MNI US OPEN: Next Stop Fed

NEWS

US (MNI): MNI Fed Preview: December 2022 - Forecasting the End

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.

GERMANY (MNI): Scholz Talks on Gas Cap, Russia, EU-China

German Chancellor Olaf Scholz speaking in the Bundestag on a number of topics including EU-China relations, Russia sanctions, and EU energy policy. On energy: "There are no instant fixes, we cannot intervene in prices in such a way that too little gas is supplied to Europe." Essentially stating that he will not allow the imposition of a low gas price cap advocated by some EU member states. Scholz: "I am confident that an EU deal on a gas price cap can be found."

CHINA (BBG): China Asks Banks to Buy Bonds Via Prop Desks After Market Slump

China asked some of the nation’s biggest banks to help stabilize the domestic bond market after a wave of fund redemptions by retail investors fueled the biggest credit selloff since 2015, according to people familiar with the matter. Regulators asked lenders to buy bonds via their proprietary trading desks, said the people, who asked not be named as they’re not authorized to speak publicly. The goal is to absorb the selling pressure caused by retail withdrawals from some of those same banks’ wealth management products, the people said.

CHINA (BBG): China Decides Against Postponing Key Economic Policy Meeting

Chinese leaders are planning to proceed with a closely watched economic policy meeting in Beijing this week, opting not to postpone the gathering as Covid infections surge across the capital, according to people familiar with the matter. The Central Economic Work Conference is set to start on Thursday, said the people who asked not to be identified discussing confidential information. Held every December, senior officials use the event to plot out economic policy for the coming year.

JAPAN (MNI): JPY Firms on Report BoJ Policy Could Be Reviewed in New Year

Bloomberg reports that the Bank of Japan are said to see the possibility of conducting a policy review next year. JPY stronger and now through yesterday's low on that headline.

Key parts of the story:

• Any review is unlikely before Kuroda steps down in April, and wage demands (review in mid-March) as well as the global economic backdrop will need examining beforehand.
• The piece specifically flags that "one theoretical result is a move away from Kuroda's ultra-easy policy stance, but it could also end up reaffirming the existing framework."

JAPAN (MNI): BOJ Cheers Tankan as Inflation Expectations Rise

The Bank of Japan's December Tankan survey confirmed corporate price hikes and inflation expectations remain solid, aligning with policymakers' forecasts as they seek confirmation over coming months of a sustainable level of higher inflation that could lead to early discussions about a change in the BOJ's easing bias, MNI understands.

AUSTRALIA (MNI): Energy Cost Reduction Plan Likely to Pass on Thursday

The government's energy cost reduction legislation is to be presented at a special sitting of parliament tomorrow. It is expected to pass through both houses as the government gained the support of the Greens and crossbench in the senate. It made concessions to the Greens regarding subsidising the shift to electric energy from gas for consumers and the details will be worked out before the May budget.

NEW ZEALAND (MNI): NZ Govt Forecasts Recession, CPI Miss Until 2024

The New Zealand government has forecast a recession for the 2023/2024 fiscal year and expects the Consumer Price Index not to return to the Reserve Bank of New Zealand's inflation target until late 2024.

DATA

EUROZONE DATA (MNI): Oct IP Signals Onset of Q4 Contraction

• EUROZONE OCT INDUSTRIAL PROD. -2.0% M/M (FCST -1.5%); SEP +0.8%r M/M
• EUROZONE OCT INDUSTRIAL PROD. +3.4% Y/Y (FCST +3.3%); SEP +5.1% Y/Y

Eurozone industrial production recorded a -2.0% m/m contraction in October, 0.5pp sharper than consensus and a substantial drop from the +0.8% m/m expansion recorded in September. The sharp -10.7% m/m plunge in volatile Irish data implies that euro area IP was slightly less weak than the headline print suggests. Compared to 2021 levels, industrial production remains elevated at +3.4% y/y. In October, energy production slumped by -3.9% m/m, followed by durable consumer goods (-1.9%), intermediate goods (-1.3%), and capital goods (-0.6%). Only non-durable consumer goods remained expansionary, rising slightly at +0.3% m/m.

UK DATA (MNI): UK Inflation Slows, But Still In Double Digits

• UK NOV CPI +0.4% M/M, +10.7% Y/Y
• UK NOV CORE CPI +0.3% M/M, +6.3% Y/Y
• UK NOV RPI +0.6% M/M, +14% Y/Y

UK inflation slowed in November, offering some ammunition for Bank of England doves on the day they decide the next move for monetary policy. However, with inflation still above 10%, there is still plenty for the more hawkish members of the Monetary Policy Committee to hang their hats on, particularly with services CPI still at a 30-year high.

SPAIN DATA (MNI): Small Upwards Revisions on HICP, Core Steady

• SPAIN FINAL NOV HICP -0.3% M/M, +6.7% Y/Y; OCT +7.3% Y/Y

Spanish headline harmonised CPI saw 0.2pp and 0.1pp upwards revisions on the monthly and annualised November prints in today's final print. This leaves prices having slowed to -0.3% m/m and down 0.6pp at +6.7% y/y, still substantially lower than the July peak of +10.7% y/y. Core inflation remains up one-tenth at +6.3% y/y, implying that broad-based easing in non-food/energy price pressures remains minimal.

