MNI EUROPEAN MARKETS ANALYSIS: A$ & NZD Lower, US NFP Later

• US yields have been very quiet ahead of the US NFP print later. The USD is mostly higher though, particularly against NZD and AUD.
• South Korean asset markets have been volatile amid risks of a second martial law, but these were refuted by the local military. President Yoon has also lost support from his own party.
• Japan labor cash earnings were close to expectations, real household spending was better than forecast but still negative.
• The RBI kept rates on hold, but cut the cash reserve ratio. 

MARKETS

US TSYS: All Quiet Ahead of NFP.

• Cash bonds very quiet in Asian trading today with yields up 1bp in front end and lower 1bp in intermediate and longs.
• US2YR 4.156% (+1BP), 5YR 4.079% (+0.2bp),  10YR 4.176% (-0.2bp),  30YR 4.327% (-0.9bp)
• Futures were very quiet with small volumes and little movement from where they started at 111-04 for the US10YR Mar25 contract.
• Projected rate cuts into early 2025 have cool slightly, current levels vs. this morning (*) as follows: Dec'24 cumulative -18bp, Jan'25 -24.5bp, Mar'25 -39.5bp, May'25 -49.6bp.
• Non-Farm Payroll expectations tonight are for 220k, and reminder, the Federal Reserve enters their self-imposed blackout period at midnight Friday through December 19, the day after the final FOMC policy announcement for 2024.

STIR: $-Bloc Markets Softer Over The Past Week Ahead Of US Payrolls

In the $-bloc, rate expectations through July 2025 have softened 9-11bps over the past week. 

• The standout event was Wednesday’s weaker-than-expected Australian Q3 GDP.
• The Australian economy grew at 0.3% over Q3, 20bps lower than expected, and 0.8% y/y, 30bps below expectations. Growth was propped up by public sector expenditure, up 1.4%, with Government consumption and public investment both contributing to the Q3 result.
• Expectations for the September 2025 meeting have softened by approximately 35bps over the past two weeks. Despite the broader repricing, the likelihood of a December rate cut remains low, with the market assigning only a 5% probability. A 25bps rate cut is not fully priced until May. In mid-November, a full 25bps cut wasn’t expected until August.
• Looking ahead, the US calendar will see key employment data for November. We expect a soft payrolls report to cement expectations of a 25bp cut from the FOMC on Dec 18 (currently 18.5bp priced) whilst a strong report would see next week’s CPI as the decider. (See MNI US Payrolls Preview here)
• The Federal Reserve enters its self-imposed blackout period at midnight Friday.
• Looking ahead to July 2025, the projected official rates and cumulative easing across the $-bloc are as follows: US (FOMC): 3.89%, -74bps; Canada (BOC): 2.85%, -90bps; Australia (RBA): 3.85%, -47bps; and New Zealand (RBNZ): 3.35, -90bps.

Figure 1: $-Bloc STIR (%)

Source: MNI – Market News / Bloomberg

STIR: BOJ Dated OIS Slightly Softer Across Meetings Than Earlier In The Week

BOJ-dated OIS pricing continues to hold firmer across meetings versus levels prevailing ahead of the BOJ’s October 30-31 meeting. 

• However, pricing is 1-5bps softer across meetings compared to earlier in the week despite today’s labour earnings and household spending figures being a little better than expected, albeit more so in real than nominal terms.
• Yesterday, BOJ Nakamura, a known dove, stated that he wasn't against rate hikes. He would base his decision for December on data outcomes, and is watching wages, consumer spending trends and the upcoming Tankan survey result.
• Currently, OIS pricing sits 3-15bps firmer across meetings versus pre-BOJ MPM (Oct), with September 2025 leading the gains.
• For the upcoming December 18-19 meeting, pricing sits 10bps firmer than late October, reflecting a 53% probability of a 25bp rate hike. Pricing for this meeting has been influenced by recent remarks from BoJ Governor Ueda, who described the meeting as “live.”.
• Market expectations currently indicate: a 53% probability of a 25bp hike in December; a cumulative 68% chance by January; and a full 25bp increase is not fully priced in until May 2025 (+26bps).

Figure 1: BOJ-Dated OIS – Today Vs. Pre-BOJ MPM

Source: MNI – Market News / Bloomberg

JGBS: Bull-Flattener Ahead Of US Payrolls Data

JGB futures are stronger and near session bests, +8 compared to settlement levels, despite slightly better than expected domestic data.

