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EUR has faltered amid fresh French political concerns. Broader USD sentiment is higher to start Dec as well, aided by higher US TSY yields.
Better Australian retail sales helped AUD outperform, while Japan data was mixed.
China bond yields are tracking to fresh lows, despite better data outcomes, as policy easing bets continue. CNH was also weighed by fresh Trump tariff threats from the weekend.
Later the Fed’s Waller and Williams speak and ECB President Lagarde appears. Euro area October unemployment rate, European/Canadian manufacturing November PMIs and US manufacturing ISM/PMI print.
Treasuries have continued to be weak in the Asian trading day, with bond yields higher and futures lower in today's trading.
Cash trading yields are 3-5bps higher across the curve with the 10-year +4.4bps to 4.217%.
The five year was the underperformer today up 5bps in yield at 4.10%.
US10YR Mar25 future is down +04 at the open to 111-01 , having closed Friday at +111-05.
Risk appetite has opened strongly in the region with most equity markets up strongly, with Taiwan and China leading the way.
President-elect Trump has threatened BRICs nations about their need to continue using the USD as the base currency and this has put a firm bid under the USD today.
Tonight sees ISM data in the US alongside Manufacturing PMI and construction spending.
JGB futures are weaker, -28 compared to the settlement levels, after trading in a relatively tight range for most of the session.
JGBs were pressured early in the Tokyo session from comments made by BOJ Governor Kazuo Ueda in an interview with the Nikkei published on Saturday. Governor Ueda said further yen weakening with inflation above 2% might prompt the BOJ to take countermeasures. Ueda made no comment as to the timing of the next rate hike and warned of major uncertainties around the U.S. economy.
Outside of the previously outlined Jibun Bank PMI Mfg and Capex data, there hasn't been much by way of domestic drivers to flag.
Cash US tsys are 3-5bps cheaper in today’s Asia-Pac session after Friday’s solid gains. This week's US calendar is headlined by the November payrolls report. We also hear from the Fed Powell, Waller & Williams and get ISM Services.
The cash JGB curve has bear-flattened, with yields flat to 3bps higher. The benchmark 10-year yield is 2.9bps higher at 1.077% ahead of tomorrow’s supply.
The swaps curve has bear-steepened, with rates 2-5bps higher. Swap spreads are mixed.
Tomorrow, the local calendar will see Monetary Base data alongside 10-year supply.
BOJ-dated OIS pricing continues to hold firmer across meetings versus levels prevailing ahead of the BOJ’s October 30-31 meeting.
According to an interview with the Nikkei published on Saturday, BOJ Governor Kazuo Ueda said further yen weakening with inflation above 2% might prompt the BOJ to take countermeasures. Ueda made no comment as to the timing of the next rate hike and warned of major uncertainties around the U.S. economy.
“As far as wages are concerned, I would like to see what kind of momentum the fiscal 2025 spring wage offensive creates,” he added
Currently, OIS pricing sits 6–20bps firmer across meetings versus pre-BOJ MPM (Oct), with September 2025 leading the gains.
For the upcoming December 18-19 meeting, pricing has firmed by 11bps since late October, reflecting a 57% probability of a 25bp rate hike. Pricing for this meeting has been influenced by recent remarks from BoJ Governor Ueda, who described the meeting as “live.”.
According to a Bloomberg survey, just over half of economists expect the BoJ's next rate hike to occur in December.
Market expectations currently indicate: a 57% probability of a 25bp hike in December; a cumulative 82% chance by January; and a full 25bp increase is not fully priced in until May 2025 (+32bps).
Japan Q3 capex and company profit prints were mixed. We had capex on the firmer side. We rose 8.1%y/y, against a 6.7% forecast and prior 7.4% outcome. Ex software we were up 9.5%y/y, against a 8.2% forecast. In q/q terms ex software posted a solid 0.8% rise.
The chart below plots this ex software capex measure in q/q terms against business investment as per the national accounts, which fell 0.2%q/q in Q3. So today's data suggests we may have positive revisions.
The sequential against in terms of y/y outcomes for capex also suggested positive momentum in the space, which should aid broader economic activity.
Other data was softer though. Company sales were 2.6% in y/y terms, versus 3.2% forecast and 3.5% prior. Profits fell -3.3%y/y, well below the 9.3% forecast and 13.2% prior.
This is the weakest profit print since last 2020.
Fig 1: Japan Capex Stronger Than Expected, May Aid GDP Revisions
ACGBs (YM -1.0 & XM +2.0) are slightly mixed and off the Sydney session's best levels following today’s mixed domestic data drop.
October retail sales rose 0.6% m/m, stronger than expected, to be up 3.4% y/y, the highest growth rate since May 2023.
However, Q3 company profits were weak again falling 4.6% q/q after -6.8% q/q (revised down from -5.3%) to be down 8.5% y/y after -4.0%, driven by the mining sector. Also, the drop in inventory volumes was more than expected at -0.9% q/q, which shouldn’t be enough to change Q3 GDP estimates though, with Q2 revised up to +0.7%.
Cash US tsys are 3-4bps cheaper in today’s Asia-Pac session after Friday’s solid gains.
Cash ACGBs are 1bp cheaper to 2bps richer after being 4-5bps richer earlier. The AU-US 10-year yield differential is at +11bps.
Swap rates are 2bps higher to 2bps lower, with the 3s10s curve flatter.
The bills strip is flat to -3, with a steepening bias.
RBA-dated OIS pricing is flat to 2bps firmer across the 2025 meeting. A 25bps rate cut is not fully priced until May.
