MNI EUROPEAN OPEN: BoJ January Hike Odds Rise Further

EXECUTIVE SUMMARY

• US BUDGET DEFICIT WIDENS TO RECORD IN FIRST 3MOS OF FY25 - MNI BRIEF 
• EU CONSIDERS GRADUAL BAN ON RUSSIAN LNG AND ALUMINIUM - BBG 
• JAPAN LIKELY TO MISS PRIMARY BUDGET SURPLUS TARGET FOR FY 2025, SOURCES SAY - RTRS 
• UEDA SAYS BOJ WILL MAKE A DECISION ON RATE HIKE NEXT WEEK - BBG
• SOUTH KOREAN INVESTIGATORS ARREST IMPEACHED PRESIDENT YOON, ENDING WEEKS-LONG STANDOFF 

Fig. 1: Japan - BoJ Hike Probability (%) For January Meeting 

Source: MNI - Market News/Bloomberg

EU

RUSSIA/COMMODITIES (BBG): “The European Union is considering import restrictions on Russian aluminum and phasing out liquefied natural gas from the nation as part of a new package of sanctions targeting Moscow for its full-scale invasion of Ukraine, according to people familiar with the matter.” 

ECB (BBG): "The exchange rate matters for the euro-area economy over time, though monthly movements in currency are typically absorbed by companies, European Central Bank Chief Economist Philip Lane said." 

EU (DEBT): The European Commission will decide in coming days whether to maintain its recommendation for an excessive deficit procedure against Austria, it said in a statement on Tuesday

ITALY (MNI): Italy Aims At NGEU Wriggle Room Over 2026 Deadline

FRANCE (BBG): “ French Prime Minister Francois Bayrou appears to have bought himself at least a few months in power by offering to renegotiate a contested 2023 pension law, securing the tacit backing of enough lawmakers to adopt an urgently needed budget.” 

US

FISCAL (MNI): The U.S. government ran a record USD711 billion deficit for the first three months of the fiscal year, up 39% from last year's USD510 billion, on increases in defense and healthcare spending, according to Treasury officials Tuesday. 

CORPORATE (BBG): “Elon Musk cheated Twitter shareholders out of more than $150 million by waiting too long to disclose his growing stake in the company as he prepared a takeover bid, the US Securities and Exchange Commission claimed in a lawsuit filed days before the Trump administration takes over.” 

US/CHINA (BBG): “Senator Marco Rubio will say China has lied and cheated its way to superpower status at the expense of the US, according to remarks he’s set to deliver at his confirmation hearing for secretary of state on Wednesday.”

TECH (BBG): "The US plans to unveil more regulations aimed at keeping advanced chips made by Taiwan Semiconductor Manufacturing Co. and other producers from flowing to China, part of a flurry of measures introduced by the Biden administration during its final days in office." 

OTHER 

SOUTH KOREA (RTRS): “- South Korean authorities arrested impeached President Yoon Suk Yeol on Wednesday over insurrection allegations, with the embattled leader saying he agreed to comply with what he called an illegal probe to avoid "bloodshed".

JAPAN (RTRS): “Japan is likely to miss achieving its goal of running a primary budget surplus by the next fiscal year, according to three sources with knowledge of fresh fiscal estimates, as the minority government faces increasing pressure for more spending.” 

JAPAN (BBG): "Bank of Japan Governor Kazuo Ueda said that the central bank will make a decision over hiking rates in next week’s closely watched January policy meeting." 

AUSTRALIA (MT NEWSWIRES/BBG): “Australian household spending declined in December 2024 as shoppers proceeded with caution after the Black Friday sales, according to a Wednesday report by CommBank.” 

CHINA 

LIQUIDITY (BBG): “China’s central bank pumped a near-historic amount of short-term funds into its financial system on Wednesday, dialing up liquidity support amid a cash squeeze with the new year holiday looming.” 

CAPITAL MARKETS (SHANGHAI SECURITIES NEWS): “Authorities will introduce practical guidelines aimed at reforming the M&A and restructuring market, as well as implement policies to attract pension, insurance and financial management funds to the capital market, Shanghai Securities News reported, citing expectations from Tian Xuan, director at the National Institute of Financial Research at Tsinghua University.” 