• BOJ-dated OIS pricing continues to hold firmer across meetings versus levels prevailing ahead of the BOJ’s October 30-31 meeting.
• However, pricing is 1-5bps softer across meetings compared to earlier in the week despite today’s labour earnings and household spending figures being a little better than expected, albeit more so in real than nominal terms.
• Currently, OIS pricing sits 3-15bps firmer across meetings versus pre-BOJ MPM (Oct), with September 2025 leading the gains.
• Cash US tsys are slightly mixed, with a flattening bias, in today’s Asia-Pac session ahead of US Payrolls data. Payroll growth is expected to bounce sharply to 215k in November after October’s strike and weather-related disruption.
• Cash JGBs are little changed across benchmarks to the 7-year and 1-2bps richer beyond.
• The swaps curve has twist-steepened, pivoting at the 20-year, with rates 2bp lower to 2bps higher. Swap spreads are mixed.
• On Monday, the local calendar will see Q3 GDP (F) and Bank Lending data alongside BOJ Rinban Operations covering 1-3-year, 5-10-year and 25-year+ JGBs.
• “Japan’s 3Q GDP is likely to be revised up to show 1.7% growth (quarter-on-quarter annualized) from a preliminary estimate of a 0.9% expansion.” (per BBG)

JAPAN DATA: Real Earnings Flat, Household Spending Negative But Above Forecasts

Japan labour earnings and household spending figures were a little bit better than expected, albeit more so in real than nominal terms. The headline cash earnings print rose 2.6% y/y, same as forecast, although the prior month was revised down to a 2.5% gain (initially reported at 2.8%). Real earnings were flat against a -0.1%y/y forecast (prior revised to -0.4%). Real household spending was still negative at -1.3%y/y, but well above market expectations of a -2.5% fall (prior was -1.1%). 

• On the same sample base - cash earnings were a little below market forecasts. For cash earnings we rose 2.7%y/y (forecast 3.0%), while scheduled full time pay rose 2.8%y/y (forecast 2.9%).
• In terms of the detail, bonus payments fell -1.7%y/y, versus a 12.4% gain in Sep. Hours worked were -0.5%y/y, from -2.7% prior. Otherwise, there weren't too many shifts in the detail relative to recent trends.
• The chart below plots real household spending (white line) against real labour earnings (orange line) in y/y terms. Further positive trends into 2025 around real wages should support a pick up in household spending.
• Still, the data may not have been strong enough to shift BoJ thinking around the Dec meeting. Market pricing for that meeting sits off recent highs (less than 40% after being around 65% recently). 

Fig 1: Japan Real Labour Earnings (orange line) & Household Spend (white line)

Source: MNI - Market News/Bloomberg 

AUSSIE BONDS: Unchanged On A Typical Pre-US Payrolls Friday

ACGBs (YM flat & XM flat) are flat after dealing in narrow ranges on a data-light pre-US Payrolls Friday.

• Cash US tsys are slightly mixed, with a flattening bias, in today’s Asia-Pac session ahead of US Payrolls data. Payroll growth is expected to bounce sharply to 215k in November after October’s strike and weather-related disruption.
• Analysts are split on whether to call for a 4.1% or 4.2% unemployment rate in November after the 4.145% in October. The FOMC’s dovish shift to a 4.4% forecast for 4Q24 will likely be undershot.
• We expect a soft payrolls report to cement expectations of a 25bp cut from the FOMC on Dec 18 (currently 18.5bp priced) whilst a strong report would see next week’s CPI as the decider. (See MNI US Payrolls Preview here)
• The Federal Reserve enters its self-imposed blackout period at midnight today through December 19.
• Cash ACGBs are unchanged with the AU-US 10-year yield differential at +6bps.
• Swap rates are little changed.
• The bills strip is flat across contracts.
• RBA-dated OIS pricing is little changed across meetings. A 25bps rate cut is not fully priced until May.
• On Monday, the local calendar is empty apart from AOFM’s planned sale of A$1000mn of the 2.75% 21 November 2029 bond. 

BONDS: NZGBS: Twist-Steepener Ahead Of US Payrolls

NZGBs closed showing a twist-steepener, with benchmark yields 1bp lower to 2bps higher. With the domestic calendar empty today, price action has been driven by global bonds ahead of key US employment later today. 

