- The Australian Nov CPI saw a further easing in core y/y momentum, which saw RBA easing odds firm. The A$ was supported on dips though.
- US cash bonds are little changed. In Japan, JGB futures are sharply weaker, -32 compared to the settlement levels, but off session cheaps.
- In China, we had briefing on the expanded consumer trade-in program, designed to boost consumption/domestic demand. China and Hong Kong equities track lower, but are up from session lows.
- Later the Fed’s Waller speaks on the economic outlook and the December FOMC minutes are published. US jobless claims, December ADP employment and November consumer credit as well as November German orders & retail sales and December euro area European Commission survey print.
MARKETS
TYH5 is 108-05+, flat from NY closing levels.
- Cash bonds are little changed in today’s Asia-Pac session after finishing 2-7bps cheaper yesterday, with a steeper curve, following stronger than expected ISM services and JOLTS data.
- MNI's preview of the Minutes includes what to watch for upon release; MNI's FOMC Hawk-Dove Spectrum; key highlights of FOMC participant commentary since the December meeting; and sell-side analyst expectations. See here
- Reminder, much of Thursday's data has been moved to Wednesday (Wholesale Sales, Weekly Jobless Claims) as well as the 30Y Bond auction re-open to avoid conflicts with Thursday's Federal Holiday/day of Mourning for former President Carter.
- The CME Group FI trade closes at 1315ET on Thursday. Thursday still includes Challenger Job cuts at 0730ET, Tsy 4- & 8W bill auctions at 1130ET, and several scheduled Fed speakers throughout the day.
FED: MNI FOMC Minutes Preview: December 2024
We've just published our preview of the December FOMC Minutes (PDF here):
- The minutes to the December 2024 FOMC meeting (released Wednesday Jan 8 at 1400ET) should provide further context for what Chair Powell dubbed a “closer call” but ultimately the “right call” to cut rates by 25bp.
- There are several elements to watch for in the minutes, including the degree to which anticipated Trump administration policies affected participants' forecasts, the shift in the perceived balance of risks, and how "close" a call it was to cut rates at all in December.
- MNI's preview of the Minutes includes what to watch for upon release; MNI's FOMC Hawk-Dove Spectrum; key highlights of FOMC participant commentary since the December meeting; and sell-side analyst expectations.
CANADA: Economy Vulnerable To US Protectionism, US Deficit With Mexico Larger
On Tuesday President-elect Trump reiterated his plan to impose “very serious tariffs on Mexico and Canada” and that Canada makes “20 per cent of our cars. We don’t need that. I’d rather make them in Detroit”. He is known to make threats to increase his bargaining power while renegotiating deals. Canada is highly exposed to the US with merchandise exports to its southern neighbour accounting for around 76% of total exports in 2024.
2023 exports to the US %
Source: MNI - Market News/Refinitiv
- The US bilateral deficit with Canada has widened close to $45bn since 2020 but that deterioration was in 2021-2022 with the deficit narrowing over 2023-2024. The deficit with Mexico is almost three times larger than with Canada though and it has deteriorated over the last three years. Europe is also likely to stay in focus with the deficit widening around $25bn last year.
US merchandise trade deficit US$bn 12mth sum
- The US is by far Canada’s largest trading partner with their supply chains significantly intertwined. In November, 75.6% of Canadian exports went to the US while in second place was the UK at 4.4% and China 4.2%. While this is just a monthly snapshot, it shows Canada’s vulnerability to the US. In 2023, merchandise exports to the US accounted for over 20% of Canadian GDP.
- Motor vehicles for persons were Canada’s fourth largest export in November with parts another important export. The US was by far the largest destination with Mexico a distant second. If the US targeted this sector, then it would be significantly impacted.
- The key motor vehicle sectors accounted for around 8.5% of Canada’s November exports to the US. However, commodities are significantly more important, especially oil, accounting for around 30% of shipments.
