MNI BRIEF: Fed's Goolsbee Sees Rates Fair Bit Lower In A Year

CANADA JOBLESS RATE +6.8% VS FORECAST +6.6%, PRIOR +6.5%

MNI China Daily Summary: Friday, December 6

MNI: PBOC Net Drains CNY288.1 Bln via OMO Friday

MNI: PBOC Sets Yuan Parity Lower At 7.1848 Fri; -1.64% Y/Y

BRIEF: EU-Mercosur Deal In Final Negotiations - EC

MNI: UNIV OF MICHIGAN CONSUMER SENTIMENT PRELIMINARY DEC INDEX 74.0

CANADA NOV IVEY PURCHASING MANAGERS INDEX 52.3 SA

EZ/UK Bond Supply Calendar: Austria, UK Auction on Tuesday

MNI EXCLUSIVE: EU-Mercosur Deal Close, But Likely Short-Lived - Officials

AUSTRALIA: 2025 Election Outcome Looking More Uncertain According To Newspoll

© 1982-2024 MNI. All rights reserved.
Terms | Privacy
Log Out
Free Trial

MNI EUROPEAN OPEN: HK/China Equity Weakness Crimps Risk Appetite

EXECUTIVE SUMMARY

Fig. 1: China CSI 300 & Hong Kong HSI - Very Close To Late 2023 Lows

Source: MNI - Market News/Bloomberg

U.K.

MARKETS (BBG): A growing chorus of investors are becoming more upbeat on UK assets from the pound to stocks as the economic outlook brightens, even as the country is rocked by floods, storms and strikes.

FISCAL (BBG): UK government ministers are quietly working on a major loosening of budget rules for local councils, giving them the ability to sell assets to fund front-line services and helping to stave off a wave of bankruptcies.

EUROPE

POLITICS (BBG): Charles Michel, president of the European Council, will seek a seat in the European Parliament in elections scheduled for June and step down from his current role early if elected. Michel plans to lead the slate for the Belgian Mouvement Reformateur party, he said in an interview with local media on Saturday.

U.S.

FISCAL (BBG): US congressional leaders announced a deal on a top-line spending level for the current fiscal year, lessening the chances of a partial government shutdown on Jan. 20. Senate Majority Leader Chuck Schumer, a Democrat, and House Speaker Mike Johnson, a Republican, negotiated the deal, clearing the way for the appropriations committees in both chambers to negotiate detailed spending bills now that they have an overall limit for the amount those bills can spend.

MIDEAST (RTRS): U.S. Secretary of State Antony Blinken will hold talks in the United Arab Emirates and Saudi Arabia on Monday before heading on to Israel after warning that the Gaza war could spread across the region without concerted peace efforts, while Israel vowed to continue fighting until Hamas was eliminated.

CORPORATE (RTRS): A mid-air blowout has put jetmaker Boeing (BA.N) in the exact place investors and management hoped it would avoid - back in the regulatory crosshairs just as it was awaiting approval of new models of its best-selling MAX jet.

FED (MNI BRIEF): Federal Reserve Bank of Richmond President Thomas Barkin said Friday inflation data over the next several months will be key for determining the path of interest rates, while the latest labor market data point to a "normalizing but not weakening" job market. He did not reveal his preferred interest rate path, saying only there is a range of projections on the FOMC from no rate cuts to six cuts this year.

ECONOMY (MNI INTERVIEW): The vast U.S. services sector is set to sustain modest growth in coming months despite a surprisingly poor end to last year, with possible Federal Reserve rate cuts helping to stimulate demand later in the year, Institute for Supply Management chair Anthony Nieves told MNI Friday.

OTHER

BONDS (BBG): Developing-nation borrowers are rushing to sell debt, taking advantage of increased appetite for new bonds to lock in costs as traders continue to flip flop over when the Federal Reserve will begin lowering interest rates.

