EXECUTIVE SUMMARY:
- US CPI DOES LITTLE TO CHANGE FED DEC CUT CALL
- BOC CUT 50BPS, BUT MORE GRADUAL APPROACH EXPECTED FROM HERE
- BOJ SAID TO SEE LITTLE COST TO WAITING FOR NEXT RATE HIKE
Figure 1: Key Categories in November US CPI
NEWS
US (BBG): Trump Scheduled to Ring NYSE’s Opening Bell on Thursday
Donald Trump is slated to ring the New York Stock Exchange’s opening bell on Thursday, presenting a president-elect who has vowed to rejuvenate the US economy a celebratory photo opportunity at an iconic symbol of American capitalism. Trump’s plans for the NYSE visit were shared by people familiar with his schedule, who spoke on the condition of anonymity to discuss plans that were not yet public.
CANADA (MNI): More Gradual Approach Seen After 2nd 50BP Cut
Canada's central bank slashed borrowing costs by a half point for the second meeting in a row Wednesday and officials anticipate a more gradual approach from here as substantial policy relief flows into a weak economy, while noting "a major new uncertainty" from threatened U.S. tariffs. The overnight rate fell to 3.25% as expected by 12 of 18 economists surveyed by MNI, while another six called for a 25bp move that echoed three decisions earlier this year.
JAPAN (BBG): BOJ Is Said to See Little Cost to Waiting for Next Rate Hike
Bank of Japan officials see little cost to waiting before raising interest rates while still being open to a hike next week depending on data and market developments, according to people familiar with the matter. Even if the BOJ decides to wait until January or a little longer, authorities see it as not entailing a huge cost because signs point to little risk that inflation might overshoot, the people said. At the same time, some officials are not against a rate hike at this meeting if it is proposed, according to the people.
GERMANY (MNI): Scholz Set To Submit Confidence Motion Request To Bundestag
Chancellor Olaf Scholz is today (11 Dec) set to submit a request to the Bundestag to hold a confidence vote in his minority gov't on Monday 16 December. Under Germany's 'Basic Law', only the gov't can request a straight up-and-down confidence vote. The opposition is limited to 'constructive' confidence votes where an alternative chancellor is required to gain majority support to oust the incumbent.
FRANCE (BBG): France to Set Out Emergency Law to Avert Government Shutdown
France’s caretaker administration will present an emergency finance bill to parliament on Wednesday to avoid a shutdown after the country’s government and its 2025 budget bill fell in a no-confidence vote last week. The presentation is likely the final act of Prime Minister Michel Barnier’s short tenure, which was brought to an end when Marine Le Pen’s nationalist lawmakers joined forces with leftists to censure his government over its fiscal plans.
RUSSIA (MNI): Dep FM-'Oreshnik' Missile 'Powerful Warning Signal' To Europe
Speaking to reporters, Deputy Foreign Minister Sergei Ryabkov has said that the firing of an Oreshnik intermediate-range ballistic missile (IRBM) at the Ukrainian city of Dnipro in November has "in itself became a powerful warning signal to all those overseas who have slightly lost their sense of reality, at least judging by their behavior, and to their clients in Europe who have completely lost their shores, that Russia is very serious,"
EU-RUSSIA (MNI): U-Turn As 15th Sanctions Package Agreed After Initial Reservations
In what represents an about-turn, the Hungarian presidency of the Council of the European Union has announced that member state ambassadors to the EU have agreed on a 15th package of sanctions to be imposed on Russia by the Union in response to the invasion of Ukraine. Initially, it appeared as though envoys were set to reject the latest sanctions package over disagreements regarding divestiture from Russian oil and oil products.
CORPORATE (The Information): Apple Is Working on AI Chip With Broadcom
Apple is developing its first server chip specially designed for artificial intelligence, according to three people with direct knowledge of the project, as the iPhone maker prepares to deal with the intense computing demands of its new AI features.
US TSYS: Curve Steepens, Fed Cut Next Week Cemented On CPI Data
The Treasury curve bear steepened Wednesday, with the short-end outperforming after in-line CPI data pointed to a Fed cut next week.
- Core CPI inflation was a little stronger than expected in November at 0.31% M/M (cons 0.28), but housing inflation - whose stickiness has been a concern for Fed policymakers - pulled back more sharply than expected, helping shift implied probability of a 25bp cut next week to near 100% versus <90% Tuesday.
- Additionally, analysts saw the data implying that the Fed's preferred core PCE metric would decelerate.
- Yields rose from session highs as the afternoon went on, with equities and oil pushing all-time/session highs respectively.
- Also digested were concerns over the stickiness of ex-housing services inflation over the medium term, and the 50bp Bank of Canada rate cut coming with hawkish communications.
- Long-end Treasuries would fully reverse post-CPI gains. But the shape of the curve remained steeper: 2s10s +3.06, 10.98 (L: 4.464 / H: 11.551), moving further away from the near-inversion earlier this month.
