MNI US OPEN - Tensions Rise as US Strikes Yemen Again

NEWS

POLITICAL RISK (BBG): US Strikes Yemen Again as Houthi Shipping Attacks Continue

The US launched more strikes on Yemen’s Houthis overnight as the Iran-backed militant group continues to roil global shipping markets with attacks around the Red Sea. The American military targeted 14 Houthi missiles just before midnight Yemeni time. They were ready to be launched and presented “an imminent threat to merchant vessels and US Navy ships in the region,” Central Command said.

POLITICAL RISK (NYT): Pakistan Retaliates With Strikes Inside Iran as Tensions Spill Over

In an expansion of hostilities rippling out from the Israel-Hamas war, Pakistan said on Thursday that it had carried out strikes inside Iran, a day after Iranian forces attacked what they said were militant camps in Pakistan. The Pakistani Foreign Affairs Ministry said that the country’s forces had conducted “precision military strikes” against what it called terrorist hide-outs in southeastern Iran. A number of militants were killed, the ministry said in a statement.

US (BBG): White House Meeting Stirs Faint Hope on Border, Ukraine Deal

Congressional leaders said they were cautiously optimistic about reaching a deal on stricter border security that would unlock funding for Ukraine, following a White House meeting with President Joe Biden. While lawmakers struck a positive tone, there were few signs of concrete progress Wednesday toward breaking a months-long stalemate that has delayed funding for Kyiv, as well as Israel.

US/CHINA (BBG): US and Chinese Financial Officials to Meet in Beijing for Talks

US and Chinese officials will meet in Beijing this week for financial talks, the latest sign of the improvement in ties between the world’s two largest economies. Officials from the US Treasury will meet Chinese counterparts in Beijing Thursday and Friday, according to a Treasury official who asked not to be named. The discussions are the latest round of “financial working group” talks established last year and will include issues including financial stability, capital markets, narcotics and terrorism funding, the official said.

ECB (BBG): ECB’s De Cos Backs US Proposals on Bank Capital: FT

ECB’s Governing Council member Pablo Hernandez de Cos supports US proposals to impose more stringent requirements on banks’ capital, according to an interview with the Financial Times. de Cos is also chair of the Basel Committee on Banking Supervision and Bank of Spain governor. “Absolutely justified to go beyond the minimum requirements” if any jurisdiction thinks that, for its own banking sector, the implementation of Basel III isn’t enough to reach the same degree of assurance of financial stability, de Cos said.

UK (The Times): Rwanda Bill Revolt Withers Away as Rishi Sunak Wins Commons Vote

Rishi Sunak saw off a revolt by right-wing Tory MPs over his Rwanda plan as support for the Tories fell to its lowest level since Liz Truss was prime minister. Tory rebels pulled back from voting down Sunak's Safety of Rwanda Bill entirely amid concerns that doing so would risk toppling the government.

FRANCE/EU (BBG): Macron Calls for Joint European Bonds to Fund Defense, Tech

French President Emmanuel Macron backed the issuance of joint European debt to pay for priorities including defense and technology in order to ensure Europe remains sovereign amid increasing competition with China and the US. “We need more public investment in Europe, so we should open a second phase of reinvestment as we did during the Covid crisis, and maybe daring again to have Eurobonds for priorities,” Macron said, addressing the World Economic Forum in Davos.

CHINA (BBG): China Downplays Big Stimulus in 2024, Testing Investor Patience

Chinese Premier Li Qiang gave his clearest signal yet that Beijing won’t resort to huge stimulus to revive growth amid the worst bout of deflation in decades. Another batch of troubling data is testing the patience of investors who worry Beijing is behind the curve. Speaking to leaders at the World Economic Forum this week, Li trumpeted his nation’s ability to hit its roughly 5% growth target last year without flooding the economy with “massive stimulus.”

CHINA (MNI): China’s Opportunities Outweigh Negatives - NDRC

MNI (Beijing) China’s economic opportunities outweigh the negatives, allowing for a continued economic recovery this year, Liu Sushe, deputy director of the National Development and Reform Commission (NDRC), said at a press conference on Thursday. Looking ahead, Liu highlighted the significant investment needed to manage China’s industrial and green transition as a key driver for growth.

JAPAN (MNI): Prosecutors Expected to Press Charges Against LDP Officials Amid Fundraising Scandal

Tokyo prosecutors are preparing to press charges against the treasurers of three factions of the ruling Liberal Democratic Party (LDP) over alleged violations of political funding regulations in relation to the ongoing fundraising scandal, according to source reports circulated by Jiji Press and Kyodo News. The groups targeted by the prosecutors are the Abe, Nikai and Kishida factions.