• Cash US tsys are little changed in today’s Asia-Pac session ahead of US Payrolls data. Payroll growth is expected to bounce sharply to 215k in November after October’s strike and weather-related disruption.
• Analysts are split on whether to call for a 4.1% or 4.2% unemployment rate in November after the 4.145% in October. The FOMC’s dovish shift to a 4.4% forecast for 4Q24 will likely be undershot.
• We expect a soft payrolls report to cement expectations of a 25bp cut from the FOMC on Dec 18 (currently 18.5bp priced) whilst a strong report would see next week’s CPI as the decider. (See MNI US Payrolls Preview here)
• The Federal Reserve enters its self-imposed blackout period at midnight today through December 19.
• Swap rates closed 1-2bps higher.
• RBNZ dated OIS pricing closed 1-2bps firmer. 43bps of easing is priced for February, with a cumulative 105bps by November 2025.
• On Monday, the local calendar is empty, with the next key release being Mfg Activity Volume on Wednesday.

FOREX: USD Mostly Higher, NZD & AUD Underperform

The USD BBDXY sits a touch higher in the first part of Friday dealings, the index last near 1276.7. Most of the focus has been on AUD and NZD weakness, and some modest JPY gains. 

• Cross asset moves have been very muted in the US space, with US equity futures flat, while US Tsy yields haven't moved a great deal either. We have the US NFP print later, which will be key for the Dec Fed outcome. We expect a soft payrolls report to cement expectations of a 25bp cut from the FOMC on Dec 18 (currently 18.5bp priced) whilst a strong report would see next week’s CPI as the decider.
• USD/JPY is down a touch, but within recent ranges, last near 150.0. The earlier wages and household spending data may not shift BoJ thinking around a potential Dec hike. Trends remain mostly positive, but real wages are flat and real household spending is still negative.
• AUD/USD has maintained its underperforming tone, off 0.40% at this stage. We are 0.6425/30 in latest dealings. The currency has largely ignored the better HK/China equity seen so far today. The pair has been on the back foot since the Q3 GDP print earlier this week, which highlighted soft underlying private growth conditions.
• Metals in terms of iron ore and copper are also firmer today, but the AUD isn't tracking higher with these metals.
• NZD/USD is also weaker, last off 0.50%, to 0.5855/60, slightly outpacing A$ losses. AUD/NZD is slightly higher in latest dealings, up to 1.0970/75.
• We had South Korea assets sell off earlier, as the opposition party stated they had intelligence on a 2nd martial law call. However, sentiment stabilized when the South Korean military said there would be no second martial law call. President Yoon is currently meeting with the PPP leader.
• Outside of the US NFP, we also have some Fedspeak, before the blackout period kicks in. 

ASIA STOCKS: China Strong Whilst Others Mixed. 

• Chinese stocks are finishing the week strongly with the major indexes all up over 1%.  Hang Seng +1.35%, CSI 300 +1.55%, Shanghai +1.23%, Shenzhen +1.50% with some market commentators speculating that there is a chance of further stimulus announcements in the coming day.
• The KOSPI is completing a horrible week given the political turmoil and is down -0.65%
• Indonesia’s Jakarta Composite is on track for a very strong week following the BI Governors suggestion that rates are on hold, today up +0.36% and looking to finish the week +3.00%.
• Malaysia’s FTSE KLCI is on track to finish over 1% up for the week, but is off today down -0.17%.
• India is opening up to a quiet start but is on track to finish the week over 2% better just as the RBI stays on hold, whilst cutting the cash reserve ratio for banks.  

ASIA STOCKS: Taiwan and India Inflows Continue.   

• Following a period of outflows the last two days have seen strong inflows into  the larger economies with India and Taiwan the main beneficiaries. 

• South Korea: Recorded outflows of -$239m yesterday, bringing the 5-day total to -$597m. YTD flows remain positive at +$3.973bn. The 5-day average is -$119m, the 20-day average is -$155m and the 100-day average of -$151m.
• Taiwan: Experienced inflows of +$197m yesterday, with total inflows of +$1,987m over the past 5 days. YTD flows are negative at -$16.265bn. The 5-day average is +$397m, the 20-day average of -$232m and the 100-day average of -$201m.
• India: Saw inflows of +$338m as of Wednesday, with a total inflow of +$756m over the previous 5 days. YTD inflows stand at +$3.234bn. The 5-day average is  +$151m, the 20-day average of +$13m and the 100-day average of -$17m.
• Indonesia: Posted outflows of -$19m yesterday, bringing the 5-day total to -$42m. YTD flows remain positive at +$1.544b. The 5-day average is -$8m, the 20-day average is -$47m the 100-day average of +$17m.
• Thailand: Recorded outflows of -$22m as of Wednesday, totaling -$56m over the past 5 days. YTD flows are negative at -$3.818bn. The 5-day average is -$11m, the 20-day average of -$16m the 100-day average of -$5m.
• Malaysia: Experienced outflows of -$28m yesterday, contributing to a 5-day outflow of -$261m. YTD flows stand at -$444m. The 5-day average is -$52m, the 20-day average of -$38m the 100-day average of -$5m.
• Philippines: Saw outflows of -$8m yesterday, with net outflows of -$47m over the past 5 days. YTD flows are negative at -$331m. The 5-day average is -$9m, the 20-day average of -$14m the 100-day average of +$2m.

