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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.
- The BoJ left yen bulls disappointed, with an on hold outcome and no hints of an early 2024 policy shift. JGB futures are slightly stronger at 146.07, +11 compared to settlement levels, after paring the initial spike higher (high of 146.35) following the policy decision.
- Elsewhere, the US announced a joint naval task force to patrol the Red Sea in light of recent attacks on commercial shipping. Oil prices have largely held Monday gains though.
- The RBA minutes stated the board considered two options at the Dec meeting, a rate hike or holding steady. The on-hold outcome won out with the RBA in a wait-and-see mode, particularly with so little fresh data compared to the prior meeting in November.
- Looking ahead, on today's docket we have Home Sales and Consumer Confidence before Fedpseak from Richmond Fed President Barkin and Atlanta Fed President Bostic provide the highlight. Note Canadian CPI is also out.
MARKETS
US TSYS: Narrow Session In Asia, Fedspeak from Barkin & Bostic Due
TYH4 deals at 112-09+, +0-01+, a 0-07 range has been observed on volume of ~88k.
- Cash tsys sit ~1bp cheaper across the major benchmarks.
- Tsys have observed narrow ranges for the most part in Asia today with little follow through on moves. A retreat from session highs was seen alongside JGBs paring post-BOJ gains.
- Flow-wise the highlight was a block buyer in TU (2.3k lots).
- On today's docket we have Home Sales and Consumer Confidence before Fedpseak from Richmond Fed President Barkin and Atlanta Fed President Bostic provide the highlight.
FED: Fed's Daly States Cuts May Be Needed Next Year To Prevent Over-Tightening
In an article in the WSJ by Fed watcher Nick Timiraos, San Francisco Fed President Daly states that rate cuts could be considered next year given how much inflation has improved in 2023 (see this link for more details).
- Daly noted her outlook for rates and inflation were very close to the median projections presented by the Fed last week.
- If inflation continues its recent downward trajectory, 3 rate cuts next year would still leave policy quite restrictive she added.
- She will be focused on labor market developments. Adding that the Fed doesn't want to give price stability but take away jobs.
- The other focus point is real rates, with Daly stating that allowing real rates to increase runs the risk of the Fed over tightening.
OIL: US Announces Naval Task Force To Safe Guard Red Sea
US Defence Secretary Austin has announced that a joint naval task force has been formed to safe guard commercial sea traffic through the Red Sea.
- This follows attacks on ships by Houthi militants, which have come from Yemen. The countries involved in the task force include the US, UK, Bahrain, Canada, Italy, France, the Netherlands, Norway and Spain (BBG, see this link).
- Yesterday crude futures were higher, Brent rising 1.84% to close near $78/bbl. We did get close to $79.50/bbl at one stage. For Brent, note the 50-day EMA comes in at $80.76/bbl.
- Growing disruption in the Red Sea, with companies such as BP and Equinor diverting their cargoes sparked fears for supply passing through the key chokepoint, was a key factor behind Monday's spike.
- In turn this has likely been a key facor behind the US's announcement.
- Bloomberg notes that around 12% of the world's trade goes through the Red Sea.
BOJ: Unchanged & No Hints Of Early 2024 Policy Shift
The BoJ December meeting delivered few surprises. The policy rate was left at -0.1%, while the 10yr JGB yield target at around 0%. The upper bound reference on 10yr JGB yields was also kept at 1%.
- The central bank will also continue with 'patient easing', while it won't hesitate to ease further if necessary. Hence no change to the BoJ's forward guidance.
- Today's policy decision/outcome was also unanimous (9-0 board vote).
- The economy was described as continuing to recover moderately, which was expected to continue. Pent up demand, coupled with improving consumption and business investment trends were cited.
- Inflation expectations are also rising, but again the description was moderately. Inflation is likely be above 2% in fiscal year 2024, before slowing. Underlying inflation is expected to gradually rise towards the BoJ's 2% target.
- Uncertainty around the economic and inflation outlook remain very high. FX and other financial market moves need to be analyzed for their impact on price trends.
- We still have Governor Ueda's press conference later, but this policy announcement doesn't appear to be paving the way for a significant shift at the January policy meeting (23rd Jan next year).
