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.
EXECUTIVE SUMMARY
- BOWMAN SAYS FED HAS A LOT MORE WORK TO DO (MNI)
- ECB'S CENTENO: WE ARE APPROACHING THE END OF THE INTEREST RATE RISE PROCESS (RTRS)
- FRENCH UNIONS PLAN FIRST STRIKES OVER PENSION REFORM ON JAN. 19 (BBG)
- TOP CHINA SECURITIES PAPER SEES ROOM FOR RRR, RATE CUTS IN 2023 (BBG)
Fig. 1: AUD/USD Vs. SGX Iron Ore Futures
Source: MNI - Market News/Bloomberg
UK
FISCAL: The UK tax authority is missing out on billions of pounds of tax revenue because of a “failure to better resource compliance” and is delivering an “unacceptable” service, according to a cross-party group of MPs. (FT)
EUROPE
ECB: European Central Bank's governing council member Mario Centeno said on Tuesday the current process of interest rate increases is approaching its end. The central banker, who was answering Portuguese legislators during a committee hearing in Lisbon, added even though inflation may have some resistance in January and February it will resume falling in March. (RTRS)
FISCAL: Eurogroup President Paschal Donohoe has a “window of opportunity” in the first quarter to steer member states away from untargeted energy support packages adopted during last year’s gas price crisis, EU officials told MNI on Tuesday. (MNI)
FISCAL: The European Commission’s uphill task in driving through its preferred reforms of the European Union’s fiscal rules has been made even tougher by the bloc’s new Swedish presidency, which sympathises with other member states opposing the proposals and has left the issue off the agenda for next week’s finance ministers’ meeting, EU officials told MNI. (MNI)
GERMANY: Germany will be able to get through this winter with enough gas even if an “extreme” cold spell hits the region, according to an association of storage operators. (BBG)
FRANCE: Emmanuel Macron’s government presented a plan to gradually raise France’s minimum retirement age to 64 by 2030 from 62, sparking anger among labor unions who immediately called for strikes to protest the reform. (BBG)
FRANCE: The French government sees additional gains of 17.7 billion euros ($19.00 billion) by 2030 thanks to its proposed pension reform that will raise the regular retirement age to 64 from 62, France's Finance Minister Bruno Le Maire said on Tuesday. (RTRS)
FRANCE: France’s main labor unions responded to President Emmanuel Macron’s plan to raise the retirement age by calling a first day of strikes and protests on Jan. 19. (BBG)
U.S.
FED: The Federal Reserve should keep hiking interest rates and while there has been a recent decline in some inflation measures there's a lot more work to do, Governor Michelle Bowman said Tuesday. (MNI)
FED: Early last October, Neel Kashkari, the president of the Federal Reserve Bank of Minneapolis, spoke to several dozen graduate students at the University of Minnesota. (New York Times)
FED: Directors at three of the Federal Reserve’s 12 regional branches voted to hold the discount rate unchanged ahead of the central bank’s meeting last month. (BBG)
FED: The Federal Reserve on Tuesday added to the diversity of its regional Fed bank board leadership, announcing a group of chairs and deputy chairs that for a second straight year are majority women and minorities. (RTRS)
ECONOMY/POLICY: President Joe Biden asked Treasury Secretary Janet Yellen to stay in her post, and she agreed, a White House official familiar with the matter said. (BBG)
FISCAL: House Republican Majority Leader Steve Scalise sidestepped thorny questions Tuesday on whether Congress would allow the U.S. to default on its debt after lawmakers adopted new rules making it more difficult to raise federal limits. (CNBC)
POLITICS: The Republican-led House Committee on Oversight and Accountability announced Tuesday that it has launched an investigation into classified documents found in President Biden's former office. (Axios)
EQUITIES: Every January, Apple releases the total amount of money that App Store developers have earned since 2008, a data point that allows analysts and Apple investors to get an idea of how much money the App Store makes. This year’s disclosure suggests that Apple’s App Store growth has plateaued. (CNBC)
OTHER
