EXECUTIVE SUMMARY
- RUSSIA AND UKRAINE END FIVE DECADES OF GAS TRANSIT TO EUROPE
- PBOC SEEN DELAYING RRR CUT AFTER ADDING LIQUIDITY VIA NEW TOOLS
- UK HOUSE PRICES RISE CLOSE TO RECORD HIGH AT END OF 2024
- SOUTH KOREA CUTS GROWTH FORECASTS AFTER MARTIAL LAW FIASCO
Figure 1: Nationwide UK house price index (Y/Y, %) rises at fastest pace since 2022
Source: MNI/Bloomberg
NEWS
US (BBG): US Dockworkers, Port Employers Set to Restart Talks Next Week
Leaders from a US dockworkers’ union and the group that represents their employers are set to resume contract talks on Jan. 7 as the threat of a strike looms, according to a person familiar with the negotiations. Facing a mid-January deadline to reach a deal, Tuesday’s planned talks are a welcome sign for importers and exporters bracing for a labor disruption that would shut every major port on the US East and Gulf coasts. Those gateways account for roughly half of all the country’s container volumes, according to data compiled by the American Association of Port Authorities.
US (FT): Trump’s ‘Maganomics’ Will Hurt Growth, Economists Tell FT Polls
Donald Trump’s vision to reshape the world’s largest economy through protectionist policies that put “America First” will damage growth, according to Financial Times economists’ polls that contrast with investors’ bullishness over the US president-elect’s plans. Surveys of more than 220 economists in the US, UK and Eurozone on the economic impact of Trump’s return to the White House showed most respondents believed his protectionist shift would overshadow the benefits of other elements of what the president-elect has dubbed “Maganomics”.
RUSSIA/UKRAINE (BBG): Russia and Ukraine End Five Decades of Gas Transit to Europe
Russian gas stopped flowing to Europe via Ukraine, closing off a route that’s operated for five decades after Kyiv refused to allow any transit that funds Moscow’s war machine. Both sides confirmed the halt Wednesday after a key transit deal expired. The stoppage means central European countries that have relied on the flows will be forced to source more expensive gas elsewhere, compounding pressure on supplies just as the region depletes winter storage at the fastest pace in years.
UK (FT): Problems With UK Economy Data Could Be Widespread, Warns Lawmaker
Damaging gaps in the UK’s jobs data may herald wider problems with the country’s statistics, a top lawmaker has warned, saying economic policymakers were “flying blind” because of the failures. Dame Meg Hillier, Labour chair of the Treasury committee, said she and her fellow MPs had been “shocked” and “dumbfounded” by a letter last month from the UK’s top statistician saying it could be 2027 before a new labour force survey is ready.
CHINA (BBG): PBOC Seen Delaying RRR Cut After Adding Liquidity Via New Tools
China’s central bank injected massive liquidity into the market at the end of 2024 without using high-profile stimulus, as officials preserve policy space before US President-elect Donald Trump returns to office. The People’s Bank of China previously flagged it could free more cash for banks by cutting the reserve requirement ratio again one more time by the end of 2024. It’s now expected to make that move in the first quarter of this year, keeping officials’ powder dry on a closely-watched tool that could alleviate the negative impact from fresh US tariffs.
CHINA (BBG): PBOC Boosts Support for Yuan After Currency’s Year-End Tumble
China is keeping its hand firmly on the yuan, supporting the currency via the official daily reference rate after it slid to the weakest level since 2022 at year-end in offshore trading. The People’s Bank of China set the so-called fixing, which confines yuan’s trading onshore to a 2% range on either side, at 7.1879 per dollar on Thursday. That’s little changed from the prior reading. But it was 1,323 pips stronger than forecast in a Bloomberg survey, the largest difference since July.
S. KOREA (BBG): South Korea Cuts Growth Forecasts After Martial Law Fiasco
South Korea cut its economic growth forecast for this year, reflecting the fallout from impeached President Yoon Suk Yeol’s martial law debacle and risks on the trade-reliant nation from Donald Trump’s tariff plans. The Finance Ministry now sees the economy growing 1.8% in 2025 after expanding 2.1% last year, it said in a statement Thursday. Those projections are down from July’s forecasts of 2.2% and 2.6%, respectively, and underscore the pressure from weaker private consumption and easing export momentum.
