MNI ASIA OPEN: Bullard Says March Cut Too Early

NEWS

US (MNI): INTERVIEW: Bullard Says March Is Too Early For Fed To Cut
Federal Reserve officials are likely to begin cutting interest rates around the middle of next year to ensure monetary policy does not tighten as inflation falls, though market bets on March cuts are overdone, former St. Louis Fed President James Bullard told MNI. “On the idea of March as a possible timing for a rate cut, I think that’s probably premature,” Bullard said on MNI’s FedSpeak Podcast.

US (BBG): Fed’s Bostic Says He Doesn’t See Urgency to Cut Interest Rates
Bostic, who will vote on monetary policy decisions next year, said he expects the labor market and price pressures to continue cooling, and said he’s keeping a close eye on 3-month and 6-month inflation readings. “By and large inflation has been consistent and in the right direction, and I want to make sure it stays that way,” he added.

US (MNI): Fed's Barkin Views Inflation As More Stubborn Than Average FOMC Member
Richmond Fed’s Barkin (’24 voter) keeps his cards close to his chest when speaking for the first time since Wednesday’s FOMC decision. The closest he came to new information is saying that whilst he doesn’t disclose his particular dot, he views inflation as more stubborn than the average FOMC member (which tallies with our view of Barkin as sitting on the hawkish leaning side of center within the FOMC).

US (MNI): INTERVIEW: Clearing Rule To Boost Treasury Liquidity
An expansion of central clearing of U.S. Treasury trades promises to be "transformative" in reducing systemic risk and improving liquidity for the world's most important bond market, Stanford Graduate School of Business economist Darrell Duffie told MNI. The Securities and Exchange Commission's adoption last week of broader clearing rules for the Treasury market will improve price transparency, boost competition and expand the capacity of primary dealers to handle trades during stress, Duffie said.

CANADA (MNI): Canada Inflation Unexpectedly Stalls at 3.1% In November
Canada's inflation slowdown unexpectedly stalled in November as pricier travel tours offset the government removing carbon tax from home heating oil in the eastern provinces. The consumer price index held at a 3.1% year-over-year pace according to Statistics Canada's report Tuesday from Ottawa, compared with an economist consensus for it to slow to 2.9%.

UK (MNI): UK November CPI Preview
UK markets are primed for the release of November inflation tomorrow. The MPC did not have advanced sight of the data in their monetary policy deliberations last week and they noted that although October inflation had come in softer-than-expected, a number of components that had contributed to the surprise were not necessarily drivers of a clear underlying trend.

EU FISCAL (MNI): France, Germany Say To Reach Fiscal Deal Tuesday
Finance ministers of France and Germany told journalists at a news conference that they will resolve their remaining differences on a new EU fiscal rules regime in bilateral talks in Paris on Tuesday night. The main issue between the countries concerns the speed at which EU member states in excess of limits achieve a budget deficit of 1.5% of GDP over the course of a four- to-seven-year fiscal adjustment programme.

CHINA (MNI) PBOC WATCH: LPR To Hold As CGB Liquidity Pressures Lenders
(MNI) Beijing - China’s reference lending rate will likely remain unchanged in December as elevated wholesale money market rates increase bank financing costs, while strong government debt issuance drains liquidity from the interbank market, analysts and economists told MNI.

DATA

* MNI: US NOV HOUSING STARTS 1.560M; PERMITS 1.460M
* US OCT STARTS REVISED TO 1.359M; PERMITS 1.498M
* US NOV HOUSING COMPLETIONS 1.447M; OCT 1.378M (REV)

* MNI: CANADA NOV CPI +3.1% YOY VS FORECAST +2.9%, PRIOR +3.1%
* CANADA NOV CPI +0.1% MOM VS FORECAST -0.1%, PRIOR +0.1%
* CANADA CPI EX FOOD & ENERGY +0.2% MOM; +3.5% YOY
* CANADA CORE TRIM CPI +3.5% YOY, PRIOR +3.5%
* CANADA CORE MEDIAN CPI +3.4%, PRIOR +3.4%

* MNI: CANADA NOV INDUSTRIAL PRICES -0.4% MOM; EX-ENERGY -0.1%
* CANADA NOV RAW MATERIALS PRICES -4.2% MOM; EX-ENERGY +0.1%

US TSYS: Back Near Unchanged Whilst Lacking Direction

• Tsys trade back near unchanged, sitting between 1bp richer and 0.5bp cheaper in a session lacking direction on underwhelming volumes.
• The broad themes have been some dovish spillover from the BoJ overnight before paring those gains with particularly strong housing starts (caveated heavily by volatility within the report and a small miss for building permits).
• TYH4 has remained within yesterday’s range throughout, currently at 112-12 with volumes not yet ticking over 1M. Technical trends point to a bullish signal that highlights resistance at 112-28+ and 113-12+ (Fibo projection points).
• There is still Goolsbee (’25 voter) to come at 1800ET before tomorrow’s docket is headlined by existing home sales and Conf Board consumer confidence before the 20Y re-open.

