MNI EUROPEAN MARKETS ANALYSIS: A$ & NZD Weaken Further

• US cash tsys yields are 1bps to 1.5bps lower across the curve, but Tsy futures volumes have been quiet as markets await the FOMC later.
• In the FX space, AUD and NZD continue to underperform, making fresh cycle lows. China and Hong Kong equities are higher, but there has been little positive follow through in terms of broader risk appetite.
• China CGB yields have rebounded, amid reports the PBoC reportedly met with onshore financial institutions to discuss bond market risks. This follows the very sharp fall in onshore yields since the start of Dec amid further easing expectations.
• Later the Fed decision is announced and a 25bp rate cut is widely expected (see MNI Fed Preview). There are also US November housing starts/building permits and Q3 current account data, as well as UK November CPI/PPI. The ECB’s Lane speaks. 

MARKETS

US TSYS: Tsys Futures Steady Ahead Of FOMC Later

• It has been another very quiet Asian session for US tsys, futures are little changed, volumes are well below recent averages. TU +00¼ and 102-28⅛, while TY is trading unchanged at 109-29.
• A bearish short-term theme in tsys futures remains intact despite Tuesday’s bounce. It is still possible that the latest pullback is a correction. Initial resistance for TY to watch is 110-19+, the 20-day EMA. A break would highlight an early bullish development. For bears, 109-22, 76.4% of the Nov 15 - Dec 6 upleg, has been pierced. A continuation lower would expose 109-02+, the Nov 15 low and key support.
• Options activity suggests rising yields, with expectations that the 10yr yield could hit 5% in Q1, driven by persistent core inflation and a higher neutral rate. T. Rowe Price have recently raised the chances the 10yr may hit 6%, citing higher budget deficits as Trump cuts taxes, the last time the 10yr hit 6% was back in 2000. Franklin Templeton & JPM Asset Management has recently stated they see the 10yr at 5%, while ING Group see the 10yr between 5-5.5% next year.
• Cash tsys curves are trading slightly steeper today with yields 1bps to 1.5bps lower across the curve. The 2yr is currently -1.3bps at 4.232%, while 10yr -1.2bps at 4.387%.
• Focus is now on tonight's FOMC rate decision, it is wildly expected there will be a 25bps cut, see MNI's Fed Preview ( here )
• Fed fund futures are currently pricing in a 95% chance of a 25bps cut today, with the next full cut not priced in until June 2025 (56.5bps), looking further out the curve the market has priced in a cumulative 72.6bps of cuts through to December 2025.
• Ahead of FOMC tonight we have MBA Mortgage Applications, Housing Starts & Building Permits.

JGBS: Little Changed, FOMC Tonight, BoJ Policy Decision Tomorrow

JGB futures are stronger, +10 compared to settlement levels.

• Outside of the previously outlined trade balance data, there hasn't been much by way of domestic drivers to flag.
• The focus remains on tomorrow’s BoJ policy decision, with the broad consensus expecting no change to policy settings.
• Towards late November, market pricing for the meeting outcome stood at over 60% in terms of a 25bps hike priced in. This has fallen back sharply though as we have gotten closer to the meeting date, last around 14% probability priced for a full rate hike.
• In terms of what has shifted sentiment around the likely meeting outcome, it has more reflected press articles, along with BoJ commentary, as opposed to shifts in data outcomes. (See MNI BoJ Preview here)
• Cash US tsys are ~1bp richer in today’s Asia-Pac session ahead of today's FOMC policy decision.
• Cash JGBs are slightly richer across benchmarks. The benchmark 10-year yield is 0.1bp lower at 1.083% versus the cycle high of 1.108%.
• The swaps curve has twist-steepened, pivoting at the 20-year, with rates 1bp lower to 3bps higher.
• Tomorrow, the local calendar will also see Weekly International Flow and Tokyo Condominiums For Sale data.

