MNI EUROPEAN MARKETS ANALYSIS: US TSY Rally Extends, But HK Equities Falter

US TSYS: Yesterday’s Strength Extends Into Asia, Q3 GDP (2nd Est) Due Today

TYZ3 is currently trading at 109-25, +0-08 from NY closing levels.

• Yesterday's US tsy strength has extended into today's Asia-Pac session after generally dovish remarks by Fed Goolsbee aftermarket added to bullish sentiment fueled by Fed Waller yesterday.
• Cash US tsys are 3-4bps richer across benchmarks.
• Today sees the second Q3 US GDP release including core PCE before Fedspeak from Cleveland Fed’s Mester (’24 voter) on financial stability and the Fed’s Beige Book.

FED: Goolsbee Sees Restrictiveness Easing Once Clear Inflation Returning To Target

Chicago Fed President Goolsbee, a FOMC voter, has just given an interview to NPR’s Marketplace. While he notes that goods and services inflation has moderated, he is watching house prices closely as he sees them as “key”. Generally though he sounded more dovish as he believes that once it is clear inflation is returning to target, then policy doesn’t need to be as restrictive.

• Goolsbee warned that rates staying high for a prolonged period would be a “concern”.
• He said that housing has made some “progress” but needs to make more. While S&P/Case-Shiller house prices fell moderately through the second half of last year, they have been gradually rising again over 2023 and in September were almost 4% higher on the year.

JGBS: Futures Sharply Higher As US Tsy Rally Extends Into Asia, Heavy Data Calendar Tomorrow

JGB futures are sharply higher at 146.48, +62 compared to the settlement levels, after hitting a multi-month high of 146.54.

• There hasn’t been much in the way of domestic drivers to flag, outside of the previously outlined speech from BOJ Board Member Adachi. To recap, the tone of the speech seemed similar to Governor Ueda’s recent remarks, namely the country's economy had yet to reach a stage where the central bank could debate an exit from ultra-easy monetary policy.
• Today's bid appears linked to an extension of yesterday's US tsy strength in today's Asia-Pac session. Dovish remarks by Fed Goolsbee aftermarket have added to bullish sentiment fueled by Fed Waller yesterday. Cash US tsys are 2-4bps richer across benchmarks.
• The cash JGB curve has richened beyond the 1-year. Yields are 0.9bp higher (2-year) to 8.4bps lower (10-year). The benchmark 10-year yield is at 0.693%. The 40-year has continued to underperform on the curve, 1.8bps lower at 1.940%, after yesterday's poor auction result.
• The swaps curve has bull-flattened, with swap spreads mixed across maturities.
• Tomorrow, the local calendar sees Retail Sales, Industrial Production, Weekly International Investment flows, Housing Starts and Consumer Confidence data.
• The MOF plans to sell Y2.9tn of 2-year JGBs.

AUSSIE BONDS: Sharply Richer After CPI Monthly Miss

ACGBs (YM +14.0 & XM +12.0) add 7-8bps to morning strength after October’s CPI monthly printed on the low side of expectations at 4.9% y/y versus 5.2% estimate and 5.6% prior.

• Subsidies for electricity and rent have helped to bring inflation down as well as lower fuel prices. The moderation in the trimmed mean was a lot less sanguine with it moving to 5.3% from 5.4%. It is worth noting that the first month of the quarter doesn’t include updated prices for most services and given this sector is showing sticky inflation, the October data is likely underestimating current inflation.
• Given the role of subsidies and lack of updated services prices, it is difficult to gauge the extent of demand-driven inflation from the October CPI release that RBA Governor Bullock spoke about in HK yesterday.
• Cash ACGBs are 12-13bps richer on the day, with the AU-US 10-year yield differential 2bps tighter at +8bps.
• Swap rates are 11-13bps lower on the day, 7-8bps lower post-data. The 3s10s curve is steeper.
• The bills strip has extended the overnight bull-flattening, with pricing +1 to +18bp.
• RBA-dated OIS pricing is 2-14bps softer on the day across meetings.
• Tomorrow, the local calendar sees Private Sector Credit, Private Capital Expenditure and Building Approvals data.

