EXECUTIVE SUMMARY
- EUROZONE FLASH SERVICES PMI REBOUNDS IN DECEMBER
- GERMANY’S OLAF SCHOLZ FACES CONFIDENCE VOTE
- TREASURER APPOINTS NEW RBA MONETARY BOARD MEMBERS
- CHINA NOVEMBER RETAIL SALES UNEXPECTEDLY SLOW
Figure 1: Dec-25 SARON futures cross 100 to hit new highs
Source: MNI/Bloomberg
NEWS
ECB (MNI): ECB May Alter Reaction Function Leg Weights - Lagarde
The change of language in the European Central Bank communication last Thursday and the current uncertainty in the geopolitical environment could change the weight of the ECB’s three reaction function “depending on the nature of shocks,” President Christine Lagarde said in a speech on Monday. If geopolitics increase uncertainty on inflation projections “we will need to draw on other sources of data to make the risk assessment surrounding our baseline outlook more robust," she highlighted as an example, noting that if underlying trends are not impacted, confidence in ECB's forecasts will grow.
GERMANY (MNI): Scholz Gov't to Fall in Confidence Vote ~1600CET
Later today the Bundestag will vote on a confidence motion in the government of Chancellor Olaf Scholz. The vote will be called by the chancellor at around 1300CET (0700ET, 1200GMT), who will then deliver a 25-minute statement outlining his reasons for moving a confidence motion in his administration. This will be followed by two hours of debate among lawmakers, after which a vote will be held. The result is expected to be announced at around 1600CET (1000ET, 1500GMT).
SNB (MNI): Lower Threshold Factor May Cause S/T Gyrations, But Neutral Longer-Term
The Swiss National Bank have further lowered the threshold factor above which banks are paid the full SNB policy rate, down to 20, from 22 previously. This level stood at 25 earlier in 2024. The Bank write that the "basis for calculating the threshold remains unchanged" and that the lower threshold factor "counteracts the increase in thresholds due to the raising of the minimum reserve requirement as of 1 July 2024". As such, the policy move maintains the effectiveness of the transmission mechanism and "has no impact on the current monetary policy stance". While the policy step is a net neutral, the switch may cause some short-term gyrations in money markets. Unusually, this decision did not come alongside last week's policy rate decision - but a standalone tweak released this morning.
CHINA (BBG): Xi Defends Purges as Part of ‘Inevitable’ Internal Party Strife
Chinese President Xi Jinping dismissed internal divisions within the ruling Communist Party as unavoidable, while calling for greater efforts to instill discipline, according to newly disclosed remarks he made at an anti-graft meeting in January. “Changes in the external environment and in the party membership will inevitably lead to various conflicts and problems within the party,” Xi said at the annual huddle of the Central Commission for Discipline Inspection.
CHINA (MNI): China Expected to Achieve 2024 Economic Goals - NBS
MNI (Beijing) Officials expect China to achieve its 2024 economic goals, given major economic indicators have rebounded significantly in the fourth quarter, according to Fu Linghui, spokesperson for the National Bureau of Statistics on Monday. Authorities must work to release consumption drivers and enhance domestic demand, including stabilising employment and incomes, Fu said.
CHINA (MNI): China to Target Consumption Via Special Debt Issue
MNI (Beijing) China will significantly increase funds raised by ultra-long term special treasures to boost consumption next year and focus on improving residents' income through multiple channels, said officials from the Central Financial and Economic Affairs Commission Office. The office, which leads and supervises China’s economic work, said authorities will include more consumer goods within the scope of support and optimise the subsidy distribution process, while the government will drive stable growth in resident income through various means, including increasing fiscal investment in terminal consumption, improving social security levels, and promoting employment for key groups.
