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
Fig. 1: BBDXY
Source: MNI - Market News/Bloomberg
U.K.
CONSUMERS (BBG): UK consumers are increasingly worried about their financial security and holding tighter to their purse-strings heading into 2024, reviving concerns that the economy could tip into a recession.
EUROPE
ECB (MNI): Discussions of ECB easing are premature and there are no guarantees interest rates will fall from current levels in 2024, Austrian central bank head Robert Holzmann said Thursday.
UKRAINE (BBG): Ukraine’s premier sounded the alarm over the country’s finances, requesting an emergency meeting with international donors as Kyiv confronts “exceptionally high uncertainty” over its budget at the start of the year.
ITALY (BBG): Giorgia Meloni’s government approved a package Thursday that extends the deadline for households to tap a controversial incentive for renovations that has cost Italy billions of euros.
U.S.
USD (BBG): The dollar is poised for its worst year since the onset of the pandemic as Wall Street bets the Federal Reserve is set to lower interest-rates after safely reining in prices.
POLITICS (BBG): Maine’s secretary of state ruled that Donald Trump cannot run in the state’s Republican primary, citing his efforts to overturn the 2020 election results.
POLITICS (BBG): Former president Donald Trump will file a legal objection in state court to prevent decision in Maine taking effect, according to an emailed statement from campaign spokesperson Steven Cheung.
POLITICS (BBG): Former South Carolina Governor Nikki Haley sought to tamp down controversy over remarks that failed to list slavery as the cause of the US Civil War, following criticism from both Democrats and Republicans.
MIDDLE EAST (BBG): The US military is trying to reassure shipping companies that a multinational force is making it safe to sail through the Red Sea and Suez Canal even though attacks from Yemen-based Houthi rebels show no sign of stopping.
MONEY MARKETS (BBG): Money-market assets rebounded after back-to-back weekly declines, led higher by flows into government funds.
OTHER
OIL (BBG): Oil headed for the biggest annual drop since 2020 as war and OPEC+ production cuts failed to lift prices, with traders concerned that global crude supplies may still eclipse demand in the quarters to come.
WHEAT (BBG): Wheat futures climbed after a vessel preparing to load grain from Ukraine hit a mine in the Black Sea, further raising fears of an escalation in the region.
CHINA
MONETARY POLICY: The People’s Bank of China said it will step up macroeconomic policy adjustments to support the economy and promote a rebound in prices, following a quarterly meeting of its monetary policy committee, according to a statement published Thursday on the PBOC website. It will implement prudent monetary policy accurately and effectively, and focus on counter- and cross-cyclical adjustments to expand domestic demand and boost confidence. The central bank will stabilise expectations on the currency by correcting procyclical behavior and guarding against overshooting risks.
GROWTH: China’s economic growth may fall between 4-5% in 2024, and could find 5% difficult to reach, due to insufficient demand restricting growth, said Zhang Junkuo, former deputy director of the Development Research Center of the State Council. The real-estate market will find a rebound challenging without a new development model, which will continue to drag down fixed-asset investment growth, while the recovery of consumer demand requires the gradual improvement of the economic and employment situation. Authorities must enhance the persistence and effectiveness of support policies and promote reform and opening up in key areas such as establishing a unified urban and rural construction land market, said Zhang. (Source: 21st Century Business Herald)
FDI: Foreign investment in China remains at historically high levels, with the actual use of foreign capital reaching CNY1.04 trillion in the first 11 months, said Ministry of Commerce Spokesperson He Yadong at a weekly presser on Thursday. It is normal for this year’s growth rate to fluctuate, given the high base of the same period last year when foreign capital use reached a new high of CNY1.16 trillion in the Jan-Nov period, said He. Curious multinationals have come to China since the beginning of this year with 48,000 foreign-invested enterprises newly established across the country, a rise of 36.2% y/y, according to He. (Source: Securities Daily)
CHINA MARKETS
MNI: PBOC Injects Net CNY155 Bln Via OMO Fri; Rates Unchanged
The People's Bank of China (PBOC) conducted CNY195 billion via 7-day reverse repo on Friday, with the rates unchanged at 1.80%. The reverse repo operation has led to a net injection of CNY155 billion reverse repos after offsetting CNY40 billion maturity today, according to Wind Information.
- The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.8729% at 09:56 am local time from the close of 2.0193% on Thursday.
- The CFETS-NEX money-market sentiment index, measuring interbank money-market liquidity, closed at 46 on Thursday, compared with the close of 44 on Wednesday. A higher reading points to tighter liquidity condition, with 50 representing an equilibrium.
PBOC Yuan Parity Lower At 7.0827 Friday vs 7.0974 Thursday
The People's Bank of China (PBOC) set the dollar-yuan central parity rate lower at 7.0827 on Friday, compared with 7.0974 set on Thursday. The fixing was estimated at 7.1113 by Bloomberg survey today.
MARKET DATA
South Korea Dec CPI 3.2% Y/Y; Prior 3.3%
MARKETS
US TSYS: Muted Session To Wrap 2023 In Asia
TYH4 deals at 112-31, +0-02+, a 0-04+ range has been observed on volume of ~30k.
- Cash tsys sit ~1bp richer across the major benchmarks.
- Tsys have observed very narrow ranges with little follow through on moves in a muted last Asian session of 2023.
- The docket in Europe is thin today, further out we have MNI Chicago PMI.
JGBs: Bear-Steepening To End The Year, Market Closed Mon, Tue & Wed Next Week
JGB futures are holding cheaper, -29 compared to settlement levels, after trading in a narrow range throughout the Tokyo session.
