MNI US OPEN - Deeper ECB Cuts Eyed On Dovish Schnabel Comments

NEWS

US/UKRAINE (BBG): Ukraine’s Zelenskiy to Address US Senators Tuesday, Schumer Says

Ukraine President Volodymyr Zelenskiy has been asked to speak to a classified meeting of US senators on Tuesday, Senate Majority Leader Chuck Schumer says. Schumer, speaking on the Senate floor, also set up a procedural vote on US President Biden’s $106 billion supplemental funding request that would include money for Ukraine and Israel aid.

US (WaPo): Four GOP Presidential Candidates Qualify for Fourth Primary Debate

Four Republican candidates will take the stage in Tuscaloosa on Wednesday night for the fourth GOP primary debate: former United Nations ambassador Nikki Haley, Florida Gov. Ron DeSantis, former New Jersey governor Chris Christie, and tech entrepreneur Vivek Ramaswamy. Former president Donald Trump will once again skip the event.

ECB (BBG): ECB’s Schnabel Says Inflation Data Makes Rate Hike Unlikely

Another European Central Bank hike in borrowing costs probably won’t happen in light of last week’s consumer-price data, according to Executive Board member Isabel Schnabel. “The most recent inflation number has made a further rate increase rather unlikely,” she said in an interview with Reuters that was transcribed on the ECB’s website. “We have to see what’s going to happen,” she said. “We have been surprised many times in both directions. So, we should be careful in making statements about something that is going to happen in six months’ time.”

ISRAEL (BBG): Qatar Ruler Says Working to Renew Truce in Gaza

Qatar Emir Sheikh Tamim bin Hamad Al Thani says his country “is continuously working on renewing” the truce in Gaza but that a truce “is not an alternative to a permanent cease-fire.” He made his remarks during a speech in Doha as part of the Gulf Corporation Council summit there “We will exert effort to reach a permanent cease-fire”

CHINA (BBG): Moody’s Cuts China Credit Outlook to Negative on Rising Debt

Moody’s Investors Service cut its outlook for Chinese sovereign bonds to negative, underscoring deepening global concerns about the level of debt in the world’s second-largest economy. Moody’s lowered its outlook to negative from stable while retaining a long-term rating of A1 on the nation’s sovereign bonds, according to a statement. China’s usage of fiscal stimulus to support local governments and its spiraling property downturn is posing risks to the nation’s economy, the grader said.

PBOC (MNI): PBOC to Offer More Targeted Tools, Expand Balance Sheet

MNI (Beijing) The People’s Bank of China will expand its balance sheet in 2024 to offer more structural tools targeted at weak and risky sectors such as the property market which it deems crucial to achieve the 5% GDP growth target, policy advisors and economists told MNI. The central bank wants to address structural issues, particularly to help real-estate developers grappling with low liquidity, said Lian Ping, chairman at the China Chief Economist Forum.

BOJ (BBG): BOJ Holds Off on Giving Policy Hints at First Review Workshop

The Bank of Japan held its cards close to its chest at the first workshop for its broad policy review, refraining from giving hints about its future policy direction, according to economists who attended the session. “The BOJ’s workshop was mostly academic, and without signals about an immediate policy change ahead of the December monetary policy meeting,” Morgan Stanley economists Takeshi Yamaguchi and Masayuki Inui wrote in a report about the Monday gathering.

RBA (MNI): Market Downgrades Further Hikes After Hold

The Reserve Bank of Australia board’s decision to hold the cash rate at 4.35% on Tuesday was widely anticipated, but the market response was swift, downgrading implied chances of further hikes in 2024. While Governor Michele Bullock’s accompanying statement was little changed from November, when the RBA snapped a four-month pause with a 25bp hike, Australian dollar overnight index swaps fell 2-8bp across 2024 meetings (See chart). Commonwealth government bonds were also 4-6bp richer, while the Australian dollar fell to 0.6575 from 0.6605 against the U.S. dollar.

RBNZ (MNI): Migrant Demand Poses Rates Risk - RBNZ's Conway

The changed makeup of New Zealand immigration means the demand shock from arrivals now comes with a greater delay, potentially presenting an upside risk to the Official Cash Rate in 2024 if levels continue to increase beyond expectations, the Reserve Bank of New Zealand Chief Economist Paul Conway told MNI. “Traditionally, we thought the demand effects come first and then we get those positive supply effects in the labour market, but because the labour was so tight, we think that's around the other way,” he noted.

RUSSIA (MNI): Putin Boosts Mid East Ties w/Visits to Saudi & UAE; Hosting Iran Pres

Russian President Vladimir Putin is set to engage in some high-level diplomacy with key Middle Eastern players over the coming days as he visits Saudi Arabia and the United Arab Emirates (UAE) on 6 Dec, before hosting Iranian President Ebrahim Raisi on 7 Dec. Interfax has Kremlin spox Dmitri Peskov's comments on the Saudi/UAE visit: “Bilateral relations, of course (will be discussed - IF), exchange of views on the international agenda, on the regional agenda - this, of course, includes the Palestinian-Israeli conflict. But first of all, we are talking about bilateral relations,” Peskov said.