JGBS: Few Surprises From The BoJ, MoF Set To Reduce 20Y Auction Size
JGB futures are slightly stronger at 146.07, +11 compared to settlement levels, after paring the initial spike higher (high of 146.35) following the BoJ Policy Decision. The BoJ left the policy rate at -0.1% and the 10-year yield target at 0%, as expected. The BoJ also kept the upper bound reference rate on long-term yields at 1%.
- The decision to keep all policy parameters unchanged is likely to have disappointed those advocating for a January 2024 exit from the negative interest rate policy (NIRP). The prospect of the BoJ terminating NIRP without prior adjustments to forward guidance is generally perceived as improbable.
- The explicit easing bias was also maintained, with the BoJ stating that it will “patiently continue with monetary easing”. The removal of this easing bias is generally seen as a necessary step before rate hikes are considered.
- The market now awaits Governor Ueda’s press conference at 15:30 Japan time today.
- Cash JGBs have strengthened with the curve bull-flattening. Yields are 0.3bp to 2.5bps lower across benchmarks. The 10-year yield is 2.5bps lower at 0.655% versus today’s high of 0.688%
- The swaps curve has also shifted to a bull-flattening following the decision.
- (Reuters) The MoF is set to front-load reductions in 20-year JGBs by Y200bn from January as rising interest rates dampen investor appetite for the interest-bearing long-dated debt, two government sources said.
AUSSIE BONDS: Cheaper, BoJ Decision Absorbed With Little Impact
ACGBs (YM -6.0 & XM -6.5) sit in the middle of today’s Sydney session ranges after the RBA Minutes did not serve as a significant domestic market driver ahead of the BoJ Policy Decision, which stood out as the focal point for today’s Asia-Pac session.
- The RBA board considered two options at the Dec meeting, a rate hike or holding steady. The on-hold outcome won out with the RBA in a wait-and-see mode, particularly with so little fresh data compared to the prior meeting in November.
- The BoJ decision revealed unchanged policy parameters, as expected. Nevertheless, the market exhibited a mild strengthening following the announcement, indicating that certain participants had positioned themselves for a potentially hawkish surprise. The market now awaits Governor Ueda’s press conference at 15:30 Japan time today.
- The domestic market and US tsys have absorbed the BoJ decision without significant impact, with the latter trading flat to 2bps cheaper in today's Asia-Pac session, despite the strengthening in JGBs.
- Cash ACGBs are 6bp cheaper, with the AU-US 10-year yield differential 2bps wider at +17bps.
- Swap rates are 5-6bps higher.
- The bills strip is cheaper, with pricing -5 to -7.
- RBA-dated OIS pricing is 2-6bps firmer on the day. 54bps of easing is still priced for Nov’24.
- The local calendar is empty tomorrow and Thursday.
NZGBS: Cheaper Ahead Of Tomorrow’s Fiscal Update, BoJ Delivered Few Surprises
NZGBs have closed flat to 2bps cheaper across benchmarks after trading within a relatively narrow ranges during today’s local session. Despite the trade balance outperforming expectations, it did not serve as a significant domestic market driver ahead of the BoJ Policy Decision, which stood out as the focal point for today's Asia-Pac session.
- In line with expectations, the BoJ decision revealed unchanged policy parameters. Nevertheless, the market exhibited a mild strengthening following the announcement, indicating that certain participants had positioned themselves for a potentially hawkish surprise. The market now awaits Governor Ueda’s press conference at 15:30 Japan time today. The local market was closed when JGB futures resumed trading after the BoJ decision.
- US tsys are dealing flat to 2bp cheaper in today’s Asia-Pac session despite the richening in JGBs.
- The swaps curve finished with a twist-flattening, with rates 4bps higher to 3bps lower.
- RBNZ dated OIS pricing closed 1-4bps firmer across meetings. 97bp of easing is still priced for Nov’24.
- Tomorrow, the local calendar sees the Half-Year Economic and Fiscal Update.
