- US yields rose in early trade amid cautious Fed comments from the weekend. Follow through was limited though and bonds sit up from lows. The USD was mixed, supported against safe havens, but losing a little ground against other majors. CAD rallied on local reports that PM Trudeau will resign this week.
- Onshore media highlighted the PBoC's ability to keep the yuan basically stable. The better than expected Caixin services PMI print in China did little to shift sentiment. China equities are lower. Tech has outperformed elsewhere in the region.
- Later the Fed’s Cook speaks. US & European December services/composite PMIs and preliminary December German CPI data are released.
MARKETS
TYH5 is 108-16, -0-04+ from NY closing levels.
- Cash bonds are ~1bp cheaper in today’s Asia-Pac session after Friday’s heavy close.
- On Friday, US projected rate cuts through mid-2025 were as follows: Jan'25 steady at -2.8bp, Mar'25 -13.2bp, May'25 -17.8bp, Jun'25 -26.5bp.
- US economic data and Treasury supply are being brought forward this week to accommodate Thursday's "day of mourning" to honour President Carter. The Federal holiday sees most markets closed; the exception so far is CME rates, which will operate on a shortened session.
- Thursday's weekly jobless and continuing claims will be released on Wednesday according to the Dept of Labor site.
- Later today, the US calendar will see S&P Global Services & Composite PMIs, Factory Orders and Durable Goods Orders.
GLOBAL MACRO: Global IP/Trade Outlook Subdued
The JP Morgan global manufacturing PMI moderated to 49.6 in December from 50.0. While the Q4 average remained below the 50-breakeven level at 49.7, signalling a slight contraction in global manufacturing activity, it was 0.4pp higher than the Q3 average. Global IP and trade growth was fairly steady over 2024 and that trend continued in October and the PMI is signalling that that remained the case going into year end.
- The CPB’s measure of global IP rose 0.3% m/m to be up 1.8% y/y in October, close to the 2024 and Q3 averages. 3-month momentum is positive at a steady rate. IP growth looks likely to continue but at lacklustre rates. Business sentiment in the PMI fell to a 3-month low, signalling a weak outlook.
- Global trade was flat in October with annual growth moderating to 1.7% from 2.5%, but still above the 2024 average but lower than Q3’s 2.3% y/y. 3-month momentum is picking up though. However, exports orders contracted at a faster pace in December with only 8 of the 30 countries surveyed recording a rise, according to the PMI.
- Apart from November, the manufacturing PMI has been in contractionary territory since July. The drop in December was driven by weaker orders and output with some regions particularly concerned about the impact of possible US tariffs (only 13 of 30 countries recorded a rise in production). Employment also fell but at a slower pace.
- Intermediate and capex sectors posted contractions in output, while consumer goods continued to grow (17th consecutive month).
- Cost pressures picked up to 54.4 from 53.9, 4-month high, but selling price inflation eased to a 9-month low.
Global growth
JGBS: Cheaper, BoJ Ueda Reiterates Hikes Coming, 10Y Supply Tomorrow
JGB futures are holding weaker but off session lows, -16 compared to settlement levels, on the first day of trading since 30 December.
- According to MNI’s technicals team, medium-term trend signals on the continuation chart continue to point south. A resumption of the trend would pave the way for a move towards 141.56, a Fibonacci projection point on the continuation chart. A stronger recovery would open 144.48, the Nov 11 high.
- BoJ Governor Ueda sent a fresh reminder that he’s going to raise the benchmark rate if the economy continues to improve this year.
- “Our stance is that we will raise the policy interest rate to adjust the degree of monetary easing if economic and price conditions keep improving,” Ueda said. The governor spoke at a conference held by the Japanese Bankers Association. (See BBG link)
- Cash US tsys are ~1bp cheaper in today’s Asia-Pac session.
- Cash JGBs are 1-3bps cheaper across benchmarks beyond the 1-year (+3.4bps). The benchmark 10-year yield is 2.3bps higher at 1.123% after earlier testing the cycle high of 1.134% set on 30 December 2024.
