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MNI EUROPEAN OPEN: US Yields Slip Further, JPY Outperforms

EXECUTIVE SUMMARY

Fig. 1: Tokyo Y/Y CPI Pressures Continue To Moderate

Source: MNI - Market News/Bloomberg

U.K.

CONSUMER (BBG): Total sales grew 1.7% in December, compared with almost 7% growth a year earlier, the British Retail Consortium and consultancy KPMG said in a report Tuesday. Sales of non-food items declined over the three months to December, with shoppers particularly avoiding big-ticket purchases such as furniture and homeware. Clothing, jewelery and technology were other gift categories that struggled.

EUROPE

FRANCE (BBG): French Prime Minister Elisabeth Borne resigned on Monday to make way for a successor as President Emmanuel Macron seeks to give fresh momentum to his reform agenda ahead of European elections in June.

ITALY (BBG): Italy’s government pledged to acquire a majority stake in the country’s biggest steelmaker after clashing with the current majority shareholder ArcelorMittal SA over how to recapitalize it.

U.S.

FED (MNI): Federal Reserve Governor Miki Bowman on Monday said inflation could continue to decline and flagged the potential to begin cutting interest rates at some point to prevent overly tight policy. "My view has evolved to consider the possibility that the rate of inflation could decline further with the policy rate held at the current level for some time," said Bowman in prepared remarks. "Should inflation continue to fall closer to our 2 percent goal over time, it will eventually become appropriate to begin the process of lowering our policy rate to prevent policy from becoming overly restrictive," said Bowman, known for being on the hawkish end of the Fed spectrum.

INFLATION (MNI): U.S. inflation expectations fell across the board in December, according to the New York Fed's survey of consumers, with short, medium, and longer term readings all showing decreases. Median inflation expectations for the year-ahead fell 0.4ppt to 3.0%, the lowest level recorded since January 2021.

FISCAL (BBG): Treasury Secretary Janet Yellen said extending all the 2017 tax cuts won by former President Donald Trump would lead to “serious concerns” over the federal budget deficit. If he returns to office, Trump intends to make the individual cuts from the Tax Cuts and Jobs Act permanent and to keep corporate tax levels unchanged, according to people familiar with the matter.

OTHER

JAPAN (BBG): Consumer price gains in Tokyo slowed for a second month in December, in a sign that cost-push inflation may be easing while thrifty consumers also cut back on discretionary outlays.

AUSTRALIA (BBG): Australian retail sales jumped by more than economists predicted in November as consumers brought forward their Christmas shopping to take advantage of Black Friday discounts.

ISRAEL (RTRS): Israel is carrying out an unprecedented wave of deadly strikes in Syria targeting cargo trucks, infrastructure and people involved in Iran's weapons lifeline to its proxies in the region, six sources with direct knowledge of the matter told Reuters.

SOUTH KOREA (RTRS): Samsung Electronics Co Ltd (005930.KS) reported a likely 35% drop in fourth-quarter operating profit on Tuesday, much worse than analysts expected as weak consumer demand persisted in many of its businesses even as memory chip prices improved.

ARGENTINA (BBG): Argentina is set to make a near $1 billion payment to foreign bondholders this week while the government of President Javier Milei continues talks with the International Monetary Fund as he seeks to restore investor confidence in the serial-defaulting nation.

CHINA

RRR (BBG): China’s central bank signaled that it’s prepared to keep policy loose by lowering the amount of money banks must keep in reserve, reinforcing expectations among investors of more easing to come.

TRADE (MNI INTERVIEW): China’s international trade will rebound in 2024 despite the strengthening yuan and Red Sea shipping disruptions, as the world economy stabilises, geo-political tensions cool, and Beijing diversifies its trading partnerships, a policy advisor told MNI.

TRAVEL (YICAI): Authorities expect daily flights during China’s 2024 New Year festival to reach 16,500 a day, the same as 2019 and up 24% on 2023, according to Sun Wensheng, deputy director of the Comprehensive Department of the Civil Aviation Administration of China. Speaking at a press conference, Sun said the festival, starting Jan 26 and ending March 5, will see civil aviation passenger numbers hitting 2 million a day.

