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
- FED’S DALY: SLOWER RATE RAISES COULD HELP FED ACCOUNT FOR MONETARY POLICY LAGS (WSJ)
- FED'S BOSTIC: APPROPRIATE TO BE 'MORE CAUTIOUS' IN CALIBRATING RATES FROM HERE (RTRS)
- BOE'S PILL: NOT READY TO SAY WORLD HAS SHIFTED TO PERSISTENTLY HIGHER INFLATION (RTRS)
Fig. 1: MSCI Asia-Ex Japan Index
Source: MNI - Market News/Bloomberg
UK
BOE: Bank of England Chief Economist Huw Pill said on Monday that it's too soon to say that the current economic environment has shifted to one where inflation is persistently higher than it has been in recent decades. (RTRS)
ECONOMY: Barclays said spending on its credit and debit cards rose 4.4% in December compared with a year ago, a long way behind consumer price inflation which stood at 10.7% in November. The comparison with last year was also flattered by the fact people in December 2021 cut back on social engagements as the Omicron variant of the coronavirus spread. (RTRS)
ECONOMY: Britain's labour market cooled further in December, according to a survey of recruiters published on Tuesday that may ease some of the Bank of England's concerns about the risks of longer-term inflation pressure. (RTRS)
ENERGY/FISCAL: The British government is slashing the support it gives companies with their energy bills, but extending it for another year from April at a cost of £5.5bn, ministers announced on Monday. (FT)
FISCAL/POLITICS: Rishi Sunak’s willingness to discuss pay with unions today offers a “chink of optimism” that a deal can be struck to end strike action, a leading trade unionist said. (The Times)
EUROPE
BELGIUM: Belgium has reached an agreement with French utility Engie to extend the life of two nuclear reactors by 10 years, the prime minister said on Monday, overturning a plan to exit nuclear power in 2025 as the war in Ukraine has changed energy strategy. (RTRS)
U.S.
FED: Lags between Federal Reserve interest-rate increases and their effect on the economy could be an argument to raise interest rates by a quarter percentage point rather than a half point at the central bank’s next meeting, Federal Reserve Bank of San Francisco President Mary Daly said Monday. (WSJ)
FED: There is broad agreement at the Fed that monetary policy is currently at a restrictive level, Atlanta Federal Reserve Bank President Raphael Bostic said on Monday, adding it will be "appropriate and important" for the Fed to move rates at a "more normal cadence" in the future. (RTRS)
INFLATION: Used vehicle prices are expected to come down further this year amid rising interest rates and improved availability of new cars and trucks, according to Cox Automotive. (CNBC)
FISCAL: The House voted to repeal billions of dollars of Internal Revenue Service funding that Democrats approved last year, an issue that is likely to crop up repeatedly this year. (BBG)
POLITICS: The House of Representatives has approved the rules package for the 118th Congress in a near party-line vote, in what marked the first legislative test of newly elected Speaker Kevin McCarthy's narrow GOP majority. (NPR)
POLITICS: A “small number” of government documents marked as classified were found this fall by lawyers for President Joe Biden in a locked closet in a Washington, D.C., think tank office used by Biden when he was a private citizen, his lawyer said Monday. (CNBC)
OTHER
GLOBAL TRADE: Apple Inc.’s push to replace the chips inside its devices with homegrown components will include dropping a key Broadcom Inc. part in 2025, according to people familiar with the situation, dealing a blow to one of its biggest suppliers. (BBG)
U.S./CHINA: New Jersey is the latest state to ban the use of TikTok, the popular video-based social media platform, on state government devices, Gov. Phil Murphy (D) announced on Monday. (The Hill)
GEOPOLITICS: China has transferred a senior diplomat closely associated with the Foreign Ministry’s more confrontational shift in recent years to a new role, in the latest sign that Beijing is rethinking its so-called Wolf Warrior approach. (BBG)
GEOPOLITICS: French President Emmanuel Macron and Japanese Prime Minister Fumio Kishida pledged to strengthen cooperation in the Indo-Pacific region amid shared concerns over China and North Korea. (BBG)
RBA: Revised labour force estimates have provided some marginal comfort to the Reserve Bank of Australia around the supply of workers and the prospects for wage-push inflation, despite recent jobs data being stronger than expected by monetary policymakers, MNI understands. (MNI)
