MNI ASIA OPEN - Fed's Bostic Expecting Disinflation Trend To Continue

NEWS

US (MNI): Fed Policy Is In A Good Place To Assess Data - Mester
Cleveland Federal Reserve President Loretta Mester said Wednesday there has has been progress on inflation and monetary policy is in a good place to assess incoming data amid an uncertain outlook, but she left open the possibility that the Fed's policy rate may have to go higher.

US (MNI): Fed's Bostic Sees Continued Disinflation, Slower Growth
Federal Reserve Bank of Atlanta President Raphael Bostic Wednesday said he expects a continued fall in inflation, in part because economic activity will slow in the coming months because of restrictive monetary policy and tighter financial conditions.

US (MNI): Fed Should Not Ease Early - Interim St Louis Chief
The interim leader of the St. Louis Federal Reserve warned on Wednesday that monetary policy should not ease prematurely, and said if progress toward achieving 2% inflation stalls the Fed should act promptly. "I’m optimistic that price stability will be achieved, but we’re not quite there yet. Policymakers should not declare victory and release the monetary brake prematurely," said Kathleen O’Neill Paese in a blog.

OIL (Wall Street Journal): OPEC+ Mulls New Oil Production Cuts Amid Middle East Conflict
OPEC and its Russia-led allies are considering new oil production cuts of as much as 1 million barrels a day, delegates said Wednesday, despite tensions in oil markets amid the conflict in the Middle East.

• Otto Fricke, a member of the Bundestag budget committee for the Free Democrats, saw a range of €14-24B.
• Berenberg also earlier today estimated a shortfall of €30-40B compared with previous plans.

GLOBAL (MNI): OECD Sees Weakest Growth Outside of Pandemic Since 2008
The OECD says global economic growth in 2024 will be the weakest since the 2008 financial crisis, except for the start of the pandemic, while stubborn core inflation means central banks will hold interest rates until the second half of next year. "We are projecting a soft landing for advanced economies, but this is far from guaranteed" the Paris-based group's chief economist Clare Lombardelli wrote to introduce the report. "Risks to the near-term global outlook remain tilted to the downside."

PORTUGAL (MNI): Parliament Passes Budget Ahead Of PM Resignation, Snap Election

The Portuguese parliament has passed the 2024 budget, fulfilling one of its final actions before PM Antonio Costa resigns ahead of the snap election taking place 10 March 2024. The parliament had approved the budget in an initial vote in October, ahead of Costa announcing his resignation.

NEW ZEALAND (MNI): RBNZ WATCH: Reserve Bank Downgrades 2024 Cut In Hawkish Turn
The Reserve Bank of New Zealand downgraded prospects for a 2024 rate cut and shifted its forecast for the peak rate higher, following the Monetary Policy Committee’s decision to hold the Official Cash Rate at 5.5% on Wednesday.

JAPAN (MNI): Gov't Agrees To Export Weaponry, But Nothing To Ukraine/Israel
Kyodo News reporting that according to its sources, the governing Liberal Democratic Party (LDP) and its coalition allies Komeito have come to an agreement on widening export licences for weaponry and ammunition. Tokyo has shifted towards expanding its military exports in an effort to both boost trade and develop security links with like-minded countries. Notably, the expansion in military exports will not take in countries where an "armed attack" has occurred, meaning that Ukraine and Israel would not be eligible to receive Japanese military equipment.

GLOBAL (MNI): Valor Reports Brazil’s Lula Intensifying Mercosur Negotiations
Valor have reported that the administration in Brazil is working hard to finalise important negotiations for Mercosur before handing over the bloc’s rotating presidency to Paraguay on Dec 07. In addition to concluding the trade agreement with the EU, the objective is to take advantage of the Summit of Heads of State in Rio to sign the free trade agreement with Singapore and make Bolivia’s accession official.

DATA

US DATA: GDP Surprises Stronger But Consumption Misses And Core PCE Softer

• Real GDP was stronger than first thought in Q3, revised to 5.15% annualized (cons 5.0, initial 4.88) in the 2nd Q3 release, from 2.06% in Q2.
• However, personal consumption was weaker than first thought, lowered to a still strong 3.59% (cons 4.0, initial 3.98) after 0.8% in Q2.
• Non-resi fixed investment (+0.18pps), public consumption (+0.15pps) and resi investment (+0.09pps) drove the revisions, offset a 0.25pps drag from personal consumption. Changes in inventories also were revised higher (+0.1pp to a strong +1.4pps).
• The story from the advance release was domestic demand strength landing alongside a strong bounce in changes in inventories. That still stands although the domestic demand strength is now seen as less driven by private consumption than first thought.
• Adding to the softer than expected real personal consumption growth, core PCE inflation also came in softer than expected at 2.31% (cons 2.4, initial 2.43%) in Q3.
• Looking ahead, the latest Atlanta Fed tracker for real GDP puts Q4 growth at 2.1%, i.e. back at the 1H23 pace of 2.15% for minimal payback from the booming Q3. GDPNow will be updated tomorrow after monthly PCE.

US DATA: GDI Continues To Offer A More Subdued Take Than GDP In Q3

• This release also sees the first release of gross domestic income (GDI), which increased just 1.47% annualized in Q3 after a downward revised 0.45% in Q2 (initial 0.72).
• It's particularly lacklustre considering GDP growth was notched at 5.15% and it follows an average of just 0.5% annualized in 1H23.
• Averaging the two, real economic growth accelerated to 3.3% annualized in Q3 after an average 1.3% in 1H23. It follows two mixed years, with a tepid 0.3% Y/Y in 4Q22 after 4.9% in 4Q21 from the post-pandemic recovery.