DATA

EUROZONE DATA (MNI): 3-Year Inflation Expectations Remain Stubbornly Above ECB's 2% Target

• ECB 1-YEAR CONSUMER INFLATION EXPECTATIONS 4%
• ECB 3-YEAR CONSUMER INFLATION EXPECTATIONS 2.5%

The ECB's October Consumer Expectations Survey showed fairly flat but still-elevated inflation expectations vs September's Survey, with the mean results suggesting a modest bias to the upside: median 12-months ahead was unchanged at 4.0%/mean 5.6%; median 3-years ahead was also unchanged at 2.5%/mean up 0.1pp to a 7-month high 4.3%.

EUROZONE OCT PPI +0.2% M/M, -9.4% Y/Y (MNI)
EUROZONE NOV FINAL SERVICES PMI 48.7 (FLASH: 48.2); OCT (MNI)

GERMANY NOV FINAL SERVICES PMI 49.6 (FLASH: 48.7); OCT 48.2 (MNI)

FRANCE NOV FINAL SERVICES PMI 45.4 (FLASH: 45.3); OCT 45.2 (MNI)

UK NOV FINAL SERVICES PMI 50.9 (FLASH: 50.5); OCT 49.5 (MNI)
UK BRC NOV BY VALUE SHOP SALES LFL +2.6% YY, TOTAL +2.7% YY (MNI)

ITALY DATA (MNI): Services PMI Above Consensus, Inflation and Employment Components Rise

• ITALY NOV SERVICES PMI 49.5 (FCST: 48.4); OCT 47.7

Italian services PMI for November was above expectations in contrast to its Spanish counterpart, printing at 49.5 (vs 48.3 cons; 47.7 prior). Similar to Spain, both prices and employment components showed firmness against a weakening demand backdrop. Key notes from the release are: "Inflationary pressures regained some momentum in November... hikes in energy, fuel, and raw material prices were said to have driven inflation". This prompted some pass-on "of the inflationary burden on to customers through greater selling prices".

SPAIN DATA (MNI): Services PMI Indicates Further Inflationary Pressure

• SPAIN NOV FINAL SERVICES PMI 51.0 (FCST: 51.5); OCT 51.1

Spanish services PMI for November was slightly below expectations at 51.0 (vs51.5 cons; 51.5 prior), but the details suggest continued inflationary pressure and labour market tightness - albeit against the backdrop of continued economic uncertainty. Key notes from the release are: "Higher typical wage costs were widely reported to have driven up operating expenses in the latest survey period".

JAPAN (MNI): Japan Nov Tokyo Core CPI Rises 2.3% vs. Oct 2.7%

• JAPAN NOV TOKYO CORE CPI +2.3% Y/Y; OCT +2.7%
• JAPAN NOV TOKYO CORE-CORE CPI +3.6% Y/Y; OCT +3.8%

The Tokyo core inflation rate decelerated to 2.3% y/y in November from October's 2.7%, the lowest level since July 2022, weighed down by lower energy and food prices, data from the Ministry of Internal Affairs and Communications showed on Tuesday. Energy prices fell 16.7% y/y in November compared to October's 14.1% drop, while foods prices excluding perishables rose 6.4% versus 7.3% the prior month. Processed food prices, a key Bank of Japan indicator, rose 7.8%, down from October's 8.8%.

FOREX: USD is Paring Gains

• The Dollar was mostly flat against G10 pre EU Cash Govie open, although Yen was up 0.24%, and AUD was the worst performer following the Dovish RBA.
• Some of the early extension lower in Equities supported the Dollar during the Early morning European session.
• The Dollar saw Further broader highs on the back of Risk Off, versus EUR, AUD, PLN, CAD, NOK, CZK, SEK, GBP, CNH, HKD, ILS, ZAR.
• EURUSD tested the support noted at 1.0804, printed a 1.0804 low.
• There's 2.64bn worth of Option expiry at 1.0800/1.0830 in EURUSD for today.
• The bounce off the low in Equities, has helped the Dollar paring its gains and is now flat against the Yen, SEK, EUR, GBP, NOK, CHF.
• AUD is still the worst performer at typing, but off its lows versus the Dollar.
• The Yen is still the best performer against the Aussie but off its best level after AUDJPY found support at the 96.50 mark, did print a 96.47 low.
• AUDJPY has now lost some 150 pips from Monday's high, and next support will be seen at 96.04.
• The Kiwi is the second worst performer, down 0.32% but within past ranges.
• Looking ahead sees, US JOLTS, and ISM services on the data front.

EGBS: ECB Schnabel's Dovish Comments Prompt Core/Semi-Core Firming; Peripheries Tighten

Core/semi-core EGBs are off intraday highs but remain firmer on the back of dovish-leaning comments from ECB Board member Schnabel before the European cash open.

