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US Tsy futures have edged lower, while yields are firmer at the back end of the curve. Fed easing expectations have also been pared noticeably this past week, aided by Powell comments on Thursday.
Still, the USD has consolidated somewhat after a very strong week (its 7th straight weekly rise). We saw fresh jawbonding from Japan's FinMin today around yen weakness. Q3 Japan GDP was close to expectations. On Monday, BoJ Governor Ueda will deliver a speech.
China data was mixed, with signs that house price momentum may be slowly improving. Housing activity remains a headwind though. China Oct retail sales rose more than forecast.
Looking ahead, we have UK data, including monthly GDP on tap. In the US retail sales is out. Fed speak from Goolsbee and Collins will also cross. ECB speak is also due.
Tsys futures have continued to edge lower throughout the session although we do trade slightly off the morning lows. TU is -03+ at 102-18⅛, while TY is -09+ at 109-08, we still trade just off Thursday lows.
Tsys yields have continued to rise through the Asian session, the curve has bear-steepened with yields +0.5 to +2.5bps. The 10yr is +2.6bps at 4.461% after hitting new highs of 4.48% overnight.
Projected rate cuts have continued to cool throughout the Asian session following Powell's comments vs Thursday's levels (*) : Dec'24 cumulative -14.7bp (-19.8bp), Jan'25 -21.7bp (-27.8bp), Mar'25 -35.8bp (-42.4bp), May'25 -42.5bp (-49.9bp).
The weakness comes following Powell's hawkish comments where he mentioned that the central bank does not need to hurry in cutting interest rates saw bets on future rate cuts cool this morning, with fed futures now pricing in just a 60% chance of a 25bps cut in December with no full cut until March 2025.
The 2s10s curve is +2bps at 10.5 today, after the curve flattened about 10bps overnight, while the 2s30s is +2.5bps at 25.8 flattening from 35bps overnight.
There will be more fed speak tonight with Goolsbee (Chicago), Collins (Boston), Williams (New York) and Barkin (Richmond) to speak
Later today we have Empire Manufacturing, Retail Sales, Import Price Index, Industrial Production
In the $-bloc, rate expectations through July 2025 firmed over the past week, led by the U.S. with an 18bps increase. Canada followed with a 13bps rise, New Zealand at 12bps, and Australia at 5bps.
Yesterday, US rates firmed after Chairman Powell's prepared remarks on the economy, delivered in Dallas, were released.
Chair Powell's speech contained several quotes that sounded similar to what he said at last week's press conference. As such, there is nothing really "new", but by the same token, there is nothing dovish here, which may help explain the hawkish market reaction.
"The economy is not sending any signals that we need to be in a hurry to lower rates. The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully. " Powell last week: "We think that the right way to find neutral, if you will, is carefully, patiently"... "Nothing in the economic data suggests that the Committee has any need to be in a hurry to get there." [to neutral]
Looking ahead to July 2025, the projected official rates and cumulative easing across the $-bloc are as follows: U.S. (FOMC): 4.03%, -60bps; Canada (BoC): 2.96%, -79bps; Australia (RBA): 4.08%, -24bps; and New Zealand (RBNZ): 3.55%, -120bps.
JGB futures weaker but off Tokyo session lows, -22 compared to settlement levels.
Just released, September industrial production was revised up to 1.6% y/y. Japan’s operating ratio rose to 101.9 in September compared to 97.6 in the previous month. September Tertiary Industry Index falls 0.2% m/m versus +0.2% estimate.
Cash US tsys are flat to 2bps cheaper, with a steepening bias, in today’s Asia-Pac session after yesterday’s twist-flattener.
Later today, the US calendar will see Retail Sales, Empire Manufacturing, Import/Export Prices, Capacity Utilisation and Business Inventory data.
Cash JGBs are 1-2bps cheaper across benchmarks beyond the 1-year (+4.8bps). The benchmark 5-year yield is 1.8bps higher at 0.714% after today’s supply.
Today’s 5-year bond auction showed solid demand. The auction price exceeded dealer expectations, the cover ratio edged up and the auction tail shortened. The results were likely influenced by bids encountering an outright yield around 15bps higher than last month’s offering and at a cyclical peak.
The swap curve has bear-steepened, with rates 1-4bps higher.
On Monday, the local calendar will see Core Machine Orders data alongside BOJ Rinabn operation covering 1-3-year and 5-25-year OTR JGBs. Next Friday's national CPI for October is likely to be the next major focus point. Domestic-related services inflation will be eyed.
Japan Q3 GDP was reasonably close to market expectations. The headline q/q was 0.2% as forecast, although in annualized terms we were 0.9% against a 0.7% forecast. Q2 growth was revised down a touch to 0.5%q/q from the originally reported 0.7% gain.
In terms of the detail, private consumption was a positive at +0.9%q/q, versus +0.2% forecast. Q2 was a +0.7% gain. Business spending fell as expected by 0.2%/q/q. Inventories added 0.1ppts to growth versus a flat forecast, but net exports dragged growth 0.4ppts lower (against a +0.1ppt forecast).
In nominal terms GDP was slightly below market expectations, +0.5% in q/q terms versus +0.9% forecast and 1.7% prior. In y/y terms, the GDP deflator is 2.5%.
The private consumption rise will be viewed as a positive by the BoJ/authorities. The chart below overlays q/q private consumption (the white line) with q/q GDP growth (in real terms). The hope will be for firm wage gains to underpin growth into 2025.
Other wise the data likely doesn't shift central bank thinking much. Next Friday's national CPI for Oct is likely to be the next major focus point. Domestic related services inflation will be eyed.
