MNI ASIA OPEN: Russia Looks To Boost Military

NEWS

North America

US/UKRAINE (BBG): Biden Tells Zelenskiy US Seeks ‘Just Peace’ to End War
President Joe Biden welcomed Volodymyr Zelenskiy to the White House on Wednesday, as the Ukrainian president sought to firm up US support for Kyiv’s defense against Russia in his first trip outside his country since Moscow’s forces invaded. The US seeks a “just peace” in the conflict, Biden said.

US (WSJ): U.S. Consumer Confidence Rebounded in December as Inflation Eased
U.S. consumer confidence rose sharply in December as moderating inflation pressures and a resilient labor market outweighed concerns over a recession and rapidly rising interest rates. Private-research group The Conference Board said Wednesday that its consumer confidence index increased to 108.3 in December from a revised 101.4 in November, its highest reading since April. Economists polled by The Wall Street Journal expected the index to come in at a lower 101.2.

US (MNI): US Nov Existing Home Sales Fall More Than Expected
U.S. existing home sales fell for a tenth straight month in November by 7.7% to a 4.09 million seasonally adjusted annual rate, the National Association of Realtors said Wednesday, a larger drop than Wall Street had expected. Sales are down 35.4% from a year ago and are the lowest since May 2020 or November 2010 before the pandemic.

EQUITIES (BBG): Nike Shares Soar After Sales Beat, Inventory Pileup Improves
Nike Inc. shares were poised for their biggest gain in more than a year after the retailer’s quarterly sales exceeded Wall Street estimates and bloated inventory stockpiles showed signs of improvement. Global revenue rose 17% to $13.3 billion in the quarter ended Nov. 30, about $700 million more than analysts had projected. Gross margin, a key gauge of profitability, also exceeded expectations, and executives said year-end performance was strong.

EQUITIES (BBG): FedEx Rises as Profit Tops Estimates on Price Hikes, Cost Cuts
FedEx Corp. reported fiscal second-quarter earnings that beat analysts’ estimates, lifted by price increases and cost cuts that helped make up for a decline in package volume. Shares of the delivery giant rose after the company announced an additional $1 billion of projected savings in fiscal 2023, bringing the total to about $3.7 billion.

EQUITIES (BBG): Musk Says Cost-Cutting Averted $3 Billion Twitter Shortfall
Elon Musk said Twitter Inc. was on course for $3 billion of negative cash flow before he stepped in to stem losses by dismissing more than half the company’s staff. “That is why I spent the last five weeks cutting costs like crazy,” Musk said during a Twitter Spaces event late Tuesday. “This company is like, basically, you are in a plane that is headed toward the ground at high speed with the engines on fire and the controls don’t work.”

CANADA (MNI): BOC: Inflation Likely Peaked, Need Time To Hit Goal
Bank of Canada Governor Tiff Macklem said "we think inflation's peaked" and is "starting to come down" in a Twitter video posted Thursday a few hours after StatsCan reported that CPI gains edged down a notch to 6.8% in November.

CANADA (MNI): Canada's 6.8% Nov Inflation Is Faster Than Expected
Canada's inflation rate was a faster-than-expected 6.8% in November and core prices remained near record highs, keeping pressure on the central bank to raise borrowing costs for an eighth straight meeting next month. The November pace barely slowed from October's 6.9% and exceeded forecasts for 6.6%. Consumer prices rose 0.1% on a monthly basis, Statistics Canada said Wednesday, also faster than predictions they would be unchanged. Yearly price gains were led by a 14% increase in gasoline, a 7.8% increase in automobiles and a 15% rise in mortgage interest costs that was the biggest since 1983.

Europe

RUSSIA (WSJ): Putin to Boost Russian Military, Signaling Protracted War in Ukraine
President Vladimir Putin approved an increase in Russia's military manpower while ordering the enhancement of its potential and capability, suggesting that the Kremlin is digging in for a protracted war effort. Mr. Putin pledged to give unlimited funding to the armed forces for equipment and hardware to fulfill Moscow's military campaign in Ukraine and ordered his commanders to supply more improved weaponry to troops, upgrade communications and modernize military draft offices. Russian Defense Minister Sergei Shoigu proposed an increase in the number of service personnel from the current level of around 1 million to 1.5 million, including 695,000 contract soldiers.

ECB (BBG): Centeno: Data Indicate Inflation Is Reaching Peak in 4Q
European Central Bank Governing Council Member Mario Centeno said “all the data” indicate that inflation is reaching its peak in the euro area in the fourth quarter of 2022.

