MNI US OPEN - Seasonal Revisions Add Uncertainty to US Payrolls Report

NEWS

MNI US PAYROLLS PREVIEW: Household Survey Seasonal Revisions Add Uncertainty

Bloomberg consensus sees nonfarm payrolls growth of 171k in December after November’s 199k was boosted by 38k workers returning from strikes. The public sector is expected to see further above-average job creation with private sector focus on health & social assistance as well as retail. Both AHE and the unemployment rate are seen marginally dovish vs November, but exaggerated by rounding and with primary dealer analysts tilted to a small hawkish surprise across both categories.

US (BBG): Blinken Heads to Middle East After Attacks in Red Sea, Iran

Secretary of State Antony Blinken left for his fourth trip to the Middle East since the Oct. 7 attack on Israel, as part of US efforts to counter growing risks of a broader regional conflict. The top US diplomat will travel to Turkey, Jordan, Qatar, the United Arab Emirates, Saudi Arabia, Egypt and Israel, with a visit to the West Bank and an additional stop in Greece, State Department spokesman Matthew Miller said Thursday.

US (BBG): DeSantis, Haley Try to Sway GOP Voters With Attacks on Trump

Ron DeSantis and Nikki Haley used televised town halls in Iowa to attack Republican presidential frontrunner Donald Trump with less than two weeks to go before the state holds the first Republican presidential contest of 2024. Although they are competing for second place in the nomination contest, each largely ignored the other on Thursday night to single out the former president. They were far more critical, however, of President Joe Biden, particularly over migrants coming across the southern US border.

US/CHINA (Axios): Biden Preparing to Keep Many of Trump's China Tariffs

The Biden administration is moving toward keeping many of former President Trump's controversial tariffs on some $300 billion in Chinese imports in place, and aims to increase duties on electric vehicles and some critical minerals, three sources familiar with the matter tell Axios.

US/CHINA (MNI): China Foreign Min Talks Up Need for Positive Sino-US Relations

MNI (London) Speaking at an event in Beijing marking 45 years of Sino-US relations, Chinese Foreign Minsiter Wang Yi states that "No conflict or confrontation between China and the US is the most important peace dividend for mankind....China and the US bear heavy responsibility for world peace and security....The need for cooperation between the two is not weakened, but stronger."

MIDDLE EAST (WPT): Hezbollah Warns of Retaliation After Killing of Senior Hamas Leader in Lebanon

Hezbollah head Hasan Nasrallah warned of "a response and punishment" after the assassination of senior Hamas leader Saleh Arouri in a suspected Israeli drone strike in Beirut. U.N. agencies have been unable to deliver desperately needed aid to areas in northern Gaza for at least three days, the U.N. Office for the Coordination of Humanitarian Affairs said, citing intense fighting in the area as well as "access delays and denials."

EU/CHINA (BBG): China Investigates EU Liquor in Retaliation for EV Subsidy Probe

China is launching an anti-dumping investigation into liquor products like brandy from the European Union as trade tensions between Beijing and Brussels intensified. European liquor stocks declined. The investigation will focus on brandy products that come in smaller than 200 liter containers from the EU, China’s Ministry of Commerce said Friday, without specifying any companies. It’s being launched because of an application from a domestic liquor association, according to the statement.

CHINA (BBG): China Shadow Banking Giant Zhongzhi Files for Bankruptcy

The Beijing No. 1 Intermediate People’s Court accepted the bankruptcy application on Friday, according to a court statement. Zhongzhi says it didn’t have enough assets to repay all debts, according to the statement.

UK (BBG): UK House Prices Defy Gloom With Gain in 2023, Halifax Says

UK house prices defied predictions of a slump in 2023, with a shortage of properties on the market offsetting painfully high mortgage rates, one of the nation’s biggest lenders said. Halifax said Friday the average house price rose to a nine-month high of £287,105 ($363,810) in December, the third consecutive monthly increase and 1.7% above the end of 2022. That was slightly stronger than the 1.8% annual drop Nationwide Building Society announced last week.

UK/TURKEY (MNI): British Trade Min Visits Istanbul as Upgraded Deal Sought

UK Secretary of State for Business and Trade Kemi Badenoch visits Istanbul on 5 Jan in an effort to push for an upgraded trading agreement between the UK and Turkey. At present, goods are covered by the bilateral trade deal, but services, digital and data are not. The prospect of closer Anglo-Turkish trade relations comes just over a month since the two nations signed a joint statement of intent to bolster security cooperation.

GERMANY (MNI): Berlin Repeat Election Could See SPD & FDP Lose Out But Greens Hold On

On 11 February, 550k voters in Berlin will return to the polls to cast their ballots in a re-run of the 2021 federal election after a court ruling in late 2023 that invalidated the results in part of the capital. As noted at the time of the decision, the re-run election will not impact the federal coalition's ability to maintain a majority, nor will it see the far-left Die Linke lose seats that could imperil its standing in the Bundestag.