JGBS: Cash Yields Hovering Around Highest Levels Since 2011
JGB futures are sharply weaker, -32 compared to the settlement levels, but off session cheaps.
- With local calendar light the focus has been on US tsys after yesterday's bear-steepener following stronger-than-expected ISM services and JOLTS data. Currently, cash US tsys are little changed in today’s Asia-Pac session.
- MNI's preview of tonight’s release of the FOMC’s Minutes includes what to watch for upon release; MNI's FOMC Hawk-Dove Spectrum; key highlights of FOMC participant commentary since the December meeting; and sell-side analyst expectations. See here
- Japanese yields are running at the highest since July 2011, with cash JGBs 1-3bps cheaper across benchmarks. The benchmark 10-year yield is 2.5bps higher at 1.160% after setting a fresh cycle high of 1.183% today.
- Swaps are mostly cheaper, with rates 1bp richer to 4bps higher. Swap spreads are mixed.
- BoJ-dated OIS pricing is marginally mixed versus pre-Dec MPM levels, with meetings out to June 2025 1-3bps softer but meetings beyond 1bp firmer.
- Tomorrow, the local calendar will see Real and Labor Cash Earnings, Weekly International Investment Flows and Tokyo Avg Office Vacancies data alongside 30-year supply.
AUSSIE BONDS: Holding Richer After CPI Data But Off Bests
ACGBs (YM flat & XM -4.0) are mixed but 2-4bps stronger versus pre-CPI Monthly levels.
- While November headline inflation picked up 0.2pp to 2.3% y/y, the focus was on trimmed mean today given current state & federal electricity rebates. This underlying measure eased 0.3pp to 3.2% to where it was in September.
- However, the RBA continues to focus on quarterly CPI data and it wants to be confident that inflation will return sustainably to the band. It is too early to tell if monthly inflation is trending lower again, thus attention will be firmly on Q4 CPI on January 29.
- Cash ACGBs are flat to 4bps cheaper, with a steeper curve. The AU-US 10-year yield differential is at -17bps.
- The swaps curve has bear-steepened, with rates flat to 4bps higher.
- The bills strip is slightly mixed, but 1-3bps richer after the data.
- RBA-dated OIS pricing is 1-4bps softer across meetings after the data, with July leading. A 25bp rate cut is back to being more than fully priced by April (117%), with the probability of a February cut standing at 64%.
- Before the data, the likelihood of a 25bp cut in April had slipped to 98%.
- The local calendar shows retail sales and trade balances tomorrow.
AUSTRALIA DATA: Too Early To Tell If Downtrend In Core Inflation Has Resumed
While November headline inflation picked up 0.2pp to 2.3% y/y, the focus is on trimmed mean given current state & federal electricity rebates and this underlying measure eased 0.3pp to 3.2%, where it was in September. However, the RBA continues to focus on quarterly CPI data and it wants to be confident that inflation will return sustainably to the band. It is too early to tell if monthly inflation is trending lower again, thus attention will be firmly on Q4 CPI on January 29.
Australia monthly CPI y/y%
- Domestically-driven services prices were updated in November and they moderated to 4.2% y/y, the lowest since April, down from 4.8%. The series is a bit volatile and November was in line with the 2024 average but 3-month momentum has been trending lower since June. Non-tradeables rose to 3.2% y/y from 3.0% but below September’s 3.5%.
- Goods inflation remained subdued at 0.8% y/y but up from 0.1% in October with tradeables up 0.1pp to 0.6% y/y. RBA Governor Bullock warned previously that the disinflationary impact from goods prices is probably done.
- The timing of electricity rebate payments contributed to the pickup in headline inflation. The ABS said that prices fell 21.5% y/y in November after -35.6% y/y. Excluding all subsidies, electricity would have been down 1.7% y/y.
- Petrol prices put less downward pressure on headline inflation in November falling 10.2% y/y after -11.5%, and they posted their first monthly rise since June.