AUSTRALIAN DATA: Headline Surprises Lower, Core Remains Sticky

October headline CPI inflation came in lower than expected at 4.9% y/y after 5.6%. Subsidies for electricity and rent have helped to bring inflation down as well as lower fuel prices. The moderation in the trimmed mean was a lot less sanguine with it moving to 5.3% from 5.4%. It is worth noting that the first month of the quarter doesn’t include updated prices for most services and given this sector is showing sticky inflation, the October data is likely underestimating current inflation.

• Given the role of subsidies and lack of updated services prices, it is difficult to gauge the extent of demand-driven inflation from the October CPI release that RBA Governor Bullock spoke about in HK yesterday. Also the RBA has stated that it is concerned about sticky underlying inflation and the trimmed mean only eased 0.1pp.
• Excluding volatile items and travel inflation eased to 5.1% from 5.5%. Non-tradeables fell to 6% from 6.2% y/y but most of the downward pressure was in tradeables as it came down to 2.5% from 4.2%. Services were 5% y/y from 5.3% while goods prices rose 4.6% after 5.7%.

NZGBS: Cheaper After The RBNZ’s Hawkish Hold

NZGBs closed 1-2bps richer, flat to 6bps cheaper than the session's best levels, after the RBNZ decision and statement. The RBNZ left rates at 5.5% as was widely expected but given the statement and forecast revisions, it was a hawkish hold. The impact of strong population growth has become “apparent” and it is “increasing the risk of inflation remaining above target”.

• The MPC noted that it “would likely need to increase” rates again if inflation is higher than expected. Given it said inflation remains too high and price and demand indicators will be key to the NZ rate outlook.
• Elsewhere, NZ PM Luxon will introduce legislation to narrow the RBNZ’s mandate in the first 100 days.
• The swap curve has twist-flattened, with rates 6bps higher to 4bps lower. Rates are 2-10bps higher since the RBNZ decision, with the 2s10s curve 8bps flatter.
• RBNZ dated OIS pricing closed 1-7bps firmer across meetings.
• Tomorrow the local calendar sees Building Permits and ANZ Business Confidence.
• Tomorrow, the NZ Treasury plans to sell NZ$200mn of the 4.5% May-30 bond, NZ$250mn of the 2.0% May-32 bond and NZ$50mn of the 2.75% May-51 bond.
• Later today sees the second Q3 US GDP release before Fedspeak from Fed Mester and the Fed’s Beige Book.

RBNZ: Demand-Driven Inflation Risks Push OCR Path Higher, RBNZ On Alert

The RBNZ left rates at 5.5% as was widely expected but given the statement and forecast revisions it was a hawkish hold. The impact of strong population growth has become “apparent” and it is “increasing the risk of inflation remaining above target”. The MPC noted that it “would likely need to increase” rates again if inflation is higher than expected. Given it said inflation remains too high and its concern re “excess demand and inflationary pressures”, price and demand indicators will be key to the NZ rate outlook.

• The RBNZ still expects inflation to return to target in Q3 2024 but it has been revised up to the edge of the band at 2.9% from 2.7% to reflect stronger demand. It seems this is the limit of the RBNZ’s timeframe and another upward revision would prompt them to tighten again. However, the quarterly forecast CPI increases are little changed.
• GDP growth was revised up in the 3 quarters to Q1 2024 with a recession no longer in the projections. The unemployment rate was also revised lower across the forecast period.
• Given these changes to the outlook and higher expected H2 2024 inflation, it is not surprising that the OCR path was also revised higher across the time horizon. The peak in 2024 is now 0.1pp higher at 5.7% but Q4 is 0.2pp higher, implying another 25bp hike. But Governor Orr is likely to reiterate that these forecasts are not forward guidance in his upcoming press conference.
• The first rate cut has been pushed out to Q3 2025 from H1 2025 taking into account this is model output, and 50bp have been taken out of the forecast by Q3 2026, which sends a hawkish message.
• See statement with forecasts here.

NEW ZEALAND: Economy Focus Of New Government

The new centre-right coalition government, made up of three parties, has been sworn in and started implementing its policy agenda. Most of the National’s 100-point economic plan was agreed to including income tax cuts. The RBNZ is going to be watching fiscal policy closely as lower taxes add to demand but all three parties also campaigned on tighter fiscal policy.