STOCKS (CSJ): “ Chinese regulatory authorities will take multiple measures to jointly build a mechanism for stabilizing the stock market, China Securities Journal reported, citing strategists.”

CHINA MARKETS

MNI: PBOC Net Injects CNY958.4 Bln via OMO Wednesday

MNI (BEIJING) - The People's Bank of China (PBOC) conducted CNY959.5 billion via 7-day reverse repos, with the rate unchanged at 1.50%. The operation led to a net injection of CNY958.4 billion after offsetting the maturity of CNY1.1 billion. There are another CNY995.0 billion 1Y MLF mature today, according to Wind Information. 

• The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.5969% at 09:24 am local time from the close of 2.2972% on Tuesday.
• The CFETS-NEX money-market sentiment index, measuring interbank money-market liquidity, closed at 40 on Tuesday, compared with the close of 61 on Monday. A higher reading points to tighter liquidity condition, with 50 representing an equilibrium.

MNI: PBOC Sets Yuan Parity Higher At 7.1883 Weds; -2.29% Y/Y

MNI (BEIJING) - The People's Bank of China (PBOC) set the dollar-yuan central parity rate higher at 7.1883 on Wednesday, compared with 7.1878 set on Tuesday. The fixing was estimated at 7.3300 by Bloomberg survey today.

MARKET DATA

JAPAN DEC MONEY STOCK M3 Y/Y 1.3%; PRIOR 1.2% 

SOUTH KOREA DEC IMPORT PRICES Y/Y 7.0%; PRIOR 2.8% 
SOUTH KOREA DEC EXPORT PRICES Y/Y 10.7%; PRIOR 7.0% 
SOUTH KOREA DEC UNEMPLOYMENT 3.7%; MEDIAN 2.9%; PRIOR 2.7% 
SOUTH KOREA DEC BANK LENDING TO HOUSEHOLDS KR1141Trln; PRIOR KR1141.4trln 

MARKETS

US TSYS: Yields Holding Steady Ahead Of CPI

• Tsys yields are holding steady throughout the session curves are a touch flatter, the belly is outperforming with the 7yr  -1.6bps at 4.688%, the 2yr is -0.8bps at 4.358%, while the 10yr is trading -1.4bps at 4.778%
• Futures are steady with TY +01 at 107-12+. While the 2s10s curve is about 1bps lower at 41.327.
• Ranges have been narrow across all tenors ahead of CPI tonight. We have seen a 0.5-1bps cooling in rate cut expectations across the next few meetings

JGBS: Cash Bonds Cheaper, BoJ Ueda Adds To Weight To Hike Discussions

After a choppy Tokyo session, JGB futures are little changed, +1 compared to settlement levels.

• Japan likely to miss primary budget surplus target for FY2025, sources say "Japan is likely to miss achieving its goal of running a primary budget surplus by the next fiscal year, according to three sources with knowledge of fresh fiscal estimates, as the minority government faces increasing pressure for more spending.” RTRS
• Cash JGBs are flat to 2bps cheaper across benchmarks. The benchmark 10-year yield is 0.4bp higher at 1.250% after making a fresh cycle high of 1.253% today.
• The swaps curve has bear-steepened, with rates flat to 4bps higher.
• “BOJ Governor Ueda: Will raise rates and adjust the degree of monetary support if improvement in economy and price conditions continues” - RTRS
• BOJ-dated OIS pricing has shifted notably since BOJ Deputy Governor Himino's speech yesterday. The speech was interpreted as another indication that the policy board is leaning toward a 25bp rate hike at its upcoming meeting on January 23–24.
• Current OIS pricing indicates: a 69% probability of a 25bp hike in January; a cumulative 86% chance by May; and a full 25bp increase not fully priced in until May 2025.
• Tomorrow, the local calendar will see PPI data alongside 20-year supply.

AUSSIE BONDS: Slightly Cheaper, Subdued Ahead Of US CPI, Jobs Report Tomorrow

ACGBs (YM -2.0 & XM -2.0) are slightly cheaper after trading in a narrow range in today's data-light Sydney session.   