BOJ: MNI BoJ Preview - Dec 2024: Pushing Further Tightening Into 2025

EXECUTIVE SUMMARY

• The broad consensus for the BoJ policy meeting outcome on Thursday is for no changes in policy settings.
• Towards late November, market pricing for the meeting outcome stood at over 60% in terms of a 25bps hike priced in. This has fallen back sharply though as we have gotten closer to the meeting date, last around 14% probability priced for a full rate hike.
• In terms of what has shifted sentiment around the likely meeting outcome, it has more reflected press articles, along with BoJ commentary, as opposed to shifts in data outcomes.
• Our onshore policy team in Japan has also noted political considerations in terms of potentially holding fire for a near term rate hike. Media outlets have also hinted that the central bank doesn’t see an urgent need to raise interest rates in the near term, but this didn’t mean a December hike wouldn’t be considered/discussed.
• The FOMC announces its policy decision before the BoJ tomorrow. A 25bps cut is widely expected by the Fed. A surprise hold would boost the USD and drive USD/JPY higher, which could prompt a BoJ rethink at tomorrow’s outcome.
• Full preview here

STIR: BOJ Dated OIS Gives Little Chance Of A Hike Tomorrow

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

• Currently, OIS pricing sits flat to 12bps firmer across meetings versus pre-BOJ MPM (Oct), with September 2025 leading the gains.
• For tomorrow’s decision, pricing is flat versus late October, reflecting only a 14% probability of a 25bp rate hike. Pricing for this meeting has softened from a 50:50 chance in early December.
• Market expectations currently indicate: a 14% probability of a 25bp hike in December; a cumulative 54% chance by January; and a full 25bp increase is not fully priced in until May 2025.

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

Source: MNI – Market News / Bloomberg

JAPAN DATA: Exports Up But In Line With Regional Trends, Trade Deficit Improves

Japan Nov trade figures were better than forecast. Export growth rose 3.8%y/y, versus 2.5% forecast and 3.1% prior. Imports fell though -3.8%y/y, against a 0.8% forecast and 0.4% prior. The trade deficit was narrower as a result at -¥117.6bn, versus -¥687.9bn forecast. Still, in seasonally adjusted terms the deficit was -¥384.2bn, only slightly better than the -¥432.8bn market expectation. 

• Japan's export growth outcome of 3.8%y/y is in line with other north east Asia economies, with export growth mostly off the boil compared to earlier in 2024.
• By country/region, exports were up 4.1%y/y to China but down -12.5%y/y to the EU and -8.0%y/y to the US. In volumes terms, we were still down to China though, -6.4%y/y. The only region that recorded positive y/y growth was Asia. Aggregate export volumes were -0.1%y/y for Nov. Import volumes were negative in y/y terms, but showed better trends in nominal/seasonally adjusted terms.
• The unadjusted trade deficit was the best result since mid year, but in seasonally adjusted terms is down from recent highs. 

AUSSIE BONDS: Slightly Richer After MYEFO Ahead Of FOMC

ACGBs (YM +1.0 & XM +1.0) are slightly richer after the release of the Federal Government’s MYEFO.

• There are few changes to the economic forecasts with them focused on the current financial year reflecting actual data outcomes. The deficit in FY25 has been revised slightly lower but remains at 1% of GDP. However, the subsequent years are showing a worse deficit trajectory and as a result higher debt ratios.
• From FY26 the deficit is now forecast to be larger. FY26 has been revised up 0.1pp to 1.6% of GDP, FY27 0.4pp to 1.3% and FY28 0.2pp to 1.0%. This is predominantly due to policy decisions with them accounting for around 80% of the aggregate $21.7bn deterioration in the budget to FY28.
• The headline inflation outlook is unchanged at 2.75% in FY25 and FY26 but wage increases have been revised lower.
• Cash US tsys are ~1bp richer in today’s Asia-Pac session ahead of today's FOMC policy decision.
• Cash ACGBs are 1-3bps richer with the 3/10 curve steeper and the AU-US 10-year yield differential at -10bps.
• The bills strip is slightly richer, with pricing +1 to +3.
• RBA-dated OIS pricing shows a 25bp rate cut more than fully priced by April (118%).
• Tomorrow, the local calendar will see Consumer Inflation Expectations data.

AUSTRALIA: Worse Deficit Path, Treasury Expects Lower Public Demand Than RBA

The federal government has published its FY25 Mid-year Economic and Fiscal Outlook with revised economic and fiscal forecasts. There are few changes to the economic forecasts with them focused in the current financial year reflecting actual data outcomes. The deficit in FY25 has been revised slightly lower but remains at 1% of GDP. However, the subsequent years are showing a worse deficit trajectory and as a result higher debt ratios. Public demand has been revised up but Treasury’s projections remain materially below the RBA’s.