- Rents increased 6.6% y/y after 6.7%, as the market remains tight. New dwelling inflation eased to 2.8% y/y from 4.2%, the lowest since July 2021. The ABS notes that builders are offering deals to attract customers.
- Food & non-alcoholic beverages rose 2.9% y/y down from 8.5% in October.
GLOBAL MACRO: Australia’s Services Inflation Not As High As US & UK
Previously the RBA had been concerned that Australian inflation was higher than other OECD countries. The picture is now mixed. However, Australia’s unemployment rate at 3.9% is below most developed markets contributing to the RBA’s extended monetary policy pause. In November underlying trimmed mean CPI rose 3.2% y/y, higher than the euro area, Norway and Canada but is now in line with the US, who has experienced stronger GDP growth. While services inflation has also been sticky in Australia rising 4.2% y/y in November, it is better than in the US (4.5%) and UK (5.0%) but still higher than the euro area and Norway.
OECD underlying CPI y/y%
Source: MNI - Market News/ABS/Refinitiv
AUSTRALIA: Housing Affordability Remains Poor, House Prices Diverge
Q4 CoreLogic home values were flat on the quarter to be up 5.3% y/y down from +1.3% q/q and 7.6% y/y in Q3. The capital city index fell in each of the three months in the final quarter driven by weakness only in Sydney and Melbourne. This levelling out in house prices, rising disposable income and stable mortgage rates have helped housing affordability to stabilise but at a particularly unfavourable level.
- Mortgage rates are likely to fall during 2025 but the timing remains unclear. The OIS market has a full 25bp by the April 1 RBA decision and close to 3 cuts by year end. But the RBA remains highly data dependent and while it is becoming more confident that inflation is sustainably returning to the band, there is still further to go.
- Flat Q4 house prices helped affordability to stabilise at 43% below trend but at this stage it is difficult to see a meaningful fall in dwelling prices which is needed to boost affordability but this hides state-based differences. In contrast, affordability is improving in NZ with falling rates and house prices.
Australia housing affordability vs valuation % deviation from trend
Source: MNI - Market News/Refinitiv
- Working age population growth moderated to 2.4% y/y in November from 3% a year ago, but it continues to grow by 40-50k/month ensuring continued robust housing demand. While supply remains constrained with only a tentative recovery in building approvals.
- Housing remains overvalued based on the house price to rents ratio but it has become less so over the last year. Our housing valuation index was 7.6% above trend in Q4, assuming Q4 CPI rents at 6.5% y/y, compared to 10.6% in Q4 2023 and a peak of 24.2% during Covid.
- The Westpac/MI “time to buy a home” index picked up in Q4 but remains at depressed levels due to high house prices and mortgage rates. But December house price expectations fell 5.3% m/m and 9.7% y/y to the lowest level since April 2023.
Australia Westpac/MI "time to buy a home" nsa
AUSTRALIA DATA: First Rise In Vacancies In Over Two Years
November quarter job vacancies rose 4.2% q/q, the first quarterly increase since Q2 2022, leaving the annual rate down 10.3% y/y after -17.1% y/y. The labour market has remained strong despite weak growth with almost 400k new jobs in the year to November. The vacancy data is suggesting that there will little easing in the December data released on January 16. The RBA has noted that “vacancies are still relatively high”.
- In December, the RBA said “that labour market conditions remain tight, while those conditions have been easing gradually, some indicators have recently stabilised”. The latest ABS vacancy data is consistent with this.
- The S&P Global December services PMI report noted that there was marginal “job shedding” in December. The shift was driven by less capacity pressures but also difficulties finding skilled labour to replace voluntary leavers. These shortages may have contributed to the pickup in vacancies.
- With the number of unemployed falling 3.0% q/q in Q4, the vacancy-to-employment ratio rose to 4pp to 56.9%, but still below Q2’s 57.9%. The ratio remains elevated and around 20pp above the historical average, signalling that labour market conditions remain robust, as also demonstrated by low unemployment & underemployment rates.
