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US Tsys futures have edged lower throughout the session, with most contracts breaking below Wednesday's lows. JGB futures initially tested lower but have remained within recent ranges, outperforming this afternoon. Aussie bonds sank post the much stronger than expected Nov jobs report.
The Australian unemployment rate fell back sub 4.0%, well below forecasts. This helped the A$ outperform, as RBA easing odds fell for early 2025. Yen has lagged, although is flat against the USD. China and HK equities are higher as the economic working group meeting winds up.
Looking ahead, the main focus will be on the ECB decision. A 25bps cut is expected. Before that we have the SNB outcome. In the US, we have the PPI and initial jobless claims.
The ECB will cut by 25bp, marking the third back-to-back cut, and the fourth reduction this year.
Given that the ECB has previously shown some flexibility in following its self-prescribed data dependent and meeting-by-meeting approach, future meetings carry some degree of uncertainty over policy outcomes. This time around, the prospect of a 50bp cut, although appearing unlikely, cannot be entirely discounted.
Although all the pieces of the inflation puzzle are still not in place, back-to-back easing against a backdrop of weak economic activity and headline inflation close to target, suggests that language concerning the ‘restrictive’ policy stance is becoming redundant. Even if it is not removed from the policy statement this time around, it soon will be.
Tsys futures have edged lower throughout the session, with most contracts breaking below Wednesday's lows. There hasn't been much in the way of headlines, while volumes have also been below recent averages, there has also been no notable trades to mention. TU is the best performing contract, trading -00+ at 103-01+, while TY trades -02 at 110-20, WN is trading -11 at 124.23
Focus tonight will be on PPI numbers with consensus for m/m PPI to remain in line with the prior month at 0.2%.
Cash tsys curve has continued the overnight moves, with the curve slightly steeper. Yields are 0.8bps to 1.2bps higher, with the 2yr +0.8bps at 4.161%, while the 10yr is +1.2bps at 4.283%. The 2s10s is +0.336 at 11.914.
Fed fund futures are currently pricing in 24.7bps of cuts next week, up from 21.5bps prior to CPI. Pricing has just been bought forward slightly, with rate cut pricing cooling 3-5bps further out, currently the market expects a cumulative 83.5bps of cuts through to December 2025.
Tonight, we have PPI and Jobless claims. There will also be a 4w, 8w and a 30y auction.
JGB futures have drifted higher post the lunchtime break. We were last 142.93, -.04 compared to settlement levels. Earlier lows were at 142.79. Recent highs have been around 143.06, so we remain within recent ranges.
The US backdrop has been for weaker US Tsy futures, although aggregate moves haven't been large. Aussie bond futures slumped post the stronger Nov jobs report, but spillover was limited for JGBS.
In the cash JGB space, yields have ticked down a touch as the session has progressed. The 10yr is back under 1.07%, while the 20-40yr tenors are off by 1-2bps. The 1yr yield is holding higher though, up 2bps to 0.46%.
In the swap space, yields are holding higher, led by the 20-30yr tenors, but are away from best levels.
Tomorrow, the main focus will be on the Tankan Q4 print. Dec hike odds are down noticeably from late Nov levels above 60%. We also have BoJ Rinban ops tomorrow.
After two weeks of outflows, offshore investors returned to Japan equities last week. We had ¥482.3bn in fresh inflows, only partially reversing the prior week's outflow. The general trend had been for positive offshore inflows since last Sep. On the bond side, we also saw offshore buyers stepping up purchases. Again, the trend on this front has mostly been positive in recent weeks.
In terms of Japan outbound flows, we saw net selling by local investors of both offshore bonds and stocks.
For offshore stocks, local investors have sold in 8 out of the last 9 weeks, showing a firmer home bias.
Focus was on the stronger-than expected employment data today, which saw yields rise. Yield curves have bear-flattened slightly, with the 3yr underperforming across the curve.
Australia's unemployment rate unexpectedly fell to 3.9% in November, defying forecasts and highlighting labor market resilience despite high interest rates. The stronger-than-expected jobs data, driven entirely by full-time employment gains (FT +52.6k, PT -17k), led markets to scale back the probability of a February rate cut from 74% to 50%.
ACGBs were already on the back foot after US tsys yields rose 1-6.5bps overnight. The Aussie 2yr is trading +10.4bps at 3.886%, 3yr +11.3bps at 3.834%, while the 10yr is the best performing, trading +9.5bps at 4.277%. The 2s10s is -2bps at 37.66, while the 3s10s is -2.25bps at 43.20 erasing Wednesday's steepening move.
ACGBS futures are currently YM -11.4 & XM -9.3
Swaps are trading +8 to +12bps, with the short-end underperforming, curve has flattened.
Bills strip is trading -2 to -10
RBA-date OIS pricing has cooled 5-10bps, with the April meeting now pricing in just 24bps of cuts, down from 32bps of cuts prior to Employment. The first cut is priced in for May, with 43bps priced, while further out the curve there are 73bps of cumulative cuts priced by November.
The AU-US 10yr spread is off monthly lows and now trades flat.