TECH (Securities Times): China plans to formulate over 30 key standards for automotive chips by 2025, and 70 standards by 2030 to help build a safe, open and sustainable industry, according to the latest guidelines published by the Ministry of Industry and Information Technology on Monday.

CHINA MARKETS

MNI: PBOC Drains Net CNY157 Bln Via OMO Tues; Rates Unchanged

The People's Bank of China (PBOC) conducted CNY65 billion via 7-day reverse repo on Tuesday, with the rates unchanged at 1.80%. The reverse repo operation has led to a net drain of CNY157 billion reverse repos after offsetting CNY222 billion maturity today, according to Wind Information.

  • The seven-day weighted average interbank repo rate for depository institutions (DR007) rose to 1.8000% at 10:05 am local time from the close of 1.7918% on Monday.
  • The CFETS-NEX money-market sentiment index, measuring interbank money-market liquidity, closed at 49 on Monday, compared with the close of 48 on Friday. A higher reading points to tighter liquidity condition, with 50 representing an equilibrium.

PBOC Yuan Parity Higher At 7.1010 Tuesday vs 7.1006 Monday

The People's Bank of China (PBOC) set the dollar-yuan central parity rate higher at 7.1010 on Tuesday, compared with 7.1006 set on Monday. The fixing was estimated at 7.1490 by Bloomberg survey today.

MARKET DATA

SOUTH KOREA NOV BOP GOODS BALANCE $700.6MN; PRIOR $5351.8MN
SOUTH KOREA NOV CURRENT ACCOUNT $4059.7MN; PRIOR $6796.1MN

JAPAN DEC TOKYO CPI Y/Y 2.4%; MEDIAN 2.5%; PRIOR 2.7%
JAPAN DEC TOKYO CPI EX-FRESH FOOD Y/Y 2.1%; MEDIAN 2.1%; PRIOR 2.3%
JAPAN DEC TOKYO CPI EX-FRESH FOOD, ENERGY Y/Y 3.5%; MEDIAN 3.5%; PRIOR 3.6%
JAPAN NOV HOUSEHOLD SPENDING Y/Y -2.9%; MEDIAN -2.3%; PRIOR -2.5%

AUSTRALIA NOV RETAIL SALES M/M 2.0%; MEDIAN 1.2%; PRIOR -0.4%
AUSTRALIA NOV BUILDING APPROVALS M/M 1.6%; MEDIAN -2.0%; PRIOR 7.2%

MARKETS

US TSYS: Cash Bonds Dealing Slightly Stronger

TYH4 is trading at 111-30, -0-03+ from NY closing levels.

  • Cash tsys are trading 1-2bps richer across benchmarks in today's Asia-Pac session.
  • There hasn’t been anything meaningful on the newsflow front other than Fed Bowman’s aftermarket comments, which flagged the potential to begin cutting interest rates at some point to prevent overly tight policy. She did however caution against expectations for cuts in the near term.
  • NFIB Small Business Optimism and Trade Balance data is due later today.
  • The market however remains focused on US CPI/PPI inflation measures on Thursday/Friday respectively.

JGBS: Bull-Flattening, Rinban Operations Supportive, 10Y Supply Tomorrow

JGB futures are in positive territory, +12 compared to settlement levels, and at the session's best level.

  • There hasn’t been much in the way of domestic drivers to flag, outside of the previously outlined Tokyo CPI data that printed close to expectations.
  • (Reuters) Japan is preparing the expansion of budget reserves in the fiscal 2024/25 budget from its planned 500 billion yen ($3.48 billion) to support the recovery from the Noto peninsula earthquake, Finance Minister Shunichi Suzuki said on Tuesday.
  • Elsewhere, after finishing yesterday’s NY session with moderate gains across benchmarks, cash tsys have extended those gains by 1-3bps in today’s Asia-Pac session. NFIB Small Business Optimism and Trade Balance is due later today. The market however remains focused on US CPI/PPI inflation measures on Thursday/Friday respectively.
  • Today’s BoJ Rinban operations covering 1-5-year and 10-25-year JGBs saw generally lower cover ratios and negative spreads. This likely helped support the market in afternoon trade.
  • The cash JGB curve has bull-flattened, with yields 0.3bp to 2.7bps lower. The benchmark 10-year yield is 2.0bps lower at 0.590% versus the Nov-Dec rally low of 0.555%. 10-year supply is due tomorrow.
  • Swap rates are slightly lower across all maturities. Swap spreads are wider.
  • Tomorrow, the local calendar sees Labor & Real Cash Earnings.

