MNI US OPEN - JPY Surges as Ueda Hints as Policy Challenges

NEWS

EU (BBG): France, Germany Divided as Time Running Out for EU Fiscal Revamp
France and Germany are divided on a key plank of new European debt rules that would determine how much countries with large budget gaps can invest, French Finance Minister Bruno Le Maire said. Speaking ahead of a meeting with his European Union peers in Brussels, Le Maire said his country has made significant concessions to its neighbor in intense negotiations — notably on the pace of debt reduction — but that the deal is only 90% there.

GERMANY (MNI): MoM German Insolvency Dip Seen As Temporary - IWH
Fewer German partnerships and corporations went bust in November than in October, the latest think tank figures show, although the number is up significantly compared with the same time last year, with the slight decline in insolvencies not thought to suggest a change in the outlook.

JAPAN (MNI): BOJ To Face Further Policy Challenges - Ueda
Bank of Japan Governor Kazuo Ueda said on Thursday the BOJ's monetary policy will face further challenges from year-end to the beginning of next year when the wage outlook becomes clearer. He told lawmakers the BOJ will continue to explain and manage monetary policy appropriately without elaborating further. “Sustainable and stable achievement of the 2% price target is not yet envisaged with sufficient certainty and it is important that a virtuous cycle between wages and prices to strengthen.”

CHINA (MNI): New Drivers Fail To Offset China's Slowdown
China's expansionary macro policy has proved less effective in boosting the economy and have not offset the economy's slowdown compared to traditional growth drivers, which have faded, said Wang Yiming, a member of the PBOC monetary policy committee during Global Wealth Management Forum on Thursday.

MNI RBI Preview - Dec 2023: On Hold, Policy Stance & Financial Stability In Focus

• We expect the RBI to remain on hold at tomorrow's policy meeting and maintain a 'withdrawal of accommodation' stance. This is in line with the consensus.
• The central bank is likely to remain wary of inflation risks, while growth is resilient/firm enough not to warrant a near term shift to neutral or an easing bias.
• Focus is likely to rest on financial stability and broader liquidity issues, particularly in light of recent concerns around lending activity.

DATA

MNI: EUROZONE Q3 GDP -0.1% Q/Q, +0% Y/Y

**MNI: ITALY OCT IP -0.2% M/M, -1.1% Y/Y

MNI: GERMANY OCT IND PROD -0.4% M/M

MNI: SWISS NOV UNEMPLOYMENT +4.8% M/M, +7.3% Y/Y
**SWISS NOV UNEMPLOYMENT RATE +2.1%

China November Exports Shows First Up in 7 Mths
China's exports rose 0.5% y/y in November, up from October's 6.4% y/y fall, the first increase in seven months, beating the consensus of a 0.3% y/y decrease, data released by Customs on Thursday showed.

Exports in the first 11 months of 2023 totalled USD3.1 trillion. ASEAN countries -- accounting for 15.1% of total exports -- decreased by 5.5% y/y over the Jan-Nov period while those to the EU and the U.S. decreased 11.0% and 13.8% y/y.

EGB SUMMARY: Core/semi-core EGBs Recover From Intraday Lows; Peripheries Widen

Core/semi-core EGBs have moved away from Asia-Pac inspired lows to trade a touch firmer on the day.

• BoJ communique re: exiting negative rates, alongside a weak 30Y auction were the main overnight impetus, pressuring Bund and OAT futures in early European trade.
• The move away from worst levels was aided by weaker-than-expected German industrial production data.
• That leaves Bund futures up 0.31 ticks today at 135.67, with the technical setup still implying a firmer short-term tone. The German cash curve is seen bull steepening, with 2s10s up 1.5bps today at -39.4bps.
• Supply from Spain and France may have weighed on the EGB space ahead of the respective bidding deadlines, though the OAT curve still outperforms German counterparts other than at the 2Y tenor.
• Periphery spreads are a touch wider as European equities remain under pressure - the 10-Yr BTP/Bund spread is 1.1bps wider at 174.5bps.
• Final readings of Eurozone Q3 GDP and employment were broadly in line with prior readings, though most interest will come from the underlying components (hours worked, productivity etc.).
• The ECB quiet period ahead of next week's meeting should come into effect today, leaving current pricing to be dictated by data/headline flow until then. Comments in an interview from BdF's Villeroy after hours did not push back on current cut pricing (he noted that "the question of a reduction may arise in 2024, but not now").