Fig 1: Japan Private Consumption (White Line) & GDP Q/Q
BoJ Governor Ueda will speak on Monday in the Japan city of Nagoya. Rtrs notes the Governor will speak to business executives from the city at 10-11:30am local time (which is 0100-0230GMT), then will hold a press conference from 1:45pm-2:15pm local time (0445-0515GMT).
Comments from the Governor are likely to eyed closely by markets, given uncertainty around the timing of the next potential BoJ hike. We had Q3 GDP from Japan earlier today, while USD/JPY has hit multi month highs, which could add to imported inflation pressures. The US outlook also remains a key watch point for the BoJ.
ACGBs (YM +3.0 & XM +5.5) are holding stronger and near Sydney session highs on a data-light day.
Cash US tsys are flat to 2bps cheaper, with a steepening bias, in today’s Asia-Pac session after yesterday’s twist-flattener.
Later today, the US calendar will see Retail Sales, Empire Manufacturing, Import/Export Prices, Capacity Utilisation and Business Inventory data.
Cash ACGBs are 4-6bps richer with the AU-US 10-year yield differential at 18bps.
Swap rates are 3-5bps lower, with the 3s10s curve flatter.
The bills strip has bull-flattened, with pricing -1 to +3.
RBA-dated OIS pricing is 1-5bps softer but continues to price little chance of easing by year-end. A 25bps rate cut is not fully priced until August.
On Monday, the local calendar will see Christopher Kent, Assistant Governor (Financial Market) deliver a speech at the Sir Leslie Melville Lecture. RBA Minutes for the November Meeting are due on Tuesday.
Next week, AOFM plans to sell A$300mn of the 2.75% 21 May 2041bond on Monday, A$800mn of the 4.25% 21 December 2035 bond on Wednesday and A$700mn of the 2.75% 21 November 2028bond on Friday.
NZGBs closed slightly mixed, settling near the middle of today’s range, with benchmark yields fluctuating within +/-1bp. The NZGB 10-year underperformed relative to its $-bloc counterparts, with the NZ–US yield differential widening by 1bp and the NZ–AU differential widening by 5bps.
The local market was likely supported by the news today that NZ’s manufacturing industry contracted for a record 20th consecutive month, reinforcing signs the economy will need further stimulus to get back up to speed.
Cash US tsys are flat to 2bps cheaper, with a steepening bias, in today’s Asia-Pac session after yesterday’s twist-flattener.
Later today, the US calendar will see Retail Sales, Empire Manufacturing, Import/Export Prices, Capacity Utilisation and Business Inventory data.
The swaps curve twist flattened, with rates 1bp higher to 3bps lower.
RBNZ dated OIS pricing closed little changed across meetings for 2025. A cumulative 88bps of easing is priced by February, with 51bps by year-end.
On Monday, the local calendar will see the Performance Services Index, and PPI and Non-Resident Bond Holdings data.
Some modest retracement has been evident in the USD as Friday's Asia Pac session unfolds. The BBDXY index was last near 1286.7, off close to 0.15% for the session. We are still up strongly for the week, +1.49%, which would mark the seventh straight weekly gain. Thursday intra-session highs in the index were around 1290.
USD/JPY is back close to unchanged, last near 156.40, after earlier touching fresh multi month highs of 156.75. Earlier comments from the FinMin around FX moves have likely helped, 'monitoring FX markets with a very high sense of urgency'. The market may also be assessing what BoJ Governor Ueda will say in a speech on Monday in Japan. No fresh hawkish rhetoric would likely weigh on yen all else equal.
US yields are marginally off earlier highs as well, helping yen at the margins. Like the USD we are still up strongly for the week in yield terms.
AUD/USD and NZD/USD have ticked up by around 0.20%. A$ last near 0.6465/70, NZD at 0.5860, so both still very close to weekly lows recorded on Thursday.
It is a similar backdrop for most USD/Asia pairs as well, USD/CNH has tested back under 7.2400, USD/KRW spot near 1400.
The regional equity tone is mixed, but has turned slightly more positive as the session has progressed. Japan and Hong Kong markets are higher, while China markets are struggling after mixed Oct activity data, although the consumer is showing signs of life with higher retail sales than forecast.
Looking ahead, we have UK data, including monthly GDP on tap. In the US retail sales is out. Fed speak from Goolsbee and Collins will also cross. ECB speak is also due.
The US Biden administration has released its final semi-annual report on currency markets, formulated by the Treasury Department.
The Treasury noted: "In this Report, Treasury found that no major trading partner met all three criteria for enhanced analysis under the Trade Facilitation and Trade Enforcement Act of 2015 during the four quarters ending June 2024." See this link.
"Seven economies are on Treasury’s “Monitoring List” of major trading partners that merit close attention to their currency practices and macroeconomic policies: China, Japan, Korea, Singapore, Taiwan, Vietnam, and Germany."
Malaysia was removed from the monitoring list, but South Korea was added. The report stated:
"In this Report, Japan, Korea, Taiwan, Vietnam, and Germany all meet the criteria for having a significant bilateral trade surplus with the United States and a material current account surplus, and Singapore meets the criteria for engaging in persistent, one-sided foreign exchange intervention and having a material current account surplus. Malaysia met one criterion in the last Report and in this Report. It has therefore been removed from the Monitoring List in this Report.
And "China’s failure to publish foreign exchange intervention and broader lack of transparency around key features of its exchange rate mechanism continues to make it an outlier among major economies and warrants Treasury’s close monitoring. It remains on the Monitoring List for this reason as well as due to its outsized trade imbalance with the United States."
On Japan the report stated: "Japan is transparent with respect to foreign exchange operations, regularly publishing its foreign exchange interventions each month. Treasury’s firm expectation is that in large, freely traded exchange markets, intervention should be reserved only for very exceptional circumstances with appropriate prior consultations."
