MNI EUROPEAN OPEN: China Shares Jump On Stimulus Hopes
EXECUTIVE SUMMARY
- CHINA SHARES JUMP FOLLOWING ECONOMIC SUPPORT PLANS - BBG
- SOUTH KOREAN OPPOSITION TO ENSURE BUDGET PASSES - BBG
- CHINA HAS LAUNCHED INVESTIGATION INTO US CHIPMAKER NVIDIA - BBC
- CHINA EXPORTS SLOW, IMPORTS SINK - MNI
- US ADDS FURTHER RESTRICTIONS ON HUAWEI - BBG
- UK LOOKING FOR SIGNIFICANT "RESET" OF RELATIONS WITH EU - BBC
Fig. 1: China's exports slow
Source: MNI - Market News/Bloomberg
UK
EU (BBC): “The UK government is considering a far more extensive "reset" of post-Brexit relations with the European Union (EU) after Chancellor Rachel Reeves met with European finance ministers to discuss the future.”
MIDDLE EAST (BBC): “Prime Minister Sir Keir Starmer says no decision has been made yet on whether the UK government could remove Hayat Tahrir al-Sham (HTS) from a list of banned terrorist groups after the rebels led the overthrow of Bashar al-Assad in Syria.”
EU
FRANCE (FRANCE24): “French President Emmanuel Macron on Monday invited party leaders to come together for talks in a bid to form a new government amid the political crisis triggered by the ousting of Prime Minister Michel Barnier.”
GERMANY (DW): “German Chancellor Olaf Scholz on Monday promised competitive energy costs and fairer international framework condition to labor leaders and steel executives from companies such as Thyssenkrupp Steel Europe, Salzgitter and ArcelorMittal.”
MIDDLE EAST (BBC): “Germany (home to a million Syrians), the United Kingdom, France, and Greece have all said they will halt asylum decisions for now.”
US
INFLATION (MNI): “All three of the New York Fed's median measures of consumer inflation expectations ticked up a tenth in November, according to the bank's Survey of Consumer Expectations, with households expressing more optimism about their finances.”
DEFENCE (BBG): “US lawmakers are moving to prohibit the Pentagon from doing business with companies that sell computer chips and services to Huawei Technologies Co. under defense legislation that could put further pressure on suppliers to the Chinese tech champion.”
BUSINESS (BBC): “TikTok has asked a court for an emergency injunction to prevent it becoming unavailable in the US next month.”
POLITICS (RTRS): “Two of President-elect Donald Trump's most controversial nominees, Pete Hegseth and Tulsi Gabbard, sought support from U.S. senators on Monday, but it remained uncertain whether they would get the near-unanimous Republican backing they will need to win confirmation.”
OTHER
SOUTH KOREA (BBG): “South Korean opposition leader Lee Jae-myung sought to force through a highly contested budget Tuesday in a show of political clout as he seeks to build momentum for another impeachment bid against President Yoon Suk Yeol in the coming days.”
AUSTRALIA (BBG): “Australia’s business confidence fell sharply in November and conditions, which measure jobs, sales and profitability, softened further in another sign that the private sector of the economy is under heavy pressure.”
TAIWAN (AFP/BBG): “Taiwan said Tuesday it detected 47 Chinese military aircraft near the island in the past 24 hours, the highest number for a single day since Beijing launched large-scale war games two months ago.”
TAIWAN (RTRS): “The first agreement signed under a trade initiative between Taiwan and the United States will come into force on Tuesday, both governments announced, as Taipei hopes a raft of ongoing talks will eventually lead to a free trade deal.”
BRAZIL (MNI WATCH): “The Central Bank of Brazil is expected to once again accelerate the pace of its rate hikes, raising the official Selic rate by 75 basis points to 12.00% on Wednesday, following a poor reception for a government fiscal package.”
ISRAEL (ECONOMIST): “Mr Netanyahu is charged with three counts of fraud and one of bribe-taking in a case where the allegations include receiving illicit gifts from wealthy benefactors and illegal dealings with media barons. He strenuously denies the charges.” “On Tuesday, he is set to take the stand as first witness for the defence in the trial which has already been going on for four and a half years.”
CHINA
POLICY (BBG): “Chinese shares jumped Tuesday after the country’s top leaders made their strongest pledge in years to revive economic growth.”
BUSINESS (BBC): “China has launched an investigation into US computer chipmaker Nvidia, targeting one of America's leading tech companies over alleged violations of anti-monopoly laws.”
TRADE (MNI): “China’s exports grew 6.7% y/y to USD312.3 billion in November, below the 8.9% y/y consensus and last month’s 12.7% y/y increase, according to data released by China Customs on Tuesday.”