FX: 145.00 Caps Strong USDJPY Bounce, Risk On Weighs On Greenback

• An extension of recent risk optimism across equity markets on Tuesday weighed on the greenback overall, with the USD index falling around 0.35%, and in the process, narrowing back in on last week's four-month lows.
• Bucking this trend was a higher USDJPY, as a product of some notable JPY weakness overnight that extended across European hours. This was as a result of the Bank of Japan board deciding unanimously to keep yield curve control policy, including the negative interest rate, and pledged to continue patiently with monetary easing amid high uncertainty on economies and financial markets.
• Price action saw USDJPY rise to as high as 144.96, an impressive 271 pips off the earlier session lows. Given its previous significance, this seemed a good area for the rally to halt and the broader greenback weakness in US hours saw the pair fade back to just below the 144 handle.
• EUR/JPY was an outperformer, rising 1.25% on the session. Options volumes have been buoyed by trades consistent with sizeable call spreads that crossed in early Europe/very late Asia, and again at the NY crossover. Trades target upside in the cross via a 160/162 call spread, and captures the next BoJ rate decision on January 23rd. 6m implied vols in the cross remain supported despite the pullback from BoJ-inspired highs. The gauge trades either side of 10 points and looks to have bottomed out at end-November.
• Relentless optimism in equity markets also bolstered the likes of AUD and NZD. AUDUSD convincingly cleared $0.6735 (as well as $0.6691, the former bull trigger) to print the best levels since late July. The moves further narrow the gap with the next upside level of 0.6821, the Jul 27 high. Options markets moving in sympathy with spot so far Tuesday, prompting AUD/USD 1m risk reversals to edge to just 0.4 points in favour of puts, the small put premium since mid-2020.
• UK November inflation data headlines Wednesday’s docket. US consumer confidence and existing home sales will also cross.

US STOCKS: Maintaining Earlier Broad Gains After Fresh Record Highs For The Nasdaq 100

• US equity indices have held onto strong gains seen in the 90 minutes after the cash open, with ESH4 currently at 4813 still close to its earlier high of 4817.
• It has extended clearance of a major resistance at 4808.25 (Jan 4, 2022 high) and opens 4862.08 (Fibo projections of Nov-Dec price swing).
• In contrast to yesterday’s mega-cap driven increase, today’s gains are broader-based amidst broader risk-on flows with WTI strength and the USD index slipping.
• Within SPX, gains are led by energy (+1.1%) with crude futures seeing further strong gains in the face of the timeframe needed to establish a coalition in the Red Sea, communication services (+0.95%) and materials (+0.9%).
• As has been the case throughout the session, IT and consumer staples lag with near unchanged on the day.
• The Russell 2000 outperforms (+1.8%) although it would only be its largest increase since Thursday. It’s followed by the Dow (+0.5%), S&P 500 (+0.4%) and Nasdaq 100 (+0.3%), the latter trimming gains after touching fresh record highs of 16800.45.

COMMODITIES: Crude Supported By Continued Red Sea Fallout, Gold Boosted By USD Slipping

• Crude prices are approaching the US close trading solidly higher on the day, supported by a weakening in the US dollar and continued concerns over freight disruptions in the Red Sea.
• It pushes prices back towards yesterday’s highs as several companies shipping energy products have announced to pause shipments via the Red Sea, including Equinor and BP, sparking fears for supply passing through the Suez Canal.
• The US has put together a new naval task force to patrol the troubled area and protect commercial vessels, potentially taking weeks to be put in place according to Maersk. The Houthis warned the US they will be legitimate targets if they interfere in its ongoing operations against Israel-linked vessels.
• A new OPEC+ meeting is possible in the near future for the group to discuss the market situation but currently there is no need for new decisions, Russia Dep. PM Novak said, cited by Interfax.
• WTI is +1.3% at $73.44, with resistance seen at yesterday’s high of $74.61.
• Brent is +1.8% at $79.34, having peaked at $79.67 to push above yesterday’s high of $79.51 and open $80.65 (50-day EMA).
• Gold is +0.6% at $2039.48, gaining directly along with the drop in the USD index. An intraday high of $2046.97 saw it come close to last week’s highs after which lies resistance at $2054.3 (50% retrace of Dec 4-13 bear leg).