- Vacancies rose in 14 out of 18 industries with the strongest in "customer-facing" sectors. The private sector rose 4.7% q/q and public +0.4% q/q.
Australia vacancies-to-unemployed %
BONDS: NZGBS: Bear-Steepener As ACGB Spillover Fades
NZGBs closed showing a bear-steepener, with benchmark yields 6-7bps higher.
- NZ commodity export prices rose 0.2% m/m in December versus +2.9% in November, according to ANZ Bank.
- NZGBs rallied initially with ACGBs on the back of a drop in Australian Trimmed Mean CPI in November, but this proved fleeting. By the close, there was close to no net change in NZGB yields versus pre-data levels despite ACGBs holding 3-5bps richer. The NZ-AU 10-year differential widened by 3bps on the day.
- Cash US tsys are flat in today’s Asia-Pac session after yesterday’s bear-steepener. The NZ-US 10-year yield differential is unchanged on the day.
- Reminder, much of Thursday's US data has been moved to Wednesday (Wholesale Sales, Weekly Jobless Claims) as well as the 30Y Bond auction re-open to avoid conflicts with Thursday's Federal Holiday/day of Mourning for former President Carter.
- Swap rates closed 1-7bps higher, with the 2s10s curve steeper.
- RBNZ dated OIS pricing closed flat to 2bps firmer. 51bps of easing is priced for February, with a cumulative 125bps by November 2025.
- The local calendar is empty for the rest of the week. The next release of data is Monday, with Building Permits and Filled Jobs on tap.
ASIA STOCKS: China Markets Weaker Despite Consumer Support, Aust Mkt Up On CPI
Markets in North East Asia are negative, with the exception of South Korean stocks. At this stage, China and Hong Kong markets are off the most, around 1.5-1.6% weaker for the aggregate headline CSI 300 and HSI indices. The onshore briefing around the expanded consumer trade in program for appliances and motor vehicles not shifting the sentiment needle positively.
- Consumer related sub indices for the CSI 300 are weaker, while the property sub index is also softer, down 2.2% at this stage. In HK the tech sub index is down 2.2% as well. Broader tech headlines from Tuesday US trade, as Nvidia pulled back, aren't helping sentiment in this space. In Taiwan, the Taiex is off around 0.80%.
- In contrast, South Korea markets have bucked the softer trends, with the Kospi rebounding from opening weakness, last up over 1.1%. We had disappointment earning results from both Samsung and LG, but dips have been bought. All the bad news is priced in has been cited as a positive for Samsung.
- In Australia, the ASX 200 is up close to 1%. Sentiment has been supported by the Nov CPI print, which showed the trimmed mean moderated further in y/y terms, supporting local bonds and RBA rate cut prospects.
- For SEA markets, trends are mixed, Singapore stocks higher, but a mostly negative bias elsewhere.
FOREX: A$ Supported Despite Higher RBA Easing Odds, Steady Trends Elsewhere
Aggregate FX moves are very muted in the first part of Wednesday trade. The USD BBDXY index is little changed versus end Tuesday levels in NY, last near 1307.
- AUD/USD moved from above 0.6240 to 0.6212 post Nov CPI data. The data showed headline CPI pressures ticking up in y/y terms, but the RBA's preferred inflation measure, the trimmed mean, eased back to 3.2% y/y from 3.5% (closer to the top end of the RBA's target band). An RBA cut is more than fully priced for the April meeting and 64% for the February meeting.
- Follow through downside for the A$ hasn't materialized though, we sit back in the 0.6230/35 region now, little changed for the session. NZD/USD saw some negative spill over from the A$ dip, but likewise has been supported, the pair last near 0.5635.
- China and Hong Kong equities are down at the lunch time break, off 1.5-1.6%, with sentiment not boosted by details around the expanded consumer trade in appliance/motor vehicle program.
- US equity futures are up a little over 0.20%, which is perhaps providing some offset. In the US yield space, we have seen little net movement after Tuesday's yield bounce following better than expected data outcomes.
