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Free AccessMNI EUROPEAN MARKETS ANALYSIS: China Equities Weighed Down By Lack Of Simulus Talk
- RBNZ dated OIS pricing is 4-11bps softer across meetings beyond Apr’24, with Nov’24 leading. The market now has 65bps of easing priced by Nov’24. NZD/USD is the weakest performer in the G10 FX space.
- This followed earlier monthly price data, which suggests inflation is cooling more than the RBNZ expects. A number of local banks have lowered their inflation projections as a result.
- Elsewhere China equities are on the backfoot, with the market left disappointed by the lack of fresh details on any new stimulus plans for next year. Most USD/Asia pairs have climbed higher.
- Later the Fed decision is announced but it is widely expected to leave rates unchanged (see MNI Fed Preview). There will also be updated forecasts and a press conference, which will be important for oil markets. On the data front there’s US November PPI data and UK & euro area IP.
MARKETS
US TSYS: Slightly Richer Ahead Of The FOMC Decision
TYH4 is currently trading at 110-20, +0-02+ from NY closing levels.
- Cash tsys are dealing ~1bp richer in the Asia-Pac session ahead of tonight’s FOMC rate decision at 1300ET and Fed Chair Powell's presser at 1430ET. PPI data is released beforehand.
- The Fed will likely lower its median "dot plot" estimate for policy interest rates at the end of 2024 to around 4.9%, former officials and staffers told MNI, as expectations build for the first rate cut to come as early as the year's first half.
- There has been no meaningful newsflow so far today.
STIR: $-Bloc Priced For An Aggressive 2024 Easing Ahead Of Today's FOMC
STIR markets are indicating the conclusion of the tightening cycle within the $-bloc and are poised for an assertive easing in 2024, ahead of today's FOMC decision at 1300ET and Fed Chair Powell's presser at 1430ET.
- The Fed will likely lower its median "dot plot" estimate for policy interest rates at the end of 2024 to around 4.9%, former officials and staffers told MNI, as expectations build for the first rate cut to come as early as the year's first half.
- "My expectation is that the median will probably show two 25-basis-point cuts next year," said ex-Boston Fed chief Eric Rosengren, whose forecast is for two to three cuts starting as early as the second quarter.
- Nov’24 expectations and the cumulative easing stand at: 4.34%, -95bps (FOMC); 4.08%, -92bps (BOC); 4.03%, -30bps (RBA); and 4.85%, -69bps (RBNZ).
Figure 1: $-Bloc STIR
Source: MNI – Market News / Bloomberg
JGBS: Bull-Flattening Gathers Momentum In The Afternoon Session Ahead Of The FOMC Decision
JGB futures are richer, +48 compared to settlement levels, and near the Tokyo session high. Futures had initially softened following a stronger-than-expected Q4 Tankan Survey, but that softness has been more than reversed.
- Outside of the Tankan survey, the only potential domestic driver has been today’s BOJ Rinban operations covering 1-3-year, 5-10-year, and 25-year+ JGBs. The operations showed mixed results, with negative spreads but higher offer cover ratios.
- Japan PM Kishida will front the local media today (6:15 pm local time) in which a funding scandal involving his ruling LDP party is expected to feature.
- Cash tsys are dealing ~1bp richer in the Asia-Pac session ahead of tonight’s FOMC rate decision. PPI data is released beforehand.
- Today’s bull-flattening of the cash JGB curve has gathered momentum in the afternoon session following the BOJ Rinban operations, with yields 0.6bp to 5.4bps lower. The benchmark 10-year yield is 1.7bps lower at 0.704% versus the morning’s high of 0.735%.
- The swaps curve has also bull-flattened, with swap spreads mixed.
- Tomorrow, the local calendar will show Core Machine Orders, International Investment Flow, IP and Capacity Utilisation data. The MOF also plans to sell Y1.2tn of 20-year JGBs.
AUSSIE BONDS: Richer, MYEFO Signals Improved Fiscal Position, Jobs Report Tomorrow
In futures roll-impacted dealings, ACGBs (YM +2.2 & XM +5.5) are stronger but slightly off Sydney session best levels. The key domestic event today was the publication of the government’s Mid-Year Economic and Fiscal Outlook (MYEFO).
- As expected, the budget and debt ratio projections improved compared with May’s budget. A surplus is not yet forecast for this financial year, with a small deficit of $1.1bn projected (a $12.8bn improvement). It is however a negligible share of the economy. The MYEFO shouldn’t change the RBA’s view that fiscal policy is currently not inflationary.
- Elsewhere, CBA’s household spending index rose 4.1% y/y in November versus a revised +2.4% in October. Household spending rose 1.8% m/m versus a revised -0.6% in October.
