BOC WILL BE CONSDIERING FURTHER RATE CUTS

BOC DOESN'T SEE A RECESSION, RATHER SLOW GROWTH

BOC SAYS WEAKER CAD DRIVEN BY USD STRENGTH

MNI China Daily Summary: Wednesday, December 11

MNI BRIEF: Chinese Rail Passenger Numbers Break Record

MNI: PBOC Net Injects CNY37.3 Bln via OMO Wednesday

EZ/UK Bond Supply Calendar: BTP Auction on Thursday

US EIA: CRUDE OIL STOCKS EX SPR -1.42M TO 422.0M DEC 06 WK

BOC CUTS RATE 50BPS TO 3.25%, SEES GRADUAL APPROACH FROM HERE

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

AUSTRALIA: 2025 Election Outcome Looking More Uncertain According To Newspoll

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MNI EUROPEAN OPEN: Markets Driven By Stronger USD & Risk Pullback

EXECUTIVE SUMMARY

Fig. 1: USD DXY Index vs 10-yr UST yield %

Source: MNI - Market News/Bloomberg

U.K.

POLITICS (BBC): PM Rishi Sunak is facing a blow to his authority as two deputy Conservative chairmen said they would back moves to toughen up his flagship Rwanda bill.

GEOPOLITICS (BBC): Following reports of more attacks by the rebel group on ships in the Red Sea on Monday, the prime minister refused to speculate whether he would take further military action in response.

EUROPE

GEOPOLITICS (MNI BRIEF): Widening geopolitical tensions in the Middle East are tilting growth risks to the downside, EU Economy Commissioner Gentiloni said.

U.S.

POLITICS (BBG): Trump wins Iowa caucus for Republican presidential nomination with DeSantis coming a distant second followed by Haley in third.

POLITICS (BBG): Ramaswamy leaves US presidential race and gives his endorsement to Iowa Caucus winner Trump.

GEOPOLITICS (BBG): A US merchant ship was hit by a Houthi missile on Monday but avoided injury or significant damage. The US department of transportation has warned US merchant vessels to avoid the Red Sea.

OTHER

JAPAN (MNI BRIEF): The 12th straight deceleration in the CGPI indicates that the consumer price index will continue to slow.

BOJ (BBG): Former BoJ director has said that the spring wage talks are likely to create a path for a rate hike as a wage-price spiral has already begun and wage growth reaches 4%.

AUSTRALIA (Westpac): Australia’s Westpac consumer confidence fell in January but within recent depressed ranges.

NZ (BBG): NZIER business confidence improved in Q4 with only 2% of businesses expecting the economy to deteriorate down from 52% in the previous quarter.

GEOPOLITICS (BBG): Iran strikes targets in northern Iraq over the Soleimani Memorial attack, which killed almost 100 people.

NORTH KOREA (BBG): North Korea Ends Agencies for Reunification to Pressure Seoul while calling South Korea a hostile country.

CHINA

PROPERTY (BBG): Major lender Ping An has put 41 development firms on a list for funding support.

DEMOGRAPHICS (BBG): China has formulated a plan to provide services for its aging population which is likely to be worth trillions of dollars.

CHINA MARKETS

MNI: PBOC Injects Net CNY695 Bln Via OMO Tue; Rates Unchanged

The PBOC conducted CNY760 billion via 7-day reverse repo on Tuesday, with the rates unchanged at 1.80%. The reverse repo operation has led to a net injection of CNY695 billion reverse repos after offsetting CNY65 billion maturity today, according to Wind Information.

  • The seven-day weighted average interbank repo rate for depository institutions (DR007) rose to 1.9160% at 09:34 am local time from the close of 1.8935% on Wednesday.
  • The CFETS-NEX money-market sentiment index, measuring interbank money-market liquidity, closed at 54 on Monday, compared with 51 on Friday. A higher reading points to tighter liquidity condition, with 50 representing an equilibrium.

PBOC Sets Yuan Parity Higher at 7.1134 Tue; -6.44% Y/Y

The PBoC set the dollar-yuan central parity rate higher at 7.1134 on Tuesday, compared with 7.1084 set on Monday. The fixing ws estimated at 7.1769 by Bloomberg survey today.

