Source: MNI - Market News/Bloomberg
UK
UK POLITICS: {BBG) "Keir Starmer’s plans to green-light a third runway at London’s Heathrow Airport risk triggering a damaging split within his governing Labour Party amid concerns that extend into his own cabinet about its potential impact on the environment, growth and regional inequality."
ECONOMY (BBC): “The chair of the UK's competition watchdog has been ousted by government ministers who felt that the Competition and Markets Authority (CMA) had failed to convince them it was sufficiently focused on growth.”
EU
US/EU (BBG): "President Donald Trump warned Tuesday that the European Union would be hit with tariffs if it did not rectify trade imbalances with the United States."
POLITICS (ECONOMIST): “Germany’s chancellor, Olaf Scholz, travels to Paris on Wednesday to meet France’s president, Emmanuel Macron. The two leaders share domestic troubles at a time when Europe is struggling to work out how to deal with the new American administration.”
EU (POLITICO): “The European Union’s upcoming industrial decarbonization strategy will revolve around six thematic “pillars” ranging from energy prices and workforce issues to recycling and trade, a senior European Commission official told POLITICO.”
GERMANY (POLITICO): “Germany is calling on EU countries to take a tougher stance on hybrid threats coming from Russia — including by expanding the bloc’s sanctions regime and limiting access to Europe by Moscow’s diplomatic missions.”
UKRAINE (POLITICO): “Gathering in Davos this week for the annual World Economic Forum, Ukrainians and their backers see the newly inaugurated United States president as a circuit-breaker who could force Putin to the negotiating table and offer Ukrainian President Volodymyr Zelenskyy an off-ramp as well.”
UKRAINE (POLITICO): “Trump’s aid freeze leaves weapons flowing to Ukraine. Other aid flows were secured before Trump became president, but reconstruction aid may be affected by the freeze.”
US
US/CHINA (BBG): “President Donald Trump said his threat to hit China with 10% tariffs on all imports was still on the table, a day after he left the world’s second-largest economy out of the countries he was looking to target imminently.”
US/EU: (Reuters): "Trump stirs tariff pot with fresh threats on EU, Feb 1 China deadline. President Donald Trump on Tuesday vowed to hit the European Union with tariffs and said his administration was discussing a 10% punitive duty on Chinese imports because fentanyl is being sent from China to the U.S. via Mexico and Canada."
TECH (WASHINGTON POST): "President Donald Trump set about defining his new administration's technology policy Tuesday, hosting industry CEOs at the White House to announce a massive private-sector investment in infrastructure for artificial intelligence that could reach $500 billion."
JOBS (MNI INTERVIEW): Rising Yields Pose Biggest Risk To US Jobs
OTHER
JAPAN (BBG): "Bank of Japan Governor Kazuo Ueda is on track to raise interest rates to the highest level since 2008 on Friday after global financial markets responded with relative calm to US President Donald Trump’s return to the White House."
NEW ZEALAND (MNI BRIEF): New Zealand’s Q4 inflation printed at 2.2% y/y, 10 basis points higher than expected and flat against Q3, while tradeable inflation grew 0.3% q/q, up 20bp on expectations, Stats NZ data showed Wednesday.
CHINA
Highlights from Chinese press reports on Wednesday (MNI Press Digest): "China could offer interest or yield subsidies to speed up local authorities' acquisition of unsold homes for affordable housing and destocking; China does not seek a trade surplus and wants to promote balanced trade; U.S. President Donald Trump will likely prioritise domestic affairs at the start of his second term despite a previous focus on China."
CHINA MARKETS
MNI: PBOC Net Injects CNY198 Bln via OMO Wednesday
MNI (BEIJING) - The People's Bank of China (PBOC) conducted CNY1.1575 trillion via 14-day reverse repos, with the rate unchanged at 1.65%. The operation led to a net injection of CNY198 billion after offsetting the maturity of CNY959.5 billion today, according to Wind Information.
- The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.6584% at 09:32 am local time from the close of 2.0324% on Tuesday.
