MNI US OPEN: ECB Hawks Maintain Pressure On Bunds

NEWS

GERMANY (MNI): Germany to Escape Severe Downturn - Bundesbank

Germany’s economy will fare better than previously expected, with no severe economic downturn despite the European energy crisis, the Bundesbank said Friday, although still to a greater degree than forecast in June. GDP growth will drop from an estimated 1.8% this year to 0.5% next year, before returning to 1.7% in 2024 and by 1.4% in 2025, the German central bank said in an update on the economy. Inflation is expected to fall to 7.2% next year, 4.1% in 2024 and 2.8% by 2025.

UK (MNI): No 'Green Shoots' Yet for UK Consumer - Gfk

There will be little Christmas cheer for UK household budgets this December, as higher inflation, rising mortgage costs and soaring energy prices all weigh on sentiment, keeping consumer confidence close to the lowest levels in half a century, the head of a leading survey published Friday told MNI. "There are no signs of green shoots yet, they are still some way off," Joe Staton, Gfk's Client Strategy director, said in an interview.

UK (MNI): Labour Win By-Election as Expected, Conservative Vote Share Plummets

As expected, the main opposition centre-left Labour Party comfortably held the Manchester seat of Stretford and Urmston in the 15 December by-election, winning 69.6% of the vote up 9.3% on the 2019 general election. While expectations for the centre-right Conservatives of PM Rishi Sunak were low, the 15.9% of the vote recorded - representing an 11.7% decline from 2019 - will be seen as an extremely poor.

RUSSIA (BBG): Russian Missile Barrage Knocks Out Power to Ukrainian Cities

A salvo of Russian missiles knocked out power to two large cities in Ukraine as President Vladimir Putin’s forces continued their campaign of attacking infrastructure. Rockets slammed into residential areas across Ukraine on Friday, including the capital Kyiv, where Mayor Vitali Klitschko said the water supply had been affected. Kharkiv, the country’s second-largest city, and Poltava suffered blackouts in the ninth barrage since October.

RUSSIA (MNI): Dep FM - Talks w/IAEA On Zaporizhzhia Nuclear Plant May Take Place Soon

Wires carrying comments attributed to Russian Deputy Foreign Minister Sergey Vershinin stating that the Russian government and the International Atomic Energy Agency could soon hold talks in Moscow regarding the Zaporizhzhia nuclear power plant, which is Ukrainian territory annexed by Russia and sits close to the front line of fighting between the two sides.

JAPAN (MNI): Inflation in Focus as Guidance to be Maintained

Bank of Japan board members are focused on upcoming inflation data as consumer prices have risen faster than they forecast in October as companies pass through higher costs, with any revision to the inflation outlook key to a possible change to its easing bias in 2023, MNI understands.

CHINA PRESS (MNI): China to Consider New Measures to Support Real Estate – Vice Premier

China is considering new measures to support the real estate sector, aiming to improve the balance sheets of the industry and boost market expectations and confidence, Xinhua News Agency reported late Thursday citing Vice Premier Liu He. Real estate is a pillar industry of the national economy, and there is enough demand to support its stable development as China's urbanisation is still in a relatively rapid development stage, Liu was cited as saying.

CHINA PRESS (MNI): 5-Year Loan Prime Rate Could Be Cut in December - Securities Daily

The 5-year Loan Prime Rate could be lowered at the December 20th fixing, according to the Securities Daily. The recent lowering of deposit rates by banks, coupled with a cut to the reserve requirement ratio last month, may lead to a lower 5-year LPR, the newspaper said. The 1-year LPR is likely to remain stable this month, given the current corporate loan rate is lower than housing loan rates, and various structural support policy tools have provided abundant liquidity.

DATA

EUROZONE DATA (MNI): Softer PMI Contractions Signal Q4 GDP at -0.2% q/q

EUROZONE DEC FLASH COMP PMI 48.8 (FCST 47.9); NOV 47.8
EUROZONE DEC FLASH MANUF. PMI 47.8 (FCST 47.1); NOV 47.1
EUROZONE DEC FLASH SERVICES PMI 49.1 (FCST 48.5); NOV 48.5

In line with French and German Flash PMIs, the December euro area PMIs saw modest improvements to signal shallower contractions. Manufacturing ticked up0.7pp to 47.8 and services by 0.6 points to 49.1, outpacing expectations of remaining unchanged. The December PMIs, albeit improved, remained in contractive territory, extending the downturn into the sixth consecutive month. Business sentiment improved but remains weak on the back of high inflation, rising interest rates and energy supply concerns.

