- China yields have recovered some ground, as the PBoC suspended bond purchases in light of the sharp move lower in government bond yields recently. Spill over to other markets has been limited though, with USD/CNH dips supported, while China equities hold weaker.
- Japan real household spending was above expectations, but still negative y/y. Australian household spending was slightly below forecasts. The USD has mostly ticked higher, but aggregate moves have been modest. Gold and oil are holding recent gains.
- It has been a very slow session for US Tsys futures as they trade in very narrow ranges ahead of US Non-Farms later tonight. We also have Canadian jobs data due.
MARKETS
- It has been a very slow session for Tsys futures as they trade in very narrow ranges ahead of US Non-Farms later tonight. Futures are trading slightly lower, with TU -00⅛ at 102-24⅞, while TY is -01 at 108-06
- Cash tsys have given back most of the morning's gains, with yields now flat to -0.5bps lower, the belly of the curves has outperformed throughout the session with the 2y5y20y fly dropping 1bp. The 10yr is trading -0.4bps at 4.685%.
- Focus will all be on Nonfarm payrolls tonight, with growth seen at circa 160k in December as some recent distortions from hurricanes and strikes are increasingly in the rear-view mirror, and with a relatively narrow range to analyst estimates. The unemployment rate is broadly seen holding at 4.2%, although at an unrounded 4.246% in November it wouldn’t surprise if it rounded to 4.3%. A ‘high’ 4.3% would still be notable, though, for a fresh recent high.
- MNI US Payrolls Preview: Test For Fading Rate Cut Expectations - See here
- Projected rate cuts through mid-2025 look a little firmer vs. late Wednesday levels* as follows: Jan'25 at -1.7bp, Mar'25 -11.0bp (-10.2bp), May'25 -16.4bp (-15.4bp), Jun'25 -26.9bp (-24.1bp).
STIR: $-Bloc Markets Sharply Softer Over Past Month Outside The US
In the $-bloc, rate expectations through July 2025 have softened significantly over the past month, with the exception of the US, where expectations remained largely unchanged. Over the period, New Zealand saw a decline of 36bps, Australia softened by 30bps, and Canada eased by 19bps.
- Looking ahead, the US calendar today will see key employment data for December. Nonfarm payrolls growth is seen at circa 160k in December as some recent distortions from hurricanes and strikes are in the rear-view mirror, and with a relatively narrow range to analyst estimates. The unemployment rate is broadly seen holding at 4.2%, although at an unrounded 4.246% in November it wouldn’t surprise if it rounded to 4.3%. A ‘high’ of 4.3% would still be notable for a fresh recent high.
- Looking ahead to December 2025, the projected official rates and cumulative easing across the $-bloc are as follows: US (FOMC): 3.90%, -44bps; Canada (BOC): 2.66%, -60bps; Australia (RBA): 3.57%, -75bps; and New Zealand (RBNZ): 2.98%, -127bps.
Figure 1: $-Bloc STIR (%)
Source: MNI – Market News / Bloomberg
JGBS: Little Changed, Range-Bound Session Ahead Of US Payrolls
JGB futures are weaker, -11 compared to settlement levels, after a range-bound session.
- Outside of the previously outlined household spending, there hasn't been much by way of domestic drivers to flag. The positive surprise on real spending will be welcomed by the authorities, but spending has remained largely negative in y/y terms for the past 2 years.
- Today's data is unlikely to shift near-term BoJ thinking. They have time to assess such trends and await early 2025 wages outcomes.
- BOJ-dated OIS pricing is 1-6bps softer across meetings compared to pre-December MPM levels, with January 2025 leading the decline.
- Market expectations currently indicate: a 28% probability of a 25bp hike in January; a cumulative 82% chance by May; and a full 25bp increase not fully priced in until June 2025.
- Cash US tsys are slightly richer in today’s Asia-Pac session ahead of tonight’s US Nonfarm Payrolls.
- Cash JGBs are little changed across benchmarks. The benchmark 10-year yield is 0.5bp higher at 1.189%, just shy of the fresh cycle high of 1.192% set early today.
- The swaps curve has twist-steepened, pivoting at the 20-year, with rates 2bps lower to 3bps wider.
