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Free AccessMNI US OPEN - Eurozone Flash PMIs Send Stagflation Signals
EXECUTIVE SUMMARY:
- US PUSHES ISRAEL FOR ‘LOWER-INTENSITY OPERATIONS’ IN GAZA
- ECB’S MULLER SAYS MARKET BETS ON FIRST-HALF RATE CUTS PREMATURE
- ECB WILL BE PATIENT BEFORE CUTTING INTEREST RATES, VILLEROY SAYS
- STAGFLATION FEARS GROW FOLLOWING WEAK EUROPEAN FLASH PMIS
- EU FUNDING DECISION PUNTED TO JAN 2024 AFTER HUNGARY VETO
Figure 1: Germany December flash PMI lower-than-expected
NEWS
US/ISRAEL (WPT): U.S. Pushes Israel for ‘Lower-Intensity Operations’ in Gaza
U.S. national security adviser Jake Sullivan on Thursday pushed Israel to shift fighting in Gaza "from what we would call high-intensity operations" to "lower-intensity operations," according to John Kirby, spokesman for the National Security Council, which Sullivan heads. Sullivan is in Israel for two days of meetings with top officials, including Israeli Prime Minister Benjamin Netanyahu, following remarks by President Biden this week warning that "indiscriminate bombing" would diminish Israel's global support.
ECB (BBG): ECB’s Muller Says Market Bets on First-Half Rate Cuts Premature
Markets are getting ahead of themselves in betting that the European Central Bank will start cutting interest rates in the first half of next year, according to Governing Council member Madis Muller. “There is no reason to consider either an additional increase in interest rates or a reduction in interest rates in the near future,” the Estonian central banker said Friday. “Now, above all, it is necessary to patiently wait before the next decisions for clearer signs that the inflation rate in the euro area will indeed fall permanently to 2% within a reasonable period of time,” he said.
ECB (BBG): ECB Will Be Patient Before Cutting Interest Rates, Villeroy Says
The European Central Bank’s next move will be an interest-rate cut, but it will be patient and guided by data rather than markets or specific dates, according to Governing Council member Francois Villeroy de Galhau. “Barring shocks or surprises, rate hikes are over — but that doesn’t mean a quick rate cut,” Villeroy said Friday in an Ecorama radio interview. “We are not guided by a calendar, we are guided by data.”
EU/UKRAINE (MNI): EU Funding Decision Punted to Jan 2024 After Hungary Veto
In an unexpected reversal, the European Council has been unable to come to an agreement on amending the EU's multiannual financial framework (long-term budget, MFF) to allow for the provision of EUR50bn to Ukraine over 2024-27 in grants and loans following a veto from Hungarian PM Viktor Orban. The block was somewhat unexpected, given that the European Commission's unfreezing of EUR10.2bn in cohesion funding earlier in the week was seen as crucial for softening the Hungarian decision. Instead, Orban did not veto the EU's decision to offer to start accession talks with Ukraine (and Moldova), despite vehement opposition to the prospect.
BOE (BBG): Must Continue to Improve Bank Resolution Tools - Ramsden
Bank of England Deputy Governor Dave Ramsden said regulators need to continue improving their toolkit to deal with bank failures after recent collapses, including helping depositors banking with smaller firms. “Given our experience this year we must continue to invest in our toolkit and in places enhance it to ensure we have the optionality we need so that the regime remains credible,” Ramsden said in a speech at Deloitte in London on Friday.
GERMANY (BBG): Bundesbank Sees Shallow Recovery in 2024 With Inflation Receding
The Bundesbank sees the German economy barely growing in 2024 after its contraction this year, according to fresh forecasts published Friday. Sluggish exports are dragging down industry, consumers spending is restrained and higher financing costs are dampening investment, it said. Still, a projection for 2023 output was revised up to show a decline of just 0.1%. “As from the beginning of 2024, the German economy is likely to return to an expansion path and gradually pick up speed,” Bundesbank President Joachim Nagel said in a statement.
MNI SNB REVIEW - DECEMBER 2023: Shifting Into Neutral
The SNB met broad consensus and market expectations by holding rates at 1.75%, but the change in communications around FX policy marked the most notable element of the decision. The SNB omitted the mention of the bias for FX sales, meaning the bank may see the CHF strength as having run far enough, and are more content with a neutral approach ahead. Keeping a balanced tone in the news conference, the bank stated that monetary conditions are currently appropriate – which keeps potential rate cuts at a distance.