• Schnabel noted that “the most recent inflation number has made a further rate increase rather unlikely”, which reads dovishly given her typically hawkish leanings. For more, see MNI Fixed Income Bullets @06:49 AM GMT.
• Drivers for the move away from firmest levels include the uptick in Brent futures and firm pricing components in the November round of Eurozone services PMIs. 1/3-Year ECB consumer inflation expectations were also seen unchanged at 4.0% and 2.5% Y/Y respectively.
• The Dec '23 Bund contract currently sits 0.35 ticks higher on the day at 133.80, off highs of 134.17.
• Yields on German cash benchmarks trade 4-5bps lower on the day, with the impending Schatz auction weighing at the short-end. OAT yields are similarly 4-5bps lower.
• Peripheries are seen tighter to Bunds, led by Italy, despite Schnabel re-upping Lagarde's comments that PEPP reinvestments would be discussed in the "not-too-distant future".
• The remainder of the European docket is light, with main focus on ISM services and JOLTS data out of the US this afternoon.

GILTS: Off Best Levels But Still Firmer on the Day

Gilts have continued to drift away from early session highs, with impulses from the firmer than expected UK & Eurozone PMIs, as well as weak pricing at the latest I/L gilt offering from the DMO, factoring in. Firmer than expected (but steady) short-term inflation expectations in the ECB consumer inflation expectations survey were also noted.

• Gilt futures last show +25 or so at 96.83, ~5 ticks off lows, sticking to a relatively contained 50-tick range thus far.
• Cash gilt yields are 2.5-4.5bp lower, with the wings still lagging.
• A quick reminder that cross-market spill over from the dovish commentary via ECB’s Schnabel provided the early London bid.
• Overnight local data (BRC sales and Citi/YouGov inflation expectations survey) had little to no tangible impact at the open, although the uptick in longer term expectations in the Citi YouGov survey may have factored into the move away from best levels.
• SONIA futures are now flat to 4.5bp firmer on the session, with the front of the reds still outperforming on the day.
• BoE-dated OIS is little changed to ~6bp softer on the day through ’24 MPC contracts. 75bp of total cuts is currently priced for ’24 on the whole.

EQUITIES: Eurostoxx 50 Futures Trading Close to its Recent Highs

A bullish theme in Eurostoxx 50 futures remains intact. The contract traded higher last week and breached 4387.00, the Nov 24 high. The break confirms a resumption of the uptrend and maintains the bullish price sequence of higher highs and higher lows. Note that moving average studies are in a bull-mode position signalling a rising cycle. The focus is on 4446.00, the Aug 10 high. Initial firm support to watch is at 4328.20, the 20-day EMA. A bullish theme in S&P e-minis remains intact and last Friday’s push higher is a positive development. The contract is trading closer to its recent highs and so far, corrections have been shallow. Note too that moving average studies are in a bull-mode position and this highlights positive market sentiment. A resumption of gains would signal scope for a climb towards 4690.75, the Aug 2 high. Initial support lies at 4596.86, the 20-day EMA.

• Japan's NIKKEI closed lower by 455.45 pts or -1.37% at 32775.82 and the TOPIX ended 19.96 pts lower or -0.84% at 2342.69.
• Elsewhere, in China the SHANGHAI closed lower by 50.618 pts or -1.67% at 2972.296 and the HANG SENG ended 318.19 pts lower or -1.91% at 16327.86.
• Across Europe, Germany's DAX trades higher by 44.71 pts or +0.27% at 16445.48, FTSE 100 lower by 13.88 pts or -0.18% at 7497.87, CAC 40 up 28.94 pts or +0.39% at 7359.06 and Euro Stoxx 50 up 16.31 pts or +0.37% at 4429.88.
• Dow Jones mini down 30 pts or -0.08% at 36236, S&P 500 mini down 9 pts or -0.2% at 4567, NASDAQ mini down 65.25 pts or -0.41% at 15803.25.

COMMODITIES: Monday's Initial Gains Reinforce Bullish Theme in Gold, Despite Correction Lower

The trend outlook in WTI futures is unchanged, it remains bearish and the move lower from last Thursday’s high, reinforces this set-up. Resistance to watch is at $79.65, the Nov 14 high. A breach of this hurdle would strengthen any developing bullish threat and open $83.20, the Nov 3 high. On the downside, sights are on the bear trigger at $72.37, the Nov 16 low. Clearance of this level would confirm a resumption of the downtrend. Gold traded in a volatile manner Monday. The trend condition is bullish and yesterday’s initial gains reinforce this theme. The precious metal touched a fresh all-time high of $2135.39 and this signals potential for a climb towards 2177.58 next, a Fibonacci projection. Price has since retraced and is trading closer to this week’s low, so far. A short-term pullback is considered corrective - for now. Initial support is $2004.1, the 20-day EMA.

• WTI Crude up $0.64 or +0.88% at $73.71
• Natural Gas up $0.01 or +0.45% at $2.709
• Gold spot down $0.19 or -0.01% at $2029.14
• Copper down $3.9 or -1.02% at $379.7
• Silver down $0.03 or -0.12% at $24.4608
• Platinum down $4.33 or -0.47% at $917.14