- The local market is closed on Monday for the Coming-of-Age Day holiday.
JAPAN DATA: Real Household Spending Higher Than Forecast, But Still Negative Y/Y
Japan household spending was -0.4% y/y for Nov, still negative but above market expectations of a -0.9% dip. The prior Oct outcome was 1.3%y/y. In m/m terms spending rose 0.4%. All of these figures are in real terms.
- In nominal terms spending was up 3.0%y/y. Nominal income rose 4.1%, while real incomes were up 0.7%y/y. This was down from Oct's +1.1% y/y pace.
- The positive surprise on real spending will be welcome by the authorities, but spending has remained largely negative in y/y terms for the past 2 years, see the chart below.
- Today's data is unlikely to shift near term BoJ thinking. They have time to assess such trends and await early 2025 wages outcomes, with focus on positive real wages growth driving firmer household spending trends.
Fig 1: Japan Real Household Spending Y/Y - Largely Negative In The Past 2yrs
Source: MNI - Market News/Bloomberg
STIR: BOJ Dated OIS Softer Than Pre-Dec MPM
BOJ-dated OIS pricing is 1-6bps softer across meetings compared to pre-December MPM levels, with January 2025 leading the decline.
- Nevertheless, pricing beyond May 2025 remains 6-13bps firmer versus pre-October MPM levels, with the October 2025 contract showing the strongest gains.
- Market expectations currently indicate: a 28% probability of a 25bp hike in January; a cumulative 82% chance by May; and a full 25bp increase not fully priced in until June 2025.
- A full 25bp hike had been priced by May before the December MPM.
Figure 1: BOJ-Dated OIS – Today Vs. Pre-BOJ MPM (December)
Source: MNI – Market News / Bloomberg
AUSSIE BONDS: Cheaper On A Subdued Pre-US Payrolls Friday
ACGBs (YM -3.0 & XM -4.0) are cheaper and hovering near Sydney session lows on a subdued pre-US payroll Friday.
- Outside of the previously outlined household spending, there hasn't been much by way of domestic drivers to flag.
- Cash US tsys are slightly richer in today’s Asia-Pac session after yesterday’s modest gains. Nonfarm payrolls growth is seen at circa 160k in December as some recent distortions from hurricanes and strikes are in the rear-view mirror.
- Cash ACGBs are 2-4bps cheaper with the AU-US 10-year yield differential at -16bps.
- Swap rates are flat to 1bp higher.
- The bills strip is -1 across contracts.
- RBA-dated OIS pricing is flat to 2bps firmer across meetings today. A 25bp rate cut is more than fully priced for April (118%), with the probability of a February cut at 75% (based on an effective cash rate of 4.34%).
- Monday, the local calendar will see Melbourne Institute Inflation and ANZ-Indeed Job Advertisements data.
- AOFM Bond issuance will resume next week, with A$800mn of the 3.50% 21 December 2034 bond to be sold on Wednesday and A$700mn of the 2.75% 21 November 2027 bond on Friday.
AUSTRALIA DATA: Household Spending Sub Expectations, But Above Recent Y/Y Lows
Like yesterday's retail sales print, the Nov household spending update was also below expectations. We rose 0.4%m/m (+0.7% was the forecast). In y/y terms we were 2.4% (against a 2.5% forecast). Oct's rise was nudged up to 0.9%m/m versus originally reported as a 0.8% gain. In y/y terms Oct's rise was 3.3% (original estimate of 2.8%).
- The ABS noted 6 out of 9 categories rose in Nov, boosted by Black Friday sales. Recreational spending was also firmer, while SUV sales were also strong.
- Y/Y momentum has eased off the earlier Q4 rise, but we are still above the Sep 2024 trough, see the chart below. This is indicating some firmer Q4 spending trends, much like yesterday's retail update.
- Around mid-2025 the retail sales indicator will be replaced by this household spending indicator, a more comprehensive measure including services.
Fig 1: Australia Household Spending Y/Y Momentum Still Above Recent Lows
Source: MNI - Market News/Bloomberg
AUSSIE BONDS: AU-US 1Y3M Spread Drives 10Y Diff. Lower
The AU-US 10-year cash yield differential is at -16bps today, firmer in the bottom half of the +/-30bps range that has largely prevailed since November 2022.