• Nationals leader Luxon is PM and he’s stated that the top priority is to “fix the economy”. NZ First’s Peters is deputy for the first half of the term followed by ACT’s Seymour for the second half. The finance portfolio has gone to the Nationals.
• NZ First won a commitment to leave the pension age unchanged, to investigate the pandemic response and for $1.2bn of regional infrastructure spending, according to RNZ.
• The Nationals were unable to convince the other parties to implement its policy on foreign purchases of residential dwellings. It said the additional revenue will be made up for through spending cuts.
• Other initiatives include a referendum on increasing the parliamentary term to 4 years, repealing the Three Waters and Resource Management Act reforms, public sector spending cuts worth an additional 6.5% of current expenditure which are likely to include job cuts, and allowing oil & gas exploration.

FOREX: USD Hits Fresh Lows On Dovish Fed, NZD Outperforms Post Hawkish RBNZ Hold

The BBDXY got to fresh lows of 1228.7 in early dealings before stabilizing, the index last near 1230.25, still off around 0.15-0.20%. Dovish Fed rhetoric weighed in early Asia Pac trade, sending US Tsy futures to session highs, before gains were pared. This has helped USD sentiment stabilize somewhat, the 10yr yield was last 4.29% (earlier lows were just under 4.28%.

• Weighing on the USD was demand for yen into the Tokyo fix. USD/JPY hit of low of 146.67, not too far from trendline support - 146.48, drawn from the Mar 24 low. However, we now sit back at 147.10, close to Nov 21 lows.
• NZD/USD is the clear outperformer, following the hawkish RBNZ hold. The pair is back near 0.6200 (+1%), just off session highs. The RBNZ revised higher the OCR track, and warned policy may need to be tightened further.
• AUD/NZD is down sharply, last near 1.0725/30. bears will eye a break back sub 1.0700. AUD has underperformed after the Oct CPI miss, although there are caveats on this data. AUD/USD was last near 0.6650 little changed versus NY closing levels on Tuesday.
• Looking ahead, the November euro area EC economic sentiment survey is out. The Fed publishes its Beige Book and Mester speaks. In terms of data, there are US October trade numbers, inventories and updated Q3 GDP.

EQUITIES: Hong Kong/China Weighed By Earnings Concerns, Some Strength Elsewhere

Some of the major indices are weaker, with Hong Kong and China markets the main drags. Earnings concerns at China's top food delivery operator have weighed on broader sentiment in these markets. In terms of US futures we sit around 0.16% higher at the stage for both Eminis and Nasdaq futures. Eminis last near 4571, Nasdaq futures around 16075.

• The early impetus in US Tsy futures was higher, amid further dovish Fedspeak, although we are now off session highs. This coupled with weakness in HK/China stocks has weighed on broader sentiment, although there are some pockets of strength.
• At the break, the HSI sits 2% weaker. Food delivery business Meituan stating a slowdown for its services was likely in Q4 (see SCMP here), which has seen shares in the company back to early 2020 levels. The CSI 300 is off 0.67% at the break, with the index back sub the 3500 level.
• Headlines crossed (BBG) that the US congress may drop China investment curbs from its defense bill, but this hasn't impacted sentiment positively at this stage.
• Elsewhere, Japan markets are mixed, with the Topix down 0.30%, but the Nikkei 225 is flat. Weaker banks have been a drag for Japan stocks.
• South Korea and Taiwan markets are around flat. The ASX 200 is doing better, up nearly 0.40%, with health care stocks firmer.
• In SEA, markets are mixed, with fairly muted trading overall.

OIL: Crude Holds Onto Gains, Moving With USD Ahead Of OPEC Meeting

Oil prices have moved with the greenback today holding onto Tuesday’s gains. They are off their early session highs to be little changed on the day as the market waits for Thursday’s OPEC+ meeting. There remains a lot of uncertainty re the outcome as a deal on quotas still seems to be elusive. Some countries have said they want an agreement in place before the meeting, so it could be delayed again.