RBA (MNI): Treasurer Appoints New RBA Monetary Board Members
Australian Treasurer Jim Chalmer has appointed Australian National University Professor Renee Fry-McKibbin and ex-Bendigo and Adelaide Bank boss Marnie Baker to the Reserve Bank of Australia’s new monetary policy board. Chalmers noted the new board will begin operations after March 1 and appointments will be staggered. The two new appointments will join current external board members Carolyn Hewson, Ian Harper, Iain Ross and Alison Watkins, with Carol Schwartz and Elana Rubin joining the new governance board.
SOUTH KOREA (MNI): Top Court Says Yoon's Impeachment Trial Will Start Dec 27
The Constitutional Court set the date for the first preparatory hearing ahead of President Yoon Suk-yeol impeachment trial for December 27 at 2pm local time, according to a report from Yonhap News Agency. This comes after the National Assembly approved an impeachment motion against Yoon on Saturday. Parliament passed the impeachment motion with a majority of 204-85 with three abstentions and eight invalid ballots and with all lawmakers present at the vote. The decision implies Yoon's immediate suspension and triggers a trial before the Constitutional Court, which will decide whether to unseat or reinstate the President.
BRAZIL (BBG): Lula Says the Only Thing Wrong With Brazil Is High Rates
Brazil’s interest rates are too high, and responsibility for the growing fiscal problems lies with policymakers at the central bank, President Luiz Inacio Lula da Silva said Sunday night in a TV interview. “The only thing wrong with this country is the current interest rate, which is above 12%,” Lula said in an interview with Fantastico. “There’s no explanation, inflation is totally under control. The irresponsibility lies with those who raise the interest rates, not the federal government.”
DATA
EUROZONE DATA (MNI): Output Charge Inflation Accelerates Into Year-End
- EUROZONE DEC FLASH MANUF PMI 45.2 (FCST: 45.3); NOV 45.2
- EUROZONE DEC FLASH SERVICES PMI 51.4 (FCST: 49.5); NOV 49.5
The Eurozone flash December services PMI rebounded to 51.4 (vs 49.5 cons and prior), following higher-than-expected prints in France and Germany this morning. Manufacturing was broadly in line at 45.2 (vs 45.3 cons, 45.2 prior), despite weaker-than-expected data in the two largest economies. The release notes that "output was scaled back amid sustained reductions in new orders. Meanwhile, the pace of job cuts was the fastest in four years as companies responded to a drop in workloads by lowering their staffing levels".
EUROZONE DATA (MNI): Labour Cost Growth Moderates in Q3, Mixed by Country
The eurozone labour cost index rose 4.6% Y/Y in Q3 for reasonable moderation from Q2's 5.2%. The wages component grew at 4.4% in Q3 (4.9% prior), while the "other" component printed 5.2% (5.8% prior). Note that the figures compare to 2.2% Y/Y headline HICP on average in Q3. Across sectors, growth for overall hourly labour costs growth was 4.6% in industry, 5.0% in construction, and 4.5% in services. There were some mixed country readings: Germany saw clearest deceleration, to 4.2% from 6.0% in Q2. In Spain, however, the index rose by 5.0% in Q3 vs 4.0% prior, France came in at 3.0% vs 3.7%, and Italy 5.4% vs 4.2% prior. The overall deceleration should underpin the disinflation narrative in the Eurozone.
GERMAN DATA (MNI): Politics, Weak Economy and Autos Drag on Confidence
- GERMANY DEC FLASH MANUF PMI 42.5 (FCST: 43.1); NOV 43.0
- GERMANY DEC FLASH SERVICES PMI 51.0 (FCST: 49.3); NOV 49.3
The German flash December services PMI moved back into expansionary territory after slipping below 50 in November, exceeding consensus at 51.0 (vs 49.3 cons and prior). Manufacturing activity remains extremely weak though, with the PMI at 42.5 (vs 43.1 cons, 43.0 prior). Falls in orders, employment and sentiment were noted amongst manufacturers.
