MNI EUROPEAN OPEN: NZ Yields Higher As Return To Surplus Slips
MNI (SYDNEY) - EXECUTIVE SUMMARY
- TRUMP SAYS ZELENSKIY SHOULD PREPARE TO MAKE DEAL TO END WAR - BBG
- US ISM EXPECTS INCREASED REVENUES, STICK PRICES - MNI BRIEF
- G7 HOST FOCUS IN ‘25 IS ECONOMIC SECURITY COOPERATION - BOC - MNI
- LIBERAL LAWMAKER SAYS TRUDEAU NEEDS TO STEP ASIDE - MNI BRIEF
- CHINA PLANS BUDGET DEFICIT OF 4% OF GDP IN 2025 - RTRS
- NEW ZEALAND FACES WIDER BUDGET DEFICITS, LATER SURPLUS - BBG
Fig. 1: NZGB Curve Steepens
Source: MNI - Market News/Bloomberg
UK
BOE (MNI BOE WATCH): The Bank of England is set to leave Bank Rate on hold at 4.75% at its December meeting in what is likely to be an 8-1 vote, with Swati Dhingra the only Monetary Policy Committee member expected to favour a cut.
DEFENCE (POLITICO): “Allied countries need to work on fresh sanctions against Russia to punish the Kremlin for its all-out war on Ukraine, U.K. Prime Minister Keir Starmer said Monday — while keeping tight-lipped on Britain's own plans to hike defense spending.”
EU
FRANCE (FRANCE24): “French MPs on Monday voted unanimously in favour of a bill allowing the government to maintain core state functions in the absence of a budget for 2025. The law will be taken up by the Senate on Wednesday. Meanwhile, new Prime Minister François Bayrou held talks with political parties in view of moving France out of its political impasse.”
NORWAY (MNI NORGES WATCH): Norges Bank is widely expected to leave its policy rate on hold at 4.5% at its December meeting, completing a full year at that level, with investors focussed on indications of the likely timing of cuts in updated forecasts and guidance.
RUSSIA (POLITICO): “Russia has to prepare for war with NATO as well as complete its war against Ukraine, Russian Defense Minister Andrei Belousov told the Defense Ministry on Monday in a joint meeting with President Vladimir Putin.”
UKRAINE (BBG): “President-elect Donald Trump said Ukraine needs to reach a deal to end the Russian invasion and downplayed the value of occupied land, in the latest signal he may push for a settlement that codifies Russian territorial gains.”
MIDDLE EAST (POLITICO): “The European Union's top diplomat Kaja Kallas said Monday that the bloc will raise the possibility of closing Russian bases in Syria with the country's new leadership, as some ministers argue the Russians should be pushed out.”
US
ISM (MNI BRIEF): The U.S. economy will continue to improve in 2025 with an acceleration in manufacturing and continued momentum in services, while price pressures will remain stubbornly strong next year, America's purchasing and supply executives said in the Institute for Supply Management 2025 semiannual economic forecast.
JAPAN /US (BBG): "President-elect Donald Trump announced that SoftBank Group Corp. planned to invest $100 billion in the US over the next four years during an event alongside Chief Executive Officer Masayoshi Son on Monday."
US/CHINA (BBG): "TikTok and its Chinese parent company asked the US Supreme Court to block a government ban set to take effect next month, invoking favorable comments about the popular social-media platform from President-elect Donald Trump."
OTHER
GLOBAL (MNI): Next year's G7 meetings hosted by Canada will focus on improving economic security cooperation at a time of increased fragmentation and frayed public trust in policymakers, according to Tiff Macklem, governor of the country's central bank.
CANADA (MNI BRIEF): Canadian Liberal lawmaker Chad Collins said Monday after a party meeting with Justin Trudeau that he must step down as Prime Minister to avoid a defeat in the next election to rival Conservatives.
CANADA (MNI BRIEF): The Bank of Canada is sticking to its 2% inflation target but policymakers should keep an open mind in its five-year framework review to those who argue rising cost pressures mean the goal should be higher, Governor Tiff Macklem said Monday.
