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US Tsy futures have edged higher today, with cash yields off 1-2bps. This comes ahead of this week's Fed decision and last week's bias for higher yields. The USD is weaker, with higher beta plays outperforming the yen. Aggregate FX moves aren't large though.
China data was mixed, but still suggests more policy support is needed, particularly for consumers, to boost the recovery. China and Hong Kong equities have mostly been weaker in the first part of Monday trade.
New monetary and governance boards were also announced for the RBA. They will be in place from March next year.
Looking ahead, December PMIs for the US and Europe print. The ECB’s Lagarde, Schnabel and de Guindos speak as well as the BoC’s Macklem.
Tsys futures are a touch higher today, although ranges have been narrow, volumes have also been below recent averages. TU -00⅛ at 102-28⅛, while TY is trading +01+ at 109-29+, just off initial support at 109-26 (Low Dec 13)
Earlier, there was a large TY put seller at 0'28 x10,000.
Cash tsys yields are -1bps lower today, with the 2yr -1.1bps at 4.234%, while the 10yr is -1bps at 4.387%. The 2s10s is hovering around recent highs at 15bps
Investors will be focused on tonight's December US preliminary Mfg and services PMI for signs on the health of the US economy, while eyes are also on the 10yr break-even inflation rate after it climbed the most in two months as rising oil prices posed upside risks to the cost of living.
Hedge funds trimmed net short positions in ultra 10-year to ultra-long bond futures by $6.1m/DV01 in the week to Dec. 10, while remaining bearish on the front end, adding $3m/DV01 to 2-year note shorts. Asset managers were bullish on ultra 10-year notes, extending net longs by $2.8m/DV01 to a record high, but added $1.2m/DV01 to net shorts in SOFR futures. Meanwhile, hedge funds increased their SOFR futures net longs by $2.4m/DV01.
Projected rate cuts into early 2025 look near steady to lower vs. this morning levels (*) as follows: Dec'24 cumulative -24.3bp (-23.7bp), Jan'25 -28.6bp (-29.6bp), Mar'25 -42.2bp (-43.9bp), May'25 -48.4bp (-50.5bp).
Later we have Empire Manufacturing & S&P Global PMI, the Fed remains in blackout ahead of the FOMC decision later this week
JGB futures have shown more of a downside bias post the lunch time break. We were last 142.35, -.22 versus settlement levels. Lows so far in Dec have largely been in the 142.10/20 region, which haven't been tested so far today.
US Tsy futures have ticked up, leaving JGB futures underperforming, but this follows last week's outperformance trend from JGBs. US moves in the 10yr space are also relatively modest.
JGB yields have all ticked higher, with the back end of the curve slightly firmer in yield terms. The 10yr was last 1.066%, up 2.4bps. The 20-40yr tenors were up nearly 3bps.
It is a similar backdrop in the swaps space, with the 20-30yr tenors closing in up on recent highs, both up nearly 5bps respectively.
Earlier data was encouraging in terms of higher core machine orders, while the PMIs rose, although manufacturing is still sub the 50.0 expansion/contraction point.
Tomorrow the data calendar is quiet but we do have 20yr supply.
We had a decent upside surprise to Oct core machine orders, which rose 2.1%m/m, versus 1.1% forecast and -0.7% prior. The y/y outcome was 5.6%, against a 1.0% forecast and -4.8% prior.
The data paints a supportive picture for capex, although the broader, quarterly measure, has generally been running at a firmer pace relative to core machine orders in recent years, see the chart below.
We also had a resilient capex intentions update from last week's Tankan survey.
The detail of the machine orders print showed broad based strength. Total orders were up 21.1% m/m. Manufacturing and non-manufacturing rose strongly.
Similar to NZGBs, Aussie bonds opened cheaper and have since traded in narrow ranges throughout the session. Focus was on China were they had a flurry of economic data, however there was little reaction across asset classes to the mixed data, notably Retail Sales coming in a 3% vs expectations of 5%.
Earlier, Chalmers announced the The RBA's new governance structure, effective from March 2025, introduces two boards: one for monetary policy and one for governance. The monetary policy board will include two new members, Professor Fry-McKibbin, a monetary policy expert, and former Bendigo Bank head Baker, alongside existing members Harper, Watkins, Ross, Hewson, and key officials like Governor Bullock. The governance board will feature Schwartz as deputy chair and new appointees including Westacott, Gilbert, Thodey, and Dave.
ACGBs have traded in narrow ranges today, yields are currently 1.9bps to 4.6bps cheaper. The 2yr is +1.9bps at 3.912% and trade about 12bps cheaper over the past three sessions, while the 10yr is +2.3bps at 4.309%, The 2s10s is +0.5bps at 38.260
ACGB futures are currently YM -2.6, VTA -2.0, XM -2.8
Swap curves have flattened, short-end is flat, while the belly to long end is trading -1 to 3bps
Bill strip is -1 to -2
RBA-date OIS pricing is little changed today for the Feb meeting, with 13bps of cuts price. The market is pricing in a 90% chance of a 25bps cut for the April meeting, and 42bps of cut priced for May. Looking out to November 2025 the market is currently pricing in 73bps of cumulative cuts
Tomorrow we have Westpac Consumer Confidence, with little else on the calendar for the rest of the year.
