MNI EUROPEAN MARKETS ANALYSIS: Equities Lower, AUD Bounces

• Asian equities have opened lower in the first trading session for the year for some regions. Hong Kong & China equities are the worst performing, following weaker than expected PMI data, while Donald Trump’s tariff threats weighed on sentiment
• In FX, the AUD is the top performing currency up 0.50% after testing 2022 lows yesterday.
• Oil prices are up today buoyed by data showing a US crude drawdown, but they are off their intraday highs weighed by another disappointing China manufacturing PMI

MARKETS

US TSYS: Tsys Futures Pare Earlier Losses, Cash Trading Closed

• Tsys futures opened the session lower, with all contracts trading below Dec 31 lows, we have however seen a reversal over the past few hours and now trade little changed, volumes are below average, although this isn't surprising as cash trading is closed with Japan out. TU is -00⅜ at 102-25⅜, while TY is trading -00+ at 108-23+
• The trend condition in Treasury futures remains bearish despite the intraday rally into the Monday close. The gains made heading into year-end are considered corrective below the 109-12 20-day EMA. The 10yr contract has traded through key short-term support and the bear trigger at 109-02+, the Nov 15 low. The breach confirms a resumption of the downtrend and opens 108+12+, a Fibonacci projection.
• Cash tsys yields closed December 31 higher, with the 10yr trading to 4.569% just off the monthly highs of 4.635%. The 2s10s curve is at its steepest levels for the past year at 32.5bps, while the 2s30s closed the year at 54bps, just shy of its steepest levels set back in September of 60bps.
   

AUSSIE BONDS: Heavy Session On A Newsflow Light Day, AUD At 2022 Lows

ACGBs (YM -6.0 & XM -7.5) are holding weaker and hovering near Sydney session lows on the first trading day of 2025. 

• With the local calendar fairly light (House Prices and Manufacturing PMI), current weakness may be influenced by light holiday trading volumes and movements in US tsy futures.  TYH5 is currently dealing -0-01+ at 108-22+ after trading as low at 108-18 in the As-a-Pac session. There has been no cash US tsy dealing in today’s Asia-Pac session with Japan out for an extended New Year’s break.
• The AUD has approached its 2022 low of 0.6170 against the USD today, trading as low as 0.6183 before recovering slightly to around 0.6215. Analysts attribute this weakness to several factors, including economic challenges in China, a strengthening US dollar, and potential trade policies from the incoming US administration.
• Cash ACGBs are 5-7bps cheaper, with the 3/10 curve steeper.
• Swap rates are 5bps higher.
• The bills strip is slightly cheaper, with pricing -1 to -3.
• RBA-dated OIS pricing is flat to 2bps firmer across meetings. A 25bps rate cut is more than fully priced by April (124%), with the chances of a February cut at 59%.
• Tomorrow, the local calendar is empty. The next release is the S&P Global Composite & Services PMIs on Monday. 

EQUITIES: China & Hong Kong Equities Struggle, Macau Gaming Revenue Drops

• Chinese stocks opened 2025 on a weak note, with the CSI 300 Index struggling to gain momentum despite December's liquidity support from the PBOC. Investor sentiment remains muted as concerns persist over Macau's underwhelming recovery and a lack of enthusiasm for the economic outlook. With the Lunar New Year approaching, a PBOC-driven positive surprise may be needed to reignite market interest.
• Macau casino stocks dropped as December gaming revenue fell 2%, missing estimates amid increased scrutiny during President Xi Jinping’s visit. Annual gaming revenue for 2024 rose 24% to 226.8b patacas but remains below pre-pandemic levels. Shares of Galaxy Entertainment, Sands China, and Melco International fell 1.8%-2.7%
• China's manufacturing activity slowed in December, with the Caixin PMI falling to 50.5 from 51.5, below expectations of 51.7, reflecting a slower expansion amid external challenges. President Xi Jinping highlighted the economy's stability and the 2024 growth target of about 5%, while concerns grow over potential tariffs under Donald Trump's return to office.

EQUITIES: Asian Equities Mixed To Kick The Year, Japan Remains Out

LNG: Sharp Rise In European Gas Prices Ahead Of End To Russian Flows

European natural gas prices rose sharply on the last day of 2024 with the agreement allowing the transit of Russian gas through Ukraine due to expire the next day. An alternative has yet to be sorted and Gazprom announced that flows halted on Wednesday. There are also concerns that a shift to colder weather in January will also increase the rate of inventory drawdown with storage levels currently under 75%.

