SOUTH KOREA: GDP Disappoints Paving Way for February Rate Cut.
- Korea’s fourth quarter GDP YoY print of +1.2% was below expectations of +1.4% and a contraction from Q3 result of +1.5% delivering an annualized return for 2024 of 2.0%.
- The original estimate for 2024 GDP expansion was +2.1%.
- The month on month figure of +0.1% points to the general malaise in the Korean economy (as highlighted by today’s manufacturing survey release).
- 4Q manufacturing MoM +0.1%, services +0.3%.
- The BOK unexpectedly kept rates on hold at their recent meeting, however in the accompanying press release were very clear that they are in a rate cutting cycle.
- The Korean bond market has priced in 15bps of cuts priced in on a 3 month time horizon and 49bps over the next year.
- The BOK next meets on February 25.
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AUSSIE 3-YEAR TECHS: (H5) Reversal Takes Hold
- RES 3: 96.380 - High Mar 21 2023
- RES 2: 97.190 - High May 5 2023
- RES 1: 96.730/932 - High Sep 17 / 76.4% of Mar-Nov ‘23 bear leg
- PRICE: 96.090 @ 16:27 GMT Dec 23
- SUP 1: 96.000 - Low 19 Dec ‘24
- SUP 2: 95.750 - Low 27 Nov ‘23
- SUP 3: 95.480 - Low Jan 11 2023 and a major support
Aussie 3-yr futures sold off further on the Fed decision, with the reversal off the December highs taking hold. Any stabilisation and move higher would reinstate a bullish condition and signal scope for an extension. The next key resistance is at 96.730, the Sep 17 high. For bears, a stronger reversal lower would refocus attention on 95.760 where a break would instead highlight a stronger bearish set-up.
AUSSIE BONDS: Cheaper Going Into Extended Xmas Break
ACGBs (YM -2.0 & XM -40.0) are cheaper after a heavy NY session for US tsys. Benchmark yields finished 3-7bps higher, with the 7-year leading, following mixed 2nd tier data.
- The International Monetary Fund has warned of a significant risk that inflation will stop falling due to the strong jobs market and rapidly rising public sector demand, and called for spending restraint across all tiers of government. The IMF said higher-for-longer interest rates and broad-based government spending cuts may be needed if it appeared inflation was no longer on track to hit the RBA’s 2 per cent to 3 per cent inflation target.
- Cash ACGBs are 1-4bps cheaper with the AU-US 10-year yield differential at -14bps.
- The bills strip is slightly cheaper with pricing -1 to -2 across contracts.
- RBA-dated OIS pricing shows a 25bps rate cut more than fully priced by April (112%). A 58% chance is priced for February.
- Today, the local calendar will see the release of the RBA Minutes of Dec. Policy Meeting. The local calendar market closes at 1410 AEDT ahead of the extended Xmas break.
CNH: USD/CNH Back Close To 7.3000, US-CH Yield Differentials Firmer
USD/CNH was supported in Monday trade, although much of the move was done in the first part of trade. Post the Asia close we saw selling interest emerge above the 7.3100 level (we track near 7.3080 currently). Early lows in Monday trade were close to 7.2850. Onshore USD/CNY spot finished up at 7.2960. Resistance is still evident ahead of the 7.3000 level. The CNY CFETS basket tracker edged down 0.21% to 100.93 (per BBG).
- For USD/CNH, we remain above the 20-day EMA support level. Dips towards this support level (or just below it) have been supported going back to mid Oct. It currently prevails at 7.2774. Recent highs remain intact at 7.3269.
- US-CH yield differentials remain biased higher, with US yields up in Monday trade (unrelated to US data outcomes though), while the skew for onshore yields is still lower. Onshore analysts continue to speculate around a possible RRR cut before year end, while further interest rate cuts are expected in 2025.
- We still have the 1yr MLF (no change expected from the current 2% rate) due by tomorrow (Christmas day). On Friday, Nov industrial profits print, then on Dec 31 the official PMIs are due.
- The US Biden administration announced a probe into China made semiconductor chips, but any final decision will be made by the new Trump administration (re tariffs etc), see this BBG link.