Legislation was passed earlier this month to allow for both monetary policy and governance Boards. RBA Governor Bullock requested that there was continuity on the former for policy setting and that seems to be the case with only two new members, which have been named as Professor Fry-McKibbin, a monetary policy specialist, and former Bendigo Bank head Baker. The new structure will begin from March 2025 and so will be in place for the March 31-April 1 meeting.
Fry-McKibbin was on the panel that completed the RBA review and recommended that the central bank have two boards to allow for more economics experience in setting policy.
Baker was head of Bendigo and Adelaide Bank until this year and the deputy of the Australian Banking Association.
Harper, Watkins, Ross and Hewson will remain on the monetary policy board with RBA Governor Bullock, Deputy Governor Hauser and Treasury Secretary Kennedy.
Existing Board members Schwartz and Rubin will move across to the new governance board and the past Business Council head Westacott, law firm Gilbert+Tobin chair Gilbert, Xero chair Thodey and ex-banking exec Dave are the new appointees. Bullock will chair the board with Schwartz as deputy.
NZGBs opened the session cheaper and have moved very little throughout the session, yields have closed 1.5bps to 2.5bps cheaper, with the curve bear-steepening. It has been a slow session for APAC rates, with us tsys yields trading just off recent highs, after yields have risen for 5 straight session.
New Zealand Prime Minister Christopher Luxon, speaking ahead of Tuesday’s Half-Year Economic and Fiscal Update, acknowledged challenging economic conditions but emphasized careful spending and fiscal adjustments to shorten deficits. He noted encouraging signs of economic improvement but stressed that more work remains to be done.
Auckland Airport reported a 3% y/y increase in total passenger movements for November, reaching over 1.6m. International passengers rose 3% to 861,532, driven by a 21% surge on East and Southeast Asian routes, supported by increased Chinese tourism. Domestic passenger movements also grew 3% to 771,247. Ytd, total passenger movements increased 2% to nearly 7.7m.
NZGBs curve has bear-steepened, the 2yr still hovers near yearly lows at 3.758%, up 1.5bps today, while the 10yr is +2.4bps at 4.430%. The 5s10s is 1bps higher at 48.30 and is nearing the yearly highs of 49bps, and almost 40bps steepening since August.
The OIS market has cooled 2bps to 41bps of cuts priced in for the Feb meeting after hitting a 46bps on Dec 3th. There is a cumulative 107bps of cuts priced in through to October 2025.
Tomorrow the NZ Treasury will release Half-Year Economic & Fiscal Update, followed by GDP on Thursday
November monthly price indices covering around 40% of the NZ CPI were released today and are generally consistent with inflation remaining contained allowing another rate cut on February 19. The RBNZ is forecasting headline Q4 CPI to rise 0.4% q/q and 2.1% y/y after 0.5% q/q and 2.2% y/y. Quarterly petrol, new rents and domestic air transport prices are likely to be higher, while food, international air transport and accommodation services lower.
Food prices fell 0.1% m/m after -0.9% in October to be up 1.3% y/y after 1.2% the previous two months. Vegetables fell 7.9% m/m while fruit rose 4%, leaving the two together down 2.9%. Grocery food rose 0.2% m/m to be up 2.5% y/y.
Petrol prices rose 1.5% m/m in November to be down 10.1% y/y up from -13.9% y/y. Both petrol and diesel rose on the month following higher global oil prices in October.
The largest rise was in domestic air transport up 10.8% m/m following a 2.6% rise to leave the component up 9.6% y/y. Whereas, international air fell 2.7% m/m and 1.8% y/y. Accommodation services fell 1.9% m/m but the annual rate picked up to 5.5% from 5.2%.
Rental increases were subdued as new contracts rose 0.1% m/m and 1.0% y/y and existing ones 0.2% m/m and 4.1% y/y, down slightly.
Alcohol and tobacco fell 0.2% m/m to be 5.1% y/y higher (October +5.4% y/y) due to a fall in alcohol prices and steady cigarettes & tobacco.
The USD BBDXY index sits slightly lower for the session, with higher beta plays outperforming in the G10 space. The index was last near 1287.5, off close to 0.10% in the first part of Monday dealing.
AUD and NZD have edged higher as the session progressed. AUD/USD last near 0.6380, NZD/USD to 0.5780, both up nearly 0.30%.
Cross asset moves have been mixed, US equity futures are up a touch, while US yields are slightly lower, but aggregate moves are modest. Regional equity markets are mostly down, with focus on HK/China markets (losses are less than 1.0%).
China data for Nov was mixed, but still mostly leaving question marks around the durability of the recovery, particularly from a consumption standpoint) post the retail sales miss).
Earlier NZ monthly inflation data was consistent with further RBNZ easing, while PM Luxon noted the very challenging economic conditions at the moment (albeit with some signs of improvement).
The Australian Treasurer announced two new members to the RBA monetary board (which will now be split into a monetary and governance board), but near term policy continuity is likely.
USD/JPY has mostly drifted higher, getting too fresh multi week highs of 153.97, but we sit slightly lower now, last near 153.85/90. AUD/JPY is back to 98.15/20, also multi week highs. This continues last week's trend of yen underperforming higher beta play like AUD and NOK.
Looking ahead, December PMIs for the US and Europe print. The ECB’s Lagarde, Schnabel and de Guindos speak as well as the BoC’s Macklem.