SWEDEN NOV CPIF +9.5% Y/Y

JAPAN OCT CORE MACHINE ORDERS +5.4% M/M; SEP -4.6%

FX SUMMARY: USD/JPY Through Tuesday Low as BoJ Could Review Policy

• The greenback trades a touch weaker ahead of the Fed decision, with markets still mulling over Tuesday's lower-than-expected CPI release before Powell's press conference later today.
• The Fed are expected to slow their pace of tightening to a 50bps clip today, with eyes turning to the potential for messaging on 2023 policy through the Summary of Economic Projections and Powell's presentation.
• JPY sits at the top-end of the G10 table, helping keep USD/JPY under pressure and through yesterday's low at Y134.66. A continuation lower would open 133.63, the Dec 2 low and bear trigger. Moves follow a Bloomberg report that the Bank of Japan are said to see the possibility of conducting a policy review next year. Any review is unlikely before Kuroda steps down in April, and could theoretically result in a move away from ultra-easy monetary policy.
• NZD is the poorest performer in G10, with CAD trading similarly poorly.
• Outside of the Fed decision, import/export price index data is due, with little else on the CB speaker slate.

BOND SUMMARY: Attention Remains on the FOMC

• A better volume session for EGBs and Bund in early trade.
• Bund has fully reversed yesterday's gains that were led by the US CPI miss.
• Germany announced that they plan to issue a record EU539bn in Federal debt in 2023, an increase from EU449bn in 2022.
• This has kept futures under pressure.
• Peripheral spread are mostly wider, with Italy in the lead by 2.6bps.
• Gilt trade in the red but outperforms EGB futures following the UK CPI coming 2 tenth below expectations.
• US Treasuries are holding onto gains, and most notable price action has been in the Tnote/Bund spread.
• Tnote/Bund spread is through the October low, tightest since 22ns June now.
• Some desk will look at 150.00bps next but main support will be at the June low, 147.68, which is also the lowest print in 2 years (25/12/20).
• Looking ahead, there's no notable data, and all the attention will be on the FOMC and presser where a 50bps hike is expected.

EQUITIES: Equity Futures Fail to Hold Onto CPI-Fuelled Gains

EUROSTOXX 50 futures traded in a volatile manner Tuesday. The break higher resulted in a print above resistance at 4021.00, Dec 1 high. This reinforces bullish conditions and a clear breach would confirm a resumption of the uptrend and open 4049.50, the Feb 23 high (cont). Key short-term support has been defined at 3903.00, the Dec 8 low, where a break would instead highlight a possible short-term reversal. A strong rally in the S&P E-Minis Tuesday saw price trade above 4142.50, Dec 1 high. The contract failed to hold onto its highs and pulled back sharply. Despite the move lower, the trend outlook is bullish and yesterday’s high print maintains the bullish sequence of higher highs and higher lows. A resumption of gains would open 4194.25, the Sep 13 high. Key support has been defined at 3945.75, Dec 7 low. This is just below the 50-day EMA, at 3957.96.

• Japan's NIKKEI closed higher by 201.36 pts or +0.72% at 28156.21 and the TOPIX ended 11.74 pts higher or +0.6% at 1977.42.
• Elsewhere, in China the SHANGHAI closed higher by 0.2 pts or +0.01% at 3176.525 and the HANG SENG ended 77.25 pts higher or +0.39% at 19673.45.
• Across Europe, Germany's DAX trades lower by 55.52 pts or -0.38% at 14441.26, FTSE 100 lower by 31.38 pts or -0.42% at 7471.52, CAC 40 down 29.71 pts or -0.44% at 6713.64 and Euro Stoxx 50 down 18.12 pts or -0.45% at 3967.61.
• Dow Jones mini up 11 pts or +0.03% at 34144, S&P 500 mini up 1.5 pts or +0.04% at 4023.75, NASDAQ mini up 7.25 pts or +0.06% at 11847.

COMMODITIES: Gold Touches 5-Month High Post US CPI, Remains Above 1800

Trend conditions in WTI futures remain bearish. However, the latest recovery and yesterday’s move higher, suggests the contract remains in a short-term corrective cycle. Attention is on resistance at $77.52, the 20-day EMA - a key short-term hurdle for bulls - where a break would signal scope for a stronger recovery. On the downside, the bear trigger lies at $70.08, the Dec 9 low. A break would resume the downtrend. Trend conditions in Gold remain bullish and Tuesday’s gains have reinforced this condition. The yellow metal traded through resistance at 1810.0 yesterday, the Dec 5 high, to confirm a resumption of the uptrend. This also maintains the current bullish price sequence of higher highs and higher lows and signal scope for a climb towards $1842.7, a Fibonacci retracement. On the downside, support to watch lies at $1765.9, the Dec 5 low.

• WTI Crude down $0.01 or -0.01% at $75.47
• Natural Gas down $0.34 or -4.87% at $6.595
• Gold spot down $3.25 or -0.18% at $1807.78
• Copper up $2.55 or +0.66% at $387.05
• Silver down $0.1 or -0.41% at $23.6327
• Platinum up $0.54 or +0.05% at $1035.68