SEEK has released data for Nov salaried wages growth. They made the following observations:
"After growing at 0.3 or 0.4% m/m for a year, the SEEK ASI has now risen by 0.2% m/m for the last two months. Advertised salaries were up 3.5% y/y in November, the slowest annual rise since August 2021." See the chart below.
NZGBs bear-steepened throughout the session with yields closing near session highs. The moves largely track those made overnight US tsys, while the stronger-than-expected AU employment data may have also contributed to higher yields.
Data calendar locally was quiet with just card spending remaining flat in November, following a revised 0.7% increase in October. Total card spending declined 0.1% m/m after a revised 0.2% gain previously. Fuel outlet sales rose 1.3% m/m, while core sales edged up 0.1% m/m.
We did have some bond auctions today with NZ$500m raised across three tenors. NZ$250m NZGB 0.25% 15 May 2028, saw a bid/cover ratio of 3.162, up from 2.45 prior with an average yield of 3.8120%. NZ$225m NZGB 4.50% 15 May 2035 saw a bid/cover lower than prior coming in at 2.11 vs 2.28, with a average yields of 4.4637 and finally we had NZ$25m 2.75% 15 Apr 2037 with a bid/cover of 3.72, up from 2.82 prior, with a average yield of 4.6445%.
Earlier ANZ stated they expected New Zealand's economy to contract by 0.4% in Q3, exceeding the central bank's and ANZ's earlier projections of a 0.2% decline, reflecting the impact of prior rate hikes on activity. NZ GDP is due out On December 19th.
NZGBs yields closed -0.2bps to +6.6bps with the curve bear-steepening. The 2yr closed -0.2bps at 3.711%, holding near yearly lows, while the 10yr closed +5.9bps 4.372%
The RBNZ dated OIS was steady throughout the session with 43bps of cuts priced in for the Feb meeting, and a cumulative 109bps of cuts priced in through to October 2025.
Tomorrow we have November BusinessNZ Manufacturing PMI data
The USD BBDXY index sits lower, last near 1283, off nearly 0.15% in Thursday trade so far. We remain comfortably within recent ranges for the index though. The biggest outperformer has been the A$, up over 0.70%, to be tracking in the 0.6415/20 region.
The A$ surged following the better than expected jobs data for Nov. The headline was better than forecast and was all driven by the full time component. The unemployment rate ticked down as well to 3.9%, against a 4.2% forecast.
Local Australian government bond yields have surged across the curve, up around 10bps. RBA easing expectations have been trimmed for Feb next year, now back to 50/50 (per OIS off WIRP on BBG). Tues/Wed we were pricing in a 66% chance of a cut.
For AUD/USD we are still some distance from the 20-day EMA, which is back around 0.6480/85.
The other positive for the AUD has been higher China/HK equities, as the economic work conference in China wraps up. The market will be looking for any stimulus clues for before year end and into 2025.
NZD/USD is up 0.40%, last near 0.5805/10. It has been dragged higher with AUD, although the AUD/NZD cross is still up to 1.1050 (lows at the start of the week were 1.0933).
USD/JPY got to lows of 151.96, but sits back at 152.29 in latest dealing, still modestly stronger in yen terms for the session. AUD/JPY is back to 97.70/75, up 0.60% for the session. The better equity backdrop in the region is likely helping the cross.
Looking ahead, the main focus will be on the ECB decision. A 25bps cut is expected. Before that we have the SNB outcome. In the US, we have the PPI and initial jobless claims.
Hong Kong and Chinese have rallied heading into the lunch break as investors awaited the conclusion of China’s economic work conference for insights on 2025 fiscal and monetary strategies. Retail stocks in China surged on news of voucher programs to boost consumption.
Tech stocks are benefitting from a rally overnight in the US, with the NASDAQ closing 1.90% higher. The HSTech Index is currently 2.00% higher, with Tongcheng Travel up 8.50%, Trip.com up 4.35% and Bilibili is 5.20% higher. Elsewhere property stocks are trading higher, with the Mainland Property Index up 1.20%, while the HSI is up 1.45%
China mainland equities are also trading well with all sectors in the green. The CSI 300 is up 0.85%, outperforming smaller-cap indices.
The Chinese economic policy meeting is expected to wrap up shortly with investors hopeful for supportive measures that could reveal what measures Beijing might use next year to combat deflation and the impact of potentially higher US tariffs.
The data calendar is light on for the rest of the week, with focus turning to Industrial Production, Retail Sales on Monday,
Asian equities are mostly higher today, led by gains in Japanese stocks with the Nikkei briefly breaking back above 40,000. The moves follow a surge in US equities overnight with the Nasdaq climbing 1.9% after Amazon & Meta hit new highs, while Broadcom jumped 6.5% after a report that the chipmaker was working with Apple on an AI deal. Locally, focus was on Australia's Employment numbers which showed a strong beat in Full time employment, with the unemployment rate falling to 3.9%, further hurting chances of a rate cut any time soon.
South Korea President spoke earlier where he said he would fight to defend himself and accused the opposition of trying to paralyze parliament. There has been volatility in the local equity market today following consistent headlines out, surrounding the president, however we now trade toward session highs now, with the KOSPI +0.90%, while the KOSDAQ is 0.50% higher.