INDONESIA (BBG): Bank Indonesia Intervenes as Rupiah Slumps on Tax Fallout
Bank Indonesia intervened to stabilize the rupiah after President Prabowo Subianto’s surprise decision to scale back a tax hike sent the currency weakening by nearly 1%. The central bank was in the market on Thursday to maintain the balance of foreign exchange supply and demand, according to director for monetary and asset securities management Edi Susianto. The rupiah pared its losses to 0.7% against the dollar at 2:27 p.m. local time after falling as much as 1% in morning trading in Jakarta.
DATA
UK DATA (BBG): UK House Prices Rise Close to Record High at End of 2024
UK house prices climbed to within touching distance of a record high at the end of last year, according to industry figures from Nationwide Building Society, suggesting the resilient property market gathered more momentum. The lender said prices rose 0.7% month-on-month to an average of £269,426 ($338,000), a fraction below the record high of £273,751 ($343,000) set in the summer of 2022. The figures add to evidence showing the housing market gaining pace, a rare area of strength in the UK’s sluggish economy.
ITALY DATA (MNI): Firms' Confidence Improves, But Other Details Disappoint
- ITALY DEC MANUF PMI 46.2 (FCST: 45.0); NOV 44.5
Italy manufacturing PMI came in 1.2 points above the Bloomberg consensus (picking up 1.7 points from November) but remaining notably below 50 (and October's print) at 46.2. It seems as though confidence has improved but the rest of the press release is far from positive.
SPAIN DATA (MNI): Manufacturing PMI Slightly Softer Than Expected, But Details Positive
- SPAIN DEC MANUF PMI 53.3 (FCST: 53.5); NOV 53.1
The Spanish manufacturing PMI came in 0.2ppt below the Bloomberg consensus, rising to 53.3 in December from 53.1 in November. However, the underlying details in the press release look initially positive: output and new orders both expanded, employment grew while "firms bolstered their buying activity in response to greater production requirements. Optimism about the future also improved." Importantly for the ECB "inflationary pressures remained broadly contained. Although input prices rose to a greater degree, cost inflation remained well below levels typically seen since the pandemic whilst output charges fell for a fourth successive month."
EUROZONE DEC FINAL MANUF PMI 45.1 (FLASH: 45.2); NOV: 45.2 (MNI)
GERMANY DEC FINAL MANUF PMI 42.5 (FLASH: 42.5); NOV: 43.0 (MNI)
FRANCE DEC FINAL MANUF PMI 41.9 (FLASH: 41.9); NOV: 43.1 (MNI)
UK DEC FINAL MANUF PMI 47.0 (FLASH: 47.3); NOV: 48.0 (MNI)
CHINA DATA (MNI): Caixin December Manufacturing PMI Slows to 50.5
- CHINA DEC CAIXIN MANUFACTURING PMI 50.5 VS 51.5 IN NOV
China's Caixin manufacturing PMI came in at 50.5 in December, down from November's 51.5, staying in the expansionary zone above the 50 mark for the third straight month, the financial publisher said on Wednesday. The production and new orders sub-indices both fell to three-month lows, while external demand failed to continue to pick up amid sluggish global economy and poor trade outlook. The new export order sub-index returned to the contraction range, led by the decline in intermediate goods.
FOREX: Markets Await First Major Directional Cue
- Currency markets are starting 2025 by buying AUD and NZD, while selling CAD, GBP and the USD. Headlines remain few and far between here, as markets await the first true price action signals of the year.
- GBP/USD's run below 1.2500 on relatively little news or cross market flow should be seen as a sign of fragility - particularly as it exposes the bear trigger at 1.2476. Weakness through here puts the rate at the lowest level since May and would resume the downtrend posted off the September high.
- JPY had traded as the firmest performer in G10, possibly on the withdrawal of Russian gas transit through Ukraine, however the only muted response in energy prices across Europe has tempered any broader reaction.
- Outside of President-Elect Trump's inauguration in 3 weeks time, the first priority for markets looks to be a possible BoJ rate hike on January 24th - for which market pricing is steady at a 40% chance for a 25bps rate rise.
- Year-ahead Vols remain very firm. EUR/USD one-year implied volatility finished 2024 north of 7.8 points for the highest year-end reading since 2022 and continues to trend higher for the most persistent rally since Russia invaded Ukraine that year.
- Weekly US jobless claims numbers and the final PMI releases across the US, Canada and Europe mark the highlights - there are no central bank speakers of note, for which markets will have to wait until Friday for Fed's Barkin, ECB's Lane.
BONDS: Rallying to Start '25
Bund and Tsy futures are off Asia-Pac lows, with weakness in Chinese equities and a subsequent pullback from session highs in European equities noted.
- Nothing particularly actionable in final Eurozone & UK manufacturing PMIs.
