MNI EUROPEAN MARKETS ANALYSIS: Yen Off Lows, US PCE Later

• USD/JPY got to fresh multi month highs near 158.00 before verbal FX jawboning returned (from both the FinMin and the Currency Chief). Dips so far sub 157.00 have been supported.  AUD and NZD are lower but above recent cycle lows.
• JGB futures spiked higher, but recent ranges have been maintained. Japan national CPI was close to expectations for Nov. US Tsys futures have traded steady today. Oil and gold are tracking lower for the week.
• As expected China loan prime rates were held steady.
• Looking ahead, we have US PCE data for Nov, along with the final U. of Mich survey for Dec. Fed speak returns as well, with Daly and Williams due. Before that, UK retail sales prints.

MARKETS

US TSYS: Tsys Futures Steady Ahead Of PCE Data

• Tsys futures are trading steady today as investors await the release of US core PCE data, after the Fed signaled concern over the risk of inflation pressure facing the economy. TU is 00+ at 102-22⅝ while TY is +04 at 108-23+.
• A bearish short-term theme in Treasury futures remains intact and Wednesday’s move lower reinforces the current trend condition. The TY 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. On the upside, initial firm resistance is at 110-13, the 20-day EMA.
• The Republican-led House rejected a temporary funding plan backed by President-elect Donald Trump with just over 24 hours to go before a US government shutdown, while the new proposed bill has so far been unable to gain enough votes to pass,
• Cash tsys are trading flat to 1.5bps lower so far today, with the 5 & 7yr tenors outperforming. The 2yr is trading -1.1bps at 4.306%, while the 10yr is -0.6bps at 4.490%, the 2s10s remains near its steepest levels since June 2022 at +24bps.
• Fed Fund futures are pricing in no further cuts until July, when there is 28.4bps of cut priced, and only 38bps of cuts priced through to December 2025.
• Friday's schedule includes the November PCE report and the final December UMichigan survey, while we also get the first post-FOMC meeting commentary with SF's Daly and NY's Williams appearing in the morning.

JGBS: Futures Spike, But Past Month Ranges Hold, BoJ Ueda Speech Next Week

JGB futures have mostly maintained a positive bias through the first part of Friday trade. The March future (JBH5) was last 142.56, +.42, versus settlement levels. Earlier highs were at 142.72, which were close to earlier Dec 9 highs. 

• These moves threaten to break us out of ranges that have held over the past month or so.
• Support has been evident from a positive US Tsy futures backdrop. US equity futures are down as well, with some concern around a government shut down in the near term, with the US House failing to pass the latest funding bill late on Thursday US time. A generally softer commodity price backdrop in the past week has also likely been a support.
• Earlier on the data front we had Nov national CPI print, which was a touch above market expectations for the core print, but the detail was mostly softer outside of a bounce in utility prices. Yen has been volatile as verbal jawboning picks up after Thursday's sharp drop.
• Cash JGB yields are all softer, with the belly of the curve the weakest in yield terms. The 7ys is down 3bps to sub 0.79%. The 10yr yield is back to 1.05%.
• Swap rate falls have been slightly in the belly of the curve. The 10yr swap rate is back close to 1.00%.
• Next week we have the Oct BoJ Mins on Dec 24, while Governor Ueda will speak on Christmas day, then the Summary of Opinions from the BoJ Dec meeting will be released on Dec 27th. Also out on the 27th is Tokyo Dec CPI. 

JAPAN DATA: CPI Close To Expectations, Softer Detail Outside Of Utility Spike

Japan National CPI for Nov was fairly close to market expectations. The headline rose 2.9%y/y, in line, and against a prior 2.3%. The core ex fresh food measure was slightly above market forecast at 2.7% y/y (2.6% expected and 2.3% prior). The ex fresh food and energy measure was 2.4%, in line and against a prior 2.3% outcome. 

