EXECUTIVE SUMMARY
- GAZA CEASEFIRE DEAL AT RISK, ISRAEL SHIFTS FOCUS TO YEMEN
- GERMAN PRESIDENT DISSOLVES PARLIAMENT, CLEARS WAY FOR ELECTIONS ON FEB 23
- SOUTH KOREA IMPEACHES TWO LEADERS IN TWO WEEKS AS CRISIS DEEPENS
- TOKYO CORE CPI RISES 2.4% Y/Y IN DECEMBER; ENERGY COSTS UP
Figure 1: USD/INR rallies to fresh record high, prompting RBI intervention
Source: MNI/Bloomberg
NEWS
SECURITY (MNI): Gaza Ceasefire Deal at Risk, Israel Shifts Focus to Yemen
An emerging agreement between Israel and Hamas to end the war in Gaza is again at risk after Hamas accused Israel of changing the parameters of the deal and Israel claimed Hamas refused to supply a list of surviving hostages. Walla News reports that Israeli Prime Minister Benjamin Netanyahu said, after the Israeli negotiating team returned from talks in Qatar, "it would not be possible to reach a [ceasefire deal] in Gaza without receiving from Hamas a list of the names of the surviving hostages that the organization is willing to release in the first phase of the deal, according to two sources familiar with the details."
GERMANY (MNI): Steinmeier Dissolves Parliament, Clears Way for Elections on Feb 23
German Federal President Frank-Walter Steinmeier has dissolved the Bundestag, clearing the path for new elections on February 23, 2025. The move was expected following the collapse of Chancellor Olaf Scholz’s three-party government in November. Friedrich Merz of the Christian Democrats, currently holding a robust polling lead, is campaigning on a pro-business, anti-immigration platform, proposing significant tax cuts and welfare reform. FT notes that, “Merz’s manifesto has no mention of any change to the debt brake, which remains popular in conservative circles. Instead Merz is seeking €50bn in spending cuts from welfare reform and another €50bn from a shake-up of the immigration system.”
BOJ (MNI): Rate Hike Chance Nearing; Mull Patiently
Bank of Japan board members saw the need to gradually adjust easy policy but they didn’t see the need to rush to raise the policy interest rate at the December 18-19 meeting, the summary of opinions showed on Friday. One member said underlying inflation was picking up but before acting, the BOJ should "monitor the uncertainties over the U.S. economy until those uncertainties subside.”
JAPAN (BBG): Japan Plans Over ¥1 Trillion Rise in Debt Sales Next Fiscal Year
Japan’s Ministry of Finance plans to increase government bond issuance to institutional investors by more than ¥1 trillion ($6.3 billion) in the fiscal year starting April 1, centered on shorter debt. Reflecting investor demand, the issuance amount will be increased mainly in the five-year and shorter maturity segments. The aggregate issuance target is ¥172.3 trillion.
S. KOREA (BBG): South Korea Impeaches Two Leaders in Two Weeks as Crisis Deepens
South Korea’s parliament impeached Acting President Han Duck-soo, dealing another blow to a government already reeling after President Yoon Suk Yeol’s suspension less than two weeks ago for his brief martial law decree. Lawmakers voted 192-0 in favor of Prime Minister Han’s impeachment on Friday, according to National Assembly Speaker Woo Won-shik. He said before the vote that a simple majority in the 300-seat parliament was needed for the motion to pass, instead of the two-thirds required to suspend a president.
MNI CBRT REVIEW - DECEMBER 2024: Easing Starts with 250bp Cut
The CBRT started its easing cycle with a 250bp cut to the one-week repo rate, taking it to 47.5%. In the accompanying policy statement, the central bank transitioned to data dependent guidance, noting that decisions will be made “prudently on a meeting-by-meeting basis” with a particular focus on the inflation outlook. The Bank also narrowed the interest rate corridor to +/-150bps around the policy rate, down from the +/-300bps set in March.