INVESTMENT (XINHUA): “China’s potential investment in green transformation and industrial upgrading remains substantial, especially in quantum technology, artificial intelligence and aerospace, said Zhao Chengfeng, deputy director of the investment department at the National Development and Reform Commission, Xinhua News Agency reported.”
ECONOMY (YICAI): “The Yicai China Chief Economists Confidence Index reached 50.72 in December, down from 50.78 in November, marking the third consecutive month above the expansion mark of 50, the Yicai news outlet said.”
ECONOMY (MNI): “China’s lower than expected November CPI print of 0.2% y/y was mainly due to high temperatures and a strong rebound in the supply of fruit and vegetables, according to Wang Qing, chief macro analyst at Orient Securities.”
CHINA MARKETS
MNI: PBOC Net Injects CNY90.3 Bln via OMO Tuesday
MNI (BEIJING) - The People's Bank of China (PBOC) conducted CNY141.6 billion via 7-day reverse repos, with the rate unchanged at 1.50%. The operation led to a net injection of CNY 51.3 billion after offsetting the maturity of CNY33.3 billion today, according to Wind Information.
- The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.6897% at 09:53 am local time from the close of 1.7790% on Monday.
- The CFETS-NEX money-market sentiment index, measuring interbank money-market liquidity, closed at 54 on Monday, compared with the close of 59 on Friday. A higher reading points to tighter liquidity condition, with 50 representing an equilibrium.
MNI: PBOC Sets Yuan Parity Higher At 7.1896 Tues; -1.71% Y/Y
MNI (BEIJING) - The People's Bank of China (PBOC) set the dollar-yuan central parity rate lower at 7.1896 on Tuesday, compared with 7.1870 set on Monday. The fixing was estimated at 7.2798 by Bloomberg survey today.
MARKET DATA
AUSTRALIA NOV. NAB BUSINESS CONDITIONS 2; PRIOR +7
AUSTRALIA NOV. NAB BUSINESS CONFIDENCE -3; PRIOR +5
JAPAN NOV. M2 MONEY STOCK +1.2% Y/Y; PRIOR +1.2%
JAPAN NOV. M3 MONEY STOCK +0.7% Y/Y; PRIOR +0.7%
CHINA NOV. EXPORTS IN USD TERMS +6.7% Y/Y; EST. +8.7%; PRIOR +12.7%
CHINA NOV. IMPORTS IN USD TERMS -3.9% Y/Y; EST. +0.9%; PRIOR -2.3%
CHINA NOV. TRADE SURPLUS $97.44B; EST. +$93.50B; PRIOR $95.72B
CHINA'S NOV. TRADE BALANCE 692.8 BLN YUAN; PRIOR 679.1 BLN YUAN
CHINA NOV. EXPORTS +5.8 % Y/Y IN YUAN TERMS; PRIOR +11.2%
CHINA NOV. IMPORTS -4.7 % Y/Y IN YUAN TERMS; PRIOR -3.7%
MARKETS
US TSYS: Little Changed After Yesterday’s Bear-Steepener, Focus On CPI/PPI
TYH5 is trading at 111-00+, -0-01+ from NY closing levels.
- According to MNI’s technical team, a bull cycle in Tsy futures remains in play and last week’s gains reinforce current bullish conditions. The contract has traded through the 50-day EMA, at 111-12. A clear break of this average would strengthen a bullish theme and signal scope for a stronger recovery. Sights are on 111-24 next, a Fibonacci retracement. For bears, a reversal lower would highlight the end of the bull cycle and open the key support at 109-02+, the Nov 15 low.
- Cash bonds are ~1bp richer in today’s Asia-Pac session after Monday’s bear-steepener.
- The focus remains on this week's CPI and PPI inflation data on Wednesday and Thursday respectively.
- Analysts’ forecasts for November CPI imply remarkably steady sequential inflation versus October, with the MNI median and average for core expected to show an unchanged 0.28% M/M. Combined with Thursday’s estimates for PPI inputs, core PCE is in turn seen moderating to between 0.18-0.25% M/M in November, vs 0.27% in October. (See MNI CPI Preview here)
- As a reminder, the Federal Reserve entered its self-imposed blackout at midnight Friday through December 19.
JGBS: Cash Bonds Cheaper But Strong 5Y Auction Assists Market
JGB futures are weaker but in the middle of today’s range, -21 compared to settlement levels.
- Outside of the previously outlined M2 & M3 Money Stock, there hasn't been much by way of domestic drivers to flag. Machine Tool Orders data is due soon.
- Cash bonds are ~1bp richer in today’s Asia-Pac session after Monday’s bear-steepener. The focus remains on this week's CPI and PPI inflation data on Wednesday and Thursday respectively.