- Swap rates are 1-5bps higher, with the 20-30-year zone leading. Swap spreads are mixed.
- Tomorrow will see Monetary Base data and 10-year supply.
AUSSIE BONDS: Cheaper With US Tsys, Focus On CPI Wednesday
ACGBs (YM -7.0 & XM -7.5) are cheaper after extending weakness induced by US tsys’ heavy close on Friday. This movement aligns with today's Asia-Pac session, where cash US tsys are 1-2bps cheaper, showing a slight steepening bias.
- Cash ACGBs are 7-12bps cheaper, with the 5-year underperforming. The AU-US 10-year yield differential is at -16bps.
- Outside of the previously outlined S&P Global Dec. PMIs, there hasn't been much by way of domestic drivers to flag.
- Swap rates are 6-7bps higher.
- The bills strip is showing -3 to -6 across contracts.
- RBA-dated OIS pricing is flat to 6bps firmer across meetings. A 25bp rate cut is more than fully priced by April (114%), with a February cut at a 57% chance.
- Tomorrow, the local calendar will see Building Approvals data. However, the highlights of the week are likely to be November CPI on Wednesday and retail sales on Thursday.
- November CPI is likely to be watched closely ahead of Q4 data on January 29. It will also include more updates for services components than the October release. Bloomberg consensus is forecasting headline to pickup 0.1pp to 2.2%. Trimmed mean was 3.5% the previous month.
- AOFM Bond issuance is expected to resume in the week beginning 13 January 2025.
AUSTRALIA DATA: Services Outlook Positive But Cost Inflation Picking Up Again
The final December S&P Global composite PMI was revised up 0.3pp to 50.2, the third straight month at this level and signalling only slight growth in activity which is being driven by the services sector. The services PMI was revised up 0.4pp to 50.8 to be 0.3pp higher than November but the Q4 average eased to 50.8 from 51.1. Growth has been stuck at a lacklustre 0.2% q/q for the last three quarters, and the services PMI is suggesting that it is likely to remain weak or possibly moderate further.
- The S&P Global services report was mixed with higher inflation and lower employment but higher demand and confidence at its highest for more than two and a half years. The improvement in sentiment was due to expected rate cuts and “greater opportunities following the Australian elections”.
- The pickup in the December services PMI was driven by increased new business as “client interest” developed. Export orders grew for the first time in four months driven by the US and Asia.
- Cost pressures rose for the third straight month, but remain slightly below average, due to increased material, transport and wage costs. Selling price inflation picked up too but is also below average.
- There was marginal “job shedding” in December, the first since Covid-impacted August 2021. The shift was driven by less capacity pressures as outstanding work continued to be reduced but also difficulties finding skilled labour to replace voluntary leavers.
- See S&P Global report here.
Australia S&P Global services PMI vs GDP q/q%
BONDS: NZGBS: Yields Closed Higher But Slightly Outperformed $-Bloc
NZGBs closed cheaper, with the 10-year yield 4bps higher at 4.46%, the day's high. However, on a relative basis, the NZ 10-year outperformed its $-bloc counterparts, with the NZ-US and NZ-AU differentials closing 1-2bps wider.
- It was offshore factors that drove the local market, with the local calendar light again this week. Tomorrow’s release of ANZ Commodity Prices is the sole release for the week.
- On that front, cash US tsys are 1-2bps cheaper in today’s Asia-Pac session after Friday’s heavy close.
- Swap rates closed 3-7bps higher, with the 2s10s curve steeper.
- RBNZ dated OIS pricing closed 1-4bps firmer for meetings out to July. 52bps of easing is priced for February, with a cumulative 127bps by November 2025.
FOREX: Safe Havens Weaken As US Yields Firm, CAD Higher On Trudeau Headlines
FX trends have been mixed in the first part of Monday trade. The USD indices sit down a touch, off earlier highs, with JPY and CHF underperforming other G10 currencies. The BBDXY index was last just under 1312, still within striking distance of recent cycle highs above 1316.
