MNI US OPEN - BoJ's Ueda Gives No Signal For January Policy Exit

NEWS

BOJ (MNI): BOJ Keeps YCC, Negative Rate, Forward Guidance

The Bank of Japan board on Tuesday decided unanimously to keep yield curve control policy, including the negative interest rate, and pledged to continue patiently with monetary easing amid high uncertainty on economies and financial markets. The BOJ maintained its stance of conducting YCC with the 1.0% upper bound as a reference and will continue to manage yields mainly through large-scale Japanese government bond purchases and market operations. “By doing so, it will aim to achieve the price stability target of 2% in a sustainable and stable manner, accompanied by wage increases,” the BOJ said.

BOJ (MNI): Ueda Gives No Signal For January Policy Exit

Bank of Japan Governor Kazuo Ueda failed on Tuesday to lay any foundation for an exit from easy policy at the next meeting in January, saying it was still difficult for to demonstrate a high probability of achieving the 2% inflation target. “The probability of achieving the 2% price target in a stable and sustainable manner in fiscal 2025 has increased from November, but the Bank still needs to ascertain the strengthen of the wage-price cycle,” Ueda told reporters after the BOJ left policy unchanged in its December meeting.

BOJ (MNI): 2% Target Chance Rises, Data Needed - Ueda

Bank of Japan Governor Kazuo Ueda said on Tuesday the probability of achieving its 2% price target in a stable and sustainable manner in fiscal 2025 had increased from November, but the bank still needs to ascertain the strengthen of the wage-prices cycle. Ueda said he will focus on wage hikes next year and whether they will filter through to prices, but refrained from identifying specific data the BOJ will use to judge their strength.

US (BBG): Hunter Biden Faces Jan. 11 Arraignment on Federal Tax Charges

Hunter Biden must appear on Jan. 11 in a Los Angeles court to respond to federal charges that he failed to pay taxes on millions of dollars he received from foreign businesses, court records show. The arraignment will be before Magistrate Judge Alka Sagar at 1 pm Pacific time, according to the court’s website. The son of President Joe Biden, he’s expected to plead not guilty at his arraignment over a Dec. 8 indictment secured by Special Counsel David Weiss.

ECB (BBG): ECB’s Simkus Says Market’s Rate-Cut Bets Are Too Optimistic

European Central Bank Governing Council member Gediminas Simkus said investors may have got ahead of themselves in anticipating interest-rate cuts following a steep slowdown in inflation. While there was a positive surprise on consumer prices in November, the medium-term outlook hasn’t changed much, the Lithuanian central bank chief said Tuesday. “I think market expectations are too optimistic,” he told reporters in Vilnius. “We have to see further surprises. If there are no surprises, then the expectations of early and fast interest-rate cuts may be too optimistic.”

ECB (BBG): Villeroy Says ECB Should Cut Rates in 2024 After Plateau

The European Central Bank should cut rates at some point in 2024 after holding at a 4% high long enough to ensure it has beaten down inflation, Governing Council member Francois Villeroy de Galhau said. “Between the increase in rates, which, barring surprises, is finished, and the cut, which should happen at some point in 2024, there is a plateau,” Villeroy said on France Inter radio on Tuesday. “I want to insist on this patience, this plateau, because if we cut rates too soon we would risk falling back into the sickness of inflation.”

EU (MNI): German Fin Min to Meet w/French Counterpart Ahead of ECOFIN Summit

German Finance Minister Christian Lindner will travel to Paris today for talks with his French counterpart Bruno Le Maire ahead of tomorrow's virtual informal ECOFIN council meeting of EU economy and finance ministers. The ministers for the EU's two largest economies sit on opposite sides of the argument regarding reforms to EU fiscal rules. Lindner and the other 'frugal' ministers are calling for stricter stipulations on debt and deficits, while Le Maire and other southern ministers are in favour of a less rigid approach.

GERMANY (BBG): Germany to Trim Federal Debt Sales to €440 Billion Next Year

Germany will sell a smaller volume of federal debt next year as the government continues to wind down aid earmarked to offset the impact of the Covid-19 pandemic and the energy crisis. The government plans to issue about €440 billion ($481 billion) in debt, according to a statement published Tuesday by the federal finance agency. That compares with a record volume of around €500 billion in 2023. The plan includes sales of bonds worth €248 billion and €165 billion in bills, as well as between €17 billion and €19 billion in green bonds, the agency said.