ITALY (MNI): Italy's 2023 Budget To Be Approved On Time
The Italian government will pass its 2023 budget on time before the end of this year, avoiding any economically damaging delay in the implementation of measures including fresh support for companies and households dealing with high energy prices, Undersecretary for Labour Claudio Durigon told MNI.

ITALY (MNI): Italy To Request EUR19Bln NGEU Tranche This Year-Sources
The Italian government will submit its request for payment of the next EUR19 billion tranche of funds allocated it to under NextGenerationEU before the end of the year, despite its earlier admissions of difficulty in meeting deadlines for reforms and investments agreed under the programme, government officials told MNI.

EU/US (BBG): German Finance Chief Wants ‘Friendshoring’ to Avert US Trade War
German Finance Minister Christian Lindner urged Joe Biden’s administration to apply the principles of “friendshoring” to a recent package of green subsidies that has threatened to trigger a trade war between the US and the European Union. Lindner said he’s concerned that the US climate package known as the Inflation Reduction Act puts European companies at a disadvantage and called for “trade diplomacy” to find a solution. Friendshoring, under which nations with shared values cooperate in manufacturing and sourcing raw materials, is the right way forward, he added.

BREXIT (BBG): French Bank Unit Drops Post-Brexit Permit to Operate From UK
The UK has revoked permission for a unit of a French bank to carry out regulated activity in the City of London after the lender decided not to apply for a permanent post-Brexit authorization. Lyonnaise de Banque, part of the Credit Mutuel group, missed its “landing slot” to apply for permanent authorization in the UK, the Financial Conduct Authority said in a statement Wednesday.

DATA

US
* US NAR: NOV EXISTING HOME SALES FALLS 7.7% TO 4.09M SAAR
* NAR: NOV HOME SALES WEAKEST SINCE MAY 2020, NOV 2010 PRE-COVID
* NAR'S YUN: ANNUAL PRICE APPRECIATION THRU NOV 'ONLY' 3.5%

*US DEC. CONSUMER CONFIDENCE AT 108.3; EST. 101.0 - bbg

*U.S. 3Q CURRENT ACCOUNT DEFICIT AT $217.1B; EST. -222.0B - bbg

Canada
* CANADA NOV CPI 6.8% YOY VS FORECAST 6.6%, OCT 6.9%
* CANADA NOV CPI +0.1% MOM VS FORECAST 0.0%, OCT +0.7%
* CANADA NOV CPI EX FOOD & ENERGY 0.1% MOM; 5.4% YOY
* CANADA CORE TRIM CPI 5.3% YOY, MEDIAN 5.0%

US TSYS: Bull Steepening Sees 2s10s At Mid-Nov Highs

• US Treasuries are holding onto a solid bull steepening, with 2YY -4.5bps and 10YY onwards -0.5-1bp after what had been some sizeable gyrations before and after the 20Y re-open stopped through for the second month. The bid in Treasuries was also earlier supported by Russia looking to expand its military, with the first order risk-off overriding potential inflationary elements from a more drawn out conflict.
• Data implications were mixed, with consumer confidence stronger than expected (but as a result of lowest inflation expectations since Sep’21) and existing home sales sliding even more heavily than expected.
• The combination sees longer end yields with minimal retracement of yesterday’s BoJ fallout whilst the curve continues to steepen with 2s10s of -53bps at highs since mid-Nov having been -80bps just last week.
• Tomorrow sees the third release for Q3 GDP whilst weekly jobless claims are of note after recent surprising resilience. Still no Fedspeak scheduled ahead of the Christmas break.

FOREX: GBP Wobbles, With Dire Public Finances Data Accelerating the Pullback

• GBP was the poorest performers in G10 Wednesday (in close competition with NZD), with the currency retracing and pulling back on several strong weeks of constructive price action. EUR/GBP printed a new December high at 0.8790, opening gains toward the next key resistance level at November's 0.8829. Weakness across GBP was aided by a poor set of public sector net borrowing figures, which disclosed the largest November borrowing figure on record, as debt servicing costs shot higher, and far beyond analyst forecast.
• A modest uptick in core inflation for Canada left little impact on the CAD, which traded generally stronger against most others. The monthly run rates for CPI support the takeaway of a report that isn’t wildly stronger than expected but does question the pace of prior moderation. The release was shortly followed by commentary from BoC's Macklem, who claimed that the top for inflation is in. USD/CAD traded inside a relatively tight range, with C$1.3580 marking initial support.
• Following Tuesday's broad strength, JPY pulled back slightly Wednesday, but retains the bulk of the post-BoJ rally. The recovery has been relatively gradual, with volumes across futures markets remaining low ahead of the holiday period. Alongside the US open, less than half the futures notional had traded relative to the same time on Tuesday.
• Focus Thursday turns to final Q3 GDP data from the US and UK, as well as PCE figures, which may take more focus in the event of any revisions. There remains little central bank speak to flag, with no scheduled commentary due.