CFTC positioning for the week ending Tuesday 10th of Dec showed mixed trends between leveraged and asset manager investors. The leveraged bias was mostly in favour of the USD, while real money managers were more mixed, with some of the majors seeing support against the dollar.
For yen, both leveraged and asset manager investors added to yen positions last week. Leveraged investors are still net short, but asset managers flipped back to longs, albeit a modest one.
Leveraged contracts sold both EUR and GBP, adding to net EUR shorts. The opposite was true for asset managers, adding for both currencies (net shorts remain for GBP though).
AUD trends were also mixed, asset managers added to shorts. CAD shorts were added to by for leveraged and asset manager contracts.
The overall bias still appears for a firmer USD. In the leveraged space, only GDP is a long. For asset managers this is JPY, EUR and MXN.
Table 1: CFTC FX Positioning By Currency & Type Of Investor
Asian markets fell broadly today, weighed down by disappointing Chinese retail sales data, which grew just 3% y/y, missing expectations of 5%. China’s CSI 300 declined for a second consecutive session, dragging down Hong Kong stocks, while sentiment in Australia was hit by falling iron ore prices, pulling the ASX lower for a fifth straight day. South Korea's equities erased earlier gains following political uncertainty from President Yoon's impeachment, though analysts see limited long-term economic impact.
The MSCI Asia gauge slipped as traders adopted a cautious stance ahead of a busy week of central bank decisions, including the Federal Reserve, Bank of Japan, and Bank of England. Meanwhile, the dollar steadied near recent highs, Asian currencies weakened to a two-week low, and Bitcoin reached a new record high amid continued optimism.
Japanese equities were mostly lower today with investors remaining cautious ahead of key central bank meetings, including the Bank of Japan’s policy decision later this week. The TOPIX 0.20% lower, while the Nikkei is flat, exporters traded slightly better as the yen weakened a touch. While a rally on Friday for semiconductor stocks has done little to help Tokyo Electron which trades 0.50% lower.
Taiwan's Taiex has pared earlier gains to trade flat as TSMC gives back some gains. There has been decent size selling of South Korean equities by foreign investors today, with a total outflow of $322m, the KOSPI is 0.36% lower, while the KOSDAQ is 0.67% higher.
Australian mining stocks weighed on the ASX, with BHP, Rio Tinto, and Fortescue falling, while gold miners also declined as precious metal prices dipped, the ASX down 0.65%. New Zealand NZX 50 closed 0.34% higher.
Flows continue to remain negative, Taiwan is seeing the largest of the outflows as semiconductor prices bounce around following tariffs and policy announcements out of the US.
South Korea: Recorded outflows of $117m Friday, with a 5-day total of +$29m. YTD flows remain positive at +$3.83b. The 5-day average is +$6m, better than the 20-day average of -$109m and the 100-day average of -$156m.
Taiwan: Experienced outflows of $202m Friday, with a 5-day total of -$1.03b. YTD flows are deeply negative at -$17.32b. The 5-day average is -$205m, worse than the 20-day average of -$127m and the 100-day average of -$182m.
India: Posted outflows of $420m Thursday, with a 5-day total of -$199m. YTD flows remain positive at +$729m. The 5-day average is -$40m, worse than the 20-day average of +$131m and the 100-day average of -$23m.
Indonesia: Recorded outflows of $87m Friday, with a 5-day total of -$169m. YTD flows remain positive at +$1.37b. The 5-day average is -$34m, similar to the 20-day average of -$31m but worse than the 100-day average of +$15m.
Thailand: Saw outflows of $14m Friday, with a 5-day total of -$221m. YTD flows are negative at -$4.04b. The 5-day average is -$44m, worse than the 20-day average of -$22m and the 100-day average of -$7m.
Malaysia: Experienced outflows of $11m Friday, with a 5-day total of -$199m. YTD flows are negative at -$675m. The 5-day average is -$40m, similar to the 20-day average of -$45m but worse than the 100-day average of -$8m
Philippines: Posted outflows of $10m Friday, with a 5-day total of -$4m. YTD flows remain negative at -$342m. The 5-day average is -$1m, better than the 20-day average of -$8m and the 100-day average of +$1m.
After rising around 1.5% on Friday, oil prices are moderately lower during APAC trading today given lacklustre commodity and equity markets. WTI is down 0.5% to $70.96/bbl, just above the intraday low. Brent is 0.3% lower at $74.24/bbl after a low of $74.18. They were already trending lower before the mixed China data. The USD index is down 0.1%.
China’s November IP growth was in line with expectations at 5.4% y/y but retail sales printed significantly lower at 3.0% y/y. Authorities have promised more stimulus to boost growth.
Oil has found support from news that there may be tighter or increased sanctions on some oil producers. The US and its allies may reduce the Russian oil price cap according to Treasury Secretary Yellen. The EU is also looking at further sanctions on Russian oil. In addition, President-elect Trump is expected to tighten sanctions on Iran, which could reduce global output by 1mbd.
The UAE has announced that it will reduce oil exports at the start of 2025 in an attempt to improve its quota compliance.
Later preliminary December PMIs for the US and Europe print. The ECB’s Lagarde, Schnabel and de Guindos speak as well as the BoC’s Macklem. The key event for oil markets this week will be Wednesday’s FOMC decision. A 25bp cut is widely expected.