EUROZONE NOV FINAL HICP -0.1% M/M, +10.1% Y/Y (MNI)

GERMAN DATA (MNI): Improvements in PMIs Signal Shallower Contractions

• GERMANY DEC FLASH COMP. PMI 48.9 (FCST 46.5); NOV 46.3
• GERMANY DEC FLASH MANUF. PMI 47.4 (FCST 46.3); NOV 46.2
• GERMANY DEC FLASH SERVICES PMI 49.0 (FCST 46.3); NOV 46.1

Germany's composite PMI remained contractive for a sixth consecutive month in December, albeit edging closer to breakeven at 48.9. Businesses remained pessimistic, however less so than in November. Sentiment in services edged tentatively back into positive territory. New orders declined at the slowest pace in 4 months yet remain subdued as muted demand conditions persist.

FRANCE DATA (MNI): Supply Issues Ease, Weak Demand Persists in Dec PMIs

• FRANCE DEC FLASH COMP PMI 48.0 (FCST 48.7); NOV 48.7
• FRANCE DEC FLASH MANUF. PMI 48.9 (FCST 48.0); NOV 48.3
• FRANCE DEC FLASH SERVICES PMI 48.1 (FCST 49.0); NOV 49.3

French composite and services PMIs edged down to fresh 22-month lows in December, with the composite index indicating a second month of contractive activity. New orders rate of decline was broadly unchanged from November (the sharpest since Feb '21). Factory output was boosted by improvements in critical inputs supply. Employment increased across services, fell in manufacturing for the first time since Jan '21.

UK DATA (MNI): Nov Data Sees Retail Dragging on Q4 GDP

• UK NOV RETAIL SALES EX AUTO -0.3% (FCST +0.3%); OCT +0.7%r M/M
• UK NOV RETAIL SALES EX AUTO -5.9% Y/Y (FCST -5.8%); -6.4%r Y/Y

UK retail sales fell in November, contracting by 0.3% m/m and by 5.9% y/y. The key downward contribution came predominantly from online retailers, which have experienced falling sales since mid-2021. Auto fuel sales fell -1.7% m/m to 8.7% below Feb 2020 levels, and non-food store sales declined by -0.6% m/m to 1.8% below Feb 2020 levels. Food store sales remained expansionary at +0.9% m/m as consumers stocked up for Christmas in advance.

UK DEC FLASH COMP. PMI 49.0 (FCST 48.0) NOV 48.2 (MNI)
UK DEC FLASH MANUF. PMI 44.7 (FCST 46.5) NOV 46.5 (MNI)
UK DEC FLASH SERVICES PMI 50.0 (FCST 48.5) NOV 48.8 (MNI)
UK DEC GFK CONSUMER CONFIDENCE INDEX -42 (MNI)

SWEDEN NOV UNEMPLOYMENT 6.4% (MNI)

HONG KONG DATA (MNI): Hong Kong's Jobless Rate Falls to 3.7%

MNI (Beijing) - Hong Kong’s seasonally adjusted unemployment rate stood at 3.7% for the September - November period, down 0.1% compared to the August - October period, according to the Census and Statistics Department (C&SD) on Friday.

FX SUMMARY: USD Pares Overnight Losses​

The Dollar was trading in the red overnight and in early European trading, but the Greenback has pared losses given the continued Risk Off tone.

• The USD is now mostly in the green against G10, although the Yen and the Kiwi are still holding gains.
• Looks like the Yen has benefited from safe haven flow, given the collapse in Equities.
• The EUR is mixed despite one of the most Hawkish meeting from the ECB yesterday.
• Market participants are more concerned about faster recession risks as more ECB speakers join Lagarde for more 50bps hike going forward.
• ECB Rehn said that it is likely that Rates will rise by 50bps in February and in March.
• While Rate traders are pricing a 3.35% rate by September.
• Looking ahead, US prelim PMIs are the notable releases as we head into year end.
• ECB Centeno, Knot and Fed Daly are the remaining speakers.

