MNI ASIA OPEN: Post-Minutes Rally, Focus On ADP, NFP Jobs Data

US

FED (MNI): December FOMC Minutes Make No Mention Of Rate Cut Debate
Minutes from the Federal Reserve’s December meeting released Wednesday did not mention any discussion about reducing interest rates later this year even though policymakers penciled in a median three rate cuts for 2024 in their quarterly projections. “In their submitted projections, almost all participants indicated that, reflecting the improvements in their inflation outlooks, their baseline projections implied that a lower target range for the federal funds rate would be appropriate by the end of 2024,” the minutes said.

NEWS

INTERVIEW (MNI): ISM Manufacturing Seen Contracting Until March

U.S. manufacturing is likely to remain in contraction for several months but growth appears likely in the second quarter after the Federal Reserve signaled interest-rate cuts, survey chair Timothy Fiore told MNI Wednesday.

BRIEF (MNI): Fed's Barkin Says Soft Landing Not Inevitable
A soft landing for the U.S. economy is possible but not assured and Federal Reserve officials will need to maintain a close eye on incoming data to gauge when to make its next move on interest rates, Richmond Fed President Thomas Barkin said Wednesday. "A soft landing is increasingly conceivable but in no way inevitable," said Barkin in a speech. Risks include that the economy could run out of steam or, conversely, that inflation either steadies above target or even reaccelerates.

FED (MNI): Richmond Fed Barkin Sees Inflation Coming Into Range But Still Stickiness To Price Setting
Richmond Fed’s Barkin (’24 voter) wants to keep rate options open whilst focusing on data rather than the rate path. Inflation is "coming into range" of the target but there is still some stickiness to price setting behavior. Full remarks here.

POLITICAL RISK (MNI): Congress Close To FY24 Spending Agreement
An accord on overall Fiscal Year 2024 spending levels appears close. Time is likely too tight to legislate individual spending bills, leaving two options: Another short-term funding bill or passing spending bills in ‘minibuses’ compiled of multiple FY2024 bills. House Speaker Mike Johnson (R-LA) says he won't advance another stopgap and House GOP conservatives are adamantly opposed to 'omnibus' legislation so the risk of a government shutdown is high at both of the two upcoming funding deadlines.

EUROPE (MNI): Belgium Triggers Independence Concerns For ECB
This week’s temporary extension of the term of National Bank of Belgium Governor Pierre Wunsch is only likely to delay his formal reappointment, sources familiar with the ongoing discussions told MNI, warning that the government’s internal haggling over Wunsch’s position posed difficulties for the European Central Bank after the BNB’s governing body slammed the move as “suboptimal having regard to the principle of central bank independence”.

US TSYS Bonds Back to Extending Highs Post-Dec FOMC Minutes

• Treasury futures are making new session highs following a moderate round of two way trade after the Dec FOMC minutes release. Mar'24 10Y futures tap 112-20 (+10.5) high, 10Y yield back below 4% to 3.8918%.
• Minutes balanced but with a dovish tone as officials note diminished inflation and need to start discussion of QT wind down sees projected rate cuts for early 2024 slightly better than recent highs:
• January 2024 cumulative -2.1bp at 5.307%, March 2024 chance of rate cut -72.1% vs. -65.4% (-84.3% last Friday) w/ cumulative of -19.7bp at 5.132%, May 2024 chance of cut back to -94.8% vs. -87.2% immediately after the release, cumulative -42.9bp at 4.900%, June'24 cumulative -67.5bp at 4.653%. Fed terminal at 5.327% in Jan'24.
• Still digesting the minutes, market focus turning to Thursday morning's ADP private employment at 0815ET tomorrow, followed by December employment release on Friday at 0830ET.

OVERNIGHT DATA

US DATA: The overall ISM manufacturing index was broadly in line with consensus in December as it increased to 47.4 (cons 47.1) after 46.7.