• Cash US tsys are 1-2bps richer in today’s Asia-Pac session after yesterday’s directionless session. Focus turns to today’s CPI inflation data for December where rental inflation is expected to accelerate to an average figure that firmly rounds to 0.3% M/M in December.
• Cash ACGBs are 1-2bps cheaper with the AU-US 10-year yield differential at -15bps.
• Swap rates are 1-2bps higher.
• The bills strip -1 to -2 across contracts.
• RBA-dated OIS pricing is little changed across meetings today. A 25bp rate cut is fully priced for April (102%) now, with the probability of a February cut at 68% (based on an effective cash rate of 4.34%).
• Tomorrow, the local calendar will see the December Employment Report. The market is expecting +15k jobs with the unemployment rate nudging higher from 3.9% to 4.0%.
• AOFM Bond issuance will issue A$700mn of the 2.75% 21 November 2027 bond on Friday. 

BONDS: NZGBS: Another Heavy Session, Monthly Price Indictors Tomorrow

NZGBs closed 4-9bps cheaper, with the 5-year underperforming, as the fall-out from yesterday’s upbeat NZIER QSBO. 

• Once again, today’s move reflected $-bloc underperformance, with the NZ-US and NZ-AU 10-year yield differentials ~6bps wider.
• Cash US tsys are flat to 1bp richer in today’s Asia-Pac session after yesterday’s directionless session. Focus turns to today’s CPI inflation data for December where rental inflation is expected to accelerate to an average figure that firmly rounds to 0.3% M/M in December.
• Swap rates closed 7-9bps higher.
• RBNZ dated OIS pricing closed flat to 7bps firmer across meetings, with late 2025 leading. 45bps of easing is priced for February, with a cumulative 103bps by November 2025. Pricing for the November meeting is some 35bps firmer than Friday’s closing level.
• Tomorrow, the local calendar will see food prices and a range of other monthly price indicators for December ahead of BusinessNZ Manufacturing PMI on Friday. December price data are likely to show inflation pressures remained subdued. That adds to the case for the RBNZ to deliver further easing.
• Tomorrow, the NZ Treasury plans to sell NZ$250mn of the 3.00% Apr-29 bond, NZ$175mn of the 3.50% Apr-33 bond and NZ$75mn of the 1.75% May-41 bond.

FOREX: Yen Marginally Higher As Ueda Speaks, Steady Trends Elsewhere

G10 FX trends have been quite muted in the first part of Wednesday trade. The USD BBDXY index was last near 1314 little changed for the session. 

• Aggregate G10 moves are not much beyond 0.10% at this stage, as the market awaits the key US CPI release later.
• USD/JPY is marginally lower, but is close to 157.70/75 in latest dealings. Headlines from BoJ Governor Ueda have crossed, reiterating that a decision on whether to raise rates will be made next week (so largely echoing Deputy Governor Himino's remarks from yesterday). Yen moved slightly firmer as Ueda spoke, presumably due to the fact he didn't pushback on Himino's remarks.
• US yields sit modestly lower, the 10yr back under 4.78%. Regional equity sentiment is mixed, while US futures are close to flat at this stage.
• EUR/USD is back under 1.0300 marginally. Headlines from ECB's Lane have crossed (speaking in HK). Economic growth is expected to recover further and if inflation stabilizes around 2% rates will go to neutral. 3% policy is not the lower bound Lane added (per BBG). FX sentiment hasn't shifted though.
• AUD/USD was weaker in earlier trade, but at 0.6190/95 has recovered some ground.
• NZD/USD is back around 0.5605/10, but short of Tuesday intra-session highs. We have seen another sharp rise in onshore NZGB yields today. Earlier data from the Westpac/McDermott Miller employment confidence index highlighted: "Employment confidence picked up by 2.4 points to 91.6 in the December quarter, led by an improvement in perceptions of job availability."
• Looking ahead, ahead of the US CPI print, we get UK inflation data. 

ASIA STOCKS: Asian Equities Mixed, Ahead Of US CPI Tonight

Asian markets traded mixed as investors awaited key US inflation data for clues on Federal Reserve policy. The MSCI Asia Pacific Index was little changed, with modest gains in Japan, South Korea, and Hong Kong, while Chinese equities were mixed. The PBOC injected significant short-term liquidity to ease a cash squeeze ahead of the Lunar New Year, highlighting its easing stance. Indian stocks extended gains, driven by energy and utility sectors, while foreign outflows from Indian equities continued in January. South Korea's unemployment rose to its highest level since mid-2021 amid political uncertainty. Meanwhile, oil prices steadied after recent declines, and the dollar consolidated after the previous session's losses. Overall, sentiment remained cautious ahead of the U.S. CPI report, which could shape global monetary policy expectations.

