MNI US OPEN - Markets in Festive Consolidation Mode Ahead of Early Closes

NEWS

US/CHINA (BBG): Blinken Raises China’s Covid ‘Transparency’ With Wang Yi

US Secretary of State Antony Blinken told his Chinese counterpart that it was important for Beijing to be transparent about a growing Covid-19 outbreak, as questions mount about whether Chinese officials are trying to downplay the number of deaths.

CHINA (MNI): Yuan Could Rally To 6.5 But Volatility Ahead

(MNI) Beijing - The Chinese yuan could rally to 6.5 against the U.S. dollar in the second half of 2023 on capital inflows and a weaker U.S. dollar, though two-way volatility is likely early in the year as an economic recovery navigates rising Covid cases, a senior policy adviser told MNI.

RUSSIA (MNI): Russia’s Novak Threatens Crude Production Cuts Next Year

Russia may cut oil output by 5%-7% in early 2023 as it responds to price caps on its crude and oil products by halting sales to the countries that support them, Deputy Prime Minister Alexander Novak said Friday. Novak said the cuts could amount to 500,000-700,000 barrels per day.

JAPAN (MNI): Massive Increase in Defence Spending as Tokyo Seeks to Counter China, NK

The Japanese gov't announced earlier today its plans to significantly increase military spending in 2023, with an additional JPY6.82trn (USD51.7bn) to boost defence expenditure by a quarter in an effort to counter a growing Chinese military presence in the Indo-Pacific as well as a more belligerent North Korea.

NORTH KOREA (MNI): Missile Launch Is 'Grave Provocation' - South Korean Military

The South Korean military has issued a statement calling the latest missile launch from the North Korean regime a 'grave provocation' that undermines international peace. The missile test comes days after South Korea and the United States engaged in military drills involving nuclear-capable bombers and stealth fighter jets flown near the Korean peninsular with South Korean war planes. Pyongyang typically views these drills as a rehearsal for an invasion of North Korea.

DATA

FRANCE DATA (MNI): Winter Energy Tariffs push PPI higher M/M

• FRANCE NOV PPI +1.2% M/M; OCT -0.2%r M/M
• FRANCE NOV PPI +21.5% Y/Y; OCT +24.7% Y/Y

French factory-gate inflation accelerated on the month in November by +1.2% m/m after contracting by -0.2% m/m in October. Compared to November 2021, PPI rose by +21.5% y/y, slowing by 3.2pp from October. Both base-effects and slowing price growth were evident. Energy was again the key driver in PPI inflation (up +4.9% m/m), outpacing the -11.5% m/m fall in petrol prices. Further upwards pressure came from higher automobile prices, food prices and the chemical industry.

SPAIN DATA (MNI): Downgraded Q3 GDP Implies Economy Close to Stalling

• SPAIN FINAL Q3 GDP +0.1% Q/Q (FLASH +0.2%), Q2 +2.0%r Q/Q
• SPAIN FINAL Q3 GDP +4.4% Y/Y (FLASH +3.8%), Q2 +7.6%r Y/Y

The Spanish economy came closer to stalling at +0.1% q/q in today's final Q3 2022 GDP data, a 0.1pp downgrade from the flash estimates. Year-on-year Q3 growth was +4.4%, slowing from +7.6% y/y in Q2. The Spanish Statistical Institute expressed that the previous print relied on a largely modelled estimate of September, which has proven to have been weaker than estimates. Substantial upwards revisions were made to Q2 data.

ITALY DATA (MNI): Consumer Confidence Boost as Outlooks Improve

• ITALY DEC CONSUMER CONFIDENCE 102.5 (FCST 99.0); NOV 98.1
• ITALY DEC BUSINESS CONFIDENCE ESI 107.8; NOV 106.5r

Italian economic and consumer confidence improved in December, the latter regaining 4.6 points to beat forecasts by 3.5 points, lifting to 102.5. A jump in consumers assessment of the economic climate largely underpinned the increase, although improvements were recorded across subcomponents.

JAPAN DATA (MNI): Japan Nov Inflation Quickened; +3.7% Y/Y

Japan's national average core consumer price index (excluding fresh food) rose 3.7% from the year earlier in November, faster than the 3.6% growth marked in October, marking the 16th increasing month. Energy rose 13.3% y/y, slower from the previous 15.2% y/y growth, contributing 1.06 percentage points to CPI.

EXCHANGE SCHEDULE:

UK

Equities: London Stock Exchange closes at 1230GMT
Fixed income: https://www.ice.com/publicdocs/futures/IFEU_Christ...

Europe

Euronext Cash Markets, Euronext Block, and the Euronext Derivatives Markets will be open throughout, with exception of Dublin, which closes between 13:28 – 13:30 CET
Eurex open as usual - full details here: https://www.eurex.com/resource/blob/2886140/a13cf7...

US
CME Christmas: https://www.cmegroup.com/tools-information/holiday...
CME NY: https://www.ice.com/publicdocs/futures_us/exchange...
ICE Christmas: https://www.ice.com/publicdocs/futures_us/exchange...
ICE NY: https://www.ice.com/publicdocs/futures_us/exchange...
NASDAQ: https://www.nasdaq.com/market-activity/2022-stock-...
NYSE: https://www.nyse.com/markets/hours-calendars
SIFMA: https://www.sifma.org/resources/general/holiday-sc...