CHINA (MNI): China to Pursue Moderate Policy Support in 2024MNI (Beijing) China will implement more moderate and targeted fiscal and monetary policy in 2024 as it aims to maintain GDP at 5%, while limiting risk and cultivating new drivers of high-quality growth, policy advisors told MNI. Authorities will likely set next year’s GDP target, which they will reveal in March, at about 5% – a difficult task considering the high-base effect, said Zong Liang, chief researcher at Bank of China. Policymakers, however, need a high target to boost weak sentiment, he added.
CHINA (MNI): Chinese Authorities Cast Doubt on Deflation
MNI (Beijing) China will not experience deflation as the government expects demand and the economy to improve gradually, according to Li Aihua, spokesperson at the National Bureau of Statistics. Li, speaking at a press conference on Friday, said the economy continued to show improvement in November but faced insufficient demand, overcapacity in some industries and weak social expectations.
BOJ (MNI): Policy on Hold, Wage-Hike Data Incoming
The Bank of Japan board will likely maintain its easy policy settings at the Dec 18-19 meeting, as inflation slows in line with October’s forecast and the board awaits further clarity on the strength of wage hikes in 2024, MNI understands. Some board members remain confident on wage hikes next year, but the majority want to see strong data before removing negative interest rates and adjusting yield curve control. BOJ officials do not want to remove negative interest rates before achievement of the 2% price stability target, while the bank will not end YCC until it is confident it can meet that goal, MNI understands.
ARGENTINA (BBG): Argentina Still Plans to Dollarize, Milei’s Economy Chief Says
President Javier Milei still intends to eventually scrap Argentina’s peso after sharply devaluing the currency as part of an initial round of shock therapy, according to his economy minister. “The objective remains the same — to get to dollarization,” Luis Caputo told LN+ TV in his second straight night-time interview. Caputo, who announced the new government was slashing the value of the peso by more than half late Tuesday, declined to offer a timeline for abandoning the currency altogether but conceded it’s not a near-term goal.
DATA
EUROZONE DATA (MNI): Stagflation Fears at Forefront
- EUROZONE DEC FLASH MANUFACTURING PMI 44.2 (FCST 44.5); NOV 44.2
- EUROZONE DEC FLASH SERVICES PMI 48.1 (FCST 49.0); NOV 48.7
The Eurozone December flash PMI was unsurprisingly weaker than expected, following the German and French prints earlier this morning. Services were 48.1(vs 49.0 cons; 48.7 prior) while manufacturing was 44.2 (vs 44.6 cons; 44.2prior). The release notes that "the rest of the eurozone as a whole recorded amore muted decline by comparison to the falls seen in France and Germany".
GERMAN DATA (MNI): Stagflationary Impulses From December
- GERMANY DEC FLASH MANUFACTURING PMI 43.1 (FCST 43.2); NOV 42.6
- GERMANY DEC FLASH SERVICES PMI 48.4 (FCST 49.9); NOV 49.6
Flash PMI Germany December flash PMI came in notably lower-than-expected on the services component. Services printed at 48.4 (vs 49.8 cons, 49.6 prior), while manufacturing was broadly in line at 43.1 (vs 43.2 cons, 42.6 prior). The manufacturing print was a 7-month high - further evidence that the German industrial sector has bottomed out at very weak levels of activity.
FRANCE DATA (MNI): Flash PMI Weaker Across the Board, Wage Pressures Seen in Services
- FRANCE DEC FLASH MANUFACTURING PMI 42.0 (FCST 43.3); NOV 42.9
- FRANCE DEC FLASH SERVICES PMI 44.3 (FCST 46.0); NOV 45.4
France December flash PMI came in notably softer than expected on both the manufacturing and services components, with EGB futures jumping higher on release. The services component was 44.3 (vs 46.0 cons, 45.4 prior), while manufacturing was 42.0 (vs 43.3 cons; 42.9 prior).
FRANCE NOV HICP -0.2% M/M, +3.9% Y/Y (MNI)
FRANCE NOV CPI -0.2% M/M, +3.5% Y/Y (MNI)
UK DATA (MNI): Dec Flash Services PMI Beats on Better Demand, Manufacturing Still Weak
- UK DEC FLASH MANUFACTURING PMI 46.4 (FCST 47.5); NOV 47.2
- UK DEC FLASH SERVICES PMI 52.7 (FCST 51.0); NOV 50.9
UK December flash PMI readings surprised to the upside overall, with an unexpectedly strong acceleration in the Composite reading to a 6-month high51.7 (51.0 expected, 50.7 prior). That was driven by a jump in Services PMI to 52.7 (51.0 expected, 50.9 prior), helping offset an unexpected dip in Manufacturing PMI to 46.4 (47.5 expected, 47.2 prior), and stood in stark contrast to poor German and French services readings earlier in the session.
