MNI ASIA OPEN: US Economy Softening Faster Than Data Suggests - Harker

NEWS

US (MNI): Economy Is Softening Faster Than The Data Suggest - Fed's Harker
Philly Fed’s Harker (who from now on won’t hold a voting position until he retires by Jun’25) spoke to local radio, having last spoke early November. Following remarks taken from Bloomberg headlines: The job on inflation not done, but moving in right direction. Economy is softening faster than the data suggest. Don’t need to raise rates any more, should hold steady (reiterating prior stance). Harker added “It’s important that we start to move rates down"... “We don’t have to do it too fast, and we’re not going to do it right away.” As it is, Fed Funds futures lean on the fast side, with a cumulative 21bp of cuts priced for March, 71bp for June and 147bp for end-2024.

US (MNI): MNI BRIEF: US Home Sales End 5-Month Slide; +0.8% To 3.82M
U.S. sales of existing homes grew 0.8% to a seasonally adjusted annual rate of 3.82 million in November as mortgage rates plunged, the National Association of Realtors said Wednesday, above market expectations and ending a five-month sales drop. Sales are still down 7.3% from one year ago.

CANADA (MNI): BOC Showed More Unity Hikes Are Over In Meeting Minutes
Bank of Canada officials showed more unity around the idea they are done raising interest rates in this cycle and removed language about a high-for-long stance, according to minutes published Wednesday from the Dec 6 decision to keep the highest borrowing costs since 2001.

EU (MNI): New Fiscal Rules Ready For 2025 EU Fiscal Guidance
A deal on new European fiscal rules agreed unanimously among 27 member states on Wednesday should be agreed with the European Parliament before June 2024 elections, allowing the European Commission to issue fiscal guidance for 2025 budgets with the new framework, Commission Executive Vice President Valdis Dombrovskis told reporters.

MNI POLITICAL RISK ANALYSIS - Political Event Calendar 2024
In our Political Risk calendar for 2024 we include details on the major political events scheduled to take place in developed and major emerging markets over the course of the next 12 months. We only include those events that have a set date or period in which they will take place.

GLOBAL (MNI): US-Led Coalition Vague Re: Actions To Halt Strikes On Red Sea Shipping
Following the announcementon 18 Dec that the US would lead a 10-nation coalition intended to protect international shipping in the Red Sea, there has been little further indication of what actions this group will take to secure shipping, resulting in firms continuing to divert cargoes around the Cape of Good Hope. The diversions come amid a major uptick in aerial and seaborne attacks on vessels in the Red Sea and around the Bab al-Mandab Strait from Iranian-backed Houthi rebels in Yemen.

US (MNI): Colorado Supreme Court Ruling Sees Trump Odds Drop in Betting Market
The Colorado Supreme Court's ruling that disqualifies former President Donald Trump from appearing on the ballot in the state's presidential primary has seen a small decline in the Republican frontrunner's implied probability of winning the 2024 presidential election. Data from Smarkets shows Trump's implied probability of winning the presidency falling from 42.7% before the ruling to 38.8% presently.

EUROZONE (MNI): See No ECB Rate Cut Until H2 '24 - DNB's Klaas Knot
The ECB is “rather unlikely” to cut interest rates in the first half of 2024, DNB governor Klaas Knot said in an interview with Boersen-Zeitung Wednesday, with policymakers needing to see how wages develop before they can conclude that inflation has turned the corner durably.

UK (MNI): MNI BRIEF: UK Headline Inflation Hits 26-month Low In November
UK headline annual inflation fell to the lowest level since September 2021, data released Wednesday by the Office for National Statistics showed, as lower fuel and food prices saw price growth slow more than expected by analysts.

MNI UK Inflation Insight: November 2023: Significant Downside Surprise
After a downside surprise to both headline CPI and services CPI a month ago (October data), the November inflation report repeated those surprises again, meaning that headline CPI surprised the BOE’s November MPR forecasts by 0.7ppt in November with services CPI 0.6ppt below the Bank’s forecast.

DATA

US DATA: Existing Home Sales Nudge Higher After Five Monthly Declines

• Existing home sales saw a modest beat in November, at 3.82m (cons 3.78m) after an unrevised 3.79m in Oct.
• It leaves a 0.8% M/M increase after five consecutive monthly declines, most recently a heavy -4.1% in Oct, and marks its largest increase since February's spike. Sales are still almost 30% below 2019 levels.
• When combined with a fall in inventory, the months of supply bucked its recent upward trend, easing a tenth to 3.5 months with its the first decline since February.
• Nevertheless, this uptrend has helped relative supply push back closer to pre-pandemic averages, having averaged 3.8 months in Nov for 2017, 2018 and 2019.

US DATA: Conf Board "Hard To Get" A Job Still Trending Higher

• Conference Board consumer confidence beat expectations in Dec, at 110.7 (cons 104.5) after 101.0, its highest since July on similar relative trends in both the present situation and expectations components.
• The labor market differential didn't improve though, essentially unchanged at 23.9 from 23.8 for the lowest levels since Apr 2021 and still below the 33 averaged in 2019.
• The unchanged differential came as another push higher in "hard to get" work as offset by a bounce in jobs plentiful. At 15.4% from 14.1%, the hard to get measure marked a high since Mar 2021 vs the 12.6% averaged in 2019.

• MBA composite mortgage applications dipped a seasonally adjusted -1.5% in the week to Dec 15, with refis -1.8% and purchases -0.6%.
• It fades another large decline in the 30Y conforming mortgage rate, but has followed a 10% rise in the prior two weeks (that was in turn driven by refis).
• Specifically, the 30Y conforming rate fell 24bps to 6.83%, its lowest since June. It has now fallen 107bps since its late October peak.
• Rates for jumbo loans saw a more modest decline on the week, an effective tightening in conditions, with the regular-jumbo spread falling from -15bps to -29bps for its lowest since Jan 2021.