- US tsys are dealing ~1bp richer in the Asia-Pac session ahead of tonight’s FOMC rate decision.
- Cash ACGBs are 2-6bps richer, with the AU-US 10-year yield differential 4bps tighter at +8bps.
- Swap rates are 2-4bps lower, with EFPs slightly wider.
- The bills strip is flat to +1 across contracts.
- RBA-dated OIS pricing is slightly softer across meetings.
- Tomorrow, the local calendar sees the November Employment Report. Bloomberg consensus is expecting a gain of 11.5k jobs, with an uptick in the unemployment rate to 3.8% from 3.7%.
RBA: RBA Likely To Continue To See Fiscal Policy As Neutral After MYEFO
The government has published its Mid-Year Economic and Fiscal Outlook (MYEFO) and as expected the budget and debt ratio projections improved compared with May’s budget. A surplus is not yet forecast for this financial year with a small deficit of $1.1bn projected (a $12.8bn improvement) but that is a negligible share of the economy. Today’s announcement was not a mini budget but an update on the position of Australia’s government finances. The MYEFO shouldn’t change the RBA’s view that fiscal policy is currently not inflationary.
- Treasury still expects inflation to return to target in FY25, but its forecasts remain considerably below the RBA’s at 2.75% compared with 3.3%. FY24 has been revised up 0.5pp to 3.75% due to higher oil prices.
- FY24 growth has been revised up 0.25pp to 1.75%, as stronger public demand, net exports and dwelling investment offset weaker consumption, with the outer years unchanged. GDP forecasts are in line with the RBA’s.
- 92% of the additional revenue has been put towards budget repair in the MYEFO and 88% since the government came to office. The deficit though is expected to widen to 1.2% of GDP in FY26 but the total to FY27 is now almost $40bn lower than the May estimate. Policy decisions have not added much to the FY24 deficit but the aggregate to FY27 is up around $5.3bn to over $25bn.
- Treasury’s commodity price forecasts remain conservative with iron ore assumed to decline to $60/t, metallurgical coal at $140/t and thermal coal $70/t.
- Gross debt is now expected to peak at 35.4% in FY28 revised down from 36.5%.
- Migration forecasts have been revised up 60k in FY34 to 375k but still significantly lower than FY23’s 510k. FY25 is down 10k to 250k as the government’s new measures become effective.
AUSTRALIAN DATA: SEEK Job Ads Point To Further Easing Of Tight Labour Market
Ahead of Thursday’s November employment data (bbg consensus +11.5k) it is worth looking at the latest SEEK job ads data for the same month, which posted a sharp decline of 4.3% m/m. This was the fourth straight monthly drop bringing the annual rate down to -20.2% y/y. This and the continued rise in applicants per job signal that the labour market continues to ease but with ads still over 12% higher than Q4 2019 the labour market remains tight.
- Applicants per job rose 2.9% m/m in October, the ninth consecutive increase. They are now only 0.8% below Q4 2019. Strong migration and a slowing economy are helping to boost this number and take the heat out of the labour market, which should reassure the RBA.
- The decline in job ads was widespread, across states and territories (ACT flat), except for SA, and industries. Only insurance & superannuation posted a rise. Retail & consumer products fell 7.9% m/m.
Source: MNI - Market News/SEEK
NZGBS: Closed With A Significant Bull-Flattening Price Indices Data
NZGBs have bull-flattened into the close of the local session, with yields flat to 9bps lower. After dealing in narrow ranges for much of the session, 5-10-year NZGBs rallied 5-7bps after Statistics NZ reported price indexes for selected goods and services for November.
- Food, fuel and alcohol prices, comprising ~27% of CPI, rose at a slower annual pace.
- The strengthening of the market was aided by downward revisions from sell-side banks. Westpac NZ economists cut their forecast for Q4 CPI inflation. Westpac now sees CPI rising 0.3% q/q versus the previous projection of 0.6%. Separately, ASB Bank said that the selected price index data suggested annual inflation through November had slowed. “Prices were down 0.5% in November, with annual inflation a smidgen below 5%... and consistent with our core view that there is considerable downside risk to the 5.0% y/y RBNZ pick”.
- Swap rates closed 11-13bps lower, with the 5-year outperforming.
- RBNZ dated OIS pricing is 4-11bps softer across meetings beyond Apr’24, with Nov’24 leading. The market now has 65bps of easing priced by Nov’24.
- Tomorrow, the NZ Treasury plans to sell NZ$200mn of the 4.5% May-30 bond, NZ$225mn of the 3.5% Apr-33 bond and NZ$75mn of the 2.75% May-51 bond.
