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MNI US OPEN - ECB Outlook Could Change If Balance of Risks Turns Lower


Figure 1: German factory orders miss, but refined measure more stable


ECB (MNI): Too Soon For ECB To Discuss Cuts - Kazaks
Monetary policy transmission across the eurozone is strong and bank lending shows further tightening, but it is too soon to consider rate cuts, Bank of Latvia head and ECB Governing Council member Martins Kazaks told an MNI event on Wednesday. "Inflation is moderating from earlier peaks, reflecting the fading impact of previous upward shocks," Kazaks said, according to the text of prepared remarks. But the ECB still needs to watch out for domestic price pressures, with profit margins still to soften and a clear peak in wage growth yet to be seen, he added.

CANADA: MNI BoC Preview, Dec'23: How Dovish Is The Question
The BoC is almost unanimously seen keeping its policy rate on hold at 5% for the third meeting running. Remarks from Gov. Macklem two weeks ago could heavily dictate the message we receive from the single page statement, including that excess demand is now gone and policy may now be restrictive enough.
Please find the full preview including MNI analysis and summaries from sellside analysts here:

EU/UKRAINE (MNI): Hungary's Fidesz Calls On Orban To Block Ukraine Accession Talks @ EUCO
Hungary's ruling populist Fidesz Party has formally stated that it opposes the prospective opening of EU accession talks with Ukraine, and has submitted a resolution saying as much to the National Assembly. Fidesz states that the European Commission's proposal to open accession talks is not properly prepared, and calls on the gov't of PM Viktor Orban to represent this view in the upcoming 14-15 Dec EUCO summit when it comes to decisions on Ukraine's accession process.

BOJ (MNI): BOJ To Carefully Mull Exit - Dep Gov Himino
The Bank of Japan must carefully consider the timing of any exit to easy policy and monitor the evolution of wages and prices, said BOJ Deputy Governor Ryozo Himino on Wednesday. Achieving the bank’s 2% price stability target in a sustainable and stable fashion will require “walking a fine line in which inflation decreases, but not too far,” he told business leaders in Oita City.

US (The Times): Donald Trump: I’ll only be a dictator on day one if re-elected
Donald Trump has said that he will not become a dictator if re-elected as US president, except “on day one”. Trump was responding to warnings from Democrats — and some Republicans — that American democracy would be under threat if he returned to the White House after the 2024 election. The former president had to be asked twice during a televised town hall event in Iowa to push back on claims that he would abuse power to seek revenge on political opponents if re-elected. “No. No. Other than day one,” he said when asked to deny he would become a “dictator”.

JAPAN (BBG): Japan Regional Banks Asked Ueda to Scrap Negative Interest Rate
Japan’s regional banks called on the Bank of Japan to scrap its negative interest rate when executives met with central bank officials last month, according to people familiar with the matter. Toshiyuki Kumagai, the president of the Second Association of Regional Banks, requested a review of the negative rate policy, according to the people, who asked not to be named. While the association has called for an end to the subzero rate previously, the latest meeting — held on Nov. 16 — comes as the central bank is seeking input for its broad policy review.

EU/CHINA (MNI): China Plans Eurozone EV Production To Avoid Trade War
Beijing will likely offer to move some electric-vehicle production to the European Union as part of a long-term deal to avert a trade war, a key issue ahead of this week's China-EU summit, a Chinese policy advisor and international affairs experts have told MNI. "China is now expecting the EU to impose tariffs," said Qi Yue, deputy director at the international cooperation department at the State-owned Asset Administration Commission of the State Council.

CHINA/COMMODITIES (MNI): Iron Ore Momentum To Stall Without Construction Rebound
Iron ore prices have likely peaked and will require a substantial rebound in steel demand – such as from a turnaround in the construction sector – to rise further, while more government intervention via “window guidance” could also weigh on the market, policy advisors and market analysts told MNI. Iron ore climbed to an eight-month high in November, with the SGX Iron Ore Future Index rising 10.8% over the month, amid expectations of stronger Chinese demand following the State Council's October announcement of an additional CNY1 trillion in treasury bonds and speculation over housing market support.






