MNI US OPEN - BOJ Said to See Little Need for Policy Shift Next Week

NEWS

MNI FED PREVIEW - DECEMBER 2023: All Downhill From Here

The FOMC will hold rates in December for a 3rd consecutive meeting and the 4th in the past 5, further cementing expectations that the hiking cycle is over. But while the updated projections will acknowledge scope for cuts in 2024 alongside lower inflation forecasts, the FOMC will likely attempt a modest pushback against the recent loosening of financial conditions. Meaningful changes to the Statement’s tightening bias are unlikely until least one or two more meetings from now, while Chair Powell is likely to warn that the FOMC is proceeding carefully and is prepared to tighten further if required.

US (The Times): Voters Back Donald Trump for 2024 as Support for Joe Biden Hits New Low

Donald Trump would win the presidential election if it took place today, according to a poll that found support for President Biden at a new low. The former president would win in a head-to-head race against Biden, 81, by 47 per cent to 43 per cent. The poll, for The Wall Street Journal (WSJ), shows Trump, 77, pulling away from Biden a month before Republicans begin voting to select their White House candidate. Voters are fed up with the Biden administration, the poll shows. Only 23 per cent of respondents said his policies had improved their lives, and 53 per cent said his agenda had personally left them worse off.

US/UKRAINE (WaPo): Biden Invites Zelensky to Washington Amid Ukraine Funding Fight

President Biden will host Ukrainian President Volodymyr Zelensky at the White House this week, the administration announced Sunday, as Congress looks increasingly unlikely to pass additional funding for Ukraine and as U.S. officials warn that the country will run out of money by the end of the year to fight against Russia's invasion.

US/CHINA (BBG): US Mulls Missile Notification Plans With China, Nikkei Says

The US is weighing a proposal to exchange missile launch notifications with China, Nikkei Asia reported on Monday, citing a senior State Department official it didn’t identify. The senior official said launch notification is one of the concrete measures being considered within the US government as Washington looks to hold arms-control talks with China early next year, according to Nikkei.

BOJ (BBG): BOJ Is Said to See Little Need to End Minus Rate Next Week

Bank of Japan officials see little need to rush into scrapping the world’s last negative interest rate this month as they have yet to see enough evidence of wage growth that would support sustainable inflation, according to people familiar with the matter. That’s an indication the central bank is likely to keep its monetary stimulus settings unchanged at a two-day policy meeting ending Dec. 19, despite recent market speculation that the negative rate may be scrapped as soon as the December meeting. BOJ officials view the potential cost of waiting for more information to confirm solid wage growth as not very high, the people said.

UK (BBG): Tory Hardliners to Gather on Response to Sunak’s Rwanda Bill

The Conservative Party’s euro-skeptic caucus will huddle to weigh up how to handle Rishi Sunak’s Rwanda deportation legislation, as the British prime minister girds for a critical test of his authority over his own party this week. The European Research Group, a bloc of pro-Brexit Members of Parliament, was scheduled to discuss the bill Monday ahead of a preliminary vote slated for the following day, said the group’s head, Mark Francois.

GERMANY (MNI): 2024 Budget Deal Possible This Week - SPD Co-Leader

The co-leader of the governing centre-left Social Democrats (SPD) Saskia Esken stated on 11 Dec that in talks regarding the 2024 federal budget "We have made significant progress", and said to broadcaster ZDF that, "Something will happen now". The tripartite 'traffic light' coalition has engaged in difficult budget talks in recent weeks after a Constitutional Court ruling blew a hole in the state's finances. Major disagreements remain over the imposition of the constitutional debt brake (which restricts the deficit to 0.35% of GDP) in 2024.

JAPAN (MNI): Kishida Prepares to Purge Abe Faction Officials Amid Political Funding Scandal

Local media outlets reported over the weekend that Prime Minister Fumio Kishida was set to replace as many as 15 ministers, parliamentary officials and party executives involved in a slush-fund scandal associated with the so-called Abe faction (also known as Seiwa Policy Research Group, the largest faction in the ruling Liberal Democratic Party). This comes amid allegations that the officials have been receiving kickbacks from fundraising events that were kept off the books.