- USD/JPY has firmed but hasn't tested above 158.00. We were last near 157.70/75, around 0.30% weaker in yen terms. USD/CHF was close to 0.9100.
- US yields have firmed, following on from recent US data beats and cautious Fed commentary around the inflation outlook. We are away from best levels from a yield standpoint, up a little over 1.5bps at the back end of the curve. The 10yr at 4.61% is short of late 2024 highs near 4.64%.
- Comments from BoJ Governor Ueda crossed the wires earlier. The were consistent with remarks from late Dec, around the timing of the next rate move is dependent on the growth/inflation outlook and wages are a key variable.
- We had final PMI reads for the Japan and Australian PMIs (services) but they didn't shift sentiment. China's Caixin services PMI printed stronger than forecast, but also didn't shift sentiment greatly. Regional equity trends are mixed.
- AUD and NZD sit higher, but still close to recent lows. AUD/USD around 0.6225, while NZD/USD is in the 0.5620/25 region.
- EUR/USD has been supported sub 1.0300.
- CAD is around 0.30% firmer, with USD/CAD last near 1.4400. Session lows in the pair were at 1.4388. Support for CAD was evident post local news wire headlines that PM Trudeau may resign this week ahead of a caucus meeting on Wednesday.
- Later the Fed’s Cook speaks. US & European December services/composite PMIs and preliminary December German CPI data are released.
ASIA STOCKS: Tech Outperforms, Japan Markets Down After Break
Asian stock trends are mixed in the first part of Monday trade. Japan markets have returned after a 3 day break and are tracking lower. The major indices off over 1% at this stage. Electronics are autos are underperforming post the break. The positives have been in tech focused plays, with South Korea and Taiwan outperforming.
- China and Hong Kong markets have been mixed, but sit weaker at the break, albeit only modestly. The better than expected Caixin services PMI print did little to lift sentiment. Markets are waiting fresh stimulus details, with the PBoC stating it will cut the RRR and interest rates at an appropriate time.
- The CSI 300 is sub 3800, the HSI still under 20000.
- The Taiex is up 2.65% to 23500 in Taiwan, while the Kospi is up over 1.5%. In US trade on Friday the SOX surged over 3%. Positive investment commitments from Microsoft is aiding sentiment in the tech related space.
- Other markets are showing more mixed trends, but aggregate moves remain modest.
OIL: Crude Off Intraday Highs, PMIs Released Later Today
Oil prices are off their intraday high to be down slightly during APAC trading today but are still close to the three-month high. Brent rose to $76.89/bbl but is now down 0.1% to $76.47. WTI reached $74.39/bbl before trending down to $73.90. The USD index is down 0.1% but off its intraday low.
- Some Middle Eastern pricing is signalling that demand has picked up from Asia and markets are waiting for prices from Saudi Arabia to confirm this. Crude from sanction-hit Iran and Russia has become scarcer, as sanctions target their shadow fleets.
- The market continues to expect excess supply in 2025 with demand from China likely to remain soft and non-OPEC supply forecast to rise with the risk OPEC+ decides to begin output normalisation. Morgan Stanley is projecting a surplus of around 700kbd this year. But there is a lot of uncertainty surrounding the new US administration and geopolitics.
- Later the Fed’s Cook speaks. US & European December services/composite PMIs and preliminary December German CPI data are released.
GOLD: Holding Friday Losses, But Above 20 & 50-Day EMA Support Points
Gold is a touch higher in the first part of Monday dealings, last near $2641. This follows Friday's 0.67% loss, amid a generally supported US yield backdrop and caution from Fed officials around the inflation outlook. Bullion is still up from end 2024 levels ($2624.5).
- US yields have pushed higher today (+1-2bps firmer), although hasn't weighed materially on gold at this stage.
- Spot gold is close to the 20 and 50-day EMA support zones, although the 100-day, which sits near $2600, is arguably more important. We tested sub this support zone on a number of occasions through late 2024 but each time the dip was supported.