- In the absence of domestic data catalysts, the local market has experienced a drift towards cheaper valuations, particularly driven by the long end. Nevertheless, the 20-40-year zone is currently positioned above the session's cheapest points. A slight improvement in US tsys during today's Asia-Pac session may have contributed to the rebound from the session's nadir levels.
- Nevertheless, the cash JGB curve continues to hold a bear-steepening, with yields flat to 6bps higher. The benchmark 10-year yield is 2.3bps higher at 0.618% versus the recent rally low of 0.555% set on 20 Dec.
- (Bloomberg) JGB futures have consistently produced a sell signal soon after rising above the 200-day moving average, and it looks set to run into next year as speculation rises over an exit from negative rates. (See link)
- The swaps curve has also bear-steepened, with swap spreads wider to the 4-year and tighter beyond.
- A reminder that Japanese markets are closed Monday, Tuesday, and Wednesday next week.
ACGBs: Holding Cheaper Into Year-End, Light Calendar Again Next Week
ACGBs (YM -4.0 & XM -6.5) are holding cheaper on the final trading session of 2023 after dealing in relatively narrow ranges. With the local calendar empty, local participants have likely been eyeing US tsys in today’s Asia-Pac session as the year of trading comes to an end.
- US tsys are currently dealing flat to 1 bp richer across benchmarks versus NY closing levels.
- Cash ACGBs are 4-6 bps cheaper, with the 3/10 curve steeper and the AU-US 10-year yield differential 2 bps wider at +12 bps.
- Swap rates are 3-5 bps higher, with EFPs little changed.
- The bill strip is cheaper, with pricing from -1 to -4. Mid-reds are the weakest.
- RBA-dated OIS pricing is dealing mixed, but the moves remain small across meetings.
- (AFR) Global fund managers have slashed their cash holdings to a two-year low and are betting that technology stocks and bonds will be the biggest winners when the Federal Reserve pivots to rate cuts. (See link)
- Next week, the local calendar is relatively light with CoreLogic House Prices and Judo Bank PMI Mfg on Tuesday and Judo Bank PMI Composite & Services on Thursday.
NZGBS: Drifted Cheaper Into Year-End
NZGBs concluded the session 1-3 bps cheaper across benchmarks, after dealing in relatively narrow trading ranges throughout the local session. In the absence of local calendar events, today's market dynamics have primarily reflected a drift towards year-end.
- US tsys currently dealing 1-2 bps richer than NY's close in today’s Asia-Pac session. The CME Group trading floor closes at 1300ET Friday for the New Year's Holiday, while Globex closes at its normal time of 1600ET (re-open at 1600ET next Monday instead of the normal Sunday opening).
- The NZ-US 10-year yield differential, currently at +48 bps, is approaching its lowest level since mid-November when it was +45 bps. To provide context, this differential was hovering around +75 bps in early December.
- Notably, the recent outperformance of the NZ 10-year yield has been particularly pronounced compared to its ACGB counterpart. The NZ-AU 10-year yield differential is presently at +36 bps, a significant shift from its +99 bps position in early October.
- Swap rates closed 1-2bps higher.
- RBNZ dated OIS pricing closed little changed across meetings.
- Next week, the local calendar is empty apart from CoreLogic House Prices on Thursday.
- The focus for the remainder of Friday will be the December reading of the Chicago Purchasing Managers Index, the final data point for 2023.
GOLD: Weaker On Thursday But Still Looking At A Weekly Gain
Gold is slightly stronger in the Asia-Pac session, after closing 0.6% lower at $2065.61 on Thursday.
- Bullion’s slide yesterday was driven by a rise in bond yields, some unwinding of haven flows and a firmer dollar. US Treasuries finished 3-5 bps cheaper across the major benchmarks following a poor 7-year US Treasury auction.
- Despite Thursday’s decline, gold is headed for a weekly gain as investors continue to bet aggressively that the Federal Reserve will start to unwind its restrictive stance on monetary policy in 2024.
- According to MNI’s technicals team, the Dec 13 reversal in bullion and the subsequent move higher points to the end of the Dec 4 - 13 corrective pullback. This week’s move highlights a bullish theme. Moving average studies are also in a bull-mode position, reflecting an uptrend. A continuation higher has opened $2097.1, 76.4% of the Dec 4 - 13 bear leg. Initial support is at $2031.3, the 20-day EMA.
FOREX: Steady Session In Asia
There has been steady session across G-10 FX on Friday in Asia, ranges are narrow and moves have had little follow through. The docket is light in Asia and little meaningful macros newsflow has crossed.
- Yen is flat, unchanged from opening levels. USD/JPY traded lower Thursday and the pair remains below ¥144.96, the Dec 9 high. The recent recovery from ¥140.97, the Dec 14 low, has been a correction and the trend condition remains bearish. Support at ¥140.97, the Dec 14 low, has been cleared, confirming a resumption of the downtrend that started Nov 13. This opens ¥140.23, a Fibonacci projection point.
- AUD/USD is a touch firmer however narrow ranges are persisting thus far. Bullish trend conditions in AUDUSD remain intact and this week's continuation higher reinforces current conditions. The climb maintains the bullish price sequence of higher highs and higher lows. Sights are on $0.6900, the Jun 16 high and the next key key resistance. On the downside, key short-term support is unchanged at $0.6526, the Dec 7 low. Initial firm support is at $0.6702, the 20-day EMA. Short-term weakness is considered corrective.
- Kiwi is up ~ 0.2% however NZD/USD remains well within recent ranges. Technically the uptrend remains intact; bulls target $0.6412, the high from 14 Jul. A break through here opens $0.6563, a Fibonacci projection. Bears focus on the 20-Day EMA ($0.6227).
- CHF is ~0.2% firmer however liquidity is generally poor in Asia.
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.