- USD/JPY has tracked recent ranges, with Tuesday's high above 158.40 holding, while dips sub 158.00 have been supported. EUR/USD is a touch higher, last near 1.0350.
- Later the Fed’s Waller speaks on the economic outlook and the December FOMC minutes are published. US jobless claims, December ADP employment and November consumer credit as well as November German orders & retail sales and December euro area European Commission survey print.
Oil Higher On Softer Supply Expectations & Colder Weather
Oil prices have continued to rise during APAC trading today, but are off their intraday highs, driven by a large reported US inventory drawdown and a cold snap in Europe & the US (heating oil is a distillate). Brent is up 0.4% to $77.32/bbl after reaching $77.47, while WTI is up 0.5% to $74.60/bbl following a high of $74.78. The USD index is up 0.1%.
- There are increasing signs that sanctions are reducing consumption of Iranian and Russian crude with Middle Eastern producers increasing prices to Asia in the face of higher demand, reduced Russian exports and China’s eastern ports requested not to allow US-sanctioned vessels to dock. A tightening of sanctions against Iran by the new US administration is also expected. If the trend persists, then the forecasted excess supply in 2025 may narrow dependent on non-OPEC output and whether OPEC begins to normalise its own production.
- Bloomberg reported that there was a US crude stock drawdown of 4.0mn barrels, more than expected, according to people familiar with the API data. Product inventories continued to rise though with gasoline up 7.3mn and distillate +3.2mn. The official EIA data is published later today.
- Later the Fed’s Waller speaks on the economic outlook and the December FOMC minutes are published. US jobless claims, December ADP employment and November consumer credit as well as November German orders & retail sales and December euro area European Commission survey print.
GOLD: Largely Holding Tuesday's Gains, China Added To Gold FX Reserves in Dec
Gold prices have tracked mostly sideways in the first part of Wednesday trade. We were last near $2647, little changed versus end Tuesday levels in the US. Tuesday's 0.46% gain was aided by the pull back in equity sentiment, with a firmer USD/yields not enough to offset in term's of aggregate performance. Intra-session highs from Tuesday were around $2664.3. Better US data outcomes did help take off this level in Tuesday trade. We remain above the simple 100-day MA, which has been a support point in recent months.
- Outside of traditional macro drivers, China's FX reserves data for Dec showed the central bank continued to add to gold reserves in the month. It resumed such purchases in Nov, after no change in the prior 6 months.
ASIA FX: CNH Steady Despite Equity Drop, USD/KRW Supported Sub 1450
USD/CNH is little changed so far today, a steady fixing and still elevated implied yields acting against a more supportive USD backdrop. The pair last near 7.3440. Spot USD/CNY has edged above 7.3300, leaving it very close to the upper daily trading limit (around 7.3325 today). China equities are notably weaker, off around 1.35% at this stage. The earlier briefing from various officials/departments on the expanded consumer trade-in program, hasn't lifted sentiment at this stage.
- Tomorrow we have the Dec inflation data. The market expects a 0.1%y/y for headline CPI, versus 0.2% prior. PPI is expected to remain in deflation at -2.4%y/y.
- USD/KRW tested against 1450, but found support. We have seen some modest divergence between the won and USD indices in recent sessions. We were last near 1454, off around 0.15% in won terms for the session. We have correct from overbought conditions on USD/KRW though. The authorities stated they are monitoring the slump in local bond yields and will take action if necessary. Local equities are higher, with dips in key tech names supported post earnings results.
- USD/TWD has rebounded, last in the 32.80/85. Earlier 2025 YTD highs rest at 32.95.
ASIA FX: USD Higher Against SEA FX, Indonesia FX Reserves Up Strongly In Dec
South East Asian currencies have lost ground against the USD so far in Wednesday trade. This reflects catch up with USD/yield gains from Tuesday's US session, post firmer data outcomes. Losses have been in the 0.30-0.45% region for the most part, with IDR the worst performer.
