MNI ASIA OPEN - Angola Said To Be Quitting OPEC

NEWS

MNI Global Macro Outlook-Dec 2023: What Could Go Wrong?
MNI's December 2023 Global Macro Outlook meeting surveyed the consensus outlook for the year ahead. Market pricing overwhelmingly expects a “soft landing” in 2024; analysts agree but less so. Global growth is seen below potential in 2024, with the US and Eurozone at stall speed.

• Inflation is set to remain above 2% in most developed countries by well down and closed to target by 2025
• Modest fiscal drag is seen on 2024 growth vs 2023; historically low unemployment rates are seen ticking higher
• Manufacturing appears to be bottoming out, but services will be the key to 2024 growth and inflation outcomes
• Amid large-scale central bank rate cuts in 2024, consensus is for US dollar weakness

OIL (MNI): Angola To Exit OPEC - Minister Azevedo
Angola will exit OPEC, stated-owned Jornal de Angola reported, citing Mineral Resources Minister Diamantino Azevedo. The latest report did not yet disclose a full picture as to why Angola aims to leave the producer group, however, it is likely due to the country’s new adjusted crude output baseline. At the last OPEC+ ministerial meeting the group adjusted Angola’s crude oil output to 1.1mbpd, below the 1.28mbpd previously planned for 2024 and down from 1.455mbpd in 2023. Shortly after the meeting, Angola’s OPEC governor Estevao Pedro said the country is not planning to stick to its new OPEC+ quota.

US/CHINA (MNI): Military Officials First Call Since Aug '22, But Flashpoints Loom In '24
(MNI) London - The US and China have held their highest-level military communications since August 2022, when then-Speaker of the US House of Representatives Nancy Pelosi visited Taiwan resulting in Sino-American relations notably deteriorating.

EQUITIES (BBG): Options Giant Cboe Brings Hot S&P 500 Trade to Small Stocks
Investors in small-cap stocks will soon have wider access to one of this year’s hottest — and most controversial — options trades. Cboe Global Markets Inc., the world’s largest options exchange, is adding Tuesday and Thursday expirations for so-called zero-day options linked to the Russell 2000 Index.

CANADA (MNI): War, Sticky Prices Dent Canadian Exporter Confidence- EDC
Global conflicts and persistent inflation are hurting sentiment among exporters in Canada, one of the most trade-dependent advanced markets, the chief economist of the nation’s trade financing agency told MNI. “Global economic conditions and rising business expenses really appear to have taken their toll on exporter confidence,” Stuart Bergman of Export Development Canada said on MNI’s FedSpeak podcast

CANADA (MNI): Canadian Nov Retail Sales Stall After Strong Oct Gain
Canadian retail sales were "relatively unchanged" in November after a 0.7% increase in October, the federal statistics office reported Thursday. Statistics Canada's flash estimate for November didn't come with a specific percentage change they've used in the past or with any industry breakdown, in a month where the response rate was below average.

EU/HUNGARY (MNI): Orban Speaks On EU Funds To Ukraine, Migration Pact, Sweden NATO Bid
Delivering an annual end of year press conference, PM Viktor Orban delivers typically bellicose rhetoric directed toward the European Union, criticising the migration pact agreed to earlier in the week and seeking to restate his opposition to a major aid package being provided to Ukraine from the EU's long-term budget.

UK (MNI): New UK Household Costs Data Fall Short - Weale
The UK’s new Household Costs Indices, which are meant to express the varying experience of inflation for different income groups and categories, have fallen short by failing to capture key costs such as taxation and by using an over-simplified model of income when weighting expenditure, a senior economist advising the Office for National Statistics told MNI.

EU/UK (BBG): EU, UK Push Back Tariffs on EV Trade for Three Years
The European Union and the UK approved a three-year postponement of tariffs on electric vehicles, giving carmakers more time to make necessary changes to comply with local content requirements under a bilateral trade deal. The tariffs that were set to kick in from next year would have charged a 10% duty on vehicles and batteries traded between the bloc and the UK if less than 45% of their value comes from the region - a policy meant to strengthen the European battery supply chain.

NETHERLANDS (MNI): Talks To Enter 'Radio Silence' As Right-Wing Parties Seek Agreement
Following the appointment of parliamentary scout Ronald Plasterk as 'informateur', the individual tasked with bringing parties towards a coalition agreement post-election, the former Labour Party lawmaker has said that the negotiations will enter a period of 'radio silence' for the coming weeks.