- The CFETS-NEX money-market sentiment index, measuring interbank money-market liquidity, closed at 45 on Tuesday, compared with the close of 45 on Monday. A higher reading points to tighter liquidity condition, with 50 representing an equilibrium.
- Higher reading points to tighter liquidity condition, with 50 representing an equilibrium.
MNI: PBOC Sets Yuan Parity Lower At 7.1696 Wed; -1.18% Y/Y
MNI (BEIJING) - The People's Bank of China (PBOC) set the dollar-yuan central parity rate lower at 7.1696 on Wednesday, compared with 7.1703 set on Tuesday. The fixing was estimated at 7.2659 by Bloomberg survey today.
MARKET DATA
NEW ZEALAND Q4 CONSUMER PRICES +0.5% Q/Q; EST. +0.5%; PRIOR +0.6%
NEW ZEALAND Q4 CONSUMER PRICES +2.2% Y/Y; EST. +2.1%; PRIOR +2.2%
NEW ZEALAND Q4 TRADABLE PRICES +0.3% Q/Q; EST. +0.1%; PRIOR -0.2%
NEW ZEALAND Q4 NON-TRADABLE PRICES +0.7% Q/Q; EST. +0.8%; PRIOR +1.3%
NEW ZEALAND REINZ DEC. MEDIAN HOUSE PRICE -0.6% Y/Y; NOV. +0.6%
NEW ZEALAND REINZ DEC. HOUSE SALES +1.8% Y/Y; NOV. +10.8%
AUSTRALIA DEC WESTPAC LEADING INDEX M/M -0.02%; PRIOR 0.06%
SOUTH KOREA JAN CONSUMER CONFIDENCE 91.2; PRIOR 88.2
MARKETS
US TSYS: Tsys Futures Edges Slightly Lower, Trump Tariffs Headlines Trickle Out
- Tsys futures are trading lower today and holding just off session lows. TU is -00⅛ at 102-23⅛, while TY is -03 at 108-20+.
- The medium-term trend remains bearish and the recovery that started Jan 13, is considered corrective. The contract has traded through the 20-day EMA, at 108-17. This exposes 109-06, the Dec 31 high, and 109-17+, the 50-day EMA. The bear trigger has been defined at 107-06, the Jan 13 low.
- There was a small block buying of FY earlier, however volumes are low and there hasn't been much else in terms of notable flows today.
- Cash tsys yields are trading 1-2bps higher in Asia, the belly is under-performing slightly, giving back some of Tuesday out performance. The 10yr is +1.2bps at 4.589%. The 2s10s curve is holding steady at 30bps, while the 5s30s is -1bps at 40.306.
- Headlines from Trump have been trickling out throughout the session, however there has been nothing we hadn't already expected. There were comments about 10% tariffs on goods imported from China on Feb. 1 because fentanyl is being sent from China to Mexico and Canada. There has also been comments about sanctions on Russia if they don't negotiate with Ukraine.
- The 2025 Fed rate cut expectations fairly static. Projected rate cuts through mid-2025 this morning, current lvls vs. Friday close* as follows: Jan'25 steady at -0.01bp, Mar'25 at -6.6bp (-7.5bp), May'25 -12.4bp (-12.9bp), Jun'25 -22.3bp (-21.8bp), Jul'25 at -26.1bp (-25.6bp).
- The data calendar remains light with MBA mortgage data and the December Leading Index - more focus will be on $13B 20Y Bond reopening auction, as well as a Fox interview with Pres Trump airing after Wednesday's cash close.
JGBS: Cash Bond Twist-Flattener, BoJ Hike Almost Fully Priced
JGB futures are weaker and at session lows, -18 compared to settlement levels.
- The BoJ will announce its latest monetary policy decision this Friday, with expectations that it will move further along its policy normalization path. Both market consensus and our analysis suggest a 25bps rate hike as the most likely outcome.