GERMANY (MNI): Berlin Revote Won't Wipe Out Gov't Majority, Nor Oust Linke From Parl't

Germany's Federal Constitutional Court has ruled that the 2021 federal election must be re-run in 455 districts of the capital, Berlin. The court ruled that, partly due to the hosting of the Berlin marathon on the same day as the federal election, the election was badly managed and must be partially repeated on 11February 2024 for almost one-quarter of Berlin's 2,256 electoral districts.

GERMANY (MNI): Farmers Protests Risk Upending 2024 Budget

The deal brokered between the three parties of the governing federal coalition on the 2024 budget already risks coming apart at the seams amid protests from German farmers that have garnered support from without and within the 'traffic light' coalition. The protests, which saw over 1,700 tractors block the main route to the Brandenburg Gate in Berlin, come as a result of the gov'ts plan to remove subsidies on agricultural diesel.

FRANCE (BBG): French Inflation to Slow to 1.8% in 2025, Central Bank Says

The Bank of France trimmed its forecasts for inflation this year and next as it continues to predict it will ease to the European Central Bank’s 2% target by early 2025. The pace of price increases in the euro area’s second-largest economy will slow to 2.5% on average in 2024 and 1.8% in 2025 after 5.7% this year, the institution said. Its previous forecasts in September were 0.1 percentage points higher for both 2023 and 2024.

GLOBAL (DJ): Maersk Re-Routes Ships From Red Sea via Cape of Good Hope

A.P. Moeller-Maersk said it has re-routed ships from the Red Sea around Africa via the Cape of Good Hope, following attacks on vessels in the region. The company, which on Friday paused all journeys through the Red Sea, said Tuesday that re-routed ships will continue their voyages onward as soon as operationally feasible. It said that as of Monday 20 ships had been paused, half of which were waiting East of Gulf of Aden and the rest South of Suez in the Red Sea, or North of Suez in the Mediterranean Sea.

PBOC (MNI): LPR to Hold as CGB Liquidity Pressures Lenders

MNI (Beijing) China’s reference lending rate will likely remain unchanged in December as elevated wholesale money market rates increase bank financing costs, while strong government debt issuance drains liquidity from the interbank market, analysts and economists told MNI. The loan prime rate (LPR), based on the People’s Bank of China’s medium-term lending facility (MLF) rate and quotes submitted by 18 banks, will likely hold steady at 3.45% for the one-year maturity and 4.2% for the over-five-year tenor on Wednesday.

CHINA/COMMODITIES (BBG): China Posts Record Copper Output But Ore Shortage to Slow Growth

Chinese smelters racked up record copper production last month, although the breakneck pace of growth is likely to slow from here as global supplies of ore start to dwindle. Output of refined metal in November surged 12% year-on-year to 1.14 million tons, according to China’s statistics bureau, leaving the cumulative total for 2023 already well ahead of last year’s figure with a month still to go.

JAPAN (MNI): Japan Govt Tweaks Assessment on Consumer Price Index

Japan’s government tweaked its assessment on the consumer price index for the first time since May 2022, but left its main economic assessment for the second straight month in December, the Cabinet Office said on Tuesday. “Consumer prices have been rising at a moderate tempo recently,” the government said. The previous view held “Consumer prices are rising.” An official at the Cabinet Office told reporters that the rise of core-core CPI, which the government focuses on, has slowed as the rise in food prices marks time. Food price hikes are decelerating and households’ inflation view on future rises is slowing and stabilising, he added.

RBA (MNI): RBA Board Discusses QT, Holds Firm - Minutes

The Reserve Bank of Australia board maintained its stance on the reduction of its legacy government bond portfolio and will continue to hold until maturity, according to the minutes from the December meeting released Tuesday. “This approach recognised, among other considerations, that the Bank’s balance sheet was already set to decline rapidly as loans under the Term Funding Facility matured,” the board noted.