Tomorrow, the local calendar will see Current Account, Net Exports and Government Spending data for Q3. Q3 GDP on Wednesday.
The AU-NZ 10-year yield differential is unchanged today, standing at -2bps compared to the recent high of +10bps early November, which marked the highest level since August 2022.
The recent decline in the 10-year yield differential between Australia and New Zealand has mirrored a similar move in the AU-NZ 1-year forward 3-month swap rate (1Y3M) spread.
However, a simple regression analysis of the AU-NZ 10-year yield differential against the AU-NZ 1Y3M spread over the past 12 months shows that the 10-year differential is around 8bps above fair value based on the regression model (-2bps compared to a fair value of -10bps).
The 1Y3M differential is a proxy for the expected relative policy path over the next 12 months.
Figure 1: AU-NZ: 10-Year Yield Differential Vs. 1Y3M Swap Differential
October retail sales rose 0.6% m/m, stronger than expected, to be up 3.4% y/y, the highest growth rate since May 2023. 3-month momentum also increased. The ABS said that there was discounting ahead of November’s Black Friday sales to encourage consumers. In 2024 to date, only March saw a drop in retail sales. Rising real incomes and discounting have supported spending this year. The RBA seems firmly on hold for now and the start of easing may be at least almost six months away.
Australia retail sales %
Source: MNI - Market News/ABS
Sales in 2023 moved sideways but this year they are now up 3.7% YTD.
The strength in October retail spending was driven by household goods and other retailing rising 1.4% m/m and 1.6% m/m respectively. Restaurants and food retailing posted modest 0.3% m/m increases, while department store and clothing sales fell.
Growth in retail sales was solid across Australia.
October household spending, which includes services, is released on Thursday.
Q3 company profits were weak again falling 4.6% q/q after -6.8% q/q (revised down from -5.3%) to be down 8.5% y/y after -4.0%, driven by the mining sector. The drop in inventory volumes was more than expected at -0.9% q/q, which shouldn’t be enough to change Q3 GDP estimates though, with Q2 revised up to +0.7%. Q3 net exports and government spending will be released on Tuesday with GDP on Wednesday.
Wages and salaries rose 1.2% q/q in Q3 to be up 4.0% y/y, the slowest annual growth rate since Q1 2021.
Total inventory volumes are close to flat on the year, signalling that there is little involuntary stock build.
The mining sector drove the weaker-than-expected profit result falling 8.8% q/q in Q3, as commodity prices fall, while wages & salaries exceeded the total at +1.6% q/q. Inventories fell sharply down 2.0% q/q. Sales volumes rose 1.2% q/q.
Real manufacturing sales fell 0.8% q/q and 0.4% y/y in Q3, and wholesale trade rose 0.2% q/q but was down 4.0% y/y.
NZGBs closed slightly above the session’s best levels, flat to 4bps richer. The NZ-US and NZ-AU 10-year yield differentials closed 1bp tighter.
The AU-NZ 10-year yield differential stands at -1bp compared to the early November high of +10bps, the highest level since August 2022.
The recent decline in the 10-year yield differential has mirrored a similar move in the AU-NZ 1-year forward 3-month swap rate (1Y3M) spread.
However, a simple regression analysis of the AU-NZ 10-year yield differential against the AU-NZ 1Y3M spread over the past 12 months shows that the 10-year differential is around 9bps above fair value based on the regression model (-1bp compared to a fair value of -10bps).
Outside of the previously outlined Building Permits, there hasn't been much by way of domestic drivers to flag.
Swap rates closed 2-4bps lower, with the 2s10s curve flatter.
RBNZ dated OIS pricing is flat to 2bps softer. 42bps of easing is priced for February.
Tomorrow, the local calendar will see Q3 Terms of Trade data alongside Finance Minister Nicola Willis’s appearance at a select committee to discuss Financial Statements.
This week, the NZ Treasury plans to sell NZ$200mn of the 3.00% Apr-29 bond, NZ$250mn of the 4.25% May-34 bond and NZ$50mn of the 2.75% Apr-37 bond.
The USD is holding higher across the board in the first part of Monday dealing. The USD BBDXY index was last 1280.3, close to session highs. A number of support points have been evident for the USD today.
EUR/USD has fallen, down 0.50% to 1.0525/30 in latest dealings. Headlines around French budget concerns (Finance Minister saying they won't blackmailed over the budget, per BBG) weighing in the first part of trade. Recent lows of 1.0425 (from Nov 26) may come into focus. French government bond futures are weaker. NOK has lost 0.60%, SEK down 0.50% so far today.
US yields have started Dec off on a positive footing, unwinding some of the losses seen through the tail end of Nov. We sit 2.5-4.5bps firmer across the Tsy benchmarks, away from best levels for the session, but still up firmly. Clear of month end flows may be helping, while weekend rhetoric from incoming President Trump on tariffs on BRIC nations if they abandon the USD is another potential driver.
USD/CNH is up to fresh multi-month higher, last near 7.2745. A better Caixin PMI print not helping the yuan much.
USD/JPY got to early lows of 149.51, but sits back at 150.45/50 now. 150.74 was the session high so far. Yen showing sensitivity to the US yield rebound. Earlier data showed Q3 capex stronger than forecast but profits slumped. Focus remains on the upcoming Dec policy meeting given recent rhetoric from BoJ Governor Ueda.
Australian data was mixed, arguably most important though was the retail sales beat. AUD/USD is off 0.20% at this stage, but is outperforming most of the G10. NZD/USD is down around 0.30%, last near 0.5895/00.