BOND SUMMARY: Europe Still Reeling From Hawkish ECB Signals

The ECB's hawkish messaging continues to sink European core FI, with Bunds underperforming early Friday.

• With ECB hawk commentary this morning (Holzmann, Rehn and others) pushing up the eurozone terminal rate to well above 3%, US instruments are easily outperforming their European counterparts, with only mild bear steepening in Treasuries.
• The German curve has sharply bear steepened, with the UK's bear flattening. Most yields across Europe are up double-digits of basis points.
• Periphery EGBs are underperforming, with 10Y BTPs and GGBs another 12-13bp wider of Bunds.
• Also contributing to the core FI losses were stronger-than-expected if still weak overall Eurozone PMIs (Germany easily beat, France missed). UK Services PMI beat but manufacturing was on the weak side.
• US prelim PMIs are up later, and speaking later today are ECB's Knot and Centeno. SF Fed's Daly is our first scheduled post-FOMC speaker.

Latest levels:

• Mar 10-Yr US futures (TY) down 8/32 at 114-21.5 (L: 114-21 / H: 114-30.5)
• Mar Bund futures (RX) down 153 ticks at 137.12 (L: 137.06 / H: 138.62)
• Mar Gilt futures (G) down 146 ticks at 103.37 (L: 103.35 / H: 104.31)
• Italy / German 10-Yr spread 11.8bps wider at 220.1bps

EQUITIES: Equity Futures Extend Sharp Thursday Pullback

EUROSTOXX 50 futures traded sharply lower Thursday to extend the pullback from Tuesday’s 4037.00 high. The move lower suggests potential for a deeper retracement with sights on the 50-day EMA, at 3794.10. A break of this average would signal scope for a continuation lower. On the upside, key resistance has been defined at 4037.00 where a break is required to resume the recent uptrend. A rally in the S&P E-Minis Tuesday saw price trade above 4142.50, Dec 1 high. However, a strong reversal, resulted in a sharp move lower and price remains below Tuesday high. Thursday’s sell-off has reinforced a bearish threat and note that this also highlights the importance of a shooting star candle formation on Tuesday - a reversal signal. A continuation lower would open 3855.13, a Fibonacci retracement. Key resistance is 4180.00.

• Japan's NIKKEI closed lower by 524.58 pts or -1.87% at 27527.12 and the TOPIX ended 23.69 pts lower or -1.2% at 1950.21.
• Elsewhere, in China the SHANGHAI closed lower by 0.79 pts or -0.02% at 3167.858 and the HANG SENG ended 82.08 pts higher or +0.42% at 19450.67.
• Across Europe, Germany's DAX trades lower by 68.65 pts or -0.49% at 13918.03, FTSE 100 lower by 31.75 pts or -0.43% at 7394.27, CAC 40 down 44.94 pts or -0.69% at 6477.83 and Euro Stoxx 50 down 21.63 pts or -0.56% at 3814.07.
• Dow Jones mini down 234 pts or -0.7% at 32978, S&P 500 mini down 33.75 pts or -0.87% at 3863.25, NASDAQ mini down 106.5 pts or -0.94% at 11240.75.

COMMODITIES: Gold Approaches 1765.9 Key Support Level After Thursday Sell-Off

Trend conditions in WTI futures remain bearish. However, the current bullish corrective cycle remains in play and the contract has traded higher this week. Price has also tested the 20-day EMA, at $77.50. A clear break of this hurdle would signal scope for an extension and open $80.82, the 50-day EMA. On the downside, a reversal lower would refocus attention of 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 earlier this week breached $1810.0, 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 down $1.09 or -1.43% at $75
• Natural Gas down $0.36 or -5.19% at $6.616
• Gold spot up $0.3 or +0.02% at $1777.19
• Copper up $1.4 or +0.37% at $377.4
• Silver down $0.48 or -2.09% at $22.6125
• Platinum down $13.29 or -1.32% at $996.44