MARKET DATA

JAPAN DEC. PRODUCER PRICES UNCHANGED Y/Y; EST. -0.3%
JAPAN DEC. PRODUCER PRICES RISE 0.3% M/M; EST. 0%

AUSTRALIA JAN. WESTPAC CONSUMER CONFIDENCE FALLS 1.3% M/M
AUSTRALIA JAN. WESTPAC CONSUMER CONFIDENCE FALLS TO 81

NZIER SAYS NET 6% OF FIRMS REPORTED BETTER TRADING IN 4Q
NZIER SAYS NET 5% OF FIRMS EXPECT BETTER TRADING IN 1Q
NZIER SAYS NET 37% OF FIRMS EXPECT TO RAISE PRICES IN 1Q
NZIER SAYS NET 2% OF BUSINESSES EXPECT ECONOMY TO DETERIORATE

NEW ZEALAND DECEMBER JOB ADS FALL 2% M/M: BNZ

MARKETS


US TSYS: Cash Bonds Dealing Weaker After Yesterday’s Holiday

TYH4 is trading at 112-07, -0-12 from NY closing levels on Friday.

  • Cash bonds 5-7bps cheaper in today’s Asia-Pac session after yesterday’s public holiday.
  • Comments from the ECB’s Holzmann on Monday that cuts this year were not assured given lingering inflation and geopolitical risks may have weighed in an otherwise newsflow light session.
  • Later today the US calendar sees Empire Manufacturing for January. Fed's Waller also speaks on Economic Outlook and Monetary Policy.

JGBS: Cheaper After Poor 5Y Auction But Sell-Off Moderate

JGB futures are cheaper and just off the session’s worst level, -28 compared to settlement levels. JBH4 gapped lower in early afternoon dealings after the results of today’s JGB auction showed poor absorption again. The 5-year auction's low price failed to meet dealer expectations and the cover ratio of 3.788x was lower than the 3.851x recorded at December’s auction. Today's auction comes on the heels of suboptimal results at January’s 10- and 30-year JGB supply.

  • There hasn’t been much in the way of domestic data drivers to flag, outside of the previously outlined December PPI print that surprised on the high side of expectations.
  • JGBs have also likely been pressured by cash US tsys in today’s Asia-Pac session after the observance of the Martin Luther King public holiday yesterday. Benchmark yields are 5-6bps higher. Later today the US calendar sees Empire Manufacturing for January. Fed's Waller also speaks on Economic Outlook and Monetary Policy.
  • Cash JGBs are cheaper across the curve, with the 20-year underperforming (+1.0bp). The benchmark 10-year yield is 0.8bp higher at 0.579% versus yesterday’s low of 0.556%.
  • The 5-year yield is 0.4bp higher at 0.173% in post-auction trade versus yesterday’s low of 0.163%.
  • Swaps curve has bear-steepened, with rates 1-2bps higher. Swap spreads are wider.
  • Tomorrow, the local calendar is empty.

JGBS AUCTION: 5-Year Supply Poor Digestion

Today's supply of 5-year bonds shows poor digestion. The auction's low price failed to meet dealer expectations, which had been projected at 100.00 as per the BBG poll, and the cover ratio of 3.788x was lower than the 3.851x recorded at December’s auction.

  • The tail held at last month’s length, which sits in the middle of the range for the past year.
  • As indicated in our preview, the current 5-year auction was occurring with an outright yield at its lowest level since late July and with a 2/5 curve around 10bps flatter than at the December auction.
  • Today’s result is consistent with the suboptimal results seen at January’s 10- and 30-year JGB supply.
  • The 5-year JGB is around 1.0bp cheaper at 0.178% after the auction. JGB futures have gapped lower in early afternoon dealings to a session low of -31 compared to settlement levels.

ACGBS: Cheaper, US Tsys and JGBs Weigh, Dec-34 Supply Tomorrow

ACGBs (YM -7.0 & XM -7.5) are cheaper and near Sydney session lows. With today’s session data-light, the push lower can be largely attributed to weakness in US tsys. Cash tsys are dealing 5-6bps cheaper across benchmarks in today’s Asia-Pac session after the observance of the Martin Luther King public holiday yesterday.

