MNI US OPEN - Markets on the Defensive Ahead of Final Push

NEWS

CHINA (MNI): China’s Tame CPI Allows Stimulus To Ward Off Deflation
China’s inflation may edge higher after April but will remain tame in 2023, giving policymakers leeway to provide additional support to an economic recovery and ward off deflationary pressures, policy advisers and economists told MNI.

US (BBG): US Inflation Will Be Much Lower by End of 2023, Yellen Says
US Treasury Secretary Janet Yellen says inflation will be much lower by the end of next year, as long as there are no unanticipated shocks to the economy. “I believe inflation will be lower,” Yellen said during an interview Sunday on CBS’ “60 Minutes.” “I am very hopeful that the labor market will remain quite healthy so that people can feel good about their finances and their personal economic situation.”

ECB PREVIEW (MNI): While we initially expected the ECB to deliver another 75bp hike in December – and had euro area inflation surprised higher again this would have remained our assumption - our conviction has since ebbed. Uncertainty over whether inflation has peaked, how far the ECB will go when it unveils the ‘key principles’ for APP reduction, and shifting sentiment among both doves and hawks within the GC, make the decision between hiking 50bp and 75bp much more finely balanced.

FED PREVIEW (MNI): The FOMC will step down the pace of rate hikes to 50bp at the December meeting, but it will likely signal via the Dot Plot that it intends to tighten by a further 75bp to a terminal rate above 5% in 2023. Chair Powell’s Nov 30 speech has recession-minded market participants eyeing substantial rate cuts in 2023-24. This offers scope for Powell to push back against easier financial conditions at the post-meeting press conference.

G7 (MNI): Leaders To Hold Video Call On Russia & Iran Sanctions, Ukraine Aid
The German gov't, in its position as holding the G7 presidency for 2022, has confirmed that a video meeting of the group's leaders will take place later today. Following this, Chancellor Olaf Scholz will hold a press conference at 1130ET/1630GMT/1730CET.

FRANCE (MNI): Ciotti Election To See Les Republicains Shift Further Right
The nominally centre-right Gaullist Les Republicains (LR) elected Eric Ciotti as new party head on Sunday, signalling a further shift to the political right in a party that has found itself squeezed on both sides in recent years. In the April presidential election, LR candidate Valerie Pecresse secured less than 5% of the vote, the worst result for the party or its predecessors in the Fifth Republic.

DATA

UK (MNI): UK Economy Bounces Back from Weak September

• The UK economy grew 0.5% m/m in October, recovering from the sharp 0.6% fall in September when growth was impacted by an extra national bank holiday to mark the funeral of Queen Elizabeth II. The October snap-back leaves the economy 0.4% higher on a month-to-month reading than February 2020, the month marked as the last 'pre-pandemic, the Office for National Statistics said Monday.
• The data will offer little new to the Bank of England, who although forecasting weaker GDP in Q4, were expecting a recovery from the weak September reading. For the three months to October, the economy contracted 0.3% when compared to the three months to July. The Bank meets this week to discuss rate policy and is expected to increase the Bank Rate by 50 bps to 3.5%
• The service sector recovered 0.6% m/m, having been the most adversely impacted sector in September, declining 0.8% m/m. Manufacturing helped drive some of the recovery, helped in part by an easier supply of microchips for the automobile sector.

CHINA (MNI): China's Nov M2 Rebounds; New Loans Double

• China's M2 money supply growth rebounded to 6 1/2-year high of 12.4% y/y in November, up from 11.8% y/y in October and beating expectations for 11.7% growth thanks to a significant increase in yuan deposits, People's Bank of China data showed on Monday.
• M1 growth increased 4.6% y/y, decelerating from October's 5.8% y/y pace and posting the lowest reading in six months. New loans doubled to CNY1.21 trillion from October's CNY615.2 billion, slightly lower than the forecast for CNY1.38 trillion, as demand picked up.
• Aggregate financing grew to CNY1.99 trillion from October's CNY907.9 billion, almost matching expectations for CNY2.1 trillion. Shadow banking transactions fell by CNY26.3 billion compared to a contraction of CNY174.8 billion in October.

BONDS: Cautiously Higher As Big Week Gets Underway

Core FI is trading slightly stronger though largely within Friday's ranges early Monday, reflecting caution ahead of a week dominated with event risk.