BOJ (BBG): More BOJ Watchers Shift Hike Forecasts, Seeing January Unlikely

More Bank of Japan watchers joined those pushing back their predictions for the end of negative rates in the wake of the New Year’s Day earthquake and recent remarks by Governor Kazuo Ueda. BNP Paribas SA, Deutsche Securities and Mitsubishi UFJ Morgan Stanley Securities pushed back their forecasts, joining Morgan Stanley MUFG Securities in saying the bank is unlikely to scrap the negative rate at its Jan. 22-23 meeting.

N. KOREA (BBG): North Korea Fires Artillery Shells Near South Korean Island

North Korea fired some 200 artillery shells near a South Korean border island off the west coast of the peninsula, turning up pressure on Seoul after leader Kim Jong Un said it was impossible to unify with his neighbor. The shells were fired Friday to the north of Yeonpyeong Island, South Korea’s Joint Chiefs of Staff said in a message sent to reporters. People on Yeonpyeong were told to evacuate to shelters, a county official said by telephone.

DATA

EUROZONE DATA (MNI): December Flash Inflation In Line with Consensus on Headline and Core

• EUROZONE DEC FLASH HICP +2.9% Y/Y
• EUROZONE DEC FLASH CORE HICP +3.4% Y/Y
• EUROZONE NOV PPI -0.3% M/M, -8.8% Y/Y

Eurozone flash December HICP printed in line with consensus at an unrounded +2.92% Y/Y (vs +2.40% prior). The monthly pace was also in line on a rounded basis, but printed at an unrounded +0.15% M/M (vs -0.55% prior). National-level data suggested that a downside surprise to +2.8% Y/Y was possible, but Italy's in-line reading at 0.5% Y/Y prevented this occurrence.

ITALY DEC FLASH HICP +0.2% M/M, +0.5% Y/Y (MNI)

EUROZONE DEC CONSTRUCTION PMI 43.6 ; NOV 43.4 (MNI)

UK DEC CONSTRUCTION PMI 46.8 (FCST: 46.1); NOV 45.5 (MNI)

NETHERLANDS DATA (MNI): Energy Base Effects Continue to Drag Headline Inflation Lower

Dutch flash HICP for December printed at +1.0% Y/Y (vs +1.2% cons; +1.4% prior) and +0.2% M/M (vs +0.3% cons; -1.5% prior). However, we note that the consensus was formed of just 3/4 analysts. National CPI also decelerated on an annual basis to +1.2% Y/Y (vs +1.6% prior). Excluding energy and motor fuels, CPI was +3.4% Y/Y (vs +4.2% prior and a peak of +8.1% in Feb/Mar 2023).

FOREX: Greenback Gains as Bond Market Correction Tips US 10y North of 4.00%

• The greenback trades well, firmer against all others in G10 early Friday as the correction in bond markets continues. The US 10y yield has crested above the psychological 4.00% mark that had contained prices in Thursday trade, helping aid a tailwind to the greenback.
• Elsewhere, the CNH is modestly outperforming, defying the strong dollar backdrop amid reports that state-owned Chinese banks are swapping CNY for USD in the domestic market, to sell in spot and pressure the USD/CNY rate across the week. USD/CNH has slipped off the overnight high of 7.1803 ahead of the NY crossover, in contrast with the likes of EUR/USD, which remain under pressure.
• Eurozone CPI came in inline with expectations, doing little to shift market thinking. ECB rate cut pricing across 2024 continues to oscillate just below 150bps for the calendar year - a factor that's kept EUR/GBP offered and pressed to new '24 pullback lows.
• GBP is mixed, but is holding ground against the AUD. GBP/AUD is higher for a third session, and is nearing the first few layers of key resistance at 1.9008 and 1.9046, the 50- and 200-dmas respectively.
• Focus Friday rests on the nonfarm payrolls release, with markets expecting the US to have added 175k jobs over the month of December, tipping the unemployment rate higher by 0.1ppts to 3.8%. Both AHE and the unemployment rate are seen marginally dovish vs November, but exaggerated by rounding and with primary dealer analysts tilted to a small hawkish surprise across both categories.

EGBS: Weakness Persists Across the Board; EZ December Flash Inflation In Line

Core/semi-core EGBs have continued yesterday's downward momentum, printing at intraday lows at typing. An inline Eurozone HICP flash release for December, alongside weaker-than-expected German retail sales this morning proved insufficient to halt the latest selling pressure.