FRANCE DATA (MNI): Weak Demand Weighs on Sales, Orders and Employment
- FRANCE DEC FLASH MANUF PMI 41.9 (FCST:43.0); NOV 43.1
- FRANCE DEC FLASH SERVICES PMI 48.2 (FCST:46.9); NOV 46.9
The French flash December composite PMI was a little better than expected at 46.7 (vs 46.0 cons, 45.9 prior). However, this masked divergence between services (48.2 vs 46.9 cons and prior) and manufacturing (41.9 vs 43.0 cons, 43.1 prior). This was the weakest manufacturing PMI reading in 55-months.
UK DATA (MNI): PMIs Show Rising Price Pressures But Falling Employment and New Orders
- UK DEC FLASH MANUF PMI 47.3 (FCST: 48.5); NOV 48.0
- UK DEC FLASH SERVICES PMI 51.4 (FCST: 51.0); NOV 50.8
Some similar themes to the EZ PMIs this morning with manufacturing disappointing, services coming in higher than expected but average prices increasing at the fastest pace for nine months, particularly in services. Prices of raw materials and fuel are being cited, but the increase of costs for businesses from the Budget is also being seen as a hugely important factor here.
CHINA DATA (MNI): China Nov Retail Sales Unexpectedly Slow
- CHINA NOV RETAIL SALES +3.0% Y/Y VS MEDIAN +5.0% Y/Y
China's consumption slowed unexpectedly in November despite the "Double 11" online shopping festival, while production and investment performance remained mediocre, data released by the National Bureau of Statistics on Monday showed. Retail sales rose 3.0% y/y in November to hit the lowest level in three months, dropping from October's 4.8% gain and missing the 5.0% forecast. Retail sales grew 3.5% y/y in Jan-Nov, unchanged from the Jan-Oct reading.
CHINA NOV INDUSTRIAL OUTPUT +5.4% Y/Y VS MEDIAN +5.5% Y/Y (MNI)
CHINA NOV UNEMPLOYMENT RATE +5.0% VS OCT +5.0% (MNI)
CHINA YTD FIXED-ASSET INVESTMENT +3.3% Y/Y VS MEDIAN +3.5% Y/Y (MNI)
RATINGS: Moody’s Off-Cycle Downgrade of France Headlined on Friday
Sovereign rating reviews of note released after hours on Friday include:
- Moody's affirmed Finland at Aa1; outlook stable
- Moody's downgraded France to Aa3; outlook stable
- Moody's downgraded Slovakia to A3, outlook stable
- S&P upgraded Cyprus to A-; Outlook Stable
FOREX: GBP Trades Well as Services PMI Could Limit Any MPC Doves
- GBP trades well, rising against all others in G10 on the back of a better-than-expected UK Services PMI print, which tipped GBP/USD to a new daily high at 1.2671. The release showed some similar themes to the EZ PMIs across the morning, with average prices increasing at the fastest pace for nine months, particularly in services.
- Prices of raw materials and fuel were cited, but the increase of costs for businesses from the Budget is also being seen as a hugely important factor and could limit the potential for more dovish dissents at the MPC meeting this week.
- CHF is on the front foot, reflecting the downstep for European equity futures at the open. The EuroStoxx and DAX futures are lower by ~0.3%, but it's France's CAC-40 future that leads losses, off by and 0.7% and dragging on US markets ahead of the open.
- The greenback is mid-range alongside the JPY, while softer oil prices are providing a headwind for oil-tied currencies - and most notably the NOK.
- The US empire manufacturing release, prelim December PMIs and Canadian housing starts data are the Monday highlights. ECB speak is heavy, with appearances from ECB's Wunsch, Escriva and Schnabel still to come.
EGBS: Bund Futures Inch Back Toward Session Highs, But Ranges Tight
Bund futures have inched back towards intraday highs following this morning’s run of flash PMI data and ECB-speakers, trading in a tight 30 tick range.
- Bunds are +5 ticks at 134.69, still 130 ticks below levels seen prior to last week’s ECB decision.