COMMODITIES: Steady Trends Ahead Of Key US Data

Oil markets are tracking relatively steady in the first part of Tuesday trade, after losing some ground in Tuesday trade. Gold is likewise steady; copper is down a touch and iron ore is close to unchanged. Markets likely awaiting the key US CPI release later. 

• The active Brent crude contract was last just under $80/bbl, while WTI was near $77.60/bbl. Brent lost 1.35% for Tuesday's session, while WTI lost slightly more, down 1.67%. The Wall Street Journal reported that President-elect Donald Trump is preparing a set of energy-related executive orders, to sign upon his inauguration on Jan 20, that would unwind Biden administration rules on offshore/onshore drilling on federal lands, tailpipe emissions, and LNG exports approval.
• Still, an industry report hinted at a further draw down in US stockpiles, which may aid sentiment from a supply standpoint. This comes after the US sanctions move late last week. The trend structure in WTI futures remains bullish, with sights on $79.59, the Jul 5 ‘24 high. On the downside, a reversal lower would expose the 20-day EMA, at $73.16.
• Gold is little changed, last near $2675/76. Recent highs near $2700 remain intact. Dips sub the 100-day MA (close to $2636) have been supported in recent weeks. 

UP TODAY (TIMES GMT/LOCAL) 

Date	GMT/Local	Impact	Country	Event
15/01/2025	0700/0700	***	GB	Consumer inflation report
15/01/2025	0700/0700	***	GB	Producer Prices
15/01/2025	0700/0800	***	SE	Inflation Report
15/01/2025	0745/0845	***	FR	HICP (f)
15/01/2025	0800/0900	***	ES	HICP (f)
15/01/2025	0800/0900		EU	ECB's De Guindos at 15th Spain Investors Day
15/01/2025	1000/1000	**	GB	Gilt Outright Auction Result
15/01/2025	1000/1100	**	EU	Industrial Production
15/01/2025	1200/0700	**	US	MBA Weekly Applications Index
15/01/2025	1330/0830	**	CA	Monthly Survey of Manufacturing
15/01/2025	1330/0830	**	CA	Wholesale Trade
15/01/2025	1330/0830	***	US	CPI
15/01/2025	1330/0830	**	US	Empire State Manufacturing Survey
15/01/2025	1400/0900	*	CA	CREA Existing Home Sales
15/01/2025	1420/0920		US	Fed's Barkin
15/01/2025	1530/1030	**	US	DOE Weekly Crude Oil Stocks
15/01/2025	1600/1100		US	Fed's Williams
15/01/2025	1630/1630		GB	BOE's Taylor Speech on Inflation Dynamics and Outlook
15/01/2025	1900/1400		US	Fed Beige Book
16/01/2025	0030/1130	***	AU	Labor Force Survey
16/01/2025	0700/0700	**	GB	UK Monthly GDP
16/01/2025	0700/0700	**	GB	Trade Balance
16/01/2025	0700/0700	**	GB	Index of Services
16/01/2025	0700/0800	***	DE	HICP (f)
16/01/2025	0700/0700	***	GB	Index of Production
16/01/2025	0700/0700	**	GB	Output in the Construction Industry
16/01/2025	0900/1000	***	IT	HICP (f)
16/01/2025	1000/1100	*	EU	Trade Balance
16/01/2025	1230/1330		EU	Account of Dec 2024 ECB Monetary Policy Meeting
16/01/2025	1315/0815	**	CA	CMHC Housing Starts
16/01/2025	1330/0830	***	US	Jobless Claims
16/01/2025	1330/0830	**	US	WASDE Weekly Import/Export
16/01/2025	1330/0830	***	US	Retail Sales
16/01/2025	1330/0830	**	US	Import/Export Price Index
16/01/2025	1330/0830	**	US	Philadelphia Fed Manufacturing Index