Looking ahead, later the Fed’s Waller and Williams speak and ECB President Lagarde appears. Euro area October unemployment rate, European/Canadian manufacturing November PMIs and US manufacturing ISM/PMI print.
Asia’s equity markets greeted the last month of the year positively with most major markets up.
Taiwan’s TAIEX led the way up +2.00% following PMI data showing that the country’s manufacturers are still expanding, despite the threats from the US.
China equities were strong across the board also bond yields threatened lows and the Caixin PMI Manufacturing rebounded.
China’s CSI 300 is up +0.70%, Shanghai +1.00%, Shenzhen +1.05% and Hang Seng +0.20%.
South Korea’s KOSPI had some better-than-expected data to spur demand on in the first trading session of the month and was +0.50% stronger.
The Philippines has had a very strong day with their PMI Manufacturing surprising to the upside given impetus to an equity market rally, their index up +1.6%.
Malaysia however despite enjoying one of the strongest growth profiles of its Asean neighbours saw PMI’s contract and the equity market not participating in today’s rally, up only +0.05%.
Indonesia’s PMI was very weak and despite the Central Bank governor suggesting rates could be on hold for some time, the Jakarta Composite was one of the few markets down today off -0.20%.
India has opened flat with limited trading, following on from last week’s strong finish to the week.
Outflows continue into month end continued last week with Taiwan experiencing the largest outflows for the week, tallying -$2.850bn, with South Korea losing -$1.423bn whilst India had a positive week to Thursday experiencing +$586m of inflows.
From Friday:
South Korea: Recorded inflows of +$34m Friday, bringing the 5-day total to -$1.423bn. YTD flows remain positive at +$3.99bn. The 5-day average is -$285m, the 20-day average is -$169m and the 100-day average of -$135m.
Taiwan: Experienced outflows of -$659m yesterday, with total outflows of -$2.850bn over the past 5 days. YTD flows are negative at -$18.911bn. The 5-day average is -$570m, the 20-day average of -$368m and the 100-day average of -$223m.
India: Saw outflows of -$1,010m as of Thursday, with a total inflow of +$586m over the previous 5 days. YTD inflows stand at +$1.468bn. The 5-day average is +$117m, the 20-day average of -$147m and the 100-day average of -$22m.
Indonesia: Posted outflows of -$119m yesterday, bringing the 5-day total to -$268m. YTD flows remain positive at +$1.467b. The 5-day average is -$54m, the 20-day average is -$53m the 100-day average of +$18m.
Thailand: Recorded outflows of -$37m yesterday, totaling -$124m over the past 5 days. YTD flows are negative at -$3.824bn. The 5-day average is -$25m, the 20-day average of -$16m the 100-day average of -$6m.
Malaysia: Experienced outflows of -$123m yesterday, contributing to a 5-day outflow of -$497m. YTD flows stand at -$305m. The 5-day average is -$99m, the 20-day average of -$34m the 100-day average of -$2m.
Philippines: Saw outflows of -$21m yesterday, with net outflows of -$65m over the past 5 days. YTD flows are negative at -$305m. The 5-day average is -$13m, the 20-day average of -$17m the 100-day average of +$2m.
After finishing last week and month down, oil prices have started today slightly higher but still in a narrow range. Brent is up 0.5% to $72.23/bbl and WTI +0.5% to $68.37, both close to their intraday highs despite a stronger US dollar (USD BBDXY +0.4%). The modest rise was supported by China’s Caixin manufacturing PMI for November rising over one point to 51.5.
OPEC+ delayed its meeting from last weekend to December 5 to enable time to frame its output strategy. It has already pushed out planned gradual output increases twice to the end of this year but they are widely expected to be postponed again in this week’s statement. It’s unclear if the group can agree on a way forward, as it also doesn’t want to lose market share and non-OPEC production is expected to rise in 2025.
Developments in the Middle East have driven oil prices in both directions for over a year now. The ceasefire between Israel and Iran-backed Hezbollah appears to be holding, but rebels have taken Aleppo in Syria and Iran has said it will support the Syrian government to retake it. Risks to Iran’s oil supply have remained the market’s main concern from conflict in the region.
Later the Fed’s Waller and Williams speak and ECB President Lagarde appears. Euro area October unemployment rate, European/Canadian manufacturing November PMIs and US manufacturing ISM/PMI print.
President elect Trump warned BRICs nations of their requirement to continue to us the USD as the base currency.
This put upward pressure on the USD and saw Gold down.
Having closed on Friday at $2,643.15, in Asia morning trade it has slipped to $2,635.50.
Gold finished last week on a weak footing, down over 5% for the week on moderating geo-political tensions in the middle east despite fears of further escalation in Ukraine.
In Australia this morning, news out that Northern Star Resources Ltd will buy De Grey Mining Ltd for US$3.3bn in what could be the start of consolidation for the sector.
Gold markets will focus on Non-Farm Payrolls in the US this week as an indication for interest rates.
Lower interest rates are generally seen as good for gold as it does not pay interest.
As China bond yields track towards new lows, it is policy that is seemingly supporting the move as much as the lack of inflationary impulse.
Bets that further rate cuts are imminent are supported by liquidity injections by the PBOC in November to the tune of CNY800bn.
A newly launched policy tool allows the Central Bank to conduct outright reverse repo transactions with a term of three months.
The cash injection is designed to ensure that funding pressures are manageable as the CNY6 trillion funding program for local are regional governments is in full swing.
On Friday the PBOC issued a separate statement advising that they had bought over CNY200 billion of government bonds in November with the announcement stating that ‘the policy was aimed at helping manage the banking system’s liquidity.’
The announcements and policy action has increased the focus on the potential for a further interest rate cut with traders positioning themselves accordingly.