• European gas rose 5.6% on Tuesday to EUR 50.23 to be up 5.7% in December and the highest level in 2024 to be 32.1% higher on the year.
• Slovakia, Austria and Moldova will be particularly impacted by the end of Russian pipeline flows through Ukraine, but there are concerns that energy bills will also rise in the UK.
• Russian supplies on this route are estimated to account for around 5% of European consumption, according to Bloomberg. Europe aims to replace this gas with increased LNG imports and flows from Norway, but this makes them more vulnerable to global supply disruptions. One Russian pipeline that supplies Serbia and Hungary remains in operation. The one into Poland is shut.
• European Commission President von der Leyen aims to end EU use of Russian fuels by 2027. The EC said that the group knew the deal would end on January 1 and is prepared.
• In contrast, US gas fell 7.7% to $3.63 after soaring 15.8% on Monday on forecasts for colder weather. It ended the month 22.2% higher. Snow and ice are still expected for the eastern and central US, according to AccuWeather.

FOREX: A$ & NZ$ Outperform As Greenback Moderates

After underperforming on Tuesday, Aussie and Kiwi are outperforming the rest of the G10 against the greenback during today’s APAC trading. The BBDXY USD index is close to its intraday low to be down 0.2% after it finished 2024 strongly. 

• AUDUSD rose back above 62c to be up 0.5% at 0.6217 after a high of 0.6223. It is trading back above resistance at 0.6199. A notional A$620mn of options expired today with a strike of 0.6175. The S&P Global December manufacturing PMI was revised down to 47.8 and CoreLogic December home values fell 0.2% m/m.
• NZDUSD is 0.4% higher at 0.5618, close to the intraday high, leaving AUDNZD little changed at 1.1065. NZ markets have been closed today.
• USDJPY is 0.1% lower at 157.08, close to the intraday low, after a high of 157.78 early in the session. AUDJPY has trended lower after reaching 97.93 and is currently up 0.3% to 97.66. Japan has also been shut today.
• European currencies are stronger against the greenback with EURUSD up 0.2% to 1.0373, GBPUSD +0.2% to 1.2539 and USDNOK -0.2% to 11.36. EURGBP is down slightly to 0.8273.
• Later US jobless claims, November construction spending and S&P Global final December manufacturing PMI, European December manufacturing PMIs and euro area November M3 data print.

INDONESIA: Inflation Contained, BI To Focus On FX Stability

To one decimal place Indonesian headline inflation picked up 0.1pp to 1.6% y/y but actually it was only 0.02pp higher. It continues to hover just above the bottom of Bank Indonesia’s (BI) 1.5-3.5% target band. Core CPI inflation was unchanged at 2.3% y/y. BI next meets on January 15 and with USDIDR up 1% since the last meeting to 16220, another rate cut is looking less likely.

• There was a pickup in annual inflation rates for food, drinks & tobacco, eating out and healthcare, while transportation fell to -0.3% y/y from 0% and personal care and recreation were also lower. All categories were either higher or unchanged on the month in December with food, drinks & tobacco and healthcare posting the largest monthly rises.
• Core was driven by higher gold jewellery, cooking oil, coffee and home rents.
• The central bank expects inflation to remain within its corridor in 2025 and so this data is unlikely to change its focus on FX stability. While it will be concerned about USDIDR staying above 16000, it should be reassured by the JP Morgan NEER rising 1.3% since December 19. A significant amount of the USDIDR move is due to the stronger greenback. The USD BBDXY index is up 0.3% since December 19.
• The December S&P Global PMI showed the weaker rupiah boosting cost pressures and firms maintaining margins by increasing selling prices for the third straight month.
• Headline inflation moderated 1pp over 2024 while core rose 0.6pp. 

Indonesia CPI y/y%

ASIA FX: Won Recovering While Rupiah Weakens Sharply On Fiscal Uncertainty

Asian currencies are mixed against the US dollar during trading today with the rupiah weaker but won stronger. The BBDXY USD index is close to its intraday low to be down 0.2% after it finished 2024 strongly.

• USDKRW is down 0.3% to 1467.30, after a low of 1466.0. Political uncertainty remains elevated with new acting President Choi’s advisers wanting to resign, which he rejected. There is concern that these issues will weigh on growth going into 2025 and the manufacturing PMI fell to 49.0 in December from 50.6.
• In contrast, USDIDR is 0.8% higher at 16230 after an intraday peak of 16258.5. Rupiah weakness has been driven by President Prabowo’s decision to materially narrow the number of goods that the VAT increase will impact. Finance minister Indrawati tried to reassure markets stating that the 2024 deficit is likely to be lower than estimated.
• USDIDR is up 0.3% since December 23 and 1.0% since the December 18 Bank Indonesia meeting. It next meets on January 15 and if there isn’t significant rupiah strengthening before then, a rate cut is again unlikely.
• USDCNH is down 0.3% to 7.3172 following an intraday low of 7.3161. The Caixin December manufacturing PMI disappointed falling to 50.5 from 51.5.
• USDPHP is little changed at 57.82, USDTHB is up 0.3% to 34.21, while USDSGD is down 0.4% to 1.3613 after a stronger-than-expected Q4 GDP release.
• India’s HSBC final December manufacturing PMI and December Thai business sentiment are coming up.