CANADA (MNI BRIEF): The prospect of large U.S. tariffs on Canadian imports as threatened by President-Elect Donald Trump is likely already inhibiting Canada's business sentiment and would damage it further if they were to be implemented, Bank of Canada Governor Tiff Macklem said Monday.
CANADA (MNI BRIEF): Following are highlights from the Canadian government's debt management strategy from the fall fiscal update presented Monday. Earlier today Chrystia Freeland resigned as finance minister.
NEW ZEALAND (BBG): “New Zealand’s government is facing deeper budget deficits and a delayed return to surplus as a prolonged economic downturn and poor productivity hit tax revenue.”
CHINA
BUDGET DEFICIT (RTRS): "Chinese leaders agreed last week to raise the budget deficit to 4% of gross domestic product (GDP) next year, its highest on record, while maintaining an economic growth target of around 5%, two sources with knowledge of the matter said."
GROWTH (PEOPLE’S DAILY): “China needs to maintain a “certain” economic growth rate next year to stabilize employment, prevent risks, boost confidence and deal with external challenges, according to a commentary by the Communist Party mouthpiece People’s Daily.”
POLICY (CCTV): “ China urges implementation of decisions made at the Central Economic Work Conference “sooner rather than later” and proactively, China Central Television reports, citing a State Council meeting chaired by Premier Li Qiang.”
ECONOMY (SECURITIES DAILY): “Chinese policymakers are expected to prioritise expanding domestic demand next year, Zhang Liqun, a researcher at the State Council's Development Research Centre, told Securities Daily after analysing last week’s Central Economic Work Conference.”
MARKETS (SHANGHAI SECURITIES NEWS): “About 45.8 billion yuan ($6.3 billion) of special loans were extended to 207 listed companies and shareholders this year for share buybacks or to increase holdings in firms, Shanghai Securities News reports.”
CHINA MARKETS
MNI: PBOC Net Injects CNY213.8 Bln via OMO Tuesday
MNI (BEIJING) - The People's Bank of China (PBOC) conducted CNY355.4 billion via 7-day reverse repos, with the rate unchanged at 1.50%. The operation led to a net injection of CNY213.8 billion after offsetting the maturity of CNY141.6 billion today, according to Wind Information.
- The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.7323% at 09:50 am local time from the close of 1.8166% on Monday.
- The CFETS-NEX money-market sentiment index, measuring interbank money-market liquidity, closed at 62 on Monday, compared with the close of 50 on Friday. A higher reading points to tighter liquidity condition, with 50 representing an equilibrium.
MNI: PBOC Sets Yuan Parity Higher At 7.1891 Tues; -2.09% Y/Y
MNI (BEIJING) - The People's Bank of China (PBOC) set the dollar-yuan central parity rate higher at 7.1891 on Tuesday, compared with 7.1882 set on Monday. The fixing was estimated at 7.2847 by Bloomberg survey today.
MARKET DATA
AUSTRALIA DEC. WESTPAC CONSUMER CONFIDENCE 92.8; PRIOR 94.6
AUSTRALIA DEC. WESTPAC CONSUMER CONFIDENCE -2% M/M; PRIOR +5.3%
MARKETS
US TSYS: Tsys Futures Little Changed, Volumes Low, Retail Sales later
- Tsys futures doing very little today, ranges narrow while volumes are well below recent averages. Looking at flows most of the action has been in SOFR ahead of the FOMC later this week. TU is +00⅛ at 102-27⅞, while TY is +00+ at 109-28 where it has been at throughout the session.
- Overnight, in Tsys options, demand emerged for upside protection, including trades targeting a 10-year yield drop to around 4% by the end of January. While in fed funds futures, larger flows were skewed toward buys ahead of Wednesday’s Fed interest-rate decision.
- Cash tsys curves have bull-steepened, yields are flat to 1bps lower. The 2yr is -0.8bps at 4.241%, while the 10yr is -0.2bps. The 2s10s is +1bps at 15.20, still off the overnight highs of 16.23.
