MNI US OPEN - US Core CPI Seen Reaccelerating Following Oct Moderation

NEWS

MNI US CPI PREVIEW: Core Seen Re-Accelerating as Lodging Hit Unwinds

Consensus puts core CPI inflation at 0.3% M/M in November, reaccelerating after a surprise moderation to 0.23% M/M in October. Both the Bloomberg survey and the analysts covered below imply downside skew. Upside drivers are seen in volatile items with lodging away from home in particular pulling back after surprise weakness, whilst used cars should add to the upside. Primary rents meanwhile are likely a modest drag. Of those analysts who specify, most see strong supercore inflation which could leave some notably stubborn and headline-catching recent trend rates, although there is a wide range for November.

MNI FED PREVIEW - DECEMBER 2023: All Downhill From Here

The FOMC will hold rates in December for a 3rd consecutive meeting and the 4th in the past 5, further cementing expectations that the hiking cycle is over. But while the updated projections will acknowledge scope for cuts in 2024 alongside lower inflation forecasts, the FOMC will likely attempt a modest pushback against the recent loosening of financial conditions. Meaningful changes to the Statement’s tightening bias are unlikely until least one or two more meetings from now, while Chair Powell is likely to warn that the FOMC is proceeding carefully and is prepared to tighten further if required.

US/ISRAEL (BBG): Biden Warns Israel That Public Opinion Can Shift in Hamas War

President Joe Biden cautioned that public opinion in support of Israel in its war against Hamas could shift, as he sought to balance his support for the country with pressure for it to limit civilian casualties in Gaza. “We continue to provide military assistance until they get rid of Hamas,” Biden said Monday at a White House Hanukkah reception. “But we have to be careful. They have to be careful. The whole world’s public opinion can shift overnight - we can’t let that happen.”

US (BBG): High Court Signals Fast Call on Bid for Trump Immunity Hearing

The US Supreme Court signaled it will move quickly to decide whether to intervene in a clash stemming from the criminal charges against Donald Trump for trying to overturn the 2020 presidential election. The high court on Monday told Trump’s legal team to respond by Dec. 20 to Special Counsel Jack Smith’s request that the justices decide whether the former president is entitled to absolute immunity. Smith is urging the justices to take the unusual step of bypassing a federal appeals court and directly reviewing a trial judge’s refusal to toss out the indictment against Trump.

MNI ECB PREVIEW - DECEMBER 2023: Policy Unchanged in December, But Risks of Communication Surprise

The ECB is unlikely to make any material changes to monetary policy at the December meeting. The sharp fall in inflation and weak economic activity is increasingly at odds with the ECB’s more cautious stance towards policy easing. We would expect the ECB to remain cautious for now with President Lagarde acknowledging the recent improvement in inflation, while stressing that discussion of near-term policy rate cuts are premature. The risk, however, is tilted in the direction of a dovish signal.

EU/HUNGARY (MNI): EU Set to Unfreeze Funds Amid Fears of Orban Veto on Ukraine

Politico report that the European Commission is set to give approval today to the gradual unfreezing of EUR10bn in cohesion funding for Hungary in exchange for partial progress in resolving rule-of-law issues raised by Brussels. However, many EU politicians have decried the move, arguing that Budapest has not engaged in significant reforms. Instead they say the unfreezing of funds is an attempt to dissuade Prime Minister Viktor Orbán from vetoing the proposed provision of EUR50bn of financial aid to Kyiv under a revised multiannual financial framework (EU long-term budget) and blocking the start of accession talks between the EU and Ukraine.

GERMANY (BBG): German Coalition to Resume Talks on Revised 2024 Budget Tuesday

Chancellor Olaf Scholz and top officials from his ruling coalition will resume talks Tuesday on a revised 2024 budget after a deal again proved elusive in negotiations Monday night, according to people familiar with the planning. Social Democrat Scholz and his alliance partners from the Greens and Free Democrats have been seeking an agreement on next year’s finance plan for weeks as they try to address the fallout from last month’s court ruling limiting the use of off-budget funds.