- A simple regression of the AU-US 10-year yield differential against the AU-US 1Y3M swap differential over the past year suggests that the current 10-year yield differential is close to fair value, estimated at -15bps.
- The 1Y3M differential serves as a proxy for the anticipated relative policy trajectory over the next 12 months.
- Since mid-September, the AU-US 1Y3M differential has narrowed by approximately 80bps from +55bps to -25bps.
Figure 1: AU-US Cash 10-Year Yield Differential (%)
Source: MNI – Market News / Bloomberg
BONDS: NZGBS: Closed With A Modest Twist Steepening Ahead Of US Payrolls
NZGBs twist-steepened, with benchmark yields closing 1bp lower to 1bp higher, on a data-light session ahead of tonight’s release of US Nonfarm payrolls for December.
- Nonfarm payrolls growth is seen at circa 160k in December as some recent distortions from hurricanes and strikes are in the rearview mirror and with a relatively narrow range to analyst estimates. The unemployment rate is broadly seen holding at 4.2%, although at an unrounded 4.246% in November, it wouldn’t surprise if it rounded to 4.3%. A ‘high’ of 4.3% would still be notable for a fresh recent high.
- Swap rates closed 1-2bps lower, with a steeper 2s10s curve.
- RBNZ dated OIS pricing closed flat to 4bp softer across meetings, with late 2025 leading. 51bps of easing is priced for February, with a cumulative 131bps by November 2025.
- In the $-bloc, rate expectations through July 2025 have softened significantly over the past month, with the exception of the US, where expectations remained largely unchanged. Over the period, NZ saw a decline of 36bps, Australia softened by 30bps, and Canada eased by 19bps.
- The local calendar will see Building Permits and Filled Jobs on tap on Monday.
FOREX: USD Ticks Up Amid Muted Session As Markets Await US NFP Later
Forex trends in the G10 space have been muted, albeit with a slightly positive USD bias, as markets await the US NFP print later. Aggregate moves are not much beyond 0.10% at this stage. The USD BBDXY index sits up a touch from end Thursday levels, last near 1313.8.
- USD/JPY has traded a little over 30pip range. Dips under 158.00 have been supported and we last tracked near 158.30/35, around session highs. Recent highs in the pair just above 158.50 remain intact. Earlier data showed better than expected real household spending figures, but we are still negative from a y/y standpoint. This is unlikely to unnerve the BoJ around any urgent need to raise policy rates.
- AUD/USD is holding under 0.6200, but has maintained tight ranges so far today. We also had Australian household spending figures, which like yesterday's retail outcome, came in slightly below market expectations. NZD/USD is under 0.5600 as well, but up from recent lows (0.5572).
- Earlier US equity futures opened lower, but we are away from worst levels. Eminis and Nasdaq futures were last off around 0.30%. Rising cost estimates from the LA fires was a likely early headwind in this space. US yields are down a touch, but losses are less than 1bps.
- EUR/USD was last near 1.0300, while GBP/USD is close to 1.2300, both pairs little changed for the session. GBP is off around 1% over the past week, the weakest G10 performer amid fresh twin deficit concerns.
- Looking ahead, outside of the US NFP print we also have the Canadian jobs report.
EQUITIES: China Property Stocks Struggle To Start The Year
Chinese property developers are grappling with mounting debt and liquidation petitions as the real estate crisis extends into its fifth year, with minimal recovery despite Beijing's efforts to stabilize the market. Major firms like Sunac, Country Garden, and China Vanke face significant debt repayments and restructuring challenges, while housing sales among top builders plunged 28.1% in 2024. Analysts warn that struggling developers will remain the primary source of defaults in Asia this year
- Sunac China shares fall as much as 30% in Hong Kong, the most since Oct. 8, after the defaulted builder received a liquidation petition.
- China Vanke says a unit has been granted a 1.08b yuan loan from Shanghai Pudong Development Bank for 30 years
- The Bloomberg China Property Developer is 4.11% lower today, and down 12% already for the year with Sunac the worst performing stock, down 44% this year.