NEW ZEALAND DATA: Services Exports Drive Narrowing Of Current Account Deficit
The current account deficit held steady at 7.6% of GDP in the year to Q3. It is down from the 8.8% peak in Q4 2022 but still remains one of the highest in the OECD. The deficit has narrowed $0.6bn over the last year due to the lower services deficit offsetting the widening of the goods and primary income deficits.
- Services exports continue to recover rising 9.8% q/q to be up 21.5% y/y in Q3 driven by a 690k increase in tourist numbers. They are still below pre-pandemic levels though and so the recovery has further to go. Services imports rose 0.6% q/q and 3.3% y/y.
- Merchandise imports fell 2.8% q/q and exports tumbled 6.7%, thus the deficit widened. There was a strong rise in fuel imports, while meat exports fell sharply.
- The primary income deficit widened by $1.4bn.
- There was a $6.7bn increase in reserve assets because of the RBNZ’s decision to increase its FX reserves.
Source: MNI - Market News/Refinitiv
FOREX: NZD Falters On Slower Inflation Data, USD Mildly Firmer Elsewhere
The USD index sits marginally higher as the FOMC comes into view. The BBDXY index was last near 1242, +0.10% firmer for the session. Earlier lows were at 1240.35, which leaves us within recent ranges.
- The main focus point in Asia Pac trade has been NZD weakness. This followed earlier monthly price data, which suggests inflation is cooling more than the RBNZ expects.
- A number of local banks have lowered their inflation projections as a result.
- NZD/USD has test sub 0.6100 and sits close to this level in recent dealings, which is 0.55% weaker for the session. Note the 20-day EMA isn't too far away (0.6093), while the 200-day sits at 0.6075. NZ swap rates closed 11-13bps lower.
- As widely expected, the new NZ government passed laws returning the RBNZ to a signal price mandate.
- AUD/USD sits marginally lower, last near 0.6555, but has outperformed NZD by around 0.45%. The AUD/NZD was last near 1.0745/50. The mid year fiscal update from the government didn't impact sentiment, while CBA data showed a firmer spending in November.
- USD/JPY got to 145.19 in early trade, but now sits back at 145.60/65, slightly above NY closing levels from Tuesday. The Q4 Tankan survey was at the margin better than expected, showing solid business conditions and Capex intensions.
- The main upcoming focus will be the US FOMC decision. Prior to that we have UK monthly GDP figures.
EQUITIES: China Markets Weaker, Japan Outperforms Modestly
Most regional equity markets are under pressure in Wednesday Asia Pac dealing. China markets are among the weakest performers, while Japan markets are outperforming at the margin. US futures are modestly higher as the US FOMC decision later comes into view. Eminis last near 4702, +0.11%, while Nasdaq futures have firmed +0.15%.
- At the break, the CSI 300 sits just over 0.90% lower, and is back sub 3400 in index terms. Losses are fairly broad based at this stage, although some tech plays are outperforming. The Hang Seng China Enterprise Index is down 1.0%.
- Market disappointment around the lack of fresh stimulus measures from the Central Economic Work Conference has weighed on sentiment in the space.
- The HSI is off 0.74% at the break in Hong Kong, with the tech sub index is off -0.82%, only partially unwinding yesterday's 1.74% gain. The broader trend is still quite soft.
- In Japan, the Nikkei 225 is up +0.35%, while the Topix is around flat. Tech names are outperforming so far, which is in line with trends from US trade, with the SOX index breaking higher in recent sessions.
- The same moves haven't been enough to drive the Kospi higher (off nearly 0.60%), while the Taiex is around flat.
- NZ's market is +0.82% higher, after partial data showed signs inflation is cooling more than the RBNZ forecast.
- In SEA most markets are down. Thailand stocks continue to underperform, the SET off a further 0.80%. This puts the index back to levels last seen in late 2020.
OIL: Crude Lower Ahead Of Fed And OPEC Report
Oil prices are moderately lower in APAC trading today after falling around 3.5% on Tuesday on growing evidence of rising supply while demand is lacklustre. Prices are off their intraday highs with Brent down 0.3% from yesterday’s close finding support around $73/bbl and WTI is -0.2% to $68.48. The USD index is 0.1% higher ahead of the Fed decision and updated forecasts later.
- Bloomberg shipping data showed Russian exports at their highest since July and the EIA revised up 2023 US supply by 30kbd but revised down 2024 by 40kbd and expected global output by 1.36mbd from last month. OPEC’s monthly report is today and the IEA’s on Thursday. There is significant scepticism in the market that OPEC’s new quotas will be adhered to.
- Futures contracts continue to point to a widening market surplus and according to Bloomberg the 12 month WTI spread moved into contango yesterday for the first time in 2023.
