23-Sep 24):
• Dec 23 +0.010 at 94.633
• Mar 24 +0.025 at 94.965
• Jun 24 +0.055 at 95.410
• Sep 24 +0.070 at 95.805
• Red Pack (Dec 24-Sep 25) +0.10 to +0.130
• Green Pack (Dec 25-Sep 26) +0.095 to +0.110
• Blue Pack (Dec 26-Sep 27) +0.090 to +0.095
• Gold Pack (Dec 27-Sep 28) +0.090 to +0.095

FIXES AND PRIOR SESSION REFERENCE RATES

SOFR Benchmark Settlements:

• 1M -0.00356 to 5.35825 (-0.00178/wk)
• 3M -0.00689 to 5.37775 (+0.01170/wk)
• 6M -0.03844 to 5.29380 (+0.00169/wk)
• 12M -0.09040 to 5.01476 (-0.00536/wk)

• Secured Overnight Financing Rate (SOFR): 5.31% (+0.00), volume: $1.635T
• Broad General Collateral Rate (BGCR): 5.30% (+0.00), volume: $611B
• 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: $106B
• Daily Overnight Bank Funding Rate: 5.32% (+0.00), volume: $259B

RRP Usage in Retreat

• RRP usage retreated to $769B (-$54B) -- just above December 1 low of $768B, the lowest usage since early July 2021.
• The number of counterparties down to 92 from 95 yesterday.

EGBs-GILTS CASH CLOSE: Fed-Led Gains Pared As BoE/ECB Stand Their Ground

Bunds and Gilts closed slightly higher Thursday, following an intraday reversal of the large gains after last night's unexpectedly dovish Federal Reserve meeting.

• Following through from the drop on the open into early European trade, 10Y Gilt yields fell as much as 17bp at one point, with Bund yields down nearly 15bp, before erasing most of the move as the BoE and ECB decisions were digested. The German curve bull steepened with the UK's bull flattening.
• The BoE decision was largely in line, with a 6-3 vote breakdown and the statement seen leaning more hawkish than dovish versus expectations.
• Apart from announcing that PEPP reinvestments would begin to be tapered off in H2 2024, there were no major surprises from the ECB. However the Lagarde press conference delivered a few hawkish-leaning soundbites (they didn't discuss cuts "at all", "should not lower our guard" against inflation) that were sufficient to pull Bunds to session lows. Solid US data (retail sales, jobless claims) helped keep pressure on core FI through the afternoon.
• Periphery EGB spreads tightened as PEPP runoff won't be as onerous as some analysts had expected.
• Friday sees flash December PMIs as well as appearances by multiple ECB (Holzmann, Centeno, Vasle, Kazimir, Muller, Scicluna, Simkus, Vujcic) speakers, and BOE's Ramsden.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 10bps at 2.567%, 5-Yr is down 8.8bps at 2.079%, 10-Yr is down 5.4bps at 2.119%, and 30-Yr is down 1.9bps at 2.327%.
• UK: The 2-Yr yield is down 1.9bps at 4.362%, 5-Yr is down 6.9bps at 3.817%, 10-Yr is down 4.1bps at 3.789%, and 30-Yr is down 3.9bps at 4.294%.
• Italian BTP spread down 8.3bps at 167.3bps / Greek down 8.2bps at 116.8bps