- Attention turns to PPI (to round out PCE estimates) and jobless claims data Thursday morning, with attention also on the concurrent ECB decision (25bp rate cut fully priced, attention on guidance).
- Latest levels: Mar 25 T-Note future is down 8.5/32 at 110-23.5, having traded in a range of 110-20.5 to 111-07.
- In cash, the 2-Yr yield is up 0.8bps at 4.1511%, 5-Yr is up 3.2bps at 4.1282%, 10-Yr is up 3.9bps at 4.2652%, and 30-Yr is up 5.8bps at 4.4769%.
DATA
U.S. CPI inflation accelerated slightly in November but largely met Wall Street expectations, keeping the Federal Reserve on track to cutting interest rates by another quarter point later this month. Headline CPI added 0.313% and core 0.308%, bringing the 12-month rate to 2.749% and 3.319%, respectively, according to the Bureau of Labor Statistics report Wednesday.
US DATA: 12-Month Rolling Budget Deficit At Highest Since Jul 2023
November's budget balance was in deficit by $356.5B, about $10B more than expected and a jump from $314B in October.
- This brings the 12-month rolling deficit to $2.08T, the highest since Jul 2023. That is closer to 7% than 6% of 2025 (calendar year) projected GDP.
- Treasury doesn't provide analysis of the figures in the report. But through the first two months of the fiscal year, the total deficit is tracking $624B, one-third of the $1.88T full-year estimate (based on the OMB's July estimates- though of course while most months will register deficits, tax dates including April's will help offset the widening trend).
- The incoming Trump administration hopes to make room for tax cuts in part through paring inefficiencies/spending, but as the graphic provided by the Treasury underlines, most spending is on non-discretionary items (of $1.25T of total outlays so far in FY2025, $900B was spent on Social Security, Medicare, National Defense, and Net Interest).
- Once again, net interest payments were a key factor, totaling $79.4B - similar to the past several months but with rates rising (and considering the ballooning size of the debt pile), the 12-month rolling total has hit fresh all-time high of $893B.
BONDS: EGBs-GILTS CASH CLOSE: Short-End Strength Sees Steeper Curves
Core European curves steepened Wednesday, ahead of Thursday's ECB decision.
- Core bonds benefited overnight by the disinflationary implications of China reportedly being set to allow currency depreciation.
- While yields would trade in both directions for most of the session, short ends of curves benefited from an in-line US CPI report that cemented prospects for a cut by the Federal Reserve next week.
- That helped push curves steeper: the German curve twist steepened on the day, with the UK's bull steepening.
- Periphery EGB spreads tightened, assisted by the slighly more dovish central bank outlook, though notably French OATs moved wider of Bunds, amid anticipation over a new Prime Minister appointee.
- MNI's preview of the ECB decision was published Tuesday (link): the ECB will cut by 25bp (fully priced by markets; 4 % implied of a 50bp cut), Even if language concerning the ‘restrictive’ policy stance is not removed from the policy statement this time around, it soon will be.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is down 1.2bps at 1.952%, 5-Yr is down 0.1bps at 1.955%, 10-Yr is up 0.5bps at 2.127%, and 30-Yr is up 2.3bps at 2.377%.
- UK: The 2-Yr yield is down 2.6bps at 4.251%, 5-Yr is down 2.6bps at 4.133%, 10-Yr is down 0.6bps at 4.317%, and 30-Yr is down 0.2bps at 4.876%.
- Italian BTP spread down 2.2bps at 106.4bps / French OAT up 2.1bps at 76.9bps
FOREX: CAD/JPY Uptrend Firms on Diverging BoC/BoJ Themes
- The US CPI print came in just ahead of expectations, however the faster-than-expected inflation print is unlikely to deter a further 25bps rate cut from the Fed at next week's FOMC decision. The USD Index slipped in response, however losses were muted as US yields respected the recent range, and were generally contained.
- JPY remained one of the poorest performers across European trade, with Bloomberg quoting sources in reporting that the BoJ see little cost in waiting for the next BoJ rate hike. As such, JPY remained offered, while the hawkish BoC rate cut kept the underlying CAD/JPY uptrend intact.
- A fourth consecutive session of lower lows and lower highs for EUR/GBP continues to pile pressure on support, with 0.8203 the level to watch - the Mar 7 ‘22 low and the lowest point of a multi-year range. A break through support here would work against the RSI and could tip the price into technically oversold territory for the first time since September. This week's break lower has cancelled a recent bullish signal - an engulfing candle on Nov 12 - as rate differentials and aggressive ECB pricing dictate play.
- The ECB are expected to cut rates by 25bps Thursday, with much market focus on the projections out to 2025. We see Lagarde ruling out back-to-back cuts as a hawkish risk, and could prompt a swift reversal in dovish EUR pricing across recent weeks.