In Monday’s trading China’s 10-year Government bond has approached 2.00% for the first time.
Government bond yields have been trending lower in recent months as inflationary trends moderate with the y/y inflation print for October at +0.3% and the producer price index in negative territory at -2.9%.
The move lower in bond yields now presents interesting dynamics for global bond investors.
For some Global investors, the attractiveness of China Government bonds was as much about the un-attractiveness of Japanese Government bonds.
Whilst short dated and intermediate maturities still see a meaningful premium for China yields over Japan, this recent move has seen the 30-year China yield slip below Japan’s for the first time in more than a decade.
Depending on how low China’s yields fall, this opens up new considerations for global investors in their relative value assessment in bond markets.
Based on today’s outright yield levels, the premium paid for China yields over Japanese yields in the 10-year maturity is 1.06%; down from the 5-year average of 1.426% and the 10-year average of 2.85%.
Global bond investors seek return, transparency and liquidity.With the decline in the differential between the two markets happening at such a rapid pace, the move out of China government bonds by Global investors risks becoming rapid as the return story for some Global Investors may no longer drown out the transparency and liquidity differential between the two bond markets..
Indonesia is the first in the region to release November CPI inflation data. Headline eased to 1.55% y/y from 1.7%, close to expectations and the bottom of Bank Indonesia’s (BI) 1.5-3.5% target corridor. Core continued trending higher picking up moderately to 2.3% from 2.2%, slightly higher than consensus. This may not be enough though for BI to cut rates at its December 18 meeting given that USDIDR is up 0.4% since the November decision to 15900 and NEER 0.3% lower. FX stability is its focus while inflation is contained.
Underlying inflation troughed in January but is now up 0.6pp since then, but still below the mid-point of BI’s band.
Lower rice prices, which fell in October and then again in November, have helped to moderate headline inflation. Volatile food prices fell 0.3% y/y in November helped by increased supply from new harvests.
There was a slight increase in annual transportation prices to flat from -0.1%. Personal care continued rising up to 7.3% y/y from 7.1%. The other major categories, apart from food, showed steady year ago inflation rates.
The 0.3% m/m nsa rise in the headline CPI was driven by higher food prices, especially shallots and tomatoes. Food, drinks & tobacco prices rose 0.8% m/m and dining out 0.2%. Transportation was up 0.1% and personal care 0.65%.
The ASEAN manufacturing sector continued to experience only moderate growth in November although slightly stronger than in October. The ASEAN S&P Global PMI rose to 50.8 from 50.5, the strongest in three months, but the region is mixed with Indonesia and Malaysia continuing to contract but the Philippines and Vietnam growing and Thailand steady.
The pickup in the ASEAN PMI was due to stronger output growth, while November orders continued to rise, it was only slight and at the slowest pace since February with overseas demand weak. They peaked in July. The lacklustre demand outlook weighed on hiring and employment contracted last month.
While inflationary components remained below their series averages, cost rises increased the most in three months and selling price inflation also picked up.
The outlook remains subdued although better than in October, which recorded its lowest since May.
The Philippines continued to see rising orders although at their slowest pace for three months. In Thailand they were little changed, while in Indonesia and Malaysia they contracted but the latter had a pick up in export orders.
USD/CNH has surged higher, the pair rising above 7.2800, to fresh multi month highs. Upside focus could be on the 7.3000 level, while beyond that is the 7.3114 level, which is a YTD high.
We had better Caixin manufacturing PMI data (rising to a 4 month high), while onshore equities are also higher at the start of the month. Firm offset has come from higher US yields (now that we are clear of month end), while EUR weakness has spilled over elsewhere amid fresh political concerns in France. Also, over the weekend we had fresh tariff threats from incoming US President Trump. He warned the BRICS countries they will suffer 100% tariffs if they abandon the USD or look to create alternative reserve currencies.
The fresh low in China yields, with the 10yr threatening to trade sub 2.00% is also a yuan headwind.
Spot USD/KRW is also higher, last near 1403/04, but hasn't underperformed the majors or other Asian currencies meaningfully. Recent highs in the pair near 1411 remain intact. The PMI for Nov rose to 50.6 from 48.3 prior, providing some positives around the growth backdrop.
Spot USD/TWD is pushing higher, the pair last near 32.60. This is close to a break higher for the pair. Recent highs are at 32.61, with a clean break higher potentially seeing late July highs targeted (32.92). The Taiwan PMI also recovered ground, up to 51.5, from 50.2, but market focus was on firmer USD trends elsewhere.
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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.
MNI (SYDNEY)
EUR has faltered amid fresh French political concerns. Broader USD sentiment is higher to start Dec as well, aided by higher US TSY yields.
Better Australian retail sales helped AUD outperform, while Japan data was mixed.
China bond yields are tracking to fresh lows, despite better data outcomes, as policy easing bets continue. CNH was also weighed by fresh Trump tariff threats from the weekend.
Later the Fed’s Waller and Williams speak and ECB President Lagarde appears. Euro area October unemployment rate, European/Canadian manufacturing November PMIs and US manufacturing ISM/PMI print.
Treasuries have continued to be weak in the Asian trading day, with bond yields higher and futures lower in today's trading.
Cash trading yields are 3-5bps higher across the curve with the 10-year +4.4bps to 4.217%.
The five year was the underperformer today up 5bps in yield at 4.10%.
US10YR Mar25 future is down +04 at the open to 111-01 , having closed Friday at +111-05.
Risk appetite has opened strongly in the region with most equity markets up strongly, with Taiwan and China leading the way.