Japanese equities are benefitting from report that the BOJ is in no hurry to raise interest rates. The Nikkei briefly trading back above 40,000, we sit just below these levels now, although still trades up 1.30% for the session, while the TOPIX is 1% higher. Semiconductor stocks are the top performing sector today, although Tokyo Electron is off earlier highs, up just 0.60% the slight weakness could be on the back of headlines that the US plans to cap countries semiconductor access, although Advantest is trading up 4.85% near session best levels.
Taiwan's Taiex is trading 0.90% higher today, with TSMC jumping 2.40%.
Australian equities are slightly lower today following stronger-than-expected employment data. RBA-dated OIS cooled following the data, with the market now pricing in the first full cut in May. The ASX200 is trading 0.30% lower, with Industrials & Real Estate stocks the worst performing. The NZX50 is 0.55% lower after Fisher & Paykel fell 2.50%.
Outflows again for both Taiwan & South Korea, as tech traded slightly weaker. India continues to see a decent bounce following strong outflows in November.
South Korea: Recorded outflows of $185m yesterday, with a 5-day total of -$159m. YTD flows remain positive at +$3.81b. The 5-day average is -$32m, better than the 20-day average of -$109m and the 100-day average of -$158m.
Taiwan: Experienced outflows of $513m yesterday, with a 5-day total of -$541m. YTD flows are deeply negative at -$16.94b. The 5-day average is -$108m, better than the 20-day average of -$141m and the 100-day average of -$189m.
India: Posted inflows of $220m Tuesday, with a 5-day total of +$1.65b. YTD flows remain positive at +$1.12B. The 5-day average is +$331m, much better than the 20-day average of +$166m and the 100-day average of -$9m.
Indonesia: Recorded inflows of $31m yesterday, with a 5-day total of +$25m. YTD flows remain positive at +$1.59b. The 5-day average is +$5m, better than the 20-day average of -$24m and the 100-day average of +$17m.
Thailand: Saw an outflow of $63m Yesterday, after returning from a public holiday. YTD flows are negative at -$3.92b. The 5-day average is -$29m, slightly worse than the 20-day average of -$18m but better than the 100-day average of -$6m.
Malaysia: Experienced outflows of $62m yesterday, with a 5-day total of -$169m. YTD flows are negative at -$586m. The 5-day average is -$34m, better than the 20-day average of -$42m but worse than the 100-day average of -$7m.
Philippines: Posted outflows of $9m yesterday, with a 5-day total of -$3m. YTD flows remain negative at -$325m. The 5-day average is -$1m, better than the 20-day average of -$9m and the 100-day average of +$2m.
As President Biden approaches the end of his term, it appears that one of his last actions may be targeted at Russian oil.
It is believed that Biden’s team are looking at further restrictions to impact the flow of Russian oil, a move that the President has avoided in the past for fear of a spike in energy costs.
However, with the current OPEC+ oversupply issues, the market seems able to withstand possible sanctions should they come to pass.
Prices did rise on the news with WTI steadily rising throughout the US trading day to break through the US$70/bl mark, closing at $70.29 where it has stayed at all day in Asian trading.
Brent maintained a positive bias throughout the US trading day also reaching a high just prior to US close of US$73.75, before closing at $73.52. It rose marginally through the Asian trading day to $73.59.
OPEC+ released its forecasts for the full year 2024 and projections for next year for oil demand, with both seeing major downward revisions.
Gold’s good run continued overnight following the US inflation print firming up expectations for a rate cut.
US consumer prices rose in line with expectations at +2.7% y/y, whilst moderately up from the prior month.
Core CPI rose +0.3% MoM as expected.
Markets reacted favourably to the data with the cut now almost 100% priced in versus only <90% as of start of the week.
Starting the US trading day at US$2,694.25 gold rose steadily all day to close at $2,718.23.
The supportive CPI is an additional positive factor for gold this week following news of China’s Central Bank – the PBOC – has resumed purchases of bullion.
Gold was up +0.89% in price yesterday, marking the fourth consecutive day of positive returns and on track for a strong week.
In recent weeks policy expectations in China have begun to shift rapidly as we enter the third successive month where new initiatives are announced.
Following the announcement of the CNY10tn increase in the debt ceiling for regional / local government issuance, bond yields have moved lower.
In November this year, markets saw 30YR yields in China converge with 30YR yields in Japan.
China’s CPC Central Committee’s resetting this week of the ‘tone for monetary policy’ from prudent to ‘moderately loose’ could have two direct impacts on China bond demand going forward.
It is anticipated that the next policy move (following the change in tone) will be a reduction in the RRR, releasing up to CNY3tn of liquidity into the system.
It is also anticipated that further rate cuts will be forthcoming, but likely next year's story.
Next week sees the 1-YR Medium-Term Lending Facility Rate announcement where sentiment is still for no change currently, confining rate cuts seemingly to 2025.
Rate cuts and RRR reductions will increase liquidity in the system, with it reasonable to assume that the bond market should be a beneficiary of these actions.