GLOBAL TRADE: The European Commission wants to ask Big Tech and European Union telecoms providers about their investment outlays and cloud infrastructure plans before tabling legislation that could make the former pay for network costs, a person familiar with the matter said on Tuesday. (RTRS)
GLOBAL TRADE: Belgium’s prime minister has accused the US of an “aggressive” campaign to lure European companies to the other side of the Atlantic with the promise of support under its new green subsidy act. (FT)
GLOBAL TRADE: The European Union is skeptical that the US will make any meaningful changes to the $370 billion green investment plan that the bloc says unfairly subsidizes American companies. (BBG)
GLOBAL TRADE: The US will keep discussing with Hyundai Motor Co. as it acknowledges the company’s concerns regarding the Inflation Reduction Act, Under Secretary for Economic Growth, Energy and the Environment Jose W. Fernandez told reporters in Seoul. (BBG)
USMCA: The United States, Mexico and Canada will take steps to strengthen North America's semiconductor industry, the White House said on Tuesday, as the countries try to resolve a dispute over Mexico's energy policy that has angered investors. (RTRS)
U.S./CHINA: Fresh off a fraught leadership election and only a day after it passed a contentious rules package, the US House of Representatives on Tuesday voted overwhelmingly to establish a select committee on US-China strategic competition, affirming its intention of keeping China at the forefront of the new Congress’s agenda. (SCMP)
CHINA/TAIWAN: China said the rising number of warplanes it sends toward Taiwan were due to the island’s “military collusion” with the US, shedding light on its motives for the threatening activity. (BBG)
U.S./JAPAN: US President Joe Biden and Japanese Prime Minister Fumio Kishida will affirm cooperation between their governments on technology that has both military and civilian applications when they meet this week, Yomiuri reports, citing unidentified officials from both countries. (BBG)
JAPAN/CHINA: Japan lodged a protest to China over its suspending the issuance of visas for Japanese citizens and asked that it overturn the action, Chief Cabinet Secretary Hirokazu Matsuno said on Wednesday. (RTRS)
CORONAVIRUS: Countries should consider recommending that passengers wear masks on long-haul flights, given the rapid spread of the latest Omicron subvariant of COVID-19 in the United States, World Health Organization (WHO) officials said on Tuesday. (RTRS)
CORONAVIRUS: Accusations by the United States and other Western countries of Beijing losing control over the coronavirus pandemic are speculation, Chinese Ambassador to Russia Zhang Hanhui told Russia's TASS news agency in remarks published on Wednesday. (RTRS)
BOJ: The Bank of Japan's (BOJ) move to tweak its bond yield curve control last month was a reasonable decision aimed at making its policy sustainable, former board member Sayuri Shirai said on Wednesday. (RTRS)
JAPAN/JGBS: Japan's Ministry of Finance is striving to extend the duration of government bond (JGB) holdings to correct heavy issuance of short-term JGBs issued to fund steps against the COVID-19 pandemic since 2020, a top ministry official said on Wednesday. (RTRS)
JAPAN: Uniqlo parent Fast Retailing Co Ltd on Wednesday said it would raise wages by as much as 40%, focusing on its home market of Japan, where salaries have been under downward pressure for years. (RTRS)
JAPAN: The ratio of Japanese households expecting prices to rise a year from now stood at 85.0% in December, down from 85.7% in September, a quarterly survey by the Bank of Japan (BOJ) showed on Wednesday. The ratio of households expecting prices to rise five years from now stood at 76.7%, down from 78.3% three months ago, the survey showed. The quarterly BOJ survey on households is among data closely watched by the central bank to determine the outlook for inflation. (RTRS)
TURKEY: Capital Markets Board is monitoring transactions at Borsa Istanbul “in real time” as the regulator fulfills its duty of inspection against market-disrupting actions, the regulator says in statement after market close on Tuesday. (BBG)
MEXICO: The US wants to help Mexico bankroll its ambitious plan for a slew of solar parks along their border, which is likely to require private funds and development bank loans, according to top diplomat focused on Latin America. (BBG)