Chinese & Hong Kong Listed stocks have seen a bounce, post China data although are now trading off the post data highs. Property stocks have seen a small bounce following the slowing pace of home price declines.
The Overall market is relatively subdued today, with lingering concerns surrounding the Trump presidency and its impacts on local markets. The CSI 300 is 0.15% lower, with consumer discretionary stocks struggling, while Telecom stocks see a bounce after trading lower on Thursday. The HSI is 0.30% higher, Oil & Gas stocks are trading well with the Mainland O&G Index up 0.90%, the HSTech Index was up 1.40% at one stage however trades just 0.70% now, while Property stocks have recovered somewhat from earlier lows with the Mainland Property Index down just 0.20%.
The Shanghai Stock Exchange will revise the SSE180 Index on December 16, increasing the weighting of technology, healthcare, and other strategic industries, while excluding companies with ESG ratings of C or lower to improve the index's performance and market value coverage.
October's Industrial Production in China rose 5.3%, slightly below market expectations of 5.6% and down from September's 5.4%. Key gains were seen in crude steel (+2.9%), steel products (+3.5%), industrial AI (+33.4%), and motor vehicles (+4.8%). However, declines were noted in mobile phones, integrated circuits, and electricity output. Despite economic challenges, Industrial Production has averaged 5.6% over the past year, showing resilience with a peak of 6.8% in December 2023 and a low of 4.5% in March 2024.
Retail sales grew by 4.8% y/y in October, marking the highest growth this year and surpassing market expectations of 3.8%. This followed a 3.2% increase in September. Authorities have been focused on improving consumer sentiment, weakened by the real estate sector's struggles, with various stimulus measures since September.
Asian stocks rose, driven by gains in Japanese shares as a weaker yen supported exporters. Chinese stocks in Hong Kong rebounded on stronger-than-expected retail sales growth, reflecting the impact of Beijing's recent stimulus measures. The MSCI Asia Pacific Index gained as much as 0.5% ending a five day losing streak, with tech giants like Samsung, NetEase, and TSMC contributing to the advance. Positive earnings from Japan's largest banks also bolstered market sentiment. However, the region remains on track for a weekly decline due to concerns over a stronger dollar and potential tariff impacts from President-elect Donald Trump's policies.
Asia suppliers to Tesla have fallen after Reuters reported Donald Trump plans to eliminate a key consumer tax credit amid at boosting EV adoption in the US.
US equity futures have edged lower throughout the session, with Nasdaq the worst performing, down 0.50%, while S&P 500 futures are 0.30% lower.
Taiwan continues to see elevated outflows, largely linked to selling in the Semiconductor space. South Korea's Samsung also continues to see heavy selling and continues to make new multi-year lows. Asian markets on a whole continue to see outflows following the US election.
South Korea: Recorded outflows of -$167m yesterday, with a 5-day total of -$1.093b. YTD flows remain positive at +$5.988b. The 5-day average is -$219m, worse than the 20-day average of -$158m and the 100-day average of -$104m.
Taiwan: Posted outflows of -$760m yesterday, totaling -$3.253b over the past 5 days. YTD flows remain negative at -$14.882b. The 5-day average is -$651m, worse than the 20-day average of -$114m and the 100-day average of -$195m.
India: Experienced outflows of -$160m Wednesday, with a 5-day outflow of -$956m. YTD flows are negative at -$2.573b. The 5-day average is -$191m, better than the 20-day average of -$299m but worse than the 100-day average of -$9m.
Indonesia: Posted outflows of -$50m yesterday, bringing the 5-day total to -$402m. YTD flows remain positive at +$1.975b. The 5-day average is -$80m, worse than the 20-day average of -$46m but better than the 100-day average of +$20m.
Thailand: Recorded outflows of -$93m yesterday, with a total outflow of -$141m over the past 5 days. YTD flows are negative at -$3.699b. The 5-day average is -$28m, slightly better than the 20-day average of -$33m but worse than the 100-day average of -$7m.
Malaysia: Experienced outflows of -$15m yesterday, contributing to a 5-day outflow of -$78m. YTD flows are positive at +$235m. The 5-day average is -$16m, similar to the 20-day average of -$17m but better than the 100-day average of +$4m.
Philippines: Saw outflows of -$35m yesterday, with net outflows of -$119m over the past 5 days. YTD flows remain negative at -$176m. The 5-day average is -$24m, worse than the 20-day average of -$14m but better than the 100-day average of +$4m.
The International Energy Agency (“IEA”)’s monthly report suggests that global oil markets in 2025 may face over supply as the demand from China continues to decline.
China’s demand for oil has declined with the weakening in the domestic economy and the transition away from the reliance on oil.
Crude prices are seemingly highly correlated to Chinese demand with both down over 10% in the second half of 2024.
Overnight the release of a report from the US government showed gasoline stockpiles have declined to a 10-year (seasonally adjusted) low gave support to prices overnight, which were reacting to the IEA report.
WTI peaked at US$69.30 during the US trading day, only to decline (following the IEA report) to $68.10 before recovering to $68.60 where it is opening in Asia.
It trended lower all day to $68.10 despite robust Industrial Production and Retail Sales in China, suggesting the economy is stabilizing.
WTI is down -3.25% for the week.
Brent too had a similar price action peaking at US$73.22 before declining to $72 before recovering to $72.40 for the Asia open.
It has trended lower all day to $71.90 and is on course to finish the week -0.90% lower.
In the Middle East it was reported that Israel is focusing on a cease-fire proposal in Lebanon as preparations begin for the new administration in the White House.
