MNI US OPEN - Fed Expected to Maintain Cautious Approach to Policy

NEWS

MNI FED PREVIEW - DECEMBER 2023: All Downhill From Here

The FOMC will hold rates in December for a 3rd consecutive meeting and the 4th in the past 5, further cementing expectations that the hiking cycle is over. But while the updated projections will acknowledge scope for cuts in 2024 alongside lower inflation forecasts, the FOMC will likely attempt a modest pushback against the recent loosening of financial conditions. Meaningful changes to the Statement’s tightening bias are unlikely until least one or two more meetings from now, while Chair Powell is likely to warn that the FOMC is proceeding carefully and is prepared to tighten further if required.

US/UKRAINE (BBG): Zelenskiy’s US Visit Falls Short as Aid for War Still Stalled

Volodymyr Zelenskiy pleaded with US lawmakers to approve $61 billion in aid vital to his war effort but left Washington with no clear commitment that his most important ally will keep up support as his fight against Russia’s invasion drags toward a third year. The Ukrainian president appeared resolute as he spoke alongside Joe Biden, who vowed that the US would come through. But those pledges rang hollow as his proposal for financial support next year remained stalled in Congress for the fourth straight month amid Republican demands the White House compromise on the thorny issue of US border security as part of any deal.

US (BBG): US Sanctions China, Turkey, UAE Firms for Supporting Russia

The US Treasury and State Departments sanctioned more than 250 companies and individuals in China, Turkey and the United Arab Emirates, alleging that their continuing support for Russia has been crucial to sustaining its invasion of Ukraine. The measures take aim at what the US agencies calls Russia’s procurement network, a loose coalition of companies that help keep it supplied with cutting-edge technology and weapons in violation of American sanctions and export controls.

GLOBAL (BBG): COP28 Ends With Deal on Transition Away From Fossil Fuels

The COP28 climate talks in Dubai ended in a deal that saw a commitment to transition away from all fossil fuels for the first time. The president of this year’s UN-sponsored summit, the UAE’s Sultan Al Jaber, brokered an agreement that was strong enough for the US and European Union on the need to dramatically curb fossil fuel use while keeping Saudi Arabia and other oil producers on board.

MNI ECB PREVIEW - DECEMBER 2023: Policy Unchanged in December, But Risks of Communication Surprise

The ECB is unlikely to make any material changes to monetary policy at the December meeting. The sharp fall in inflation and weak economic activity is increasingly at odds with the ECB’s more cautious stance towards policy easing. We would expect the ECB to remain cautious for now with President Lagarde acknowledging the recent improvement in inflation, while stressing that discussion of near-term policy rate cuts are premature. The risk, however, is tilted in the direction of a dovish signal.

MNI BOE PREVIEW - DECEMBER 2023: Same as November?

There is a unanimous expectation amongst sellside economists that the MPC will vote to keep Bank Rate on hold at 5.25% - with market pricing also endorsing this view and pricing a negligible chance of any other outcome. However, this week’s decision still has plenty to watch with the vote split and forward guidance likely to be the most obvious drivers of the initial market reaction. We discuss the main considerations of November's hawkish dissenters as well as whether Dhingra will vote for a cut. On balance (and despite the weak AWE numbers this morning) we still expect a 6-3 vote this week.

UK (The Times): Times Shadow MPC Votes for Interest Rates Hold

The Bank of England should keep interest rates unchanged at a 15-year high of 5.25 per cent for the third meeting in a row on Thursday but also consider reining in investors’ calls for an immediate loosening of monetary policy. That is according to the nine members of The Times shadow monetary policy committee, who voted 7-2 in favour of leaving the UK base rate unchanged.

GERMANY (BBG): Scholz Settles Coalition Divisions With Deal on Revised Budget

Germany’s ruling alliance sealed an agreement on a revised 2024 finance plan, pushing past internal divisions laid bare after a critical funding tool was struck down by the nation’s top court. Following weeks of tensions triggered by last month’s judgment, Chancellor Olaf Scholz, Economy Minister Robert Habeck and Finance Minister Christian Lindner negotiated through the night to finalize a deal on plugging a €17 billion ($18.3 billion) hole in next year’s budget, according to government officials, who asked not to be identified in line with briefing rules.

MNI NORGES BANK PREVIEW - DECEMBER 2023: Enough Room to Wait and See

The Norges Bank’s December meeting outcome is likely the closest call amongst all DM Central Banks reporting this week. After guiding for one additional rate hike in December at the September meeting, the guidance was softened in November and tied explicitly to macroeconomic outcomes.