- Analysts’ forecasts for November US CPI imply remarkably steady sequential inflation versus October, with the MNI median and average for core expected to show an unchanged 0.28% M/M. Combined with Thursday’s estimates for PPI inputs, core PCE is in turn seen moderating to between 0.18-0.25% M/M in November, vs 0.27% in October. (See MNI CPI Preview here)
- Cash JGBs are flat to 2bps cheaper across benchmarks beyond the 1-year. The benchmark 5-year yield is 0.6bps higher at 0.728% after today’s supply.
- Today’s 5-year bond auction demonstrated robust demand, with the auction price surpassing dealer expectations, the cover ratio rising significantly and the auction tail narrowing slightly.
- Swap rates are little changed out to the 10-year and 3bps higher beyond. Swap spreads are tighter out to the 10-year and wider beyond.
- Tomorrow, the local calendar will see PPI data and BSI Large All Industry Survey results.
JGBS AUCTION: 5-Year Supply Shows Strong Demand Metrics
Today’s 5-year bond auction demonstrated robust demand, with the auction price surpassing dealer expectations and exceeding the Bloomberg poll projection of 99.81. The cover ratio rose significantly to 4.4177x from 3.8070x, while the auction tail narrowed slightly compared to last month.
- The strong results sharply contrasted with the weaker demand seen in this month’s 10-year bond auction.
- ids were likely bolstered by the offering’s outright yield at a cyclical peak.
- The 5-year JGB has richened by approximately 1bp in early afternoon trading, with JGB futures strengthening and recovering from session lows.
AUSSIE BONDS: Richer After RBA Softens Guidance
ACGBs (YM +7.2 & XM +4.6) gap 6-8bps stronger after the RBA decision and statement.
- The RBA Board held the cash rate at 4.35% amid signs of easing inflationary pressures. Inflation remains above target, with underlying inflation at 3.5%, and is not expected to sustainably reach the 2.5% target midpoint until 2026.
- Economic growth is weak, with output rising just 0.8% over the past year, the slowest pace since the early 1990s (excluding COVID-19). Labour market conditions remain tight but are gradually easing, while wage growth has slowed more than anticipated.
- The Board highlighted uncertainties in domestic and global outlooks and reiterated its commitment to bringing inflation back to target while monitoring economic and market trends.
- Overall, the guidance has softened with the Board “gaining” some confidence inflation will return to target.
- Cash ACGBs are 5-8bps richer on the day after the decision versus 4-5bps cheaper this morning. The AU-US 10-year yield differential at -4bps from +5bps this morning.
- Swap rates are 5-8bps lower, 6-9bps lower than pre-RBA levels.
- The bills strip has shunted richer, with pricing +1 to +9 after the decision.
- RBA-dated OIS pricing is 2-10bps softer across 2025 meetings, with later meetings leading. A 25bps rate cut is now fully priced by April versus May pre-RBA.
STIR: RBA Dated OIS Pricing For Sep-2025 ~50bps Softer Than Mid-Nov
RBA-dated OIS pricing is 2-9bps softer across 2025 meetings after today's RBA policy decision. While the RBA Board held the cash rate at 4.35%, guidance was softened with the Board “gaining” some confidence inflation will return to target.
- A 25bps rate cut is now fully priced by April versus May pre-RBA.
- Market expectations for the September meeting are now 45-50bps softer than mid-November, driven by concerns over weakening domestic economic growth.
- Notably, in mid-November, a full 25bps cut wasn’t expected until August, marking a significant shift toward earlier rate cuts.
- The probability of a rate cut at today’s meeting had been low, with markets assigning only an 8% chance.
Figure 1: RBA-Dated OIS – Today Vs. Mid-November
Source: MNI – Market News / Bloomberg
BONDS: NZGBS: Closed Little Changed But At Session Bests
NZGBs closed at session bests, with benchmark yields 1bp lower. The local market opened weaker today following a negative lead-in from US tsys.
- It is also important to note that the local market was closed at the time of the RBA policy decision. With ACGBs substantially richer (benchmark yields 6-8bps lower at the time of writing) following a softening in guidance, the local market may receive a boost at tomorrow’s open.
- Cash US tsys are little changed in today’s Asia-Pac session after yesterday’s bear-steepener. The focus remains on Wednesday's CPI report and Thursday’s PPI data.
- The local calendar was empty today, ahead of Mfg Activity Volume tomorrow and Card Spending on Thursday.
- Swap rates closed flat to 2bps higher, with the 2s10s curve steeper.
- RBNZ dated OIS pricing closed flat to 3bps softer across meetings. A cumulative 44bps of easing is priced by February, with 107bps by year-end.