AUSSIE BONDS: Remain Richer Despite Stronger Than Expected Domestic Data Drop

ACGBs (YM +6.0 & XM +5.5) are richer and at or near Sydney session highs despite today’s domestic data drop surprising on the strong side. November Retail Sales beat market expectations printing +2.0% m/m versus +1.2% est, while November’s Building Approvals also exceeded expectations printing +1.6% m/m versus -2.0% est.

  • Elsewhere, after finishing yesterday’s NY session with moderate gains across benchmarks, cash tsys have extended those gains by 1-2bps in today’s Asia-Pac session. NFIB Small Business Optimism and Trade Balance is due later today. The market however remains focused on US CPI/PPI inflation measures on Thursday/Friday respectively.
  • Iron ore fell for a fourth day, with fresh data from China showing the nation’s struggling steel-intensive property sector remains in the doldrums. (See Bloomberg link)
  • Cash ACGBs are 5-7bps richer on the day, with the AU-US 10-year yield differential 2bps tighter at +10bps.
  • Swap rates are 5-6bps lower on the day, with EFPs slightly mixed.
  • The bills strip has bull-flattened, with pricing flat to +8.
  • RBA-dated OIS pricing is 1-6bps softer for meetings beyond March. A cumulative easing of 48bps is priced for year-end.

NZGBS: Richer, Light Local Calendar, ANZ Commodity Prices Tomorrow

NZGBs closed with the benchmarks richer and at or near the local session’s best levels. With the local calendar once again light, the direction of the market is likely entirely due to movements in US tsys.

  • After finishing yesterday’s NY session with moderate gains across benchmarks, cash tsys have extended those gains by 1-2bps in today’s Asia-Pac session. The market remains focused on US CPI/PPI inflation measures on Thursday/Friday respectively.
  • Nevertheless, the NZGB 10-year has underperformed its $-bloc counterpart, with the NZ-US and NZ-AU yield differentials 1bp and 3bps wider respectively.
  • Swap rates closed 3-4bps lower, with the 2s10s curve slightly steeper.
  • RBNZ dated OIS pricing closed 2-5bps softer across meetings beyond February. Cumulative easing by year-end sits at 94bps.
  • Tomorrow, the local calendar sees ANZ Commodity Prices. REINZ House Sales and CoreLogic House Prices are due over the coming days also.

FOREX: Yen Strength Continues, AUD Can't Sustain Data Induced Bounce

Yen strength has been the main feature in the G10 space today. USD/JPY dipped as far as 143.42, but we now sit back around the 143.60/65 level, around 0.45% stronger in yen terms. A continued mover lower in US yields has aided yen sentiment. The BBDXY is back near 1221.5, slightly down for the session. Moves elsewhere have been muted, with AUD unable to capitalize on a retail sales data beat.

  • Yen gains have come despite a benign Tokyo CPI print, with headline inflation continuing to track lower in y/y terms. Core-core inflation is proving stickier though. There is a chunky option expiry at 143.60, which may also be influencing spot.
  • US yields opened lower and have stayed that way, the back end of the curve -2-3bps lower. There hasn’t been anything meaningful on the newsflow front other than Fed Bowman’s aftermarket comments, which flagged the potential to begin cutting interest rates at some point to prevent overly tight policy. She did however caution against expectations for cuts in the near term.
  • The AUD got to highs of 0.6735 post the +2%m/m Nov retail sales gain, which was above expectations. The data suggest some pay back in Dec though, as the Nov data was aided by Black Friday sales. AUD/USD last back at 0.6715/20. NZD/USD sits back at session lows as well, last near 0.6250.
  • Looking ahead, Swiss currency reserves will be published in European hours on Tuesday, alongside German industrial production and European unemployment figures. US and Canadian trade balance data is also scheduled.