Additionally, the PBOC is to start its own government bond trading activities in 2025 and is expected to be a net buyer of securities to further support liquidity.
Relative to other major markets globally, the China Government bond curve slope is still positive (China 2s10s +55bps, Japan 2s10s +48bps, India 2s10s +8bps, US 2s10s +11bp).
The positive slope of the CGB curve is known to be something the PBOC is willing to protect as it is a sign of the general health of an economy.
In November we published an article titled “China Government Bonds: The Case for the Un-Correlated” where our research pointed to the China Government Bond markets low correlation to the US, with other benefits being the yield pickup (relative to other Government Bonds markets, specifically Japan) and diversification benefits.
The move in tone from authorities now changes the trajectory for the yield pickup (specifically CGBs vs JGBs) in 2025.
The likely injection of liquidity via RRR cuts, PBOC trading bonds and monetary policy reductions are likely to dwarf the increase in issuance from regional governments (under the increased deficit caps), driving yields lower.
To protect the positive sloping curve, there is the potential for a more aggressive monetary policy stance.
This could have the dual outcome in that over the course of 2025, the yield differential that CGBs enjoy over JGBs could disappear, both at the front end and 10YR maturity.
China is now the 2nd-largest player in the FTSE WGBI (one of the most commonly used benchmarks globally), overtaking Japan as bond issuance and currency shifts reshape the market. (source: LSEG)
The inclusion of Chinese bonds in the FTSE WGBI marks a major shift, offering more diversified options for global investors.
Higher forecast net issuance means the market weights of both Japan and China in the WGBI should increase, thereby making the decision about relative value all that more important for investors going forward.
In North Asia FX, trends have been mixed so far in Thursday trade. USD/CNH is sub 7.2700, around 0.15% stronger in CNH terms. We had earlier headlines that incoming US President Trump had invited China President Xi Jinping to his inauguration. It is uncertain on whether Xi will attend, but any signs of positive relations will be welcomed by the market.
Local equities are also higher, as the economic working group meeting concludes. Eyes will be on any near term or 2025 stimulus clues. An expansion to the private pension program (to the whole nation) is also benefiting local equities.
For USD/CNH, yesterday's lows around 7.2425 will be eyed on further downside momentum.
Spot USD/KRW has drifted back above 1430, last near 1433, around 0.20% weaker in won terms. The pair remains within recent ranges though. Current President Yoon gave a defiant address. He stated he would not step down and accused the opposition parties of paralyzing his administration (per BBG). Still, 6 members of the ruling party stated they would join the impeachment (8 are needed to ensure it passes). The PPP leader also stated impeachment is the only way to stop Yoon from continuing his duties. The vote is scheduled for Saturday.
USD/TWD spot has been relatively steady, last near 32.50.
India’s newly appointed central bank governor Sanjay Malhotra said that the institution has to ensure growth (source: BBG).
India’s newly appointed central bank governor Sanjay Malhotra said he will look to uphold stability and continuity in policy in his role. (source: BBG).
India’s NIFTY 50 has had a period over the last week of moderate returns and today is no different opening up down -0.03%.
Indonesia’s state budget deficit widened to 401.8t rupiah as of end-Nov., equivalent to 1.81% of GDP, Finance Minister Indrawati says in briefing. (source: BBG)
Inflation is projected to grow in January 2025 before declining in April 2025, according to the Retail Sales Survey of Bank Indonesia in November 2024. (source: IDN Financial News).
Indonesia’s Jakarta Composite has had four successive days of positive returns but couldn’t sustain a fifth, down -0.7%.
IDR: weakening bias resumes down -0.16% today at 15,945.
Bonds: moderately higher yields with 10YR 6.952% (+1bp).
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Please enter your details below.
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 Tsys futures have edged lower throughout the session, with most contracts breaking below Wednesday's lows. JGB futures initially tested lower but have remained within recent ranges, outperforming this afternoon. Aussie bonds sank post the much stronger than expected Nov jobs report.
The Australian unemployment rate fell back sub 4.0%, well below forecasts. This helped the A$ outperform, as RBA easing odds fell for early 2025. Yen has lagged, although is flat against the USD. China and HK equities are higher as the economic working group meeting winds up.
Looking ahead, the main focus will be on the ECB decision. A 25bps cut is expected. Before that we have the SNB outcome. In the US, we have the PPI and initial jobless claims.
The ECB will cut by 25bp, marking the third back-to-back cut, and the fourth reduction this year.
Given that the ECB has previously shown some flexibility in following its self-prescribed data dependent and meeting-by-meeting approach, future meetings carry some degree of uncertainty over policy outcomes. This time around, the prospect of a 50bp cut, although appearing unlikely, cannot be entirely discounted.
Although all the pieces of the inflation puzzle are still not in place, back-to-back easing against a backdrop of weak economic activity and headline inflation close to target, suggests that language concerning the ‘restrictive’ policy stance is becoming redundant. Even if it is not removed from the policy statement this time around, it soon will be.