CRUDE (BBG): Saudi Arabia will cut key crude prices for buyers in all regions, including its main Asia market, for February amid persistent weakness in the market.

JAPAN (BBG): Prime Minister Fumio Kishida suffered another blow in Japan’s widest-ranging political scandal in decades with the arrest of a ruling party lawmaker on Sunday.

NORTH KOREA/SOUTH KOREA (RTRS): North Korea will launch a military strike immediately in response to any provocation, Kim Yo Jong, the sister and key ally of leader Kim Jong Un, said on Sunday, as it fired artillery shells near its border with the South for the third day in a row.

AUSTRALIA (SMH): Australians are projected to spend $23.9 billion between Boxing Day to mid-January, according to predictions by the Australian Retailers Association (ARA) and Roy Morgan, which represents a 1.6 per cent uptick from the previous year as shoppers take advantage of bargains.

PHILIPPINES (BBG): Philippine Finance Secretary Benjamin Diokno estimates that the central bank can cut its benchmark interest rate by a total of 100 basis points this year as inflation cools to within the 2%-4% target.

THAILAND (BBG): Thailand’s Prime Minister Srettha Thavisin says the central bank could consider lowering interest rate in the backdrop of a steady decline in consumer prices.

CHINA

US/CHINA (BBG): China announced fresh sanctions on five US defense industry companies, in response to the latest arms sales deals to Taiwan. The companies affected include BAE Systems Land and Armament, Alliant Techsystems Operation, AeroVironment, ViaSat and Data Link Solutions, the Chinese foreign ministry said in a statement Sunday.

FISCAL (MNI BRIEF): China should strengthen counter-cyclical adjustment and make good use of proactive fiscal policy to consolidate economic recovery in 2024, said Ning Jizhe, deputy head at the economic committee of the Chinese People's Political Consultative Conference on Saturday.

LGFV (YICAI): Local government financing vehicles' appetite for high-interest, short-term offshore debt issuance could attract the attention of regulatory authorities in future as the deals sidestep rules that aim to limit local debt and lower costs for local governments, Yicai.com reported citing Wang Lei, head of industrial and commercial enterprise rating at S&P Global Ratings.

HOUSING (PBOC): The People’s Bank of China said it will support commercial banks to issue rental housing development loans to real-estate companies, industrial parks, enterprises and institutions to build and renovate long-term rental housing, according to a statement on its website. It will also encourage banks to issue loans for group purchases of unused houses for long-term holdings and operations as affordable or rental housing.

CHINA MARKETS

MNI: PBOC Drains Net CNY40 Bln Via OMO Mon; Rates Unchanged

The People's Bank of China (PBOC) conducted CNY50 billion via 7-day reverse repo on Monday, with the rates unchanged at 1.80%. The reverse repo operation has led to a net drain of CNY40 billion reverse repos after offsetting CNY90 billion maturity today, according to Wind Information.

  • The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.7618% at 10:05 am local time from the close of 1.7833% on Friday.
  • The CFETS-NEX money-market sentiment index, measuring interbank money-market liquidity, closed at 48 on Friday, compared with the close of 54 on Thursday. A higher reading points to tighter liquidity condition, with 50 representing an equilibrium.

PBOC Yuan Parity Lower At 7.1006 Monday vs 7.1029 Friday

The People's Bank of China (PBOC) set the dollar-yuan central parity rate lower at 7.1006 on Monday, compared with 7.1029 set on Friday. The fixing was estimated at 7.1498 by Bloomberg survey today.

MARKETS

US TSYS: Futures Cheaper, No Cash Trading With Japan Out

TYH4 is trading at 111-17, -0-06 from NY closing levels, with little meaningful newsflow in today's Asia-Pac session.

  • There has also been no cash trading, with Japan out for a public holiday.
  • Traders await this week's CPI and PPI inflation measures on Thursday and Friday respectively.

