EXECUTIVE SUMMARY
- CANADIAN POLITICAL NOISE MASKS FISCAL SLIPPAGE AND HIGHER BORROWING PLANS
- CHINA PLANS RECORD BUDGET DEFICIT OF 4% OF GDP IN 2025: RTRS
- GERMAN IFO FALLS TO LOWEST VALUE SINCE MAY 2020
- UK WAGE GROWTH ACCELERATES ON PRIVATE SECTOR PICKUP
Figure 1: December IFO weaker than PMI, deterioration across most sectors
Source: MNI
NEWS
CANADA (MNI): Political Noise Masks Fiscal Slippage and Higher Borrowing Plans
Political uncertainty continues to cloud yesterday's FES update, which just about went ahead following Freeland's resignation as Finance Minster with a last-minute replacement from public safety minister LeBlanc. Trudeau didn't address the nation yesterday despite some speculation, although sources have told CTV News that he is considering his resignation with a planned address to parliament today before entering recess tomorrow. The noise distracts from what was further fiscal slippage although the worst news was backward looking, with a far larger than expected federal deficit large year.
CANADA (MNI): Liberal Lawmaker Says Trudeau Needs to Step Aside
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. “We’re not united, there are still a number of our members who feel we need a change in leadership, I am one of those,” he said while leaving an emergency 5pm meeting. Earlier in the day he posted a letter identifying himself as part of a group of 23 Liberal lawmakers who earlier this year pressured Trudeau to quit.
US/CHINA (NYT): Biden Administration Takes First Step to Retaliate Against China Over Hack
The Commerce Department is banning the few remaining operations of China Telecom in the United States, a move that appears unlikely to deter Beijing from conducting sophisticated cyberoperations. The Biden administration has taken its first step to retaliate for China’s broad hack of American telecommunications firms, moving to ban the few remaining operations of China Telecom in the United States.
US/JAPAN (BBG): Japan Builds Ties With Trump Even as Troubled Premier Stays Home
Japan is getting its pitch across to US President-elect Donald Trump for continued strong relations, even as its unpopular prime minister stays home to deal with an unstable political situation. An announcement on Monday by SoftBank Group Corp. of plans to invest $100 billion over the next four years to create thousands of new jobs in the US follows a visit to Washington by a close aide of Prime Minister Shigeru Ishiba, and a dinner meeting between Trump, his wife Melania, and the widow of the late Prime Minister Shinzo Abe.
RUSSIA (MNI): Ukraine Claim Responsibility For Killing General; Medvedev Vows Response
The Security Service of Ukraine (SBU) has claimed responsibility for the assassination of senior Russian military figure Lt. General Igor Kirillov earlier today in Moscow. Kirillov and another man were killed when a device hidden inside an electric scooter detonated as they left a residential building in the southeast of the capital. As the head of Russia's radiation, chemical and biological protection forces, Kirillov is one of if not the seniormost Russian military figure to have been killed during the course of Russia's full-scale invasion of Ukraine. In October he was sanctioned by the UK gov't for overseeing the use of chemical weapons and spreading fake Russian news.
ECB (BBG): ECB’s Rehn Sees Direction Clear on Rates as Inflation Stabilizes
European Central Bank interest rates will continue to head lower as inflation starts to stabilize around the 2% goal, according to its Governing Council member Olli Rehn. “The direction of our monetary policy is now clear,” Rehn said Tuesday in Helsinki. “The speed and scale of the rate cuts will be determined in each meeting on the basis of incoming data and comprehensive analysis.”
FRANCE (MNI): Macron Seeks Names of New Cabinet Today; PM Criticised Over Mayor Role
Signs of friction between President Emmanuel Macron and new PM Francois Bayrou are evident over the appointment of a new Council of Ministers. On the evening of 16 Dec, Bayrou said that "My schedule [for the appointment] is this week, but the President of the Republic must also be there." This has been seen as a slight against the president for his travel schedule. Macron is expected in Lyon on 17 Dec, in Brussels from the afternoon of 18-20 Dec for the EUCO summit, and he may visit the overseas department of Mayotte, devastated in a recent cyclone.
GERMANY (BBG): Germany Cuts Federal Debt Sales 13% to €380 Billion in 2025
Germany will reduce federal debt sales by 13% next year as the government scales back despite a sputtering economy and pressure to support Ukraine’s defense against Russia. With a change of power pending, the administration intends to sell about €380 billion ($400 billion) in securities, according to a statement published Tuesday by the federal finance agency. That compares with €438.5 billion this year and a record volume of around €500 billion in 2023.