Tsys futures have edged lower throughout the session, with most contracts breaking below Wednesday's lows. There hasn't been much in the way of headlines, while volumes have also been below recent averages, there has also been no notable trades to mention. TU is the best performing contract, trading -00+ at 103-01+, while TY trades -02 at 110-20, WN is trading -11 at 124.23
Focus tonight will be on PPI numbers with consensus for m/m PPI to remain in line with the prior month at 0.2%.
Cash tsys curve has continued the overnight moves, with the curve slightly steeper. Yields are 0.8bps to 1.2bps higher, with the 2yr +0.8bps at 4.161%, while the 10yr is +1.2bps at 4.283%. The 2s10s is +0.336 at 11.914.
Fed fund futures are currently pricing in 24.7bps of cuts next week, up from 21.5bps prior to CPI. Pricing has just been bought forward slightly, with rate cut pricing cooling 3-5bps further out, currently the market expects a cumulative 83.5bps of cuts through to December 2025.
Tonight, we have PPI and Jobless claims. There will also be a 4w, 8w and a 30y auction.
JGB futures have drifted higher post the lunchtime break. We were last 142.93, -.04 compared to settlement levels. Earlier lows were at 142.79. Recent highs have been around 143.06, so we remain within recent ranges.
The US backdrop has been for weaker US Tsy futures, although aggregate moves haven't been large. Aussie bond futures slumped post the stronger Nov jobs report, but spillover was limited for JGBS.
In the cash JGB space, yields have ticked down a touch as the session has progressed. The 10yr is back under 1.07%, while the 20-40yr tenors are off by 1-2bps. The 1yr yield is holding higher though, up 2bps to 0.46%.
In the swap space, yields are holding higher, led by the 20-30yr tenors, but are away from best levels.
Tomorrow, the main focus will be on the Tankan Q4 print. Dec hike odds are down noticeably from late Nov levels above 60%. We also have BoJ Rinban ops tomorrow.
After two weeks of outflows, offshore investors returned to Japan equities last week. We had ¥482.3bn in fresh inflows, only partially reversing the prior week's outflow. The general trend had been for positive offshore inflows since last Sep. On the bond side, we also saw offshore buyers stepping up purchases. Again, the trend on this front has mostly been positive in recent weeks.
In terms of Japan outbound flows, we saw net selling by local investors of both offshore bonds and stocks.
For offshore stocks, local investors have sold in 8 out of the last 9 weeks, showing a firmer home bias.
Focus was on the stronger-than expected employment data today, which saw yields rise. Yield curves have bear-flattened slightly, with the 3yr underperforming across the curve.
Australia's unemployment rate unexpectedly fell to 3.9% in November, defying forecasts and highlighting labor market resilience despite high interest rates. The stronger-than-expected jobs data, driven entirely by full-time employment gains (FT +52.6k, PT -17k), led markets to scale back the probability of a February rate cut from 74% to 50%.
ACGBs were already on the back foot after US tsys yields rose 1-6.5bps overnight. The Aussie 2yr is trading +10.4bps at 3.886%, 3yr +11.3bps at 3.834%, while the 10yr is the best performing, trading +9.5bps at 4.277%. The 2s10s is -2bps at 37.66, while the 3s10s is -2.25bps at 43.20 erasing Wednesday's steepening move.
ACGBS futures are currently YM -11.4 & XM -9.3
Swaps are trading +8 to +12bps, with the short-end underperforming, curve has flattened.
Bills strip is trading -2 to -10
RBA-date OIS pricing has cooled 5-10bps, with the April meeting now pricing in just 24bps of cuts, down from 32bps of cuts prior to Employment. The first cut is priced in for May, with 43bps priced, while further out the curve there are 73bps of cumulative cuts priced by November.
The AU-US 10yr spread is off monthly lows and now trades flat.
SEEK has released data for Nov salaried wages growth. They made the following observations:
"After growing at 0.3 or 0.4% m/m for a year, the SEEK ASI has now risen by 0.2% m/m for the last two months. Advertised salaries were up 3.5% y/y in November, the slowest annual rise since August 2021." See the chart below.
NZGBs bear-steepened throughout the session with yields closing near session highs. The moves largely track those made overnight US tsys, while the stronger-than-expected AU employment data may have also contributed to higher yields.
Data calendar locally was quiet with just card spending remaining flat in November, following a revised 0.7% increase in October. Total card spending declined 0.1% m/m after a revised 0.2% gain previously. Fuel outlet sales rose 1.3% m/m, while core sales edged up 0.1% m/m.
We did have some bond auctions today with NZ$500m raised across three tenors. NZ$250m NZGB 0.25% 15 May 2028, saw a bid/cover ratio of 3.162, up from 2.45 prior with an average yield of 3.8120%. NZ$225m NZGB 4.50% 15 May 2035 saw a bid/cover lower than prior coming in at 2.11 vs 2.28, with a average yields of 4.4637 and finally we had NZ$25m 2.75% 15 Apr 2037 with a bid/cover of 3.72, up from 2.82 prior, with a average yield of 4.6445%.