President-elect Trump has threatened BRICs nations about their need to continue using the USD as the base currency and this has put a firm bid under the USD today.
Tonight sees ISM data in the US alongside Manufacturing PMI and construction spending.
JGB futures are weaker, -28 compared to the settlement levels, after trading in a relatively tight range for most of the session.
JGBs were pressured early in the Tokyo session from comments made by BOJ Governor Kazuo Ueda in an interview with the Nikkei published on Saturday. Governor Ueda said further yen weakening with inflation above 2% might prompt the BOJ to take countermeasures. Ueda made no comment as to the timing of the next rate hike and warned of major uncertainties around the U.S. economy.
Outside of the previously outlined Jibun Bank PMI Mfg and Capex data, there hasn't been much by way of domestic drivers to flag.
Cash US tsys are 3-5bps cheaper in today’s Asia-Pac session after Friday’s solid gains. This week's US calendar is headlined by the November payrolls report. We also hear from the Fed Powell, Waller & Williams and get ISM Services.
The cash JGB curve has bear-flattened, with yields flat to 3bps higher. The benchmark 10-year yield is 2.9bps higher at 1.077% ahead of tomorrow’s supply.
The swaps curve has bear-steepened, with rates 2-5bps higher. Swap spreads are mixed.
Tomorrow, the local calendar will see Monetary Base data alongside 10-year supply.
BOJ-dated OIS pricing continues to hold firmer across meetings versus levels prevailing ahead of the BOJ’s October 30-31 meeting.
According to an interview with the Nikkei published on Saturday, BOJ Governor Kazuo Ueda said further yen weakening with inflation above 2% might prompt the BOJ to take countermeasures. Ueda made no comment as to the timing of the next rate hike and warned of major uncertainties around the U.S. economy.
“As far as wages are concerned, I would like to see what kind of momentum the fiscal 2025 spring wage offensive creates,” he added
Currently, OIS pricing sits 6–20bps firmer across meetings versus pre-BOJ MPM (Oct), with September 2025 leading the gains.
For the upcoming December 18-19 meeting, pricing has firmed by 11bps since late October, reflecting a 57% probability of a 25bp rate hike. Pricing for this meeting has been influenced by recent remarks from BoJ Governor Ueda, who described the meeting as “live.”.
According to a Bloomberg survey, just over half of economists expect the BoJ's next rate hike to occur in December.
Market expectations currently indicate: a 57% probability of a 25bp hike in December; a cumulative 82% chance by January; and a full 25bp increase is not fully priced in until May 2025 (+32bps).
Japan Q3 capex and company profit prints were mixed. We had capex on the firmer side. We rose 8.1%y/y, against a 6.7% forecast and prior 7.4% outcome. Ex software we were up 9.5%y/y, against a 8.2% forecast. In q/q terms ex software posted a solid 0.8% rise.
The chart below plots this ex software capex measure in q/q terms against business investment as per the national accounts, which fell 0.2%q/q in Q3. So today's data suggests we may have positive revisions.
The sequential against in terms of y/y outcomes for capex also suggested positive momentum in the space, which should aid broader economic activity.
Other data was softer though. Company sales were 2.6% in y/y terms, versus 3.2% forecast and 3.5% prior. Profits fell -3.3%y/y, well below the 9.3% forecast and 13.2% prior.
This is the weakest profit print since last 2020.
Fig 1: Japan Capex Stronger Than Expected, May Aid GDP Revisions
ACGBs (YM -1.0 & XM +2.0) are slightly mixed and off the Sydney session's best levels following today’s mixed domestic data drop.
October retail sales rose 0.6% m/m, stronger than expected, to be up 3.4% y/y, the highest growth rate since May 2023.
However, Q3 company profits were weak again falling 4.6% q/q after -6.8% q/q (revised down from -5.3%) to be down 8.5% y/y after -4.0%, driven by the mining sector. Also, the drop in inventory volumes was more than expected at -0.9% q/q, which shouldn’t be enough to change Q3 GDP estimates though, with Q2 revised up to +0.7%.
Cash US tsys are 3-4bps cheaper in today’s Asia-Pac session after Friday’s solid gains.
Cash ACGBs are 1bp cheaper to 2bps richer after being 4-5bps richer earlier. The AU-US 10-year yield differential is at +11bps.
Swap rates are 2bps higher to 2bps lower, with the 3s10s curve flatter.
The bills strip is flat to -3, with a steepening bias.
RBA-dated OIS pricing is flat to 2bps firmer across the 2025 meeting. A 25bps rate cut is not fully priced until May.
Tomorrow, the local calendar will see Current Account, Net Exports and Government Spending data for Q3. Q3 GDP on Wednesday.
The AU-NZ 10-year yield differential is unchanged today, standing at -2bps compared to the recent high of +10bps early November, which marked the highest level since August 2022.
The recent decline in the 10-year yield differential between Australia and New Zealand has mirrored a similar move in the AU-NZ 1-year forward 3-month swap rate (1Y3M) spread.
However, a simple regression analysis of the AU-NZ 10-year yield differential against the AU-NZ 1Y3M spread over the past 12 months shows that the 10-year differential is around 8bps above fair value based on the regression model (-2bps compared to a fair value of -10bps).
The 1Y3M differential is a proxy for the expected relative policy path over the next 12 months.
Figure 1: AU-NZ: 10-Year Yield Differential Vs. 1Y3M Swap Differential
October retail sales rose 0.6% m/m, stronger than expected, to be up 3.4% y/y, the highest growth rate since May 2023. 3-month momentum also increased. The ABS said that there was discounting ahead of November’s Black Friday sales to encourage consumers. In 2024 to date, only March saw a drop in retail sales. Rising real incomes and discounting have supported spending this year. The RBA seems firmly on hold for now and the start of easing may be at least almost six months away.