As this week’s Federal Reserve Monetary decision appears a near certainty, yet markets are now looking through that to the risks for 2025.
Rate cuts are good for gold as it reduces financing costs and for 2025 Gold traders are looking at the economic data in the US and questioning whether the three cuts in rates next year is appropriate.
Having endured two down days in succession, Gold opened this morning in Asia at US$2,648.23 following a very heavy US close, moving only marginally higher to $2,653.86.
The recent weakness will have little impact on what has been a strong year for gold prices, largely due to expectations for US Rates, yet also evidence that key Central Banks such as China’s PBOC are increasing their purchases of the precision commodity.
The World Gold Council’s forecast for Gold in 2025 is for a modest increase and no doubt will face the ever present challenges from growth and inflation (and hence the FED) as well as geo-political upheaval.
China’s New homes sales fall in 49 of 70 cities and rise in 17 cities in November, with overall prices declining -0.20%.
Whilst still moderating, the pace of decline is slowing following a fall of -0.51% MoM in the month prior.
The YoY decline for new properties was -6.07% for November.
Used home prices declined -0.35% MoM following -0.48% in October with used home prices rising in 10 cities within the survey.
All price rises were MoM, with no price rises YoY.
Shanghai and Beijing lead the way in terms of house prices gains for the month.
Whilst it remains early days, the presence of some price rises will be encouraging to authorities who have announced a multitude of stimulus measures since late September.
With India’s economic data moderating in recent months, the incoming RBI governor has been under pressure to cut rates.
Today’s provisional PMI’s surprised to the upside, likely taking pressure off the RBI who doesn’t have a monetary policy meeting now until February 2025.
India’s PMI Manufacturing for December (provisional) came in at +57.4 following a +56.5 result in November.
India’s PMI Services for December (provisional) came in at +60.8 following a +58.4 result in November.
For manufacturing, output rose strongly to +60.4 and new orders were up for the month.
India’s 10YR Government bond has sold off 1bp following the data release.
Indonesia reported its trade data today, just two days prior to the last Central Bank meeting of the year.
With market expectations for no change in monetary policy, the strength of the export release seemingly supports that.
Exports for November were significantly ahead of expectations at +9.14%, ahead of expectations of +6.30%, but below October’s outsized result of +10.25%.
November’s Import data collapsed to +0.01% against a market survey of +6.30% and down from +17.49% in October.
The October trade results now appear it could have been an anomaly.
The upshot is a huge improvement in the trade balance, up to $4.4bn from $2.4bn prior and likely to catch the eye of the income President in the Whitehouse.
Various Chinese authorities have pledged to support the ailing economy through more effective fiscal policies and a focus on stability in the housing and equity markets.
China New Services reported over the weekend quotes from the Vice Minister of the Housing Ministry saying that ‘the government will promote the recovery of the property market through measures such as increasing demand and controlling the supply of land for new development.’ (as per BBG).
The Securities Regulatory Commission spoke of its intention to ‘enhance market monitoring for futures and spot trading, strengthen supervision of margin trading, derivatives and quantitative trading (as per SRC website)
The Ministry of Finance said that it intends to deliver more effective and sustained fiscal policies next year and well as improved macroeconomic regulations, whilst increasing the issuance of local government special bonds whilst expanding the areas in which they invest.
Whilst equity market weakness has been highly visible, the slow grind lower in yields may not have received the focus necessary as key technical levels were broken last week.
CGB 10YR finished the week at 1.78%, 14bps lower on the week.
For some time, market commentators had focused on 2.15% as a key level seen important to authorities.
The PBOC is known to be protective of the steepness of the curve and what it represents as a health check for the overall economy.
Some market observers interpreted the authorities comments on markets as suggesting that the potential for intervention to stop the grind lower in yields could be imminent.
Technical analysis of the TFTH5 future confirms the positive bias in place with the 20-day EMA above the 50-day EMA.
The CGB 10YR has ignored suggestions of intervention with a very strong open, the 10YR yield down -5.5bp at 1.726%
In South East Asia FX, the bias has been for a firmer USD, albeit with dollar gains modest so far in Monday today and to varying degrees. This is underperforming some of the higher beta trends in the G10 space, where AUD and NZD are firmer. Working the other way is a weaker yen and patchy regional equity performance. Carry over USD momentum from last week, post strong yield gains, may also be in play (the Fed is still expected to cut this week).
Spot USD/IDR has pushed above 16000, reaching fresh highs of 16028. We are above technical EMA resistance points, with the next logical upside target likely to be around the 16200 region. The consensus on this week's BI meeting outcome has now shifted to no change (late last week the majority sat with a cut). This is not surprising in light of fresh FX weakness for the rupiah. On the data front, we had better than expected Nov trade figures, due to higher exports (+9.14%y/y). This aided the trade surplus, +$4.42bn, but the benefit to IDR has been modest.
USD/PHP spiked higher, getting to 58.74, so not far off recent record highs around the 59.00 level. The pair continues to recover from early Dec lows around 57.75.
USD/THB is also higher, last around 34.15. We see the FinMin again calling for a rate cut this week, although the consensus is firmly for no change, as the BoT looks to preserve policy space.
USD/MYR is around 0.25% weaker in ringgit terms so far today. We were last just above 4.4600, wedged under recent highs of 4.4850.
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.
Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
MNI (SYDNEY)
US Tsy futures have edged higher today, with cash yields off 1-2bps. This comes ahead of this week's Fed decision and last week's bias for higher yields. The USD is weaker, with higher beta plays outperforming the yen. Aggregate FX moves aren't large though.
China data was mixed, but still suggests more policy support is needed, particularly for consumers, to boost the recovery. China and Hong Kong equities have mostly been weaker in the first part of Monday trade.
New monetary and governance boards were also announced for the RBA. They will be in place from March next year.
Looking ahead, December PMIs for the US and Europe print. The ECB’s Lagarde, Schnabel and de Guindos speak as well as the BoC’s Macklem.
Tsys futures are a touch higher today, although ranges have been narrow, volumes have also been below recent averages. TU -00⅛ at 102-28⅛, while TY is trading +01+ at 109-29+, just off initial support at 109-26 (Low Dec 13)
Earlier, there was a large TY put seller at 0'28 x10,000.
Cash tsys yields are -1bps lower today, with the 2yr -1.1bps at 4.234%, while the 10yr is -1bps at 4.387%. The 2s10s is hovering around recent highs at 15bps
Investors will be focused on tonight's December US preliminary Mfg and services PMI for signs on the health of the US economy, while eyes are also on the 10yr break-even inflation rate after it climbed the most in two months as rising oil prices posed upside risks to the cost of living.
Hedge funds trimmed net short positions in ultra 10-year to ultra-long bond futures by $6.1m/DV01 in the week to Dec. 10, while remaining bearish on the front end, adding $3m/DV01 to 2-year note shorts. Asset managers were bullish on ultra 10-year notes, extending net longs by $2.8m/DV01 to a record high, but added $1.2m/DV01 to net shorts in SOFR futures. Meanwhile, hedge funds increased their SOFR futures net longs by $2.4m/DV01.
Projected rate cuts into early 2025 look near steady to lower vs. this morning levels (*) as follows: Dec'24 cumulative -24.3bp (-23.7bp), Jan'25 -28.6bp (-29.6bp), Mar'25 -42.2bp (-43.9bp), May'25 -48.4bp (-50.5bp).
Later we have Empire Manufacturing & S&P Global PMI, the Fed remains in blackout ahead of the FOMC decision later this week
JGB futures have shown more of a downside bias post the lunch time break. We were last 142.35, -.22 versus settlement levels. Lows so far in Dec have largely been in the 142.10/20 region, which haven't been tested so far today.
US Tsy futures have ticked up, leaving JGB futures underperforming, but this follows last week's outperformance trend from JGBs. US moves in the 10yr space are also relatively modest.
JGB yields have all ticked higher, with the back end of the curve slightly firmer in yield terms. The 10yr was last 1.066%, up 2.4bps. The 20-40yr tenors were up nearly 3bps.
It is a similar backdrop in the swaps space, with the 20-30yr tenors closing in up on recent highs, both up nearly 5bps respectively.
Earlier data was encouraging in terms of higher core machine orders, while the PMIs rose, although manufacturing is still sub the 50.0 expansion/contraction point.
Tomorrow the data calendar is quiet but we do have 20yr supply.
We had a decent upside surprise to Oct core machine orders, which rose 2.1%m/m, versus 1.1% forecast and -0.7% prior. The y/y outcome was 5.6%, against a 1.0% forecast and -4.8% prior.
The data paints a supportive picture for capex, although the broader, quarterly measure, has generally been running at a firmer pace relative to core machine orders in recent years, see the chart below.
We also had a resilient capex intentions update from last week's Tankan survey.
The detail of the machine orders print showed broad based strength. Total orders were up 21.1% m/m. Manufacturing and non-manufacturing rose strongly.
Similar to NZGBs, Aussie bonds opened cheaper and have since traded in narrow ranges throughout the session. Focus was on China were they had a flurry of economic data, however there was little reaction across asset classes to the mixed data, notably Retail Sales coming in a 3% vs expectations of 5%.
Earlier, Chalmers announced the The RBA's new governance structure, effective from March 2025, introduces two boards: one for monetary policy and one for governance. The monetary policy board will include two new members, Professor Fry-McKibbin, a monetary policy expert, and former Bendigo Bank head Baker, alongside existing members Harper, Watkins, Ross, Hewson, and key officials like Governor Bullock. The governance board will feature Schwartz as deputy chair and new appointees including Westacott, Gilbert, Thodey, and Dave.
ACGBs have traded in narrow ranges today, yields are currently 1.9bps to 4.6bps cheaper. The 2yr is +1.9bps at 3.912% and trade about 12bps cheaper over the past three sessions, while the 10yr is +2.3bps at 4.309%, The 2s10s is +0.5bps at 38.260
ACGB futures are currently YM -2.6, VTA -2.0, XM -2.8
Swap curves have flattened, short-end is flat, while the belly to long end is trading -1 to 3bps
Bill strip is -1 to -2
RBA-date OIS pricing is little changed today for the Feb meeting, with 13bps of cuts price. The market is pricing in a 90% chance of a 25bps cut for the April meeting, and 42bps of cut priced for May. Looking out to November 2025 the market is currently pricing in 73bps of cumulative cuts
Tomorrow we have Westpac Consumer Confidence, with little else on the calendar for the rest of the year.