CHINA: Caxin Manufacturing PMI Disappoints, Uncertainties Cloud 2025

The Caixin manufacturing PMI for December disappointed, just as the China Federation one did earlier in the week. It printed at 50.5 down from 51.5 in November, and below consensus at 51.7. This is pressuring oil prices and China/HK equities. Planned monetary and fiscal stimulus for 2025 was announced late last year but it was vague and analysts will watch closely for the degree of its impact.

• Manufacturing activity grew at the end of 2024 but at a slower pace due to a smaller increase in output and orders with export orders and employment falling. The fall in foreign orders followed growth at its fastest in November suggesting some payback in December.
• Optimism regarding the outlook for the year ahead was also softer driven by the prospect of increased US tariffs and “challenged hopes for new product- and policy-driven sales growth”, according to Caixin.
• There was no good news on inflation from the survey, which has been hovering just above zero, with producers choosing to reduce margins to attract customers resulting in a drop in selling prices.
• See Caixin report here.

ASIA: ASEAN Manufacturing Grew Through 2024, Indonesia Returns To Growth

The ASEAN S&P Global manufacturing PMI was little changed at 50.7 in December down from November’s 50.8. The region remains mixed with Malaysia and Vietnam recording contractions in activity, while Thailand and the Philippines continue to grow and Indonesia posted its first positive since June.

• S&P Global notes that the ASEAN PMI was above 50 through 2024 and it averaged 51.0 in 2024, signalling modest growth over the year. Output and orders continued to grow in December, however export orders contracted again, and price pressures eased. Firms remained optimistic regarding the year ahead but at the lowest level for eight months.
• Indonesia’s manufacturing sector returned to growth in December with the PMI up to 51.2 from 49.6, the highest since May, driven by orders (domestic & foreign), output and employment all rising. The weaker rupiah boosted cost pressures and firms maintained margins by increasing selling prices for the third straight month.
• The Philippines PMI outperformed the rest of ASEAN rising to 54.3, highest since April 2022, from 53.8 driven by a pickup in the rate of growth for orders and output to its highest in almost three years. Foreign orders also rose. Despite this employment levels fell slightly due to efficiency improvements. Costs and output price pressures eased.
• The manufacturing PMI in Thailand also improved rising to 51.4 from 50.2 due to a pickup in orders and output. It also resulted in a drop in inventories. While costs rose marginally, selling price inflation fell slightly. Firms remain positive about the year ahead with the focus on growing export markets and developing new products, according to S&P Global.

ASEAN S&P Global manufacturing PMI

SOUTH KOREA: Manufacturing Contracts As Output & Orders Fall

The S&P Global manufacturing PMI fell to 49.0 in December from 50.6, thus signalling that activity fell moderately over the month and also the quarter. It has now been below the 50-breakeven level for three of the last four months. Falling output and orders drove the decline in the overall PMI and business confidence became negative, for the first time since July 2020. The uncertainty over US tariffs and the domestic economic outlook following a month of political instability drove the decline.

• After the New Year holiday period, USDKRW has started today at 1469.75, down 0.2% from Monday’s close. The KOSPI is up 0.1% after falling initially, and the KOSDAQ is 1.0% stronger.
• Political uncertainty remains elevated with new acting President Choi’s advisers wanting to resign, which he rejected. There is concern that these issues will weigh on growth going into 2025.
• The S&P Global PMI reported a significant acceleration in input cost pressures, which drove the highest rise in selling prices in over a year.
• Domestic orders contracted while export orders rose only slightly with weakness from the US and China cited. Work backlogs decreased for the fifth month in the last six and as a result businesses are choosing not to replace voluntary leavers. Overall staff levels are little changed though. 

UP TODAY (TIMES GMT/LOCAL) 

Date	GMT/Local	Impact	Country	Event
02/01/2025	0815/0915	**	ES	S&P Global Manufacturing PMI (f)
02/01/2025	0845/0945	**	IT	S&P Global Manufacturing PMI (f)
02/01/2025	0850/0950	**	FR	S&P Global Manufacturing PMI (f)
02/01/2025	0855/0955	**	DE	S&P Global Manufacturing PMI (f)
02/01/2025	0900/1000	**	EU	M3
02/01/2025	0900/1000	**	EU	S&P Global Manufacturing PMI (f)
02/01/2025	0930/0930	**	GB	S&P Global Manufacturing PMI (Final)
02/01/2025	1200/0700	**	US	MBA Weekly Applications Index
02/01/2025	1330/0830	***	US	Jobless Claims
02/01/2025	1330/0830	**	US	WASDE Weekly Import/Export
02/01/2025	1445/0945	***	US	S&P Global Manufacturing Index (final)
02/01/2025	1500/1000	*	US	Construction Spending
02/01/2025	1530/1030	**	US	Natural Gas Stocks
02/01/2025	1600/1100	**	US	DOE Weekly Crude Oil Stocks