- Major Property Benchmarks: Mainland Property Index is flat today, however 4.3% lower this year, HS Property Index is also flat today however trades 3.4% lower for the year.
EQUITIES: Asian Equities Fall Ahead Ahead Of US Employment Data
Asian stocks are on track for a weekly loss as cautious sentiment prevails ahead of the US nonfarm payrolls report, with concerns over slower Fed rate cuts and rising Treasury yields. The MSCI Asia Pacific Index fell 0.4%, led by declines in Singapore, Australia, and Japan, with Fast Retailing dragging on fears of a China slowdown. Chinese stocks edged lower amid concerns over deflationary pressures and external risks, including potential tech sanctions. Regional markets face additional headwinds from slowing Chinese growth and geopolitical tensions, contributing to rising volatility.
- APAC Markets: Japan's Nikkei -1% & TOPIX -0.65%, South Korea's KOSPI now flat, Hong Kong's HSI -0.45%, China's CSI 300 -0.45, Taiwan's TAIEX -0.10%, Australia's ASX200 -0.50%, New Zealand's NZX 50 -0.20%
- US Equity futures are lower with Dow Jones -0.05%, S&P 500 -0.25% & NASDAQ -0.30%, all trading off session lows now.
ASIA STOCKS: Taiwan See Large Outflows, Erasing Yearly Gains
South Korean equities benefitted from the US looking to impose new restrictions on AI chip exports, however this news hurt Taiwan equities, which saw large outflows.
- South Korea: Recorded inflows of +$498m yesterday, contributing to a 5-day total of +$1.1b. YTD flows are also positive at +$851m. The 5-day average is +$220m, better than the 20-day average of -$43m and the 100-day average of -$135m.
- Taiwan: Saw significant outflows of -$898m yesterday, but the 5-day total remains positive at +$875m. YTD flows are slightly negative at -$92m. The 5-day average is +$175m, better than the 20-day average of -$68m and the 100-day average of -$81m.
- India: Registered outflows of -$434m Wednesday, bringing the 5-day total to -$1.1b. YTD flows are also negative at -$1.1b. The 5-day average is -$215m, worse than the 20-day average of -$151m and the 100-day average of -$42m.
- Indonesia: Posted inflows of +$2m yesterday, with the 5-day total at -$154m. YTD flows are negative at -$169m. The 5-day average is -$31m, worse than the 20-day average of -$27m but slightly better than the 100-day average of +$7m.
- Thailand: Recorded outflows of -$64m yesterday, but the 5-day total is positive at +$6m. YTD flows are negative at -$31m. The 5-day average is +$1m, better than the 20-day average of -$12m and the 100-day average of -$9m.
- Malaysia: Registered outflows of -$36m yesterday, contributing to a 5-day total of -$107m. YTD flows are negative at -$119m. The 5-day average is -$21m, matching the 20-day average of -$27m and worse than the 100-day average of -$11m.
- Philippines: Saw outflows of -$2m yesterday, bringing the 5-day total to -$28m. YTD flows are negative at -$24m. The 5-day average is -$6m, slightly worse than the 20-day average of -$5m and the 100-day average of +$1m.
Table 1: EM Asia Equity Flows
OIL: Tracking Higher For The Third Straight Week
Brent crude has tracked sideways in the first part of Friday trade. The active contract was last just above $77/bbl. This follows Thursday's +1.00% gain. Trends have been mixed the past week, but we are up on last Friday levels by around 0.80% at this stage. WTI was just above $74/bbl in latest dealings, tracking up a more modest 0.20% for the week, (although WTI rose more last week). Both benchmarks are tracking up for the third straight week.
- For Brent, the technical set up looks bullish. We are very close to the 200-day EMA. A clean break highs may see $80/bbl round figure resistance targeted. Other key EMAs are lower, between $75.30 and $74.30/bbl, which could act as a support zone. We haven't tested sub the 100-day EMA so far this year.
- There have been a number of support points this past week, with lower US crude inventories pointing to tight supply. Cold conditions in parts of the US have also supported heating fuel demand. Fears over fresh US sanctions on Iran/Russia has also supported risk premiums in terms of the outlook.