- The Eurozone December flash PMIs were a little mixed, with the manufacturing components seeing renewed weakness but the services components rebounding above November’s levels and consensus estimates. Bund futures have largely shrugged off the increase in inflationary pressures noted in the German and EZ PMIs.
- Meanwhile, ECB President Lagarde delivered a speech explaining the bank’s decision to drop its pledge to keep policy “sufficiently restrictive”. Passages around services inflation screened dovish.
- Vice President de Guindos echoed Lagarde’s sentiment that the trajectory of the ECB’s rate path is clear, while Kazimir struck a somewhat more cautious tone.
- The 10-year OAT/Bund spread is 1bp wider today at 79bps, off earlier highs of ~80.5bps, as markets digest Moody’s off-cycle ratings downgrade late Friday.
- The remainder of today’s focus will be on new French PM Bayrou’s attempts to form a government, and the German no-confidence vote (results expected around 1500GMT/1600CET).
GILTS: Firmer as Global Growth Risks Dominate
Gilts have rallied this morning, with weakness in crude oil, soft retail sales data out of China and further global growth headwinds in the form of the details of the flash PMI data driving the move.
- UK PMI data also provided some inflationary worry, resulting in a knee-jerk, limited hawkish move that faded.
- Futures as high as 94.50, last +13 at 94.45, moving away from Friday’s late low.
- Technically, futures traded sharply lower last week, resulting in a move through support at 95.49, the Dec 4 low, and 95.17, the Nov 28 low.
- A continuation lower would expose key support at 93.40, the Nov 18 low.
- Key resistance and the bull trigger at 96.54, the Dec 3 high. Initial resistance is at 95.16, the 20-day EMA.
- Yields 2-3bp lower, long end outperforms at the margin.
- 10s outperform Bunds by 1bp, spread sticks to multi-week range, last 214bp.
- SONIA futures -0.5 to +3.5.
- BoE-dated OIS shows 0.5bp of easing for Thursday, 20bp of cuts through February, 28bp through March and 78bp through December ’25, little changed to 2.5bp more dovish on the day.
- UK inflation & labour market data will set the tone ahead of Thursday’s BoE decision. Our preview of the data will cross later today, with our BoE preview set to be released tomorrow.
EQUITIES: Bull Cycle in Eurostoxx 50 Futures Remains Intact
A bull cycle in the Eurostoxx 50 futures contract remains intact and price continues to trade closer to its recent highs. The contract has recently breached the 50-day EMA. The clear break of this average strengthens a bullish theme and note that 4961.00, the Nov 6 high, has also been cleared. Sights are on 5015.00 next, the Oct 29 high. Key support is 4699.00, the Nov 19 low. Initial support to watch lies at 4902.90, the 20-day EMA. The S&P E-Minis contract remains bullish and the latest shallow pullback is considered corrective. Recent gains confirm a resumption of the uptrend and signal scope for a continuation near-term. Note that moving average studies are in a bull-mode set-up, highlighting a dominant uptrend and positive market sentiment. A resumption of the trend would open 6194.19, a Fibonacci projection. Initial support to watch lies at 6097.76 the 20-day EMA.
- Japan's NIKKEI closed lower by 12.95 pts or -0.03% at 39457.49 and the TOPIX ended 8.23 pts lower or -0.3% at 2738.33.
- Elsewhere, in China the SHANGHAI closed lower by 5.547 pts or -0.16% at 3386.331 and the HANG SENG ended 175.75 pts lower or -0.88% at 19795.49.
- Across Europe, Germany's DAX trades lower by 58.69 pts or -0.29% at 20347.66, FTSE 100 lower by 18.11 pts or -0.22% at 8281.98, CAC 40 down 43.3 pts or -0.58% at 7366.27 and Euro Stoxx 50 down 14.34 pts or -0.29% at 4953.61.
- Dow Jones mini up 21 pts or +0.05% at 43886, S&P 500 mini up 6.5 pts or +0.11% at 6062, NASDAQ mini up 41.75 pts or +0.19% at 21836.5.
