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MNI EUROPEAN OPEN: AU CPI Eases, Japan Labor Earnings Falter

EXECUTIVE SUMMARY

Fig. 1: Australian Monthly CPI Y/Y Trends Continue To Ease

Source: MNI - Market News/Bloomberg

U.K.

FISCAL (BBG): The UK government is pressuring councils to run down their reserves to help stave off a financial crisis beginning to rip through the country’s town halls.

EUROPE

ECB (MNI BRIEF): The European Central Bank is likely to make its first rate cuts of the cycle in 2024, thanks to easing inflation as growth softens, but decisions will be decided solely on the basis of incoming data, Bank of France Governor Francois Villeroy said in a speech on Tuesday.

POLAND (BBG): Polish police arrested two former ruling party officials who were holed up at the presidential palace as a constitutional crisis escalated three months after a pivotal parliamentary election.

U.S.

FISCAL (BBG): Congress will need another temporary spending measure to avert a Jan. 20 partial government shutdown, Senate Republican leaders said Tuesday in comments that risk provoking backlash from House conservatives.

FED (MNI BRIEF): Federal Reserve Vice Chair for Supervision Michael Barr on Tuesday said the central bank's Bank Term Funding Program was established last year as an emergency measure during the banking crisis, potentially suggesting there's limited support to extend the program beyond its current mid-March sunset date despite an uptick in take-up in recent days.

BITCOIN (BBG): A highly anticipated decision by the US Securities and Exchange Commission on whether to approve a spot-Bitcoin exchange-traded fund quickly morphed into a major cybersecurity incident on Tuesday.

CORPORATE (BBG): BlackRock Inc. will dismiss about 600 employees, or roughly 3% of its global workforce, as it seeks to reallocate resources amid rapid changes in asset management.

CORPORATE (BBG): Amazon.com Inc.’s livestreaming site Twitch is poised to cut 35% of its staff, or about 500 workers, according to people familiar with the plans, the latest in a series of job reductions there.

OTHER

BANKS (MNI): Banks need to ensure capital levels are high enough to guard themselves and taxpayers against breakdowns such as Silicon Valley Bank and Credit Suisse, the G30 group led by former New York Fed President Bill Dudley said in a report Tuesday.

MIDEAST (BBG): Houthi rebels in Yemen carried out one of their largest missile and drone attacks to date on commercial shipping lanes in the Red Sea late Tuesday, igniting a response from five US and UK warships patrolling the region critical to global trade.

JAPAN (BBG): Headline wage growth for Japanese workers slowed sharply in November, an unwelcome development for the Bank of Japan as it seeks evidence of a virtuous cycle linking pay hikes to price increases as a prerequisite for normalizing monetary policy.

JAPAN (BBG): Japanese shares outperformed regional peers on Wednesday with the broad Topix index touching a 34-year intraday high, as the weaker yen and falling bond yields fueled bullish investor sentiment.

AUSTRALIA (MNI BRIEF): The monthly Consumer Price Index rose 4.3% y/y in November from 4.9% the prior month, lower than the expected 4.4%, while trimmed CPI increased 4.6%, down from October’s 5.3%, data from the Australian Bureau of Statistics (ABS) showed Wednesday.

CHINA

POLICY (MNI): Chinese authorities could cut interest rates or banks’ reserve ratio soon and shift investment support to projects that boost demand and support shrinking manufacturing activity weighed down by weak expectations and a persistently soft real-estate sector, policy advisors told MNI.

GROWTH (21st CENTURY BUSINESS): China is expected to grow about 5% in 2024, with the real-estate market likely to stabilise by year-end, according to a report by Academic Center for Chinese Economic Practice and Thinking (ACCEPT). The country’s actual growth rate in 2023 will be about 4.5% if excluding the low base effect, lower than the average annual growth of 4.59% required to achieve the 2035 goal of per capita GDP reaching the level of moderately developed countries, the report said, urging for pro-growth action.

