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Free AccessMNI US OPEN - ECB/Fed Rate Cut Pushback Continues
EXECUTIVE SUMMARY:
- FED’S GOOLSBEE SAYS TOO EARLY TO DECLARE VICTORY OVER INFLATION
- ECB’S VASLE SAYS RATE CUT BETS PREMATURE, MARKETS HAVE EASED TOO MUCH
- MNI BOJ PREVIEW - STATUS QUO ACROSS POLICY PARAMETERS
- KISHIDA’S SUPPORT TANKS AFTER REPLACING SCANDAL-HIT CABINET
Figure 1: IFO Setback In December Suggests Economic Rebound Not Imminent
NEWS
FED (BBG): Fed’s Goolsbee Says Too Early to Declare Victory Over Inflation
Federal Reserve Bank of Chicago President Austan Goolsbee said it’s too early to declare victory in the central bank’s inflation fight, and decisions on interest-rate cuts will be based on incoming economic data. “We’ve made a lot of progress in 2023, but I still caution everyone, it’s not done,” Goolsbee said Sunday in an interview on CBS’s Face the Nation. “And so the data is going to drive what’s going to happen to rates.”
ECB (RTRS): ECB Rate Cut Bets Premature, Markets Have Eased Too Much - Vasle
The European Central Bank will need at least until spring before it can reassess its policy outlook and market expectations for an interest rate cut in March or April are premature, ECB policymaker Bostjan Vasle said on Monday."Market expectations for interest rates cuts are premature in my view, both with regard to the start of cuts and the totality of moves," Vasle told Reuters. "The market pricing has lowered the level of restriction and this recent accommodation priced into interest rates is inconsistent with the stance appropriate to return inflation to target," said Vasle, who is considered among the more conservative members of the ECB's rate-setting Governing Council.
BOE (MNI): Broadbent's Speech Points to High Bar to Cuts; But Does Note AWE Still Important
The overarching message of Broadbent's speech is consistent with other recent MPC communication - that even if things appear to be improving, there is a high bar in order to act and loosen policy. However, it is worth noting as well that he notes that despite looking at a wide data set, it is still AWE that the BOE pays most attention to for wages. "I should be clear that the MPC still puts most weight on the AWE series. And it's evident from all of them that pay growth - and with it other indicators of domestic inflation like the services component of the CPI - has been significantly faster than the sorts of rates that, over time, one might think of as consistent with the 2% inflation target."
MNI BOJ PREVIEW - DECEMBER 2023: Status Quo Across Policy Parameters
Our analysis aligns with the prevailing consensus, which once again foresees the BoJ keeping all key targets and YCC parameters unchanged. Despite previous surprises in July and October, coupled with December last year, indications suggest a different outcome this time. The likelihood of the BoJ terminating its negative interest rate policy (NIRP) without prior adjustments to forward guidance appears low. Ending NIRP, the first step toward a rate hike in 17 years, would necessitate a substantial overhaul of the existing policy framework. We anticipate that any revisions to forward guidance would likely coincide with the publication of an Outlook Report.
CHINA (MNI): China's Renewed PPPs to Lift Investment, Curb Debt Risks
MNI (Beijing) China’s refreshed public-private partnership (PPP) regime will help stem the flow of falling private investment in 2024 by encouraging more active private-sector ownership of user-paid infrastructure and utilities, while curbing the growth of local government implicit debts, policy advisors and market analysts told MNI. Private investment, which accounts for more than half of overall financing, fell 0.5% y/y in 2023’s first 11 months, but many expect that trend to reverse next year as policy kicks in and the real-estate sector stabilises.
CHINA/RUSSIA (BBG): Russia’s Mishustin to Meet With China’s Xi Jinping, Li Qiang
Russian Prime Minister Mikhail Mishustin will visit China Dec. 19-20, Russian government says on Telegram. Mishustin will meet with Chinese President Xi Jinping and Prime Minister Li Qiang
JAPAN (BBG): Kishida’s Support Tanks After Replacing Scandal-Hit Cabinet
Support for Japanese Prime Minister Fumio Kishida fell to fresh lows in polls taken after he reshuffled his cabinet to contain a funding scandal that threatens the future of his government. A survey by the Mainichi Shimbun Dec. 16-17 found approval of his cabinet slumped by 5 percentage points from last month to 16%, the lowest since he took office in October 2021. His disapproval rate rose to 79%, the highest since the newspaper started conducting such polls more than seven decades ago.