Gold is 0.2% higher in today’s Asia-Pac session. After piercing $2,547.0, the Sep 18 low, early in yesterday’s session, bullion recovered as the US dollar gave up some of its gains. The yellow metal ended at $2,564/oz, 0.3% lower on the day.
Yesterday, US rates firmed after Chairman Powell's prepared remarks on the economy, delivered in Dallas, were released.
Chair Powell's speech contained several quotes that sounded similar to what he said at last week's press conference. As such, there is nothing really "new", but by the same token, there is nothing dovish here, which may help explain the hawkish market reaction.
"The economy is not sending any signals that we need to be in a hurry to lower rates. The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully."
Lower rates are typically positive for gold, which doesn’t pay interest.
According to MNI’s technicals team, the long-term trend condition in gold remains bullish, and the recent pullback appears corrective. However, recent weakness has resulted in a breach of the 20- and 50-day EMAs, signalling scope for a deeper retracement. Below $2,547, next support is seen at $2511.1, the Sep 12 low.
Today’s Industrial Production numbers were anticipated more than ever given the various stimulus measures announced over recent months.
Output for October rose +5.3% versus +5.4% of September.
The market had expected +5.6%.
The largest increases came from crude steel (+2.9% vs -6.1% prior), steel product (+3.5% vs -2.4% prior), industrial AI (+33.4% vs 22.8% prior) and motor vehicles (+4.8% vs -1.0% prior).
The largest declines came from mobile phones, integrated circuits and electricity.
Despite the challenges for the China economy, Industrial Production has remained robust averaging 5.6% over the last year with the high of December 2023 at +6.8% and the low in March of 2024 at 4.5%
China reported the highest retail sales growth this year in today’s data release.
Retail sales grew +4.8% YoY following September’s gain of +3.2%
Market surveys forecast a rise of +3.8%.
Authorities have appeared determined to arrest the decline in consumer sentiment borne out of the declining in the real estate sector, announcing various stimulus measures since September.
By category the largest expansion was seen household electronics (+39.2% vs +20.5 prior), furniture (+7.4% vs +0.4% prior) and motor vehicles (+3.7% vs +0.4% prior).
Malaysia’s economy continued its long run of economic growth with a +5.3% expansion in the third quarter.
The release was in line with the 2Q result of +5.3%.
Seasonally adjusted QoQ result of +1.8% was a decrease from +2.9% in Q2.
Malaysia’s Central Bank, Bank Negara, has been on hold since May 2023.
The economy is forecast to grow between 4.8% and 5.3% according to the Finance Ministry and market pricing indicates limited expectations for interest rate cuts in 2025.
After a strong week for the USD, Friday's session has seen some consolidation. Some pairs are off recent highs, but only modestly.
USD/CNH sits within recent ranges, last near 7.2425/30, around 0.15% firmer in CNH terms. USD/CNY has crept higher, but remains off recent highs above 7.2400. The Oct data run was mixed, retail quite a bit firmer than expected, but IP and FAI slightly below. House prices showed slightly improved trends. The CNY fixing was again set on the strong side, remaining under 7.2000 for now.
Spot USD/KRW has fallen back under 1400. South Korea was added to the US Treasury's FX manipulation list amid a higher current account surplus and rising trade surplus with the US. Local equities have recovered from earlier losses and sit back at 2430, up nearly 0.45% for the session.
BI intervened in FX markets, after spot USD/IDR broke above15900 in early trade. The pull back has been modest though, last near 15890, so still down 0.2% in IDR terms. The Oct trade surplus was softer, sub $2.5bn as imports surged.
USD/MYR sits slower, last near 4.4780. Q3 GDP revisions were unchanged at 1.8% q/q. The Malaysian authorities are also liberalising its FX policies to support investment into the country.
USD/THB has corrected lwoer from overbought conditions, last back sub 35.00, but has found support around the 200-day EMA.
UP TODAY (TIMES GMT/LOCAL)
Date
GMT/Local
Impact
Country
Event
15/11/2024
0700/0800
**
SE
Unemployment
15/11/2024
0700/0700
**
GB
UK Monthly GDP
15/11/2024
0700/0700
***
GB
GDP First Estimate
15/11/2024
0700/0700
**
GB
Index of Services
15/11/2024
0700/0700
***
GB
Index of Production
15/11/2024
0700/0700
**
GB
Output in the Construction Industry
15/11/2024
0700/0700
**
GB
Trade Balance
15/11/2024
0730/0730
GB
DMO to publish FQ4 (Jan-Mar) gilt operations calendar
15/11/2024
0745/0845
***
FR
HICP (f)
15/11/2024
0800/0900
*
CH
CH Flash GDP
15/11/2024
0900/1000
**
IT
Italy Final HICP
15/11/2024
1330/0830
**
US
Import/Export Price Index
15/11/2024
1330/0830
**
CA
Monthly Survey of Manufacturing
15/11/2024
1330/0830
**
CA
Wholesale Trade
15/11/2024
1330/0830
**
US
WASDE Weekly Import/Export
15/11/2024
1330/0830
***
US
Retail Sales
15/11/2024
1330/0830
**
US
Empire State Manufacturing Survey
15/11/2024
1400/0900
*
CA
CREA Existing Home Sales
15/11/2024
1400/0900
US
Boston Fed's Susan Collins
15/11/2024
1415/0915
***
US
Industrial Production
15/11/2024
1500/1000
*
US
Business Inventories
15/11/2024
1500/1600
EU
ECB's Lane at seminar on Fragmenting Trading System
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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)
US Tsy futures have edged lower, while yields are firmer at the back end of the curve. Fed easing expectations have also been pared noticeably this past week, aided by Powell comments on Thursday.