INDIA (MNI): Rupee Hits Fresh Low on Month-End USD Demand, RBI Intervenes
Month-end USD demand by importers and ongoing concerns over India’s widening trade deficit has pressured the rupee to a fresh record low, with USD/INR’s rise of as much as ~0.5% earlier on in the session its steepest since February 2023. Note that gains have since moderated to around 0.2%. Rallying spot has been accompanied by a sharp rise in implied vols, with 1-month vols nearing 4% and currently at its highest levels since August 2023. According to Reuters, the rupee was hurt today by “persistently strong dollar demand” in the NDF market while likely intervention by the RBI capped the currency's losses. Reuters also note that a widening trade deficit and concerns about slowing growth have provided a bearish bias to the INR.
THAILAND (BBG): Thai Government Suffers Setback in Bid to Sway Central Bank
The Thai government’s campaign to pressure the Bank of Thailand to cut interest rates suffered a significant setback, with the Office of the Council of State effectively ruling that the official nominee to be chairman, former finance minister Kittiratt Na-Ranong, is not suitable. Without directly naming Kittiratt, Secretary-General Pakorn Nilprapunt said in a statement that “Mr. K’s” role as an adviser to the prime minister means he is a “person holding a political position” who was appointed for political reasons and is therefore not qualified.
DATA
JAPAN DATA (MNI): Tokyo Dec Core CPI +2.4% Y/Y; Energy Costs Up
The core consumer price index (excluding fresh food) in the Tokyo area, a leading indicator of the national average, registered a 2.4% increase in December, up from the 2.2% growth in November. Energy costs increased 13.5% y/y in December, accelerating from the 7.4% y/y rise last month. Processed food prices rose 4.0% y/y, unchanged from the growth last month. Prices for household durable goods increased 7.3% y/y, lower than the previous 8.8% y/y increase.
JAPAN DATA (MNI): November Retail Sales +2.8% Y/Y
Japanese retail sales rose 2.8% y/y in November, accelerating from the 1.3% y/y growth reported last month. On a monthly basis, retail sales increased 1.8%, compared with the 0.2% decrease in October. General merchandise sales rose 0.9% y/y, improving from the 3.9% y/y decrease last month, while sales of fabric apparels and accessories increasing 10.7%, quickly up from the 0.7% increase registered last month. Sales of food and beverages increased 1.4% y/y, up from last 0.1% y/y decrease.
FOREX: Conviction Lacking, But AUD Still Eyes Cycle Lows
- The greenback is flat headed into the Friday NY open, with markets returning from the festive break to trade in a consolidative fashion - respecting recent ranges amid particularly light volumes.
- Currency futures volumes show activity well below the already-subdued average for this time of day: EUR futures are 12% below, JPY 30% below, GBP 40% below and AUD 25% below what you'd expect to see at point.
- Equity markets across Europe are slightly higher, in contrast with US futures which point to a lower open on Wall Street today. Infitting with softer US stock markets, AUD is poorest spot performer in G10, keeping AUD/USD on course for a test of 0.6199, the cycle low, on any further weakness.
- Global bond markets are seeing slightly more interest, with the US 10y yield opting to reverse almost the entirety of yesterday's decline and rise back above 4.60% - although conviction looks lacking here with market depth likely particularly thin.
- US trade balance data and wholesale inventories releases make up the rest of the quiet schedule.
BONDS: Bearish Technicals Extend, French Political Risks & Energy Prices Weigh
Core global FI markets have sold off this morning, with the continued presence of French political and fiscal risks initially weighing on bonds.
- French PM Bayrou underlined his intention to cut the deficit in a relatively aggressive manner (a tactic that factored into the downfall of the previous government) over the Christmas break.
- Elsewhere, an uptick in energy prices and diminished liquidity will also be factoring in.
- Bearish technical themes develop further.
- Bund futures as low as 132.97 with bears now eying the November 18 low (132.95).
- German yields 4-7bp higher, curve bear steepens.
- EGB spreads to Bunds little changed to 2bp wider, with BTPs leading the widening.
- 10-Year OAT yields above 3.20% for the first time since early November, with the next upside target located at the November 7 high (3.268%).