SOUTH KOREA (BBG): Korea Sees Risks to Financial Firms From Overseas Property

Some South Korean financial institutions may be at risk if bets on overseas property sour, the regulator warned, emphasizing that the likelihood of systemic stress is low. “For companies with large overseas real estate exposures, prudential concerns may emerge individually,” the Financial Services Commission said on Monday. The message comes after the country’s pension funds, insurance companies and asset managers plowed billions of dollars into properties and risky real estate loans across the globe in the run up to the pandemic, leaving them under scrutiny as losses start to pile up.

NEW ZEALAND (BBG): NZ’s Luxon to Take Advice Next Year on RBNZ ‘Medium Term’ Target

Prime Minister Christopher Luxon speaks to reporters Monday in Wellington. Will pass legislation this week under urgency to change the central bank’s mandate to a single objective of price stability “making it crystal clear to the Reserve Bank their number one task is price stability and inflation” Plans to “do some work” in the new year around the question of replacing “medium term” with specific time targets for the RBNZ when it is setting monetary policy.

DATA

NORWAY DATA (MNI): Norway CPI-ATE Lower Than Forecast, Strengthens Case For Hold in Rates

• NORWAY NOV CPI +0.5% M/M, +4.8% Y/Y
• NORWAY NOV CORE CPI -0.2% M/M, +5.8% Y/Y

Norway November CPI came in 0.1ppt lower than consensus on both headline and core (in Y/Y terms), and 0.3ppt below the core projections made in the Norges Bank's September MPR. This should strengthen the case for a hold in rates on Thursday - which is currently the consensus forecast. Headline CPI rose on the month on the back of energy base effects, coming in at +4.8% Y/Y and +0.5% M/M (vs +4.9% Y/Y, +0.7% M/M cons, +4.0% Y/Y, +1.0% M/M prior). Norges Bank forecasted 5.4% Y/Y in the September MPR.

CHINA DATA (MNI): China CPI Drops Fastest in Three Years at -0.5% Y/Y

MNI (Beijing) China's Consumer Price Index fell by 0.5% y/y in November to mark the steepest decline since November 2020, while the Producer Price Index -- a measure of factory-gate inflation -- dropped further to a three-month low, data from the National Bureau of Statistics showed Saturday. The decline in November CPI exceeded the market consensus of -0.2%, compared to the 0.2% decrease in October. Falling energy prices, which dropped by 1.3% from a 1.2% increase in the previous month, were the main driver.

FOREX: JPY Circles Lower as Reports See BoJ NIRP to Hold Next Week

• JPY has circled lower, helping tip USD/JPY back above Y146.00 and further erase last week's pullback on Bloomberg headlines citing sources in saying the BoJ see little need to reverse negative interest rate policy at next week's policy meeting. EUR/JPY's recovery toward 158.73 has confirmed the 154.08 200-dma as solid support, a level which should hold focus as the week progresses.
• The USD Index holds close to last week's highs, making 104.263 a level of focus ahead. The EUR trades well, helping EUR/GBP maintain the recent range, however a sharper recovery off last week's 0.8553 remains to be seen.
• Norwegian CPI data this morning came in to the low side of expectations, further reinforcing calls for the Norges Bank to keep policy rates unchanged this week, despite a soft signal for further tightening at the last rate decision. NOK trades modestly softer, but EUR/NOK has seen little support as oil markets remain off the recent bottom.
• Risk is backloaded this week, with the Fed, ECB and BoE rate decisions set to follow from Wednesday. The NY Fed's 1yr inflation expectation gauge is released during US market hours.

EGBS: Core/Semi-Core a Touch Firmer and Peripheries Wider; ECB Eyed on Thursday

Core/semi-core EGBs see a fairly muted start on Monday, with markets looking ahead to the main domestic and global catalysts later in the week.

• BoJ headlines re: not abandoning negative rates in December prompted an initial knee-jerk upwards in JGB futures but spillover into the EGB space was fairly limited.
• That leaves Bund futures up 0.09 ticks today at 134.77, towards the low-end of Friday's range post US labour market data. OAT futures sit similarly, while German/French yields are seen 1.0 - 2.5bps lower with 2s10s curves bull flattening.
• Peripheries are a touch wider to Bunds, with GGBs the main laggard - the 10-year GGB/Bund spread is 1.2bps wider at 118.0bps.
• Today's docket is very light, with no notable data to flag. Focus remains on the ECB decision on Thursday, where any talk on PEPP reinvestment/pushback on rate cut pricing are the main areas of interest.
• There will also be residual interest on the progress of the EU fiscal rules negotiations, after finance ministers failed to agree a deal on Friday. Headlines re: the 2024 German budget will also be closely watched.