• The chart below plots these three measures and the trend is reasonably positive as we approach end 2024, relative to the BoJ's 2% inflation goal. Base effects are likely to support headline and the ex fresh food measure as we progress into early 2025 as well.
• In terms of the detail, headline rose 0.6%m/m, while the core measures were also positive in m/m terms. Good prices rose 0.9%m/m, while services gained 0.2%, although these are typically revised back to flat.
• By segment, outside of a 3.0%m/m rise in utilities, the detail was a little softer. Household goods fell -06%m/m, entertainment down -0.1%. Other categories mostly saw softer outcomes relative to Oct as well.
• Note with PM Ishiba reinstating energy subsidies from Jan to Mar next year, the rise in utility inflation is likely to be tempered.
• The data is unlikely to shift BoJ thinking, particularly after yesterday's BoJ outcome, with Ueda waiting for further information in the new year around wages/international developments before deciding on the timing of the next policy shift. 

Fig 1: Japan National CPI Y/Y Trends 

Source: MNI - Market News/Bloomberg 

BONDS: ACGB Curve Bear-Steepens, Tracking Moves In Tsys

Aussie bonds saw a bear-steepening move occur today, largely tracking moves made in US tsys. Earlier today we had a 2028 bond auction, followed by Australia Private sector Credit data which was in line with estimates

• Australia's credit to business and consumers increased by 0.5% month-on-month in November, meeting expectations, according to the RBA. Year on year, credit rose 6.2%, up from 6.1% in October. Housing loans grew 0.5% m/m and 5.4% y/y, while consumer credit declined 0.2% m/m but rose 2.1% y/y. Lending to non-financial businesses increased 0.7% m/m and 8.5% y/y.
• There was a 2028 bond action today, the notes drew an average yield that was 1.4bps lower than the mid-rate in the secondary market, signaling strong investor demand
• US tsys are trading steady ahead of  the release of US core PCE data, after the Fed signaled concern over the risk of inflation pressure facing the economy
• ACGBs have traded cheaper today, the curve has bear-steepening with the 2s10s +1.5bps at 48bps. The 2yr is trading -0.4bps at 3.978% while the 10yr is +7bps at 4.478% and now trade about 33bps higher than the December lows.
• ACGB futures are currently YM -0.5, VTA -0.55, XM -0.7
• Swap curves are trading +1 to +2bps, with the 2y underperforming
• Bill strip is flat to -6,
• RBA-dated OIS pricing has firmed 2-10bps throughout the week, with 16bps of cuts priced for Feb, or a 63% chance of a cut, the first full cut is now priced in for the April meeting. However the market further out the curve has cooled, with only 67bps of cumulative cuts now priced by December 2025, down from 80bps to start the week.
• Next week we have the RBA Minutes of Dec. Policy Meeting due out on December 2024

BONDS: NZGBs Trade Cheaper, Curve Steepens Tracking US tsys

NZGBs have closed cheaper today with curves steepening after concern over US debt supply and sticky inflation propelled a similar move in Treasuries. Earlier, Trade Balance data showed the deficit had narrowed, while the consumer confidence index rose 0.40% in December, after a 9.4% jump in November.

• New Zealand's total credit card spending dropped 0.8% m/m to NZ$4.67b in November, reversing October's 1% rise, according to RBNZ data. Domestic billings on New Zealand-issued cards fell 1.3% to NZ$3.97b. On an annual basis, credit card spending declined 3.2%, following a 0.3% increase in October. Separately, total advances outstanding decreased 0.8% m/m and 1.9% y/y to NZ$6.23b in November.
• New Zealand's trade deficit narrowed to NZ$437m in November from NZ$1.66b in October, driven by a 9.1% rise in exports to NZ$6.5b, led by dairy products and crude oil. Imports fell 3.9% to NZ$6.9b, primarily due to a 32% drop in petroleum imports. Annually, the trade deficit shrank to NZ$8.2b, down from NZ$13.5b a year earlier.
• US tsys have done very little during the Asian session today, with yields trading flat to 1.1bps lower, as the curve bull-steepens. The US 10yr remains above 4.50% at 4.558% after hitting 4.59% overnight.
• NZGBs curve has bear-steepened again today, the 2yr still hovers near yearly lows at 3.679%, +0.7bps for the session, while the 10yr is +6.7bps at 4.526% at session highs. The 5s10s is +0.50bps at 56.70 and now trades at its steepest levels for the year and almost 40bps steepening since August.
• RBNZ dated OIS is pricing in 54.2bps of cut for the Feb meeting, and 101bps of cumulative cuts are now priced in by May. There is a cumulative 123bps of cuts priced in through to October 2025.
• There is no further data out for New Zealand this year.