SWEDEN (MNI): LFS Unemployment Rate Stable, But Claims Rate Rises Slightly
- SWEDEN NOV UNEMPLOYMENT 7.1%
The Swedish labour force survey SA unemployment rate was stable at 7.9% in November vs. consensus of a slight uptick to 8.0%. This leaves the unemployment rate a touch below the Riksbank's Q4 forecast (8.01%). The press release states that the number of temporary workers fell in November, which will have contributed to the decline in SA work hours, from 153.5mil hours per month to 153.0mil.
CHINA DATA (MNI): China November Retail Sales at Six-Month High
- CHINA NOV RETAIL SALES +10.1% Y/Y VS MEDIAN +12.8% Y/Y
- CHINA JAN-NOV RETAIL SALES +7.2% Y/Y VS JAN-OCT +6.9% Y/Y
MNI (Beijing) China's consumption continued to accelerate to a six-month high in November, with retail sales climbing by 10.1% y/y, from 7.6%, but underperforming expectations for 12.8%, data released by the National Bureau of Statistics on Friday showed. Industrial production rose 6.6% y/y to mark the quickest expansion since June 2021 (8.3%), up from October's 4.6% and beating the 5.8% forecast.
CHINA NOV INDUSTRIAL OUTPUT +6.6% Y/Y VS MEDIAN +5.8% Y/Y (MNI)
CHINA NOV UNEMPLOYMENT RATE +5.0% VS OCT +5.0% (MNI)
CHINA YTD FIXED-ASSET INVESTMENT +2.9% Y/Y VS MEDIAN +3.0% Y/Y (MNI)
RATINGS: Friday’s Slate
Potential sovereign rating reviews of note scheduled for after hours on Friday include:
- Fitch on Hungary (current rating: BBB; Outlook Negative) & Norway (current rating: AAA; Outlook Stable)
- Moody’s on Turkey (current rating: B3; Outlook Stable)
- S&P on Latvia (current rating: A+; Outlook Negative)
FOREX: Risk On Keeps USD in the Red
- The Dollar was mostly mixed in G10 overnight and into the Cash Govie open.
- The Greenback is now in the red across G10s, given the Risk On tone in the US and Yield drifting lower.
- The notable movers have been the EUR and GBP, the EUR which trades in the red following weaker PMIs for France, Germany and the EU.
- While GBP is more on the front foot, after UK PMIs beat consensus.
- Despite the UK data beat, the NOK is the best performer against the Greenback, up 0.43%, and eyeing a test down to 10.4471, Yesterday's low in USDNOK and the lowest print since mid August.
- USDJPY test session low at the time of typing, taking its cue from the pull lower in US Yields.
- Next support for USDJPY will be at 140.97, Yesterday's low and the lowest printed level since the 31st July.
- In terms of notable Option expiries in FX, today sees EURUSD 1.47bn at 1.0950, and USDCAD 2.43bn at 1.3400/1.3430.
- Looking ahead, on the data front, US IP and prelim PMIs are the notable data.
- Speakers include, ECB Centeno, Vasle, Kazimir, Muller, Scicluna, Simkus, Vujcic, Fed Williams and BoC Macklem.
EGBS: Curves Bull Flatten as Weak PMIs Trump ECB Cut Pushback
A weak run of flash December PMIs from France and Germany has helped core/semi-core EGBs firm, outweighing attempted pushbacks on rate cut pricing by ECB Governing Council members following yesterday's meeting.
- Bund futures trade at intraday highs, up 94 ticks today at 137.16 with the Dec 14 high of 137.28 eyed to the upside. OAT futures are similarly 96 ticks higher on the day. Core/semi core cash curves have bull flattened.
- The flash PMIs printed lower than expected, but we note that underlying stagflation risks remain evident as wage pressures fuel inflation in the services sector. The increase of Q3 Eurozone labour costs to 5.3% Y/Y (vs 4.5% in Q2) further highlights this risk.
- ECB sources from Bloomberg reported after hours yesterday that the ECB "was largely united on seeing rate cuts later than market bets". ECB Board members Muller, Nagel and Hozlmann also unsurprisingly weighed in on the hawkish side this morning, citing upside risks to inflation. Comments from Villeroy were more optimistic.
- Peripheries are modestly narrower to Bunds, holding around post-ECB levels (a reminder that spreads tightened as the ECB's announcement on PEPP was less hawkish than some feared). The 10Y BTP yield currently trades close to the lowest levels of the year at 3.698%.