MEXICO: Mexican President Andres Manuel Lopez Obrador said on Tuesday that he had urged U.S. President Joe Biden to press Congress for an immigration reform to help regularize the migratory status of millions of Mexicans in the United States. (RTRS)
BRAZIL: Brazil's central bank chief Roberto Campos Neto said on Tuesday that policymakers have taken the necessary steps to ensure inflation reaches its targets until 2025, reinforcing they will remain vigilant to see if keeping interest rates at the current 13.75% level for long enough will ensure such convergence. (RTRS)
BRAZIL: Former Brazil President Jair Bolsonaro used his Facebook account to share a video of voter fraud conspiracies shortly after being discharged from a US hospital Tuesday. (BBG)
RUSSIA: U.S. plans to train Ukrainian servicemen in the use of Patriot missiles provides further proof of Washington's participation in the Ukraine conflict, Russia's ambassador to the United States said on Tuesday. (RTRS)
SOUTH AFRICA: South African state power utility Eskom said on Tuesday it will implement "Stage 6" rotational power cuts every night from 1600 to 0500 local time (1400 to 0300 GMT) until further notice due to the breakdown of several of its power generating units. The "Stage 6" power cuts, the worst outage level on record, require up to 6,000 megawatts to be shed from the national grid and mean at least six hours a day without power for most South Africans. (RTRS)
PERU: Peru's government approved an overnight curfew in the restive southern region of Puno, the country's prime minister announced on Tuesday, after violent protests escalated earlier this week leaving at least 17 dead. (RTRS)
PERU: Peru's top prosecutor's office on Tuesday said it launched an inquiry into new President Dina Boluarte and members of her cabinet over violent clashes that have seen at least 40 killed and hundreds injured since early December. (RTRS)
METALS: One trader helped exacerbate the massive nickel short squeeze on the London Metal Exchange last March by building up a $600 million position as the market spiraled out of control. (BBG)
OIL: U.S. Treasury Secretary Janet Yellen said on Tuesday that the price cap on Russian oil imposed by Western countries in December so far appeared to be achieving its goals of keeping Russian oil on the market while limiting Russia's revenues. (RTRS)
OIL: The U.S. Energy Information Administration on Tuesday raised its forecast for this year's crude output and petroleum consumption growth, projecting even higher growth in 2024. (RTRS)
OIL: Chevron Corp's first cargo of Venezuelan crude under a U.S. license received in November has departed from a ship-to-ship transfer hub near Aruba to its Pascagoula, Mississippi refinery, according to shipping data seen by Reuters on Tuesday. (RTRS)
CHINA
PBOC: In 2023, further cuts to the reserve requirement ratio (RRR) and the over-five-year Loan Prime Rate (LPR) can be expected, as authorities implement “accurate and forceful” monetary policy, according to experts cited by China Securities Journal. (MNI)
PBOC: The People’s Bank of China (PBOC) will ensure the real estate sector's smooth transition to a new development model, in plans discussed at a recent symposium, according to a notice posted on the PBOC’s social media account. (MNI)
ECONOMY: Shanghai targets 5.5% growth in general public budget revenue and about 3% rise in consumer prices this year, Mayor Gong Zheng says in a government work report at the annual local People’s Congress. (BBG)
ECONOMY: Authorities must first repair household incomes and improve confidence before excess savings can be converted into consumption, according to experts cited by Securities Times. (MNI)
CHINA MARKETS
PBOC NET INJECTS CNY71 BILLION VIA OMOS WEDNESDAY
The People's Bank of China (PBOC) on Wednesday conducted CNY65 billion via 7-day reverse repos and CNY 22 billion via 14-day reverse repos with the rates unchanged at 2.00% and 2.15%, respectively. The operation has led to a net injection of CNY71 billion after offsetting the maturity of CNY16 billion reverse repos today, according to Wind Information.
- The operation aims to keep banking system liquidity reasonable and ample, the PBOC said on its website.