AUSTRALIA: Aussie GDP Misses Expectations
Australian GDP rose 0.2% in Q3, down from Q2’s 0.4% and below the market’s 0.4% expectation, according to data released by the Australian Bureau of Statistics today. “Government spending and capital investment were the main drivers of GDP growth this quarter,” said Katherine Keenan, head of national accounts. “This was the eighth straight rise in quarterly GDP, but growth has slowed over 2023.”

Measures of productivity, a key focus for the RBA, strengthened over the quarter with GDP per hour worked at 0.9% from Q2’s 1.6% drop and real unit labour costs falling to 1.2% from 2.7% recorded over the prior quarter, however, this improvement was likely driven by a fall in hours worked.

FOREX: AUD GDP Aides Recovery Off Weekly Low

  • Antipodean currencies are outperforming, with AUD among the strongest performers in G10 following the Australian GDP print overnight, which topped expectations at 2.1% Y/Y vs. Exp. 1.9% across Q3 to help partially reverse the early weakness in AUD/USD and put the pair (briefly) back above the 200-dma of 0.6578. NZD/USD exhibited similar price action, with 0.6150 providing a magnet for prices across much of the European morning.
  • The USD Index sits slightly lower on the session, but is still holding solid gains off the late November low. 104.092 marks the next upside level - the weekly high - for the USD Index, but resistance seen stronger into 104.468, the 100-dma for the gauge.
  • The EUR came under light, modest pressure across the morning following missives from ECB's Kazaks who, in a presentation to MNI, stated that should the outlook change and the balance of risks for price stability shift lower, then the outlook on rates at the ECB could change ahead.
  • This leaves AUD, NZD the firmest in G10, while JPY, NOK and USD are the weakest on the session.
  • The Bank of Canada rate decision takes focus going forward, with markets left with little doubt of another hold. The focus for markets will instead be on the extent to which the BoC stress the downside risk to rates across 2024. Our full preview is found here:
  • ADP Employment Change data set for later today will also be eyed for clues ahead of Friday's payrolls release. Consensus currently looks for the US to have added 187k in the month of November - a figure that could be re-assessed if data comes out of line with today's ADP.

EGB SUMMARY: Rally Reverses From Extremes

Core/semi-core EGBs have reversed lower from the best levels of Wednesday's session, with the ongoing rally stalling out somewhat after recent extremes in ECB cut pricing.

  • ECB cut pricing for 2024 hit 150bp in early trade on carryover from Tuesday's dovish Schnabel comments, and ECB's Kazaks sounding more dovish than usual this morning in an MNI event presentation (no need for H1 2024 cuts but if the outlook changed then so too might decisions on rates).
  • A big miss in German factory orders may also have played a role but as MNI noted, "core" orders were solid. Eurozone retail sales came in weak as well (though higher revision to prior).
  • ECB futures fully retreated though, with 2024 cut pricing back to around 143bp. While there was no apparent catalyst to the reversal, the move had arguably extended to extremes for now.
  • Bund futures (continuous contract) had ticked to the highest level since early June but retraced fully over the course of the morning to session lows though still well above Tuesday's open. The German curve sits modestly bear flatter.
  • In tandem, periphery spreads came off early tights, with BTPs now trading wider to Bunds.
  • The calendar is fairly light in Europe for the rest of the session.

Latest levels:

  • Mar Bund futures (RX) down 24 ticks at 134.74 (L: 134.63 / H: 135.18)
  • OAT futures (OA) down 25 ticks at 128.87 (L: 128.77 / H: 129.31)
  • Mar BTP futures (IK) down 29 ticks at 116.29 (L: 116.22 / H: 116.8)
  • Italy / German 10-Yr spread 1bps wider at 175.1bps

GILTS: Holding Softer On The Day

As noted elsewhere, gilts were less willing than European peers re: turning bid in early trade, with the pullback in EGBs and tick away from early London bests in U.S. Tsys, along with supply, then filtering through into UK paper.

  • That leaves futures -35 at typing, printing around 97.75, ~20 ticks above the base of the early ~50 tick range in the contract, which still sits comfortably within the confines of the boundaries witnessed on Tuesday.
  • Cash gilt yields are 2-4bp higher on the day, with the curve bear flattening.
  • 10-Year green gilt supply saw a fairly weak reception, applying modest pressure to the market.
  • BoE FSR headlines weren’t market moving, household resilience and challenging risks were noted.
  • SONIA futures last show flat to 4bp cheaper.
  • BoE-dated OIS is little changed to 4bp firmer on the day. ~79bp of cuts are priced through ’24 on the whole, a little under 10bp off November’s dovish extremes.