FOREX: Safe Havens Outperforming, Rhetoric On FX Returns From Japan Officials

Safe havens have outperformed in the first part of G10 Friday trade. Most focus has rested on USD/JPY, with fresh highs reached before verbal rhetoric returned from Japan officials. The USD BBDXY index was last near 1305, slightly up for the session.

• USD/JPY got to highs of 157.93 in early trade, levels last seen in July of this year. We had FinMin Kato come across the wires stating he was deeply concerned about FX moves. Later on Chief FX Diplomat Mimura also expressed deep concern around FX moves. Both officials stated action would be taken if FX moves were excessive.
• USD/JPY has dipped a few times sub 157.00 (lows of 156.84) but support has been evident. We were last 157.20/25, around 0.15% stronger in yen terms. Earlier data showed y/y momentum for national CPI picked up in Nov, although some of the m/m detail was softer. The BoJ is waiting for the new year before deciding the timing on the next hike, with a strong focus on wage outcomes.
• USD/CHF is down a touch last near 0.8980. US equity futures are off, led by the tech side, (Nasdaq futures down 0.70%). Prospects of a government shut down (as the latest funding bill failed to pass the House) is a headwind for risk appetite.
• US yields are mostly lower, but losses are not much beyond 1bps at this stage.
• AUD/USD is down, last near 0.6225, off 0.20%, but above yesterday's lows under 0.6200. Softer commodity prices are also weighing on A$ appetite. NZD/USD is back towards 0.5620, slightly outperforming the AUD so far today. Earlier NZ sentiment and trade data didn't impact.
• Looking ahead, we have US PCE data for Nov, along with the final U. of Mich survey for Dec. Fed speak returns as well, with Daly and Williams due. Before that, UK retail sales prints. 

EQUITIES: Asian Equities Mixed, Ranges Narrow, US PCE Later

Asian equities are mixed on today as investors continue to digest the Fed's hawkish policy stance and awaited US personal consumption expenditure data for November. The US has been unable to pass the stopgap funding bill yet, but overall it has been a rather quiet session as we head into the Holidays, focus will now turn to PCE numbers later tonight.

• The data calendar saw some tier 2 data today, nothing of which really moved markets at all. New Zealand's Trade Deficit narrowed, Japan's National CPI was largely in line with expectations, while China kept the 1 & 5yr LPRs unchanged.
• Japanese equities are trading only slightly higher with the Nikkei +0.10% & TOPIX +0.05% exporters have been the top performing following the weakening of the JPY. Banking stocks have lagged after the BoJ left interest rates unchanged, with comments from Governor Ueda dampening expectations for a January hike.
• Hong Kong equities are trading slightly higher, however ranges are narrow. The HS Tech Index did trade 1% earlier, before paring some of those gains, the Mainland Property Index is 1.20% lower, while the wider HSI is 0.10% higher. In China mainland equities, the CSI 300 is 0.30% higher, with Tech stocks leading the way, Industrials are the worst performing sector.
• Australia's ASX200 fell 1.3% to a seven-week low, with a weekly decline of 2.8%, marking one of its worst performances this year. Consumer discretionary stocks led losses, with Wesfarmers down 3.4% after announcing a $770 million divestment. Major banks and miners also declined, though Fortescue managed a 1.2% gain.
• South Korea's KOSPI declined 1.8% as foreign and institutional investors sold heavily following the Fed's hawkish stance. The KRW hovered at a 15-year low of 1,450 per dollar. Tech giants like Samsung Electronics and SK hynix fell 1.7% and 3.4%, respectively.
• Taiwan’s Taiex declined 1.10%, led by losses in semiconductor stocks, including TSMC, last -1.90%.

Oil Heading for Weekly Decline on Fed and Focus on Supply Glut in 2025. 