- The 7-day weighted average interbank repo rate for depository institutions (DR007) rose to 1.9373% at 9:28 am local time from the close of 1.9262% on Tuesday.
- The CFETS-NEX money-market sentiment index closed at 58 on Tuesday, compared with the close of 55 on Monday.
PBOC SETS YUAN CENTRAL PARITY AT 6.7756 WEDS VS 6.7611 TUES
The People's Bank of China (PBOC) set the dollar-yuan central parity rate higher at 67756 on Wednesday, compared with 6.7611 set on Tuesday.
OVERNIGHT DATA
JAPAN NOV, P LEADING INDEX 97.6; MEDIAN; 97.6; OCT 98.6
JAPAN NOV, P COINCIDENT INDEX 99.1; MEDIAN; 99.1; OCT 99.6
AUSTRALIA NOV CPI +7.3% Y/Y; MEDIAN +7.2%; OCT +6.9%
AUSTRALIA NOV TRIMMED MEAN CPI +5.6% Y/Y; MEDIAN +5.5%; OCT +5.4%
AUSTRALIA NOV RETAIL SALES +1.4% M/M; MEDIAN +0.6%; OCT +0.4%
AUSTRALIA NOV JOB VACANCIES -4.9% Q/Q; OCT -2.8%
NEW ZEALAND DEC ANZ COMMODITY PRICE INDEX -0.1% M/M; NOV -4.0%
The ANZ World Commodity Price Index fell just 0.1% in December, as higher aluminium and dairy prices helped offset weaker returns for meat. In local currency terms the index dropped 3.8%, as the NZD appreciated 2.1% against the Trade Weighted Index. (ANZ)
SOUTH KOREA JAN 1-10 TRADE BALANCE -US$6.27BN
SOUTH KOREA JAN 1-10 EXPORTS -0.9% Y/Y
SOUTH KOREA JAN 1-10 IMPORTS +6.3% Y/Y
SOUTH KOREA JAN 1-10 DAILY AVERAGE EXPORTS -14.1% Y/Y
MARKETS
US TSYS: Bull Flattening, Early Asia Richening Holds
TYH3 deals at 114-07, +0-07, a touch off the top of its 0-08+ range on volume of ~71K.
- Cash Tsys have bull flattened, dealing 2-4bp firmer across the major benchmarks.
- Tsys firmed in early trade as Asia-Pac participants seemingly paid more attention to the well-received 3-Year Tsy auction results and lack of fresh monetary policy steer from Fed Chair Powell, fading Tuesdays issuance-driven cheapening.
- Potential for easing of PBoCs monetary policy in H1 2023, via RRR and LPR cuts, in a bid to ensure “reasonably abundant liquidity” and lower financing costs for the real economy and property sector (via analysts commenting in a major state-run media outlet), may also have aided the bid at the margin.
- Tsys saw some brief pressure as weakness in Australian FI after stronger than expected Australian CPI and Retail Sales prints spilled over into the wider space, before paring losses.
- The richening marginally extended late in the session as the USD unwound its modest gains to trade softer.
- We have a thin docket in Europe today, further out MBA Mortgage Applications provides the only domestic data point of note. Participants will have one eye on the Dec CPI print tomorrow (see our full preview of the CPI release here). On the supply side we have the latest 10-Year auction.
JGBS: Futures Cheapen Into Close, Long End Leads After Decent Demand At Auction
JGB futures pull away from best levels to print -15 ahead of the bell. There hasn’t been much in the way of meaningful headline flow to tout, with ex-BoJ board member Shirai pointing to the benefits of a more flexible inflation target (a matter that is already being considered by the BoJ and government, per recent press reports), while suggesting that a fundamental shift in monetary policy is unlikely, stressing that the recent YCC tweak was based on promoting sustainable monetary policy.
- Cash JGBs sit 0.5-4.5bp richer across the curve, with the long end leading and intermediates lagging.