MNI SNB PREVIEW - DECEMBER 2023: No Imminent Pressure

SNB likely to keep policy unchanged, with the policy rate at 1.75%. Inflation has slipped below 2%, meeting SNB target, but lower inflation expectations should still see inflation creeping higher ahead. Markets likely to focus on FX intervention messaging given recent CHF appreciation.

HUNGARY/UKRAINE (MNI): Orban Restates Opposition to 'Fasttrack' EU Accession for Ukraine

Speaking to the National Assembly, Prime Minister Viktor Orban states that "a fast track accession of Ukraine to the EU does not serve Hungary's interests or the EU's interests." Claims that "Ukraine is very far from meeting conditions for EU membership," and that Ukrainian membership "In the present form goes sharply against Hungarian interests." Says that Hungary is under pressure, but "we will remain the voice of common sense." Comes as European Union leaders are set to meet tomorrow in Brussels for a Council summit focused on getting EUR50bn of aid to Ukraine approved and starting accession talks with Kyiv, two areas Budapest has threatened to veto.

CHINA (MNI): China Has Sufficient Macro Policy Space - Official

MNI (Beijing) China has considerable room for monetary and fiscal policy amid low prices and moderate central government debt levels, the state-run China Central Television reported citing Han Wenxiu, executive deputy director at the Office of the Central Financial and Economic Affairs Commission. China will strengthen macroeconomic control to maintain stability, said Han during an annual conference held by the China Center for International Economic Exchanges on Wednesday.

CHINA (BBG): Country Garden Said to Remit Funds to Fully Repay Yuan Bond

Country Garden Holdings Co.’s representatives told some holders of its 800 million yuan ($111 million) bond with a put option due Wednesday that it has remitted funds to fully repay the note’s principal outstanding and interest, people familiar with the matter said. With the unexpected decision for full repayment, the distressed Chinese developer will avoid what would otherwise be its first default on a local yuan bond.

CHINA/VIETNAM (BBG): Xi Asks Vietnam to Stop Outsider Attempts to ‘Mess Up’ Region

Chinese President Xi Jinping wrapped his first visit to Vietnam in six years by calling on the Southeast Asian country to stop external forces from causing problems in the Asia-Pacific. “Both sides should be alert to and oppose any attempts to mess up Asia-Pacific,” Xi said on Wednesday, in comments likely to be seen as a veiled reference to the US. China’s most-powerful leader since Mao Zedong also called for the two Communist neighbors to strengthen their coordination in international affairs.

JAPAN (MNI): PM Confirms Ministerial Replacements Coming 14 Dec Amid Funding Scandal

PM Fumio Kishida has confirmed that he intends to replace several ministers on Thursday 14 Dec amid a continued scandal regarding funding within the governing Liberal Democratic Party (LDP) and its various factions. Kishida: "We have a strong sense of crisis and will take a unified response to the political funding problems". Kishida: "Japan is at a critical juncture on whether it can emerge from a deflationary-minded economy." Kishida: "Govt' will take policies to help achieve wage growth that exceeds rate of inflation next year."

JAPAN (BBG): Japan Opposition Plans No-Confidence Motion on Cabinet: Yomiuri

Japan’s opposition Constitutional Democratic Party plans to launch a no-confidence motion against Prime Minister Fumio Kishida’s cabinet on Wed., Yomiuri reports citing an unidentified party official. Move comes amid a deepening scandal around political donations.

NEW ZEALAND (MNI): NZ Gov Drops Employment From RBNZ Remit

New Zealand’s Minister of Finance Nicola Willis has amended the Remit for the Reserve Bank of New Zealand’s Monetary Policy Committee, removing the objective to support maximum sustainable employment. “The amendment is consistent with advice the Reserve Bank has given in the past and helps to reiterate our focus on achieving low and stable consumer price inflation,” said Board Chair Professor Neil Quigley.

NEW ZEALAND (MNI): RBNZ Reform to Add Urgency to Inflation Fight

Proposed reforms of the Reserve Bank of New Zealand will lead to greater accountability and add urgency to its fight against inflation, a former governor told MNI. The Reserve’s recent record has seen inflation persist above the 1-3% target for some time while the central bank racked up balance-sheet losses due to its bond-buying programme and "nobody is held accountable,” said Don Brash, governor between 1988-2002.

ARGENTINA (MNI): First Steps of 'Shock' Therapy Detailed by Caputo

Milei's government detailed the first steps of his 'shock' therapy to rejuvenate the Argentine economy, outlining sharp spending cuts and an overhaul of the FX regime - this was broadly as expected. The policy highlights include a ~50% devaluation of the ARS, putting USD/ARS to 800. This will be facilitated by a crawling peg arrangement, meaning the BCRA will allow for 2% devaluation per month. This will remain the 'official' exchange rate, however black market rates have already reached as high as 1,000 in the wake of Milei's election.