Still, the USD has consolidated somewhat after a very strong week (its 7th straight weekly rise). We saw fresh jawbonding from Japan's FinMin today around yen weakness. Q3 Japan GDP was close to expectations. On Monday, BoJ Governor Ueda will deliver a speech.
China data was mixed, with signs that house price momentum may be slowly improving. Housing activity remains a headwind though. China Oct retail sales rose more than forecast.
Looking ahead, we have UK data, including monthly GDP on tap. In the US retail sales is out. Fed speak from Goolsbee and Collins will also cross. ECB speak is also due.
Tsys futures have continued to edge lower throughout the session although we do trade slightly off the morning lows. TU is -03+ at 102-18⅛, while TY is -09+ at 109-08, we still trade just off Thursday lows.
Tsys yields have continued to rise through the Asian session, the curve has bear-steepened with yields +0.5 to +2.5bps. The 10yr is +2.6bps at 4.461% after hitting new highs of 4.48% overnight.
Projected rate cuts have continued to cool throughout the Asian session following Powell's comments vs Thursday's levels (*) : Dec'24 cumulative -14.7bp (-19.8bp), Jan'25 -21.7bp (-27.8bp), Mar'25 -35.8bp (-42.4bp), May'25 -42.5bp (-49.9bp).
The weakness comes following Powell's hawkish comments where he mentioned that the central bank does not need to hurry in cutting interest rates saw bets on future rate cuts cool this morning, with fed futures now pricing in just a 60% chance of a 25bps cut in December with no full cut until March 2025.
The 2s10s curve is +2bps at 10.5 today, after the curve flattened about 10bps overnight, while the 2s30s is +2.5bps at 25.8 flattening from 35bps overnight.
There will be more fed speak tonight with Goolsbee (Chicago), Collins (Boston), Williams (New York) and Barkin (Richmond) to speak
Later today we have Empire Manufacturing, Retail Sales, Import Price Index, Industrial Production
In the $-bloc, rate expectations through July 2025 firmed over the past week, led by the U.S. with an 18bps increase. Canada followed with a 13bps rise, New Zealand at 12bps, and Australia at 5bps.
Yesterday, US rates firmed after Chairman Powell's prepared remarks on the economy, delivered in Dallas, were released.
Chair Powell's speech contained several quotes that sounded similar to what he said at last week's press conference. As such, there is nothing really "new", but by the same token, there is nothing dovish here, which may help explain the hawkish market reaction.
"The economy is not sending any signals that we need to be in a hurry to lower rates. The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully. " Powell last week: "We think that the right way to find neutral, if you will, is carefully, patiently"... "Nothing in the economic data suggests that the Committee has any need to be in a hurry to get there." [to neutral]
Looking ahead to July 2025, the projected official rates and cumulative easing across the $-bloc are as follows: U.S. (FOMC): 4.03%, -60bps; Canada (BoC): 2.96%, -79bps; Australia (RBA): 4.08%, -24bps; and New Zealand (RBNZ): 3.55%, -120bps.
JGB futures weaker but off Tokyo session lows, -22 compared to settlement levels.
Just released, September industrial production was revised up to 1.6% y/y. Japan’s operating ratio rose to 101.9 in September compared to 97.6 in the previous month. September Tertiary Industry Index falls 0.2% m/m versus +0.2% estimate.
Cash US tsys are flat to 2bps cheaper, with a steepening bias, in today’s Asia-Pac session after yesterday’s twist-flattener.
Later today, the US calendar will see Retail Sales, Empire Manufacturing, Import/Export Prices, Capacity Utilisation and Business Inventory data.
Cash JGBs are 1-2bps cheaper across benchmarks beyond the 1-year (+4.8bps). The benchmark 5-year yield is 1.8bps higher at 0.714% after today’s supply.
Today’s 5-year bond auction showed solid demand. The auction price exceeded dealer expectations, the cover ratio edged up and the auction tail shortened. The results were likely influenced by bids encountering an outright yield around 15bps higher than last month’s offering and at a cyclical peak.
The swap curve has bear-steepened, with rates 1-4bps higher.
On Monday, the local calendar will see Core Machine Orders data alongside BOJ Rinabn operation covering 1-3-year and 5-25-year OTR JGBs. Next Friday's national CPI for October is likely to be the next major focus point. Domestic-related services inflation will be eyed.
Japan Q3 GDP was reasonably close to market expectations. The headline q/q was 0.2% as forecast, although in annualized terms we were 0.9% against a 0.7% forecast. Q2 growth was revised down a touch to 0.5%q/q from the originally reported 0.7% gain.
In terms of the detail, private consumption was a positive at +0.9%q/q, versus +0.2% forecast. Q2 was a +0.7% gain. Business spending fell as expected by 0.2%/q/q. Inventories added 0.1ppts to growth versus a flat forecast, but net exports dragged growth 0.4ppts lower (against a +0.1ppt forecast).
In nominal terms GDP was slightly below market expectations, +0.5% in q/q terms versus +0.9% forecast and 1.7% prior. In y/y terms, the GDP deflator is 2.5%.
The private consumption rise will be viewed as a positive by the BoJ/authorities. The chart below overlays q/q private consumption (the white line) with q/q GDP growth (in real terms). The hope will be for firm wage gains to underpin growth into 2025.
Other wise the data likely doesn't shift central bank thinking much. Next Friday's national CPI for Oct is likely to be the next major focus point. Domestic related services inflation will be eyed.
Fig 1: Japan Private Consumption (White Line) & GDP Q/Q
BoJ Governor Ueda will speak on Monday in the Japan city of Nagoya. Rtrs notes the Governor will speak to business executives from the city at 10-11:30am local time (which is 0100-0230GMT), then will hold a press conference from 1:45pm-2:15pm local time (0445-0515GMT).