CHINA (RTRS): China Plans Record Budget Deficit of 4% of GDP in 2025
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. The new deficit plan compares with an initial target of 3% of GDP for 2024, and is in line with a "more proactive" fiscal policy outlined by leading officials after December's Politburo meeting and last week's Central Economic Work Conference (CEWC), where the targets were agreed but not officially announced. The additional one percentage point of GDP in spending amounts to about 1.3 trillion yuan ($179.4 billion). More stimulus will be funded through issuing off-budget special bonds, said the two sources, who requested anonymity as they were not authorised to speak to the media.
NEW ZEALAND (BBG): New Zealand Faces Wider Budget Deficits, Later Surplus
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. The operating balance before gains and losses (OBEGAL) is projected to remain in deficit until at least the year ending June 2029, according to new Treasury Department forecasts released Tuesday in Wellington in the half-year fiscal and economic update. In the May budget, OBEGAL was projected to return to surplus in 2028.
S. KOREA (BBG): Korea Ruling Party Stalls Court Appointments for Yoon Ruling
South Korea’s ruling party is trying to delay the appointment of judges to the Constitutional Court in a move likely aimed at preventing the opposition from boosting the chances of ousting impeached President Yoon Suk Yeol. The law requires a minimum of six judges to confirm Yoon’s removal. Currently there are six judges in place with three vacant seats. The opposition Democratic Party, which successfully led the campaign last week to impeach Yoon over his failed martial-law bid, is looking to fill the remaining seats as quickly as possible, a move that would lower the bar for removing Yoon to two-thirds of the judges from 100%.
DATA
GERMANY DATA (MNI): December IFO Weaker Than PMI, Deterioration Across Most Sectors
- GERMANY DEC IFO BUSINESS CLIMATE INDEX 84.7
Germany's IFO Business Climate Index fell in December to its lowest value since May 2020, 84.7 (85.6 Nov), also coming in short of expectations of 85.5. The print appears even less optimistic than Monday's flash PMI release in indicating a deterioration across both services and manufacturing. Overall, the release underpins the narrative of ongoing weakness in the German economy. The main downside driver were future expectations, which fell to 84.4 (vs 87.5 cons; 87.0 prior), the lowest value since February. The current assessment declined to 85.1 (vs 84.0 cons; 84.3 prior).
GERMAN DATA (MNI): ZEW Headline Expectations Index Rises to 3-Month High
The German ZEW expectations index rose to 15.7 in December, up from 7.4 in November and above consensus of 6.9. That is the highest value since August. The current assessment index meanwhile decreased further, to -93.1 (vs -92.6 cons; -91.4 Nov). This comes as wider German sentiment remains bleak (today's IFO release saw the lowest value since May 2020). The ZEW's expectations / current assessment split is at odds with that IFO print however (which saw stronger current assessment / weaker expectations).
UK DATA (MNI): UK Wage Growth Accelerates on Private Sector Pickup
- UK NOV CLAIMANT CHG +300
- UK NOV CLAIMANT RATE +4.6%
- UK OCT AVE WEEKLY EARNINGS +5.2% YY
- UK OCT AVE WEEKLY EARNINGS EX-BONUS +5.2% YY
UK wage growth picked up in the three months to October, with regular earnings growth accelerating for the first time in over a year, the Office for National Statistics said Tuesday. Regular pay rose 5.2% on year, with ex-bonus pay also higher by 5.2% y/y, both driven by gains in private sector pay. “After slowing steadily for over a year, growth in pay excluding bonuses increased slightly in the latest period, driven by stronger growth in private sector pay. Pay growth including bonuses increased by more, but this reflects previous figures being affected by the one-off payments made to some public sector employees in 2023," ONS director of economic statistics Liz McKeown said.
CENTRAL BANK PREVIEWS
MNI FED PREVIEW - DECEMBER 2024: Greater Caution, Flatter Rate Path
The latest unemployment and inflation data have kept the FOMC on track to cut the federal funds rate by 25bp (to 4.25-4.50%) on Dec 18, but macro and political developments have heightened uncertainty over its the next moves. With the unemployment rate likely to undershoot September’s median projection along with core PCE inflation and GDP growth overshooting, the FOMC will undoubtedly signal a more cautious approach to easing. This will be communicated most clearly in the updated Dot Plot, which is set to show 75bp of cuts in 2025.