US STOCKS: Equities Buoyed By Falling Real Yields, Earnings Beats

• ESA briefly clears session highs, pushing through to 3918.75 (+1.8%) before nudging back to 3914, whilst Nasdaq marginally outperforms.
• Earlier clearance of Monday’s high of 3899.0 next opens 3948.02 (50-day EMA) in pullback from the recent bearish theme.
• The moves are supported by real yields sliding on the day (10Y -6bps) and improved consumer confidence, plus idiosyncratic factors from better than expected earnings from Nike and FedEx.
• Within SPX, sizeable gains across all sectors but with energy (+2.2%: WTI +2.8%), consumer discretionary (+2.1%) and IT (+2.1%) outperforming whilst consumer staples lag (+1.0%).

COMMODITIES: WTI Opens 50-Day EMA Amid Tight US Supply

• Crude oil has been buoyed today by US supply tightness and a more supportive macro backdrop with Treasury yields easing and consumer confidence stronger than expected. The former showed a larger than expected 5.9m barrel draw in crude inventories along with bullish signals for implied demand for both gasoline and diesel fuels.
• WTI is +2.9% at $78.43, clearing resistance at both $76.8 (20-day EMA) and $77.83 (Dec 15 high) to next open $79.79 (50-day EMA).
• Light volumes in the CLG2 see the most active strike for $71/bbl puts.
• Brent is +3.0% at $82.37, clearing resistance at $82.03 (20-day EMA) and opening $83.18 (Dec 15 high).
• Gold is -0.2% at $1814.5, keeping a bullish sequence intact with focus on the bull trigger at $1824.5 (Dec 13 high).

EGBs-GILTS CASH CLOSE: Bunds Reverse Early Gains

Gilts outperformed Bunds, with periphery EGB spreads narrowing Wednesday. Curves traded mixed, with the UK's bull flattening and German yields higher but mostly parallel.

• 10Y Bund yields had dipped more than 3bp by 1315GMT before reversing. No particular catalyst seen but strong US consumer confidence data helped continue the bearish afternoon trend. Yields closed just shy of the 2.316% session high.
• UK outperformance came despite unexpectedly high Nov gov't borrowing figures, which saw Gilts under pressure early.
• Periphery spreads narrowed in a mainly risk-on session.
• Italy's 2023 debt plan issued today (more here) foresees overall gross issuance of M-T/L-T securities between E310-320bln, vs E285bln in 2022
• Thursday kicks off with final UK GDP data. There is no supply and no central banks featured.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 1bps at 2.527%, 5-Yr is up 1.1bps at 2.344%, 10-Yr is up 1bps at 2.314%, and 30-Yr is up 1.7bps at 2.204%.
• UK: The 2-Yr yield is down 1.5bps at 3.668%, 5-Yr is up 0.1bps at 3.58%, 10-Yr is down 2.5bps at 3.571%, and 30-Yr is down 3.8bps at 3.854%.
• Italian BTP spread down 4.9bps at 212.3bps / Spanish down 1.8bps at 108.3bps

EUROZONE ISSUANCE: Italy 2023 Debt Management Plan

Italy's 2023 Debt Management plan foresees overall gross issuance of M-T/L-T securities between E310-320bln, vs an estimated E285bln in 2022. This amount (plus NGEU funds and cash) is estimated to meet funding needs in 2023 amounting to E260bln in maturing securities (net of BOT bills), and the gov't funding requirement of E90bln.

• This is probably on the slightly high side of estimates we have seen, but there was little market reaction to the release.

We will cover in more detail in our end-year EGB issuance publication, but a few observations on the Treasury's expectations for different segments:

• The monthly auction cycles will not change in 2023 (PDF calendar here).
• Short-Term BTPs will continue to feature in end-month auctions, but the amounts may be lower than in the past, as the Treasury aims to reduce issuance on the short end of the curve.
• 5Y sales will again be overweighted vs 3Y (E43bln vs E37bln in 2022). 7Y BTPs issuance should be in line with 2022 (E36bln); 10Y conversely could be higher vs prior (E40bln).
• Long-term BTP issuance (15, 20, 30, 50Y) could be higher than in 2022 (E31bln); potential syndications are foreseen.
• The Treasury is eyeing introducing new BTPei benchmarks in 2023.
• CCTeu issuance may be higher than in 2022, due in part to large maturities; a new 3-10Y benchmark is under consideration.
• The Treasury will consider larger amounts of Green issuance in 2022.
• One or more BTP Italia retail bond sales is expected.