MNI ASIA OPEN: Red Sea Vessel Attacks Shutting A Key Route

NEWS

US: (MNI) Fed's Mester Joins In Rate Cut Pushback...But Few Are More Dovish For 2024
Cleveland Fed Pres Mester joined with colleagues in a pushback against market cut repricing after last week's FOMC meeting, telling the FT in an interview published this morning that the implied path of rates was "a little bit ahead" of where the Fed sees things - "They [markets] jumped to the end part, which is ‘We’re going to normalize quickly’, and I don’t see that.”

US (BBG): Fed’s Goolsbee Says Markets Front-Running FOMC on Rate Cuts
Federal Reserve Bank of Chicago President Austan Goolsbee said he was confused by the market reaction to central bank officials’ quarterly projections, adding that the Fed shouldn’t act on how it thinks markets will react in an interview with CNBC on Monday.

US (MNI): 40% Of Student Loan Borrowers Haven’t Made Payments
Payments on federal student debt officially began in October but 40% of the 22 million borrowers who had bills due hadn’t made their payment by mid-November, according to Bloomberg reporting on data from the US Department of Education (see here). It comes under a one-year leniency period rolled out by the Biden administration.

OIL (MNI): BP Temporarily Suspends Transit Through Red Sea
BP is the latest firm to pause all of its tanker traffic through the Red Sea following an increase in Houthi attacks on vessels in recent days, the firm said, cited by Bloomberg. “In light of the deteriorating security situation for shipping in the Red Sea, BP has decided to temporarily pause all transits through the Red Sea,” the company said in a statement. Maersk, MSC, Hapag-Lloyd and CMA CGM Group all suspended Red Sea Transits as of 18 December.

JAPAN (MNI): MNI BOJ Preview - December 2023
Our analysis aligns with the prevailing consensus, which once again foresees the BoJ keeping all key targets and YCC parameters unchanged. Despite previous surprises in July and October, coupled with December last year, indications suggest a different outcome this time. The likelihood of the BoJ terminating its negative interest rate policy (NIRP) without prior adjustments to forward guidance appears low. Ending NIRP, the first step toward a rate hike in 17 years, would necessitate a substantial overhaul of the existing policy framework.

UKRAINE (MNI): US Preparing 'Final' Ukraine Aid Package Before Funding Expires
White House National Security Council Spokesperson John Kirby has told reporters that the United States is planning one more aid package for Ukraine, to be delivered in late December, before Congress must act to replenish funds.

ISRAEL (MNI): Ben Gvir Threatens To Withdraw From Gov't If Hamas War Falters
Times of Israel reporting that Security Minister Itamar Ben Gvir from the ultranationalist Otzma Yehudit party has threatened to withdraw from PM Benjamin Netanyahu's gov't should the military offensive against Hamas in Gaza not “continue at full strength.”

UK (MNI): More Proof Needed Wage Growth Easing - BOE's Broadbent
Bank of England Deputy Governor Ben Broadbent, one of the Monetary Policy Committee majority backing leaving the policy rate on hold at the two most recent meetings, made the case in a speech Monday for caution in light of data uncertainty.

EU (MNI): Belgian Competitiveness Hit By Wages - BNB
Belgian export competitiveness has deteriorated sharply due to big increases in wages as a result of the automatic indexation, the Belgian National Bank noted today in its Q4 economic projections.

HUNGARY (MNI): Financial Stability Key For Hungary's Central Bank
The National Bank of Hungary will be keen to cut rates as quickly as possible in a way consistent with the return of inflation to its 3% target in a timely manner, but financial stability will be a key consideration for monetary policy despite political pressure to ease more quickly, MNI understands

DATA

US DATA: NAHB Index As Expected But With Some Mildly Stronger Details

• The NAHB housing market index met expectations in December, rising from 34 to 37 to unwind half of the latest decline in November.
• This consensus reading belies the improvement seen in S&P homebuilder price to book ratios.
• The bounce was limited by an unchanged reading for present sales (40), whilst futures sales (45, +6pts) and prospective buyer traffic (24, +3pts) both increased after five/four consecutive monthly declines.
• There were further differences when looking by region as well, with the West continuing to lag with an overall index unchanged at 28 vs increases across the other major three regions.