PHILIPPINES (BBG): Philippines Plans to Explore Oil-Rich Sea Amid China Tension

The Philippines is building defense alliances with the US and other security partners to help pave the way for resource exploration in the oil-and-gas-rich South China Sea, the nation’s top defense official said, prompting a warning from Beijing. “I really do think it’s quite urgent that we start now,” Defense Secretary Gilberto Teodoro Jr. said in an interview with Bloomberg News on Wednesday in his office in Manila. While he declined to provide details, Teodoro, 59, said that resource exploration is “part of the package” of the Philippines’ strategy in fighting for its territory.

DATA

EUROZONE NOV CONSTRUCTION OUTPUT -1% M/M, -2.2% Y/Y (MNI)

NORWAY DATA (MNI): Industrial Confidence Falls; Diverging Trends Across The Supply Chain

The Norwegian Q4 industrial confidence indicator fell to -4.9 in Q4, from a downwardly revised -2.5 in Q3 (from -2.2 prior). A similar decline was seen in the 3M average of the manufacturing PMI, which was 49.9 in the 3-months to December, compared to 51.9 in in the 3-months to September. The survey reported diverging trends across the supply chain, with producers of capital goods reporting a rise in production while intermediate consumer goods producers reporting a decline. Domestic and international new orders similarly fell for producers in the latter two groups.

JAPAN DATA (MNI): Japan Nov Machine Orders Increase Capex Concern

• JAPAN NOV CORE MACHINE ORDERS -4.9% M/M; OCT +0.7%

Japan's core machinery orders, which exclude volatile items for power generation equipment and ships, fell 4.9% m/m in November for the first drop in three months, increasing concerns over the capital investment outlook, data released by the Cabinet Office showed on Wednesday. Machinery orders are a leading capex indicator, but the data fluctuates sharply month-to-month.

AUSTRALIA DATA (MNI): Aussie Unemployment Steady, Despite 65,000 Jobs Lost

• AUSTRALIA DEC UNEMPLOYMENT RATE +3.9%
• AUSTRALIA DEC EMPLOYED PERSONS CHANGE -65.1K
• AUSTRALIA DEC LABOR PARTICIPATION RATE +66.8%

Australia’s unemployment rate held steady at 3.9% in December, however, those employed dropped by 65,100 – stronger than the expected 15,000 fall. "The fall in employment in December followed larger than usual employment growth in October and November, a combined increase of 117,000 people, with the employment-to-population ratio and participation rate both at record highs in November," said David Taylor, head of labour statistics at the ABS. "While the December employment fall was large, the number of employed people was still 52,000 higher than September."

AUSTRALIA DATA (MNI): Inflation Expectations Stall But Close to Average

Melbourne-Institute inflation expectations for January were unchanged at 4.5% despite the well-publicised fall in CPI inflation and last week's petrol prices being 3.1% lower than the last week of 2023. It is likely that consumers are still feeling the pressure of household bills and grocery costs. The December/January readings are the lowest since February 2022 but still 0.1pp higher than the series average and 0.3pp above the average since 2010.

FOREX: Greenback Fades Off Cycle Best, Aiding AUD, JPY Off Recent Lows

• The greenback has faded off yesterday's cycle high, with the Wednesday London close marking the near-term top in the USD Index at 103.692. Newsflow and consequential datapoints have been few and far between across Asia-Pac trade, leaving markets to drift somewhat into Thursday trade.
• This leaves the dollar among the poorest performers on an intraday basis, although off lows, while downtrodden AUD and JPY currencies are posting a corrective bounce.
• Australian jobs data may be restraining the recovery, however, after December data showed a surprise decline in full time employment over the month, but the pullback to 0.6526 in AUD/USD proved short-lived, with the pair recovering back above 0.6550 in short time.
• USD/JPY has reversed off yesterday's recovery high at 148.52, but the Wednesday lows remain intact, while the 100-dma could provide further support at 147.42.
• Focus for the remainder of the Thursday session rests on the weekly US jobless claims data as well as December housing starts and building permits numbers. Central bank speakers include Fed's Bostic and ECB's Lagarde ahead of both banks' pre-decision media blackout periods that kick in this weekend.

EGBS: Remain Close to Yesterday's Lows as Supply Weighs

Core/semi-core EGBs have failed to meaningfully recover from yesterday's lows, as supply from Spain, France and Austria weighed on the space this morning.