- A bid in crude oil has done little to counter the bond rally.
- Bearish technical themes intact across the major futures contracts, although Bund futures pierce Monday’s high at typing.
- German yields 2.5-4.0bp lower, curve bull steepens.
- UK yields 3bp lower to 0.5bp higher, curve twist steepens.
- Tsys outperform on the day, 1bp tighter to Bunds, while gilts lag (catch up to late Tuesday weakness in Tsys), widening by ~2.5bp vs. German paper.
- The former spread is below 220bp, with the latter above the same level, both sticking to multi-week ranges.
- EGB spreads are little changed to 1.5bp wider vs. Bunds, with OATs under widening pressure to start ‘25.
- No real fresh headline cues out of France, but well-documented fiscal and political risks present structural headwinds.
- Initial jobless claims data from the U.S. is due later in the day.
- Austria has confirmed next week’s auction plan and Ireland outlining its Q1 issuance intentions (see previous bullets for more on those matters).
- EGB syndication announcements and corporate issuance are likely to pick up next week.
EQUITIES: Bear Threat in E-Mini S&P Remains Present
A bull cycle in the Eurostoxx 50 futures contract remains intact, however, the recent move down highlights a corrective phase. Despite the latest bounce, a short-term bear threat remains present - for now. Key short-term support has been defined at 4829.00, the Dec 20 low. A break of it would confirm a resumption of the bear cycle and open 4800.87, a Fibonacci retracement. Initial firm resistance is at 4939.00, the Dec 19 high. A bear threat in the S&P E-Minis contract remains present and the latest move down highlights the end of the recent Dec 20 - 26 corrective bounce. An extension lower would expose 5866.00, the Dec 20 low and a key short-term support. Clearance of this level would strengthen a bearish theme. Initial firm resistance to monitor is 6107.50, the Dec 26 high. A break of this level is required to open key resistance at 6178.75, the Dec 6 high.
- Elsewhere, in China the SHANGHAI closed lower by 89.202 pts or -2.66% at 3262.561 and the HANG SENG ended 436.63 pts lower or -2.18% at 19623.32.
- Across Europe, Germany's DAX trades higher by 31.1 pts or +0.16% at 19941.42, FTSE 100 higher by 4.26 pts or +0.05% at 8176.74, CAC 40 down 48.63 pts or -0.66% at 7332.73 and Euro Stoxx 50 down 21.84 pts or -0.45% at 4874.38.
- Dow Jones mini up 146 pts or +0.34% at 43033, S&P 500 mini up 28.5 pts or +0.48% at 5965.75, NASDAQ mini up 145.25 pts or +0.68% at 21380.75.
Time: 09:50 GMT
COMMODITIES: Extension Higher in WTI Futures Turns Attention to Key Resistance
WTI futures are trading higher today as the contract extends recent gains. A stronger reversal to the upside would refocus attention on key short-term resistance at $76.41, the Oct 8 high. Initial firm resistance at $71.97, the Nov 7 high, has been pierced. A clear breach of this level would be a positive price development. On the downside, a resumption of the bear cycle would open $65.57, the Oct 1 low, and $63.73, the Sep 10 low and key support. A bear threat in Gold remains present. The yellow metal traded sharply lower on Dec 18 and the move undermines a recent bull theme. A resumption of weakness would open key support at $2536.9, the Nov 14 low. MA 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 $2636.8, the 50-day EMA. A breach of this EMA would be positive for bulls.
- WTI Crude up $0.55 or +0.77% at $72.26
- Natural Gas up $0.03 or +0.74% at $3.664
- Gold spot up $12.88 or +0.49% at $2637.54
- Copper down $1.4 or -0.35% at $401.2
- Silver up $0.4 or +1.39% at $29.3135
- Platinum up $6.03 or +0.66% at $914.25
Time: 09:50 GMT
| Date | GMT/Local | Impact | Country | Event |
| 02/01/2025 | 1200/0700 | ** |  US | MBA Weekly Applications Index |
| 02/01/2025 | 1330/0830 | *** | US | Jobless Claims |
| 02/01/2025 | 1330/0830 | ** | US | WASDE Weekly Import/Export |
| 02/01/2025 | 1445/0945 | *** | US | S&P Global Manufacturing Index (final) |
| 02/01/2025 | 1500/1000 | * | US | Construction Spending |
| 02/01/2025 | 1530/1030 | ** | US | Natural Gas Stocks |
| 02/01/2025 | 1600/1100 | ** | US | DOE Weekly Crude Oil Stocks |