OIL: Prices Decline Further on News of OPEC+ Delay.

• OPEC+’s continued indecision around supply sees another delay to any planned increase in production for at least three months.
• OPEC+ suggests that they still intend to add supply to the market next year but for now will gradually unwind the production cuts currently in place, from April next year.
• In what appears somewhat an indecisive result, it is more a reflection of China’s economic woes and the increase in supply in the US in response to the Trump election win.
• Demand for oil has dropped for six successive reporting periods in China at a time the US output ramps up and news of new supply coming from Brazil and Canada.
• WTI had finished Wednesday at US$68.63 only to trade lower throughout the US trading day, hitting a low of $67.98 before finishing at $68.45.
• It then traded down in the morning session to $68 before recovering to $62.30.
• For the week WTI is up +0.40%.
• Brent had finished Wednesday at US$72.31to trade down at $71.80 before finishing at $72.17.
• It traded down to $71.50 in early trading before recovering to $72.00.
• For the week Brent is off -1.25%. 

GOLD: Prices Bounce on Technical Levels.

•             Gold prices moderated into the US trading day end as markets await Friday’s Non-Farm payrolls report and today have oscillated around the 20-day EMA $2,646.45 and th 50-day EMA $2,639.31 in Asian trading. 

•             Economist surveys point to a +220k payrolls result following October’s Hurricane impacted 12k result.

•             Federal Reserve Chairman Powell said ahead of Fed Blackout this week that he expects ‘officials to move cautiously as they continue to lower rates.’

•             As gold does not pay interest, rate cuts are positive as it directly impacts the financing costs for buying gold.

•             Gold opened the US trading session at US$2,649.90, slipping to $2,623.61 before recovering to $2,631.91 into the close, where it opened in Asia before bouncing mid-morning to reach $2,642.07

CHINA: Multiple Factors Supporting Bond Demand, Sub 2% 10yr Yield Likely To Stay

• China’s Finance Minister Lan Fo’an has indicated via a government publication that China will ‘accelerate bond issuance in order to speed up the use of proceeds while it resolutely curbs hidden debts.’ (per BBG).
• The addition of the CNY6tn quota for local issuance comes with it additional oversight from the Central Government to move away from off balance sheet, non-official financing.
• The uptake from the quota so far has been strong, with issuance strong particularly in longer dated securities.
• Despite this issuance, the curve has continued to flatten as yields move lower with the 10YR government bond breaking through the technical level of 2.0% this week. 

• The tailwind for bonds has been demand driven, with government policy the main player.
• Authorities have supplemented the daily 7-day reverse repo program with a direct reverse repo program with a maturity of 3 months and by all accounts, some of the proceeds from this program is going into government bonds.
• To add, the negotiable certificates of deposit (“NCD”) market has seen yields move significantly lower as a result of direct policy intervention by authorities. NCD’s are a commonly used funding tool by banks that the money market funds purchase.
• The move lower in NCD yields (1YR curve now below 1.8%) has seen a shift by some funds into the  government bond market in search of additional yield from longer dated bonds.
• The move lower in NCD rates is as a result of various policies including instructing domestic banks to lower deposit rates on deposits place with them by other financial institutions. The market dynamic now is such that bank deposits and NCD’s offer historically low yields.
• Additionally, the collapse in the yield at the front end makes bond financing for investors as cheap as it has ever been.
• When coupled with the uncertainties emanating from the White House with respect to tariffs weighing heavy on China equity markets, everything adds up to demand for bonds.   
• Chinese authorities will understand the optics of an inverted yield curve and on current trajectory, that is a possibility.
• What is more likely is further policy implementation gradually, which will likely suppress front end yields. For CGB10YR the bias is that the break sub 2.00% will be a sustained. Citi noted this week that 1.70% is a reasonable target for the 10yr yield (BBG). A medium to longer term move to 1.50% can't be ruled out. 

CHINA: Country Wrap: Stocks Rally on Stimulus Hopes. 