- Fed funds futures have held steady to start the week, with the market pricing in a 94% chance of a 25bps cut this week. There has been little change further out the curves either with 72.5bps of cumulative cuts priced in through to December 2025.
- Later today we have Retail Sales & Industrial Production.
JGBS: Futures Close To Unchanged, 20yr Supply Well Absorbed
JGB futures are little changed post the lunch time break. We are mostly maintaining modest gains from the first part of the session. The March 2025 future was last 142.31, close to unchanged versus settlement levels.
- The 20yr debt auction has come and gone with little meaningful market reaction. The bid to cover ratio was slightly lower compared to the Nov auction, but the tail also fell to 0.05 from 0.13 seen in the Nov auction.
- US Tsy futures are a touch higher, but aggregate moves are very muted.
- In the cash JGB space, yields are close to unchanged. The 10yr last near 1.075%. For swaps, the 10yr is back under 1.04%, but likewise, aggregate moves have been modest in this space.
- Tomorrow, we have Nov trade balance figures, before Thursday's BoJ meeting outcome.
BONDS: ACGB Curve Steepens Following Weak Consumer Confidence
Aussie bonds saw a bull-steepening move occur following the worsening of WBC Consumer confidence data earlier, dropping 2% for December to 92.8 points, following a gain of 5.3% in the previous month.
- Australia's consumer confidence fell 2% in December to 92.8, as persistent inflation, high interest rates, and global uncertainties dampened sentiment, according to a Westpac survey. Confidence in the economic outlook weakened sharply, with the 12m and 5yr expectations sub-indexes dropping 9.6% and 7.9%, respectively. Housing sentiment also deteriorated, with the "time to buy a dwelling" index falling 6% amid softer price expectations. The decline comes despite the RBA signaling progress on inflation and a surprise fall in unemployment to 3.9%.
- ACGBs have traded richer today, the curve has bull-steepened with the 2s10s is 39.25 although off earlier highs of 41. The 2yr is trading -2.2bps at 3.892%, the 3yr is outperforming today -2.5bps at 3.838%, while the 10yr is -1.9bps at 4.295%.
- ACGB futures are currently YM +2.8, VTA +1.8, XM +2.3
- Swap curves have flattened, better buying occurring through the belly of curve, last -2bps to -4bps
- Bill strip is +5 to +3, front -end outperforming.
- RBA-dated OIS pricing is little changed today for the Feb meeting, with 14bps of cuts price, pricing has firmed for an April cut with 28.5bps currently priced, up from 22.5bps on Monday morning. Looking out to November 2025 the market is currently pricing in 76bps of cumulative cuts
- Tomorrow, we have Westpac Leading Index, although this is expected to have little impact on the market, there is little else on the calendar for the rest of the year, however the RBA minutes are out on the 20th
BONDS: NZGB Yields Recover Post Half-Year Economic Update, Curve Steepens
Focus in New Zealand today was on the on the Half-Year Economic & Fiscal Update, NZGBs curve bear-steepened following the release, with yields at one point trading 1-5bps cheaper, the move has been partially reversed as the markets closes, focus will now turn to GDP on Thursday.
- New Zealand's government faces prolonged budget deficits, with the operating balance (OBEGAL) now projected to remain in deficit until at least 2029, a year later than previously forecast. Weaker economic growth, poor productivity, and lower tax revenues have sharply downgraded the fiscal outlook, with GDP expected to grow just 0.5% in the year through June 2025. To address rising debt and widening deficits, Finance Minister Nicola Willis has announced spending cuts and introduced an alternative OBEGALx measure, which is forecast to return to surplus by 2029. Net debt is projected to remain elevated at around 45% of GDP over the forecast period.
- Non Resident government bond holding ticked slightly lower in November to 61.2% from 62.0% October, however still holds well above the 5 year average of 56.5
- US tsys have done very little throughout the session, however are slightly outperforming NZGBs. The US 10yr is -0.2bps at 4.395%.