US TSYS: Early Bear Steepening Sets The Tone, BoJ Decision Next Up

• Cash Tsys trade between 1.5-6bp cheaper, having established the move earlier in the US session before mostly sidelining.
• The primary cheapening came from crude futures surging higher on Red Sea traffic disruption. Separately, further FOMC pushback from Goolsbee and Mester on the market timing and size of rate cuts, both over the weekend and early today, initially had limited impact but might have helped feed into the move.
• 10Y yields sit 4.3bp higher on the day, driven entirely by real yields +4.8bps. At 1.74%, the latter remains within Friday’s range and is firmly below the ~2% levels seen prior to Wednesday’s FOMC decision.
• TYH4 at 112-07+ trades just off an earlier low of 112-06 having kept to a particularly narrow 4 tick range for more than five hours now. It remains off support at 111-31+ (Dec 14 low) whilst the trend needle points north with resistance at 112-28+ and 113-12+ (Fibo projections of the Oct 19 – Nov 3 – Nov 13 price swings).
• Fed Funds show 19bp of cumulative cuts for March and 142bp to end-2024.
• Overnight sees the BoJ decision before tomorrow’s docket features further Fedspeak and housing data.

FX Summary: Higher Yields Weigh On JPY Ahead Of BOJ Meeting

• The Japanese Yen is one of the poorest performers in G10 to start the week, largely in accordance with higher core yields as major central bank officials push back against cut pricing in early 2024.
• Despite the move higher for US yields, the USD index has maintained a narrow range on Monday overall, trading in very minor negative territory as we approach the APAC crossover.
• A softer-than-expected IFO was unable to dent the Euro’s resilient feel on Monday, outperforming its major counterparts. This has seen the likes of EURJPY rise 0.80%, as well as EURGBP receiving a half a percent boost.
• However, last week’s move lower in EURJPY reinforces the bearish theme and the recent recovery from 153.23, the Dec 7 low is considered corrective. Key short-term resistance to watch is at 157.68, the Dec 11 high.
• A similar theme for USDJPY (+0.60%) ahead of the key risk event overnight. Bearish conditions have been reinforced and on the upside, key short-term resistance remains defined at 146.59, the Dec 11 high.
• Our analysis aligns with the prevailing consensus, which once again foresees the BoJ keeping all key targets and YCC parameters unchanged. We anticipate that any revisions to forward guidance would likely coincide with the publication of an Outlook Report.
• Elsewhere on Tuesday, New Zealand trade balance data and the RBA minutes are scheduled. Final CPI readings for the Eurozone will cross as well as Canada CPI data for November.

US STOCKS: S&P E-mini Dips Back Below 4800 But Major Resistance Still Eyed

• The ESH4 has seen some late, albeit modest, selling pressure coinciding with the largest sell program of the day on the TICK index with 820 names.
• It comes with a rejection of a push above the round 4800 with a brief high of 4802.25, after which sits major resistance at 4808.25 (Jan 4, 2022 high).
• The day’s gains for equities have come despite a narrow range to broader USD moves, with some outsized gains for mega-caps at play.
• Meta (+3.7%), Amazon (+3.0%), Nvidia (+2.9%) and Google (+2.8%). Apple (-0.6%) meanwhile still weighs but has pared earlier losses concerning earlier Apple watch production halting headlines.
• Those names help drive communication services (+2.2%) to outperform SPX, followed by consumer staples (+1.2%) and energy (+1.0%) with net WTI strength amidst Red Sea traffic disruption but off earlier higher. Real estate lags meanwhile (just -0.2%) amidst higher yields.
• Comparing e-minis, the S&P 500 (+0.6%) follows the Nasdaq 100 (+0.85%), whilst the Dow (+0.0%) and Russell 2000 (+0.0%) have seen their underperformance extend through the session.

COMMODITIES: Red Sea Vessel Attacks See Crude Futures Clear 20-day EMAs

• Crude futures have pared earlier gains but still see strong gains on the day. Growing disruption in the Red Sea, with companies such as BP and Equinor diverting their cargoes has sparked fears for supply passing through the key chokepoint.
• Vessel attacks in the Red Sea are increasing. Yemen’s Iranian-backed Houthi rebels have claimed responsibility for attacks on two ships Dec. 18 - the Swan Atlantic and MSC Clara - using naval drones, according to Alarabiya news.
• The US is seeking a regional coalition to secure the Red Sea shipping corridor, with a virtual summit set for Dec. 19, but Houthi officials have since told Al Jazeera that we’ll be able to confront any possible coalition that could be formed.
• Oil exports out of Texas are surging in the final weeks of 2023, according to Reuters, driven by record production levels and the need to avoid high year-end taxes on inventories.
• WTI is +1.8% at $72.74, with its high of $74.23 clearing resistance at $73.27 (20-day EMA) to open $76.37 (50-day EMA).
• Brent is +2.2% at $78.22, also clearing $77.81 (20-day EMA) with its high of $79.49 stopping short of resistance at $80.76 (50-day EMA).
• Gold is +0.4% at $2027.01, buoyed by increased geopolitical tensions but still well within Friday’s range. It has pulled back off a high of $2033.47, after a swift $10 gain came on little 'new' newsflow before partly retracing the move.