MNI US OPEN - UK Headline CPI Falls to 26-Month Low

NEWS

FED (BBG): Fed’s Goolsbee Says Market is Getting a Little Ahead of Itself

Federal Reserve Bank of Chicago President Austan Goolsbee said the market may be getting ahead of itself when it comes to rate cuts, adding that such easing will only be justified if inflation continues to cool toward the central bank’s target. “The thing that will determine whether we can loosen or be less restrictive, and consider that, is whether we’re getting inflation down,” he said in an interview with Fox News on Tuesday.

US/UKRAINE (BBG): Ukraine Aid Delayed as US Congress Gives Up on Deal This Year

Ukraine heads into the new year with dwindling weapons stockpiles and no guarantee of more US aid. US lawmakers, who have been at an impasse over more than $60 billion in fresh assistance for Ukraine as its war with Russia approaches its third year, abandoned efforts to reach a deal before leaving Washington for a holiday break. Senate Majority Leader Chuck Schumer acknowledged Tuesday that a last-minute push to reach agreement with Republicans required more time. GOP lawmakers are demanding more restrictive US border and immigration policies in exchange for the war aid.

US (MNI): Colorado Supreme Court Ruling Sees Trump Odds Drop in Betting Market

The Colorado Supreme Court's ruling that disqualifies former President Donald Trump from appearing on the ballot in the state's presidential primary has seen a small decline in the Republican frontrunner's implied probability of winning the 2024 presidential election. Data from Smarkets shows Trump's implied probability of winning the presidency falling from 42.7% before the ruling to 38.8% presently.

US (BBG): Trump Barred From Colorado Ballot in Unprecedented Ruling

Donald Trump is ineligible to serve as US president because of his actions inciting the Jan. 6, 2021 attack on the US Capitol, Colorado’s highest court found, in an unprecedented ruling that’s headed for the US Supreme Court. Colorado’s Supreme Court issued the ruling Tuesday, barring Trump from the state’s primary ballot, but stayed the decision to allow the former president to appeal, which his campaign said he plans to do. He has until Jan. 4, under the state court’s ruling.

ECB (BBG): ECB’s Nagel Cautions Investors Betting on Rate Cuts: T-Online

European Central Bank Governing Council member Joachim Nagel said investors should be careful when betting on lower borrowing costs in the euro zone. “There’s a high likelihood that the peak in interest rates has been reached,” Nagel said in an interview with T-Online posted Wednesday on the Bundesbank website. “To all those speculating on an imminent rate cut I say: Careful, others have miscalculated before.”

ISRAEL (BBG): Herzog Says Israel Ready to Pause Fight in Bid for Hostages

Israeli President Isaac Herzog said his country is prepared to agree to a second humanitarian pause in fighting in exchange for the return of more hostages held by Hamas. Hamas, the Islamic militant group considered a terrorist organization by the US and European Union, still holds about 129 of the initial 240 or more people it abducted from Israel during its deadly attack on Oct. 7. “I can reiterate the fact that Israel is ready for another humanitarian pause and additional humanitarian aid in order to enable the release of hostages,” Herzog said Tuesday to a group of ambassadors.

RUSSIA/UKRAINE (MNI): No Prerequisites for Peace Talks w/Ukraine, But Topic Irrelevant - Kremlin

Wires carrying comments from Kremlin spox Dmitri Peskov. Claims that there are 'No prerequisites for talks with Ukraine', and that 'Ukraine left the peace negotiations in 2022 at the insistence of the United Kingdom'. However, adds that 'We believe the topic of negotiations with Ukraine is currently irrelevant', and that 'there is no basis for them [talks]'. Peskov: 'Ukraine forbade talks with Russia...Attempts to find peace in Ukraine without Russia are absurd.'

CHINA (MNI): LPR to Fall in 2024, After Policy-Rate Cuts

MNI (Beijing) China’s benchmark lending rate will likely fall in 2024 following the central bank’s cut to key policy rates, but any reduction will be moderate and its impact on the economy low as credit demand remains weak, economists and analysts told MNI. The loan prime rate (LPR), based on the People’s Bank of China’s medium-term lending facility (MLF) rate and quotes submitted by 18 banks, remained unchanged for the fourth consecutive month at 3.45% for the one-year maturity and 4.2% for the over-five-year tenor on Wednesday. The pause was in line with expectations.

JAPAN (BBG): Japan Is Said to Raise Rate Used for FY24 Debt Servicing to 1.9%

Japan’s Finance Ministry plans to raise its settings for a key rate used to calculate the country’s interest payments, reflecting the recent rise in government bond yields, according to people familiar with the matter. The accumulated interest rate, which is used to calculate Japan’s debt-servicing costs, will be set at 1.9% for next year’s annual budget. In August the ministry provisionally set that rate at 1.5%, compared with 1.1% for the current fiscal year.