- USD/IDR has pushed back above 16200, but this is short of late Dec highs just above 16300, which prompted a response from the authorities. Despite various headlines around intervention at the time, Indonesia's FX reserves still showed a decent climb for Dec, up over $5bn to $155.74bn. This is fresh highs for reserves and also came in a month where the broader USD recorded solid gains. It leaves the authorities with ammunition to guard against further rupiah weakness in the period ahead.
- USD/PHP is up to 58.35/40, close to YTD highs. Still, record highs from late last year near 59.00 remain some distance higher. The unemployment rate edged back down to 3.2% in Nov from 3.9%, but remains within last year's range.
- USD/THB has climbed to 34.60/65, a baht loss of 0.40%. We are just under recent highs close to 34.70. USD/MYR is near 4.5000, holding within striking distance of recent highs (near 4.5200).
UP TODAY (TIMES GMT/LOCAL)
| Date | GMT/Local | Impact | Country | Event |
| 08/01/2025 | 0700/0800 |  SE | Flash CPI | |
| 08/01/2025 | 0700/0800 | ** |  DE | Retail Sales |
| 08/01/2025 | 0700/0800 | ** | DE | Manufacturing Orders |
| 08/01/2025 | 0745/0845 | ** |  FR | Consumer Sentiment |
| 08/01/2025 | 0745/0845 | * | FR | Foreign Trade |
| 08/01/2025 | 1000/1100 | ** |  EU | EZ Economic Sentiment Indicator |
| 08/01/2025 | 1000/1100 | * | EU | Consumer Confidence, Industrial Sentiment |
| 08/01/2025 | 1000/1100 | ** | EU | PPI |
| 08/01/2025 | 1000/1000 | ** |  GB | Gilt Outright Auction Result |
| 08/01/2025 | 1000/1000 | ** | GB | Gilt Outright Auction Result |
| 08/01/2025 | 1005/1005 | GB | BOE's Woods Financial Services Regulation hearing | |
| 08/01/2025 | 1200/0700 | ** |  US | MBA Weekly Applications Index |
| 08/01/2025 | 1300/0800 | US | Fed Gov Waller | |
| 08/01/2025 | 1315/0815 | *** | US | ADP Employment Report |
| 08/01/2025 | 1330/0830 | *** | US | Jobless Claims |
| 08/01/2025 | 1500/1000 | ** | US | Wholesale Trade |
| 08/01/2025 | 1530/1030 | ** | US | DOE Weekly Crude Oil Stocks |
| 08/01/2025 | 1700/1200 | ** | US | Natural Gas Stocks |
| 08/01/2025 | 1800/1300 | *** | US | US Treasury Auction Result for 30 Year Bond |
| 08/01/2025 | 1900/1400 | *** | US | FOMC Minutes |
| 08/01/2025 | 2000/1500 | * | US | Consumer Credit |
| 09/01/2025 | 2330/0830 | ** |  JP | average wages (p) |
| 09/01/2025 | 0001/0001 | ** | GB | KPMG/REC Jobs Report |
| 09/01/2025 | 0001/0001 | * | GB | BRC Monthly Shop Price Index |
| 09/01/2025 | 0030/1130 | ** |  AU | Retail Trade |
| 09/01/2025 | 0030/1130 | ** | AU | Trade Balance |
| 09/01/2025 | 0130/0930 | *** |  CN | CPI |
| 09/01/2025 | 0130/0930 | *** | CN | Producer Price Index |
| 09/01/2025 | 0700/0800 | ** | DE | Trade Balance |
| 09/01/2025 | 0700/0800 | ** | DE | Industrial Production |
| 09/01/2025 | 0900/1000 | *** | DE | North Rhine Westphalia CPI |
| 09/01/2025 | 0930/0930 | GB | Decision Maker Panel data | |
| 09/01/2025 | 1000/1100 | ** | EU | Retail Sales |