AUSTRALIA/CHINA: It is up to Chinese companies to decide whether to resume imports of Australian coal, China’s envoy to Australia Xiao Qian said Tuesday. (BBG)
SOUTH KOREA/CHINA: Beijing has suspended issuing short-term visas for South Koreans wanting to visit the country – its first retaliation for travel restrictions imposed on Chinese travellers. (SCMP)
HONG KONG/CHINA: Hong Kong’s quota allocated for mainland travel is enough for current demand, the city’s leader said, in a signal the cap won’t be immediately lifted. (BBG)
USMCA: North America should produce what it consumes instead of importing merchandise from Asia, President Andres Manuel Lopez Obrador reiterated at a bilateral meeting with US President Joe Biden in Mexico City on Monday. (BBG)
BRAZIL: A day after Brazil’s capital was stormed by his predecessor’s supporters, President Luiz Inácio Lula da Silva worked from his office, where he met with the country’s governors as well as the heads of congress and the Supreme Court. (BBG)
BRAZIL: Brazil President Luiz Inacio Lula da Silva has determined that the Ministry of Finance and his Chief of Staff announce economic measures later this week, Valor Economico reports citing people with knowledge of the matter. (BBG)
BRAZIL: Former Brazilian President Jair Bolsonaro was admitted to a hospital in Orlando, Florida, with "abdominal pain," newspaper O Globo reported on Monday, a day after some of his hardcore supporters stormed the capital city of Brasilia. (RTRS)
RUSSIA: The U.S. is considering sending Stryker armored combat vehicles to Ukraine in an upcoming aid package to help Kyiv fend off an expected Russian spring offensive, according to two people familiar with the discussion. (POLITICO)
RUSSIA: Britain is considering becoming the first country to send Western tanks to Ukraine in what would be a major stepping up of international support. (Telegraph)
IRAN: U.S. national security adviser Jake Sullivan on Monday said he would be discussing threats posed by Iran when he makes a trip to Israel to meet with the country's new government. (RTRS)
EQUITIES: Japan Exchange Group is considering launching a new index with stocks chosen by the Tokyo Stock Exchange, broadcaster FNN reports, citing CEO Akira Kiyota’s comments during a TV appearance. (BBG)
ENERGY: Russia’s natural gas production dropped to 672.6 billion cubic meters last year, down 12% from 2021, on lower exports to Europe, Kommersant reports, citing unidentified people familiar with data. That’s the lowest level since at least 2016. (BBG)
CHINA
CORONAVIRUS: Pfizer Inc. is working with a partner in China to make the Covid-19 drug Paxlovid available there starting in the first half of the year, Chief Executive Officer Albert Bourla said in a presentation. (BBG)
CORONAVIRUS: Mainland China’s move away from its zero-Covid policy has led to a sharp surge in infections, and the resumption of travel means some are looking farther afield for vaccines. (CNBC)
ECONOMY: China’s economy will continue to recover in 2023, but structural imbalances will continue to put pressure on unemployment, according to Wang Xiaoping, Minister of Human Resources and Social Security. (MNI)
ECONOMY: Consumers in China last year spent $208b buying things on ByteDance’s Douyin video app, up 76% from 2021, The Information reports, citing two people with knowledge of the internal data. (BBG)
FISCAL: Authorities in China have announced VAT reduction and exemption policies to support small scale businesses, according to Yicai.com. (MNI)
YUAN: The yuan’s new year rally has set the foundation for maintaining a stable exchange rate in 2023, but smoothing out Covid-19 disruptions and boosting market confidence are needed keep momentum going, according to Guan Tao, a former official at the State Administration of Foreign Exchange. (MNI)
PROPERTY: A key subsidiary of Fosun International Ltd., one of China’s largest private conglomerates, is close to securing a long-awaited credit line from some of the nation’s biggest state-owned banks, people familiar with the matter said. (BBG)
CHINA MARKETS
PBOC NET DRAINS CNY62 BILLION VIA OMOS TUESDAY
The People's Bank of China (PBOC) on Tuesday conducted CNY2 billion via 7-day reverse repos with the rates unchanged at 2.00%. The operation has led to a net drain of CNY62 billion after offsetting the maturity of CNY64 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 1.9845% at 9:41 am local time from the close of 1.7030% on Monday.