Australia retail sales %
Source: MNI - Market News/ABS
Sales in 2023 moved sideways but this year they are now up 3.7% YTD.
The strength in October retail spending was driven by household goods and other retailing rising 1.4% m/m and 1.6% m/m respectively. Restaurants and food retailing posted modest 0.3% m/m increases, while department store and clothing sales fell.
Growth in retail sales was solid across Australia.
October household spending, which includes services, is released on Thursday.
Q3 company profits were weak again falling 4.6% q/q after -6.8% q/q (revised down from -5.3%) to be down 8.5% y/y after -4.0%, driven by the mining sector. The drop in inventory volumes was more than expected at -0.9% q/q, which shouldn’t be enough to change Q3 GDP estimates though, with Q2 revised up to +0.7%. Q3 net exports and government spending will be released on Tuesday with GDP on Wednesday.
Wages and salaries rose 1.2% q/q in Q3 to be up 4.0% y/y, the slowest annual growth rate since Q1 2021.
Total inventory volumes are close to flat on the year, signalling that there is little involuntary stock build.
The mining sector drove the weaker-than-expected profit result falling 8.8% q/q in Q3, as commodity prices fall, while wages & salaries exceeded the total at +1.6% q/q. Inventories fell sharply down 2.0% q/q. Sales volumes rose 1.2% q/q.
Real manufacturing sales fell 0.8% q/q and 0.4% y/y in Q3, and wholesale trade rose 0.2% q/q but was down 4.0% y/y.
NZGBs closed slightly above the session’s best levels, flat to 4bps richer. The NZ-US and NZ-AU 10-year yield differentials closed 1bp tighter.
The AU-NZ 10-year yield differential stands at -1bp compared to the early November high of +10bps, the highest level since August 2022.
The recent decline in the 10-year yield differential has mirrored a similar move in the AU-NZ 1-year forward 3-month swap rate (1Y3M) spread.
However, a simple regression analysis of the AU-NZ 10-year yield differential against the AU-NZ 1Y3M spread over the past 12 months shows that the 10-year differential is around 9bps above fair value based on the regression model (-1bp compared to a fair value of -10bps).
Outside of the previously outlined Building Permits, there hasn't been much by way of domestic drivers to flag.
Swap rates closed 2-4bps lower, with the 2s10s curve flatter.
RBNZ dated OIS pricing is flat to 2bps softer. 42bps of easing is priced for February.
Tomorrow, the local calendar will see Q3 Terms of Trade data alongside Finance Minister Nicola Willis’s appearance at a select committee to discuss Financial Statements.
This week, the NZ Treasury plans to sell NZ$200mn of the 3.00% Apr-29 bond, NZ$250mn of the 4.25% May-34 bond and NZ$50mn of the 2.75% Apr-37 bond.
The USD is holding higher across the board in the first part of Monday dealing. The USD BBDXY index was last 1280.3, close to session highs. A number of support points have been evident for the USD today.
EUR/USD has fallen, down 0.50% to 1.0525/30 in latest dealings. Headlines around French budget concerns (Finance Minister saying they won't blackmailed over the budget, per BBG) weighing in the first part of trade. Recent lows of 1.0425 (from Nov 26) may come into focus. French government bond futures are weaker. NOK has lost 0.60%, SEK down 0.50% so far today.
US yields have started Dec off on a positive footing, unwinding some of the losses seen through the tail end of Nov. We sit 2.5-4.5bps firmer across the Tsy benchmarks, away from best levels for the session, but still up firmly. Clear of month end flows may be helping, while weekend rhetoric from incoming President Trump on tariffs on BRIC nations if they abandon the USD is another potential driver.
USD/CNH is up to fresh multi-month higher, last near 7.2745. A better Caixin PMI print not helping the yuan much.
USD/JPY got to early lows of 149.51, but sits back at 150.45/50 now. 150.74 was the session high so far. Yen showing sensitivity to the US yield rebound. Earlier data showed Q3 capex stronger than forecast but profits slumped. Focus remains on the upcoming Dec policy meeting given recent rhetoric from BoJ Governor Ueda.
Australian data was mixed, arguably most important though was the retail sales beat. AUD/USD is off 0.20% at this stage, but is outperforming most of the G10. NZD/USD is down around 0.30%, last near 0.5895/00.
Looking ahead, later the Fed’s Waller and Williams speak and ECB President Lagarde appears. Euro area October unemployment rate, European/Canadian manufacturing November PMIs and US manufacturing ISM/PMI print.
Asia’s equity markets greeted the last month of the year positively with most major markets up.
Taiwan’s TAIEX led the way up +2.00% following PMI data showing that the country’s manufacturers are still expanding, despite the threats from the US.
China equities were strong across the board also bond yields threatened lows and the Caixin PMI Manufacturing rebounded.
China’s CSI 300 is up +0.70%, Shanghai +1.00%, Shenzhen +1.05% and Hang Seng +0.20%.
South Korea’s KOSPI had some better-than-expected data to spur demand on in the first trading session of the month and was +0.50% stronger.
The Philippines has had a very strong day with their PMI Manufacturing surprising to the upside given impetus to an equity market rally, their index up +1.6%.
Malaysia however despite enjoying one of the strongest growth profiles of its Asean neighbours saw PMI’s contract and the equity market not participating in today’s rally, up only +0.05%.