CAR SALES (NATIONAL BUSINESS DAILY): China’s automobile sales including passenger cars and commercial vehicles exceeded 30 million units in 2023, with the trend of annual auto production and sales expected to reach 40 million in future, according to the China Passenger Car Association. Car sales are expected to achieve y/y growth before the Chinese New Year with electric vehicles providing strong support, said Cui Dongshu, secretary general at the CPCA.

SMES (YICAI): China's SME development index decreased by 0.1 pp in Q4 2023 to 89.1, below the prosperity threshold of 100, according to the China Association of Small and Medium Enterprises. Overall the index averaged 89.2 in 2023, higher than 88.4 in 2022 but lower than 89.6 in 2021. Surveyed firms showed a fall in all sub-indices showing China’s SME recovery remains a long and challenging process, according to the association. (Source: Yicai)

CHINA MARKETS

MNI: PBOC Injects Net CNY6 Bln Via OMO Weds; Rates Unchanged

The People's Bank of China (PBOC) conducted CNY20 billion via 7-day reverse repo on Wednesday, with the rates unchanged at 1.80%. The reverse repo operation has led to a net injection of CNY6 billion reverse repos after offsetting CNY14 billion maturity today, according to Wind Information.

  • The seven-day weighted average interbank repo rate for depository institutions (DR007) rose to 1.7883% at 09:53 am local time from the close of 1.7805% on Tuesday.
  • The CFETS-NEX money-market sentiment index, measuring interbank money-market liquidity, closed at 48 on Tuesday, compared with the close of 49 on Monday. A higher reading points to tighter liquidity condition, with 50 representing an equilibrium.

PBOC Yuan Parity Higher At 7.1055 Wednesday vs 7.1010 Tuesday

The People's Bank of China (PBOC) set the dollar-yuan central parity rate higher at 7.1055 on Wednesday, compared with 7.1010 set on Tuesday. The fixing was estimated at 7.1625 by Bloomberg survey today.

MARKET DATA

SOUTH KOREA DEC UNEMPLOYMENT RATE 3.3%; MEDIAN 2.9%; PRIOR 2.8%
SOUTH KOREA DEC BANK LENDING TO HOUSEHOLD TOTAL KR1095T; PRIOR 1091.9T

JAPAN NOV LABOR CASH EARNINGS Y/Y 0.2%; MEDIAN 1.5%; PRIOR 1.5%
JAPAN NOV REAL CASH EARNINGS Y/Y -3.0%; MEDIAN -2.0%; PRIOR -2.3%

NEW ZEALAND DEC ANZ COMMODITY PRICES M/M 2.4%; PRIOR -1.2%

AUSTRALIA NOV CPI Y/Y 4.3%; MEDIAN 4.4%; PRIOR 4.9%
AUSTRALIA NOV JOB VACANCIES Q/Q -0.7%; PRIOR -8.2%

MARKETS

US TSYS: Holding Pattern Ahead Of US CPI Data

TYH4 is trading at 111-30, +0-01 from NY closing levels, after giving up early gains.

  • Cash US tsys are trading flat to 1bp richer, with a steepening bias, in today’s Asia-Pac session.
  • With little in the way of meaningful newsflow, US tsys' recent performance is best seen as a holding pattern ahead of US CPI/PPI data on Thursday/Friday.
  • That said, another poor 10-year JGB auction result likely weighed on recent dealings.

JGBS: Bull-Flattening Maintained Despite Poor 10Y Auction Result

JGB futures are only slightly richer, +7 compared to the settlement levels, after giving up early gains in post-10-year supply dealings.