• From FY26 the deficit is now forecast to be larger. FY26 has been revised up 0.1pp to 1.6% of GDP, FY27 0.4pp to 1.3% and FY28 0.2pp to 1.0%. This is predominantly due to policy decisions with them accounting for around 80% of the aggregate $21.7bn deterioration in the budget to FY28.
• The RBA has not been concerned about the inflationary impact from fiscal policy to date. The MYEFO is unlikely to change this but there is an 18% increase in the aggregate deficit from May.
• Gross debt-to-GDP is only expected to be 0.1pp higher in FY24 at 34% but then rise 2pp to 36% next financial year and then stabilising at 36.7%. Whereas in the May budget it was forecast to begin declining from FY28.
• GDP growth has been revised down 0.25pp to 1.75% in FY24, driven by private consumption, but the subsequent years are unchanged and continue to show a recovery at 2.25%, 2.5% and 2.75%.
• Treasury revised up public demand while revising lower private growth. Public is now forecast to grow 3.75% in FY25 up from 1.5% in the May budget and 2.25% in FY26 up from 1.5%. However, the RBA’s November forecasts are at around 4.2% and 3.4% respectively.
• The headline inflation outlook is unchanged at 2.75% in FY25 and FY26 but wage increases have been revised lower. Employment growth has been revised up 1pp in FY25 but down 0.25pp in the subsequent two years. Migration for this year has been revised up substantially, while next year is unchanged.

AUSTRALIA DATA: Westpac Lead Index Pointing To Recovery

The Westpac leading index for November rose 0.05% m/m to be up 0.3% 6m/6m annualised after +0.17% and 0.2% respectively in October. Westpac observes that the 6-month rate leads detrended growth by three to nine months and so the index is signalling some recovery around mid-year but with growth remaining soft. Westpac is forecasting growth to pick up to 2.2% y/y by end-2025 from Q3’s 0.8%.

• The leading index reported a rise in six of its eight components in November concentrated in the domestic economy. There were improvements in consumer confidence, the assessment of unemployment expectations, dwelling approvals and Australian equities. While commodity prices and US IP detracted. Commodity prices could see further falls next year.
• With the labour market still looking tight and significant uncertainty over the productivity outlook, Westpac continues to expect the first RBA rate cut in May.

Australia Westpac lead indicator 6/6m ann % vs GDP 2q/2q%

BONDS: NZGBS: Bull-Flattener Ahead Of FOMC, Q3 GDP Tomorrow

NZGBs closed showing a modest bull-flattener, with yields flat to 3bps lower across benchmarks.

• NZ Q3 GDP is released tomorrow with the production measure forecast to fall 0.2% q/q, the second consecutive quarterly decline. This would leave the annual rate at -0.4% slightly better than Q2’s -0.5%. While consensus is in line with the RBNZ’s November forecast, local banks are more pessimistic. Either way, further monetary easing is likely, including a possible 50bp at the February 19 meeting.
• Projections from analysts surveyed by Bloomberg are between +0.1% and -0.4% q/q with annual growth +0.1% to -0.5%. Most are forecasting a contraction of 0.2-0.4% q/q.
• ASB, ANZ, BNZ and Westpac all expect an outcome worse than consensus at -0.4% q/q & -0.5% y/y, while Kiwibank is projecting -0.3% q/q and -0.4% y/y. This trend in domestic forecasts signals a possible downside surprise to Bloomberg consensus.
• If GDP is in line with consensus, then the NZ economy would be in a technical recession, which last occurred over Q4 2022/Q1 2023. Growth has stagnated since then.
• Swap rates closed 2-3bps lower.
• RBNZ dated OIS pricing shows 45bps of easing is priced for February, with a cumulative 110bps by November 2025.
• Tomorrow, the local calendar will also see ANZ Business Confidence.

NEW ZEALAND: Current Account Position Continues Gradual Improvement

NZ’s Q3 current account deficit narrowed to $6202mn from $7094, the lowest in over three years. This brought the ratio to GDP down to 6.4%, better than expected and consistent with the RBNZ’s Q1 2025 forecast of 6%. There has now been an improvement of 2.8pp since the 9.2% peak in Q4 2022. With domestic demand weak, growth in imports of goods and services ran below exports. Q3 GDP released Thursday is forecast to fall again.