- The CFETS-NEX money-market sentiment index closed at 55 on Monday, compared with the close of 48 on Friday.
PBOC SETS YUAN CENTRAL PARITY AT 6.7611 TUES VS 6.8265
The People's Bank of China (PBOC) set the dollar-yuan central parity rate lower for seventh trading day at 67611 on Tuesday, compared with 6.8265 set on Monday.
OVERNIGHT DATA
JAPAN DEC TOKYO CPI +4.0% Y/Y; MEDIAN +4.0%; NOV +3.7%
JAPAN DEC TOKYO CPI EXCL. FRESH FOOD +4.0% Y/Y; MEDIAN +3.8%; NOV +3.6%
JAPAN DEC TOKYO CPI EXCL. FRESH FOOD & ENERGY +2.7% Y/Y; MEDIAN +2.7%; NOV +2.4%
JAPAN NOV HOUSEHOLD SPENDING FELL -1.2% Y/Y MEDIAN +0.5%; NOV +1.2%
AUSTRALIA ANZ-ROY MORGAN WEEKLY CONSUMER CONFIDENCE INDEX 87.4; PREV 82.5
Consumer confidence jumped 4.9pts to 87.4 last week, reaching its highest level since late September 2022. This was the first new year’s jump in confidence since 2018. While homeowners paying off mortgages are still reporting lower confidence than renters and outright owners, average confidence among all three groups rose in the new year. Despite the new year jump, confidence is Stillwell below the neutral level (100) and the long-run average of 111.7.Household inflation expectations eased significantly by 0.9ppt from the last print of 2022, suggesting cautious optimism about lower inflation through 2023. (ANZ)
SOUTH KOREA NOV BOP CURRENT ACCOUNT BALANCE -US$621.7MN; OCT +US$883.4MN
SOUTH KOREA NOV BOP GOODS BALANCE -US$1.5672BN; OCT -US$1.4784BN
UNITED KINGDOM DEC BRC LIKE-FOR-LIKE SALES +6.5% Y/Y; NOV +4.1%
MARKETS
US TSYS: Cross-Asset Flows Dominate In Muted Asia Session, Powell In Focus
TYH3 deals at 114-17, -0-03, in the middle of its narrow 0-07+ range on volume of ~75K.
- Cash Tsys are flat to 1bps richer across the major benchmarks as we approach the European session.
- Cross-asset flows came to the fore as local participants seemed more willing than usual to remain sidelined ahead of Fed Chair Powell’s Tuesday address.
- After a muted start, Tsys richened as pressure on the USD, as USD/CNH printed its lowest level since mid-August, and a recovery off session lows in U.S. equity futures aided the space.
- The USD then pared its losses, and U.S. equity futures re-tested session lows, briefly pressuring Tsys which marginally cheapened before recovering to again deal richer as the USD gave up its gains to deal a touch softer.
- The space looked through the Tokyo CPI print, in which headline and core-core readings ticked up in line with expectations. The core print came in a touch above expectations.
- Fedspeak from Chair Powell headlines today's docket, while wholesale inventories is also on the wires. On the supply side, we will see the latest 3-Year Tsy auction.
JGBS: Local Data, Speculation On MonPol & BoJ Inaction Weigh
JGBs have been on the backfoot throughout Tokyo trade, with futures operating a little off worst levels into the bell, -13, after more than erasing the post-Tokyo uptick that was witnessed during the final overnight session of last week.
- Cash JGBs are flat to 3.5bp cheaper with the long end leading the weakness, aided by payside swap flow in 30+-Year paper, which saw swap spreads in that zone widen. 10-Year yields were limited by their proximity to the upper boundary of the BoJ’s YCC settings.
