MNI US OPEN - Blinken Seeks to Avert Escalation During Middle East Trip

NEWS

US/MIDDLE EAST (BBG): Blinken Warns Israel-Hamas War Could ‘Easily Metastasize’

The US’s top diplomat warned the Israel-Hamas war could “easily” turn into a full-blown Middle East conflict, as he travels across the region to calm tensions and urge Israel to do more to protect civilians in Gaza. Fighting in Gaza continues to rage, with Israeli jets pounding the Palestinian enclave and its ground troops targeting Hamas commanders. Tensions between Israel and Hezbollah militants based in Lebanon are mounting, with near-daily skirmishes between the two and Hamas blaming Israel of assassinating a senior leader in Beirut last week.

US (BBG): Congress Leaders Ease Shutdown Risk With a Spending-Cap Deal

US congressional leaders announced a deal on a top-line spending level for the current fiscal year, lessening the chances of a partial government shutdown on Jan. 20. Senate Majority Leader Chuck Schumer, a Democrat, and House Speaker Mike Johnson, a Republican, negotiated the deal, clearing the way for the appropriations committees in both chambers to negotiate detailed spending bills now that they have an overall limit for the amount those bills can spend.

US (BBG): Biden, Johnson Set for Crucial Battle Over Border, Ukraine Aid

The battle between President Joe Biden and House Speaker Mike Johnson over Ukraine aid and immigration policy is coming to a head this week as Congress races to avert a Jan. 20 partial lapse in government funding. Leaders in both parties, concerned about the political fallout from a shutdown, announced the contours of a spending plan Sunday that includes neither $61 billion in aid to Ukraine that Biden has sought nor stringent border protections that conservatives demand.

EU (BBG): EU’s Michel to Run for European Parliament Seat in June Vote

Charles Michel, president of the European Council, will seek a seat in the European Parliament in elections scheduled for June and step down from his current role early if elected. Michel, who runs the meetings of the 27 European Union leaders, plans to head the slate for Belgium’s liberal Reformist Movement party, he said in an interview with local media on Saturday.

CHINA/UK (BBG): China Says It Caught Foreign Consultant Spying for UK’s MI6

China detained the head of an overseas consulting firm for allegedly spying on the Asian nation for the British government, putting renewed focus on an industry targeted by Beijing’s national security crackdown. China’s spy agency said Monday that the UK’s MI6 intelligence service employed the consultant from a “third country” to carry out espionage activities. The alleged spy, surnamed Huang, provided the UK with state secrets and intelligence, according to the Ministry of State Security’s official WeChat account.

CHINA (MNI): China Has Considerable Fiscal Space to Spur Growth

MNI (Beijing) China should strengthen counter-cyclical adjustment and make good use of proactive fiscal policy to consolidate economic recovery in 2024, said Ning Jizhe, deputy head at the economic committee of the Chinese People's Political Consultative Conference on Saturday.

CORPORATE (BBG): Boeing Shares Tumble After Panel Blowout

Boeing shares tumbled in premarket trade on Monday after a panel blew out of an Alaska Airlines 737-9 Max, leading the Federal Aviation Administration to temporarily ground 171 of those planes. Boeing shares (BA) fell 8%, having gained 19% over the last 52 weeks. The move in Boeing shares was set to have a big impact on the Dow Jones Industrial Average DJIA, given the aerospace company's presence in the index. Dow futures (YM00) fell by 188 points. Fuselage maker Spirit AeroSystems Holdings (SPR) tumbled 15%.

THAILAND (BBG): Thai PM Urges Central Bank to Consider Easing Interest Rates

Thailand’s Prime Minister Srettha Thavisin urged the central bank to consider cutting borrowing costs to support the economy, signaling a new round of disagreement between fiscal and monetary policymakers. With consumer prices extending a streak of negative readings, Srettha said it provides room to pivot to easing. The prime minister’s call for rate cuts comes within days of his appeal to the monetary authority to factor in risks to economic growth while setting policy.

SAUDI ARABIA (BBG): Deep Oil Price Cut by Saudis Highlights Soft Physical Market

A substantial cut in official oil pricing to Asia by OPEC+ leader Saudi Arabia has reinforced signs of softer physical market in the key region. Saudi Aramco cut the official selling price for its flagship Arab Light crude to a $1.50-a-barrel premium to the regional benchmark for February, the lowest level since November 2021. The $2-a-barrel reduction was deeper than had been foreseen, and follows a weakening of spot differentials for Middle Eastern crudes due to lackluster Chinese appetite and increased global supplies.