Comments from the Governor are likely to eyed closely by markets, given uncertainty around the timing of the next potential BoJ hike. We had Q3 GDP from Japan earlier today, while USD/JPY has hit multi month highs, which could add to imported inflation pressures. The US outlook also remains a key watch point for the BoJ.
ACGBs (YM +3.0 & XM +5.5) are holding stronger and near Sydney session highs on a data-light day.
Cash US tsys are flat to 2bps cheaper, with a steepening bias, in today’s Asia-Pac session after yesterday’s twist-flattener.
Later today, the US calendar will see Retail Sales, Empire Manufacturing, Import/Export Prices, Capacity Utilisation and Business Inventory data.
Cash ACGBs are 4-6bps richer with the AU-US 10-year yield differential at 18bps.
Swap rates are 3-5bps lower, with the 3s10s curve flatter.
The bills strip has bull-flattened, with pricing -1 to +3.
RBA-dated OIS pricing is 1-5bps softer but continues to price little chance of easing by year-end. A 25bps rate cut is not fully priced until August.
On Monday, the local calendar will see Christopher Kent, Assistant Governor (Financial Market) deliver a speech at the Sir Leslie Melville Lecture. RBA Minutes for the November Meeting are due on Tuesday.
Next week, AOFM plans to sell A$300mn of the 2.75% 21 May 2041bond on Monday, A$800mn of the 4.25% 21 December 2035 bond on Wednesday and A$700mn of the 2.75% 21 November 2028bond on Friday.
NZGBs closed slightly mixed, settling near the middle of today’s range, with benchmark yields fluctuating within +/-1bp. The NZGB 10-year underperformed relative to its $-bloc counterparts, with the NZ–US yield differential widening by 1bp and the NZ–AU differential widening by 5bps.
The local market was likely supported by the news today that NZ’s manufacturing industry contracted for a record 20th consecutive month, reinforcing signs the economy will need further stimulus to get back up to speed.
Cash US tsys are flat to 2bps cheaper, with a steepening bias, in today’s Asia-Pac session after yesterday’s twist-flattener.
Later today, the US calendar will see Retail Sales, Empire Manufacturing, Import/Export Prices, Capacity Utilisation and Business Inventory data.
The swaps curve twist flattened, with rates 1bp higher to 3bps lower.
RBNZ dated OIS pricing closed little changed across meetings for 2025. A cumulative 88bps of easing is priced by February, with 51bps by year-end.
On Monday, the local calendar will see the Performance Services Index, and PPI and Non-Resident Bond Holdings data.
Some modest retracement has been evident in the USD as Friday's Asia Pac session unfolds. The BBDXY index was last near 1286.7, off close to 0.15% for the session. We are still up strongly for the week, +1.49%, which would mark the seventh straight weekly gain. Thursday intra-session highs in the index were around 1290.
USD/JPY is back close to unchanged, last near 156.40, after earlier touching fresh multi month highs of 156.75. Earlier comments from the FinMin around FX moves have likely helped, 'monitoring FX markets with a very high sense of urgency'. The market may also be assessing what BoJ Governor Ueda will say in a speech on Monday in Japan. No fresh hawkish rhetoric would likely weigh on yen all else equal.
US yields are marginally off earlier highs as well, helping yen at the margins. Like the USD we are still up strongly for the week in yield terms.
AUD/USD and NZD/USD have ticked up by around 0.20%. A$ last near 0.6465/70, NZD at 0.5860, so both still very close to weekly lows recorded on Thursday.
It is a similar backdrop for most USD/Asia pairs as well, USD/CNH has tested back under 7.2400, USD/KRW spot near 1400.
The regional equity tone is mixed, but has turned slightly more positive as the session has progressed. Japan and Hong Kong markets are higher, while China markets are struggling after mixed Oct activity data, although the consumer is showing signs of life with higher retail sales than forecast.
Looking ahead, we have UK data, including monthly GDP on tap. In the US retail sales is out. Fed speak from Goolsbee and Collins will also cross. ECB speak is also due.
The US Biden administration has released its final semi-annual report on currency markets, formulated by the Treasury Department.
The Treasury noted: "In this Report, Treasury found that no major trading partner met all three criteria for enhanced analysis under the Trade Facilitation and Trade Enforcement Act of 2015 during the four quarters ending June 2024." See this link.
"Seven economies are on Treasury’s “Monitoring List” of major trading partners that merit close attention to their currency practices and macroeconomic policies: China, Japan, Korea, Singapore, Taiwan, Vietnam, and Germany."
Malaysia was removed from the monitoring list, but South Korea was added. The report stated:
"In this Report, Japan, Korea, Taiwan, Vietnam, and Germany all meet the criteria for having a significant bilateral trade surplus with the United States and a material current account surplus, and Singapore meets the criteria for engaging in persistent, one-sided foreign exchange intervention and having a material current account surplus. Malaysia met one criterion in the last Report and in this Report. It has therefore been removed from the Monitoring List in this Report.
And "China’s failure to publish foreign exchange intervention and broader lack of transparency around key features of its exchange rate mechanism continues to make it an outlier among major economies and warrants Treasury’s close monitoring. It remains on the Monitoring List for this reason as well as due to its outsized trade imbalance with the United States."
On Japan the report stated: "Japan is transparent with respect to foreign exchange operations, regularly publishing its foreign exchange interventions each month. Treasury’s firm expectation is that in large, freely traded exchange markets, intervention should be reserved only for very exceptional circumstances with appropriate prior consultations."