Legislation was passed earlier this month to allow for both monetary policy and governance Boards. RBA Governor Bullock requested that there was continuity on the former for policy setting and that seems to be the case with only two new members, which have been named as Professor Fry-McKibbin, a monetary policy specialist, and former Bendigo Bank head Baker. The new structure will begin from March 2025 and so will be in place for the March 31-April 1 meeting.
Fry-McKibbin was on the panel that completed the RBA review and recommended that the central bank have two boards to allow for more economics experience in setting policy.
Baker was head of Bendigo and Adelaide Bank until this year and the deputy of the Australian Banking Association.
Harper, Watkins, Ross and Hewson will remain on the monetary policy board with RBA Governor Bullock, Deputy Governor Hauser and Treasury Secretary Kennedy.
Existing Board members Schwartz and Rubin will move across to the new governance board and the past Business Council head Westacott, law firm Gilbert+Tobin chair Gilbert, Xero chair Thodey and ex-banking exec Dave are the new appointees. Bullock will chair the board with Schwartz as deputy.
NZGBs opened the session cheaper and have moved very little throughout the session, yields have closed 1.5bps to 2.5bps cheaper, with the curve bear-steepening. It has been a slow session for APAC rates, with us tsys yields trading just off recent highs, after yields have risen for 5 straight session.
New Zealand Prime Minister Christopher Luxon, speaking ahead of Tuesday’s Half-Year Economic and Fiscal Update, acknowledged challenging economic conditions but emphasized careful spending and fiscal adjustments to shorten deficits. He noted encouraging signs of economic improvement but stressed that more work remains to be done.
Auckland Airport reported a 3% y/y increase in total passenger movements for November, reaching over 1.6m. International passengers rose 3% to 861,532, driven by a 21% surge on East and Southeast Asian routes, supported by increased Chinese tourism. Domestic passenger movements also grew 3% to 771,247. Ytd, total passenger movements increased 2% to nearly 7.7m.
NZGBs curve has bear-steepened, the 2yr still hovers near yearly lows at 3.758%, up 1.5bps today, while the 10yr is +2.4bps at 4.430%. The 5s10s is 1bps higher at 48.30 and is nearing the yearly highs of 49bps, and almost 40bps steepening since August.
The OIS market has cooled 2bps to 41bps of cuts priced in for the Feb meeting after hitting a 46bps on Dec 3th. There is a cumulative 107bps of cuts priced in through to October 2025.
Tomorrow the NZ Treasury will release Half-Year Economic & Fiscal Update, followed by GDP on Thursday
November monthly price indices covering around 40% of the NZ CPI were released today and are generally consistent with inflation remaining contained allowing another rate cut on February 19. The RBNZ is forecasting headline Q4 CPI to rise 0.4% q/q and 2.1% y/y after 0.5% q/q and 2.2% y/y. Quarterly petrol, new rents and domestic air transport prices are likely to be higher, while food, international air transport and accommodation services lower.
Food prices fell 0.1% m/m after -0.9% in October to be up 1.3% y/y after 1.2% the previous two months. Vegetables fell 7.9% m/m while fruit rose 4%, leaving the two together down 2.9%. Grocery food rose 0.2% m/m to be up 2.5% y/y.
Petrol prices rose 1.5% m/m in November to be down 10.1% y/y up from -13.9% y/y. Both petrol and diesel rose on the month following higher global oil prices in October.
The largest rise was in domestic air transport up 10.8% m/m following a 2.6% rise to leave the component up 9.6% y/y. Whereas, international air fell 2.7% m/m and 1.8% y/y. Accommodation services fell 1.9% m/m but the annual rate picked up to 5.5% from 5.2%.
Rental increases were subdued as new contracts rose 0.1% m/m and 1.0% y/y and existing ones 0.2% m/m and 4.1% y/y, down slightly.
Alcohol and tobacco fell 0.2% m/m to be 5.1% y/y higher (October +5.4% y/y) due to a fall in alcohol prices and steady cigarettes & tobacco.
The USD BBDXY index sits slightly lower for the session, with higher beta plays outperforming in the G10 space. The index was last near 1287.5, off close to 0.10% in the first part of Monday dealing.
AUD and NZD have edged higher as the session progressed. AUD/USD last near 0.6380, NZD/USD to 0.5780, both up nearly 0.30%.
Cross asset moves have been mixed, US equity futures are up a touch, while US yields are slightly lower, but aggregate moves are modest. Regional equity markets are mostly down, with focus on HK/China markets (losses are less than 1.0%).
China data for Nov was mixed, but still mostly leaving question marks around the durability of the recovery, particularly from a consumption standpoint) post the retail sales miss).
Earlier NZ monthly inflation data was consistent with further RBNZ easing, while PM Luxon noted the very challenging economic conditions at the moment (albeit with some signs of improvement).
The Australian Treasurer announced two new members to the RBA monetary board (which will now be split into a monetary and governance board), but near term policy continuity is likely.
USD/JPY has mostly drifted higher, getting too fresh multi week highs of 153.97, but we sit slightly lower now, last near 153.85/90. AUD/JPY is back to 98.15/20, also multi week highs. This continues last week's trend of yen underperforming higher beta play like AUD and NOK.
Looking ahead, December PMIs for the US and Europe print. The ECB’s Lagarde, Schnabel and de Guindos speak as well as the BoC’s Macklem.