- NZGBs curve has bear-steepened again today, the 2yr still hovers near yearly lows at 3.750%, +0.2bps for the session, while the 10yr is +0.9bps at 4.439%, after hitting a session high of 4.489%. The 5s10s is 1bps higher at 49.30 and now trades at its steepest levels for the year and almost 40bps steepening since August.
- The OIS market has firmed 2bps to 43bps of cuts priced in for the Feb erasing Monday's, although still slightly off recent highs of 46bps made on Dec 3th. There is a cumulative 110bps of cuts priced in through to October 2025.
- Tomorrow we have Westpac Consumer Confidence & BoP Current Account Balance tomorrow, followed by GDP on Thursday.
FOREX: Yen Steadies On Crosses, But Aggregate Moves Modest
Earlier yen weakness on crosses has reversed somewhat as the Tuesday session unfolds. Aggregate moves are modest though. The yen is up around 0.10/15% against both AUD and NZD. The USD BBDXY index is little changed at 1288.4.
- USD/JPY was last near 154.15, maintaining recent ranges. Earlier lows were at 153.80, so still above Monday lows for the pair. We saw some slight US yield weakness, but there has been no follow through. This has likely capped yen gains.
- EUR/JPY got close to 162.50 in earlier dealings, but sits back near 162.00 currently, little changed for the session.
- Japan news flow has been light ahead of Thursday's BoJ meeting outcome, where market pricing odds remain low for a further tightening.
- AUD and NZD have both ticked lower. AUD/USD was last near 0.6360/65, still within striking distance of recent cycle lows at 0.6337. The Westpac Consumer sentiment index report fell for Dec, amid a challenging economic backdrop and uncertainty around the RBA outlook. Also be mindful of a near A$1bn option expiry for Dec 1 with a 0.6350 strike, which could influence spot.
- NZD/USD is back around 0.5775, still up from recent YTD lows. Focus today has been on the half-year fiscal and economic update. The return to surplus will take longer, while economic growth is forecast to just remain positive to June next year. NZ yields are higher but this hasn't benefited the NZD.
- Later US November retail sales, IP and December NY Fed services are released as well as Germany’s December Ifo/ZEW surveys, UK labour market data, euro area October trade and Canadian November CPI. ECB’s Buch and Elderson speak.
EQUITIES: Asian Equities Mixed On Little Data, Focus On Central Bank Meetings
Asian markets are trading mixed today, influenced by weak economic data from China and expectations surrounding major central bank decisions this week. Chinese stocks are under pressure, however there has been a decent spike in volumes for some of the benchmarks, signaling the National team may be involved, however concerns over disinflation and soft retail sales, reinforcing the need for more stimulus have weighed on local stocks. Broader sentiment remains muted as markets await the Federal Reserve's decision, with a quarter-point rate cut widely anticipated, alongside policy announcements from Japan and Europe later this week.
- Japanese shares are mixed today slightly weaker today, the weaker yen and gains in US technology stocks did see some earlier support for export-oriented sectors like automakers and electronics, with the Topix & Nikkei are both now trading 0.10%, with traders cautious ahead of the Bank of Japan's policy decision.
- Australia’s ASX 200 rose 0.8%, supported by gains in financial and health-care stocks, while New Zealand’s NZX 50 is 0.90% higher after the release of the Economic and Budget forecast earlier, Industrials leading the market higher.
- China & Hong Kong equities are mixed today, CSI 300 is 0.40% higher, however most other benchmark indices are trading lower, Shanghai A Shares is -0.65% lower, while B Shares are down 2.30%. In Hong Kong, all major benchmarks are in the red, with the HSI down 0.55%, Mainland Property Index trading 1.2% lower, while the HSTech Index is 0.65% lower.
- Taiwan's TAIEX is trading just 0.15% higher, paring earlier gains after TSMC saw some selling, to now trade down 0.50%, Hon Hai is trading 1.40% higher, following a 2% rise in the SOX index overnight. South Korean equities continue to struggle, The KOSPI is 1.30% lower, as Samsung resumes its slide, last down 2.35%. Foreign investors have continued to sell South Korea equities today, with a net outflow of $350m.