Time: 09:50 GMT
COMMODITIES: Gains in WTI Futures Last Week Considered Corrective, For Now
A bearish threat in WTI futures remains present and last week’s gains are - for now - considered corrective. A resumption of the bear cycle would open $65.74, the Oct 1 low, and $63.90, the Sep 10 low and key support. For bulls, a stronger reversal to the upside would instead refocus attention on the key short-term resistance at $77.04, the Oct 8 high. Initial firm resistance to watch is unchanged at $72.41, the Nov 7 high. Gold has pulled back from its recent highs. Trend signals remain bullish and a move lower is considered corrective. A key short-term resistance at $2721.4, the Nov 25 high, has been pierced and this represents a positive development. A continuation higher would expose key resistance at $2790.1, the Oct 31 high. Clearance of this level would confirm a resumption of the primary uptrend. First key support is $2605.3, the Nov 26 low.
- WTI Crude down $0.69 or -0.97% at $70.62
- Natural Gas down $0.12 or -3.51% at $3.164
- Gold spot up $7.71 or +0.29% at $2656.1
- Copper down $0.3 or -0.07% at $419.65
- Silver up $0.1 or +0.31% at $30.648
- Platinum down $0.87 or -0.09% at $926.19
Time: 09:50 GMT
| Date | GMT/Local | Impact | Country | Event |
| 16/12/2024 | - |  CA | Canada presents fiscal update, time TBD. | |
| 16/12/2024 | 1315/0815 | ** | CA | CMHC Housing Starts |
| 16/12/2024 | 1330/0830 | ** |  US | Empire State Manufacturing Survey |
| 16/12/2024 | 1400/0900 | * | CA | CREA Existing Home Sales |
| 16/12/2024 | 1445/0945 | *** | US | S&P Global Manufacturing Index (Flash) |
| 16/12/2024 | 1445/0945 | *** | US | S&P Global Services Index (flash) |
| 16/12/2024 | 1630/1730 |  EU | ECB's Schnabel speech at CEPR symposium | |
| 16/12/2024 | 1630/1130 | * | US | US Treasury Auction Result for 26 Week Bill |
| 16/12/2024 | 1630/1130 | * | US | US Treasury Auction Result for 13 Week Bill |
| 16/12/2024 | 2020/1520 | CA | BOC Governor Macklem speaks in Vancouver. | |
| 17/12/2024 | - | US | FOMC Meeting / S.E.P. | |
| 17/12/2024 | 0700/0700 | *** |  GB | Labour Market Survey |
| 17/12/2024 | 0900/1000 | *** |  DE | IFO Business Climate Index |
| 17/12/2024 | 1000/1100 | *** | DE | ZEW Current Conditions Index |
| 17/12/2024 | 1000/1100 | *** | DE | ZEW Current Expectations Index |
| 17/12/2024 | 1000/1100 | * | EU | Trade Balance |
| 17/12/2024 | 1000/1000 | ** | GB | Gilt Outright Auction Result |
| 17/12/2024 | 1000/1100 | EU | ECB's Elderson at ECB Banking Supervision conference | |
| 17/12/2024 | 1330/0830 | * | CA | International Canadian Transaction in Securities |
| 17/12/2024 | 1330/0830 | *** | CA | CPI |
| 17/12/2024 | 1330/0830 | *** | US | Retail Sales |
| 17/12/2024 | 1355/0855 | ** | US | Redbook Retail Sales Index |
| 17/12/2024 | 1415/0915 | *** | US | Industrial Production |
| 17/12/2024 | 1500/1000 | * | US | Business Inventories |
| 17/12/2024 | 1500/1000 | ** | US | NAHB Home Builder Index |
| 17/12/2024 | 1630/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 17/12/2024 | 1800/1300 | ** | US | US Treasury Auction Result for 20 Year Bond |