- The BoJ raised rates twice in 2024, first in March and again in July. However, it has maintained a hold since then, largely due to market volatility, including significant yen swings after the July hike. Political uncertainty has also played a role, as the ruling coalition lost its majority in lower house elections late last year.
- Market expectations currently indicate: a 93% probability of a 25bp hike in January; a cumulative 96% chance by March; and a full 25bp increase priced by May 2025.
- Cash US tsys are ~1bp cheaper in today’s Asia-Pac session after yesterday’s bull-flattener.
- Cash JGBs have twist-flattened, pivoting at the 30-year, with yields 2bps higher to 2bps lower. The benchmark 10-year yield is 0.9bp higher at 1.203% versus the cycle high of 1.262%.
- Swap rates are ~2bps higher.
- Tomorrow, the local calendar will see Trade Balance, International Investment Flow and Tokyo Condominiums for Sale data alongside an Enhanced Liquidity Auction covering 1-5-year OTR JGBs.
AUSSIE BONDS: Cheaper & At Cheaps, Local Calendar Light Tomorrow
ACGBs (YM -6.0 & XM -6.0) are weaker and near Sydney session lows.
- Outside of the previously outlined Leading Index, there hasn't been much by way of domestic drivers to flag.
- Cash US tsys are ~1bp cheaper in today’s Asia-Pac session after yesterday’s bull-flattener. Wednesday's US data calendar remains light, with MBA mortgage data and the December Leading Index - more focus will be on the $13B 20Y Bond reopening auction, as well as a Fox interview with Pres Trump airing after Wednesday's cash close.
- Cash ACGBs are 5-6bps cheaper with the AU-US 10-year yield differential at -13bps.
- Swap rates are 4-5bps higher, with EFPs slightly tighter.
- The bills strip has bear-steepened, with pricing -2 to -5.
- A Bloomberg News survey of 48 economists forecast the cash rate to be unchanged at 4.35% at the end of Q1 25 and 4.10% by the end of Q2 25.
- RBA-dated OIS pricing is flat to 4bps firmer across meetings today. A 25bp rate cut is more than fully priced for April (109%), with the probability of a February cut at 69% (based on an effective cash rate of 4.34%).
- Tomorrow, the local calendar is empty.
BONDS: NZGBS: Richer After Q4 CPI, Outperforms $-Bloc
NZGBs closed 1-2bps richer but off session bests.
- Nevertheless, NZGBs have outperformed their $-bloc counterparts, with the NZ-US and NZ-AU 10-year yield differentials 5-6bps tighter on the day.
- Q4 NZ CPI was close to Bloomberg consensus expectations at 0.5% q/q and 2.2% y/y after 0.6% & 2.2% in Q3, above the RBNZ’s November forecast of 0.4% & 2.1%.
- The RBNZ’s sector factor model estimate of Q4 core inflation eased 0.2pp to 3.1% y/y, close to the top of the 1-3% target band. Q3 was revised down 0.1pp to 3.3%. Given that headline CPI was impacted by volatile components such as airfares, the move lower in underlying inflation is good news and another 50bp rate cut in February remains the base case. But underlying non-tradeables inflation is proving sticky and will continue to be watched closely.
- Swap rates closed mixed, with the 2-year and 5-year 1bp lower and the 10-year 1bp higher.
- RBNZ dated OIS pricing closed 1-5bps softer across meetings, flat to 3bps softer than pre-CPI levels. 47bps of easing is priced for February, with a cumulative 112bps by November 2025.
- Tomorrow, the local calendar will see Net Migration data and the NZ Government’s 5-month Financial Statements.
ASIA STOCKS: HK & China Equities Lower, Following 10% Trump Tariff Talk
Chinese & Hong Kong equities are lower today after Trump reiterated his consideration of a 10% tariff on Chinese goods, citing concerns over fentanyl shipments. While the 10% level is less aggressive than the previously threatened 60% tariffs, the remarks reignited concerns about potential trade tensions. The CSI 300 Index slipped 1%, ending a four-day rally, while the Hang Seng China Enterprises Index declined 1.55% and the HSI is 1.25% lower.