US TSYS: Treasuries Touch Session Highs With Equity Drop, Three Cuts Priced For June

• Cash Tsys trade 6-9.5bp richer, led by 2s as has been the case through the day.
• There have been various stages to today’s rally. An overnight bid was accelerated by spillover from notably softer than expected UK CPI, and whilst beats for existing home sales and Conf. Board consumer confidence prompted cheapening it didn’t last long. The same can be said for the modest sell-off seen after the largest tail for a 20Y auction this year, before the late session slide in equities belatedly fed through to Treasuries.
• It’s seen TYH4 recently touch a fresh high of 112-30+ (+ 16+), pushing through resistance at 112-28+ after which lies 113-12+ (both Fibo projection points).
• Fed Funds implied rates have also slipped, modestly for near-term meeting with the 22bp of cumulative cuts for March similar to levels at the start of the US session, but more notably beyond with now a cumulative 75bp for June and 155bp for end-2024.
• Tomorrow sees jobless claims, with initial for a payrolls reference week, plus the third revision for Q3 GDP before Friday’s monthly PCE report, durable goods and the finalized U.Mich consumer survey.

FOREX: Equity Weakness Underpins Moderate USD Bid, GBP Consolidates Post-CPI Decline

• Sterling remains the weakest G10 currency, holding the vast majority of the post-CPI losses, after inflation slowed markedly faster than forecast in November. Core CPI posted a 0.6ppts drop to hit a new post-COVID low of 5.1%. Monday's lows of 1.2629 provided firm support on the session and remains the notable downside level for the pair. GBPUSD 0.66% decline is reflecting the retracement in yields across both STIR and Gilt markets, with BoE rate cut pricing for 2024 extending by nearly a full 25bp reduction Wednesday.
• Despite a bounce for the broad dollar index across European hours, gains were moderated throughout the US session, with overall G10 ranges remaining contained amid a lack of tier-one data and as we approach the holiday season. Some late pressure for equities is underpinning the advance for the DXY (+0.26%) as we approach the APAC crossover.
• This late pressure on stocks has seen AUDUSD slip to the worst levels of the session, down 0.32%, however the uptrend for the pair remains firmly intact and Tuesday’s gains reinforced current conditions. This marks an extension of last week’s move higher and the break of resistance at 0.6691, the Dec 4 high and a bull trigger. Overall, scope is seen for a climb for a climb towards the 0.6800 handle and 0.6821, the Jul 27 high.
• JPY had initially been the firmest currency in G10, reversing a good chunk of yesterday's post-BoJ weakness. USDJPY printed a session low of 143.27, after peaking on Tuesday at 144.96. A lack of momentum and the slightly more optimistic feel for the dollar, prompted a gradual recovery to 143.90 at typing.
• Final US GDP reading for Q3 will cross tomorrow, along with core PCE price index data, Philly Fed manufacturing and jobless claims figures. Canadian retail sales data is also scheduled.

US STOCKS: Late Equity Rout Sees Worst Day Since October For S&P 500

• The late equity rout across indices appears to have slowed, after modest selling pressure, perhaps on late profit taking, snowballed into the largest sell program since Jul and before that Mar 9.
• It’s seen ESH4 touch a low of 4671.0 after a session high of 4830.75 marked a further clearing of prior resistance and a move closer to 4854.75 (Fibo projection of Nov -Dec price swings).
• Across the main e-minis, the S&P 500 trades -1.1%, Nasdaq 100 -1.3%, Dow -0.9% and Russell 2000 -1.4%, with the latter seeing a swift reversal from earlier outperformance.
• Within cash S&P 500, losses are seen across all sectors, led by consumer staples (-1.7%), consumer discretionary (-1.5%) plus utilities, financials, IT and industrials all with -1.3% declines. Communication services (unch) are the outperformers, relatively buoyed by still large gains for Alphabet (+1.7%) who have pared gains but still benefit from a reported restructuring of their ad sales unit.
• The NDX has seen a strong pullback off fresh record highs of 16860.68 notched an hour after the open, currently 280pts off those levels. SPX never managed to re-touch the 2022 highs of 4818.62 earlier, peaking at 4778.01.

S&P 500 e-miniSource: Bloomberg

Commodities: Crude Reverses Gains After Stock Build And Late Equity Slide

• Crude markets are approaching US close unchanged to down slightly. Red Sea shipping risks buoyed prices, but an unexpected build in weekly EIA crude inventories trimmed earlier gains before spillover from a sharp rolling over in equity indices late in the session.
• Yemen’s Houthi rebels have vowed to continue targeting ships in the Red Sea despite the planned US-led naval task force to secure the area, according to Bloomberg.
• EIA Weekly US Petroleum Summary - w/w change week ending Dec 15: Crude stocks +2,909 vs Exp -2,355, Crude production +200, SPR stocks +629, Cushing stocks +1,686
• The US will tighten enforcement of the price cap on Russian oil exports, a senior US Treasury Official said Dec. 20, cited by Bloomberg.
• WTI is -0.1% at $73.84 after an earlier high of $75.33 cleared resistance at $74.61 (Dec 18 high) and moved closer to $76.14 (50-day EMA).
• Brent is unch at $79.26 after a high of $80.57 cleared the Dec 18 high of $79.67 and stopped fractionally shy of resistance at $80.59 $50-day EMA).
• Gold is -0.3% at $2033.7, fading with late USD strength. It doesn’t trouble resistance at $2054.3 (50% retrace of Dec 4-13 bear leg) or support at $1973.2 (Dec 13 low).