- A fairly well-received round of 30-Year JGB supply, coupled with a bounce from Tuesday’s lows in U.S. Tsys and an unscheduled round of 1- to 25+-Year BoJ Rinban purchases (in addition to unscheduled fixed rate 1- to 5-Year JGB purchases) helped support JGBs before the aforementioned pullback in futures into the close.
- That came after news that the Japanese MoF is looking at extending the average duration of JGBs on issue, coupled with pre-auction concession promoted some twist steepening of the curve in the Tokyo morning.
- Looking ahead, BoP data & BoJ Rinban purchases headline domestically on Thursday.
JGBS AUCTION: 30-Year JGB Auction Results
The Japanese Ministry of Finance (MOF) sells Y731.8bn 30-Year JGBs:
- Average Yield: 1.649% (prev. 1.481%)
- Average Price: 99.00 (prev. 98.32)
- High Yield: 1.654% (prev. 1.489%)
- Low Price: 98.90 (prev. 98.15)
- % Allotted At High Yield: 38.0180% (prev. 26.9014%)
- Bid/Cover: 3.105x (prev. 3.001x)
JGBS AUCTION: 3-Month Bill Auction Results
The Japanese Ministry of Finance (MOF) sells Y4.87295tn 3-Month Bills:
- Average Yield -0.1169% (prev. -0.1206%)
- Average Price 100.0282 (prev. 100.0291)
- High Yield: -0.1057% (prev. -0.1036%)
- Low Price 100.0255 (prev. 100.0250)
- % Allotted At High Yield: 52.6588% (prev. 97.1798%)
- Bid/Cover: 2.938x (prev. 2.939x)
AUSSIE BONDS: Early Weakness Unwound
Futures pared their overnight/early Sydney losses losses, with YM finishing -1.0 & XM settling flat, while cash ACGBs were little changed to 1bp richer. Offshore cures shaped the general direction of travel throughout the day.
- Slightly firmer than expected monthly CPI data (+7.3 Y/Y headline and +5.6% trimmed mean vs. BBG survey expectations of +7.2% & +5.5%, respectively), coupled with a firmer than expected retail sales print (+1.4% M/M vs. BBG median +0.6%, alongside a revision to the prior month with the surprise -0.2% print adjusted to +0.4%), applied some brief pressure to the ACGB space, which pared back from extremes relatively quickly.
- The ABS noted that the CPI data is “indicating ongoing inflationary pressures.” Meanwhile, the retail sales print saw the data collator note that “the rise in turnover was driven by Black Friday sales, which boosted spending on clothing, footwear, furniture, and electronic goods.”
- The net message from this is that inflation/cost-of-living pressures remain acute in Australia, a matter the RBA is well aware of.
- Still RBA dated OIS did not move meaningfully on the back of the data, with terminal rate pricing continuing to hover a little below 3.90% come the close, a touch softer on the day, while the strip still prices 20bp of tightening for next month’s gathering.
- Bills finished flat to +4.
- EFPs were narrower on the day, suggesting support from swap flows.
- Offshore & supra issuers bought A$ paper in the 3- to 10-Year zone to market.
- Looking ahead, monthly trade balance data headlines the domestic docket on Thursday.
NZGBS: Back To Flat Come The Close, Particularly Tight Ranges Noted
NZGBs stuck to particularly narrow ranges on Wednesday, initially shifting cheaper at the margins in sympathy with Tuesday’s weakness in U.S. Tsys and Bunds, before closing at essentially neutral levels after Tsys moved away from session lows. This came as Asia-Pac participants looked to some of the more FI-supportive factors that were apparent during Tuesday’s wider session.
- The moves in NZGBs were much more muted than that seen in wider core global FI markets, including ACGBs and JGBs.
- Major swap rates were ~1.5bp lower across the curve, which meant that swap spreads were a touch tighter on the day, providing another supportive factor after swap rates tracked the early, modest cheapening in bonds.
- The major near-term RBNZ dated OIS measures were flat come the end of the local session, with 66bp of tightening priced for the Feb ’23 meeting, alongside a terminal OCR of ~5.50%.