AUSSIE BONDS: Cheaper, Mid-Range, Retail Sales & Bldg Apps Tomorrow

ACGBs (YM -4.0 & XM -3.5) are cheaper but off Sydney session cheaps. With the domestic calendar light, trading ranges have been relatively narrow. Considering that, local participants have likely used dealings in US tsy futures in today’s Asia-Pac session for directional guidance.

  • US tsy futures are dealing at 111-17+, -0-05+ compared to NY closing levels on Friday. Cash US tsys have not traded in today’s Asia-Pac session due to Japan being out for a public holiday.
  • Cash ACGBs are 3bps cheaper, with the AU-US 10-year yield differential unchanged at +12bps. A simple regression of the AU-US cash 10-year yield differential against the AU-US 1Y3M swap differential over the current tightening cycle indicates that the 10-year yield differential is currently 15bps too low versus its fair value (i.e., +13bp versus +28bp). (See link)
  • Swap rates are 3-4bps higher.
  • The bills strip is cheaper, with pricing -1 to -4.
  • RBA-dated OIS pricing is flat to 5bps firmer across meetings out to December. A cumulative 42bps of easing is priced for 2024.
  • Tomorrow, the local calendar sees Retail Sales and Building Approvals. Tokyo CPI is also due in Japan.

NZGBS: Closed Cheaper & On A Weak Note, Light Local Calendar Again Tomorrow

NZGBs closed on a weak note, with the benchmarks 2-4bps cheaper. The domestic calendar was empty today and will be relatively light for the remainder of the week, with House Prices, Commodity Prices and Building Permits as the highlights.

  • Given that, local participants appear to have turned to US tsy futures for directional guidance. TYH4 is dealing at 111-19, -0-04 compared to the NY closing level. Notably, there was no cash US tsy trading during today's Asia-Pacific session with Japan out for a public holiday.
  • On a relative basis, the AU-NZ 10-year differential is unchanged at -44bps.
  • A simple regression of the AU-NZ 10-year yield differential versus the AU-NZ 3-month swap rate 1-year forward (1y3m) differential suggests fair value is around -38bps. (See link)
  • Swap rates are 4-5bps higher, with the 2s10s curve flatter.
  • RBNZ dated OIS pricing is flat to 8bps firmer across meetings, with November leading. As a result, the cumulative easing by year-end has subsided to 89bps.
  • Tomorrow, the local calendar is empty, but Australia sees Retail Sales and Building Approvals. Tokyo CPI is also due in Japan.

EQUITIES: Headline Hong Kong & China Indices Back Close To Late 2023 Lows

Regional equities are mostly lower, led by weakness in HK and China markets. This comes despite a modestly positive cash lead from US markets in Friday trade. US equity futures opened higher today but haven't been able to sustain those gains. Eminis last in the red at 4732, likewise for Nasdaq futures, down nearly 0.10%.

  • There hasn't been a clear macro catalyst for further weakness in HK and China stocks. Tech related plays have definitely underperformed. The HS TECH sub index off 3.15% at the break, the headline HSI down just over 2%.
  • Headlines crossed of Evergrande's NEV unit being suspended from trading, with later headlines crossing that an official in this unit has been detained on suspicion of criminal activity. The China Golden Dragon Index was also weaker, off 1.8% in Friday trade.
  • The CSI 300 is off nearly 0.90% at the break and back sub 3300. Both this index and the HSI are close to late 2023 cyclical lows.
  • Elsewhere Japan markets are out today, while the Kospi has dipped 0.35%. The Taiex has outperformed, up 0.40%, aided by better a SOX performance in US trade on Friday.
  • In SEA, trends are mixed. Thailand stocks are off 0.90%. Earlier headlines crossed the PM calling for a potential rate cut amidst a lower inflation backdrop. This has driven baht underperformance.

FOREX: Risk Aversion Drives USD & JPY Outperformance

Modest risk aversion has been the feature of G10 markets as the Monday Asia Pac session has unfolded. USD trends were mixed in the first part of trade, but equity weakness, particularly in HK/China markets has weighed on AUD and NZD, which have lost ground against the yen.