• Imports of goods and services rose 0.2% y/y down from 1.2% in Q2. The weakness is being driven by merchandise which fell 4.0% q/q and 2.4% y/y, its sixth consecutive annual decline. Given the data are nominal lower global oil prices would have weighed on import values, but petrol volumes were higher. There were also lower car imports. Services were stronger rising 1.5% q/q and 7% y/y up from 5.4% y/y.
• Exports rose 2.8% y/y up from 2.0% with the 0.5% q/q increase driven by services. They rose 3.0% q/q but fell 0.7% y/y due to negative base effects. Merchandise shipments fell 0.6% q/q but were 4.4% y/y higher.
• The primary income deficit narrowed $120mn to $3.5bn as NZ investors earned more from overseas than foreign investors in NZ. 

NZ current account % GDP YTD

Source: MNI - Market News/Refinitiv

FOREX: AUD & NZD Weakness Continues, Fresh Cycle Lows

AUD and NZD weakness has again been a feature of G10 FX trade today. Both pairs have made fresh cycle lows. The BBDXY index is little changed and is holding above 1289 at this stage. 

• AUD/USD has fallen to 0.6310/15, fresh lows back to oct last year. We are off around 0.30% versus end Tuesday levels in NY. We had the Mid-Year Economic and Fiscal Outlook, the FY26 deficit has been revised up 0.1pp to 1.6% of GDP, FY27 0.4pp to 1.3% and FY28 0.2pp to 1.0%. This, along with soft growth expectations is a likely AUD negative.
• The metals backdrop is softer, with iron ore and copper weaker, continuing the recent softness in this space.
• Regional equity sentiment is mixed, China/HK markets are higher but this isn't helping the higher beta plays. For AUD/USD next support will be eyed at 0.6300.
• NZD/USD is back to 0.5740, off by the same amount as AUD. NZD/USD appears stuck in a falling wedge within a broader bearish trend, showing mixed signals with Monday’s morning star pattern followed by Tuesday’s bearish reversal. There isn't much support for the pair until 0.5600.
• USD/JPY has drifted lower this afternoon, last back around 153.40/45, little changed for the session. We are still above intra-session lows from Tuesday (153.16). EUR/USD has edged up slightly, last back above 1.0500.
• US yields have ticked down, losses a little beyond 1bps at this stage, which may helping EUR and JPY. US equity futures opened lower but are now modestly higher.
• Looking ahead, the Fed decision is announced and a 25bp rate cut is widely expected. There are also US November housing starts/building permits and Q3 current account data, as well as UK November CPI/PPI. The ECB’s Lane speaks.

JPY: Overnight Vols Spike But Sub 2024 Highs

Not surprisingly, USD/JPY overnight implied vols sit elevated. We were last around 24%. This comes ahead of tomorrow's BoJ meeting outcome and while this level is above what prevailed prior to previous BoJ meetings this year, we of course have the Fed meeting out late on Wednesday US time as well. 

• Overnight vols are also still earlier 2024 highs, which were in the 35-40% region. The implied range on USD/JPY is 152.21-154.69 for the next 24 hours or so, based off a 77.4% probability.
• This fits with a no change expected from the BoJ tomorrow, while the Fed is widely expected to cut. More focus is likely to be on the 2025 outlook. This may deliver fresh USD/JPY shifts but may not be trend changing.
• Longer term implied vols are painting a more benign picture with the 1 and 3 month both around 10%, close to recent lows. It's a similar backdrop for 6 month and 1yr impliedsvols, although we sit more elevated relative to earlier in 2024, see the chart below).
• Uncertainty around US policies, the Fed outlook and the BoJ outlook into 2025 are likely driving such trends
• In the risks reversal space we sit off recent highs but still comfortably with a negative skew. We are comfortably away from 2024 extremes. 

Fig 1: USD/JPY Vols - Overnight Spiking Ahead Of FOMC & BOJ 

Source: MNI - Market News/Bloomberg 

JPY: USD/JPY Dips Have Tended To Be Supported Post BoJ Meetings In 2024

USD/JPY sits slightly higher in latest dealings, last 153.65/70, but remains comfortably within recent ranges. We are some distance from the 20-day EMA support point, 152.24. Recent highs rest at 154.48. We have key event risks coming up in terms of the Fed decision later today and then tomorrow's BoJ meeting outcome. 