• Brent is flat at $81.44/bbl after reaching a low of $81.35. WTI is up 0.2% to $76.55 after a low of $76.41. It approached $77 earlier, while the USD was falling, making a high of $76.98. The USD index is down 0.1% but off its intraday low.
• Later the official EIA US inventory data is released. Bloomberg reported that API data showed a 817k barrel stock drawdown in the latest week with gasoline down 898k but distillate up 2.8mn, according to people familiar with the data.
• Later the Fed publishes its Beige Book and Mester speaks. In terms of data, there are US October trade numbers, inventories and updated Q3 GDP. The November euro area EC economic sentiment survey is also out. The OECD also publishes it updated outlook.

GOLD: Tuesday’s Large Gains Extend Into Today’s Asia-Pac Dealings

Gold is 0.3% higher in the Asia-Pac session, after some dovish leaning Fed comments and the associated weaker greenback prompted a strong 1.4% rally in the yellow metal on Tuesday.

• US tsys bull-steepened, with yields 3-12bps lower across benchmarks. The driving force was Governor Waller leaning dovish by touting potential cut timings. In the Q&A, Waller suggested that if inflation continues to cool for maybe three to five months, the Fed could lower the policy rate.
• The push to $2040.97 extended bullion’s impressive run to trade at the highest level since May and significantly narrowed the gap with the year’s highs at $2,063.
• Analysts appear to remain bullish on the yellow metal with strategists at BofA, stating they believe gold could finish 2024 at $2,400 per ounce, if earlier Fed rate cuts were to manifest.
• Mining weekly reported that in their recently published Metals and Mining Outlook for 2024, the BofA analysts said that while the war in the Middle East has boosted gold in the near term, “the yellow metal ultimately remains a trade on rates, so once the Fed announces a decisive end to the hiking cycle in 2Q, new buyers should come into the market.”

BOK: MNI BoK Preview - November 2023: No Change, Policy Bias In Focus

• The BoK is seen as firmly on hold tomorrow. With most sell-side analysts looking for cuts to commence in 2024, the focus will rest on the BoK outlook and Governor Rhee's tone at the press conference.
• Sticky inflation pressures are likely to prevent a near term shift away from the central bank's tightening bias. Governor Rhee is likely to reiterate that easing cannot happen until confidence of a return in inflation to target is much higher/evident.
• Full preview here:

ASIA FX: CNH Gains Curbed By Lower Equities, THB, TWD & IDR Rally

USD/Asia pairs are lower, but away from session troughs in recent dealings. USD/CNH broke to fresh multi-month lows, but sits higher now, with some headwinds from weaker equities. KRW has also underperformed somewhat, while THB, IDR and TWD have been stronger performers. Still to come is the BoT decision, while tomorrow we have official China PMIs and the BoK outcome.

• USD/CNH got to fresh lows of 7.1126 amid broader USD weakness (and a lower USD/CNY fix) before rebounding back above 7.1300 on HK/China equity market weakness. Sentiment was weighed by earnings concerns in the equity space. USD/CNH sits lower now, last near 7.1250. Note we are sub the simple 200-day MA (7.1369), which should act as a resistance point on any rebounds in the pair.
• 1 month USD/KRW hasn't been able to track to fresh lows despite a broadly softer USD backdrop. We couldn't get below 1283 and last tracked near 1289, above NY closing levels from Tuesday. Onshore equities haven't been able to rally despite a fairly dovish Fed backdrop. Tomorrow the BoK is seen on hold.
• 1 month USD/TWD has been able to generate greater downside traction, last near 31.00 and below the simple 200-day MA (31.25). Dips sub 31.00 have drawn some buying interest though. SocGen upgraded its outlook for Taiwan stocks on firmer AI related chip demand. The Taiex is modestly higher today, but offshore investors have added just over $7.7bn to local shares so far this month.
• USD/IDR sits up from early session lows, the pair last near 15380 (earlier lows at 15360). We are around 0.35% firmer in IDR terms for the session and back at late September levels. Moves back above 15400 have drawn selling interest. More broadly, USD/IDR is benefiting from the lower US yield backdrop and increased rate cut expectations for 1H24. The pairs inverse relationship with US real yields remains firm. We are sub all key EMAs except for the 200-day (15321). Note on the topside the 100-day sits at 15461.
• USD/THB got to 34.58 in early trade, up nearly 1% in baht terms, as the currency played catch up with USD weakness. We have since stabilized somewhat, last at 34.67, still 0.8% higher for the baht. This is back to early August lows in the pair. Coming up is the BoT decision. No change is expected.