- 10-Year SPGB/OAT/PGB fly little changed around -45bp, sticking to a 4bp range (based on closing levels) over the last couple of weeks. That compares to cycle closing lows of -55bp.
- Gilts also lower, futures have pierced next support at 91.73.
- UK yields 3.5-7.0bp higher, 5s under the most pressure.
- Early gilt widening vs. Bunds unwound, 10-Year spread last 224bp.
- Lower tier U.S. data (retail inventories and advanced goods trade balance) present the only releases of any note on the data schedule.
EQUITIES: Bull Cycle in Eurostoxx 50 Futures Contract Remains Intact
A bull cycle in the Eurostoxx 50 futures contract remains intact, however, the recent move down highlights a corrective phase and a short-term bear threat remains present - for now. Price has traded through the 50-day EMA, at 4920.51. The Dec 20 initial sell-off resulted in a print below 4846.57, 61.8% of the Nov 21 - Dec 9 bull cycle. This opens 4800.87, the 76.4% retracement. Initial resistance is at 4929.26, the 20-day EMA. A sell-off in the S&P E-Minis contract on Dec 18 highlights a S/T top and a corrective cycle. The move down resulted in a breach of the 20- and 50-day EMAs. A resumption of weakness would open 5811.65, 38.2% of the Aug 5 - Dec 6 bull leg. Support at 5921.00, Nov 19 low, has been pierced. A clear break of it would strengthen a bearish threat. Initial resistance is 6064.86, the 20-day EMA. A clear break of the EMA would be a bullish development.
- Japan's NIKKEI closed higher by 713.1 pts or +1.8% at 40281.16 and the TOPIX ended 34.9 pts higher or +1.26% at 2801.68.
- Elsewhere, in China the SHANGHAI closed higher by 2.066 pts or +0.06% at 3400.142 and the HANG SENG ended 7.83 pts lower or -0.04% at 20090.46.
- Across Europe, Germany's DAX trades higher by 66.05 pts or +0.33% at 19915.36, FTSE 100 higher by 4.31 pts or +0.05% at 8141.26, CAC 40 up 39.21 pts or +0.54% at 7321.79 and Euro Stoxx 50 up 24.27 pts or +0.5% at 4882.01.
- Dow Jones mini down 118 pts or -0.27% at 43586, S&P 500 mini down 20.75 pts or -0.34% at 6074.5, NASDAQ mini down 85 pts or -0.39% at 21922.75.
Time: 09:55 GMT
COMMODITIES: Moving Average Studies for Gold Remain in Bull Mode Position
A bearish threat in WTI futures remains present and recent gains are - for now - considered corrective. A resumption of the bear cycle would open $65.57, the Oct 1 low, and $63.73, 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 $76.41, the Oct 8 high. Initial firm resistance to watch is unchanged at $71.97, the Nov 7 high. Gold traded sharply lower on Dec 18. The move down undermines a recent bullish theme. A resumption of weakness would signal scope for an extension towards the key support at $2536.9, the Nov 14 low. Moving average studies are in a bull mode position highlighting a medium-term uptrend and this suggests that the latest sell-off is likely a correction. Initial pivot resistance is $2640.0, the 20-day EMA. A breach of this EMA would be positive for bulls.
- WTI Crude up $0.18 or +0.26% at $69.8
- Natural Gas up $0.11 or +3.01% at $3.827
- Gold spot down $9.12 or -0.35% at $2624.81
- Copper down $1.2 or -0.29% at $411.5
- Silver down $0.16 or -0.55% at $29.6462
- Platinum down $1.37 or -0.15% at $939.24
Time: 09:55 GMT
| Date | GMT/Local | Impact | Country | Event |
| 27/12/2024 | 1330/0830 | ** |  US | WASDE Weekly Import/Export |
| 27/12/2024 | 1330/0830 | ** | US | Advance Trade, Advance Business Inventories |
| 27/12/2024 | 1530/1030 | ** | US | Natural Gas Stocks |
| 27/12/2024 | 1600/1100 |  CA | Finance Dept monthly Fiscal Monitor (expected) |