- Post-holiday trade was seemingly shaped by participants placing more focus on domestic factors, in the form of continued speculation re: the potential for a further BoJ policy tweak (hence the super-long swap spread widening) and a firmer than expected core CPI reading out of Tokyo (alongside as expected upticks in both the headline and core-core readings).
- A lack of off-schedule BoJ purchases probably promoted further cheapening as the day wore on.
- Note that the latest 3-month Bill auction was cancelled owing to partial unavailability of the BOJ-NET system.
- 30-Year JGB supply headlines tomorrow’s domestic docket.
AUSSIE BONDS: Contained Trade, Proximity To Powell & Tomorrow’s Data Limit Conviction
ACGBs wound through Tuesday’s Sydney session with a lack of overt headline catalysts apparent, leaving them operating in a contained, two-way fashion since Monday’s settlement. YM closed +1.0, while XM was +0.5, as the major cash ACGB benchmarks ran 0.5-1.5bp richer across the curve.
- Bills were 1-7bp richer through the reds, bull flattening, while RBA dated OIS was little changed to marginally softer, showing 18bp of tightening for next month’s meeting, alongside a terminal cash rate of just under 3.90%.
- Local headline flow was sparse at best, with previously outlined corporate/supra issuance pricing, while WATC mandated for ’28 FRN issuance on the semi side.
- The domestic docket picks up on Wednesday, with monthly CPI, retail sales and job vacancies readings all slated. Participants will also have to adjust to Fed Chair Powell’s latest round of communique, which will cross in Tuesday’s NY session.
NZGBS: A Touch Firmer On The Day, Awaiting a More Meaningful Catalyst
The early move lower in NZGB yields saw a marginal extension, although there was lack of meaningful headline catalysts apparent during Tuesday’s Asia-Pac session, leaving the imprint of Monday’s modest richening in U.S. Tsys front and centre.
- The major NZGB benchmarks finished ~4bp richer in a parallel shift.
- RBNZ dated OIS pricing was little changed to marginally lower, showing 67bp of tightening for the Feb ’23 meeting and a terminal OCR of just below 5.50%.
- Swap rates unwound some of their initial move lower to finish little changed to 4bp lower across the curve, meaning that swap spreads finished flat to wider after narrowing in early dealing.
- Local headline flow remained non-existent, with only lower tier local data scheduled for the remainder of the week.
EQUITIES: Consolidation After Strong Start To 2023
A more cautious tone in the equity space has emerged as we have progressed through today's session. US equity futures have spent most of the session in the red, although we are away from worst levels. The active Eminis contract holding above 3900 for now (~-0.30%), while Nasdaq futures are slightly weaker at this stage.
- Weakness in regional equity markets have persisted this afternoon, although losses have been large. Some consolidation may be taking place, following the very strong start to the year for regional bourses (+3.8% for the MSCI Asia Pacific Index YTD).
- The HSI is down 0.34% at this stage, while the CSI 300 and Shanghai Composite are down modestly. The Kospi and Taiex and both close to flat.
- Indonesian stocks are underperforming, last down 1.5%, and off by more than 10% from September highs last year.
- Japan equities are performing better, up 0.70% for the Nikkei, although Japan markets were closed yesterday, so this may reflect some catch up.
GOLD: Rangebound Ahead Of Key Event Risks
Gold has tracked recent ranges through today's session. Since early yesterday we haven't spent too much time outside of the $1870/$1880 range. We currently track close to the bottom end of this range, last near $1872, against earlier highs of $1876. This leaves us close to unchanged for the session to date, slightly outperforming a more supportive USD tone against the majors.
- We have a number of major central bank speakers due later today as part of a Riksbank conference, headlined by US Fed Chair Powell. This, along with US CPI on Thursday, are the major near term event risks for gold.
- The technical picture remains firm, with the 20-day EMA continuing to push higher (last at $1823.5), while the 61.8% retracement of the 2022 downtrend comes in at $1896.45, in terms of upside targets.