RBA (MNI): Productivity, Wages Keep Pressure On RBA - Ex Officials

Persistent wage growth and sluggish productivity remain a risk to the Reserve Bank of Australia’s hopes of trying to pull inflation back to its 2-3% target band in a timely manner, potentially staying its hand on rate cuts in 2024 despite a slowing economy, former officials and advisors told MNI. Jonathan Kearns, former head of the RBA’s financial stability department and now chief economist at Challenger, said softer GDP data released earlier in the month had provided the market with a potentially premature rate-cut signal.

NEW ZEALAND (BBG): NZ Has ‘Single-Minded’ Focus on Tackling Prices, Luxon Says

New Zealand’s new government has a “single-minded” focus on slowing inflation so that interest rates can begin to fall, Prime Minister Christopher Luxon said in an interview during his first official visit abroad since taking office. “My government in the first four weeks has been incredibly focused in dealing with the number one job that we have which is to tackle inflation and get it down below 3% again,” Luxon said in an interview with Bloomberg Television in Sydney on Wednesday. “So we can lower inflation, lower interest rates, and keep the economy growing.”

DATA

UK DATA (MNI): UK Headline Inflation Hits 26-month Low in November

• UK NOV CPI -0.2% M/M, +3.9% Y/Y
• UK NOV CORE CPI -0.3% M/M, +5.1% Y/Y
• UK NOV RPI -0.1% M/M, +5.3% Y/Y
• UK NOV OUTPUT PPI -0.1% M/M, -0.2% Y/Y
• UK NOV INPUT PPI -0.3% M/M, -2.6% Y/Y

UK headline annual inflation fell to the lowest level since September 2021, data released Wednesday by the Office for National Statistics showed, as lower fuel and food prices saw price growth slow more than expected by analysts. The Consumer Prices Index (CPI) rose by 3.9% in the 12 months to November, down from 4.6% in October. Core CPI rose by 5.1%, down from 5.7% in October; the CPI goods annual rate slowed from 2.9% to 2.0%, while the CPI services annual rate eased from 6.6% to 6.3% -- both lower than expected by the Bank of England.

UK SEP-NOV MEDIAN PAY AWARDS +6% :XpertHR (MNI)

EUROZONE OCT CONSTRUCTION OUTPUT -1% M/M, -0.7% Y/Y (MNI)

MNI CHINA LIQUIDITY INDEX: Conditions Ease, PBOC Cuts Expected

MNI (Beijing) China’s interbank market liquidity continued to ease in December as The People’s Bank of China made the largest MLF injection on record in anticipation of significant government bond issuance and peak season demand, while traders expected more PBOC reserve and rate cuts in the near term to firm up 2024 growth, the latest MNI Liquidity Conditions Index showed.

JAPAN DATA (MNI): Japan Nov Exports Fall, First in Three Months

• JAPAN POSTS JPY776.9 BLN TRADE DEFICIT IN NOV
• JAPAN NOV EXPORTS -0.2% Y/Y; OCT +1.6%
• JAPAN NOV IMPORTS -11.9% Y/Y; OCT -12.5%

Japan's exports posted their first y/y drop in November due to slowing exports of automobiles, down 0.2% in November vs +1.6% in October, data released by the Ministry of Finance showed on Wednesday. Exports of automobiles rose 16.3% in November, decelerating from 35.4% y/y in October, although exports of semiconductors increased 6.9% from a 3.3% drop. Imports fell 11.9% y/y in November, slowing from October's 12.5% fall, the eighth straight drop.

FOREX: Sterling Sinks on Soft CPI, But Underlying Bull Theme Intact for Now

• GBP/USD holds the vast majority of the post-CPI losses, after inflation slowed markedly faster than forecast in November. Core CPI posted a 0.6ppts drop to hit a new post-COVID low of 5.1%. Monday's lows of 1.2629 the next notable downside level in the pair, keeping GBP as the poorest performing currency across G10, reflecting the retracement in yields across both STIR and Gilt markets.
• Much of the weakness stemming from the adjustment in '24 rate expectations, with the biggest moves in STIR seen across the Sep24 / Dec24 contracts - culminating in over 5 x 25bps rate cuts being priced for the next calendar year.
• Today's weakness refutes the previously bullish theme in GBPUSD, after key resistance and the bull trigger at 1.2733, the Nov 29 high, had been cleared. Notable support undercuts at 1.2600, the 20-day EMA. The pullback from last Friday’s high is considered corrective, but further weakness could reinforce a pullback.
• JPY is the firmest currency in G10, reversing a small part of yesterday's post-BoJ weakness. EUR/JPY failed to materially top key resistance at the 158.76 100-dma on Tuesday, prompting small selling into today's NY crossover. US yields will likely lead prices through year-end, with the 10y yield today hitting fresh multi-month pullback lows below 3.89%.
• Focus for the rest of the Wednesday session lies on US existing home sales and the December consumer confidence. Bank of Canada minutes are set for release, while appearances from ECB's Lane, Fed's Goolsbee and Harker could draw attention.