• Chinese Stocks Jump as Traders Position Ahead of Key Meeting (source: BBG)
• China Says Confidence Returning Ahead of Key Politburo Meeting (source: BBG)
• Chinese stocks are finishing the week strongly with the major indexes all up over 1%.  Hang Seng +1.35%, CSI 300 +1.55%, Shanghai +1.23%, Shenzhen +1.50% with some market commentators speculating that there is a chance of further stimulus announcements in the coming day.
• CNY: Yuan Reference Rate at 7.1848 Per USD; Estimate 7.2513
• Bonds:  the 10YR will finish the week comfortably below the 2.0% level at 1.95%. 

INDIA:  RBI on Hold, Says Inflation on the Rise. 

• The RBI has finally succumbed to the data and revised it’s growth forecast from 7.2% to 6.6% whilst indicating that adverse weather events and geopolitical uncertainty is likely to keep inflation higher than expected.
• RBI has cut the Cash Reserve Ratio for banks by 50bps, thereby supporting liquidity in the system which has fallen dramatically during the recent period of FX volatility.
• Governor Das noted that “MPC believes only with durable price stability can strong foundations be secured for high growth.”
• CPI is above RBI ‘s 4% target and the cash rate has now been on hold for coming up to two years.
• The 10YR government bond has reacted to the news, with yields up +4bps in early trading to 6.72%.

INDIA: Liquidity Feeds the Short End - Update. 

• Market consensus today is that the RBI is on hold held true.
• Whilst the economic data remains stronger than their ASEAN peers, there is no doubt that it is moderating.
• In addition, the recent bout of USD strength post Trump’s election has caused the RBI to defend the Rupee with US$50bn of FX reserves.
• The outcome is a stable currency, but liquidity has drained from the system with estimates that core banking liquidity has declined by three quarters (according to research from ICICI Securities – as per BBG).
• A possible outcome today from the RBI is to maintain the status quo for the Central Bank rate, but reduce the Cash Reserve Ratio (CRR) from 4.50% to 4.25%.
• The CRR is the proportion of deposits the banks deposit with the central bank.
• A CRR reduction would represent a meaningful release of liquidity, some of which is likely to end up in the bond market.
• With IGB curve has flat as it is and not trending anywhere it has been difficult to point to a catalyst for change.
• We suggested that a  CRR reduction to feed liquidity has the potential to a steepening of the curve as banks re-direct that capital into the short end of the government bond market.
• The RBI indeed did cut the CRR to 4.0% and longer dated bonds have sold off.
• We would not expect a cut to the CRR to impact markets immediately as the mechanism takes time for banks to withdraw the cash from the RBI.
• Over the coming weeks we see room now for the short end to be an area where that cash is invested and bond yields lower.

SOUTH KOREA: Country Wrap: KRW Down 1.5% on the Week. 

• Key Ally of South Korea’s Leader Now Wants Him Gone in Shift (source: BBG)
• South Korean Finance Chief Calls Recession Fears ‘Excessive’ (source: BBG)
• The KOSPI is completing a horrible week given the political turmoil and is down -0.65%
• KRW is on track to finish the week down -1.5% on political turmoil.
• Bonds are factoring in rate cuts sooner with yields lower.  2YR 2.77% (-1bp) and 10YR 2.744% (-1bp). 

UP TODAY (TIMES GMT/LOCAL) 

Date	GMT/Local	Impact	Country	Event
06/12/2024	0700/0800	**	DE	Industrial Production
06/12/2024	0700/0700	*	GB	Halifax House Price Index
06/12/2024	0745/0845	*	FR	Foreign Trade
06/12/2024	1000/1100	*	EU	Employment
06/12/2024	1000/1100	*	IT	Retail Sales
06/12/2024	1000/1100	***	EU	GDP (final)
06/12/2024	1330/0830	***	US	Employment Report
06/12/2024	1330/0830	***	CA	Labour Force Survey
06/12/2024	1415/0915		US	Fed Governor Michelle Bowman
06/12/2024	1500/1000	**	US	U. Mich. Survey of Consumers
06/12/2024	1500/1000	*	CA	Ivey PMI
06/12/2024	1530/1030		US	Chicago Fed's Austan Goolsbee
06/12/2024	1700/1200		US	BOE's Greene at Financial Times Live
06/12/2024	1700/1200		US	Cleveland Fed's Beth Hammack
06/12/2024	1800/1300		US	San Francisco Fed's Mary Daly
06/12/2024	2000/1500	*	US	Consumer Credit