Earlier ANZ stated they expected New Zealand's economy to contract by 0.4% in Q3, exceeding the central bank's and ANZ's earlier projections of a 0.2% decline, reflecting the impact of prior rate hikes on activity. NZ GDP is due out On December 19th.
NZGBs yields closed -0.2bps to +6.6bps with the curve bear-steepening. The 2yr closed -0.2bps at 3.711%, holding near yearly lows, while the 10yr closed +5.9bps 4.372%
The RBNZ dated OIS was steady throughout the session with 43bps of cuts priced in for the Feb meeting, and a cumulative 109bps of cuts priced in through to October 2025.
Tomorrow we have November BusinessNZ Manufacturing PMI data
The USD BBDXY index sits lower, last near 1283, off nearly 0.15% in Thursday trade so far. We remain comfortably within recent ranges for the index though. The biggest outperformer has been the A$, up over 0.70%, to be tracking in the 0.6415/20 region.
The A$ surged following the better than expected jobs data for Nov. The headline was better than forecast and was all driven by the full time component. The unemployment rate ticked down as well to 3.9%, against a 4.2% forecast.
Local Australian government bond yields have surged across the curve, up around 10bps. RBA easing expectations have been trimmed for Feb next year, now back to 50/50 (per OIS off WIRP on BBG). Tues/Wed we were pricing in a 66% chance of a cut.
For AUD/USD we are still some distance from the 20-day EMA, which is back around 0.6480/85.
The other positive for the AUD has been higher China/HK equities, as the economic work conference in China wraps up. The market will be looking for any stimulus clues for before year end and into 2025.
NZD/USD is up 0.40%, last near 0.5805/10. It has been dragged higher with AUD, although the AUD/NZD cross is still up to 1.1050 (lows at the start of the week were 1.0933).
USD/JPY got to lows of 151.96, but sits back at 152.29 in latest dealing, still modestly stronger in yen terms for the session. AUD/JPY is back to 97.70/75, up 0.60% for the session. The better equity backdrop in the region is likely helping the cross.
Looking ahead, the main focus will be on the ECB decision. A 25bps cut is expected. Before that we have the SNB outcome. In the US, we have the PPI and initial jobless claims.
Hong Kong and Chinese have rallied heading into the lunch break as investors awaited the conclusion of China’s economic work conference for insights on 2025 fiscal and monetary strategies. Retail stocks in China surged on news of voucher programs to boost consumption.
Tech stocks are benefitting from a rally overnight in the US, with the NASDAQ closing 1.90% higher. The HSTech Index is currently 2.00% higher, with Tongcheng Travel up 8.50%, Trip.com up 4.35% and Bilibili is 5.20% higher. Elsewhere property stocks are trading higher, with the Mainland Property Index up 1.20%, while the HSI is up 1.45%
China mainland equities are also trading well with all sectors in the green. The CSI 300 is up 0.85%, outperforming smaller-cap indices.
The Chinese economic policy meeting is expected to wrap up shortly with investors hopeful for supportive measures that could reveal what measures Beijing might use next year to combat deflation and the impact of potentially higher US tariffs.
The data calendar is light on for the rest of the week, with focus turning to Industrial Production, Retail Sales on Monday,
Asian equities are mostly higher today, led by gains in Japanese stocks with the Nikkei briefly breaking back above 40,000. The moves follow a surge in US equities overnight with the Nasdaq climbing 1.9% after Amazon & Meta hit new highs, while Broadcom jumped 6.5% after a report that the chipmaker was working with Apple on an AI deal. Locally, focus was on Australia's Employment numbers which showed a strong beat in Full time employment, with the unemployment rate falling to 3.9%, further hurting chances of a rate cut any time soon.
South Korea President spoke earlier where he said he would fight to defend himself and accused the opposition of trying to paralyze parliament. There has been volatility in the local equity market today following consistent headlines out, surrounding the president, however we now trade toward session highs now, with the KOSPI +0.90%, while the KOSDAQ is 0.50% higher.
Japanese equities are benefitting from report that the BOJ is in no hurry to raise interest rates. The Nikkei briefly trading back above 40,000, we sit just below these levels now, although still trades up 1.30% for the session, while the TOPIX is 1% higher. Semiconductor stocks are the top performing sector today, although Tokyo Electron is off earlier highs, up just 0.60% the slight weakness could be on the back of headlines that the US plans to cap countries semiconductor access, although Advantest is trading up 4.85% near session best levels.
Taiwan's Taiex is trading 0.90% higher today, with TSMC jumping 2.40%.
Australian equities are slightly lower today following stronger-than-expected employment data. RBA-dated OIS cooled following the data, with the market now pricing in the first full cut in May. The ASX200 is trading 0.30% lower, with Industrials & Real Estate stocks the worst performing. The NZX50 is 0.55% lower after Fisher & Paykel fell 2.50%.
Outflows again for both Taiwan & South Korea, as tech traded slightly weaker. India continues to see a decent bounce following strong outflows in November.
South Korea: Recorded outflows of $185m yesterday, with a 5-day total of -$159m. YTD flows remain positive at +$3.81b. The 5-day average is -$32m, better than the 20-day average of -$109m and the 100-day average of -$158m.