  • Overall moves have been modest though. The BDDXY is slightly above Friday closing levels, last 1224.70/75. Tsy futures have had a slight downside bias, but lows from Friday for TYH4 remain comfortably intact.
  • US equity futures started higher, aiding FX risk appetite but now sit modestly lower.
  • HK equities sit 2% weaker, the CSI 300 off 0.90% in China. No clear macro catalyst has been evident for the weakness, although tech stocks have a clear drag.
  • AUD/USD sits back at 0.6700, close to session lows, while NZD/USD is in the 0.6235/40 region, both marginally weaker for the session.
  • Commodities are weaker across the metals space (iron ore & copper), while oil is also down on Saudi price cuts from the weekend.
  • JPY has outperformed on the risk averse tone, with USD/JPY back sub 144.50. Earlier highs were above 144.90.
  • Looking ahead, German factory orders and Swiss inflation data kick things off later Monday, however, the focus on the docket will be Thursday’s release of US CPI.

OIL: Saudi Price Cut Sparks Demand Concerns

Brent crude has spent most of the Asia Pac session tracking lower. We were last near $77.90/bbl, which is back close to Friday session lows and down more than 1% for the session so far. The WTI front month benchmark is back under $73/bbl, off by a similar amount.

  • Demand concerns appear to be a key driver of today's weakness, following weekend news that Saudi Arabia cut its selling prices to all regions, including Asia (BBG). The drop for Asia was more than expected at $2 per barrel. This is likely renew demand fears for crude.
  • This overshadowing further concerns around Red Sea tensions and the risks of wider conflict in the Middle East. US Secretary of State Blinken will meet with key figures starting today in Abu Dhabi, including the U.A.E President and Saudi Crown Prince in a bid to avoid further escalation.
  • Broader risk aversion in the HK/China equity space hasn't sentiment either today, although it hasn't been a key driver of oil price weakness.
  • For Brent, current levels are close to the 20-day EMA, while the 50-day sits further north at $80.33/bbl. Recent lows rest under $75/bbl.

GOLD: Weaker Again After Friday’s Small Decline

Gold is 0.5% weaker in the Asia-Pac session, after closing +0.1% at $2045.45 on Friday.

  • Volatility in Friday’s session was tied to swings in the USD index after mixed results from economic data releases.
  • The impact of a higher-than-expected jobs gain was tempered by downward revisions for the two prior releases (Dec jobs gain of 216k vs. 175k est, prior revised to 173k from 199k).
  • Meanwhile, ISM services data came in lower-than-expected at 50.6 vs. 52.5 estimate, with ISM Services Employment (43.3 vs. 51.0 est) and Services New Orders (52.8 vs. 56.1 est).
  • The US Treasury 10-year yield finished up 5bps at 4.05%, with the 2-year rate unchanged at 4.38%. It was the second consecutive session with the 10-year closing above 4%, the first time since December 13.
  • According to MNI’s technicals team, Friday’s low cleared support at $2040.2 (20-day EMA), with a more pronounced move lower potentially opening $1973.2 (Dec 13 low).

UP TODAY (TIMES GMT/LOCAL)

DateGMT/LocalImpactFlagCountryEvent
08/01/20240700/0800**DE Trade Balance
08/01/20240700/0800**DE Manufacturing Orders
08/01/20240730/0830***CH CPI
08/01/20240730/0830**CH Retail Sales
08/01/20241000/1100**EU Retail Sales
08/01/20241630/1130*US US Treasury Auction Result for 26 Week Bill
08/01/20241630/1130*US US Treasury Auction Result for 13 Week Bill
08/01/20241730/1230US Atlanta Fed's Raphael Bostic
08/01/20242000/1500*US Consumer Credit
09/01/20242330/0830**JP Tokyo CPI

To read the full story

Close

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.