SAUDI ARABIA (BBG): Saudi Arabia Is Set to Add to Rush of Emerging-Market Bond Deals

Saudi Arabia is set to issue a three-part dollar bond as emerging-market governments rush to lock in lower costs following the drop in US yields since October. The kingdom is following the likes of Mexico, Indonesia and Poland, which have issued almost $25 billion of bonds between them in 2024. That’s made it the busiest start to a year on record for dollar- and euro-denominated debt issuance from developing nations, according to data compiled by Bloomberg.

DATA

EUROZONE DATA (MNI): EZ Retail Trade Broadly In-Line With Expectations

• EUROZONE NOV RETAIL SALES -0.3% M/M, -1.1% Y/Y

On a monthly basis, Eurozone volume of retail trade was down -0.3% M/M in November (vs -0.3% M/M consensus, +0.4% M/M revised prior from +0.1% M/M). The upward revision to the October data saw the Y/Y print come in a slightly higher than consensus at -1.1% Y/Y (vs -1.5% Y/Y consensus, -0.8% Y/Y revised prior from -1.2% Y/Y). All subcomponents except fuel saw a fall in volume of retail trade M/M with "Non-food products (except automotive fuel)' partially reversing October's gain (-0.4% M/M vs +1.0% M/M prior), as well as reductions in "Food, drinks tobacco".

GERMAN DATA (MNI): Factory Orders Even Weaker Than Headline Reading Suggests

• GERMANY NOV FACTORY ORDERS +0.3% M/M

German factory orders missed expectations in November, at +0.3% M/M seasonally/calendar adjusted (1.1% cons, -3.8% prior, revised from -3.7%) and -4.4% Y/Y on a calendar-adjusted basis (-3.4% cons, -7.3% prior, no revisions). Excluding one-off big ticket items, "core" new orders declined -0.6% M/M, the 3rd consecutive monthly drop, with the less volatile 3M/3M measure falling -1.4%. The level of core orders is now the lowest since the pandemic. Looking at individual components, investment goods and consumption goods orders grew at +0.8% M/M and +1.1%, respectively. Intermediate goods saw a decline of -0.4% M/M.

NORWAY DATA (MNI): Manufacturing IP Still Subdued, October Headline Sees Large Revisions

Norway manufacturing industrial production, which excludes volatile oil services, fell -0.3% M/M SA, after a downwardly revised +0.5% M/M in October. On an annual basis, manufacturing IP fell -0.6% Y/Y (vs a downwardly revised -0.7% Y/Y prior). M/M manufacturing IP was thus negative for November after a slightly positive October, seemingly consistent with the Norges Bank's Q4 2023 mainland GDP projection of 0.0% Q/Q in its December MPR. The manufacturing PMI for December rose to 51.7 (vs 50.1 prior), providing hope for a positive monthly print to end 2023.

SWISS DEC CPI +0% M/M, +1.7% Y/Y (MNI)
SWISS NOV RETAIL SALES +0.7% M/M, +0.7% Y/Y (MNI)

FOREX: USD/JPY Fade Off Highs Keeps Key Resistance Intact

• The fade off the Friday high for USD/JPY has kept the most notable resistance intact at the 50-day EMA of 145.32. This seems to have contained the recovery rally from late last week, keeping the trend outlook bearish for now. Resultingly, the JPY is the strongest performer in G10 headed into the NY crossover.
• Elsewhere, a slightly firmer than expected Eurozone retail sales release helped stall modest selling pressure in EUR/USD, keeping the pair rangebound and close to the midpoint of the Friday range.
• NOK trades poorly, slipping against most others in G10 to reflect the pullback in Brent and WTI crude futures since the resumption of trade after the weekend. Moves come ahead of the December CPI print due on Wednesday this week, at which markets expect CPI-ATE to fade further to 5.6%. A particularly strong print here could call markets to question the peak of the tightening cycle from the Norges Bank.
• Tier one data releases are few and far between Monday, with markets watching an appearance from Fed's Bostic, who's set to speak at 1730GMT/1230ET on the economic outlook. The NY Fed Inflation Expectations survey could draw some focus in the interim.

EGBS: Another Weak Start; Peripheries Widen

Core/semi-core EGBs are off session lows headed into the NY crossover, but remain weaker to begin the week.