FRANCE (BBG): France’s CAC 40 Eyes Record Close as Rate Cut Bets Fuel Rise

France’s blue-chip CAC 40 index is set to close at a record high, as rising expectations of interest rate cuts next year triggered a brisk year-end rally from the likes of cosmetics giant L’Oreal SA to industrial company Schneider Electric SE. The Paris benchmark, home to companies such as LVMH, Hermes and Sanofi SA, gained as much as 0.3% to 7,577.50 points, surpassing the previous highest close reached in April. It follows Germany’s DAX and Italy’s FTSE MIB, which have both bounced back fully from a summer correction.

CHINA (BBG): Country Garden Set to Avoid Yuan Bond Default After Holder Deal

Country Garden Holdings Co., the Chinese builder whose liquidity crunch shook the nation’s financial markets, is likely to avoid its first default on yuan bonds after most holders of a local note agreed not to demand repayment this week, people familiar with the matter said. The Shenzhen Stock Exchange met last week with some holders of the 800 million yuan ($111.5 million) security to seek such an outcome. The bond has a put option Dec. 13 that allows investors to demand repayment before maturity next year.

CHINA (RTRS): China's Xi Arrives in Vietnam on Two-Day Visit to Strengthen Ties

China's President Xi Jinping began a two-day visit to Vietnam on Tuesday to upgrade ties between the Communist countries three months after U.S. President Joe Biden travelled to Hanoi, as the major powers vie for influence in the Southeast Asian nation. Making his first trip to Vietnam in six years, Xi was welcomed at Hanoi airport by Prime Minister Pham Minh Chinh, and people on the route to his hotel waved flags of both countries, pictures on state media showed.

CHINA (MNI): China Banks to Suffer Narrow Interest Margin - BOC

MNI (Beijing) China banks will continue to suffer narrower interest margin in 2024 as loan interest rates remain low, while funding costs stay high, and room exists for deposit rates to reduce further, according to Bank of China in its quarterly Economic and Financial Outlook report. The state-owned bank estimated GDP would expand by 5.3% in 2023 and by about 5% next year as consumption and investment rise, while property investment continues to fall but at a smaller pace thanks to policy support.

JAPAN (MNI): Kishida to Hold Presser Tomorrow as Political Funding Scandal Escalates

Prime Minister Fumio Kishida is expected to replace four ministers on Thursday and demote 11 other officials in a bid to contain an escalating political funding scandal, even as parliament voted down a motion of no confidence in Chief Cabinet Secretary Hirokazu Matsuno tabled by the main opposition party. Asahi reported that the announcement will be made at a press conference marking the end of the current parliamentary session, also noting that the plan is to simply replace the four ministers without conducting a full-scale Cabinet reshuffle. The press conference has been scheduled for 09:15GMT/18:15JST.

S.KOREA (BBG): Foreign Hedge Funds Retreat From Korea After Short Sale Ban

Participation by global funds in trading in South Korea’s $1.8 trillion stock market has declined since the surprise return of a ban on short selling. Foreign investors have accounted for 18% of total market turnover by value so far in December, on course for the lowest monthly level of the year, according to exchange data compiled by Bloomberg. Local funds’ share of turnover also dipped while retail investors have extended their dominance of Korean trading.

DATA

UK DATA (MNI): UK Earnings Slow, But Remain at Elevated Levels

• UK TOTAL AWE 3M OCT 7.2%
• UK AVE EARNINGS EX-BONUS 3-MO OCT 7.3%
• UK NOV PAYROLLS -13,000 TO 30.2 MLN
• UK OCT UNEMPLOYMENT RATE 4.2% (ONS EXPERIMENTAL DATA)

UK average earnings slowed more than expected in the three months to October, offering some signs to Bank of England policymakers that the labour market is cooling, albeit from an elevated level, data released by the Office for National Statistics showed Tuesday. Annual growth in regular pay (ex-bonuses) in Great Britain was 7.3% in the period to October, while growth in employees' average total pay (including bonuses) was 7.2%.