MNI RIKSBANK PREVIEW - DECEMBER 2024: Still Cutting for Now
The Riksbank is expected to bring its policy rate to 2.50% with a 25bp cut in December. Although inflation has tracked a little above the September MPR projections over the past three months, continued softness in domestic economic activity means there is little reason for the Executive Board to go against its November guidance. The December decision includes an updated monetary policy report and rate path projection.
MNI NBH PREVIEW - DECEMBER 2024: Rates, Guidance to Remain Unchanged
The National Bank of Hungary is expected keep its base rate unchanged at 6.50% during its final meeting of the year. A somewhat more stable backdrop for the HUF across December and no change in regime at the central bank until March means we are unlikely to see any material changes to the central bank’s hawkish communications either.
MNI BOT PREVIEW - DECEMBER 2024: On Hold to Remain Neutral
We expect the Bank of Thailand (BoT) to leave rates at 2.25% given Governor Sethaput said that the bar is “reasonably high” for further easing and BoT’s desire to keep policy at neutral and consistent with the growth and inflation outlook. BoT expects headline inflation to reach the bottom of its 1-3% band by the end of this year and for it to average 1.2% in 2025 up from 0.5% in 2024. Updated forecasts will be included in the meeting statement.
MNI BI PREVIEW - DECEMBER 2024: IDR to Keep BI on Hold
The December Bank Indonesia (BI) rate decision is likely to be close reflected by the 18 analysts on Bloomberg expecting rates to be held at 6.0% and 13 forecasting a 25bp rate cut. USDIDR reaching 16000 probably means that BI will remain on hold as it focuses on FX and financial stability. It is likely to continue to use its macroprudential tools to support growth through increased lending and jobs rather than lower rates while the rupiah is at this level.
MNI BCCH PREVIEW - DECEMBER 2024: 25BP Cut Expected, FX Risks Rise
Latest activity and inflation data have evolved broadly in line with expectations, consistent with the BCCh cutting the overnight rate by 25bp to 5.00% in December. This action would follow prior guidance of continuing “to reduce the policy rate towards its neutral level”. Central bank economist and trader surveys corroborate this sentiment and are then forecasting the committee to keep the key rate unchanged in January.
FOREX: Rise in Yields Undermines AUD, GBP Firms on Trimmed '25 Rate Cut Pricing
- US yields are rising further in early European trade, helping the 10y inch back to 4.42% for a new December high and narrow the gap with the post-election highs of 4.50%. As a result, the USD Index is seeing support and holds the 107.00 handle. The JPY outperforms, however, to be the strongest currency in G10 and drag USD/JPY off yesterday's highs at Y154.48.
- Nonetheless, short-term momentum is clearly in favour of further upside, evident in the 50-dma rising through the 200-dma this week (marking the formation of a golden cross) for the first time since June 2023.
- GBP is in favour Tuesday, as wages data released pre-market came in ahead of expectations and showed early signs of a reversal in momentum for private wages - posing problems for any MPC members that may have looked to vote for a rate cut at this week's BoE decision. As a result, markets further trimmed rate cut bets across 2025.
- Antipodean currencies are trading poorly, falling against most others in response to firmer US yields. AUD/JPY has rejected the test of the 98.569 100-dma and slipped lower into NY hours.
- Focus for the Tuesday session ahead turns to the Canadian CPI release as well as US retail sales and industrial production stats. After a handful of ECB comments this morning, there are no further scheduled appearances from central bank members today, with the Fed remaining inside their pre-meeting media blackout period ahead of tomorrow's policy announcement.
EGBS: Bund Futures Off Highs as Equities Continue to Recover
Bund futures have moved away from intraday highs as European equities continue to recover, now -3 ticks today at 134.70. Bunds were supported earlier by a pullback in crude oil prices, the details of the German 2025 funding plan and the weaker-than-expected December IFO survey.
- German 2025 capital markets issuance will be E254bln (E272.5bln in 2024), in the bottom half of expectations we had seen. The most notable part of the plan is that there are increases in Bobl and 30-year Bund issuance.
- The German 10s30s curve steepened following the announcement to ~23.5bps, but has since fallen back to 23bps.
- The German IFO business climate and current assessment metrics were weaker-than-expected, while the current assessment was a little stronger.
- 10-year peripheral spreads to Bunds are 1-1.5bps wider this morning, despite the latest recovery in European equities.
- Broader macro focus turns to US retail sales and industrial production data this afternoon.