• Gilts are outperforming amid UK curve bull flattening; the German curve has twist flattened slightly.
• The US curve is 4-5bp richer beyond 2Y which has seen just a 2bp drop in yields. 3Y and 10Y supply are the highlights of today's US schedule.
• Periphery EGB spreads are marginally tighter, as are German swap spreads - following on from Friday's above-expected TLTRO repayments.
• Multiple central bank decisions this week (with 50bp the most likely scenario for the big 3): MNI's Fed preview here; ECB preview here.
• UK Oct GDP out earlier was the session's data highlight - while coming in above expectations, it probably won't impact Thursday's BoE decision much.
• No US data of note ahead of Tuesday's Nov CPI report.

Latest levels:

• Mar TY future up 6/32 at 114-09, range of 113-29 to 114-10
• Mar Bund futures (RX) up 13 ticks at 140.65 (L: 140.26 / H: 140.74)
• Mar Gilt futures (G) up 34 ticks at 105.77 (L: 105.31 / H: 105.88)
• Italy / German 10-Yr spread 1.4bps tighter at 189.2bps

FOREX: Currencies Trade Defensively Ahead of Critical Week

• Markets trade defensively and within recent ranges to mark a muted Monday session so far. JPY is modestly weaker on an intraday basis, while the single currency makes furtive gains.
• UK growth data came in moderately ahead of expectations, with manufacturing production contracting at a slower pace than forecast, playing in favour of the bullish trend conditions that remain present in GBP/USD. The pair has cleared the 200-dma and maintains a bullish sequence of higher highs and higher lows. Note that moving average studies remain in a bull-mode position, highlighting positive market sentiment. A resumption of gains would open 1.2406, the Jun 16 high.
• Lastly, commodity-tied currencies have failed to take advantaqe of a minor bounce in equity futures, with the e-mini S&P still within range of the overnight and Friday lows of 3956.00 and 3959.75.
• The data and speakers slate starts with a lull on Monday, with no key data releases or central bank events ahead of this week's deluge of meetings. As such, the focus for the session ahead will likely be pre-positioning and interpretation of Tuesday's critical US CPI release.

EQUITIES: Stocks Mixed to Kick Off Fed Week

S&P E-Minis are trading closer to last week's lows. The recent move down is - for now - considered corrective. The uptrend that started on Oct 13 remains intact, however, attention is on support at the 50-day EMA, which intersects at 3951.09. EUROSTOXX 50 futures trend conditions are bullish and the recent pullback is considered corrective - for now. Recent high prints confirmed an extension of the uptrend that started in early October and this maintains the price sequence of higher highs and higher lows.

• Japan's NIKKEI closed lower by 58.68 pts or -0.21% at 27842.33 and the TOPIX ended 4.23 pts lower or -0.22% at 1957.33.Elsewhere, in China the SHANGHAI closed lower by 27.908 pts or -0.87% at 3179.042 and the HANG SENG ended 437.24 pts lower or -2.2% at 19463.63.
• Across Europe, Germany's DAX trades lower by 52.38 pts or -0.36% at 14318.54, FTSE 100 lower by 15.81 pts or -0.21% at 7460.24, CAC 40 down 10.62 pts or -0.16% at 6667.58 and Euro Stoxx 50 down 16.43 pts or -0.42% at 3926.34.
• Dow Jones mini up 31 pts or +0.09% at 33522, S&P 500 mini up 6.25 pts or +0.16% at 3941.75, NASDAQ mini up 24 pts or +0.21% at 11592.75.

COMMODITIES: Gold Fails to Hold $1,800/oz Level

Trend conditions in Gold remain bullish and the latest retracement (early last week) appears to be a correction. A fresh trend high on Dec 5 reinforced a bullish theme and price has recently breached $1786.5, the Nov 15 high and a bull trigger. Trend conditions in WTI futures remain bearish and last week’s move lower has reinforced this theme. $74.96, the Sep 28 low, has recently been cleared. This break confirmed a resumption of the downtrend and sights are on the $70.00 psychological handle.

• WTI Crude down $0.63 or -0.89% at $70.37
• Natural Gas up $0.62 or +9.93% at $6.873
• Gold spot down $4.79 or -0.27% at $1791.28
• Copper down $2.4 or -0.62% at $385.55
• Silver up $0.04 or +0.17% at $23.4853
• Platinum down $4.34 or -0.42% at $1022.15