US TSYS: Rally Extends, Helped By Softer Details Undermining GDP Beat

• Cash Tsys sits 5.5-9bp richer on the day, bull steepening as 2s lead the rally in an extension of yesterday’s Waller-instigated rally. 2s10s of -37.5bps (+3.5bp) sits back at mid-Nov levels.
• The day’s moves started with a bias from softer external inflation in Australia and Germany, and were further supported by softer than expected US core PCE inflation and real personal consumption growth despite an overall upward revision to real GDP growth to an even stronger 5.2% annualized in Q3 (from an initial 4.9%).
• Fedspeak hasn’t provided any pushback, with Bostic (’24) seeing evidence that tighter monetary policy is biting harder into economic activity and Mester (’24 voter retiring in June) reiterating she sees Fed policy on a good footing. The Beige Book then went on to show moderation compared to the mid-October update across output, pricing and labor markets.
• It sees Fed Funds futures firmly pricing a first cut in May (cumulative 28bp), with 50/50 odds it comes in March, building to a cumulative 117bp of cuts through 2024.
• TYH4 at 110-09+ sits off the earlier high of 110-15+ but has marked another strong extension of the bull cycle. Focus is on 110-25, a Fibonacci projection, whilst initial key support has been defined at 108-18+ (Nov 27 low).
• Tomorrow sees the monthly PCE report, weekly jobless claims, the MNI Chicago PMI and pending home sales, before Chair Powell swings into focus on Friday.

FOREX: Mixed US Data Keeps Greenback Range Contained, Swiss Franc Outperforms

• After a moderate extension of weakness in early trade, the USD index then grinded higher across APAC and European hours. A mixed set of US growth/PCE data prompted some two-way price action within contained ranges and the USD index remains close to unchanged on the session.
• The Swiss franc is higher against nearly all its G-10 peers amid the drop in global bond yields and as gold prices extend on their most recent strength. USDCHF has declined as much as 0.5% to 0.8736, the lowest level since mid-August. Additionally, EURCHF has fallen 0.65 to a three-week low below 0.9600 playing into the soft German CPI report.
• Some analysts have also noted that USD/CHF 2-week implieds, which include the Dec. 13 Fed decision, rose to fresh three-week high of 6.55%.
• NZD is also among the firmest currencies across G10, after the RBNZ rate decision kept headline policy unchanged, but signalled strongly that further hikes will follow in 2024 should CPI remain stubbornly high in the interim. NZDUSD is well off the overnight high of 0.6208, but the uptrend remains intact. Further strength would open 0.6274 ahead.
• Antipodeans worked against each other following softer than expected Australian inflation data, prompting AUDNZD to spend the majority of the session consolidating a sharp 0.8% decline to six-week lows for the pair.
• China manufacturing and non-manufacturing PMI data will highlight the overnight calendar on Thursday before further Eurozone CPI releases are published. Canada GDP, US PCE and core PCE deflator and US jobless claims are also due. The MNI Chicago Business Barometer and US Pending home sales close the Thursday docket.

US STOCKS: Late Weakness With Further Pullback From Earlier Resistance Rejection

• The S&P e-mini has tilted into mild negative territory (-0.1%) late in the session on no clear macro headlines. It more than erases what had been strong rally across European hours as the Waller-triggered rally extended into the NY open.
• The pullback came after ESZ3 touched 4597.00 (currently 4558) to stop fractionally short of key resistance at 4597.50 9 (Sep 1 high). The bull trigger is further out at 4685.25.
• In cash markets, real estate (+0.8%) is a clear beneficiary of the rates rally, along more surprisingly with financials (+0.6%), which in turn is led by banks (+1%) with gains across the board (the separate KBW index shows 2.1% gains for both major and regionals).
• Communication services (-1.1%) lag, hindered by heavy declines for Google (-1.6%) and Meta (-1.9%). Tech meanwhile is near unchanged, masking solid declines for large names with Microsoft (-1%) and Apple (-0.65%), Microsoft suffering as Amazon chose to enter the corporate AI space.

COMMODITIES: Crude Spikes Amid WSJ Reports Regarding OPEC Cuts

• Crude futures are nearing intraday highs as the US close approaches, with front-month WTI up 1.95% at typing. Prices spiked following headlines from the WSJ that OPEC is pondering production cuts of up to 1m b/d, pushing WTI towards its highest closing level since Nov. 14. OPEC+ is likely to rollover the existing output curbs but is considering additional production cuts up to 1m b/d, delegates told the WSJ Nov. 29.
• The trend outlook in WTI futures is unchanged and remains bearish, with moving average studies in a bear-mode position, highlighting a downtrend. However, as we approach the OPEC+ meeting, prices have narrowed the gap to key resistance, which remains unchanged at $79.65, the Nov 14 high.
• For Natural Gas, US Henry Hub has weakened on the day, despite some gains seen earlier in European hours, as strong domestic production and warmer weather put pressure on prices.
• Precious metals have consolidated the impressive move higher on Tuesday, moderately extending their rising trend. Spot gold stands 0.28% higher on the session, having briefly eclipsed the 2050 mark and closing in on the yearly highs.
• Unsurprisingly, the trend condition in gold remains bullish and this week’s strong rally reinforces this set-up. The clear break of resistance at $2009.4, the Nov 7 high, has confirmed a resumption of the uptrend and signals scope for an extension towards 2063.0, the May 4 high and a key resistance. Note the all-time high is at $2070.4 (Mar 8 ‘22).