• Bund and OAT futures trade ~70 ticks lower on the day, while German and French cash curves have bear flattened. Price action coincides with a further pricing-out of central bank easing this year, as ECB-dated OIS now prices below 150bps of rate cuts through '24 for the first time since the Dec13 Fed.
• Periphery spreads to Bunds are mixed, with the 10Y BTP/Bund spread -0.6bps tighter on the day and Spanish/Portuguese spreads a little wider. Greece once again underperforms, with the GGB/Bund spread over 2bps wider on the day, having widened over 10bps this week.
• The remainder of today's docket is highlighted by the US labour market release at 1330GMT. Markets expect the US to have added 175k jobs over the month of December, tipping the unemployment rate higher by 0.1ppts to 3.8%.

GILTS: Pressured Alongside Global Peers, BoE Pricing Continues Move Away from Dovish Extremes

Gilts continue to slide alongside wider core global FI markets, with technical breaks and pay-side flows in STIRs aiding the move.

• Futures now sit just above 100.00, shedding 95 ticks on the day, with key support breached.
• The contract deals close to 400 ticks shy of late December highs.
• A breach of 100.00 would expose a bit of an air pocket, with little meaningful technical support seen until the 6 Dec high/recent breakout level (98.97).
• Cash gilt yields are 5-8bp higher, with 10s under the most pressure.
• Gilt bears closed the gap lower in 10-Year yields from the 13 Dec close (located at 3.830%), with that benchmark last showing around 3.80%.
• SONIA futures are +0.5 to -15.0 through the blues, with the late reds and greens under the most pressure.
• BoE-dated OIS now prices ~123bp of cuts for calendar ’24, ~30bp off recent dovish extremes and showing the shallowest cutting path seen over that horizon since 20 Dec.
• Early ’24 moves continue to push back on the bullish bond consensus, as core global central bank pricing pulls back from late ’23 dovish extremes.
• Local headline flow has been light, leaving focus on wider market moves and the impending raft of U.S. data.

EQUITIES: E-Mini S&P Pierces First Notable Support at 20-Day EMA

A bullish theme in Eurostoxx 50 futures remains intact and weakness into the Wednesday close appears to be a correction. Moving average studies are in a bull-mode position, signalling a rising trend cycle. Furthermore, recent gains confirmed a resumption of the uptrend and this has maintained the bullish price sequence of higher highs and higher lows. The focus is on 4636.70, a L/T Fibonacci retracement. Support at the 20-day EMA has been pierced, turning focus to the 50-day EMA of 4436.30. The pullback off last week’s highs in E-mini S&P has now cracked first material support at the 20-day EMA of 4744.58, with prices stabilising above the mark headed through the Thursday open. While the level has been pierced on an intraday basis, a close below will be needed to accelerate any reversal, keeping the medium-term view more positive. Last week’s fresh trend highs reinforce current conditions, with sights on 4854.75 next, a Fibonacci projection.

• Japan's NIKKEI closed higher by 89.13 pts or +0.27% at 33377.42 and the TOPIX ended 14.75 pts higher or +0.62% at 2393.54.
• Elsewhere, in China the SHANGHAI closed lower by 25.166 pts or -0.85% at 2929.183 and the HANG SENG ended 110.65 pts lower or -0.66% at 16535.33.
• Across Europe, Germany's DAX trades lower by 97.24 pts or -0.59% at 16519.74, FTSE 100 lower by 47.04 pts or -0.61% at 7675.58, CAC 40 down 63.77 pts or -0.86% at 7386.86 and Euro Stoxx 50 down 34 pts or -0.76% at 4440.01.
• Dow Jones mini down 52 pts or -0.14% at 37663, S&P 500 mini down 6.5 pts or -0.14% at 4723, NASDAQ mini down 30.5 pts or -0.19% at 16415.

COMMODITIES: Gains in WTI Futures Continue to Look Corrective, Price Below 50-Day EMA

Bearish conditions in WTI futures remain intact and recent gains at these levels continue to look corrective. Resistance to watch is $75.64, the 50-day EMA. The average was briefly pierced last week. A clear break of it would strengthen a bullish theme and highlight a stronger reversal. For bears, moving average studies are in a bear-mode position, highlighting a downtrend. The trigger for a resumption of the downtrend lies at $67.98, the Dec 13 low. The Dec 13 reversal in Gold and the subsequent move higher points to the end of the Dec 4 - 13 corrective pullback. Last week’s move also highlights a bullish theme and note that moving average studies are in a bull-mode position too, reflecting an uptrend. A continuation higher has opened $2097.1, 76.4% of the Dec 4 - 13 bear leg, ahead of key resistance and the Dec 4 all-time high of $2135.4. Key support lies at $1973.2, the Dec 13 low.

• WTI Crude up $0.85 or +1.18% at $73.01
• Natural Gas down $0.03 or -1.06% at $2.789
• Gold spot down $2.13 or -0.1% at $2041.81
• Copper down $1.35 or -0.35% at $383.05
• Silver down $0.02 or -0.08% at $23.0035
• Platinum down $7.44 or -0.78% at $951.68