MNI US OPEN - De Guindos Reinforces Hawkish Message in Pre-Holiday Markets

NEWS

ECB (MNI): De Guindos Reinforces Hawkish Tone

Following last week's hawkish 50bp hike, Luis de Guindos has this morning indicated that the ECB's efforts to normalise monetary policy have so far not been sufficient and that the ECB will keep raising interest rates until inflation returns to target.

EU (BBG): EU Races for Deal on Gas-Price Cap Before Worst of Winter Hits

EU member states are making a desperate effort to agree on a plan to cap natural gas prices, a measure that has divided governments for months as the region grapples with an unprecedented energy crisis. Energy ministers meeting in Brussels on Monday will discuss a compromise drafted by the Czech government to lower the cap to €188 ($200) per megawatt-hour, compared with €275 proposed by the European Commission last month. It would take effect early next year.

SOUTH AFRICA (MNI): Cyril Ramaphosa Re-Elected as ANC Leader, Increases Margin of Victory

South African President Cyril Ramaphosa was re-elected as party leader by 2,576 votes versus 1,897 garnered by his rival Zweli Mkhize, which removes the risk of his ouster in the wake of the political turmoil caused by the release of the Section 89 panel report.

CHINA PRESS (MNI): Real Estate Risk, Domestic Demand Are Priorities - Han Wenxiu

Defusing real estate market risk and boosting domestic demand are the top priorities following the Central Economic Work Conference (CEWC), according to Han Wenxiu, the Deputy Director of Central Financial and Economic Commission. The CEWC said the foundation for economic recovery remains uncertain, and that policy next year should focus on expanding demand, upgrading to a modern industrial system, supporting SOE and private firms, attracting foreign capital, and preventing major economic and financial risks.

CHINA (MNI): China's Policy Banks Should Help Tackle Hidden Debt

(MNI) Beijing - China's policy banks should support indebted local governments to clear up off-budget lending and convert debt raised for public projects into on-balance sheet debt, a senior policy advisor suggested in the 2022 Jingshan Report issued by China Finance 40 Forum on Saturday.

HONG KONG (BBG): HK’s Lee Set to Discuss Border Reopening in Beijing Visit

Hong Kong Chief Executive John Lee is expected to further discuss the reopening of the border with mainland China during his duty visit to Beijing later this week, South China Morning Post reports, citing unidentified people.

JAPAN (MNI): MNI BoJ Preview: December 2022 - Kuroda Staying the Course, Even as Noise Grows

The BoJ is set to leave all of its major monetary policy settings, including forward guidance, as they are come the end of its December policy meeting. Recent comments from BoJ board member Tamura re: the need for a policy framework review at the “right time,” along with several hawkish source reports have sharpened market focus on a move away from current policy settings.

JAPAN (MNI): BOJ Policy Shift, Joint Statement Hinges on Wages

The Bank of Japan could discuss changes to its easy policy framework as early as June as the government considers revising its joint statement with the central bank on its inflation target, with a mid-year timeframe allowing the new governor time to conduct a policy review and assess wages growth, MNI understands.

DATA

EUROZONE OCT CONSTRUCTION OUTPUT +1.3% M/M, +2.2% Y/Y (MNI)

GERMANY DEC IFO BUSINESS CLIMATE INDEX 88.6 (MNI)
GERMANY DEC DEC CURRENT ASSESSMENT 94.4 (FCST 93.5); NOV 93.2r (MNI)
GERMANY DEC IFO EXPECTATIONS 83.2 (FCST 82.0); NOV 80.2r (MNI)

FX SUMMARY: EUR/USD Slippage Flags Illiquidity of Markets Pre-Holidays

• The greenback is hitting reverse in early Monday trade, slipping against all others in G10. Despite the USD's pullback, Friday's highs in EUR/USD remain intact and provide the first resistance at 1.0663 and the post-ECB highs of 1.0735.
• The beginning of the NY crossover prompted a a small pick up in price action for EUR/USD, which slipped off the session highs of 1.0658 to trim the day's gains to ~40 pips or so. The small pick-up in volumes in currency futures shows how illiquid markets are here: with $512mln cash equivalent changing hands on the slippage, but scant support seen ahead of overnight lows of 1.0582.
• German IFO data came in ahead of expectations, with minor positive revisions to the previous making for a positive release. Expectations for December were 83.2 vs. Exp. 82.0, but the release had little far reaching impact on asset prices.
• GBP trades well alongside SEK, with AUD also posting minor gains. AUD/USD found support at the 0.6667 100-dma last week, and a further bounce targets gains toward 0.6736 initially ahead of the $0.68 handle.
• Focus during US hours turns to NAHB Housing Market figures, as well as the Canadian materials price indices for November. EU leaders also meet, with reports suggesting lawmakers will lower their gas price cap plans, in a further attempt to squeeze revenues for Russia headed into 2023.

