MNI EUROPEAN OPEN: China Yields Higher On PBoC Move
EXECUTIVE SUMMARY
- FED’S BOWMAN URGE CAUTIOUS, GRADUAL RATE ADJUSTMENTS - MNI
- FED’S SCHMID SAYS RATES NEARING NEUTRAL, CAN BE PATIENT - MNI BRIEF
- PBOC SUSPENDS BOND TRADES AS YIELDS DROP - MNI BRIEF
- CHINA YUAN EXPERT ON POTENTIAL AGREEMENT WITH US - MNI
- JAPAN’S HOUSEHOLD SPENDING FALLS, WEIGHING ON BOJ RATE HIKE PATH - BBG
Fig. 1: China Government Bond Yields Tick Up
Source: MNI - Market News/Bloomberg
UK
BOE (MNI BRIEF): Bank of England Deputy Governor Sarah Breeden rejected the idea that the UK gilt market has become dysfunctional, while stating that the BOE was keeping a close eye on it after longer-term yields have risen sharply recently.
BOE (MNI BRIEF): Bank of England Deputy Governor Sarah Breeden said Thursday that she supported the case for gradual easing of policy, with the risks of elevated inflation becoming entrenched having eased.
UK/CHINA (BBG): "Chancellor of the Exchequer Rachel Reeves will become the most senior British official to visit Beijing in 7 years this weekend as she embarks on a mission to deepen economic ties with China against the backdrop of UK market turmoil that threatens to undermine her plans to spur growth domestically."
EU
EU/US (BBG): “European Commission President Ursula von der Leyen is trying to schedule a meeting with Donald Trump in Florida ahead of the president-elect’s inauguration, according to two people familiar with the matter.”
GERMANY (BBG): “US tech billionaire Elon Musk spoke with Germany’s far-right candidate Alice Weidel on his X social media site in what amounted to an unpaid advertisement for the Alternative for Germany party ahead of a federal election next month.”
US/RUSSIA (BBG): “President-elect Donald Trump said a meeting with Russian President Vladimir Putin is being set up. At a meeting with Republican governors at Trump’s Mar-a-Lago club, the incoming president told a reporter that Putin “wants to meet” and added, “we’re gonna — we’re setting it up.” Any such meeting, were it to happen, would come after he’s inaugurated as president, Trump said.”
US.
FED (MNI BRIEF): The Federal Reserve’s interest rate setting is getting closer to neutral levels that are likely to be higher than in the past, Kansas City Fed President Jeffrey Schmid said Thursday.
FED (MNI): Federal Reserve Governor Michelle Bowman on Thursday called for a cautious and gradual approach to further interest rate cuts, warning that the current stance of policy may not be providing much restraint on the economy at the same time that progress on inflation may be stalling out.
FED (MNI): Federal Reserve Bank of Philadelphia President Patrick Harker said Thursday he expects to lower interest rate further but noted concern over potential upside risks to inflation from wars and potential policy changes from the incoming Trump administration.
POLITICS (RTRS): “The U.S. Supreme Court cleared the way on Thursday for Donald Trump to be sentenced for the president-elect's conviction on criminal charges involving hush money paid to a porn star, with two conservative justices joining the three liberal members in a 5-4 decision.”
OTHER
JAPAN (BBG): “Japan’s households cut consumption for a fourth month as inflation continues to weigh on their purchasing power, showing an economic fragility that’s likely to keep the Bank of Japan cautious about additional rate hikes.”
CANADA (MNI BRIEF): Canada's interest costs rose to the highest since 2012 at 11.2% of revenue in Q3, the kind of fiscal expansion criticized by Justin Trudeau's opponents before he stepped down from the role of prime minister Monday.
PERU (BBG): “Peru restarted monetary easing after one of the lowest inflation rates in emerging markets fell even further. The central bank cut its key interest rate to 4.75% from 5% on Thursday, as forecast by seven of 11 analysts surveyed by Bloomberg. The others had expected policymakers to hold the rate at 5% for a second month.”