• Stronger US GDP and PCE inflation revised up saw declines in oil prices into US market close as traders re-assessed the probability of rate cuts.
• Having closed Wednesday night at US$70.58 WTI had spiked to $71.26 leading into the data release, only to decline for the rest of trading day to finish at $69.91 and has moved little in Asia’s trading day to be at $68.97.
• WTI is on track to finish the week -3.20% lower following the Fed’s pivot and ongoing concerns about a supply glut in 2025.  
• China’s Sinopec’s annual report pointed to oil demand in China having peaked with declines likely to accelerate as Chinese drivers shift to electric cars.
• Brent opened Thursday morning in the US at US73.39 to rise leading into the data release to $73.86, only to decline down to $72.88 for Asia’s open, but has continued to trend down to $72.45.
• Brent is on track to fall -2.75% for the week.
• Oil industry leaders are getting on the front foot with the incoming Trump administration lobbying for insulation from tariffs, rolling back environmental regulations and allowing drilling in more locations.
• BP Plc and the Iraqi government took another step toward reviving one of the OPEC member’s most prolific oil and gas resources, the Kirkuk field in Northern Iraq.  
• The US has sanctioned more tankers and companies it alleges are involved in the trade of Iranian oil, which generates revenue that supports Tehran-backed militia groups such as Hamas and the Houthis according to BBG.

Gold Set for Poor Week as Rate Cuts Melt Away. 

• Gold tried to rally following its decline post Fed, but the rally ran out of steam into the US close and it has done very little in Asian trading today.
• Opening at US$2,585.35 Gold initially surged higher reaching $2,626.49 just prior to the release of a raft of US economic data but fell away into the close to finish at $2,594 and has done very little stable at $2,596.81.
• The move lower in recent days sees gold on track to decline -1.95% for the week.
• US overnight data was stronger than expected, bringing into question the rate cuts expectations built into the US market for 2025.
• Gold has posted strong returns this year on the back of expectations for rate cuts, safe haven demand and news that key Central Banks have started to purchase the precious commodity again. 

CHINA:  Loan Prime Rates Unchanged

• China’s 1 and 5-year Loan Prime Rates remain unchanged today at 3.10% and 3.60% respectively.
• Market expectations were for no change.
• Having eased in October, it was unlikely that further policy adjustments would occur this year.
• China has shifted it’s monetary policy tone to ‘moderately loose’ for 2025, from the current setting of prudent, reflecting expectations for Fed cutting rates and slowing inflation.
• However further policy action will be muted until the new year when policy announcements will be forthcoming with greater detail.
• Economists predict that in 2025 more rate cuts and RRR cuts will occur, the point of which is not lost on the bond markets where yields continue to fall. 

MALAYSIA: Better than Expected CPI Gives Room for Rate Cut. 

• Malaysia’s November CPI was better than expected at +1.8% y/y, down from October’s +1.9% y/y and estimates of +2.1% y/y.
• November’s Core inflation was +1.8% y/y.
• Food and Alcoholic beverages were +2.6% y/y, housing, water and electricity +3.2% y/y with communication the biggest decline down -3.9%.
• Escalating medical inflation has prompted insurance companies to propose a hike in insurance premiums of between 40% and 70% next year, risking many people unable to afford insurance and prompting calls for the BNM to cap price increases.
• Today’s CPI provides short term relief to rising prices and potentially opens the door for rate cuts next year by the BNM whose next meeting is not until January 22, 2025.
• The bond market liked the CPI data release with the 3YR MGS down 6bps to 3.506%.
• Malaysia has the least amount of rate cuts priced into its bond curve at just 27bps over a 1-year time horizon, with only 6bps of cuts priced in on a three month time horizon. 

INDIA:  Country Wrap –  NIFTY 50 down for Fifth Straight Day. 

• RBI advises states to be more prudent in managing finances (source: Economic Times)
• The Reserve Bank of India will hold a seven-day variable rate repo auction on Friday as banking system liquidity swung back into deficit this week.  (source: BBG).
• India’s NIFTY 50 is likely to finish down for the fifth consecutive day.  It has opened -0.20% lower and tracking to be down down -3.5%, the worst weekly result since October.
• INR:  is opening steady this morning at 85.08, but tracking to be down -0.35% for the week.
• Bonds: Bonds have traded in a very tight range all week with the 10YR at 6.79%

SOUTH KOREA: Country Wrap: Producer Prices Up in November.