Taiwan: Experienced outflows of $513m yesterday, with a 5-day total of -$541m. YTD flows are deeply negative at -$16.94b. The 5-day average is -$108m, better than the 20-day average of -$141m and the 100-day average of -$189m.
India: Posted inflows of $220m Tuesday, with a 5-day total of +$1.65b. YTD flows remain positive at +$1.12B. The 5-day average is +$331m, much better than the 20-day average of +$166m and the 100-day average of -$9m.
Indonesia: Recorded inflows of $31m yesterday, with a 5-day total of +$25m. YTD flows remain positive at +$1.59b. The 5-day average is +$5m, better than the 20-day average of -$24m and the 100-day average of +$17m.
Thailand: Saw an outflow of $63m Yesterday, after returning from a public holiday. YTD flows are negative at -$3.92b. The 5-day average is -$29m, slightly worse than the 20-day average of -$18m but better than the 100-day average of -$6m.
Malaysia: Experienced outflows of $62m yesterday, with a 5-day total of -$169m. YTD flows are negative at -$586m. The 5-day average is -$34m, better than the 20-day average of -$42m but worse than the 100-day average of -$7m.
Philippines: Posted outflows of $9m yesterday, with a 5-day total of -$3m. YTD flows remain negative at -$325m. The 5-day average is -$1m, better than the 20-day average of -$9m and the 100-day average of +$2m.
As President Biden approaches the end of his term, it appears that one of his last actions may be targeted at Russian oil.
It is believed that Biden’s team are looking at further restrictions to impact the flow of Russian oil, a move that the President has avoided in the past for fear of a spike in energy costs.
However, with the current OPEC+ oversupply issues, the market seems able to withstand possible sanctions should they come to pass.
Prices did rise on the news with WTI steadily rising throughout the US trading day to break through the US$70/bl mark, closing at $70.29 where it has stayed at all day in Asian trading.
Brent maintained a positive bias throughout the US trading day also reaching a high just prior to US close of US$73.75, before closing at $73.52. It rose marginally through the Asian trading day to $73.59.
OPEC+ released its forecasts for the full year 2024 and projections for next year for oil demand, with both seeing major downward revisions.
Gold’s good run continued overnight following the US inflation print firming up expectations for a rate cut.
US consumer prices rose in line with expectations at +2.7% y/y, whilst moderately up from the prior month.
Core CPI rose +0.3% MoM as expected.
Markets reacted favourably to the data with the cut now almost 100% priced in versus only <90% as of start of the week.
Starting the US trading day at US$2,694.25 gold rose steadily all day to close at $2,718.23.
The supportive CPI is an additional positive factor for gold this week following news of China’s Central Bank – the PBOC – has resumed purchases of bullion.
Gold was up +0.89% in price yesterday, marking the fourth consecutive day of positive returns and on track for a strong week.
In recent weeks policy expectations in China have begun to shift rapidly as we enter the third successive month where new initiatives are announced.
Following the announcement of the CNY10tn increase in the debt ceiling for regional / local government issuance, bond yields have moved lower.
In November this year, markets saw 30YR yields in China converge with 30YR yields in Japan.
China’s CPC Central Committee’s resetting this week of the ‘tone for monetary policy’ from prudent to ‘moderately loose’ could have two direct impacts on China bond demand going forward.
It is anticipated that the next policy move (following the change in tone) will be a reduction in the RRR, releasing up to CNY3tn of liquidity into the system.
It is also anticipated that further rate cuts will be forthcoming, but likely next year's story.
Next week sees the 1-YR Medium-Term Lending Facility Rate announcement where sentiment is still for no change currently, confining rate cuts seemingly to 2025.
Rate cuts and RRR reductions will increase liquidity in the system, with it reasonable to assume that the bond market should be a beneficiary of these actions.
Additionally, the PBOC is to start its own government bond trading activities in 2025 and is expected to be a net buyer of securities to further support liquidity.
Relative to other major markets globally, the China Government bond curve slope is still positive (China 2s10s +55bps, Japan 2s10s +48bps, India 2s10s +8bps, US 2s10s +11bp).
The positive slope of the CGB curve is known to be something the PBOC is willing to protect as it is a sign of the general health of an economy.
In November we published an article titled “China Government Bonds: The Case for the Un-Correlated” where our research pointed to the China Government Bond markets low correlation to the US, with other benefits being the yield pickup (relative to other Government Bonds markets, specifically Japan) and diversification benefits.
The move in tone from authorities now changes the trajectory for the yield pickup (specifically CGBs vs JGBs) in 2025.
The likely injection of liquidity via RRR cuts, PBOC trading bonds and monetary policy reductions are likely to dwarf the increase in issuance from regional governments (under the increased deficit caps), driving yields lower.
To protect the positive sloping curve, there is the potential for a more aggressive monetary policy stance.
This could have the dual outcome in that over the course of 2025, the yield differential that CGBs enjoy over JGBs could disappear, both at the front end and 10YR maturity.