Indonesia’s PMI was very weak and despite the Central Bank governor suggesting rates could be on hold for some time, the Jakarta Composite was one of the few markets down today off -0.20%.
India has opened flat with limited trading, following on from last week’s strong finish to the week.
Outflows continue into month end continued last week with Taiwan experiencing the largest outflows for the week, tallying -$2.850bn, with South Korea losing -$1.423bn whilst India had a positive week to Thursday experiencing +$586m of inflows.
From Friday:
South Korea: Recorded inflows of +$34m Friday, bringing the 5-day total to -$1.423bn. YTD flows remain positive at +$3.99bn. The 5-day average is -$285m, the 20-day average is -$169m and the 100-day average of -$135m.
Taiwan: Experienced outflows of -$659m yesterday, with total outflows of -$2.850bn over the past 5 days. YTD flows are negative at -$18.911bn. The 5-day average is -$570m, the 20-day average of -$368m and the 100-day average of -$223m.
India: Saw outflows of -$1,010m as of Thursday, with a total inflow of +$586m over the previous 5 days. YTD inflows stand at +$1.468bn. The 5-day average is +$117m, the 20-day average of -$147m and the 100-day average of -$22m.
Indonesia: Posted outflows of -$119m yesterday, bringing the 5-day total to -$268m. YTD flows remain positive at +$1.467b. The 5-day average is -$54m, the 20-day average is -$53m the 100-day average of +$18m.
Thailand: Recorded outflows of -$37m yesterday, totaling -$124m over the past 5 days. YTD flows are negative at -$3.824bn. The 5-day average is -$25m, the 20-day average of -$16m the 100-day average of -$6m.
Malaysia: Experienced outflows of -$123m yesterday, contributing to a 5-day outflow of -$497m. YTD flows stand at -$305m. The 5-day average is -$99m, the 20-day average of -$34m the 100-day average of -$2m.
Philippines: Saw outflows of -$21m yesterday, with net outflows of -$65m over the past 5 days. YTD flows are negative at -$305m. The 5-day average is -$13m, the 20-day average of -$17m the 100-day average of +$2m.
After finishing last week and month down, oil prices have started today slightly higher but still in a narrow range. Brent is up 0.5% to $72.23/bbl and WTI +0.5% to $68.37, both close to their intraday highs despite a stronger US dollar (USD BBDXY +0.4%). The modest rise was supported by China’s Caixin manufacturing PMI for November rising over one point to 51.5.
OPEC+ delayed its meeting from last weekend to December 5 to enable time to frame its output strategy. It has already pushed out planned gradual output increases twice to the end of this year but they are widely expected to be postponed again in this week’s statement. It’s unclear if the group can agree on a way forward, as it also doesn’t want to lose market share and non-OPEC production is expected to rise in 2025.
Developments in the Middle East have driven oil prices in both directions for over a year now. The ceasefire between Israel and Iran-backed Hezbollah appears to be holding, but rebels have taken Aleppo in Syria and Iran has said it will support the Syrian government to retake it. Risks to Iran’s oil supply have remained the market’s main concern from conflict in the region.
Later the Fed’s Waller and Williams speak and ECB President Lagarde appears. Euro area October unemployment rate, European/Canadian manufacturing November PMIs and US manufacturing ISM/PMI print.
President elect Trump warned BRICs nations of their requirement to continue to us the USD as the base currency.
This put upward pressure on the USD and saw Gold down.
Having closed on Friday at $2,643.15, in Asia morning trade it has slipped to $2,635.50.
Gold finished last week on a weak footing, down over 5% for the week on moderating geo-political tensions in the middle east despite fears of further escalation in Ukraine.
In Australia this morning, news out that Northern Star Resources Ltd will buy De Grey Mining Ltd for US$3.3bn in what could be the start of consolidation for the sector.
Gold markets will focus on Non-Farm Payrolls in the US this week as an indication for interest rates.
Lower interest rates are generally seen as good for gold as it does not pay interest.
As China bond yields track towards new lows, it is policy that is seemingly supporting the move as much as the lack of inflationary impulse.
Bets that further rate cuts are imminent are supported by liquidity injections by the PBOC in November to the tune of CNY800bn.
A newly launched policy tool allows the Central Bank to conduct outright reverse repo transactions with a term of three months.
The cash injection is designed to ensure that funding pressures are manageable as the CNY6 trillion funding program for local are regional governments is in full swing.
On Friday the PBOC issued a separate statement advising that they had bought over CNY200 billion of government bonds in November with the announcement stating that ‘the policy was aimed at helping manage the banking system’s liquidity.’
The announcements and policy action has increased the focus on the potential for a further interest rate cut with traders positioning themselves accordingly.
In Monday’s trading China’s 10-year Government bond has approached 2.00% for the first time.
Government bond yields have been trending lower in recent months as inflationary trends moderate with the y/y inflation print for October at +0.3% and the producer price index in negative territory at -2.9%.
The move lower in bond yields now presents interesting dynamics for global bond investors.
For some Global investors, the attractiveness of China Government bonds was as much about the un-attractiveness of Japanese Government bonds.
Whilst short dated and intermediate maturities still see a meaningful premium for China yields over Japan, this recent move has seen the 30-year China yield slip below Japan’s for the first time in more than a decade.
Depending on how low China’s yields fall, this opens up new considerations for global investors in their relative value assessment in bond markets.
Based on today’s outright yield levels, the premium paid for China yields over Japanese yields in the 10-year maturity is 1.06%; down from the 5-year average of 1.426% and the 10-year average of 2.85%.