• South Korea will ease the cap on banks’ FX forward positions by 50% as part of measures (s to increase FX inflows and ease the demand and supply imbalances in the local FX market, the Bank of Korea and finance ministry say in a statement listing measures to improve FX market supply and demand. (source: BBG).
• South Korea’s Political Turmoil Raises Support for Yoon’s Rival (source: BBG).
• SK’s producer prices rose +1.4% y/y in November, following +1.0% in October, with the MoM price rise +0.1% (source: MNI – Market News).
• SK’s KOSPI is having a very weak day, down 1.80% and looking to finish the week down over 4%.
• KRW:  the Won is weaker again today down -.283% and looking to finish the week -1.05% lower.
• Bonds: have reacted to the higher than expected PPI and following the lead from the US with higher yields across the curve, the KTB 10YR 2.86% (+5bp). 

ASIA FX: Asia Currencies Mixed, Central Bank Efforts Step Up

Asian currencies have been mixed in the first part of Friday trade. USD/CNH remains quite steady and isn't moving too far away from the 7.3100 level at this stage. As expected the 1yr and 5yr LPRs were left unchanged. 

• For spot USD/KRW we have drifted a little higher, but gains beyond 1450 have been muted. BBG reports around National Pension Service hedging flows above 1450 remain a focus point. With the won at lows back to 2009, it is likely to remain a near term focus point for the authorities. Spot USD/TWD is a little higher, but not far beyond 32.70 at this stage, as expected, the CBC held rates steady on Thursday.
• In South East Asia, spot USD/IDR probed above 16300, but headlines cross from BI that it would boldly guard the local FX. The pair was last near 16280, little changed for the session.
• BSP Governor Remolona was also on the wires post yesterday's rate cut, stating that the central bank has been active in FX markets recently. This has helped keep USD/PHP sub 59.00, which is record lows for the peso.
• USD/MYR has drifted a little higher, last above 4.5100, while USD/THB is also higher up to 34.60/65, but remains within recent ranges. 

UP TODAY (TIMES GMT/LOCAL) 

Date	GMT/Local	Impact	Country	Event
20/12/2024	0700/0700	***	GB	Public Sector Finances
20/12/2024	0700/0800	**	DE	PPI
20/12/2024	0700/0800	**	SE	PPI
20/12/2024	0700/0800	**	SE	Retail Sales
20/12/2024	0700/0700	***	GB	Retail Sales
20/12/2024	0745/0845	**	FR	PPI
20/12/2024	0800/0900	**	SE	Economic Tendency Indicator
20/12/2024	0900/1000	**	IT	ISTAT Business Confidence
20/12/2024	0900/1000	**	IT	ISTAT Consumer Confidence
20/12/2024	1100/1200	**	IT	PPI
20/12/2024	1100/1100	**	GB	CBI Distributive Trades
20/12/2024	1330/0830	***	US	Personal Income and Consumption
20/12/2024	1330/0830	**	CA	Retail Trade
20/12/2024	1330/0830	**	CA	Retail Trade
20/12/2024	1330/0830	***	US	Personal Income and Consumption
20/12/2024	1400/1500	**	BE	BNB Business Confidence
20/12/2024	1500/1600	**	EU	Consumer Confidence Indicator (p)
20/12/2024	1500/1000	**	US	U. Mich. Survey of Consumers
20/12/2024	1630/1630		GB	BOE to announce Q1-25 APF sales schedule
23/12/2024	0700/0700	***	GB	GDP Second Estimate
23/12/2024	0700/0700	*	GB	Quarterly current account balance
23/12/2024	0800/0900	***	ES	GDP (f)
23/12/2024	1330/0830	*	CA	Industrial Product and Raw Material Price Index
23/12/2024	1330/0830	***	CA	Gross Domestic Product by Industry
23/12/2024	1330/0830	***	CA	Gross Domestic Product by Industry