China is now the 2nd-largest player in the FTSE WGBI (one of the most commonly used benchmarks globally), overtaking Japan as bond issuance and currency shifts reshape the market. (source: LSEG)
The inclusion of Chinese bonds in the FTSE WGBI marks a major shift, offering more diversified options for global investors.
Higher forecast net issuance means the market weights of both Japan and China in the WGBI should increase, thereby making the decision about relative value all that more important for investors going forward.
In North Asia FX, trends have been mixed so far in Thursday trade. USD/CNH is sub 7.2700, around 0.15% stronger in CNH terms. We had earlier headlines that incoming US President Trump had invited China President Xi Jinping to his inauguration. It is uncertain on whether Xi will attend, but any signs of positive relations will be welcomed by the market.
Local equities are also higher, as the economic working group meeting concludes. Eyes will be on any near term or 2025 stimulus clues. An expansion to the private pension program (to the whole nation) is also benefiting local equities.
For USD/CNH, yesterday's lows around 7.2425 will be eyed on further downside momentum.
Spot USD/KRW has drifted back above 1430, last near 1433, around 0.20% weaker in won terms. The pair remains within recent ranges though. Current President Yoon gave a defiant address. He stated he would not step down and accused the opposition parties of paralyzing his administration (per BBG). Still, 6 members of the ruling party stated they would join the impeachment (8 are needed to ensure it passes). The PPP leader also stated impeachment is the only way to stop Yoon from continuing his duties. The vote is scheduled for Saturday.
USD/TWD spot has been relatively steady, last near 32.50.
India’s newly appointed central bank governor Sanjay Malhotra said that the institution has to ensure growth (source: BBG).
India’s newly appointed central bank governor Sanjay Malhotra said he will look to uphold stability and continuity in policy in his role. (source: BBG).
India’s NIFTY 50 has had a period over the last week of moderate returns and today is no different opening up down -0.03%.
Indonesia’s state budget deficit widened to 401.8t rupiah as of end-Nov., equivalent to 1.81% of GDP, Finance Minister Indrawati says in briefing. (source: BBG)
Inflation is projected to grow in January 2025 before declining in April 2025, according to the Retail Sales Survey of Bank Indonesia in November 2024. (source: IDN Financial News).
Indonesia’s Jakarta Composite has had four successive days of positive returns but couldn’t sustain a fifth, down -0.7%.
IDR: weakening bias resumes down -0.16% today at 15,945.
Bonds: moderately higher yields with 10YR 6.952% (+1bp).
UP TODAY (TIMES GMT/LOCAL)
Date
GMT/Local
Impact
Country
Event
12/12/2024
0700/0800
***
SE
Inflation Report
12/12/2024
0830/0930
***
CH
SNB PolicyRate
12/12/2024
0830/0930
***
CH
SNB Interest Rate Decision
12/12/2024
-
***
CN
Money Supply
12/12/2024
-
***
CN
New Loans
12/12/2024
-
***
CN
Social Financing
12/12/2024
1315/1415
***
EU
ECB Deposit Rate
12/12/2024
1315/1415
***
EU
ECB Main Refi Rate
12/12/2024
1315/1415
***
EU
ECB Marginal Lending Rate
12/12/2024
1330/0830
***
US
Jobless Claims
12/12/2024
1330/0830
***
US
PPI
12/12/2024
1330/0830
*
CA
Building Permits
12/12/2024
1330/0830
*
CA
Household debt-to-income
12/12/2024
1330/0830
**
US
WASDE Weekly Import/Export
12/12/2024
1345/1445
EU
ECB Monetary Policy Press Conference
12/12/2024
1500/1000
*
US
Services Revenues
12/12/2024
1530/1030
**
US
Natural Gas Stocks
12/12/2024
1630/1130
**
US
US Bill 04 Week Treasury Auction Result
12/12/2024
1630/1130
*
US
US Bill 08 Week Treasury Auction Result
12/12/2024
1800/1300
***
US
US Treasury Auction Result for 30 Year Bond
13/12/2024
2350/0850
***
JP
Tankan
13/12/2024
0001/0001
**
GB
Gfk Monthly Consumer Confidence
13/12/2024
0430/1330
**
JP
Industrial Production
13/12/2024
0700/0800
**
SE
Unemployment
13/12/2024
0700/0700
**
GB
UK Monthly GDP
13/12/2024
0700/0700
**
GB
Index of Services
13/12/2024
0700/0700
***
GB
Index of Production
13/12/2024
0700/0700
**
GB
Output in the Construction Industry
13/12/2024
0700/0700
**
GB
Trade Balance
13/12/2024
0700/0800
**
DE
Trade Balance
13/12/2024
0745/0845
***
FR
HICP (f)
13/12/2024
0800/0900
***
ES
HICP (f)
13/12/2024
0930/0930
**
GB
Bank of England/Ipsos Inflation Attitudes Survey
13/12/2024
1000/1100
**
EU
Industrial Production
13/12/2024
1330/0830
**
US
Import/Export Price Index
13/12/2024
1330/0830
**
CA
Monthly Survey of Manufacturing
13/12/2024
1330/0830
**
CA
Wholesale Trade
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