- A fresh cycle high in the US 10yr real yield may see gold revisit these lows. On the topside, gold has found selling interest above $2700 since late November.
- Focus will rest on the FOMC minutes and US NFP print later this week.
THAILAND: Inflation Returns To Target Allowing BoT To Watch & Wait
Thai headline CPI inflation ended 2024 within the central bank’s 1-3% corridor – just. December CPI was lower-than-expected with headline at 1.2% y/y up from 0.9%, the highest since May, and core steady at 0.8% y/y, where it has been for four straight months.
- The Bank of Thailand (BoT) kept rates unchanged in December after cutting them 25bp in October. It reiterated today that it wants to keep its policy rate around neutral to allow for room to react given the heightened level of uncertainty, especially from overseas. Inflation back within the band, if sustained, should give it room to continue resisting government pressure to cut rates before it is ready. It expects growth to improve to 2.9% this year up from 2.7% in 2024. The next rate decision is February 26.
- 2024 inflation was very subdued with headline averaging 0.4% but it did improve over the year starting at -1.1% y/y in January. Underlying inflation averaged 0.6% over the year and rose moderately from its 0.36% low in June to 0.77% in September. BoT is forecasting 2025 inflation at 1.1%.
- Higher fuel prices helped the CPI return to the target band in December and the government expects it to rise further in Q1 due to diesel and food prices, but the increase in the minimum wage is not expected to affect Q1 inflation.
- Food prices were steady in December at 1.3% y/y but rice & cereal picked up to 1.4% from 0.9%, while meat, eggs & milk fell and fruit & veg remained steady but negative.
- Non-food inflation picked up to 1.2% y/y from 0.7% driven by transportation as fuel prices rose.
Thailand CPI y/y%
ASIA FX: Authorities Ramp Up Yuan Rhetoric But USD/CNH Dips Supported
There were lots support points around the yuan today. Onshore media stated the PBoC would keep the currency basically stable and has a number of tools to deal with depreciation. The CNY fixing bias remained firmly against depreciation pressures, while it was reported that bill issuance in Hong Kong will step up in January. USD/CNH saw lows of 7.3463, against earlier highs of 7.3647, but has been support on dips. We were last 7.3575, little changed for the session.
- The Caixin services PMI beat expectations, and while all of the PMIs are above the 50.0 expansion/contraction point, there was little positive follow through to the yuan or China equities. Spot USD/CNY is close to 7.3300, which isn't too far off the upper daily trading limit (+2% above today's fixing level of 7.1876).
- Spot USD/KRW has been range bound, last near 1470. Earlier Dec FX reserves were steady. North Korean launched a ballistic missile to coincide with US Secretary of State Blinken's visit to South Korea, but asset market sentiment remained steady. South Korean stocks are higher, up nearly 2%, amid broader tech gains. This isn't aiding the won though.
- Spot USD/TWD is little changed, last near 32.90. Early highs came in at 32.95, levels last seen in 2016.
ASIA FX: Dollar Firmer Against SEA FX, USD/THB & USD/MYR Close To Dec Highs
In South East Asia FX, the USD has mostly been on the front foot. Baht has lost close to 0.60%, MYR is down 0.30%, while PHP has lost 0.20%. IDR is close to flat, while USD/INR is a touch higher. The elevated US yield backdrop, coupled with weaker yuan and yen levels are weighing on sentiment. Regional equities are also struggling for positive outside of positive tech trends.
- USD/THB is back to 34.65, close to late Dec highs above 34.67. Beyond this level we have the 35.00 figure level, which was last tested in mid Nov. Thailand inflation printed slight below expectations for Dec, but was back within the central bank's target band. This is reinforcing the central bank's watch and wait approach, despite domestic onshore pressure.
- USD/MYR has probed above 4.5100, last near 4.5150, which is right on late Dec highs. The simple 200-day MA is around 4.5325 on the topside.