GILTS: Off Early Lows But Still Cheaper On The Day, Offshore Matters Dominate Thus Far

Gilts have worked away from opening lows, although have got nowhere near filling the gap lower, last showing 20 ticks or so shy of the top of the ~40 tick range near 98.45, down 30 to 35 ticks on the day.

• Cash gilt yields are 3.5-4.5bp higher on the day, with a light steepening bias seen.
• Yesterday’s yield lows/highs in futures present the obvious targets if rallies develop further.
• Note that 30- & 50-Year yields managed to close below their respective 200-DMAs for the first time since late '21/early ’22 on Wednesday.
• Offshore matters have been in the driving seat thus far, with JGB weakness (on BoJ communication/speculation and a poorly received round of long end supply) at least partially countered by the impulses drawn from a softer-than-expected round of German industrial production data.
• Local headline flow (BCC report, Halifax house prices) hasn’t been market moving, given its lower tier nature.
• SONIA futures sit flat to 4bp softer through the reds, while BoE-dated OIS contracts are little changed to 3bp firmer through 24 MPCs. The space has moved off hawkish session extremes as gilts tick away from worst levels.

FOREX: JPY Surge Triggered by Cumulative BoJ Effect

• JPY has surged, comfortably outperforming all others in G10 to put USD/JPY through Y145.00 on the downside for the first time since early September. The move was triggered by the cumulative effect of appearances from BoJ's Himono and Ueda, both of which strongly suggested that the BoJ are already considering how to exit NIRP once economic conditions justifying a policy switch are met. A poorly received longer-end JGB auction added to the JPY impetus.
• USD/JPY's weakness through Y145.00 opens Y144.45 as the next intraday downside level, and a broader retrenchment would open 142.85, marking the 61.8% retracement for the July - November upleg.
• The greenback is the poorest performer, sliding against all others and tipping the USD Index off yesterday's highs. This snaps the winning streak for the USD that extended to six sessions.
• Weekly jobless claims data and the final October wholesale inventories/sales numbers are the calendar highlights, while the central bank speaker slate is quieter given the proximity to the ECB, Fed meetings due next week. BoC's Gravelle is set to present the Economic Progress Report at 1750GMT/1250ET.

EQUITIES: Bullish Equity Theme Intact Through Consolidation Phase

A bullish theme in S&P e-minis remains intact and the contract is trading closer to its recent highs. So far, corrections have been shallow - a bullish signal. Note too that moving average studies are in a bull-mode position and this highlights positive market sentiment. 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 lower by 587.59 pts or -1.76% at 32858.31 and the TOPIX ended 27.29 pts lower or -1.14% at 2359.91.
  
• Elsewhere, in China the SHANGHAI closed lower by 2.727 pts or -0.09% at 2966.206 and the HANG SENG ended 117.37 pts lower or -0.71% at 16345.89.
  
• Across Europe, Germany's DAX trades lower by 28.76 pts or -0.17% at 16626.87, FTSE 100 lower by 21.48 pts or -0.29% at 7494.06, CAC 40 down 10.78 pts or -0.15% at 7425.24 and Euro Stoxx 50 down 8.26 pts or -0.18% at 4475.07.
  
• Dow Jones mini down 77 pts or -0.21% at 36034, S&P 500 mini down 1.25 pts or -0.03% at 4552.75, NASDAQ mini up 27.25 pts or +0.17% at 15842.25.

COMMODITIES: Bearish Crude Trajectory Cemented on Break of $70/bbl

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 $2135.4 and this signals potential for a climb towards $2177.6 next. Bearish conditions in WTI futures remain intact and yesterday’s sell-off reinforces this condition. The contract has cleared support at $72.37, the Nov 16 low. The break lower confirms a resumption of the downtrend and note too that moving average studies are in a bear-mode position.

• WTI Crude up $0.65 or +0.94% at $69.87
• Natural Gas down $0.06 or -2.49% at $2.513
• Gold spot up $8.48 or +0.42% at $2033.54
• Copper up $3.45 or +0.92% at $376.35
• Silver up $0.09 or +0.4% at $23.9987
• Platinum up $9.52 or +1.07% at $900.46