- Focus Thursday turns to the Australian jobs release for November, at which the unemployment rate is seen climbing to 4.2%. The release will provide the latest litmus test for whether the recent aggressive dovish re-pricing of RBA policy is justified, particularly as the AUD/USD rate hit a new pullback low at 0.6337 on Wednesday.
EQUITIES: Cyclicals/FAANG Lead Gains Amid CPI Relief
US equities had another strong session Wednesday, led by cyclical stocks. Upside was driven largely by an in-line CPI report which spurred the bulk of intraday gains, as the data appeared to remove most doubts about a Federal Reserve rate cut next week.
- Per our tech analyst, the S&P E-Mini contract (Z4 ) maintains a bullish tone, though for now futures (6,097.50, +0.85% as of 1520ET) remain just below the nearest resistance of 6,111.00 (Dec 6 all-time high).
- Communication Services was the leading sector (+2.7%), driven by a 4% rise in Alphabet which is now up 10% over two sessions on the back of a quantum chip breakthrough. Other strong performers included fellow FAANG stalwarts Netflix (+2.7%) and Meta (+1.9%).
- Consequently, NASDAQ futs (+1.9%) are outperforming their S&P counterparts, and at fresh all-time highs.
- Consumer Discretionary (+1.8%, with notables Tesla +4.6% and Amazon +2%) and Info Tech (+1.7%, Broadcom +6.8% and NVIDIA +3.5%) were close behind.
- Lagging were Utilities (-0.6%) and Health Care (-1.1%).
COMMODITIES: Crude Gains, Gold Tests Resistance At Nov 25 High
- Crude markets are on track for their highest close since Nov 22. Support comes from the possibility of tighter sanctions on Russian crude, with Bloomberg also noting that algorithmic buying activity has supported gains.
- WTI Jan 25 is up by 2.6% at $70.4/bbl.
- For WTI futures, initial firm resistance to watch is unchanged at $72.41, the Nov 7 high. Above here, key short-term resistance is at $77.04, the Oct 8 high.
- Meanwhile, Henry Hub front month is headed for its highest close since Nov 25, supported by the current above normal demand and despite milder weather forecasts for next week.
- US Natgas Jan 25 is up 7.5% at $3.4/mmbtu.
- Elsewhere, spot gold has risen for a fourth session in a row, with the yellow metal gaining by 0.8% to $2,716/oz, as US CPI inflation data reaffirmed expectations of a Fed rate cut next week.
- Gold briefly tested resistance at $2,721.4, the Nov 25 high, before paring gains.
- Clearance of this resistance level would highlight a bullish short-term development, opening $2,730.4, the 76.4% retracement of the Oct 31 - Nov 14 bear leg.
| Date | GMT/Local | Impact | Country | Event |
| 12/12/2024 | - |  EU | European Central Bank Meeting | |
| 12/12/2024 | - |  CH | Swiss National Bank Meeting | |
| 12/12/2024 | 0030/1130 | *** |  AU | Labor Force Survey |
| 12/12/2024 | 0700/0800 | *** |  SE | Inflation Report |
| 12/12/2024 | 0830/0930 | *** | CH | SNB PolicyRate |
| 12/12/2024 | 0830/0930 | *** | CH | SNB Interest Rate Decision |
| 12/12/2024 | - | *** |  CN | Money Supply |
| 12/12/2024 | - | *** | CN | New Loans |
| 12/12/2024 | - | *** | CN | Social Financing |
| 12/12/2024 | 1315/1415 | *** | EU | ECB Deposit Rate |
| 12/12/2024 | 1315/1415 | *** | EU | ECB Main Refi Rate |
| 12/12/2024 | 1315/1415 | *** | EU | ECB Marginal Lending Rate |
| 12/12/2024 | 1330/0830 | *** |  US | Jobless Claims |
| 12/12/2024 | 1330/0830 | *** | US | PPI |
| 12/12/2024 | 1330/0830 | * |  CA | Building Permits |
| 12/12/2024 | 1330/0830 | * | CA | Household debt-to-income |
| 12/12/2024 | 1330/0830 | ** | US | WASDE Weekly Import/Export |
| 12/12/2024 | 1345/1445 | EU | ECB Monetary Policy Press Conference | |
| 12/12/2024 | 1500/1000 | * | US | Services Revenues |
| 12/12/2024 | 1530/1030 | ** | US | Natural Gas Stocks |
| 12/12/2024 | 1630/1130 | ** | US | US Bill 04 Week Treasury Auction Result |
| 12/12/2024 | 1630/1130 | * | US | US Bill 08 Week Treasury Auction Result |
| 12/12/2024 | 1800/1300 | *** | US | US Treasury Auction Result for 30 Year Bond |
| 13/12/2024 | 2350/0850 | *** |  JP | Tankan |