- ECB-speak dominates the remainder of the calendar today, with a raft of speakers at 11:20 GMT. Fed's Williams at 1330GMT may also attract some cross-border interest.
GILTS: Cross-Market Impulses Outweigh Local Data
Cross-market impulses, derived from softer-than-expected European PMI data, have helped underpin gilts, even with domestic PMI data printing firmer-than-expected at the composite level (headline services PMI was firmer-than-expected, while the headline manufacturing PMI was softer-than-consensus).
- Gilt futures last show +35 or so, ~10 ticks off the top of the early 65-tick range.
- Yesterday’s boundaries in the contract remain intact.
- Cash gilt yields are 0.5-5.5bp softer across the curve, with a flattening bias seen all day.
- SONIA futures run -1.0 to +2.0, with a lack of conviction noted thus far.
- BoE-dated OIS seems happy to print ~110bp of cuts for ’24, at least for now, after a foray beyond ~125bp of easing in post-FOMC reaction early on Thursday. Further forward, the strip now prices near 90% odds of a first 25bp cut come the end of the May ’24 MPC. Such a move was fully priced yesterday.
- Local headline flow has been limited outside of the PMIs, with nothing in the way of meaningful comments provided by BoE Deputy Governor Ramsden.
- Lower tier consumer confidence data was not a needle mover, as is usually the case.
- The BoE will announce the APF sales schedule for Q124 at 16:30 today.
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 yesterday. 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 4608.00, the Jun 2007 high and a key resistance. Support to watch is at 4434.40, 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 this week confirms 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 4632.25, the 20-day EMA.
- Japan's NIKKEI closed higher by 284.3 pts or +0.87% at 32970.55 and the TOPIX ended 10.93 pts higher or +0.47% at 2332.28.
- Elsewhere, in China the SHANGHAI closed lower by 16.429 pts or -0.56% at 2942.557 and the HANG SENG ended 390 pts higher or +2.38% at 16792.19.
- Across Europe, Germany's DAX trades higher by 99.01 pts or +0.59% at 16852.13, FTSE 100 higher by 0.58 pts or +0.01% at 7652.09, CAC 40 up 26.14 pts or +0.35% at 7606 and Euro Stoxx 50 up 22.27 pts or +0.49% at 4563.21.
- Dow Jones mini up 122 pts or +0.33% at 37383, S&P 500 mini up 11.75 pts or +0.25% at 4734, NASDAQ mini up 52.5 pts or +0.32% at 16594.25.
COMMODITIES: Bearish Conditions in WTI Futures Intact Despite Most Recent Recovery
Bearish conditions in WTI futures remain intact and Tuesday’s sell-off reinforced this condition. The contract has cleared $68.80, 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 $67.28, Jun 23 low. Gains are considered corrective. Resistance to watch is $73.30, the 20-day EMA. Gold traded sharply higher Wednesday. This signals a short-term 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 up $0.22 or +0.31% at $71.82
- Natural Gas up $0.01 or +0.21% at $2.402
- Gold spot up $5.39 or +0.26% at $2040.58
- Copper down $0 or 0% at $389.75
- Silver up $0.01 or +0.03% at $24.183
- Platinum up $4.28 or +0.45% at $965.22
Date | GMT/Local | Impact | Flag | Country | Event |
15/12/2023 | 1315/0815 | ** | ![]() | CA | CMHC Housing Starts |
15/12/2023 | 1330/0830 | * | ![]() | CA | International Canadian Transaction in Securities |
15/12/2023 | 1330/0830 | ** | ![]() | CA | Wholesale Trade |
15/12/2023 | 1330/0830 | ** | ![]() | US | Empire State Manufacturing Survey |
15/12/2023 | 1415/0915 | *** | ![]() | US | Industrial Production |
15/12/2023 | 1445/0945 | *** | ![]() | US | IHS Markit Manufacturing Index (flash) |
15/12/2023 | 1445/0945 | *** | ![]() | US | S&P Global Services Index (flash) |
15/12/2023 | 1630/1630 | ![]() | UK | BoE announce APF Sales schedule for Q124 | |
15/12/2023 | 1725/1225 | ![]() | CA | BOC Governor Macklem speech/press conference | |
15/12/2023 | 1800/1300 | ** | ![]() | US | Baker Hughes Rig Count Overview - Weekly |
15/12/2023 | 2100/1600 | ** | ![]() | US | TICS |
18/12/2023 | 0900/1000 | *** | ![]() | DE | IFO Business Climate Index |
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 |
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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.