- China's luxury market sales fell by up to 20% in 2024, the steepest decline since 2011, as an economic slowdown weakened consumer confidence and spending. Watches, jewelry, and leather goods saw the sharpest declines, while even high-spending customers reduced purchases. Hainan's duty-free sales dropped 29%, with more Chinese shoppers opting for overseas purchases, particularly in Japan.
- Real estate stocks dragged the market further as Citi lowered earnings estimates and price targets for key players like China Overseas Land & Investment (-1.6%), Longfor Group (-2.6%), and Shenzhen Investment (-3.7%), citing soft market conditions and persistent sector-wide losses. Benchmark indices are also lower, with the Mainland Property Index down 1.75%, HS Property Index -1%, while the BBG China Property Developer Gauge is 2.45% lower
- The Harvest CSI 500 ETF reported a significant 4Q purchase of 1.39b shares, likely by China’s sovereign wealth fund, Central Huijin Investment. The fund now owns 44.2% of the ETF, worth an estimated 3.37bi yuan. Despite this, the ETF experienced outflows of 1.58b yuan during the quarter.
While optimism over U.S. trade policy has cooled, gradual tariff measures could ease the market's adjustment, though volatility remains high. The property sector’s challenges and a cautious outlook on stimulus add further headwinds to the Chinese market.
ASIA STOCKS: Equities Mixed, Tech Higher, China Equities Lower On Tariff Talk
- Asian equities are trading mixed today as investors weighed optimism around U.S. infrastructure and AI investment initiatives under President Trump against renewed tariff concerns on Chinese goods. Japan's Nikkei 225 and Taiwan's Taiex led gains, up 1.5% and 1.3%, respectively, boosted by tech stocks like SoftBank (+8.9%) and TSMC (+2.7%) following Trump's AI investment announcements. South Korea's Kospi added 1.2%, with nuclear energy and construction stocks rallying on expectations of increased U.S. infrastructure spending.
- In contrast, Chinese shares underperformed, with the CSI 300 down as much as 1.3% amid concerns over potential 10% tariffs on Chinese imports. Hong Kong's Hang Seng also dropped 1.3%, reflecting weaker sentiment in the region.
- Australia's ASX 200 is 0.35% higher, while In New Zealand, the NZX 50 was flat after inflation data showed annual CPI steady at 2.2%, while Pacific Edge fell 5% following U.S. legal challenges.
- The broad MSCI Asia Pacific Index edged up 0.2%, reflecting the uneven performance across the region.
FOREX: USD Higher Amid Further Tariff Threats, NZD Softer Post Q4 CPI
The USD index holds in positive territory, last above 1303, supported by earlier headlines around additional tariff threats from US President Trump (this time extending to China and the EU). Aggregate shifts haven't been large though, with the BBDXY index still fairly close to recent lows.
- Trump stated China could be hit with 10% tariffs, potentially from Feb 1, while Trump also stated that the EU could see tariffs imposed as well. The tariffs on China would be in response to fentanyl flows from the country. Trump also added that tariff threats on Mexico and Canada of 25% had nothing to do with renegotiating the USMCA treaty, but was also related to drug flows (per BBG). At the start of the session a WSJ article suggested that the tariff threat on these economies was designed to push for an earlier renegotiation of this treaty.
- Aggregate FX moves weren't large, but the market is likely to remain sensitive to on-going tariff speculation.
- NZD/USD is down 0.30%, last near 0.5660/65. Earlier lows were at 0.5650. The Q4 CPI data was close to expectations, but the further cooling in non-tradables inflation, albeit at a moderate pace, has added to 50bps pricing for the Feb RBNZ meeting. NZ-US yield differentials are also lower.
- AUD/USD is down a touch, but at 0.6265/70, remains within recent ranges. The AUD/NZD cross is higher, but hasn't been able to breach 1.1100.
- USD/JPY is higher, last near 155.80, but also is sticking to recent ranges. US yields have ticked higher, but gains are not much beyond 1bps at this stage.