• The clear market bias is for the Fed to cut and the BoJ to hold steady. This is also the market pricing skew, which may leave the respective outlooks presented by these central banks as the bigger USD/JPY driver.
• Looking back at USD/JPY trends before and after 2024 BoJ meeting outcomes we have generally seen USD/JPY dips supported post the meeting outcomes.
• The chart below plots USD/JPY in the 10days before and after each meeting outcome (with the pair indexed to 100 on the meeting day). Indeed, on average USD/JPY is around 0.75% higher in the two weeks after BoJ meetings this year.
• The main two exceptions were the April and July meetings. The July meeting delivered a surprise hike.
• We could of course see the Ueda led board deliver a surprise hike tomorrow but after the July experience, where Japan asset markets sold off aggressively (in part due to the BoJ move), the central bank may be cautious around delivering another fresh surprise.
• The general outlook around a resilient US economic backdrop (and the subsequent flow on effect to the Fed), coupled with a gradual BoJ approach to tightening policy, has supported USD/JPY dips in 2024. History may repeat tomorrow if we don't see Ueda hawkish enough relative to current market expectations. 

Fig 1: USD/JPY Performance Around BoJ Meetings This year - Trading Days 

Source: MNI - Market News/Bloomberg 

EQUITIES: Asian Equities Trade Mixed, Nissan Surges On Merger Talks

Asian markets traded mixed today as investors await the Fed's final policy decision of the year. The MSCI Asia Pacific Index rose 0.5% before paring gains, led by rebounds in Hong Kong and South Korea, while Japan and Australia saw small declines. Hong Kong-listed Chinese tech stocks gained over 1%, shrugging off news of a US trade investigation into Chinese semiconductors, while Chinese state-owned stocks rose on new regulatory guidelines linking management assessments to stock performance.

• Japan’s Nissan Motor surged 24% on reports of a possible merger with Honda, though broader Japanese equities remained mixed with the Nikkei -0.55%, while the TOPIX is -0.20% lower. South Korea’s Kospi jumped 1%, supported by gains in tech giants like Samsung, Taiwan's TAIEX is trading flat.
• China & Hong Kong equities are higher today, small-caps are playing catch up after underperforming yesterday, while gains were also supported by regulatory guidelines tying Chinese state-owned firms' management performance to stock value, boosting central state-owned equities, the CSI Central SOE Index is trading 1.20% higher, elsewhere the CSI 300 is 0.50% higher, while the HSI is trading 0.60%
• US equity futures are slightly higher today after the S&P 500 and Nasdaq 100 both fell 0.4% overnight.
• Traders are cautious ahead of the Fed’s decision, it's wild expected there will be a 25bps rate cut, main focus will be on guidance for 2025 amid economic uncertainty and inflation concerns. Meanwhile, Indonesia’s & Thailand's central banks are set to announce its policy decision later today, followed by the BoJ tomorrow.

ASIA STOCKS: Asian Equity Flows Mixed, Investors Continue Selling Samsung

South Korea saw large outflows again on Tuesday, with majority of them coming from Samsung as the stock continues to sell off. Indonesia also continues to see outflows, with the past four sessions seeing a net outflow of $365m

• South Korea: Recorded outflows of $574m yesterday, with a 5-day total of -$1.27b. YTD flows remain positive at +$2.87b. The 5-day average is -$254m, worse than the 20-day average of -$141m and the 100-day average of -$160m.
• Taiwan: Saw inflows of $191m yesterday, but a 5-day total of -$396m. YTD flows remain deeply negative at -$16.83b. The 5-day average is -$79m, better than the 20-day average of -$112m and the 100-day average of -$138m.
• India: Posted inflows of $22m Monday, with a 5-day total of +$192m. YTD flows are positive at +$1.10b. The 5-day average is +$38m, lower than the 20-day average of +$167m but better than the 100-day average of -$27m.
• Indonesia: Recorded outflows of $102m yesterday, with a 5-day total of -$333m. YTD flows remain positive at +$1.23b. The 5-day average is -$67m, worse than the 20-day average of -$33m but better than the 100-day average of +$13m.
• Thailand: Saw outflows of $16m yesterday, with a 5-day total of -$176m. YTD flows are negative at -$4.09b. The 5-day average is -$35m, worse than the 20-day average of -$18m and the 100-day average of -$8m.
• Malaysia: Experienced outflows of $82m yesterday, with a 5-day total of -$273m. YTD flows are negative at -$797m. The 5-day average is -$55m, close to the 20-day average of -$52m but worse than the 100-day average of -$9m.
• Philippines: Posted outflows of $23m yesterday, with a 5-day total of -$57m. YTD flows remain negative at -$374m. The 5-day average is -$11m, worse than the 20-day average of -$7m and the 100-day average of +$1m.