EQUITIES: Asia Pac Markets Higher, Taking Cue From US & EU Gains

Regional equities are tracking higher in Tuesday Asia Pac trade, in line with cash gains in US & EU markets from Monday's session. Japan and Australian markets are the standouts at this stage, both with gains over 1%. US equity futures sit slightly down in, Eminis under 4800, while Nasdaq futures sit near 16788.

  • Japan's Nikkei 225 is up 1.1%, the Topix trailing at +0.7%. The strong tech bounce in US markets on Monday has aiding this space on Japan's bourse today. A firmer yen backdrop hasn't hurt sentiment meaningfully, while Tokyo inflation data didn't point to a dramatic BoJ shift at the upcoming policy meeting.
  • Other tech sensitive plays, like the Taiex and Kospi haven't outperformed though. The Taiex is around flat, although the local election is not too far away.
  • The Kospi up a modest 0.15%. Weaker than expected Samsung Electronics profit results is a potential headwind. The Kosdaq hit +20% gains from the Oct 31 low in earlier trade, but sits off best levels.
  • Chian and Hong Kong markets are modestly higher at the break.
  • The ASX 200 is up around 1%, led by the financials.
  • In SEA, the Indonesian stock market is off by a little over 1%, bucking the positive trends elsewhere. The index had a strong run higher from Nov lows, so we may be seeing some consolidation post that move.

OIL: Largely Holding Monday Losses

Brent crude has tracked tight ranges in the first part of Tuesday trade. We were last near $76.35/bbl in terms of the benchmark front month contract, slightly above end Monday levels (+0.30%). This follows Monday's sharp 3.35% pull back amid fresh demand concerns, with Saudi Arabia cutting prices by more than expected to its Asian customers over the weekend. The WTI benchmark has tracked a similar trajectory and sits near $70.90/bbl in recent dealings.

  • The benchmarks are largely holding Monday losses at this stage, although we are above intra-day lows from Monday (near $75.25/bbl for Brent).
  • The Saudi price cut, robust non-OPEC supplies, and a fall in fund net-long positions indicate bearish sentiment in the space.
  • Broader USD sentiment has softened today, which has likely helped oil stabilize further at the margins.
  • Looking we get the EIA releases its Short Term Energy Outlook in US trade on Tuesday. The US API report on inventories will publish later in the session as well.

GOLD: Slight Recovery From Monday’s Softness

Gold is 0.3% higher in the Asia-Pac session, after closing 0.8% lower at $2028.07 on Monday.

  • The weakness in bullion aligned with commodities in general that started the trading week softer, including Brent, which tumbled 4%, and iron ore.
  • At the heart of the weakness in gold this year has been the continued pushback against bets of early rate cuts by the Federal Reserve.
  • Overnight, Fedspeak from Bostic and Bowman highlighted the potential for cutting interest rates this year, but there was pushback against the early timing and the magnitude of easing.
  • Nevertheless, US Treasuries finished 1-3bps richer after starting the day with moderate losses in spillover from Europe. A decline in the NY Fed's inflation expectation index saw the Treasury market recover.
  • The market remains focused on US CPI/PPI inflation measures on Thursday/Friday respectively.
  • According to MNI’s technicals team, Monday’s low of $2020 was still well above support at $2011.3, the 50-day EMA.

UP TODAY (TIMES GMT/LOCAL)

DateGMT/LocalImpactFlagCountryEvent
09/01/20240645/0745**CHUnemployment
09/01/20240700/0800**DEIndustrial Production
09/01/20240745/0845*FRForeign Trade
09/01/20241000/1100**EUUnemployment
09/01/20241000/1000**UKGilt Outright Auction Result
09/01/20241100/0600**USNFIB Small Business Optimism Index
09/01/20241330/0830*CABuilding Permits
09/01/20241330/0830**CAInternational Merchandise Trade (Trade Balance)
09/01/20241330/0830**USTrade Balance
09/01/20241355/0855**USRedbook Retail Sales Index
09/01/20241630/1130*USUS Treasury Auction Result for Cash Management Bill
09/01/20241700/1200USFed Vice Chair Michael Barr
09/01/20241800/1300***USUS Note 03 Year Treasury Auction Result

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