- US equity futures are higher, led by tech, as earlier remarks from Trump around a $100b AI focused investment supporting sentiment. This has likely helped trim the risk off move for FX from the earlier tariff threats.
- Regional equities are mostly higher, but China/HK markets are weaker.
- Later US December leading index prints and ECB President Lagarde and Bundesbank’s Nagel speak.
Gold’s Rally Continues as Tariffs for China Considered
- Gold rallied throughout the day to reach new highs for the year.
- Bullion opened at US2,708.21, rising throughout the trading day to $2,750.99.
- Gold typically likes either lower rates or a weaker USD and with Trump seemingly pulling back from tariffs on China for now, the USD was weaker against most Asian currencies.
- Gold also exhibits safe-haven status in times of volatility which no doubt will be in the days and weeks ahead as policies are announced.
- Trump has indicated that tariffs levelled at Mexico and Canada could come into place as early as February, and that he is considering a ‘universal tariff on all imports into the US’.
- The threat of tariffs, the proposed increase in spending and trade wars see investors having concerns as to the pathway for inflation and hence interest rates.
- Whilst the geopolitics will have input into the short-run impact for gold, the longer-term direction for rates will be the most significant for gold.
- Some of the largest gold ETFs were up over 3% yesterday in what was one of the biggest moves year to date.
OIL: Crude Holds The Week’s Losses As Trade Wars Threaten
Oil prices have been trading in a narrow range during today’s APAC session after falling this week. WTI is down slightly at $75.77/bbl after a low of $75.62 and high of $75.95. Brent is moderately higher at $79.32/bbl following a low of $79.16 and a high of $79.41. The USD index is up 0.1%.
- Later US industry-based inventory data for last week is released. Recently stocks have been consistently drawdown. With the prospect of 25% tariffs on imports from Canada starting February 1, they may rise this week and next as both producers and refiners sharply front load supplies. The tariffs, if implemented, could increase US fuel prices with refineries in the Midwest geared for heavy Canadian crude.
- The new US administration has made the prospect of increased trade protectionism very real, while increasing the possibility of tighter sanctions against Iran and Venezuela. It has also said that if Russia doesn’t negotiate on a peace deal for Ukraine, it will also enhance sanctions against it.
- Today President Trump also suggested a 10% tariff on Chinese goods as a result of the fentanyl problem.
- Later US December leading index prints and ECB President Lagarde and Bundesbank’s Nagel speak.
UP TODAY (TIMES GMT/LOCAL)
| Date | GMT/Local | Impact | Country | Event |
| 22/01/2025 | 0700/0700 | *** |  GB | Public Sector Finances |
| 22/01/2025 | 0700/1500 | ** |  CN | MNI China Money Market Index (MMI) |
| 22/01/2025 | 1200/0700 | ** |  US | MBA Weekly Applications Index |
| 22/01/2025 | 1330/0830 | * |  CA | Industrial Product and Raw Material Price Index |
| 22/01/2025 | 1355/0855 | ** | US | Redbook Retail Sales Index |
| 22/01/2025 | 1515/1615 |  EU | ECB's Lagarde in dialogue on Unlocking Europes potential | |
| 22/01/2025 | 1630/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 22/01/2025 | 1800/1300 | ** | US | US Treasury Auction Result for 20 Year Bond |
| 23/01/2025 | 2350/0850 | ** |  JP | Trade |
| 23/01/2025 | - |  NO | NorgesBank Meeting | |
| 23/01/2025 | - | JP | Bank of Japan Meeting | |
| 23/01/2025 | 0745/0845 | ** |  FR | Manufacturing Sentiment |
| 23/01/2025 | 0900/1000 | *** | NO | Norges Bank Rate Decision |
| 23/01/2025 | 1000/1000 | ** | GB | Gilt Outright Auction Result |
| 23/01/2025 | 1100/0600 | *** |  TR | Turkey Benchmark Rate |
| 23/01/2025 | 1100/1100 | ** | GB | CBI Industrial Trends |