CFTC positioning for the week ending Tuesday 10th of Dec showed mixed trends between leveraged and asset manager investors. The leveraged bias was mostly in favour of the USD, while real money managers were more mixed, with some of the majors seeing support against the dollar.
For yen, both leveraged and asset manager investors added to yen positions last week. Leveraged investors are still net short, but asset managers flipped back to longs, albeit a modest one.
Leveraged contracts sold both EUR and GBP, adding to net EUR shorts. The opposite was true for asset managers, adding for both currencies (net shorts remain for GBP though).
AUD trends were also mixed, asset managers added to shorts. CAD shorts were added to by for leveraged and asset manager contracts.
The overall bias still appears for a firmer USD. In the leveraged space, only GDP is a long. For asset managers this is JPY, EUR and MXN.
Table 1: CFTC FX Positioning By Currency & Type Of Investor
Asian markets fell broadly today, weighed down by disappointing Chinese retail sales data, which grew just 3% y/y, missing expectations of 5%. China’s CSI 300 declined for a second consecutive session, dragging down Hong Kong stocks, while sentiment in Australia was hit by falling iron ore prices, pulling the ASX lower for a fifth straight day. South Korea's equities erased earlier gains following political uncertainty from President Yoon's impeachment, though analysts see limited long-term economic impact.
The MSCI Asia gauge slipped as traders adopted a cautious stance ahead of a busy week of central bank decisions, including the Federal Reserve, Bank of Japan, and Bank of England. Meanwhile, the dollar steadied near recent highs, Asian currencies weakened to a two-week low, and Bitcoin reached a new record high amid continued optimism.
Japanese equities were mostly lower today with investors remaining cautious ahead of key central bank meetings, including the Bank of Japan’s policy decision later this week. The TOPIX 0.20% lower, while the Nikkei is flat, exporters traded slightly better as the yen weakened a touch. While a rally on Friday for semiconductor stocks has done little to help Tokyo Electron which trades 0.50% lower.
Taiwan's Taiex has pared earlier gains to trade flat as TSMC gives back some gains. There has been decent size selling of South Korean equities by foreign investors today, with a total outflow of $322m, the KOSPI is 0.36% lower, while the KOSDAQ is 0.67% higher.
Australian mining stocks weighed on the ASX, with BHP, Rio Tinto, and Fortescue falling, while gold miners also declined as precious metal prices dipped, the ASX down 0.65%. New Zealand NZX 50 closed 0.34% higher.
Flows continue to remain negative, Taiwan is seeing the largest of the outflows as semiconductor prices bounce around following tariffs and policy announcements out of the US.
South Korea: Recorded outflows of $117m Friday, with a 5-day total of +$29m. YTD flows remain positive at +$3.83b. The 5-day average is +$6m, better than the 20-day average of -$109m and the 100-day average of -$156m.
Taiwan: Experienced outflows of $202m Friday, with a 5-day total of -$1.03b. YTD flows are deeply negative at -$17.32b. The 5-day average is -$205m, worse than the 20-day average of -$127m and the 100-day average of -$182m.
India: Posted outflows of $420m Thursday, with a 5-day total of -$199m. YTD flows remain positive at +$729m. The 5-day average is -$40m, worse than the 20-day average of +$131m and the 100-day average of -$23m.
Indonesia: Recorded outflows of $87m Friday, with a 5-day total of -$169m. YTD flows remain positive at +$1.37b. The 5-day average is -$34m, similar to the 20-day average of -$31m but worse than the 100-day average of +$15m.
Thailand: Saw outflows of $14m Friday, with a 5-day total of -$221m. YTD flows are negative at -$4.04b. The 5-day average is -$44m, worse than the 20-day average of -$22m and the 100-day average of -$7m.
Malaysia: Experienced outflows of $11m Friday, with a 5-day total of -$199m. YTD flows are negative at -$675m. The 5-day average is -$40m, similar to the 20-day average of -$45m but worse than the 100-day average of -$8m
Philippines: Posted outflows of $10m Friday, with a 5-day total of -$4m. YTD flows remain negative at -$342m. The 5-day average is -$1m, better than the 20-day average of -$8m and the 100-day average of +$1m.
After rising around 1.5% on Friday, oil prices are moderately lower during APAC trading today given lacklustre commodity and equity markets. WTI is down 0.5% to $70.96/bbl, just above the intraday low. Brent is 0.3% lower at $74.24/bbl after a low of $74.18. They were already trending lower before the mixed China data. The USD index is down 0.1%.
China’s November IP growth was in line with expectations at 5.4% y/y but retail sales printed significantly lower at 3.0% y/y. Authorities have promised more stimulus to boost growth.
Oil has found support from news that there may be tighter or increased sanctions on some oil producers. The US and its allies may reduce the Russian oil price cap according to Treasury Secretary Yellen. The EU is also looking at further sanctions on Russian oil. In addition, President-elect Trump is expected to tighten sanctions on Iran, which could reduce global output by 1mbd.
The UAE has announced that it will reduce oil exports at the start of 2025 in an attempt to improve its quota compliance.
Later preliminary December PMIs for the US and Europe print. The ECB’s Lagarde, Schnabel and de Guindos speak as well as the BoC’s Macklem. The key event for oil markets this week will be Wednesday’s FOMC decision. A 25bp cut is widely expected.