Table 1: EM Asia Equity Flows

OIL: Crude Steady Ahead Of Fed Decision Later

Oil prices are little changed today ahead of the Fed decision and are holding onto this week’s losses driven by soft China data and weaker risk appetite. They have found some support from an earlier reported US inventory drawdown. WTI is up 0.1% to $70.13/bbl after a low of $70.05 and a high of $70.34. Brent is slightly higher at $73.23 following a peak of $73.43. The USD index is flat.

• With attention on the supply side, Bloomberg reported that there was a US crude inventory drawdown of 4.7 million barrels last week, larger than expected, according to people familiar with the API data. Product stocks continued to rise though with gasoline 2.4mn barrels higher and distillate +744k. The official EIA data is out later today.
• Sanctions are tightening on Russian crude exports with the EU adding over 50 ships to its blacklist and now the UK has announced measures aimed at key players in Russia’s oil industry and also its shadow fleet. The US is also looking to lower its price cap.
• The effect of the incoming Trump administration on oil prices remains unclear with increased US supply likely but also increased sanctions on Iran reducing its ability to export. The uncertainty is contributing to crude’s current range trading, according to Westpac.
• Later the Fed decision is announced and a 25bp rate cut is widely expected (see MNI Fed Preview). There are also US November housing starts/building permits and Q3 current account data, as well as UK November CPI/PPI. The ECB’s Lane speaks. 

GOLD: Steady Ahead Of FOMC Decision

Gold is slightly weaker ahead of the Federal Reserve’s upcoming rate decision, with traders watching for clues about next year’s monetary policy path. Gold is 0.1% lower in today’s Asia-Pac session , after closing 0.2% lower at $2646.83 on Tuesday.

• While markets widely expect officials to announce another quarter-point cut, what will happen in 2025 isn’t clear as policies by the incoming Donald Trump administration may hinder further easing. Lower rates are typically positive for gold, which doesn’t pay interest.
• There are varying opinions on the path of rates ahead and the number of cuts that the Fed will signal in its Dot Plot for 2025. We go through what to watch for in detail in our MNI Fed Preview here.
• The precious metal has risen by more than 28% this year, putting it on track for its biggest annual gain since 2010. Its strength has been supported by monetary easing in the US, safe-haven demand and sustained buying by the world’s central banks. 

CHINA RATES: Yields Up, Reports PBoC Discuss Bond Risks With Local Institutions

China bond yields are edging higher, particularly at the back end of the curve. This follows headlines from onshore media outlet, 21st Century Business Herald, which stated that the PBoC had met with local financial institutions to discuss bond market risks. 

• BBG notes: "The People’s Bank of China has urged trading firms in the bond market to pay close attention to relevant risks including rates, according to a report by 21st Century Business Herald, citing unidentified people."
• The 30-yr bond yield is up around 3bps, last near 1.98%, the 10yr, back close to 1.74% (+2bps).
• The comes after the relentless drop in onshore CGB yields in recent weeks, amid expectations of further monetary easing as the PBoC bias shifted. We have also noted asset allocation flows have likely helped bonds.
• Recent lows in the 30yr were near 1.94%, for the 10yr at 1.72%. At the start of Dec, the 10yr yield was above 2%, while the 30yr was above 2.20%.

INDONESIA: Today’s BI Decision Close Call As USDIDR Rises Further

Bank Indonesia’s (BI) December decision is announced later today and analysts are split as to the outcome. 21 of respondents on Bloomberg are expecting rates to be left at 6.0%, while 13 are forecasting a 25bp cut following the first one in September. We expect policy to be unchanged given that BI is currently focusing on FX and financial stability and USDIDR has been trading above 16000 all week (see MNI BI Preview).