N. KOREA (BBG): North Korea Fires ICBM as It Criticizes US-S.Korea Nuclear Talks
North Korea fired an intercontinental ballistic missile toward waters off its east coast in a defiant show of force after criticizing the US and South Korea for holding talks on containing Pyongyang’s atomic ambitions. The missile was fired from an area near Pyongyang on Monday, flying about 6,000 kilometers (3,730 miles) into space before splashing down more than 70 minutes later west of Japan’s main northern island of Hokkaido at about 9:37 a.m. local time, according to data from Japanese and South Korean authorities.
DATA
GERMAN DATA (MNI): IFO Setback In December Suggests Economic Rebound Not Imminent
- GERMANY DEC IFO CURRENT ASSESSMENT INDEX 88.5 (FCST 89.5)
- GERMANY DEC IFO BUSINESS CLIMATE INDEX 86.4 (FCST 87.9)
- GERMANY DEC IFO EXPECTATIONS 84.3 (FCST 85.6); NOV 85.1
The December ifo business climate index came in weaker than expected at 86.4 vs 87.7 (consensus) and 87.2 (prior, revised from 87.3). The index thus failed to repeat its small gain in November, having previously fallen for 5 consecutive months. The downside vs consensus was driven by both a miss in the current assessment (88.5 vs 89.5 cons, 89.4 prior) as well as expectations (84.3 vs 85.6 cons, 85.1 prior, revised from 85.2).
RATINGS: Affirmations on Friday
Sovereign rating reviews of note from after hours on Friday include:
- Fitch affirmed Hungary at BBB; Outlook Negative
- Fitch affirmed Norway at AAA; Outlook Stable
- S&P affirmed Latvia A+; Outlook Negative
FOREX: Yen Underperforms
- The Dollar started the overnight session in the red, and some some early continuation into the European open, with Global Yields leaning in the red, near multi months.
- NZD and AUD were the early best performer, but have now been joined by the SEK, the 2nd best performer in G10 against the Dollar.
- NZDUSD targeted immediate resistance of 0.6249, the December high and the highest print since 27th July, managed a 0.6251 high, but has lacked momentum, and has now pulled back to 0.6230.
- EURSEK targets the immediate support of 11.1622, the June low and the lowest printed level since March, now trading at 11.1786 at the time of typing.
- The yen has seen broader selling this morning against the USD, GBP, EUR and the AUD, and is the worst early performer against the USD, down 0.41%, as market participants await the BoJ decision tomorrow, although widely expected unchanged.
- Looking ahead, there's no notable data, and focus will be on speakers, today includes, ECB Vujcic, Wunsch, Schnabel, Lane, Fed Goolsbee.
EGBS: Broadly Flat as IFO and ECB-Speak Fail to Move Needle
Core/semi-core EGBs are flat to a touch firmer this morning, underperforming UK counterparts.
- Bunds are up 8 ticks at 137.41, with initial resistance of 137.57 still around 10 ticks away from today's high. A slightly weaker than expected IFO print will have provided some background support, though came in the wake of a soft flash PMI release last Friday.
- ECB-speak this morning and over the weekend has for the most part attempted to push back on current rate cut pricing. Slovenian CB Governor Vasle stressed the importance of Q1 2024 data on the policy path today, after fellow hawks Nagel and Wunsch (alongside a Reuters sources piece) provided similar communique late Friday/over the weekend.
- Meanwhile, Bank of Portugal's Centeno told MNI that talks on rate cut criteria and timing could be entertained at the next ECB meeting in January.
- German and French cash yields are slightly lower on the day.
- Periphery spreads are generally tighter to Bunds, with the BTP/Bund spread 1.4bps narrower and trading within recent ranges at 169.2bps.
- The remainder of today's data calendar is light (tomorrow sees the November final HICP release), with further ECB-speak eyed - highlighted by Executive Board members Schnabel and Lane.
GILTS: Curve a Little Flatter, Futures Off Bests
Gilt futures last show +50, just above 101.65, ~20 ticks off session highs.
- A break of best levels would expose the 11 May high on a continuation chart (101.98), with the technical uptrend in the contract remaining intact.
- Cash gilt yields are 2.0-3.5bp lower, with a flattening bias maintained after Friday’s BoE APF sales schedule announcement.
- Gilts looked to post-London open moves in Bunds for some additional support.
- Also note that Goldman Sachs marked down their gilt yield calls through the end of ’24 late on Friday.
- Elsewhere, light dovish moves on the BoE-dated OIS strip have been seen.
- SONIA futures are -0.25 to +6.0 through the blues, with some light twist flattening observed.