Chinese & Hong Kong Listed stocks have seen a bounce, post China data although are now trading off the post data highs. Property stocks have seen a small bounce following the slowing pace of home price declines.
The Overall market is relatively subdued today, with lingering concerns surrounding the Trump presidency and its impacts on local markets. The CSI 300 is 0.15% lower, with consumer discretionary stocks struggling, while Telecom stocks see a bounce after trading lower on Thursday. The HSI is 0.30% higher, Oil & Gas stocks are trading well with the Mainland O&G Index up 0.90%, the HSTech Index was up 1.40% at one stage however trades just 0.70% now, while Property stocks have recovered somewhat from earlier lows with the Mainland Property Index down just 0.20%.
The Shanghai Stock Exchange will revise the SSE180 Index on December 16, increasing the weighting of technology, healthcare, and other strategic industries, while excluding companies with ESG ratings of C or lower to improve the index's performance and market value coverage.
October's Industrial Production in China rose 5.3%, slightly below market expectations of 5.6% and down from September's 5.4%. Key gains were seen in crude steel (+2.9%), steel products (+3.5%), industrial AI (+33.4%), and motor vehicles (+4.8%). However, declines were noted in mobile phones, integrated circuits, and electricity output. Despite economic challenges, Industrial Production has averaged 5.6% over the past year, showing resilience with a peak of 6.8% in December 2023 and a low of 4.5% in March 2024.
Retail sales grew by 4.8% y/y in October, marking the highest growth this year and surpassing market expectations of 3.8%. This followed a 3.2% increase in September. Authorities have been focused on improving consumer sentiment, weakened by the real estate sector's struggles, with various stimulus measures since September.
Asian stocks rose, driven by gains in Japanese shares as a weaker yen supported exporters. Chinese stocks in Hong Kong rebounded on stronger-than-expected retail sales growth, reflecting the impact of Beijing's recent stimulus measures. The MSCI Asia Pacific Index gained as much as 0.5% ending a five day losing streak, with tech giants like Samsung, NetEase, and TSMC contributing to the advance. Positive earnings from Japan's largest banks also bolstered market sentiment. However, the region remains on track for a weekly decline due to concerns over a stronger dollar and potential tariff impacts from President-elect Donald Trump's policies.
Asia suppliers to Tesla have fallen after Reuters reported Donald Trump plans to eliminate a key consumer tax credit amid at boosting EV adoption in the US.
US equity futures have edged lower throughout the session, with Nasdaq the worst performing, down 0.50%, while S&P 500 futures are 0.30% lower.
Taiwan continues to see elevated outflows, largely linked to selling in the Semiconductor space. South Korea's Samsung also continues to see heavy selling and continues to make new multi-year lows. Asian markets on a whole continue to see outflows following the US election.
South Korea: Recorded outflows of -$167m yesterday, with a 5-day total of -$1.093b. YTD flows remain positive at +$5.988b. The 5-day average is -$219m, worse than the 20-day average of -$158m and the 100-day average of -$104m.
Taiwan: Posted outflows of -$760m yesterday, totaling -$3.253b over the past 5 days. YTD flows remain negative at -$14.882b. The 5-day average is -$651m, worse than the 20-day average of -$114m and the 100-day average of -$195m.
India: Experienced outflows of -$160m Wednesday, with a 5-day outflow of -$956m. YTD flows are negative at -$2.573b. The 5-day average is -$191m, better than the 20-day average of -$299m but worse than the 100-day average of -$9m.
Indonesia: Posted outflows of -$50m yesterday, bringing the 5-day total to -$402m. YTD flows remain positive at +$1.975b. The 5-day average is -$80m, worse than the 20-day average of -$46m but better than the 100-day average of +$20m.
Thailand: Recorded outflows of -$93m yesterday, with a total outflow of -$141m over the past 5 days. YTD flows are negative at -$3.699b. The 5-day average is -$28m, slightly better than the 20-day average of -$33m but worse than the 100-day average of -$7m.
Malaysia: Experienced outflows of -$15m yesterday, contributing to a 5-day outflow of -$78m. YTD flows are positive at +$235m. The 5-day average is -$16m, similar to the 20-day average of -$17m but better than the 100-day average of +$4m.
Philippines: Saw outflows of -$35m yesterday, with net outflows of -$119m over the past 5 days. YTD flows remain negative at -$176m. The 5-day average is -$24m, worse than the 20-day average of -$14m but better than the 100-day average of +$4m.
The International Energy Agency (“IEA”)’s monthly report suggests that global oil markets in 2025 may face over supply as the demand from China continues to decline.
China’s demand for oil has declined with the weakening in the domestic economy and the transition away from the reliance on oil.
Crude prices are seemingly highly correlated to Chinese demand with both down over 10% in the second half of 2024.
Overnight the release of a report from the US government showed gasoline stockpiles have declined to a 10-year (seasonally adjusted) low gave support to prices overnight, which were reacting to the IEA report.
WTI peaked at US$69.30 during the US trading day, only to decline (following the IEA report) to $68.10 before recovering to $68.60 where it is opening in Asia.
It trended lower all day to $68.10 despite robust Industrial Production and Retail Sales in China, suggesting the economy is stabilizing.
WTI is down -3.25% for the week.
Brent too had a similar price action peaking at US$73.22 before declining to $72 before recovering to $72.40 for the Asia open.
It has trended lower all day to $71.90 and is on course to finish the week -0.90% lower.
In the Middle East it was reported that Israel is focusing on a cease-fire proposal in Lebanon as preparations begin for the new administration in the White House.
Gold is 0.2% higher in today’s Asia-Pac session. After piercing $2,547.0, the Sep 18 low, early in yesterday’s session, bullion recovered as the US dollar gave up some of its gains. The yellow metal ended at $2,564/oz, 0.3% lower on the day.