  • Higher JGB yields may also be weighing on the local market after this morning’s hotter-than-expected PPI and poor absorption of 5-year supply today.
  • Cash ACGBs are 6-7bps cheaper, with the AU-US 10-year yield differential 2bps wider at +16bps.
  • Swap rates are 6-7bps higher, with EFPs tighter.
  • The bills strip has bear-steepened, with pricing -1 to -7.
  • RBA-dated OIS pricing is flat to 4bps firmer across meetings, with December leading. A cumulative easing of 48bps is priced for year-end.
  • TCV 5.25% A$2.5B Sep-38 bond was priced at EFP+116bps.
  • TCorp has launched a new 4.75% 20 September 2035 Sustainability bond via syndication. Indicative price guidance for the transaction is 78-81bps over the 10Y bond futures contract, equivalent to 73.5-76.5bps over the ACGB 2.75% 21 June 2035. Pricing is expected on or before 17 January.
  • Tomorrow, the local calendar is empty.
  • Tomorrow, the AOFM plans to sell A$800mn of the 3.50% Dec-34.

NZGBS: Closed On A Weak Note, Card Spending Data Tomorrow

NZGBs closed near the local session’s worst levels, 3-4bps cheaper, with the 2/10 curve steeper. Weakness during the session likely reflected both homegrown and offshore factors.

  • Locally, the NZIER Business Opinion Survey for Q4 showed a sharp pick-up in confidence. The outlook for the economy improved for the fourth straight quarter as demand lifted. On the positive side, labour was seen as easier to find and inflation pressures were seen easing with fewer firms reporting rising costs and fewer planning to raise prices in the current quarter.
  • US tsys also likely weighed on NZGBs, with cash bonds 5-6bps cheaper in today’s Asia-Pac session after yesterday’s public holiday. Comments from the ECB’s Holzmann on Monday that cuts this year were not assured given lingering inflation and geopolitical risks may have weighed in an otherwise newsflow light session. Later today the US calendar sees Empire Manufacturing for January. Fed's Waller also speaks on Economic Outlook and Monetary Policy.
  • Swap rates closed 3bps higher.
  • RBNZ dated OIS pricing closed flat to 2bps firmer across meetings, with October leading. A cumulative easing of 99bps is priced by year-end.
  • Tomorrow, the local calendar will see Card Spending data.

EQUITIES: APAC Markets Sink On Risk Pullback & Stronger USD

APAC equities are almost weaker across indices as markets followed Europe down (US was closed Monday), risk sentiment continued to deteriorate and the US dollar strengthened another 0.3%. The MSCI APEX 50 is down 1.5% today. While the S&P e-mini is only down slightly and the NASDAQ is 0.5% lower.

  • China’s CSI 300 is down 0.4% driven by a 1.6% drop in the property index and -1.2% in tech. Major lender Ping An put 41 development firms on a list for funding support. HK’s Hang Seng is 1.9% lower with tech underperforming again falling 2.3%.
  • Korea’s KOSPI has fallen 0.8% with the KOSDAQ -0.3%. Taiwan’s TAIEX is down 0.9%.
  • Australia’s ASX 200 has closed down 1.1% to a 4-week low with all sectors weaker led by utilities, energy and mining. After underperforming on Monday, NZ has outperformed today finishing flat.
  • ASEAN is generally down but Indonesia’s Jakarta Comp has outperformed APAC rising 0.4%. SE Thai is down slightly, Singapore’s Straits Times is 0.3% lower and Philippines PSEi is down 0.2%.
  • India’s Nifty 50 is steady.

FOREX: US Dollar Strength Broadbased Across Currencies

The US dollar has continued its climb higher today with the USD BBDXY index rising another 0.3% to be up 0.5% this week. The strength is broadbased with the USD stronger against all of the G10 and Asia. The main underperformers have been AUD, pressured by a weak consumer confidence report, NZD and KRW.