• Ahead of Friday’s payrolls report, the employment index surprisingly increased to 48.1 (cons 46.5) from 45.8. It was the first increase for three months but doesn’t break back above 50 and indeed the press release notes: “Panelists’ companies continued actions to reduce head counts in December, primarily through layoffs.”
• However, other factors were clearly softer than expected, including prices paid slipping to 45.2 (cons 49.5) as it fully reversed the November surprise spike higher. It remains off recent lows of 41.8 (Jun’22) and 39.4 (Dec’22).
• New orders also offered a weak read, surprisingly falling to 47.1 (cons 49.1) after 48.3, with the -1.2pt drop only partly unwinding November’s 2.8pt bounce. The index has been volatile from month-to-month but averaged 47.0 in Q4 and 47.8 in Q3.
• Within orders and in the opposite move to last month, export orders bounced 3.9pts to 49.9 for their highest reading since May’s 50.0, implying latest weakness lay domestically.

US DATA: JOLTS job openings 8.79M (cons 8.82M) in Nov after a slightly upward revised 8.85M (initial 8.73M) in Oct.

• It meant the ratio to unemployed increased to 1.40 from 1.34, owing to the sizeable fall in unemployment back in November. This ratio averaged 1.19 in 2019.
• Quits rate: 2.21% from 2.31, after four particularly stable months at 2.3 having closed the gap to pre-pandemic averages with 2.33 in 2019.
• There’s a similar story in private quits: 2.45% after 2.57% and 2.59% averaged in 2019.

US MBA: MARKET COMPOSITE INDEX -9.4% SA OVER TWO WEEKS
US MBA: REFIS -43% UNADJ; PURCH INDEX -5% SA OVER TWO WEEKS
US MBA: UNADJ PURCHASE INDEX -12% VS YEAR-EARLIER LEVEL
US MBA: 30-YR CONFORMING MORTGAGE RATE 6.76% VS 6.71% PREV

• US REDBOOK: DEC STORE SALES +3.9% V YR AGO MO
• US REDBOOK: STORE SALES +5.6% WK ENDED DEC 30 V YR AGO WK

MARKETS SNAPSHOT

• Key market levels of markets in late NY trade:
• DJIA down 225.65 points (-0.6%) at 37487.01
• S&P E-Mini Future down 35 points (-0.73%) at 4752
• Nasdaq down 154.3 points (-1%) at 14610.38
• US 10-Yr yield is down 2.1 bps at 3.9087%
• US Mar 10-Yr futures are up 6.5/32 at 112-16
• EURUSD down 0.0023 (-0.21%) at 1.0919
• USDJPY up 1.25 (0.88%) at 143.24
• WTI Crude Oil (front-month) up $2.77 (3.94%) at $73.15
• Gold is down $17.15 (-0.83%) at $2041.77
• European bourses closing levels:
• EuroStoxx 50 down 64.68 points (-1.43%) at 4448.13
• FTSE 100 down 39.19 points (-0.51%) at 7682.33
• German DAX down 230.97 points (-1.38%) at 16538.39
• French CAC 40 down 119 points (-1.58%) at 7411.86

US TREASURY FUTURES CLOSE

• 3M10Y -4.636, -149.018 (L: -152.496 / H: -139.242)
• 2Y10Y -2.285, -41.77 (L: -43.461 / H: -36.236)
• 2Y30Y -1.473, -26.815 (L: -29.58 / H: -21.928)
• 5Y30Y +0.569, 16.055 (L: 13.736 / H: 17.46)
• Current futures levels:
• Mar 2-Yr futures steady at at 102-25.5 (L: 102-21.875 / H: 102-26.5)
• Mar 5-Yr futures up 3/32 at 108-14 (L: 108-02 / H: 108-16.5)
• Mar 10-Yr futures up 6/32 at 112-15.5 (L: 111-28 / H: 112-20)
• Mar 30-Yr futures up 8/32 at 124-2 (L: 122-25 / H: 124-10)
• Mar Ultra futures up 14/32 at 132-17 (L: 130-19 / H: 132-27)

US 10Y FUTURE TECHS: (H4) Corrective Pullback Meeting First Support

• RES 4: 115-00+ 2.236 proj of the Oct 19 - Nov 3 - Nov 13 price swing
• RES 3: 114-06+ 2.00 proj of the Oct 19 - Nov 3 - Nov 13 price swing
• RES 2: 114-00 Round number resistance
• RES 1: 113-12+ 1.764 proj of the Oct 19 - Nov 3 - Nov 13 price swing
• PRICE: 112-04 @ 11:24 GMT Jan 03
• SUP 1: 111-31+/111-29+ Low Dec 14 / 20-day EMA
• SUP 2: 111-09+ High Dec 7
• SUP 3: 109-31+Low Dec 11 and key short-term support
• SUP 4: 110-22 50-day EMA

The corrective pullback for Treasuries persists into Wednesday trade, with prices finding some support at 111-31+/112-00, the Low from Dec14 and handle support. Any further slippage through here during Wednesday trade will open the 20-day EMA at 111-29+. Above these levels, the broader technical picture remains positive following the price sequence of higher highs and higher lows into December-end. Sights are on 113-12+, a Fibonacci projection point.