INDIA (BBG): India Hits Out at IMF for Saying Currency Intervention Excessive

India pushed back against the International Monetary Fund for saying the central bank’s intervention in the foreign-exchange market was excessive, implying that the country was trying to influence the level of the rupee. The Washington-based lender said the currency moved within a very narrow range from December 2022 to October 2023, suggesting the central bank’s intervention “likely exceeded levels necessary to address disorderly market conditions.”

ICELAND (The Times): Iceland Eruption Unlikely to Lead to Widespread Disruption

A volcano in Iceland has erupted after weeks of intense seismic activity, wrenching open a two-mile-long crack in the earth and belching out enough lava to fill an Olympic-sized swimming pool every 30 seconds. The scale and strength of the volcanic outflow were greater than scientists had expected. Airline bosses have been planning for weeks for the eruption although the risk of widespread disruption witnessed in April 2010 is extremely minimal.

DATA

EUROZONE DATA (MNI): Final November Y/Y HICP Unchanged From Flash, M/M Revised Down 0.1pp

EZ Final Annual HICP for November confirms the flash estimate at +2.4% Y/Y (vs +2.9% Y/Y prior), although the final M/M was slightly more negative than the initial print, at -0.6% M/M (vs flash: -0.5% M/M). Core inflation printed in line with the flash at +3.6% Y/Y (vs +4.2% Y/Y prior). At a country level: Belgium, Greece, Italy, Cyprus, Portugal, Finland saw flash Y/Y HICP estimates revised down by -0.1ppt, while Ireland's flash was revised up +0.2ppts, with Spain, France, and Malta revised up +0.1ppt.

FOREX: JPY Stutters as Ueda Provides Few Fresh Clues

• The JPY is sliding against all others in G10, prompting USD/JPY to rise back toward the Y145.00 handle and further work against the sharp downtick posted on the Wednesday session last week. The BoJ decision disappointed markets by disclosing few new details on the bank's thinking on an exit from negative interest rate policy. After keeping policy unchanged, the press conference with BoJ's Ueda made no firm signals toward a shift across the first few quarters of 2024, helping bid USD/JPY well off the 200-dma of 142.63.
• Meanwhile, EUR/USD trades just off a fresh session high, with generally healthy volumes if futures activity is anything to go by. EUR/USD's 1.0949 print matches the 50% retracement for the downleg from the Thursday high. Progress through here will be needed before 1.0981 intraday resistance comes into play. US yields likely to play the key role across Tuesday trade, as the backtrack in the USD on the day coincides with a modest retracement for US 10y yields.
• While EUR trading well over the past hour or so, AUD and NZD remain the firmest performers in G10 as the positive equity futures performance and the resolute weakness in the JPY buoy antipodean currencies.
• Despite EUR/USD holding close to the week's best levels, EUR/GBP remains below the equivalent mark, with 0.8647 marking the next nearby upside level.Focus in the coming session turns to the US housing starts and building permits releases, which come alongside the November CPI data from Canada. Central bank speakers include Fed's Barkin, Bostic and Goolsbee.

EGBS: Remain Firmer Following Dovish BoJ; Peripheries Mixed

Core/semi-core EGBs sit firmer this morning as dovish impulses from JGBs continue to feed through.

• Today's BoJ decision saw a lack of commitment to future policy normalisation.
• Elsewhere, the 2024 German funding plan came out broadly in line with expectations while Eurozone November final HICP confirmed flash estimates on the annual print. Neither of those meaningfully impacted markets.
• That leaves Bunds up 51 ticks at 137.25, still below yesterday's high of 137.49. The German cash curve bull flattens with 2s10s down -2.5bps at -49.5.
• Periphery spreads are mixed, with the BTP/Bund spread 1.9bps tighter at 166.4bps and the GGB/Bund spread 2.2bps wider at 114.0bps.
• ECB-speak has continued to push back on current rate cut pricing, with Simkus unsurprisingly weighing in on the hawkish side (re: market rate cut pricing being optimistic). Earlier today, Villeroy presented remarks that may be inferred as slightly less dovish than previously (re: rate cuts only coming after a "plateau" at current levels).
• Despite this, ECB-dated OIS contracts still price over 150bps of cuts through 2024.
• The remainder of today's docket is light.