  • AUDUSD is down 0.7% to 0.6616, close to the intraday low of 0.6611. The pair is finding support around 0.6600. It has broken below initial support at 0.6641, Jan 5 low, and trendline support at 0.6628. The next level to watch is 0.6571. AUDNZD is down 0.1% to 1.0730, off the session low of 1.0726.
  • USDJPY is up 0.3% to 146.12 after reaching a high of 146.23 earlier. AUDJPY is down 0.4% to 96.65 and EURJPY is down slightly to 159.51.
  • NZDUSD is off its low of 0.6160 and is down 0.6% to 0.6165.
  • EURUSD is 0.3% lower at 1.0917 and GBPUSD is -0.4% at 1.2682.
  • The KRW has weakened 0.8% against the dollar to 1330.70, close to the intraday high of 1331.30.
  • USDCNH is currently 0.2% higher at 7.1968, just off the session’s high.
  • Later the Fed’s Waller speaks on the economic outlook and monetary policy (information here), ECB’s Villeroy participates in a Davos panel and BoE’s Bailey speaks. On the data front there is January US Empire manufacturing, UK employment/wages and Canada’s CPI.

OIL: Crude Steady Despite Stronger US Dollar As Middle East Remains Volatile

Oil prices are little changed today with WTI down 0.2% to $72.54/bbl but Brent is 0.2% higher at $78.29/bbl, after falling briefly below $78 to a low of $77.87. Further problems in the Middle East have provided support while the greenback rose again (USD BBDXY up 0.3%) and risk continued its pullback.

  • Tensions in the Middle East and risks that conflict spreads remain high. A US merchant vessel was hit by a Houthi missile on Monday and Iran attacked targets in northern Iraq in retaliation for the Soleimani Memorial attack, which killed almost 100 people.
  • Central banks are monitoring the situation for the impact it may have on inflation, with shipping rates rising due to longer routes. Qatar is now shipping LNG to Europe via southern Africa, according to Bloomberg. The ECB has indicated that it may be too soon to ease policy given geopolitical uncertainties and sticky inflation.
  • Given strong non-OPEC supply, so far oil markets are not too concerned about rising tensions in the region that produces a third of the world’s crude or delays to seaborne shipments.
  • Later the Fed’s Waller speaks on the economic outlook and monetary policy (information here), ECB’s Villeroy participates in a Davos panel and BoE’s Bailey speaks. On the data front there is January US Empire manufacturing, UK employment/wages and Canada’s CPI.

GOLD: Middle East Tensions Support But Comments From ECB Holzmann & A Strong USD Weigh

Gold is 0.4% lower in the Asia-Pac session, after closing 0.4% higher at $2058.17 on Monday. Volumes were light with US markets closed for observance of the Martin Luther King Day public holiday.

  • Monday’s move came despite a stronger USD and weaker US Treasury futures, with the yellow metal buoyed by increased geopolitical risks following Houthi strikes.
  • However, comments from the ECB’s Holzmann on Monday that cuts this year were not assured given lingering inflation and geopolitical risks likely kept gains in bullion to a minimum.
  • According to MNI’s technicals team, resistance for the precious metal is seen at $2064.0 (Jan 5 high).





























DateGMT/LocalImpactFlagCountryEvent
16/01/20240700/0800***DE HICP (f)
16/01/20240700/0800**NO Norway GDP
16/01/20240700/0700***UK Labour Market Survey
16/01/20240900/1000**IT Italy Final HICP
16/01/20240900/1000**EU ECB Consumer Expectations Survey
16/01/20240900/1000EU ECB's De Guindos in ECOFIN meeting
16/01/20241000/1100***DE ZEW Current Conditions Index
16/01/20241000/1100***DE ZEW Current Expectations Index
16/01/20241000/1000*UK Index Linked Gilt Outright Auction Result
16/01/20241315/0815**CA CMHC Housing Starts
16/01/20241330/0830***CA CPI
16/01/20241330/0830**US Empire State Manufacturing Survey
16/01/20241500/1500UKBOE's Bailey Lords Economic Affairs Committee
16/01/20241600/1100USFed Governor Christopher Waller
16/01/20241630/1130*US US Treasury Auction Result for 13 Week Bill
16/01/20241630/1130*US US Treasury Auction Result for 26 Week Bill
16/01/20241800/1300*US US Treasury Auction Result for Cash Management Bill

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