- Concerns around a softer China growth backdrop have been offset by the above factors. Note we get China trade figures on Monday, with imports eyed in terms of the China demand pulse.
- Before that the main cross asset focus will be tonight's US NFP print.
GOLD: Positive Trend Maintained, Up Over 1% This Past Week
Gold is trading with a positive bias, as it has for much of the past week. We were last near $2673.5, up a further 0.25%, tracking firmer for the fourth straight session. We are comfortably higher versus end levels from last week, +1.30%.
- Intra-session highs from Thursday were at $2678.45, while broader upside focus is likely to rest on a re-test of $2700. The 100-day MA support zone remains a watch point, this level currently just above $2631.
- Gold is outperforming the resilient USD/US yield backdrop for the past week, but this has been a theme for a while. Asset allocation flows, particularly from central banks, an on-going support point.
- The upcoming NFP print will be a key focus point from a cross asset standpoint.
CHINA: Yields Off Earlier Highs, USD/CNH Supported Sub 7.3500, Equities Lower
China government bond yields remain in positive territory, but away from earlier highs. Gains have been biased at the front end, with the 2yr yield holding +6bps higher at this stage, above 1.18%. the 5-30yr benchmarks are around 1-2bps higher. The high in the 10yr yield was 1.684%, last near 1.67% (per BBG). In the swap space, the 2yr NDIRS was last around 1.47%, against earlier highs of 1.50%, the 10yr was last near 1.555%.
- Earlier yield momentum was fueled by headlines that the PBoC would halt bond purchases, given the current demand/supply backdrop has heavily favored lower yields. Onshore media also highlighted a PBoC backed story that the market should over-interpret the central bank's easing bias.
- These yield moves aided CNH but follow through has been limited. USD/CNH was last near 7.3500, little changed for the session. US-CH yield differentials are lower at the front end, with 2yr spread, back close to +300bps, against late Dec 2024 highs near +330bps.
- In the equity space, sentiment continues to struggle, the CSI 300 tracking down around 0.50%, but still above YTD lows (based off intra-day levels). Property related indices have struggled since the start of the year, with elevated debt levels still a headwind.
- Next Monday we get a fresh update on the trade picture, with Dec figures. Exports are expected to be firmer in y/y terms, front loading ahead of potential US tariffs in 2025 may be a support.
- Also note on Jan 14 (next Tuesday), a briefing will be held at 3pm local time from the PBoC and SAFE on financial support for the economy.
UP TODAY (TIMES GMT/LOCAL)
| Date | GMT/Local | Impact | Country | Event |
| 10/01/2025 | 0645/0745 | ** |  CH | Unemployment |
| 10/01/2025 | 0700/0800 | *** |  NO | CPI Norway |
| 10/01/2025 | 0700/0800 | ** |  SE | Private Sector Production m/m |
| 10/01/2025 | 0745/0845 | * |  FR | Industrial Production |
| 10/01/2025 | 0745/0845 | ** | FR | Consumer Spending |
| 10/01/2025 | 0800/0900 | ** |  ES | Industrial Production |
| 10/01/2025 | 0900/1000 | * |  IT | Retail Sales |
| 10/01/2025 | - | *** |  CN | Money Supply |
| 10/01/2025 | - | *** | CN | Social Financing |
| 10/01/2025 | - | *** | CN | New Loans |
| 10/01/2025 | 1330/0830 | * |  CA | Building Permits |
| 10/01/2025 | 1330/0830 | *** | CA | Labour Force Survey |
| 10/01/2025 | 1330/0830 | *** |  US | Employment Report |
| 10/01/2025 | 1330/0830 | ** | US | WASDE Weekly Import/Export |
| 10/01/2025 | 1500/1000 | ** | US | U. Mich. Survey of Consumers |
| 10/01/2025 | 1700/1200 | *** | US | USDA Crop Estimates - WASDE |
| 10/01/2025 | 1700/1200 | ** | US | USDA GrainStock - NASS |
| 10/01/2025 | 1700/1200 | *** | US | USDA Winter Wheat |
| 10/01/2025 | 1900/1400 | ** | US | Treasury Budget |