ITALY (MNI): Rome Rejects ESM Ratification, Next Try in 6 Months
Italy's lower house of Parliament rejected ratifying modifications to the European Stability Mechanism Thursday, with a fresh vote now at least 6 months away after the June European Parliament elections. The vote was a surprise move by lawmakers who were seen to be leaning towards taking more time to reach a decision.

DATA

US DATA: Soft GDP/Core PCE Revisions For Q3

• Picking through some initially very misleading headlines on Bloomberg, GDP revisions were notably softer than expected.
• Real GDP growth was revised down to 4.86% annualized in the third reading for Q3 (cons 5.2), fully unwinding its surprise upward revision to 5.15% in the second estimate.
• However, whilst it’s back to where it was first indicated in the advance release, another downward revision for personal consumption leaves it at 3.1% (from 3.6% in the 2nd and 4.0% in the advance). That still marks a strong bounce from the 0.8% in Q2, which in turn followed 3.8%, with that pause coming with a rise in the savings ratio.
• There was also a surprise drop in core PCE inflation, revised down further from 2.3% to 2.04% annualized (cons 2.3). Whilst only for Q3, with tomorrow’s monthly report showing how they were distributed in the quarter, it’s nevertheless a surprisingly large drop back to the 2% target.

• Overshadowed by surprisingly large, and dovish (clearly important at this stage of the cycle) GDP revisions for a third release, jobless claims came in better than expected.
• Initial jobless claims only increased 2k to a seasonally adjusted 205k (cons 215k) in the week to Dec 16 for a second week of surprising lower. Being a payrolls reference week, it left claims tentatively below the 211k in the November payrolls reference period.
• It also saw the four-week average ease 2k to 212k, its lowest since late October.
• Continuing claims also surprised lower with a seasonally adjusted 1865k (cons 1880k) in the week to Dec 9 after a downward revised 1866k (initial 1876k).
• Eyeballing the raw NSA data, both initial and continuing claims look more in keeping with typical seasonal patterns after recent noise around the Thanksgiving holiday.

US DATA: Kansas Fed Mfg Bucks Empire and Philly Misses

• The Kansas City Fed manufacturing index was marginally stronger than expected in December as it nudged up to -1 (cons -4) from -2.
• It bucks an emerging trend of sizeable misses in both NY and Philly Fed surveys released so far: Empire -14.5 (cons +2.0) after +9.1, Philly -10.5 (cons -3.0) after -5.9.
• The six-month ahead measure for the Kansas composite reading of +6 was the joint highest since Dec'22.

* CANADA OCT RETAILS +0.7% VS FORECAST +0.8%, PRIOR +0.5%
* CANADA RETAIL EX-AUTOS +0.6% VS FORECAST +0.5%
* CANADA RETAIL EX-AUTOS & GAS +1.2% VS PRIOR -0.3%
* OCT RETAIL SALES VOLUMES +1.4%, STRONGEST SINCE DEC 2022
* GENERAL MERCHANDISE, AUTOS LEAD RETAIL SALES INCREASE
* NOV FLASH RETAIL SALES 'RELATIVELY UNCHANGED': STATSCAN

US TSYS: Bear Steeper After Reversing Dovish Reaction To GDP/Core PCE Miss

• Cash Tsys trade 2-5bp cheaper, led by the long-end for an extension of the post-data steepening seen after a well digested 5Y TIPS auction (on the screws after October's 2bp tail). 2s10s stands at -46bps (+2.5bps).
• It’s a sizeable pullback from highs seen shortly after notably softer than expected GDP/core PCE revisions for the third Q3 reading -- core PCE at 2.0% rather than 2.3% annualized in Q3 helps chime with Chair Powell seeing it at 3.1% Y/Y in Nov and the median FOMC dot looking for 3.2% in 4Q23.
• The data were however also released along with better-than-expected jobless claims data, offering at least some support for the paring of those gains.
• Against this backdrop, TYH4 trades at 112-21+ at the low end of the day’s range, having earlier pushed new recent highs of 113-04+ for another step closer to resistance at 113-12+ (Fibo projection of Oct-Nov price swing).
• Tomorrow sees the closely watched monthly PCE report for Nov, as well as durable goods for Nov, finalized U.Mich consumer confidence for December after its surprising drop in inflation expectations in the preliminary report and new home sales.