EQUITIES: Bullish Theme in E-mini S&P Intact

A bullish theme in S&P e-minis remains intact and last Friday’s push higher was a positive development. The contract is trading closer to its recent highs and so far, corrections have been shallow - a bullish signal. Note too that MA studies are in a bull-mode position. A bullish theme in Eurostoxx 50 futures remains intact and the contract is trading higher this week. Last week, resistance at 4387.00, Nov 24 high, was breached. The break confirms a resumption of the uptrend and maintains the price sequence of higher highs and higher lows.

  • Japan's NIKKEI closed higher by 670.08 pts or +2.04% at 33445.9 and the TOPIX ended 44.51 pts higher or +1.9% at 2387.2.Elsewhere, in China the SHANGHAI closed lower by 3.363 pts or -0.11% at 2968.933 and the HANG SENG ended 135.4 pts higher or +0.83% at 16463.26.
  • Across Europe, Germany's DAX trades higher by 10.59 pts or +0.06% at 16544.13, FTSE 100 higher by 21.39 pts or +0.29% at 7511.47, CAC 40 up 2.27 pts or +0.03% at 7389.48 and Euro Stoxx 50 up 8.21 pts or +0.18% at 4461.11.
  • Dow Jones mini up 20 pts or +0.06% at 36209, S&P 500 mini up 9.25 pts or +0.2% at 4584.25, NASDAQ mini up 48 pts or +0.3% at 15955.5.

COMMODITIES: Gold Remains Bullish Despite Reversal Off Monday High

Gold traded in a volatile manner Monday. The trend condition is bullish and Monday’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. The trend outlook in WTI futures remains bearish and the move lower from last Thursday’s high, reinforces this set-up. Resistance to watch is $79.65, the Nov 14 high. A breach of this hurdle would strengthen any developing bullish threat.

  • WTI Crude down $0.3 or -0.41% at $72.03
  • Natural Gas down $0.01 or -0.48% at $2.693
  • Gold spot up $2.19 or +0.11% at $2021.19
  • Copper up $2.75 or +0.73% at $381.45
  • Silver down $0.05 or -0.23% at $24.0935
  • Platinum down $0.2 or -0.02% at $902.56

06/12/20231000/1100**EU Retail Sales
06/12/20231030/1030UKBOE FPC Summary and Record
06/12/20231200/0700**US MBA Weekly Applications Index
06/12/20231315/0815***US ADP Employment Report
06/12/20231330/0830**CA International Merchandise Trade (Trade Balance)
06/12/20231330/0830**US Trade Balance
06/12/20231330/0830**US Non-Farm Productivity (f)
06/12/20231500/1000***CA Bank of Canada Policy Decision
06/12/20231500/1000*CA Ivey PMI
06/12/20231530/1030**US DOE Weekly Crude Oil Stocks
07/12/20230645/0745**CH Unemployment
07/12/20230700/0800**DE Industrial Production
07/12/20230730/0830EU ECB's Lagarde and Cipollone in Eurogroup meeting
07/12/20230745/0845*FR Foreign Trade
07/12/20230900/1000*IT Industrial Production
07/12/20231000/1100***EU GDP (final)
07/12/20231000/1100*EU Employment
07/12/20231000/1100*IT Retail Sales
07/12/2023-***CN Trade
07/12/20231330/0830***US Jobless Claims
07/12/20231330/0830**US WASDE Weekly Import/Export
07/12/20231330/0830*CA Building Permits
07/12/20231430/1530EU ECB's Elderson at CEPS
07/12/20231500/1000**US Wholesale Trade
07/12/20231530/1030**US Natural Gas Stocks
07/12/20231735/1235CA BOC Deputy Gravelle speech/press conference in Windsor ON.
07/12/20232000/1500*US Consumer Credit
08/12/20232350/0850***JP GDP
MNI London Bureau | +44 203-865-3809 |
MNI London Bureau | +44 203-865-3809 |

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