DATA

UK DATA (MNI): UK GDP in October Downside Surprise

• UK OCT GDP -0.3% M/M, +0% 3MM, +0.7% 3M Y/Y
• UK OCT SERVICES INDEX -0.2% M/M, +0.1% 3MM
• UK OCT IND PROD -0.8% M/M, +0.3% Y/Y
• UK OCT MANUF OUTPUT -1.1% M/M, +0.8% Y/Y
• UK OCT TRADE BALANCE GBP -4.48BN

UK GDP surprised to the downside in October, as the final quarter of the calendar year got off to a weaker than expected start, data released Wednesday by the Office for National Statistics showed. Monthly GDP declined by 0.3% m/m, leaving it flat on a rolling 3-month basis. Services fell 0.2% m/m. The data was probably a little weaker than expected by the Bank of England, but, in the wider scheme of the recent data, it is unlikely to have much bearing on the outcome of the policy decision later today ahead of Thursday's publication.

EUROZONE OCT IP -0.7% M/M, -6.6% Y/Y (MNI)

CHINA (MNI): China Nov New Loans, TSF Rebound; M2 Further Slows

• CHINA NOV NEW LOANS CNY1.09 TRLN VS MEDIAN CNY1.28 TRLN
• CHINA NOV TSF CNY2.45 TRLN VS MEDIAN CNY2.54 TRLN
• CHINA END-NOV M0 +10.4% Y/Y VS +10.2% Y/Y END-OCT
• CHINA END-NOV M1 +1.3% Y/Y VS +1.9% Y/Y END-OCT
• CHINA END-NOV M2 +10.0% Y/Y VS MEDIAN +10.0%; END-OCT +10.3%

MNI (Beijing) China’s November new yuan loans and aggregate finance both rebounded from recent low points, though slightly missing market expectations, the People's Bank of China data showed Wednesday. Banks extended CNY 1.09 trillion in new yuan loans in November, underperforming the CNY1.28 trillion expectation but marking a sharp rise from October's CNY738.4 billion.

JAPAN DATA (MNI): Key Sentiment, Capex Plans Solid - BOJ Tankan

• BOJ DEC TANKAN LARGE MFG INDEX +12; SEPT +9; MEDIAN +10
• BOJ TANKAN LARGE NON-MFG INDEX +30; SEPT +27; MEDIAN +27
• BOJ TANKAN: BIG FIRM FY23 CAPEX PLANS +13.5%; MEDIAN +12.4%
• BOJ TANKAN: SMALL FIRM FY23 CAPEX PLANS +10.3%; MEDIAN +9.9%

Japanese benchmark business sentiment rose over Q4 for the third straight increase thanks to the recovery of automobile production due to eased supply-side restrictions and despite global economic uncertainty, the Bank of Japan's December Tankan business sentiment survey showed on Wednesday. The diffusion index for sentiment among major manufacturers stood at +12 in December, up from +9 in September – the highest level since March 2022. It is expected to fall to +8 in March in line with its typical pattern.

FOREX: USD Backdrop Improves Ahead of the Fed

• The greenback trades furtively firmer, however the USD Index sits inside the week's range amid more muted trade, as markets tread water ahead of the FOMC rate decision. Markets watch the range of 103.272 - 104.263 - a break of which in either direction will confirm a range breakout and prompt markets to consider the broader trend headed into year-end.
• NZD is among the session's poorest performers, pushing spot briefly through the 200-dma support at 0.6089. Commodities prices are modestly softer and a lower close for China and Hong Kong equity markets will also be adding weight. A firmer break and close below the 200-dma mark will open the next notable downside level at 0.6051, the 38.2% retracement for the Oct - Dec upleg.
• EUR/GBP remains a cross of note, with prices refuting the potential formation of a bear flag after the early December consolidation phase. The cross is higher again early Wednesday, narrowing the gap with both the Dec01 high 0.8635 as well as the 100-dma of 0.8637.
• Focus ahead rests on the Fed decision, at which markets watch for the Fed to maintain a cautious approach to policy. Little material change in guidance is expected, with this week's CPI print unlikely to have shifted phrasing around prices - seen being retained at "inflation remains elevated".

EGBS: Firmer But Underperform Gilts; Peripheries Mixed

Core/semi-core EGBs are firmer on the day but underperform Gilts following the weaker-than-expected run of UK economic activity data this morning.