FOREX Greenback Extends Fed-Inspired Weakness, USD Index Drops 0.90%

• The greenback has extended losses on Thursday, in further reaction to the FOMC's dovish pivot at the December meeting. The weakness has been broad based, which is emphasised by the USD index extending its impressive decline to 1.80% from pre-Fed levels. Late weakness for equities did little to bolster the USD.
• Both EUR and GBP are among the best performing majors, with the former briefly trading back above 1.10 and the latter receiving an additional boost from today’s Bank of England decision.
• As such, GBPUSD has risen 1.15% to trade at the highest level since mid-August, narrowing in on 1.28. Wednesday’s rally and Thursday’s extension, reinforces a bullish technical theme. Key resistance and the bull trigger at 1.2733, the Nov 29 high, has broken, confirming the resumption of the uptrend. Highs of 1.2800 and 1.2819 in August are the next topside levels of note.
• USDCAD has declined 0.80% on the session, with today's price action driven by the persistent Fed-inspired USD weakness as well as solid oil prices. This prompted the USDCAD trend outlook to deteriorate sharply through the London close, as the bear trigger at 1.3480, the Dec 4 low, has given way. This confirms a resumption of the downtrend and ends the consolidation phase posted since the beginning of December. Sights are on 1.3401, the 61.8% retracement of the Jul 14 - Nov 1 bull phase.
• More of a consolidatory session for USDJPY, after further sharp weakness was seen during APAC hours, resulting in a print of 140.97. The pair retains losses of 0.75% but stands well off the lows, around 141.80 as we approach the APAC crossover.
• The NOK trades sharply higher after the Norges Bank took a large part of the market by surprise in hiking rates by a further 25bps to 4.50%. EUR/NOK traded lower by as much as 3% on the initial decision, piercing key support at both the 100- and 200-dma to print the lowest level since early October.
• Data on Friday includes China activity figures, before a round of European flash PMIs. In the US, empire manufacturing, industrial production and PMI’s will be in focus.

FRIDAY DATA CALENDAR

Date	GMT/Local	Impact	Flag	Country	Event
15/12/2023	0001/0001	**		UK	Gfk Monthly Consumer Confidence
15/12/2023	0030/0930	**		JP	Jibun Bank Flash Japan PMI
15/12/2023	0200/1000	***		CN	Fixed-Asset Investment
15/12/2023	0200/1000	***		CN	Retail Sales
15/12/2023	0200/1000	***		CN	Industrial Output
15/12/2023	0200/1000	**		CN	Surveyed Unemployment Rate M/M
15/12/2023	0700/0800	**		SE	Unemployment
15/12/2023	0745/0845	***		FR	HICP (f)
15/12/2023	0815/0915	**		FR	S&P Global Services PMI (p)
15/12/2023	0815/0915	**		FR	S&P Global Manufacturing PMI (p)
15/12/2023	0830/0930	**		DE	S&P Global Services PMI (p)
15/12/2023	0830/0930	**		DE	S&P Global Manufacturing PMI (p)
15/12/2023	0900/1000	**		IT	Italy Final HICP
15/12/2023	0900/1000	**		EU	S&P Global Services PMI (p)
15/12/2023	0900/1000	**		EU	S&P Global Manufacturing PMI (p)
15/12/2023	0900/1000	**		EU	S&P Global Composite PMI (p)
15/12/2023	0930/0930	***		UK	S&P Global Manufacturing PMI flash
15/12/2023	0930/0930	***		UK	S&P Global Services PMI flash
15/12/2023	0930/0930	***		UK	S&P Global Composite PMI flash
15/12/2023	1000/1100	*		EU	Trade Balance
15/12/2023	1000/1000			UK	BOE's Ramsden Speech at Deloitte on Bank resolution regime
15/12/2023	1315/0815	**		CA	CMHC Housing Starts
15/12/2023	1330/0830	*		CA	International Canadian Transaction in Securities
15/12/2023	1330/0830	**		CA	Wholesale Trade
15/12/2023	1330/0830	**		US	Empire State Manufacturing Survey
15/12/2023	1415/0915	***		US	Industrial Production
15/12/2023	1445/0945	***		US	IHS Markit Manufacturing Index (flash)
15/12/2023	1445/0945	***		US	S&P Global Services Index (flash)
15/12/2023	1630/1630			UK	BoE announce APF Sales schedule for Q124
15/12/2023	1725/1225			CA	BOC Governor Macklem speech/press conference
15/12/2023	1800/1300	**		US	Baker Hughes Rig Count Overview - Weekly
15/12/2023	2100/1600	**		US	TICS