GILTS: Still a Little Firmer on the Day, But Shy of Best Levels

Gilts initially benefitted from the dovish BoJ outcome (covered elsewhere) and the downtick in crude oil futures seen since yesterday’s UK market close.

• That was before bulls failed to break yesterday’s session high in futures and the latest round of 4.625% Jan-34 gilt supply provided mixed demand metrics (with a particular focus on the soft pricing side), which helped cap the rally.
• That leaves gilt futures running +35 or so around 101.65, ~20 ticks shy of early session highs and just above worst levels of the day.
• Cash gilt yields are ~2.5-3.0bp lower across the curve, with the early flattening bias giving way.
• Domestic headline flow has been relatively limited since the open.
• SONIA futures are flat to +6.0 through the blues, shy of best levels.
• BoE-dated OIS is +1bp to -2bp on the day, with ~116bp of cuts showing through ’24 on the whole.
• Lower tier local data and comments from BoE’s Breeden are due later today.
• A quick reminder that UK CPI data will hit ahead of tomorrow’s market open (expect our full preview of that release later today).

EQUITIES: E-Mini S&P Targets Early-2022 Highs

A bullish theme in Eurostoxx 50 futures remains intact and the latest pullback is considered corrective. Last week’s gains confirm, once again, a resumption of the uptrend and maintain a bullish price sequence of higher highs and higher lows. Moving average studies are in a bull-mode position too, signalling a rising cycle. The focus is on 4636.70, a long-term Fibonacci retracement. Support to watch is at 4488.10, the 20-day EMA. A bullish theme in S&P e-minis remains intact and the contract traded higher Monday. The rally last week confirmed a resumption of the uptrend that started Oct 27. Note too that the contract has cleared resistance at 4738.50, the Jul 27 high, reinforcing current positive trend conditions. This signals scope for a climb towards 4808.25 next, Jan 4 2022 high. On the downside, initial firm support lies at 4659.25, the 20-day EMA.

• Japan's NIKKEI closed higher by 460.41 pts or +1.41% at 33219.39 and the TOPIXended 16.95 pts higher or +0.73% at 2333.81.
  
• Elsewhere, in China the SHANGHAIclosed higher by 1.587 pts or +0.05% at 2932.391 and the HANG SENG ended 124.23 pts lower or -0.75% at 16505.
  
• Across Europe, Germany's DAX trades higher by 44.31 pts or +0.27% at 16694.44, FTSE 100 higher by 15.83 pts or +0.21% at 7630.18, CAC 40 up 3.31 pts or +0.04% at 7571.8 and Euro Stoxx 50up 10.01 pts or +0.22% at 4531.06.
  
• Dow Jones mini up 14 pts or +0.04% at 37692, S&P 500 mini up 3.25 pts or +0.07% at 4796.25, NASDAQ mini up 1.75 pts or +0.01% at 16941.25.

COMMODITIES: Trend in WTI Futures Remains Bearish Despite Latest Bounce

Bearish conditions in WTI futures remain intact and the recent bounce appears to be a correction. Last week’s fresh trend low reinforces a bearish theme and the break of $69.08, Dec 7 low, confirms a resumption of the downtrend. This maintains the price sequence of lower lows and lower highs and note that moving average studies are in a bear-mode position. The focus is on $67.07, the Jun 23 low. Resistance to watch is $76.23, the 50-day EMA. Gold traded sharply higher last Wednesday. This signals a S/T reversal and the end of the recent Dec 4 - 13 corrective pullback. Moving average studies remain in a bull-mode position, highlighting an uptrend. A continuation higher would signal scope for a climb toward key resistance and the Dec 4 all-time high of $2135.4. A break of this level would confirm a resumption of the primary bull trend. Initial firm support lies at $1973.2, the Dec 13 low.

• WTI Crude down $0.31 or -0.43% at $72.12
• Natural Gas down $0.04 or -1.64% at $2.464
• Gold spot down $1.03 or -0.05% at $2026.37
• Copper up $4.05 or +1.05% at $389
• Silver up $0.13 or +0.55% at $23.9393
• Platinum down $4.79 or -0.5% at $946.01