SOFR FUTURES CLOSE

• Current White pack (Mar 24-Dec 24):
• Mar 24 -0.040 at 94.935
• Jun 24 -0.050 at 95.370
• Sep 24 -0.040 at 95.785
• Dec 24 -0.020 at 96.155
• Red Pack (Mar 25-Dec 25) steadysteady0 to +0.030
• Green Pack (Mar 26-Dec 26) +0.030 to +0.035
• Blue Pack (Mar 27-Dec 27) +0.030 to +0.040
• Gold Pack (Mar 28-Dec 28) +0.035 to +0.045

FIXES AND PRIOR SESSION REFERENCE RATES

SOFR Benchmark Settlements:

• 1M -0.00313 to 5.34531 (-0.00941/wk)
• 3M +0.00285 to 5.33018 (-0.00122/wk)
• 6M +0.01501 to 5.16812 (+0.01040/wk)
• 12M +0.02785 to 4.79792 (+0.02694/wk)

• Secured Overnight Financing Rate (SOFR): 5.40% (+0.02), volume: $1.948T
• Broad General Collateral Rate (BGCR): 5.33% (+0.00), volume: $664B
• Tri-Party General Collateral Rate (TGCR): 5.33% (+0.00), volume: $654B
• (rate, volume levels reflect prior session)

• Daily Effective Fed Funds Rate: 5.33% (+0.00), volume: $83B
• Daily Overnight Bank Funding Rate: 5.32% (+0.00), volume: $222B

REVERSE REPO OPERATION

• RRP usage climbs to $719.897B vs. $704.064B yesterday. Latest level compares to December 15 when usage fell to the lowest level since mid-June 2021: $683.254B.
• The number of counterparties at 79 vs. 78 in the prior session - lowest since April 2022.

PIPELINE Corporate Bond Issuance Summary, Over $60B in Two Days

$23.8B to price Wednesday, $60.6B in first two days of 2024.

• Date $MM Issuer (Priced *, Launch #)
• 1/3 $5B *World Bank 7Y SOFR+55
• 1/3 $3.8B #Pacificorp $500M 5Y +120, $700M 7Y +140, $1.1B 10Y +155, $1.5B +30Y +175
• 1/3 $3.25B #National Australia Bank (NAB) $1B -2Y +53, $500M -2Y SOFR+65, $1B 5Y +90, $750M 10Y +105
• 1/3 $2.5B #Hyundai $1B 3Y +130, $300M 3Y SOFR+150, $700M 5Y +145, $500M 7Y +155
• 1/3 $2.5B #Credit Agricole $1B 6NC5 +145, $1.5B 11NC10 +235
• 1/3 $2.5B *Hungary 12Y +180
• 1/3 $2.05B *Indonesia $500M +5Y 4.65%, $650M +10Y 4.85%, $900M +30Y 5.2%
• 1/3 $1B *Duke Energy Carolinas $575M 10Y +100, $425M 30Y +118
• 1/3 $700M *GA Global Funding 5Y +175
• 1/3 $500M *Northwestern Mutual 5Y +80
• Expected to launch Thursday
• 1/4 $Benchmark EIB 5Y SOFR+46a
• 1/4 $Benchmark Asia Development Bank (ADP) 3Y SOFR+37a, 10Y SOFR+61a

EGBs-GILTS CASH CLOSE: Bunds Gain Ahead Of Eurozone Inflation Data

Bunds easily outperformed the rest of the European FI space Wednesday, ahead of Eurozone inflation data in the upcoming two sessions.