GILTS: Non-Committal Start to the Week

Gilt futures last print -25, just shy of 97.95.

• The contract is ~10 ticks off the top of its ~40 tick range (98.04), after Friday’s low was unchallenged during the early sell off.
• Weakness in Tsys and some modest pressure in UK STIRS seemed to help when it came to the early move lower in gilts, but the space quickly stabilised.
• Gilt yields are 0.5-2.0bp lower on the day, with the front end now outperforming as the curve steepens a touch.
• SONIA futures are 0.5-4.5bp softer through the blues, while BoE-dated OIS is now essentially unchanged through ’24 MPC contracts.
• Local headline flow has generally centred on the potential for BoE pushback against market pricing of rates cuts at this week’s policy meeting (per the title of the latest BBG survey on the matter, potentially filtering into SONIA), a further increase in expectations re: pre-election income tax cuts and the rifts within the ruling Conservative Party.
• Domestically, medium bucket gilt sales from the BoE are due today. Focus will then turn to tomorrow’s labour market report ahead of Thursday’s BoE decision.

EQUITIES: E-Mini S&P Within Close Proximity of Multi-Month Highs

A bullish theme in Eurostoxx 50 futures remains intact and the contract is trading at its recent highs. Resistance at 4387.00, the Nov 24 high, was breached on Nov 30, confirming a resumption of the uptrend and maintaining the price sequence of higher highs and higher lows. MA studies are in a bull-mode position too, signalling a rising cycle. The focus is on 4561.00, a Fibonacci projection. Support to watch is at 4382.20, the 20-day EMA. In S&P e-minis, a bullish theme remains intact and the contract traded higher Friday. Since the October 27 reversal, corrections have been shallow - this is a bullish signal. Note too that moving average studies are in a bull-mode position, highlighting positive market sentiment. A continuation higher would signal scope for a climb towards 4690.75, the Aug 2 high. Initial support lies at 4583.14, the 20-day EMA.

• Japan's NIKKEI closed higher by 483.94 pts or +1.5% at 32791.8 and the TOPIX ended 34.08 pts higher or +1.47% at 2358.55.
• Elsewhere, in China the SHANGHAI closed higher by 21.879 pts or +0.74% at 2991.438 and the HANG SENG ended 132.88 pts lower or -0.81% at 16201.49.
• Across Europe, Germany's DAX trades higher by 8.32 pts or +0.05% at 16766.79, FTSE 100 lower by 21.85 pts or -0.29% at 7538, CAC 40 up 22.56 pts or +0.3% at 7554.18 and Euro Stoxx 50 up 6.91 pts or +0.15% at 4531.62.
• Dow Jones mini up 13 pts or +0.04% at 36295, S&P 500 mini up 1 pts or +0.02% at 4608.5, NASDAQ mini down 11 pts or -0.07% at 16087.75.

COMMODITIES: Gold Close to Recent Lows as Pullback from All-Time High Extends

Bearish conditions in WTI futures remain intact and last Wednesday’s sell-off reinforced this condition. The contract has cleared support at $72.37, the Nov 16 low. The break lower confirms a resumption of the downtrend and note too that moving average studies are in a bear-mode position, highlighting a clear downtrend. Sights are on $67.28 next, the Jun 23 low. Resistance is seen at $74.79, the 20-day EMA. The latest recovery is considered corrective. Gold traded in a volatile manner last week. The trend condition is bullish and last week’s early gains reinforce this theme. The precious metal touched a fresh all-time high of $2135.4 and this signals potential for a climb towards $2177.6 next, a Fibonacci projection. Price has since retraced and is trading at its recent lows. A short-term pullback is considered corrective. The next support to watch is $1978.2, the 50-day EMA.

• WTI Crude down $0.17 or -0.24% at $71.17
• Natural Gas down $0.17 or -6.66% at $2.408
• Gold spot down $12.31 or -0.61% at $1992.89
• Copper down $3.35 or -0.87% at $379.75
• Silver down $0.1 or -0.44% at $22.918
• Platinum up $0.55 or +0.06% at $922.23