- Bloomberg reported that US crude inventories fell 2.35mn barrels in the latest week, according to people familiar with the API data. Product stocks rose though with gasoline up 5.8mn and distillate 276k. The official EIA data is out later today.
- Later the Fed decision is announced but it is widely expected to leave rates unchanged (see MNI Fed Preview). There will also be updated forecasts and a press conference, which will be important for oil markets. On the data front there’s US November PPI data and UK & euro area IP.
GOLD: Consolidating Ahead Of The FOMC Decision
Gold is showing minimal movement in the Asia-Pacific session, maintaining its position after a marginal 0.1% decline to $1979.54 on Tuesday.
- Yesterday's market activity is best characterised as a consolidation following Monday's notable slide, setting the stage for the upcoming FOMC decision at 1300 ET and Fed Chair Powell's press conference at 1430 ET.
- The Fed will likely lower its median "dot plot" estimate for policy interest rates at the end of 2024 to around 4.9%, former officials and staffers told MNI, as expectations build for the first rate cut to come as early as the year's first half.
- US Treasuries finished slightly richer following an in-line US CPI print on Tuesday.
- Bullion has experienced a wide ride in the latter part of this year, witnessing a dip in September followed by a surge to a record earlier this month. The metal's trajectory has been significantly influenced by trader speculation on future US monetary policy, with lower rates typically positive for gold.
ASIA FX: USD/Asia Pairs Climb Further Amid Equity Headwinds
USD/Asia pairs are higher, albeit to varying degrees as the FOMC comes into view. KRW and a number of SEA currencies are the weakest performers, with losses around 0.40% at this stage. USD/CNH has crept higher but remains sub 7.2000, while like equities have been left disappointed by lack of fresh stimulus details post the recent central economic working group meeting. Tomorrow, we have the Philippines BSP decision, with no change expected, likewise for the CBC Taiwan decision.
- USD/CNH sits just off session highs, last near 7.1960. There appears to be some resistance to a move through 7.2000 in the near term. Local equities are down more than 1% at this stage, left disappointed by lack of new stimulus details. Headlines also crossed from the Vice Housing Minister stating that China will prevent builders debts from defaulting (CCTV/BBG), but this hasn't impacted sentiment.
- High beta USD/KRW sits sub session highs, last near 1316. Earlier highs were at 1317.50. Onshore equities have weakened despite a positive tech lead from US markets on Tuesday. The Kospi is down 0.80%. Earlier data showed bank lending to households continued to climb, while the unemployment rate ticked up.
- Dips in USD/THB have generally been supported. The pair is last at 35.77, which is at session highs. Thailand equities continue to falter, down a further 1%. The BoT mins saw the central bank reiterate the need to preserve policy space.
- USD/PHP has firmed, up nearly 0.40% to 55.80, to fresh multi week highs. There don't appear to be any fresh drivers of the move. Local equities are weaker, but weakness is line with moves seen elsewhere. We have the BSP decision tomorrow, no change is expected. Bank lending data for Oct will be out later today.
- MYR has lost nearly 0.50% for USD/MYR to sit above 4.7060. We continue to see a weaker terms of trade backdrop weighing. The Citi index is back to mid August levels, remaining comfortably in negative territory.
UP TODAY (TIMES GMT/LOCAL)
Date | GMT/Local | Impact | Flag | Country | Event |
13/12/2023 | 0700/0700 | ** | ![]() | UK | UK Monthly GDP |
13/12/2023 | 0700/0700 | ** | ![]() | UK | Index of Services |
13/12/2023 | 0700/0700 | *** | ![]() | UK | Index of Production |
13/12/2023 | 0700/0700 | ** | ![]() | UK | Trade Balance |
13/12/2023 | 0700/0700 | ** | ![]() | UK | Output in the Construction Industry |
13/12/2023 | 1000/1100 | ** | ![]() | EU | Industrial Production |
13/12/2023 | 1000/1000 | ** | ![]() | UK | Gilt Outright Auction Result |
13/12/2023 | 1200/0700 | ** | ![]() | US | MBA Weekly Applications Index |
13/12/2023 | 1330/0830 | * | ![]() | CA | Household debt-to-income |
13/12/2023 | 1330/0830 | *** | ![]() | US | PPI |
13/12/2023 | 1530/1030 | ** | ![]() | US | DOE Weekly Crude Oil Stocks |
13/12/2023 | 1900/1400 | *** | ![]() | US | FOMC Statement |
14/12/2023 | 2145/1045 | *** | ![]() | NZ | GDP |
14/12/2023 | 2350/0850 | * | ![]() | JP | Machinery orders |
To read the full story
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.