- Tomorrow, the NZ Treasury plans to sell NZ$250mn of the 0.25% May-28 bond, NZ$225mn of the 4.50% May-35 bond and NZ$25mn of the 2.75% Apr-37 bond.
FOREX: A$ Underperforming & Falls Sharply Following RBA Statement
Aussie and kiwi were G10 outperformers on Monday following the message from China’s Politburo that there will be more stimulus in 2025. However, during APAC trading today they were both underperforming giving up some of yesterday’s gains and AUDUSD is now below Monday’s close following the more dovish RBA statement. The BBDXY USD is off its low to be little changed.
- AUDUSD was down 0.4% to 0.6415 before the RBA decision to keep rates unchanged at 4.35%. It is now 0.8% lower at 0.6389 as the RBA noted that core inflation “remains too high” but it is “gaining some confidence that inflation is moving sustainably towards target”.
- NZDUSD is 0.6% lower at 0.5828, close to the intraday low. AUDNZD was up 0.1% at 1.0993 before the RBA decision with a high of 1.1002 but is now down 0.1% to 1.0969. It has struggled to hold gains above 1.10.
- After rising on Monday USDJPY is down slightly to 151.11 after falling to 151.04 earlier. AUDJPY is now down 0.8% to 96.63.
- European currencies are little changed with EURUSD around 1.0555 and GBPUSD 1.2745.
- Equities are mixed with the Hang Seng up 1.1% and CSI 300 +1.8% but ASX down 0.3% and TAIEX -0.6%. The S&P e-mini is moderately lower too. Oil prices are down with Brent -0.3% to $71.90/bbl. Copper is down 0.6% and iron ore is around $106.50/t.
- Later there is final US Q3 productivity/ULC and November NFIB small business optimism. The Eurogroup meeting is taking place.
OIL: Crude Holds Onto Most Of China-Driven Gains, EIA Report Later
Oil prices are moderately lower during APAC trading today after rising over a percent on Monday buoyed by China’s Politburo sending a clear message that there will be further stimulus in 2025. Increased uncertainty in the Middle East also provided support. WTI is down 0.4% today to $68.10/bbl, while Brent is 0.3% lower at $71.90. The USD index is down slightly.
- There is likely to be a moderate loosening of monetary policy in China next year with a more proactive fiscal policy resulting in the end to the 3% budget deficit ceiling. It is the world’s largest importer of crude.
- While the situation in the Middle East continues to be monitored closely, supply/demand fundamentals are the focus for oil markets given the expected surplus in 2025. US industry-based inventory data is released later today and the official EIA figures on Wednesday.
- November US CPI and the OPEC monthly report on Wednesday will be watched, in addition to today’s EIA Short-Term Energy Outlook and the IEA’s monthly report on Thursday.
- Later there is final US Q3 productivity/ULC and November NFIB small business optimism. The Eurogroup meeting is taking place.
UP TODAY (TIMES GMT/LOCAL)
| Date | GMT/Local | Impact | Country | Event |
| 10/12/2024 | 0330/1430 | *** |  AU | RBA Rate Decision |
| 10/12/2024 | 0700/0800 | *** |  DE | HICP (f) |
| 10/12/2024 | 0700/0800 | *** |  NO | CPI Norway |
| 10/12/2024 | 0700/0800 | ** |  SE | Private Sector Production m/m |
| 10/12/2024 | 0900/1000 | * |  IT | Industrial Production |
| 10/12/2024 | 1000/1000 | * |  GB | Index Linked Gilt Outright Auction Result |
| 10/12/2024 | 1100/0600 | ** |  US | NFIB Small Business Optimism Index |
| 10/12/2024 | - | *** |  CN | Trade |
| 10/12/2024 | - | *** | CN | Money Supply |
| 10/12/2024 | - | *** | CN | New Loans |
| 10/12/2024 | - | *** | CN | Social Financing |
| 10/12/2024 | - |  EU | ECB's De Guindos in ECOFIN meeting | |
| 10/12/2024 | 1330/0830 | ** | US | Non-Farm Productivity (f) |
| 10/12/2024 | 1355/0855 | ** | US | Redbook Retail Sales Index |
| 10/12/2024 | 1630/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 10/12/2024 | 1700/1200 | *** | US | USDA Crop Estimates - WASDE |
| 10/12/2024 | 1800/1300 | *** | US | US Note 03 Year Treasury Auction Result |
| 11/12/2024 | 1000/1000 | ** | GB | Gilt Outright Auction Result |
| 11/12/2024 | 1200/0700 | ** | US | MBA Weekly Applications Index |
| 11/12/2024 | 1330/0830 | *** | US | CPI |
| 11/12/2024 | 1330/0830 | * |  CA | Intl Investment Position |