• In the November statement BI said that “the focus of monetary policy is on Rupiah stability in response to increasing geopolitical and global economic uncertainty”. The currency has weakened partly due to the stronger US dollar following Trump’s US election win but there are also concerns about the impact of increased protectionism on Asian economies and the fiscal outlook under new Indonesian President Prabowo.
• USDIDR is currently around 16118, up 1.9% since the November 20 BI meeting and 0.8% since last Friday. It is also weaker in trade weighted terms with the JP Morgan IDR NEER down 1.0% since the last meeting.
• The last time USDIDR was above 16000 was in August but it was trending lower then, whereas it is currently trending higher, which is likely to worry BI.
• BI can focus on FX as it has other tools to support growth apart from rates. It has already been buoying the economy with macroprudential policies to boost lending and jobs. Q3 GDP slowed slightly to 4.9% y/y from 5.0%.
• While headline inflation is close to the bottom of the 1.5-3.5% BI target band, core is trending gradually higher and BI expects both to stay in the corridor next year.

THAILAND: BoT Likely To Defy Political Pressure To Cut Rates

The Bank of Thailand (BoT) is widely expected to leave rates at 2.25% today after cutting them 25bp in October (see MNI BoT Preview). It has been clear that a neutral stance is consistent with both the growth and inflation outlook. Governor Sethaput also said that the bar is “reasonably high” for further easing. Headline inflation is gradually returning to the bottom of the 1-3% band and growth appears to be improving.

• Growth has trended higher over the last year which gives BoT room to hold rates despite ongoing political pressure. Q3 GDP rose 1.2% q/q (sa) lifting the annual rate to 2.9% from 2.2%, the highest in two years. It was supported by government spending, investment and exports, while private consumption growth slowed.
• Consumer confidence is signalling a possible turn in household spending plus fiscal measures should provide support for a recovery. Tourism numbers are also expected to continue growing.
• However business and consumer confidence close to neutral plus downside risks to the export outlook from the threat of protectionism may derail Thailand’s tentative recovery. Fiscal policy is likely to remain supportive though.
• Inflation has been very low at 0.9% y/y and 0.8% y/y in November for headline and core respectively. BoT expects the former to reach the band in December (released January 6) supported by higher food prices due to weather events and energy from base effects. Imported inflation is negative though.
• There had been some talk of changing BoT’s target band but it was agreed to leave it at 1-3%.

UP TODAY (TIMES GMT/LOCAL) 

Date	GMT/Local	Impact	Country	Event
18/12/2024	0700/0700	***	GB	Consumer inflation report
18/12/2024	0700/0700	***	GB	Producer Prices
18/12/2024	0700/1500	**	CN	MNI China Money Market Index (MMI)
18/12/2024	0900/1000		EU	ECB's Lane in fireside chat at MNI Connect Event
18/12/2024	1000/1100	***	EU	HICP (f)
18/12/2024	1000/1100	**	EU	Construction Production
18/12/2024	1100/1100	**	GB	CBI Industrial Trends
18/12/2024	1200/0700	**	US	MBA Weekly Applications Index
18/12/2024	1330/0830	*	US	Current Account Balance
18/12/2024	1330/0830	***	US	Housing Starts
18/12/2024	1530/1030	**	US	DOE Weekly Crude Oil Stocks
18/12/2024	1900/1400	***	US	FOMC Statement
19/12/2024	2145/1045	***	NZ	GDP
19/12/2024	-		NO	NorgesBank Meeting
19/12/2024	0001/0001	*	GB	Brightmine pay deals for whole economy
19/12/2024	0300/1200	***	JP	BOJ Policy Rate Announcement
19/12/2024	0700/0800	*	DE	GFK Consumer Climate
19/12/2024	0745/0845	**	FR	Manufacturing Sentiment
19/12/2024	0830/0930	***	SE	Riksbank Interest Rate Decison
19/12/2024	0900/1000	***	NO	Norges Bank Rate Decision
19/12/2024	0900/1000	**	EU	EZ Current Account
19/12/2024	1200/1200	***	GB	Bank Of England Interest Rate
19/12/2024	1200/1200		GB	BOE MPS and Minutes
19/12/2024	1200/1200		GB	BOE Agents' summary of business conditions
19/12/2024	1200/1200	***	GB	Bank Of England Interest Rate
19/12/2024	1330/0830	***	US	Jobless Claims
19/12/2024	1330/0830	***	US	GDP
19/12/2024	1330/0830	*	CA	Payroll employment
19/12/2024	1330/0830	**	US	Philadelphia Fed Manufacturing Index
19/12/2024	1330/0830	**	US	WASDE Weekly Import/Export