• That data and a relatively well-received round of 30-Year supply out of the U.S. yesterday leaves Bunds up 33 ticks at 135.41 with the Dec 7 high of 138.81 remaining the first key resistance.
• Eurozone industrial production for October was weaker than expected and prompted a 10 tick selloff in Bund before recovering - the soft data was largely driven by Irish figures.
• Elsewhere, news that the German coalition has reached a deal to end the ongoing budget crisis has seemingly helped to cap rallies in Bunds, although no details released re: the accord are apparent at present. A press conference is expected later today.
• German and French cash curves bull flatten, with yields flat to -4.0bps lower.
• Periphery spreads to Bunds are generally little changed (+/- 1bp on the day), with Italian and Spanish spreads tighter and Greek/Portuguese wider. Italian 3/7-year supply at 1000GMT will have weighed in the run-up to the bidding deadline.
• Today's Fed meeting dominates the broader macro calendar ahead of tomorrow’s ECB decision.

GILTS: Firmer on Data, Slightly Less Worrying Auction Demand Metrics

Gilts remain underpinned, with demand at the latest (smaller-than-previous) 30-year gilt auction fairing a little better than the recent trend witnessed at DMO supply (albeit still not showing particularly strong results).

• This gave fresh impetus after the rally surrounding the softer-than-expected round of domestic economic activity and GDP data ran out of steam.
• Futures have traded back towards, but not matched, early London highs.
• The contract last trades +70, just above of 99.40, 5 ticks shy of best levels, operating within a 55-tick range. Today’s best levels present the initial point of technical interest for bulls.
• Cash gilt yields are 6.5-8.5bp lower on the day. 10-Year gilt yields look below 3.90% on the latest move, registering a fresh multi-month low in the process. Old double top resistance at the round number of 3.80% is now eyed.
• SONIA futures last show -0.25 to +10.5.
• BoE-dated OIS has registered fresh dovish extremes re: end of ’24 rate levels, showing ~97bp of cuts over that window as of typing, while markets continue to eye the June ’24 MPC as the most likely staging post for the first 25bp cut at present (albeit with ~15bp of cuts currently priced through the June ’24 MPC).
• Tomorrow’s BoE decision presents the next meaningful domestic risk event. See our full preview of the event here.

EQUITIES: E-Mini S&P Trading at Fresh Multi-Month High

A bullish theme in Eurostoxx 50 futures remains intact and the contract traded to a fresh trend high Tuesday. 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 4411.50, the 20-day EMA. A bullish theme in S&P e-minis remains intact and the contract has traded to a fresh high this week. The break higher confirms once again a resumption of the uptrend and maintains the bullish price sequence of higher highs and higher lows. Note too that moving average studies are in a bull-mode position, highlighting positive market sentiment. Sights are on 4738.50, the Jul 27 high and a key resistance. Initial support is 4602.23, the 20-day EMA.

• Japan's NIKKEI closed higher by 82.65 pts or +0.25% at 32926.35 and the TOPIX ended 1.76 pts higher or +0.07% at 2354.92.
• Elsewhere, in China the SHANGHAI closed lower by 34.678 pts or -1.15% at 2968.76 and the HANG SENG ended 145.75 pts lower or -0.89% at 16228.75.
• Across Europe, Germany's DAX trades higher by 25.2 pts or +0.15% at 16817.77, FTSE 100 higher by 19.27 pts or +0.26% at 7562.11, CAC 40 up 26.31 pts or +0.35% at 7569.7 and Euro Stoxx 50 up 11.7 pts or +0.26% at 4548.05.
• Dow Jones mini up 53 pts or +0.14% at 36658, S&P 500 mini up 6.5 pts or +0.14% at 4652.5, NASDAQ mini up 30.25 pts or +0.18% at 16391.5.

COMMODITIES: Tuesday's Sell-Off Reinforces Bearish Theme in WTI Futures

Bearish conditions in WTI futures remain intact and Tuesday’s sell-off has reinforced this condition. The contract has cleared $68.80, the Dec 7 low, to confirm a resumption of the downtrend. This maintains the price sequence of lower lows and lower highs and note that moving average studies are in a bear-mode position, highlighting a downtrend. The focus is on $67.28, the Jun 23 low. Key short-term resistance is at $71.96, the Dec 12 high. The latest pullback in Gold is considered corrective and this is allowing an overbought trend condition to unwind. Attention is on $1978.4, the 50-day EMA. It has been pierced. A clear break would signal scope for a deeper retracement. Last week’s early gains reinforce the primary bullish condition. The yellow metal traded to a fresh all-time high of $2135.4 and this signals potential for a climb towards $2177.6 next, a Fibonacci projection.

• WTI Crude down $0.15 or -0.22% at $68.47
• Natural Gas down $0.01 or -0.48% at $2.301
• Gold spot up $2.04 or +0.1% at $1981.73
• Copper down $1.3 or -0.34% at $377.35
• Silver down $0.11 or -0.5% at $22.6612
• Platinum down $2.53 or -0.27% at $929.96