- Lower tier local data saw an eighth straight M/M gain for filled jobs, while the ANZ commodity price index experienced an incremental dip in M/M terms.
- Looking ahead, building permits data headlines the domestic docket during the remainder of the week.
EQUITIES: Back On A Positive Footing
Regional equity sentiment has improved as the session progressed. Most of the major indices are tracking higher, while US futures haven't deviated too far away from flat, with eminis holding close to 3942 for now.
- Familiar themes still look to be in play. The HSI is up +1.3%, with the tech index +1.40%. In NY trade the Golden Dragon index rose over 1.7%. Signs of less regulatory overhang continue to benefit the tech related space.
- Mainland shares are also up, but only by a modest 0.15% for the CSI 300.
- Japan shares continue to recover, the Nikkei 225 up 1% at this stage. Positive earnings news supported in the electronics sector.
- The Kospi (+0.65%) has outperformed the Taiex (-0.35%), with offshore investors adding +$131.2mn to local Korean shares.
- The ASX200 is up nearly 15, as commodity prices (led by iron ore and copper) continue to gain on China recovery hopes.
- Indonesian stocks remain underperformers, down a further 0.5%.
GOLD: Holding Steady
Gold has remained within recent ranges during today's session. We dipped earlier towards the $1872 level before recovering. We now sit back near $1878, little change versus NY closing levels. As has been the case since the start of the week, gold is largely holding a $1870/$1880 range. The market is waiting for fresh impetus, no doubt with an eye on Thursday's US CPI print.
OIL: Edges Lower, US Inventory Numbers Eyed Later
Brent is lower, currently sitting not too far from lows for the week. We were last around $79.35/bbl. We remain comfortably within recent ranges, with resistance at $81.74 (20-day EMA) and support at $77.61 (Jan 5 low). WTI is following a similar trajectory, last around $74.35/bbl.
- Sentiment may have been weighed by the surge in US oil inventories reported by the API survey during Tuesday's US session. The EIA numbers later today in the US will likely carry more weight. If they confirm a strong inventory build it may weigh more on current spot momentum.
- Prompt spreads continue to signal a comfortable supply backdrop, although the sell-side consensus remains bullish in terms of the 2023 oil outlook. ING was the latest to join the bullish ranks, forecasting Brent crude will average more than $100/bbl in 2023.
FOREX: USD Resilience Not Sustained
Early USD resilience has given way to weakness. The BBDXY currently back sub 1237, -0.10/0.15% off NY closing levels. AUD has led the way, first boosted by positive data and then later rising commodity prices.
- The AUD/USD currently sits above 0.6920, close to Tuesday highs, while on Monday we capped out around the 0.6950 level. We are 0.50% higher for the session. Better retail sales and CPI data boosted the AUD, but this didn't last, with little follow through response in the fixed income space. Iron ore above $120/ton and rising copper ($409 for CMX) have aided sentiment this afternoon, as optimism around firmer China demand remains a key theme.
- A firmer tone to regional equities has also helped.
- NZD/USD is next best at 0.6380/85, +0.20% for the session.
- USD/JPY found selling interest above 132.50 and last tracks under 132.20, still lagging the broader USD move at the margins. Lower US cash Tsy yields likely helped cap gains in the pair.
- EUR/USD is back to 1.0750, the pair not too far off recent highs around 1.0760.
- Looking ahead, the data calendar is light ahead of tomorrow's US CPI print.
FX OPTIONS: Expiries for Jan11 NY cut 1000ET (Source DTCC)
UP TODAY (TIMES GMT/LOCAL)
| Date | GMT/Local | Impact | Flag | Country | Event |
| 11/01/2023 | 0900/1000 | * |  | IT | Retail Sales |
| 11/01/2023 | 1200/0700 | ** |  | US | MBA Weekly Applications Index |
| 11/01/2023 | 1530/1030 | ** | | US | DOE weekly crude oil stocks |
| 11/01/2023 | 1800/1300 | ** | | US | US Note 10 Year Treasury Auction Result |
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.