FX SUMMARY: Markets in Consolidation Mode Ahead of Early Close

• JPY continues to backtrack a small part of the recent strength, and is the weakest amid a quiet G10 backdrop. USD/JPY is edging back toward the Y133.00 handle, still well shy of the week's opening level either side of Y136.00.
• Despite USD/JPY's strength, the greenback is similarly weaker, falling against all others in G10 to partially reverse the rally posted after yesterday's GDP upgrade.
• In a similar fashion, markets are squaring off recent weakness posted across high beta and growth-sensitive FX, helping put AUD and NZD at the top of the G10 pile.
• EURGBP pierced a bull trigger this week, edging higher yesterday and topping 0.8829, the Nov 9 high. The outlook remains positive and a clear break of 0.8829 would strengthen this condition. This would pave the way for a move towards 0.8858, the upper band of a MA envelope and 0.8907, a Fibonacci retracement.
• Asset markets see a series of early closes across Europe today, with UK markets closing after midday and US markets undergoing a half day. This could keep volumes and liquidity muted across a raft of US releases, with personal income/spending, prelim durable goods orders, Michigan confidence and new home sales releases all on the docket.

BOND SUMMARY: Bonds Have Extended Lower This Morning

• A light trading session for Govies as we head into Christmas.
• Bonds have nonetheless been under pressure, as well as Rate futures markets.
• Gilt has led futures lower in turn pushing the Gilt/Bund spread wider, by 3.3bps.
• Small outperformance in Treasuries futures, is still pushing the Tnote/Bund spread tighter.
• Support is seen at the 13/10/20 low, 128.28bps.
• Most UK Markets will be closing between 12.00 and 13.00GMT.
• Looking ahead, US, PCE core deflator, prelim Durable Goods, while Michigan will be final reading.
• Gilt futures are down 50 today at 100.58 with 10y yields up 5.0bp at 3.637% and 2y yields up 4.5bp at 3.622%.
• Bund futures are down -0.38 today at 134.93 with 10y Bund yields up 2.8bp at 2.385% and Schatz yields up 4.8bp at 2.588%.
• BTP futures are down -0.33 today at 110.50 with 10y yields up 2.9bp at 4.497% and 2y yields up 2.6bp at 3.109%.
• OAT futures are down -0.37 today at 129.18 with 10y yields up 3.1bp at 2.925% and 2y yields up 5.6bp at 2.570%.

EQUITIES: Thursday Pullback Sees Equity Futures Trim Week's Gains

EUROSTOXX 50 futures remain above their recent lows. Price tested resistance at 3880.00 on Thursday, the 20-day EMA and a key short-term resistance. A clear breach of this hurdle would suggest potential for a stronger recovery. Gains are considered corrective - for now. A reversal lower and a break of 3753.00, the Dec 20 low, would confirm a resumption of the recent downtrend. The bull trigger is at 4043.00, Dec 13 high. S&P E-Minis trend signals are bearish and this week’s low prints reinforce this condition. The contract is trading above its recent lows. Short-term gains would be considered corrective with resistance at 3942.55, the 50-day EMA. A clear break of this hurdle is required to suggest potential for a stronger recovery. On the downside, a reversal lower would confirm a resumption of the downtrend. The focus is on 3778.45, a Fibonacci retracement.

• Japan's NIKKEI closed lower by 272.62 pts or -1.03% at 26235.25 and the TOPIX ended 10.23 pts lower or -0.54% at 1897.94.
• Elsewhere, in China the SHANGHAI closed lower by 8.565 pts or -0.28% at 3045.866 and the HANG SENG ended 86.16 pts lower or -0.44% at 19593.06.
• Across Europe, Germany's DAX trades higher by 21.14 pts or +0.15% at 13938.49, FTSE 100 higher by 5.89 pts or +0.08% at 7475.67, CAC 40 down 0.35 pts or -0.01% at 6519.4 and Euro Stoxx 50 up 1.08 pts or +0.03% at 3825.3.
• Dow Jones mini up 56 pts or +0.17% at 33272, S&P 500 mini up 2.75 pts or +0.07% at 3852.75, NASDAQ mini down 2 pts or -0.02% at 11054.

COMMODITIES: Gold Remains Above Weekly Lows Despite Sharp Sell-Off

Trend conditions in WTI futures remain bearish. However, recent gains have highlighted a bullish corrective cycle and Thursday’s climb signals an extension of this phase. The contract has cleared the 20-day EMA, at $77.00. Price has tested resistance at $79.64, the 50-day EMA and a key hurdle for bulls. A break of this level would strengthen the short-term bullish outlook. Initial key support has been defined at $73.40, the Dec 16 low. Trend conditions in Gold remain bullish and the recent move lower is considered corrective. Key short-term support to watch is $1765.9, Dec 5 low. The yellow metal recently breached $1810.0, Dec 5 high, to resume the uptrend. This maintains the positive price sequence of higher highs and higher lows and opens $1842.7, a Fibonacci retracement. On the downside, a break of $1765.9 would signal scope for a deeper pullback.

• WTI Crude up $1.07 or +1.38% at $78.52
• Natural Gas down $0.04 or -0.7% at $4.964
• Gold spot up $4.48 or +0.25% at $1797.05
• Copper up $4.3 or +1.14% at $379.95
• Silver up $0.17 or +0.73% at $23.7409
• Platinum up $12.22 or +1.24% at $995.63