• After a slightly weak start, Bunds gained for most of the session, with Gilts catching up to some extent toward the cash close as global equity futures plumbed session lows. No discernable themes prevailed through the session.
• The belly outperformed on the German curve (Bobl yields down over 5bp), with some bull steepening evident in the UK.
• Periphery spreads widened amid a slightly risk-off atmosphere, but closed off the widest levels of the session: notably 10Y BTP/Bund held below the 170bp level.
• Following the Federal Reserve meeting minutes after the European market close, attention will quickly turn to German state inflation data Thursday morning, starting with NRW at 0630UK time.
• MNI's preview of Eurozone December inflation went out today (PDF here) - in short, a resurgence in energy prices is expected to drive a reacceleration in headline inflation in Friday's Euro area release, but core is seen softening led by weaker goods prices (service disinflation is seen to be limited at best).

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 3.9bps at 2.414%, 5-Yr is down 5.1bps at 1.943%, 10-Yr is down 4.4bps at 2.024%, and 30-Yr is down 3.4bps at 2.278%.
• UK: The 2-Yr yield is up 4.9bps at 4.103%, 5-Yr is up 3.7bps at 3.58%, 10-Yr is up 0.1bps at 3.639%, and 30-Yr is up 2.5bps at 4.294%.
• Italian BTP spread up 3.2bps at 167.8bps / Spanish up 2.5bps at 98.4bps

FOREX: Greenback Partially Trims Advance Following FOMC Minutes, USDJPY Rises 0.90%

Despite paring some gains in the aftermath of the FOMC minutes, the US dollar continued its 2024 advance on Wednesday, with the USD index (+0.25%) remaining on the front foot for the majority of the session. Dampened sentiment in equity markets continues to underpin the greenback bid, with the strength most notable against the Japanese Yen.

• USDJPY briefly extended its recovery to around 2% off the week’s lows. Early strength for the pair saw a clean break of the overnight highs around 142.20 and topside momentum was evident across the entire trading day. Briefly before the US data, the pair rose to 143.41 to top the 200-dma for first time since mid-December. Weaker-than-expected US data prompted a brief correction to 142.82, however, the dip was very well supported and USDJPY eventually rallied to fresh session highs of 143.73, registering an impressive 187 pip daily range in the process.
• Strength in the pair narrows gap with sizeable option expiries rolling off at the Jan04 NY cut: Y143.25($705mln), Y143.85-00($1.8bln), Y145.00($740mln) and as high as Y146.50-60($1.3bln).
• Similarly weak was the Australian dollar, a victim of the less optimistic tone for risk. AUDUSD (-0.46%) has pierced initial firm support at 0.6714, the 20-day EMA, has been pierced. However, short-term weakness continues to be considered corrective.
• In sympathy with the greenback strength, EURUSD briefly faded back below the 1.0900 handle, closely matching the December 18 low in the process. For now, the pullback looks corrective in nature, with prices holding within the uptrend channel drawn off the October low. This keeps 1.0878 as the key support.
• China’s Caixin Services PMI will highlight Thursday’s APAC data calendar before markets receive a host of Eurozone inflation prints for December. US ADP employment and jobless claims are notable releases in the US, although the focus will quickly turn to non-farm payrolls on Friday.

THURSDAY DATA CALENDAR

Date	GMT/Local	Impact	Flag	Country	Event
04/01/2024	0030/0930	**		JP	IHS Markit Final Japan Manufacturing PMI
04/01/2024	0630/0730	***		DE	North Rhine Westphalia CPI
04/01/2024	0745/0845	***		FR	HICP (p)
04/01/2024	0900/1000	***		DE	Bavaria CPI
04/01/2024	0900/1000	***		DE	Saxony CPI
04/01/2024	0930/0930	**		UK	BOE Lending to Individuals
04/01/2024	0930/0930	**		UK	BOE M4
04/01/2024	0930/0930			UK	BOE's Monthly Decision Maker Panel data
04/01/2024	1000/1000	**		UK	Gilt Outright Auction Result
04/01/2024	1300/1400	***		DE	HICP (p)
04/01/2024	1315/0815	***		US	ADP Employment Report
04/01/2024	1330/0830	***		US	Jobless Claims
04/01/2024	1530/1030	**		US	Natural Gas Stocks
04/01/2024	1600/1100	**		US	DOE Weekly Crude Oil Stocks
04/01/2024	1630/1130	*		US	US Bill 08 Week Treasury Auction Result
04/01/2024	1630/1130	**		US	US Bill 04 Week Treasury Auction Result