As this week’s Federal Reserve Monetary decision appears a near certainty, yet markets are now looking through that to the risks for 2025.
Rate cuts are good for gold as it reduces financing costs and for 2025 Gold traders are looking at the economic data in the US and questioning whether the three cuts in rates next year is appropriate.
Having endured two down days in succession, Gold opened this morning in Asia at US$2,648.23 following a very heavy US close, moving only marginally higher to $2,653.86.
The recent weakness will have little impact on what has been a strong year for gold prices, largely due to expectations for US Rates, yet also evidence that key Central Banks such as China’s PBOC are increasing their purchases of the precision commodity.
The World Gold Council’s forecast for Gold in 2025 is for a modest increase and no doubt will face the ever present challenges from growth and inflation (and hence the FED) as well as geo-political upheaval.
China’s New homes sales fall in 49 of 70 cities and rise in 17 cities in November, with overall prices declining -0.20%.
Whilst still moderating, the pace of decline is slowing following a fall of -0.51% MoM in the month prior.
The YoY decline for new properties was -6.07% for November.
Used home prices declined -0.35% MoM following -0.48% in October with used home prices rising in 10 cities within the survey.
All price rises were MoM, with no price rises YoY.
Shanghai and Beijing lead the way in terms of house prices gains for the month.
Whilst it remains early days, the presence of some price rises will be encouraging to authorities who have announced a multitude of stimulus measures since late September.
With India’s economic data moderating in recent months, the incoming RBI governor has been under pressure to cut rates.
Today’s provisional PMI’s surprised to the upside, likely taking pressure off the RBI who doesn’t have a monetary policy meeting now until February 2025.
India’s PMI Manufacturing for December (provisional) came in at +57.4 following a +56.5 result in November.
India’s PMI Services for December (provisional) came in at +60.8 following a +58.4 result in November.
For manufacturing, output rose strongly to +60.4 and new orders were up for the month.
India’s 10YR Government bond has sold off 1bp following the data release.
Indonesia reported its trade data today, just two days prior to the last Central Bank meeting of the year.
With market expectations for no change in monetary policy, the strength of the export release seemingly supports that.
Exports for November were significantly ahead of expectations at +9.14%, ahead of expectations of +6.30%, but below October’s outsized result of +10.25%.
November’s Import data collapsed to +0.01% against a market survey of +6.30% and down from +17.49% in October.
The October trade results now appear it could have been an anomaly.
The upshot is a huge improvement in the trade balance, up to $4.4bn from $2.4bn prior and likely to catch the eye of the income President in the Whitehouse.
Various Chinese authorities have pledged to support the ailing economy through more effective fiscal policies and a focus on stability in the housing and equity markets.
China New Services reported over the weekend quotes from the Vice Minister of the Housing Ministry saying that ‘the government will promote the recovery of the property market through measures such as increasing demand and controlling the supply of land for new development.’ (as per BBG).
The Securities Regulatory Commission spoke of its intention to ‘enhance market monitoring for futures and spot trading, strengthen supervision of margin trading, derivatives and quantitative trading (as per SRC website)
The Ministry of Finance said that it intends to deliver more effective and sustained fiscal policies next year and well as improved macroeconomic regulations, whilst increasing the issuance of local government special bonds whilst expanding the areas in which they invest.
Whilst equity market weakness has been highly visible, the slow grind lower in yields may not have received the focus necessary as key technical levels were broken last week.
CGB 10YR finished the week at 1.78%, 14bps lower on the week.
For some time, market commentators had focused on 2.15% as a key level seen important to authorities.
The PBOC is known to be protective of the steepness of the curve and what it represents as a health check for the overall economy.
Some market observers interpreted the authorities comments on markets as suggesting that the potential for intervention to stop the grind lower in yields could be imminent.
Technical analysis of the TFTH5 future confirms the positive bias in place with the 20-day EMA above the 50-day EMA.
The CGB 10YR has ignored suggestions of intervention with a very strong open, the 10YR yield down -5.5bp at 1.726%
In South East Asia FX, the bias has been for a firmer USD, albeit with dollar gains modest so far in Monday today and to varying degrees. This is underperforming some of the higher beta trends in the G10 space, where AUD and NZD are firmer. Working the other way is a weaker yen and patchy regional equity performance. Carry over USD momentum from last week, post strong yield gains, may also be in play (the Fed is still expected to cut this week).
Spot USD/IDR has pushed above 16000, reaching fresh highs of 16028. We are above technical EMA resistance points, with the next logical upside target likely to be around the 16200 region. The consensus on this week's BI meeting outcome has now shifted to no change (late last week the majority sat with a cut). This is not surprising in light of fresh FX weakness for the rupiah. On the data front, we had better than expected Nov trade figures, due to higher exports (+9.14%y/y). This aided the trade surplus, +$4.42bn, but the benefit to IDR has been modest.
USD/PHP spiked higher, getting to 58.74, so not far off recent record highs around the 59.00 level. The pair continues to recover from early Dec lows around 57.75.
USD/THB is also higher, last around 34.15. We see the FinMin again calling for a rate cut this week, although the consensus is firmly for no change, as the BoT looks to preserve policy space.
USD/MYR is around 0.25% weaker in ringgit terms so far today. We were last just above 4.4600, wedged under recent highs of 4.4850.
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