FOREX: Greenback Loses Altitude, USDJPY Reapproaches 142.00

• Losses for the greenback ahead of the NY crossover have been consolidated during US hours, with the USD index registering a 0.45% loss on Thursday, and likely posting its lowest close since July 31. The moderate recovery for equities has underpinned 1% gains for the Australian dollar, as well as the Japanese Yen extending its recovery from the post-BOJ lows.
• Yesterday we noted that the uptrend for AUDUSD remains firmly intact and Tuesday’s gains reinforced current conditions. This marked an extension of last week’s move higher and the break of resistance at 0.6691, the Dec 4 high and a bull trigger. Overall, scope was seen for a climb for a climb towards the 0.6800 handle, which has largely been achieved. Next levels on the topside are 0.6821, the Jul 27 high, and then 0.6900, the Jun 16 high and a key resistance.
• For USDJPY, following the post-BOJ bounce for USDJPY to a 144.96 high, the pair has since slipped an impressive 280 pips and now finds itself trading comfortably below the pre-central bank meeting levels. With this, spot is down just under 1% on the session, briefly printing a fresh low for the week at 142.05.
• From a technical standpoint, the aforementioned USDJPY recovery from 140.97, the Dec 14 low, appears to be a correction. The most recent weakness has reinforced current bearish conditions. On Dec 14, the pair breached support at 141.71, the Dec 7 low, to confirm a resumption of the downtrend that started on Nov 13. Sights are on 140.71, a Fibonacci retracement point.
• Japan National Core CPI for November is due overnight, as well as the BOJ minutes. Finishing off the week, US PCE deflator, personal spending, durable goods and UMich sentiment & expectations data are all scheduled.

EQUITIES: Holding A Partial Recovery Of Yesterday’s Late Rout

• The S&P e-mini sits in the middle of the day’s range at ~4772 (+0.5%), chipping away at yesterday’s late -1.5% slide attributed to a host of factors including profit taking in overbought conditions, 0DTE options and increasingly large sell programs.
• It’s off yesterday’s low of 4743.23 but also notably below the high of 4830.75 which now sets initial resistance before 4854.75 (Fibo projection). Yesterday’s slide is deemed a corrective pullback from technical trends.
• SPX gains are led by consumer discretionary (+1.0%, helped by Tesla +2.4%), health care (+0.8%) and materials (+0.7%), whilst utilities (-0.2%) and energy (-0.1%) lag in what’s been a volatile but weaker day for crude futures. A bear steepening in Treasuries through the session has done little to help banks, with the KBW index paring gains to +0.5%.
• The Russell 2000 (+1.2%) outperforms after sliding 2% yesterday, followed by Nasdaq 100 (+0.65%) and the Dow (+0.4%). On the Russell 2000, Cboe is adding Tue and Thu 0DTE options, filling out the rest of week with its current offering of Mon, Wed and Fri.

COMMODITIES: A Mixed But Weaker Day For Crude Whilst Gold Buoyed By Weaker USD

• Crude markets are holding net losses today as concerns over threats to Red Sea shipping have been superseded by record US oil output and Angola’s announcement it will leave the OPEC group. Falling US rig counts helped to moderate today’s losses in US hours.
• Angola will exit OPEC, stated-owned Jornal de Angola reported, citing Mineral Resources Minister Diamantino Azevedo.
• Tankers carrying crude oil and fuel entering the Bab al-Mandab strait fell to around 30 this week, down by over 40% from the daily average seen in the previous three weeks as more shipping companies pause routes in the Red Sea according to Bloomberg ship tracking.
• US total oil and gas rig counts fell by 3 to 620, according to Baker Hughes Dec. 21. Total US oil rigs fell by 3 on the week to 498.
• WTI is -0.5% at $73.84, pulling back from yesterday’s $75.37 but still off support at $70.99 (Dec 18 low).
• Brent is -0.5% at $79.33, pulling away from resistance at $80.56 (50-day EMA) but still off support at $75.76 (Dec 18 low).
• Gold is +0.6% at $2043.9, buoyed by a weaker USD index seen ever since surprisingly dovish GDP/core PCE revisions in the third reading for Q3. It’s off an earlier high of $2046.00 for moves closer to resistance at $2054.3 (50% retrace of Dec 4-13 bear leg).