- USD/PHP continues to recover from the late 2024 pullback sub 58.00, the pair back to 58.30/35 in the first part of Monday trade. USD/IDR is relative steady, holding under 16200. USD/INR is up to 85.80/85, fresh record highs, but Rtrs noted intervention related flows to curb the rise.
UP TODAY (TIMES GMT/LOCAL)
| Date | GMT/Local | Impact | Country | Event |
| 06/01/2025 | 0730/0830 | ** |  CH | Retail Sales |
| 06/01/2025 | 0815/0915 | ** |  ES | S&P Global Services PMI (f) |
| 06/01/2025 | 0815/0915 | ** | ES | S&P Global Composite PMI (final) |
| 06/01/2025 | 0845/0945 | ** |  IT | S&P Global Services PMI (f) |
| 06/01/2025 | 0845/0945 | ** | IT | S&P Global Composite PMI (final) |
| 06/01/2025 | 0850/0950 | ** |  FR | S&P Global Services PMI (f) |
| 06/01/2025 | 0850/0950 | ** | FR | S&P Global Composite PMI (final) |
| 06/01/2025 | 0855/0955 | ** |  DE | S&P Global Services PMI (f) |
| 06/01/2025 | 0855/0955 | ** | DE | S&P Global Composite PMI (final) |
| 06/01/2025 | 0900/1000 | ** |  EU | S&P Global Services PMI (f) |
| 06/01/2025 | 0900/1000 | ** | EU | S&P Global Composite PMI (final) |
| 06/01/2025 | 0930/0930 | ** |  GB | S&P Global Services PMI (Final) |
| 06/01/2025 | 0930/0930 | *** | GB | S&P Global/ CIPS UK Final Composite PMI |
| 06/01/2025 | 1300/1400 | *** | DE | HICP (p) |
| 06/01/2025 | 1445/0945 | *** |  US | S&P Global Services Index (final) |
| 06/01/2025 | 1445/0945 | *** | US | S&P Global US Final Composite PMI |
| 06/01/2025 | 1500/1000 | ** | US | Factory New Orders |
| 06/01/2025 | 1630/1130 | * | US | US Treasury Auction Result for 26 Week Bill |
| 06/01/2025 | 1630/1130 | * | US | US Treasury Auction Result for 13 Week Bill |
| 06/01/2025 | 1800/1300 | *** | US | US Note 03 Year Treasury Auction Result |
| 07/01/2025 | 0001/0001 | * | GB | BRC-KPMG Shop Sales Monitor |
| 07/01/2025 | 0030/1130 | * |  AU | Building Approvals |
| 07/01/2025 | 0730/0830 | *** | CH | CPI |
| 07/01/2025 | 0745/0845 | *** | FR | HICP (p) |
| 07/01/2025 | 0830/0930 | ** | EU | S&P Global Final Eurozone Construction PMI |
| 07/01/2025 | 0900/1000 | ** | EU | ECB Consumer Expectations Survey |
| 07/01/2025 | 0900/1000 | *** | DE | Bavaria CPI |
| 07/01/2025 | 0930/0930 | ** | GB | S&P Global/CIPS Construction PMI |
| 07/01/2025 | 1000/1000 | ** | GB | Gilt Outright Auction Result |
| 07/01/2025 | 1000/1000 | ** | GB | Gilt Outright Auction Result |
| 07/01/2025 | 1000/1100 | *** | EU | HICP (p) |
| 07/01/2025 | 1000/1100 | ** | EU | Unemployment |
| 07/01/2025 | 1000/1100 | *** | IT | HICP (p) |
| 07/01/2025 | 1330/0830 | ** |  CA | International Merchandise Trade (Trade Balance) |
| 07/01/2025 | 1330/0830 | ** | US | Trade Balance |
| 07/01/2025 | 1330/0830 | ** | CA | International Merchandise Trade (Trade Balance) |
| 07/01/2025 | 1355/0855 | ** | US | Redbook Retail Sales Index |