• Bunds are up 7 ticks at typing, with yesterday's low of 134.15 the first support. OATs perform a touch better in spite of today's domestic supply, currently 11 ticks higher at 128.82.
• Headline flow has otherwise been light, with no market-moving domestic data scheduled today.
• The German and French cash curves have twist steepened, while periphery spreads to Bunds are narrower. The 10-year BTP/Bund spread has fallen back below 160bps, currently 1.8bps tighter at 158.3bps.
• The account of the ECB's December meeting will be released at 1230 GMT/1330 CET, while President Lagarde speaks in Davos at 1515GMT/1615 CET (though major deviations from yesterday's rhetoric are not expected).

GILTS: Regaining Some Poise Alongside Tsys, Bears Do Not Test 4.00% in 10s

Gilts have found a base, at least for now.

• A similar move in U.S. Tsys has provided some support, as has the hold of 4.0% in 10-Year gilt yields (high of 3.992% yesterday).
• As we noted earlier, 10s have not printed above 4.00% since the 11 December (12 December saw softer than expected UK wage data pre-gilt open, which impacted the space). The benchmark trades at ~3.94% last, ~5bp off yesterday’s high.
• Gilt futures are +27 at 98.60, 10 ticks off the top of their 57-tick range. Technical support is tiered in from 98.00 (which represents yesterday’s low), with bears in control for now. Bulls need to retake the Jan 16 low (99.71) to start turning the technical tide more in their favour.
• SONIA futures are -0.25 to +3.5 through the blues, with the reds outperforming.
• BoE-dated OIS shows ~6.5bp more easing through ’24 vs. yesterday’s CPI-inspired pullback extremes, with ~108bp of cuts currently priced for this year.
• The latest BoE credit conditions survey wasn’t a market mover.
• The domestic docket is essentially empty for the remainder of the day.

EQUITIES: Recent Move Lower in Eurostoxx 50 Futures Deemed Technically Corrective

Eurostoxx 50 futures have this week breached support at the Jan 5 low of 4444.0. The primary trend direction is up and the recent move lower is considered corrective. However, the break below 4444.00 and 4450.70, the 50-day EMA, suggests scope for an extension of the current bear cycle. This has opened 4370.00, the Nov 28 low. Initial resistance is 4536.00, the Jan 11 high. A break would highlight a potential reversal. S&P E-Minis are trading lower this week but - for now - price remains above the Jan 5 low. Key resistance and the bull trigger is unchanged at 4841.50, the Dec 28 high. A break of this level would resume the uptrend and open 4854.75, a Fibonacci projection. Support at the 20-day EMA of 4773.33 has been pierced. A clear break of this average would strengthen a short-term bearish threat and open the 50-day EMA, at 4687.54.

• Japan's NIKKEI closed lower by 11.58 pts or -0.03% at 35466.17 and the TOPIX ended 4.29 pts lower or -0.17% at 2492.09.
• Elsewhere, in China the SHANGHAI closed higher by 12.169 pts or +0.43% at 2845.784 and the HANG SENG ended 114.89 pts higher or +0.75% at 15391.79.
• Across Europe, Germany's DAX trades higher by 35.18 pts or +0.21% at 16469.15, FTSE 100 lower by 7.01 pts or -0.09% at 7441.35, CAC 40 up 28.92 pts or +0.4% at 7350.22 and Euro Stoxx 50 up 15.09 pts or +0.34% at 4420.16.
• Dow Jones mini down 8 pts or -0.02% at 37450, S&P 500 mini up 4.25 pts or +0.09% at 4775, NASDAQ mini up 56.75 pts or +0.34% at 16921.25.

COMMODITIES: Weakness in Gold Strengthens a Bearish Threat

Trend signals in WTI futures remain bearish and the pullback from last Friday’s high reinforces this theme. Resistance to watch is $74.29, the 50-day EMA. It has recently been pierced, a clear break would strengthen a bullish theme and expose $76.18, the Dec 26 high. Moving average studies remain in a bear-mode position and continue to highlight a downtrend. The trigger for a resumption of the downtrend is $67.98, Dec 13 low. Gold has pulled back from its most recent highs and the yellow metal traded lower yesterday. The 50-day EMA has been cleared and support at $2013.4, the Jan 11 low, has also been breached. This strengthens a bearish threat and exposes a key level at $1973.2, the Dec 13 low. For bulls, clearance of 2062.3, the Jan 12 high, is required to signal a reversal. This would expose $2088.5, the Dec 28 high.

• WTI Crude up $0.51 or +0.7% at $73.1
• Natural Gas up $0.06 or +1.92% at $2.927
• Gold spot up $5.56 or +0.28% at $2011.59
• Copper down $0.05 or -0.01% at $373.05
• Silver up $0.06 or +0.29% at $22.6235
• Platinum up $7.86 or +0.89% at $895.31