  • There wasn't much in the way of domestic drivers to flag, outside of the previously outlined weaker-than-expected November labour and real cash earnings in morning trading. As a result, JGB futures drifted higher, hitting their session high at the lunch break.
  • The 10-year auction however showed poor demand metrics once again. The low price failed to meet wider expectations, the tail lengthened, and the cover ratio only improved slightly to 2.904x from 2.823x at December’s auction. It is worth noting that December’s cover was the lowest seen at a 10-year auction since 2021.
  • Nevertheless, the cash JGB curve has maintained its bull-flattening, with yields flat to 3bps lower. The benchmark 10-year yield is 0.8bps lower at 0.583% after a morning low of 0.564%.
  • Cash US tsys are dealing flat to 1bp lower, with a steepening bias, so far today. In large part, the recent performance of US tsys is best seen as a holding pattern ahead of US CPI/PPI data on Thursday/Friday.
  • Swaps curve has also bull-flattened, with swap spreads tighter out to the 5-year and wider beyond.
  • Tomorrow, the local calendar is relatively light, with Tokyo Avg Office Vacancies and Leading & Coincident Indices as the highlights.

AUSSIE BONDS: Early Gains Lost In Post-CPI Dealings, Poor JGB 10Y Auction

ACGBs (YM flat & XM -1.0) sit little changed having given up early gains. After a slight overnight gain, ACGB futures rallied into the release of November’s CPI Monthly. While the CPI print slightly beat market expectations, the ex-volatile items measure showed a smaller reduction compared to October. The annual rise in November was 4.8% versus 5.1% in October.

  • Another poor 10-year JGB auction result also likely weighed on global bonds in afternoon dealings of today’s Asia-Pac session.
  • Cash US tsys are dealing flat to 1bp lower, with a steepening bias, so far today. In large part, the recent performance of US tsys is best seen as a holding pattern ahead of US CPI/PPI data on Thursday/Friday.
  • Cash ACGBs are flat to 1bp cheaper on the day, with the AU-US 10-year yield differential flat at +9bps.
  • Swap rates are unchanged.
  • The bills strip is little changed, with price movement bounded by +/- 1.
  • RBA-dated OIS pricing is little changed across meetings having given up an early softening. A cumulative easing of 48bps is priced by year-end. It was -53bps earlier in the session.
  • Tomorrow, the local calendar will see Trade Balance data for November.

NZGBS: Cheaper, Underperforms The $-Bloc, Global Bonds Await US CPI Data

NZGBs closed on a weak note, with benchmark yields 4-6bps higher. There hasn’t been much in the way of domestic drivers to flag, with ANZ commodity prices as the calendar highlight. Commodity export prices rose 2.4% m/m in December versus a revised -1.2% in November, according to ANZ Bank.

  • For the second day running the NZGB 10-year has underperformed its $-bloc counterparts, with the NZ-US and NZ-AU yield differentials 4bps wider.
  • Cash US tsys are dealing flat to 1bp lower, with a steepening bias, in today’s Asia-Pac session. There hasn’t been much in the way of meaningful newsflow, ahead of 10-year JGB supply today. The results will be released after the local market closes.
  • Swap rates closed 3bps higher, with the 2s10s curve steeper and implied swap spreads ~2bps tighter.
  • RBNZ dated OIS pricing closed flat to 4bps firmer across meetings, with October and November leading. A cumulative easing of 90bps is priced for year-end.
  • Tomorrow, the local calendar sees Building Permits for November.

EQUITIES: Japan Outperformance Continues, Negative Trends Elsewhere

Outside of continued Japan equity outperformance, Asia Pac bourses are mostly in the red for Wednesday trade. The Nikkei 225 is +2% higher, fresh multi decade highs back to the early 1990s. US equity futures are close to flat. Eminis last near 4789, while Nasdaq futures sit at 16830.

  • The Topix is also up +1.4% at the time of writing. A weaker yen, which has lost ground modestly against the USD today, is seen as aiding local benchmarks, particularly in parts of the machinery space.
  • Note the weaker Nov labor earnings data as well, which printed earlier today. This may underpin a more dovish BoJ backdrop in the near term.
  • Trends elsewhere are mostly negative. At the break, the HSI sits down 0.42%, while the CSI 300 is off 0.16%. Stimulus calls continue and may be delivered soon, per the latest piece from our China policy team (see this link), but this is yet to aid broader equity sentiment.
  • The Kospi is off 0.6%, the Taiex down by 0.25% at this stage.
  • In SEA, only the JCI in Indonesia is up, last around +0.70%. The index recouping some of the sharp losses seen in recent sessions.