BOND SUMMARY: Gilts Remain the Underperformers

• Treasuries and Bunds remain comfortably above Friday's lows with this morning's German IFO a bit stronger than expected, but gilts are the big movers of the day this morning with yields up 11-13bp.
• We noted earlier that we think that these moves are driven by a combination of an FT story about the government agreeing a cap to unit energy prices for businesses through to March 2024 as well as the BOE announcing that long gilts will be sold from its APF starting from late January (the amount is not a surprise, but some had been expecting long gilts to not be sold until Q2).
• This week we will also receive funding plans from Italy (likely today, tomorrow or potentially Wednesday), the EU (there is an investor call scheduled tomorrow) and Greece (who published on 23 December last year) and Finland (who published on 22 December last year). This morning we received the 2023 plans for the EFSF / ESM.
• There will also be continued focus on energy markets with the EU set to discuss the price cap for natgas - although there are signs of warming weather in parts of Europe which are providing a bit of relief to markets this morning.
• TY1 futures are down -0-8+ today at 114-17+ with 10y UST yields up 3.7bp at 3.525% and 2y yields down -0.4bp at 4.177%.
• Bund futures are down -0.17 today at 137.26 with 10y Bund yields up 3.5bp at 2.183% and Schatz yields down -0.3bp at 2.369%.
• Gilt futures are down -0.83 today at 102.75 with 10y yields up 11.5bp at 3.439% and 2y yields up 11.7bp at 3.565%.

EQUITIES: E-Mini S&P Pullback Highlights Vulnerability

EUROSTOXX 50 futures traded sharply lower late last week to extend the pullback from 4043.00, the Dec 13 high. The move down suggests potential for a deeper retracement with sights on the 50-day EMA, at 3798.90. On the upside, key resistance has been defined at 4043.00 where a break is required to resume the recent uptrend. The S&P E-Minis appears vulnerable following last week’s sharp move lower. Thursday’s sell-off reinforced a bearish threat and note that this also highlights the importance of a shooting star candle formation on Dec 13 - a reversal signal. A continuation lower would open 3855.13, a Fibonacci retracement. Key resistance is unchanged at 4180.00, the Dec 13 high, where a break is required to resume the recent uptrend.

• Japan's NIKKEI closed lower by 289.48 pts or -1.05% at 27237.64 and the TOPIX ended 14.8 pts lower or -0.76% at 1935.41.
• Elsewhere, in China the SHANGHAI closed lower by 60.743 pts or -1.92% at 3107.115 and the HANG SENG ended 97.86 pts lower or -0.5% at 19352.81.
• Across Europe, Germany's DAX trades higher by 69.32 pts or +0.5% at 13969.75, FTSE 100 higher by 32.45 pts or +0.44% at 7364.65, CAC 40 up 42.29 pts or +0.66% at 6497.74 and Euro Stoxx 50 up 20.59 pts or +0.54% at 3826.99.
• Dow Jones mini up 109 pts or +0.33% at 33226, S&P 500 mini up 14.75 pts or +0.38% at 3892.75, NASDAQ mini up 47.25 pts or +0.42% at 11390.75.

COMMODITIES: Gold Outlook Bullish Despite Turbulent Price Action Last Week

Trend conditions in WTI futures remain bearish. Recent gains however, have highlighted a bullish corrective cycle and last week this resulted in a test of the 20-day EMA, at $77.07. A clear break of this hurdle would signal scope for an extension and open $80.57, the 50-day EMA. On the downside, a stronger reversal lower would refocus attention on the bear trigger which lies at $70.08, the Dec 9 low. Trend conditions in Gold remain bullish despite Thursday’s sell-off. Pullbacks are considered corrective and key short-term support to watch is $1765.9, Dec 5 low. The yellow metal breached $1810.0 last week, the Dec 5 high, to resume the uptrend. This maintains the positive price sequence of higher highs and higher lows and opens $1842.7, a Fibonacci retracement. On the downside, a break of $1765.9 would signal scope for a deeper pullback.

• WTI Crude up $0.62 or +0.83% at $74.46
• Natural Gas down $0.42 or -6.32% at $6.196
• Gold spot up $4.36 or +0.24% at $1796.55
• Copper up $4.6 or +1.22% at $379.8
• Silver up $0.13 or +0.55% at $23.3407
• Platinum up $13.66 or +1.37% at $1008.19