- Gold ETF holdings remain fairly steady though.
OIL: Off Monday's Highs As A More Cautious Risk Tone Emerges
Oil hasn't been able to build on positive momentum from Monday's session, last tracking down 0.55% for Brent to $79.20, while WTI is off by slightly less, around $74.30/bbl currently. These falls only partially unwind Monday's gains, but underscores the struggles oil has to generate meaningful upside traction at the current juncture. We remain within recent ranges for both benchmarks though.
- The broader risk tone has been a more cautious one today, with US equity futures tracking lower and the USD finding some support. This has weighed at the margins, particularly ahead of key central bank speak later.
- Optimism around China demand was bolstered further late yesterday, as the authorities issued a generous quota for crude oil imports. Still, this is not overwhelming current supply side dynamics.
- In terms of oil specific event risks in the upcoming US session, the EIA releases its short term energy outlook, while the API weekly report on oil inventories is also due.
FOREX: USD Off Smalls, But Doesn't Make Fresh Lows
The BBDXY index has tracked late NY ranges through today's Asia Pac session. We currently sit at 1236.50, down slightly on closing levels. As was the case during the NY session, dips towards 1235 have seen USD support emerge, but we haven't seen much upside momentum either. The market may be awaiting fresh cues with a host of central bankers due to speak later at a Riksbank conference.
- Yen initially strengthened on a firmer core CPI reading but this proved to be short lived. We eventually hit a low of 131.39 post the Tokyo fix. After this we steadily recover back to 132.00 before selling interest emerged (the pair last 131.75).
- AUD/USD dipped towards 0.6890 as risk appetite in the equity space faltered, but we are now back to 0.6910/15, close to flat for the session. Higher iron ore, back to $119/ton has provided a positive offset.
- NZD/USD has outperformed slightly, last near 0.6385 (+0.15% for the session).
- Outside of the upcoming central bank speak, data events are fairly light, with US small business optimism and wholesale inventories on tap.
FX OPTIONS: Expiries for Jan10 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0825-50(E512mln), $1.1222-38(E1.6bln)USD/JPY: Y131.80-00($520mln)
- GBP/USD: $1.2000(Gbp867mln), $1.2065-85(Gbp510mln)
- AUD/USD: $0.6800(A$501mln)
- USD/CAD: C$1.3500($2.0bln)
UP TODAY (TIMES GMT/LOCAL)
| Date | GMT/Local | Impact | Flag | Country | Event |
| 10/01/2023 | 0700/0800 | * |  | NO | CPI Norway |
| 10/01/2023 | 0700/0800 | ** |  | SE | Private Sector Production |
| 10/01/2023 | 0745/0845 | * |  | FR | Industrial Production |
| 10/01/2023 | 0800/0900 | ** |  | ES | Industrial Production |
| 10/01/2023 | 1000/1000 | ** |  | UK | Gilt Outright Auction Result |
| 10/01/2023 | 1010/0510 |  | CA | Governor Macklem at Riksbank Conference | |
| 10/01/2023 | 1010/1010 | | UK | BOE Governor Bailey at Riksbank conference | |
| 10/01/2023 | 1010/1110 |  | EU | ECB's Isabel Schnabel at Riksbank conference | |
| 10/01/2023 | 1010/1910 |  | JP | BOJ Governor Haruhiko Kuroda at Riksbank conference | |
| 10/01/2023 | 1100/0600 | ** |  | US | NFIB Small Business Optimism Index |
| 10/01/2023 | 1355/0855 | ** | | US | Redbook Retail Sales Index |
| 10/01/2023 | 1400/0900 | | US | Fed Chair Jerome Powell at Riksbank conference | |
| 10/01/2023 | 1400/1500 |  | DE | Buba Vice President Claudia Busch as Riksbank conference | |
| 10/01/2023 | 1500/1000 | ** | | US | IBD/TIPP Optimism Index |
| 10/01/2023 | 1500/1000 | ** | | US | Wholesale Trade |
| 10/01/2023 | 1800/1300 | *** | | US | US Note 03 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.