FOREX: Yen Pressured After BOJ Holds Policy Steady
The Yen has been pressured as the BOJ held policy unchanged as expected with the short-term rate at -0.1% and a target for the 10-year JGB yield at about 0%. USD/JPY last prints at ¥143.45/50, ~0.5% higher today. We sit a touch below the immediate post decision high of ¥143.73.
- Resistance at ¥143.16, high from Dec 18, has been breached and the next target for bulls is ¥143.78, 50.0% retracement of Dec 11-14 sell off. A break through here opens ¥146.59, High from Dec 11 and key short term resistance.
- Kiwi is firmer, NZD/USD is up ~0.3% as yesterday's NY session losses are trimmed. A reminder that early in today's session the November Trade Balance narrowed a touch from October printing at $1.234bn. ANZ Business Confidence ticked higher in December to 33.2 from 30.8, the Activity Outlook rose to 29.3 from 26.3.
- AUD/USD is up ~0.2%, the pair is consolidating above the $0.67 handle today. Support was seen for the AUD after the RBA minutes were a touch hawkish.
- Elsewhere in G-10 there have not been any moves of note.
- Cross asset flows are muted; US Tsys and US Equity futures are little changed today, as is WTI.
EQUITIES: Japan Markets Firm Post Dovish BoJ Hold, HK Markets Weighed By Property
Regional equities are mixed in Asia Pac markets for Tuesday trade. Japan markets have risen post the dovish BoJ hold. Hong Kong and China markets have struggled somewhat amid further property related concerns. US futures have been range bound, Eminis last close to 4793, nearly flat for the session. Nasdaq futures sit down a touch.
- Japan shares opened up after the lunch time break on a positive footing, albeit losing ground from best levels. The Nikkei 225 was last around +1%, while the Topix was around 0.40% higher.
- The BoJ left all major policy parameters unchanged, while it also didn't hint an imminent policy shift in early 2024. The announcement weakened the yen, aiding the share backdrop, although bank stocks have underperformed.
- At the break in HK, the HSI sits down 0.61%. Country Garden services fell sharply as it set aside funds for an impairment provision. Stocks in the company hit an all time low. This comes after yesterday's announcement from China South City Holdings that it wouldn't be able to pay interest due tomorrow.
- On the mainland, the CSI 300 and Shanghai Composite are close to flat at the break.
- Elsewhere, the Taiex is down -0.85%, while the Kospi is near flat. The ASX 200 is up 0.80%, aided by higher commodity prices.
- In SEA, most markets are higher, but gains are limited (sub 0.50%) at this stage.
OIL: Largely Holding Monday Gains, As US Announces Red Sea Naval Task Force
Oil benchmarks have largely drifted sideways in the first part of Tuesday trade. We were last near $78.10/bbl for Brent, a touch above end Monday levels. WTI was last around $72.35bbl, down slightly from end Monday levels near $72.50/bbl.
- Near term focus remains on developments in the Red Sea, where attacks from Houthi rebels in Yemen is threatening a major oil shipping route. Several companies announced yesterday they were diverting shops away from the region.
- Headlines earlier today crossed that the US has put together a new naval task force to patrol the troubled area and protect commercial vessels (see this link for more details).
- Focus will be whether Houthi (who are backed by Iran) attacks escalate from here and cause further stress in terms of shipping lines.
- For Brent we are above $77.81 (20-day EMA) with Monday's high of $79.49 stopping short of resistance at $80.76 (50-day EMA).
GOLD: Geopolitical Tensions Buoyed Bullion
Gold is little changed in the Asia-Pac session, after closing 0.4% higher at $2027.19 on Monday.
- Increased geopolitical tensions buoyed bullion. Vessel attacks in the Red Sea are increasing. Yemen’s Iranian-backed Houthi rebels have claimed responsibility for attacks on two ships on December 18 - the Swan Atlantic and MSC Clara - using naval drones, according to Alarabiya news.
- The precious metal’s gain came despite Fedspeak continuing to push back against expectations for early and significant rate cuts next year.