FOREX: Yen Weakens, A$ Stabilizes, But Broader USD Index Unchanged

Outside of yen weakness and the modest A$ recovery, G10 FX markets have been fairly muted today. The BBDXY sits just above 1226, little changed versus end Tuesday levels.

  • In the cross asset space, US yield trends have been broadly steady, while US equity futures sit down a touch. Regional equities are weaker, except for Japan, where the Nikkei is +2%.
  • The weaker yen, which got close to 145.00 in early dealings (last 144.80/85), is aiding the local equity backdrop. Earlier data showed Nov real and nominal wages coming in well below expectations, which may keep the BoJ dovish in the near term.
  • AUD/USD has recovered some ground, back above 0.6700, after underperforming on Tuesday. Nov monthly CPI data was a touch weaker than expected and suggested limited hawkish developments for the RBA. NZD/USD sits a touch higher at 0.6240/45.
  • In the commodity space, iron ore is holding close to recent lows, around $134.75/ton, although copper is a touch higher.
  • Looking ahead, potential comments from Bank of England Governor Andrew Bailey and a 10-yr treasury auction the only other notable risk events for the rest of the session.

OIL: Benchmarks Edge Higher, Fresh Attacks In The Red Sea

Oil benchmarks have tracked tight ranges in the first part of Wednesday trade. Brent sits near $77.80/bbl in latest dealings, marginally above Tuesday end levels. WTI was last at $72.50/bbl. Both front end benchmarks saw +2% gains for Tuesday's session.

  • Headlines crossed earlier of a Houthi attack, reportedly the largest to date in terms of cruise missiles, drones etc, in the Red Sea on commercial shipping.
  • Whilst the US military stated there were no damages from the attack, it does underscore risks around the supply route.
  • This news, coupled with API data suggesting lower US oil inventories last week (per BBG), has seen supply side dynamics play a role in oils recent rebound.
  • Elsewhere, on Tuesday it was announced global consumption of liquid fuels is expected to be 102.46m b/d in 2024, according to the EIA’s January Short-Term Energy Outlook. This is revised up from 102.34m b/d in December’s report.

GOLD: Holding Pattern Ahead Of US CPI/PPI

Gold is little changed in the Asia-Pac session, after closing 0.1% higher at $2030.20 on Tuesday.

  • Bullion’s performance was noteworthy considering the strengthening in the USD index throughout the session.
  • Like US Treasuries, Tuesday’s session for gold is best seen as a holding pattern ahead of US CPI/PPI data on Thursday/Friday.
  • US Treasuries finished the NY session with yields 1-2bps lower across benchmarks. The 10-year note finishing above 4% for the third straight close.
  • From a technical standpoint, the range was narrow, with the low failing to test support at $2012.0 (50-day EMA). Such a test would be seen as part of the trend bear leg extension, according to MNI’s technicals team.

UP TODAY (TIMES GMT/LOCAL)

DateGMT/LocalImpactFlagCountryEvent
10/01/20240700/0800***NO CPI Norway
10/01/20240700/0800**SE Retail Sales
10/01/20240700/0800**SE Private Sector Production m/m
10/01/20240745/0845*FR Industrial Production
10/01/20240800/0900EU ECB's De Guindos speech at Spain Investor Day
10/01/20240900/1000*IT Retail Sales
10/01/20241000/1000**UK Gilt Outright Auction Result
10/01/20241200/0700**US MBA Weekly Applications Index
10/01/2024-***CN Money Supply
10/01/2024-***CN New Loans
10/01/2024-***CN Social Financing
10/01/20241415/1415UKTreasury Select Hearing on FSR
10/01/20241500/1000**US Wholesale Trade
10/01/20241530/1030**US DOE Weekly Crude Oil Stocks
10/01/20241800/1300**US US Note 10 Year Treasury Auction Result
10/01/20242015/1515US New York Fed's John Williams

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