GILTS: Initial, Modest Post-Auction Weakness in 5s Quickly Reversed
The GBP3.75bln auction of the 4.125% Jul-29 gilt generates demand metrics that are in line with the recent norms, although that is perhaps slightly disappointing, given that the auction was slightly smaller than the typical GBP4bln reopening of the line.
- The cover ratio registered the lowest level seen since the August offering of the bond.
- Tails at auctions of this line had widened a little during H224 (when compared to the H1 average), and this auction’s 0.8bp yield tail was in line with what seen last time out.
- Low price a little below prevailing mids seen ahead of the auction, with the average price matching prevailing mids. The line matched the low price of the auction shortly after the results were confirmed, but has since recovered.
- Yield on the line now little changed vs. pre-auction levels, ~1.5bp below early session highs.
- Initial reaction saw ~0.5bp of cheapening for 5s on the 2-/5-/10-Year fly, although that move quickly faded. That structure is still over 1bp higher on the day, owing to the combination of the data-driven hawkish repricing in the short end and setup for the supply.
- A reminder that this offering rounds off the DMO’s coupon supply for calendar ’24.
EQUITIES: Outlook for E-Mini S&P Unchanged and Bullish
A bull cycle in the Eurostoxx 50 futures contract remains intact and the latest pullback is - for now - considered corrective. The contract has recently breached the 50-day EMA. The clear break of this average strengthens a bullish theme and note that 4961.00, the Nov 6 high, has also been cleared. Sights are on 5015.00 next, the Oct 29 high. Key support is 4699.00, the Nov 19 low. Initial support to watch lies at 4907.48, the 20-day EMA. The S&P E-Minis contract is unchanged. The outlook remains bullish and the latest shallow pullback is considered corrective. Recent gains confirmed a resumption of the uptrend. Note that moving average studies are in a bull-mode set-up, highlighting a dominant uptrend and positive market sentiment. A resumption of the trend would open 6194.19, a Fibonacci projection. Initial support to watch lies at 6103.12, the 20-day EMA.
- Japan's NIKKEI closed lower by 92.81 pts or -0.24% at 39364.68 and the TOPIX ended 10.13 pts lower or -0.37% at 2728.2.
- Elsewhere, in China the SHANGHAI closed lower by 24.846 pts or -0.73% at 3361.485 and the HANG SENG ended 95.01 pts lower or -0.48% at 19700.48.
- Across Europe, Germany's DAX trades lower by 6.64 pts or -0.03% at 20307.24, FTSE 100 lower by 49.55 pts or -0.6% at 8212.58, CAC 40 up 6.08 pts or +0.08% at 7364.28 and Euro Stoxx 50 up 3.94 pts or +0.08% at 4951.73.
- Dow Jones mini down 153 pts or -0.35% at 43615, S&P 500 mini down 19 pts or -0.31% at 6061.75, NASDAQ mini down 41.75 pts or -0.19% at 22069.
Time: 09:55 GMT
COMMODITIES: Bear Threat in WTI Futures Still Present, Recent Gains Corrective
A bearish threat in WTI futures remains present and recent gains are - for now - considered corrective. A resumption of the bear cycle would open $65.74, the Oct 1 low, and $63.90, the Sep 10 low and key support. For bulls, a stronger reversal to the upside would instead refocus attention on the key short-term resistance at $77.04, the Oct 8 high. Initial firm resistance to watch is unchanged at $72.41, the Nov 7 high. Gold has pulled back from its recent highs. Trend signals remain bullish and a move lower is considered corrective. A key short-term resistance at $2721.4, the Nov 25 high, has recently been pierced and this represents a positive development. A continuation higher would expose key resistance at $2790.1, the Oct 31 high. Clearance of this level would confirm a resumption of the primary uptrend. First key support is $2605.3, the Nov 26 low.
- WTI Crude down $0.43 or -0.61% at $70.24
- Natural Gas up $0.02 or +0.68% at $3.236
- Gold spot down $11.83 or -0.45% at $2640.6
- Copper down $3.9 or -0.93% at $415.25
- Silver down $0.27 or -0.88% at $30.276
- Platinum down $11.71 or -1.25% at $927.78
Time: 09:55 GMT
| Date | GMT/Local | Impact | Country | Event |
| 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 |
| 18/12/2024 | 1530/1030 | ** | US | DOE Weekly Crude Oil Stocks |
| 18/12/2024 | 1900/1400 | *** | US | FOMC Statement |
| 19/12/2024 | 2145/1045 | *** |  NZ | GDP |