GERMANY DEC ZEW CURRENT CONDITIONS -77.1 (MNI)
GERMANY ZEW DEC ECONOMIC EXPECTATIONS 12.8 (MNI)

NORWAY DATA (MNI): Strong Start to Q4 on Surface, But Trend Still Subdued

• NORWAY OCT MAINLAND GDP +0.4% M/M, AGG GDP +2.1% M/M

The Norwegian monthly mainland GDP indicator was firmer than expected in October, printing at +0.4% M/M (vs +0.0% cons; +0.3% prior). This is also above the Norges Bank's September projections of +0.1% M/M. However, on a rolling 3M/3M basis growth was flat in the August-October window vs. May-July, continuing to point to a subdued underlying economic growth environment.

JAPAN DATA (MNI): Japan Nov CGPI Rise Slows to 0.3% vs. Oct 0.9%

• JAPAN NOV CORP GOODS PRICE INDEX +0.3% Y/Y; OCT REV +0.9%
• JAPAN NOV CORP GOODS PRICE INDEX +0.2% M/M; OCT REV -0.3%

The y/y rise in Japan's corporate goods prices index slowed to 0.3% in November from October's revised 0.9% for the 11th straight deceleration, showing that prices in the upstream continued to fall, Bank of Japan data showed Tuesday. The index rose 0.2% m/m in November vs. revised -0.3% in October. November's result, the second straight month below 1%, was the index's lowest since February 2021 when it fell 0.9% and was driven mainly by lower utility prices due to government subsidies.

AUSTRALIA DATA (MNI): Business Activity Slows But Not Labour Demand Yet

NAB business confidence fell 6 points to -9 in November, the lowest since the Covid-impacted July 2020 and well below average. Business conditions fell 4 points to +9, the lowest since the start of 2022 but above average. Despite weaker activity, labour demand remained robust with the employment component unchanged and above average. Rising costs are likely to have weighed on sentiment along with the more difficult trading conditions.

FOREX: JPY Firmer as USD/JPY Rolls Off Recovery High

• JPY is the firmest performer in G10 as markets roll off the USD/JPY top at yesterday's high of 146.59. The move in JPY looks largely idiosyncratic, as equities across the continent trade higher, and US futures point to a positive close on Wall Street. USD/JPY's fade off highs has reversed the entirety of the sources report-inspired rally early Monday, marking 144.78 as weak intraday support ahead of 144.52 and the 38.2% retracement of the post-Ueda move at 143.85.
• The USD trades poorly headed into the NY crossover, with short-setting and profit-taking evident after resistance at 104.262/263 failed to give way in the USD Index across the Friday/Monday sessions. This leaves the greenback in consolidation mode, but has allowed EUR/USD to improve, narrowing the gap with the 200-dma in the process at 1.0825.
• Antipodean currencies are trading well, taking the lead from firmer equity and, to a lesser extent, commodities prices. AUD/USD remains anchored to the 200-dma of 0.6576, with 0.6608 the first modest intraday resistance - which markets failed to meaningfully break back above after the payrolls release on Friday.
• US inflation data takes focus going forward, with markets expecting CPI to slow 0.1ppts to 3.1%, although caveated with a steady Y/Y core rate at 4.0%. ECB's Villeroy is also set to appear, however is unlikely to muse on monetary policy given the proximity to this Thursday's ECB decision.

EGBS: Off Intraday Highs But Remain Firmer; Peripheries Mixed

• Core/semi-core EGBs are off intraday highs after beginning the day firmer, lagging Gilts in the process.
• Softer-than-expected average weekly earnings data out of the UK alongside a JGB-inspired rally in the Asia-Pac session provided the initial dovish impetus.
• There were no clear headlines to promote the move off session bests for Bund and OAT futures, while order-related flow likely drove weakness in Bobl and Schatz.
• That still leaves Bund futures up 0.43 ticks today at 135.06, well short of the first resistance of 135.81 (Dec 7 high). Yields are lower across the curve, with 2s10s in France and Germany bull flattening.
• Peripheries are mixed, with the BTP/Bund spread 1.4bps tighter at 177.8bps and Greek/Portuguese spreads to Bunds wider.
• The German and Eurozone ZEW investor surveys both saw increases in their expectations components, with more German respondents looking for ECB rate cuts in the medium term. The German current situation component improved vs November but still fell short of consensus.
• The rest of today's domestic docket is light, with main focus on the US CPI report for November at 1330GMT.