- BoE-dated OIS shows 0.5-4bp softer through ’24 MPC meetings. ~21bp of cuts is now priced through the May ’24 MPC, while ~117bp of cuts is showing through calendar ’24.
- Initial comments from BoE Deputy Governor Broadbent haven’t meaningfully moved the needle, as he underscored the need for a clearer move lower in wage growth, while stressing that uncertainty delays the BoE’s reaction function.
EQUITIES: E-Mini S&P Continues to Trade Close to its Recent Highs
A bullish theme in Eurostoxx 50 futures remains intact and the contract traded to a fresh trend high last week. This confirms, once again, a resumption of the uptrend and maintains 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 4636.7, a long-term Fibonacci retracement. Support to watch is at 4480.80, the 20-day EMA. A bullish theme in S&P e-minis remains intact and the contract is trading closer to its recent highs. 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 4800.00 next. On the downside, initial firm support lies at 4645.17, the 20-day EMA.
- Japan's NIKKEI closed lower by 211.57 pts or -0.64% at 32758.98 and the TOPIX ended 15.42 pts lower or -0.66% at 2316.86.
- Elsewhere, in China the SHANGHAI closed lower by 11.753 pts or -0.4% at 2930.804 and the HANG SENG ended 162.96 pts lower or -0.97% at 16629.23.
- Across Europe, Germany's DAX trades lower by 19.25 pts or -0.11% at 16733.16, FTSE 100 higher by 35.59 pts or +0.47% at 7611.5, CAC 40 down 22.45 pts or -0.3% at 7574.48 and Euro Stoxx 50 down 10.91 pts or -0.24% at 4538.59.
- Dow Jones mini up 73 pts or +0.19% at 37737, S&P 500 mini up 12.25 pts or +0.26% at 4780.5, NASDAQ mini up 25.5 pts or +0.15% at 16846.75.
COMMODITIES: Last Week's Gains Signal Short-Term Reversal in Gold
Bearish conditions in WTI futures remain intact and last Tuesday’s sell-off reinforced this condition. The contract has cleared $69.08, Dec 7 low, to confirm a resumption of the downtrend. This maintains the price sequence of lower lows and lower highs and note that MA studies are in a bear-mode position, highlighting a downtrend. The focus is on $67.07, Jun 23 low. Gains are considered corrective. Resistance to watch is $73.27, the 20-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 $0.05 or -0.07% at $71.38
- Natural Gas up $0.05 or +1.93% at $2.54
- Gold spot up $3.2 or +0.16% at $2023
- Copper down $1.75 or -0.45% at $387.45
- Silver up $0.15 or +0.65% at $24.0166
- Platinum up $7.82 or +0.83% at $951.95
Date | GMT/Local | Impact | Flag | Country | Event |
18/12/2023 | 1030/1030 | ![]() | UK | BOE's Broadbent speech at London Business School | |
18/12/2023 | 1330/1430 | ![]() | EU | ECB Schnabel Lectures On EU Fiscal Policy And Governance | |
18/12/2023 | 1500/1000 | ** | ![]() | US | NAHB Home Builder Index |
18/12/2023 | 1500/1600 | ![]() | EU | ECB Lane Chairs Panel on EMU Reforms | |
18/12/2023 | 1630/1130 | * | ![]() | US | US Treasury Auction Result for 13 Week Bill |
18/12/2023 | 1630/1130 | * | ![]() | US | US Treasury Auction Result for 26 Week Bill |
19/12/2023 | 0300/1200 | *** | ![]() | JP | BOJ policy announcement |
19/12/2023 | 0900/1000 | ![]() | EU | ECB Elderson Statement On Banking Risks and Priorities | |
19/12/2023 | 1000/1100 | *** | ![]() | EU | HICP (f) |
19/12/2023 | 1000/1000 | ** | ![]() | UK | Gilt Outright Auction Result |
19/12/2023 | 1300/1300 | ![]() | UK | BOE Breeden Speech At IIF Policy Series | |
19/12/2023 | 1330/0830 | *** | ![]() | CA | CPI |
19/12/2023 | 1330/0830 | * | ![]() | CA | Industrial Product and Raw Material Price Index |
19/12/2023 | 1330/0830 | *** | ![]() | US | Housing Starts |
19/12/2023 | 1355/0855 | ** | ![]() | US | Redbook Retail Sales Index |
19/12/2023 | 1630/1130 | * | ![]() | US | US Treasury Auction Result for Cash Management Bill |
19/12/2023 | 1730/1230 | ![]() | US | Atlanta Fed's Raphael Bostic | |
20/12/2023 | 2350/0850 | ** | ![]() | JP | Trade |
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.