- It has been a slow session for data, New Zealand released Half-Year Economic & Fiscal Update which saw NZGBs yields rise, while Australia released Westpac Consumer Confidence, which showed a 2% drop m/m, after rising 5.3% in November.
- US equity futures are trading little changed today, following NASDAQ rising 1.45% to record highs overnight.
OIL: Crude Trading In Narrow Range Holding Onto Monday’s Losses
Oil prices have been trading in a very narrow range during the APAC session as markets wait for the Fed’s decision tomorrow. They have held onto Monday’s losses with Brent down 0.1% to $73.82/bbl after a high of $73.98 and a low of $73.77. WTI is 0.2% lower at $70.60/bbl following a peak of $70.72 and trough of $70.52. The USD index is slightly lower.
- Crude sold off on Monday following mixed China data which showed a fall in apparent oil demand and refining output. Authorities have promised stimulus to support the economy but markets are waiting for details. There are concerns that with rising non-OPEC supply, weak China demand will drive a significant surplus.
- On the supply-side, US industry data on inventories are released later today.
- Geopolitics remain an issue with more stringent sanctions on Russian oil exports and increased instability in the Middle East.
- Later US November retail sales, IP and December NY Fed services are released as well as Germany’s December Ifo/ZEW surveys, UK labour market data, euro area October trade and Canadian November CPI. ECB’s Buch and Elderson speak.
UP TODAY (TIMES GMT/LOCAL)
Date | GMT/Local | Impact | Country | Event |
17/12/2024 | - | US | FOMC Meeting / S.E.P. | |
17/12/2024 | 0700/0700 | *** | GB | Labour Market Survey |
17/12/2024 | 0900/1000 | *** | DE | IFO Business Climate Index |
17/12/2024 | 1000/1100 | *** | DE | ZEW Current Conditions Index |
17/12/2024 | 1000/1100 | *** | DE | ZEW Current Expectations Index |
17/12/2024 | 1000/1100 | * | EU | Trade Balance |
17/12/2024 | 1000/1000 | ** | GB | Gilt Outright Auction Result |
17/12/2024 | 1000/1100 | EU | ECB's Elderson at ECB Banking Supervision conference | |
17/12/2024 | 1330/0830 | * | CA | International Canadian Transaction in Securities |
17/12/2024 | 1330/0830 | *** | CA | CPI |
17/12/2024 | 1330/0830 | *** | US | Retail Sales |
17/12/2024 | 1355/0855 | ** | US | Redbook Retail Sales Index |
17/12/2024 | 1415/0915 | *** | US | Industrial Production |
17/12/2024 | 1500/1000 | * | US | Business Inventories |
17/12/2024 | 1500/1000 | ** | US | NAHB Home Builder Index |
17/12/2024 | 1630/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
17/12/2024 | 1800/1300 | ** | US | US Treasury Auction Result for 20 Year Bond |
18/12/2024 | - | JP | Bank of Japan Meeting | |
18/12/2024 | - | SE | Riksbank Meeting | |
18/12/2024 | 0700/0700 | *** | GB | Consumer inflation report |
18/12/2024 | 0700/0700 | *** | GB | Producer Prices |
18/12/2024 | 0700/1500 | ** | CN | MNI China Money Market Index (MMI) |
18/12/2024 | 0900/1000 | EU | ECB's Lane in fireside chat at MNI Connect Event | |
18/12/2024 | 1000/1100 | *** | EU | HICP (f) |
18/12/2024 | 1000/1100 | ** | EU | Construction Production |
18/12/2024 | 1100/1100 | ** | GB | CBI Industrial Trends |
18/12/2024 | 1200/0700 | ** | US | MBA Weekly Applications Index |
18/12/2024 | 1330/0830 | * | US | Current Account Balance |
18/12/2024 | 1330/0830 | *** | US | Housing Starts |