GILTS: Off Early Highs, But Comfortably Firmer on Day

Gilt futures are shy of early bests, with the AHE-driven rally running out of steam alongside a pullback from best levels in Bunds.

• The latest 5-Year gilt auction saw an extension of the recent trend of generally sub-par demand, which wouldn’t have aided bulls.
• Futures last print +95, a little above 98.45. That leaves the contract ~30 ticks shy of the top of its ~50 tick range. Friday’s opening gap lower in the contract was closed during the early rally.
• An extension of the early rally would leave bulls looking to the Dec 6 high (98.97).
• Gilts yields run 7.5-9.5bp lower on the day, with the wings still lagging.
• 10-Year yields found a base around 3.95% before retracing to ~3.97%. Last week’s low at 3.941% (98.84 in futures today) and 3.90% (99.22 in futures today) present the immediate reference points on that front.
• SONIA futures last +0.5 to +12.0.
• BoE-dated OIS is little changed to 11bp softer through ’24 MPC contracts. ~23.5bp of cuts are now priced through the June ’24 MPC. ~85bp of cuts are seen through ’24 on the whole.
• STIRs are off dovish session extremes given the limited pullback in gilts.
• There isn’t much in the way of local event risk to flag for the remainder of today, with broader macro focus set to fall on U.S. CPI data.
• Tomorrow’s monthly economic activity data presents the next domestic point of note but that shouldn’t be a gamechanger for Thursday’s BoE decision.

EQUITIES: E-Mini S&P Trades at Fresh Multi-Month High

A bullish theme in Eurostoxx 50 futures remains intact and the contract continues to climb. The fresh trend high confirms a resumption of the uptrend and maintains 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 4561.00, a Fibonacci projection. Support to watch is at 4398.00, the 20-day EMA. A bullish theme in S&P e-minis remains intact and the contract has started this week on a bullish note. The break higher confirms a resumption of the uptrend and maintains the bullish price sequence of higher highs and higher lows. Note too that moving average studies are in a bull-mode position, highlighting positive market sentiment. Sights are on 4690.75, the Aug 2 high. Initial support lies at 4592.23, the 20-day EMA.

• Japan's NIKKEI closed higher by 51.9 pts or +0.16% at 32843.7 and the TOPIX ended 5.39 pts lower or -0.23% at 2353.16.
• Elsewhere, in China the SHANGHAI closed higher by 12 pts or +0.4% at 3003.438 and the HANG SENG ended 173.01 pts higher or +1.07% at 16374.5.
• Across Europe, Germany's DAX trades higher by 37.29 pts or +0.22% at 16810.09, FTSE 100 higher by 56.15 pts or +0.74% at 7587.64, CAC 40 up 27.57 pts or +0.37% at 7568.52 and Euro Stoxx 50 up 18.7 pts or +0.41% at 4552.64.
• Dow Jones mini up 80 pts or +0.22% at 36500, S&P 500 mini up 5.75 pts or +0.12% at 4629.75, NASDAQ mini up 28.25 pts or +0.17% at 16260.

COMMODITIES: Pullback in Gold Still Considered Technically Corrective

Bearish conditions in WTI futures remain intact and the latest recovery is considered corrective. The contract has recently cleared support at $72.37, the Nov 16 low. The break lower confirms a resumption of the downtrend and note too that moving average studies are in a bear-mode position, highlighting a clear downtrend. Sights are on $67.28 next, the Jun 23 low. Resistance is seen at $74.46 the 20-day EMA. The latest pullback in Gold is considered corrective and this is allowing an overbought trend condition to unwind. The next support to watch is $1978.4, the 50-day EMA. It has been pierced. A clear break would signal scope for a deeper retracement. Last week’s early gains reinforce the primary bullish condition. The yellow metal traded to a fresh all-time high of $2135.4 and this signals potential for a climb towards $2177.6 next, a Fibonacci projection.

• WTI Crude up $0.34 or +0.48% at $71.64
• Natural Gas up $0.01 or +0.49% at $2.442
• Gold spot up $4.08 or +0.21% at $1985.4
• Copper up $2.35 or +0.62% at $380.3
• Silver up $0.1 or +0.42% at $22.9132
• Platinum up $9.24 or +1.01% at $921.95