Global bond investors seek return, transparency and liquidity.With the decline in the differential between the two markets happening at such a rapid pace, the move out of China government bonds by Global investors risks becoming rapid as the return story for some Global Investors may no longer drown out the transparency and liquidity differential between the two bond markets..
Indonesia is the first in the region to release November CPI inflation data. Headline eased to 1.55% y/y from 1.7%, close to expectations and the bottom of Bank Indonesia’s (BI) 1.5-3.5% target corridor. Core continued trending higher picking up moderately to 2.3% from 2.2%, slightly higher than consensus. This may not be enough though for BI to cut rates at its December 18 meeting given that USDIDR is up 0.4% since the November decision to 15900 and NEER 0.3% lower. FX stability is its focus while inflation is contained.
Underlying inflation troughed in January but is now up 0.6pp since then, but still below the mid-point of BI’s band.
Lower rice prices, which fell in October and then again in November, have helped to moderate headline inflation. Volatile food prices fell 0.3% y/y in November helped by increased supply from new harvests.
There was a slight increase in annual transportation prices to flat from -0.1%. Personal care continued rising up to 7.3% y/y from 7.1%. The other major categories, apart from food, showed steady year ago inflation rates.
The 0.3% m/m nsa rise in the headline CPI was driven by higher food prices, especially shallots and tomatoes. Food, drinks & tobacco prices rose 0.8% m/m and dining out 0.2%. Transportation was up 0.1% and personal care 0.65%.
The ASEAN manufacturing sector continued to experience only moderate growth in November although slightly stronger than in October. The ASEAN S&P Global PMI rose to 50.8 from 50.5, the strongest in three months, but the region is mixed with Indonesia and Malaysia continuing to contract but the Philippines and Vietnam growing and Thailand steady.
The pickup in the ASEAN PMI was due to stronger output growth, while November orders continued to rise, it was only slight and at the slowest pace since February with overseas demand weak. They peaked in July. The lacklustre demand outlook weighed on hiring and employment contracted last month.
While inflationary components remained below their series averages, cost rises increased the most in three months and selling price inflation also picked up.
The outlook remains subdued although better than in October, which recorded its lowest since May.
The Philippines continued to see rising orders although at their slowest pace for three months. In Thailand they were little changed, while in Indonesia and Malaysia they contracted but the latter had a pick up in export orders.
USD/CNH has surged higher, the pair rising above 7.2800, to fresh multi month highs. Upside focus could be on the 7.3000 level, while beyond that is the 7.3114 level, which is a YTD high.
We had better Caixin manufacturing PMI data (rising to a 4 month high), while onshore equities are also higher at the start of the month. Firm offset has come from higher US yields (now that we are clear of month end), while EUR weakness has spilled over elsewhere amid fresh political concerns in France. Also, over the weekend we had fresh tariff threats from incoming US President Trump. He warned the BRICS countries they will suffer 100% tariffs if they abandon the USD or look to create alternative reserve currencies.
The fresh low in China yields, with the 10yr threatening to trade sub 2.00% is also a yuan headwind.
Spot USD/KRW is also higher, last near 1403/04, but hasn't underperformed the majors or other Asian currencies meaningfully. Recent highs in the pair near 1411 remain intact. The PMI for Nov rose to 50.6 from 48.3 prior, providing some positives around the growth backdrop.
Spot USD/TWD is pushing higher, the pair last near 32.60. This is close to a break higher for the pair. Recent highs are at 32.61, with a clean break higher potentially seeing late July highs targeted (32.92). The Taiwan PMI also recovered ground, up to 51.5, from 50.2, but market focus was on firmer USD trends elsewhere.
UP TODAY (TIMES GMT/LOCAL)
Date
GMT/Local
Impact
Country
Event
02/12/2024
0730/0830
**
CH
Retail Sales
02/12/2024
0815/0915
**
ES
S&P Global Manufacturing PMI (f)
02/12/2024
0845/0945
**
IT
S&P Global Manufacturing PMI (f)
02/12/2024
0850/0950
**
FR
S&P Global Manufacturing PMI (f)
02/12/2024
0855/0955
**
DE
S&P Global Manufacturing PMI (f)
02/12/2024
0900/1000
***
IT
GDP (f)
02/12/2024
0900/1000
**
EU
S&P Global Manufacturing PMI (f)
02/12/2024
0930/0930
**
GB
S&P Global Manufacturing PMI (Final)
02/12/2024
1000/1100
**
EU
Unemployment
02/12/2024
1000/1100
EU
ECB's Lagarde in EIB Group Climate Council
02/12/2024
1445/0945
***
US
S&P Global Manufacturing Index (final)
02/12/2024
1500/1000
***
US
ISM Manufacturing Index
02/12/2024
1500/1000
*
US
Construction Spending
02/12/2024
1630/1130
*
US
US Treasury Auction Result for 13 Week Bill
02/12/2024
1630/1130
*
US
US Treasury Auction Result for 26 Week Bill
02/12/2024
2015/1515
US
Fed Governor Christopher Waller
02/12/2024
2130/1630
US
New York Fed's John Williams
03/12/2024
0001/0001
*
GB
BRC-KPMG Shop Sales Monitor
03/12/2024
0030/1130
AU
Balance of Payments: Current Account
03/12/2024
0700/0200
*
TR
Turkey CPI
03/12/2024
0730/0830
***
CH
CPI
03/12/2024
0800/0900
EU
ECB's Cipollone at GeoEconomy Talk
03/12/2024
1000/1000
**
GB
Gilt Outright Auction Result
03/12/2024
-
***
US
Domestic-Made Vehicle Sales
03/12/2024
1355/0855
**
US
Redbook Retail Sales Index
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