BONDS: Gilts Outperform Core EGBs Following Soft UK CPI

Gilts continue to outperform core EGBs following the lower than expected UK CPI print for November.

• Gilt futures are off intraday highs, but remain 71 ticks higher at 102.66 (from a high of 103.08), with 103.12 (2.618 proj of the Nov 24 - 29 - 30 price swing) the first resistance.
• Bunds and OATs lag, each around 35 ticks higher on the day.
• Cash curves bull steepen, with the 10Y Gilt yield trading at the lowest level since April and the 2Y yield the lowest since May.
• UK services inflation, watched closely by the BoE, disinflated to 6.3% Y/Y (vs a split consensus of between 6.5/6.6% in our preview, 6.6% prior and 6.9% in the BoE Nov projections), prompting a dovish reaction in STIR and core FI markets. BoE-dated OIS contracts price over 140bps of cuts through 2024 (vs less than 125bps yesterday).
• Peripheries are mixed, with the BTP/Bund spread 1.3bps wider at 162.8bps (though still around tightest levels since August) and the GGB/Bund spread a touch narrower.
• The remainder of today's UK/EZ data docket is light, with most interest in ECB's Lane at 14:00GMT, speaking on "The Euro Area Outlook".

EQUITIES: Bullish Theme in Eurostoxx 50 Futures Intact Despite Latest Pullback

A bullish theme in Eurostoxx 50 futures remains intact and the latest pullback is considered corrective. Last week’s gains confirm, once again, a resumption of the uptrend and maintain a bullish price sequence of higher highs and higher lows. Moving average studies are in a bull-mode position too, signalling a rising cycle. The focus is on 4636.70, a long-term Fibonacci retracement. Support to watch is at 4496.50, the 20-day EMA. A bullish theme in S&P e-minis remains intact and the contract has traded higher this week, confirming once again a resumption of the uptrend that started Oct 27. Note too that the contract has recently cleared resistance at 4738.50, the Jul 27 high, reinforcing current positive trend conditions. This signals scope for a climb towards 4854.75 next, a Fibonacci projection. On the downside, initial firm support lies at 4674.59, the 20-day EMA.

• Japan's NIKKEI closed higher by 456.55 pts or +1.37% at 33675.94 and the TOPIX ended 15.57 pts higher or +0.67% at 2349.38.
• Elsewhere, in China the SHANGHAI closed lower by 30.281 pts or -1.03% at 2902.11 and the HANG SENG ended 108.81 pts higher or +0.66% at 16613.81.
• Across Europe, Germany's DAX trades lower by 10.42 pts or -0.06% at 16734.16, FTSE 100 higher by 71.22 pts or +0.93% at 7709.86, CAC 40 down 6.73 pts or -0.09% at 7567.94 and Euro Stoxx 50 down 10.28 pts or -0.23% at 4525.12.
• Dow Jones mini down 27 pts or -0.07% at 37903, S&P 500 mini down 8.25 pts or -0.17% at 4812, NASDAQ mini down 52 pts or -0.31% at 16970.

COMMODITIES: Gold Moving Average Studies Remain in a Bull-Mode Position

Bearish conditions in WTI futures remain intact and recent gains appear to be a correction. Resistance to watch is $76.14, the 50-day EMA. Last week’s fresh trend low reinforces a bearish theme and the break of $69.08, Dec 7 low, confirms a resumption of the trend. This maintains the price sequence of lower lows and lower highs and note that MA studies are in a bear-mode position. A resumption of weakness would open $67.07, the Jun 23 low. Gold traded sharply higher Dec 13. This signals a short-term reversal and the end of the recent Dec 4 - 13 corrective pullback. Moving average studies remain in a bull-mode position, highlighting an uptrend. A continuation higher would signal scope for a climb toward key resistance and the Dec 4 all-time high of $2135.4. A break of this level would confirm a resumption of the primary bull trend. Initial firm support lies at $1973.2, the Dec 13 low.

• WTI Crude up $0.52 or +0.7% at $74.58
• Natural Gas up $0.04 or +1.69% at $2.533
• Gold spot up $0.11 or +0.01% at $2040.84
• Copper up $2.9 or +0.74% at $392.9
• Silver up $0.01 or +0.05% at $24.06
• Platinum down $2.4 or -0.25% at $955.52