Yesterday, US rates firmed after Chairman Powell's prepared remarks on the economy, delivered in Dallas, were released.
Chair Powell's speech contained several quotes that sounded similar to what he said at last week's press conference. As such, there is nothing really "new", but by the same token, there is nothing dovish here, which may help explain the hawkish market reaction.
"The economy is not sending any signals that we need to be in a hurry to lower rates. The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully."
Lower rates are typically positive for gold, which doesn’t pay interest.
According to MNI’s technicals team, the long-term trend condition in gold remains bullish, and the recent pullback appears corrective. However, recent weakness has resulted in a breach of the 20- and 50-day EMAs, signalling scope for a deeper retracement. Below $2,547, next support is seen at $2511.1, the Sep 12 low.
Today’s Industrial Production numbers were anticipated more than ever given the various stimulus measures announced over recent months.
Output for October rose +5.3% versus +5.4% of September.
The market had expected +5.6%.
The largest increases came from crude steel (+2.9% vs -6.1% prior), steel product (+3.5% vs -2.4% prior), industrial AI (+33.4% vs 22.8% prior) and motor vehicles (+4.8% vs -1.0% prior).
The largest declines came from mobile phones, integrated circuits and electricity.
Despite the challenges for the China economy, Industrial Production has remained robust averaging 5.6% over the last year with the high of December 2023 at +6.8% and the low in March of 2024 at 4.5%
China reported the highest retail sales growth this year in today’s data release.
Retail sales grew +4.8% YoY following September’s gain of +3.2%
Market surveys forecast a rise of +3.8%.
Authorities have appeared determined to arrest the decline in consumer sentiment borne out of the declining in the real estate sector, announcing various stimulus measures since September.
By category the largest expansion was seen household electronics (+39.2% vs +20.5 prior), furniture (+7.4% vs +0.4% prior) and motor vehicles (+3.7% vs +0.4% prior).
Malaysia’s economy continued its long run of economic growth with a +5.3% expansion in the third quarter.
The release was in line with the 2Q result of +5.3%.
Seasonally adjusted QoQ result of +1.8% was a decrease from +2.9% in Q2.
Malaysia’s Central Bank, Bank Negara, has been on hold since May 2023.
The economy is forecast to grow between 4.8% and 5.3% according to the Finance Ministry and market pricing indicates limited expectations for interest rate cuts in 2025.
After a strong week for the USD, Friday's session has seen some consolidation. Some pairs are off recent highs, but only modestly.
USD/CNH sits within recent ranges, last near 7.2425/30, around 0.15% firmer in CNH terms. USD/CNY has crept higher, but remains off recent highs above 7.2400. The Oct data run was mixed, retail quite a bit firmer than expected, but IP and FAI slightly below. House prices showed slightly improved trends. The CNY fixing was again set on the strong side, remaining under 7.2000 for now.
Spot USD/KRW has fallen back under 1400. South Korea was added to the US Treasury's FX manipulation list amid a higher current account surplus and rising trade surplus with the US. Local equities have recovered from earlier losses and sit back at 2430, up nearly 0.45% for the session.
BI intervened in FX markets, after spot USD/IDR broke above15900 in early trade. The pull back has been modest though, last near 15890, so still down 0.2% in IDR terms. The Oct trade surplus was softer, sub $2.5bn as imports surged.
USD/MYR sits slower, last near 4.4780. Q3 GDP revisions were unchanged at 1.8% q/q. The Malaysian authorities are also liberalising its FX policies to support investment into the country.
USD/THB has corrected lwoer from overbought conditions, last back sub 35.00, but has found support around the 200-day EMA.
UP TODAY (TIMES GMT/LOCAL)
Date
GMT/Local
Impact
Country
Event
15/11/2024
0700/0800
**
SE
Unemployment
15/11/2024
0700/0700
**
GB
UK Monthly GDP
15/11/2024
0700/0700
***
GB
GDP First Estimate
15/11/2024
0700/0700
**
GB
Index of Services
15/11/2024
0700/0700
***
GB
Index of Production
15/11/2024
0700/0700
**
GB
Output in the Construction Industry
15/11/2024
0700/0700
**
GB
Trade Balance
15/11/2024
0730/0730
GB
DMO to publish FQ4 (Jan-Mar) gilt operations calendar
15/11/2024
0745/0845
***
FR
HICP (f)
15/11/2024
0800/0900
*
CH
CH Flash GDP
15/11/2024
0900/1000
**
IT
Italy Final HICP
15/11/2024
1330/0830
**
US
Import/Export Price Index
15/11/2024
1330/0830
**
CA
Monthly Survey of Manufacturing
15/11/2024
1330/0830
**
CA
Wholesale Trade
15/11/2024
1330/0830
**
US
WASDE Weekly Import/Export
15/11/2024
1330/0830
***
US
Retail Sales
15/11/2024
1330/0830
**
US
Empire State Manufacturing Survey
15/11/2024
1400/0900
*
CA
CREA Existing Home Sales
15/11/2024
1400/0900
US
Boston Fed's Susan Collins
15/11/2024
1415/0915
***
US
Industrial Production
15/11/2024
1500/1000
*
US
Business Inventories
15/11/2024
1500/1600
EU
ECB's Lane at seminar on Fragmenting Trading System
15/11/2024
1515/1615
EU
ECB's Cipollone in discussion on productivity
16/11/2024
1115/1215
EU
ECB's De Guindos at Trilateral Commission meeting
16/11/2024
1300/1400
EU
ECB's Schnabel speech at Chicago Booth Conference
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