- Fed Mester told the FT that the market had gotten “a little bit ahead” by pencilling in early interest rate cuts, “the next phase is … about how long do we need monetary policy to remain restrictive in order to be assured that inflation is on that sustainable and timely path back to 2%”. Meanwhile, Fed Goolsbee told CNBC he was confused with the market’s reaction to the Fed’s policy update last week.
- However, the cheapening in US Treasury benchmarks was small, with yields finishing flat to 4bps higher.
ASIA FX: USD/Asia Pairs Drift Higher, MYR Outperforms
USD/Asia pairs are either modestly higher, or flat for Tuesday trade. MYR is the exception, with higher energy prices potentially helping at the margins. A weaker yen, post the dovish BOJ hold, has also been a headwind at the margins. Overall losses against the USD have been fairly modest though. Tomorrow the main focus will be on the 1yr and 5yr LPR outcomes in China, no change is expected. Also due is Taiwan export orders.
- USD/CNH has mostly been supported on dips today, albeit within confined ranges. The pair was last near 7.1450. Spot USD/CNY has also recovered, back to 7.1430. Weaker equity sentiment in HK, amid further property related headwinds has not aided yuan sentiment. The USD/CNY fixing was set higher, albeit with the error term widening.
- 1 month USD/KRW sits around 0.20% above Monday NY closing levels in recent dealings. The pair at 1304.6 is back above its 20-day EMA, but firmer resistance is likely towards the 1315/20 region which has marked recent highs and were more EMA resistance points are evident. Higher USD/JPY levels post the on hold BOJ outcome have likely weighed on the won at the margins. Still to come is the BOK minutes from the most recent policy meeting.
- The Rupee has ticked lower in early dealing this morning as post-FOMC gains are trimmed. An uptick in US Tsy Yields is weighing as FOMC officials pushed back on 2024 rate cut expectations. USD/INR sits at 83.19/20, ~0.2% above yesterday's closing levels. A reminder that the local docket is empty this week.
- USD/IDR has been supported on dips during today's session, the pair last near 15510, little changed for the session, but up from earlier lows (15488). We remain within recent ranges for the pair, with Thursday's BI meeting the next major local focus point. A firmer core yield backdrop has likely weighed in recent dealings.
- The Ringgit was pressured on Monday as higher US Tsy Yields weighed, losses have been trimmed in early trading this morning. USD/MYR has broken the 20-Day EMA (4.6820) and is consolidating above the measure this morning. Novembers Trade Surplus was narrower than forecast, printing at MYR 12.41bn, a surplus of MYR 16.54bn was forecast.
- The SGD NEER (per Goldman Sachs estimates) is steady this morning, we remain well within recent ranges. The measure sits ~0.4% below the top of the band. USD/SGD is consolidating yesterday's gains above the $1.33 handle however ranges are narrow thus far today. Firmer US Tsy Yields added a level of support to the pair yesterday, several FOMC officials pushed back against the markets rate cut expectations for 2024. A reminder that the data docket is empty for the remainder of the week.
UP TODAY (TIMES GMT/LOCAL)
| Date | GMT/Local | Impact | Flag | Country | Event |
| 19/12/2023 | 0900/1000 |  | EU | ECB Elderson Statement On Banking Risks and Priorities | |
| 19/12/2023 | 1000/1100 | *** | | EU | HICP (f) |
| 19/12/2023 | 1000/1000 | ** |  | UK | Gilt Outright Auction Result |
| 19/12/2023 | 1300/1300 | | UK | BOE Breeden Speech At IIF Policy Series | |
| 19/12/2023 | 1330/0830 | *** |  | CA | CPI |
| 19/12/2023 | 1330/0830 | * | | CA | Industrial Product and Raw Material Price Index |
| 19/12/2023 | 1330/0830 | *** |  | US | Housing Starts |
| 19/12/2023 | 1355/0855 | ** | | US | Redbook Retail Sales Index |
| 19/12/2023 | 1630/1130 | * | | US | US Treasury Auction Result for Cash Management Bill |
| 19/12/2023 | 1730/1230 | | US | Atlanta Fed's Raphael Bostic | |
| 19/12/2023 | 2100/1600 | ** | | US | TICS |
| 20/12/2023 | 2350/0850 | ** |  | JP | Trade |
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.
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