• Headline flow has generally been light, with this morning's Eurozone data not providing much impulse in either direction. Block buying in USTs has been noted to help Bunds off intraday lows in recent trade.
• That leaves Bunds 50 ticks lower on the day at 135.53, with the Jan 5 low of 135.06 is the first support. German and French cash curves have bear steepened on the day, but yields remain inside recent ranges.
• Periphery spreads are once again wider, continuing last week's dynamics. The 10-Yr BTP/Bund spread hovers around 170bps, currently 0.5bps wider on the day at 169.6bps.
• Aforementioned Eurozone data comprised of retail sales and EC/Sentix confidence indices. Retail sales were broadly in line with consensus, while an uptick in confidence across respondents were seen in both surveys.
• The remainder of today's local docket is light, with external focus on an appearance from Fed's Bostic ahead of the US CPI data later this week.

GILTS: Cheaper on the Day But Off Worst Levels

Gilt futures have maintained the bulk of their really from session lows (99.76) to last trade -60 or so at 110.05, around the middle of its 47-tick session range.

• Friday’s range in the contract remains intact, with no threats to the boundaries at either end of that band seen thus far.
• That leaves the technical parameters flagged earlier today in place.
• Cash gilt yields are little changed to 3bp higher, as the curve bear flattens at the margin, allowing 5s30s to pull further away from early ’24 steeps.
• SONIA futures run flat to 8.5bp softer on the day, with the reds and greens under the most pressure.
• BoE-dated OIS is a little less dovish vs. what was seen at Friday’s close, albeit operating off extremes, showing ~120bp of cuts for ’24.
• Weakness in Chinese equities, softer-than-expected German factory orders data, firmer-than-expected Swiss CPI and a fairly brisk start to the week for IG supply has been noted in wider spheres early this week.
• The local docket is limited today, with only short maturity bucket gilt sales from the BoE due.
• Read more on gilt market matters, including the early Monday REC-KPMG labour market release, in our Gilt Week Ahead piece: https://roar-assets-auto.rbl.ms/files/59389/GiltWeekAhead20240108.pdf

EQUITIES: Primary Trend Direction in Eurostoxx 50 Futures Remains Up

The primary trend direction in Eurostoxx 50 futures remains up and the recent move lower appears to be a correction. MA studies are in a bull-mode position, signalling a rising trend cycle. Key short-term support to watch lies at 4439.30, the 50-day EMA. A break of this level would signal scope for a deeper retracement and open 4370.00, the Nov 28 low. For bulls, a reversal higher would refocus attention on 4634.00, the Dec 14 high and bull trigger. The pullback in S&P E-Minis from recent highs has now cracked first material support at the 20-day EMA of 4745.34. This strengthens a short-term bearish threat and exposes 4696.72, the lower band of a MA envelope. A move through this support would expose the 50-day EMA, at 4650.64. The recent move lower is considered corrective and the primary uptrend remains intact. Key resistance and the bull trigger is 4841.50, the Dec 28 high.

• In China the SHANGHAI closed lower by 41.645 pts or -1.42% at 2887.538 and the HANG SENG ended 310.88 pts lower or -1.88% at 16224.45.
• Across Europe, Germany's DAX trades lower by 59.71 pts or -0.36% at 16536.66, FTSE 100 lower by 45.21 pts or -0.59% at 7646.26, CAC 40 down 37.77 pts or -0.51% at 7383.18 and Euro Stoxx 50 down 21.19 pts or -0.47% at 4442.57.
• Dow Jones mini down 245 pts or -0.65% at 37473, S&P 500 mini down 18.75 pts or -0.4% at 4715.75, NASDAQ mini down 79.75 pts or -0.48% at 16381.25.

COMMODITIES: Bearish Conditions in WTI Futures Intact

Bearish conditions in WTI futures remain intact and short-term gains are considered corrective. Resistance to watch is $75.02, the 50-day EMA. The average was briefly pierced late December. A clear break of it would strengthen a bullish theme and highlight a stronger reversal. For bears, moving average studies are in a bear-mode position, highlighting a downtrend. The trigger for a resumption of the trend is $67.98, Dec 13 low. The Dec 13 reversal in Gold and the subsequent move higher continues to suggest the Dec 4 - 13 pullback was a correction. Note that moving average studies are in a bull-mode position too, reflecting an uptrend. A resumption of gains would open $2097.1, 76.4% of the Dec 4 - 13 bear leg, ahead of key resistance and the Dec 4 all-time high of $2135.4. Initial support to watch is $2011.3, the 50-day EMA. Key support lies at $1973.2, the Dec 13 low.

• WTI Crude down $0.94 or -1.27% at $72.89
• Natural Gas down $0.05 or -1.59% at $2.847
• Gold spot down $14.65 or -0.72% at $2029.89
• Copper down $1.1 or -0.29% at $379.25
• Silver down $0.2 or -0.87% at $22.9485
• Platinum down $8.04 or -0.83% at $955.57