VENEZUELA (RTRS): “Venezuela opposition leader Maria Corina Machado was freed on Thursday, her Vente Venezuela movement said, shortly after she was detained amid gunshots while leaving a protest in eastern Caracas.”
COLOMBIA (BBG): “Colombia's consumer prices rose more than economists expected in December.”
AUSTRALIA (BBG): “While the short-term outlook for Australia’s east coast gas market has slightly improved, domestic gas supply is in structural decline and future investment is uncertain, according to the latest gas inquiry report from Australian Competition & Consumer Commission.”
CHINA
BONDS (MNI BRIEF): The People’s Bank of China has suspended bond purchases as treasury yields continue to fall fuelled by policy easing expectations. According to a statement on the PBOC’s website on Thursday, the Bank will suspend bond purchases in its open market operations starting from January 2025 considering “the persistent supply shortage in the government bond market” and the resumption of the operations will be considered based on the supply and demand situation in future.
US/CHINA (FT/BBG): “China’s President Xi Jinping will send a high-level envoy to Donald Trump’s inauguration, the Financial Times reports, citing people familiar with the discussions.”
CONSUMPTION (SHANGHAI SECURITIES NEWS): “More than 10 provinces have rolled out a new round of consumption vouchers since the beginning of the year to boost spending during the Lunar New Year holiday, Shanghai Securities News reports on Friday.”
YUAN (MNI): A Chinese yuan expert weighs the potential for agreement with the U.S. On MNI Policy MainWire now, for more details please contact sales@marketnews.com.
YUAN (SECURITIES TIMES): “Market investors should have sufficient reason to believe in the People’s Bank of China’s determination and ability to correct any sharp rises and falls in the exchange rate given the abundant tools it has, said Securities Times in a commentary.”
CPI (21st Century Business Herald): “China’s CPI is expected to fluctuate with the recovery of domestic demand and food price cycles in 2025, with the median likely being 1%, 21st Century Business Herald reported citing Ming Ming, chief economist of CITIC Securities, after 2024 CPI came in at 0.2% y/y.
CHINA MARKETS
MNI: PBOC Net Drains CNY14.8 Bln via OMO Friday
MNI (BEIJING) - The People's Bank of China (PBOC) conducted CNY4.5 billion via 7-day reverse repos, with the rate unchanged at 1.50%. The operation led to a net drain of CNY14.8 billion after offsetting the maturity of CNY19.3 billion today, according to Wind Information.
- The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.5264% at 09:34 am local time from the close of 1.6526% on Thursday.
- The CFETS-NEX money-market sentiment index, measuring interbank money-market liquidity, closed at 49 on Thursday, compared with the close of 48 on Wednesday. A higher reading points to tighter liquidity condition, with 50 representing an equilibrium.
MNI: PBOC Sets Yuan Parity Higher At 7.1891 Fri; -2.36% Y/Y
MNI (BEIJING) - The People's Bank of China (PBOC) set the dollar-yuan central parity rate higher at 7.1891 on Friday, compared with 7.1886 set on Thursday. The fixing was estimated at 7.3315 by Bloomberg survey today.
MARKET DATA
AUSTRALIA NOV HOUSEHOLD SPENDING M/M 0.4%; MEDIAN 0.7%; PRIOR 0.9%
AUSTRALIA NOV HOUSEHOLD SPENDING Y/Y 2.4%; MEDIAN 2.5%; PRIOR 3.3%
JAPAN NOV HOUSEHOLD SPENDING Y/Y -0.4%; MEDIAN 0.9%; PRIOR -1.3%
JAPAN NOV P LEADING INDEX CI 107; MEDAIN 107.2; PRIOR 109.1
JAPAN NOV P COINCIDENT INDEX 115.3; MEDIAN 115.3; PRIOR 116.8
MARKETS
US TSYS: Tsys Futures Steady Ahead OF US Non Farms Later
- It has been a very slow session for Tsys futures as they trade in very narrow ranges ahead of US Non-Farms later tonight. Futures are trading slightly lower, with TU -00⅛ at 102-24⅞, while TY is -01 at 108-06
- Cash tsys have given back most of the morning's gains, with yields now flat to -0.5bps lower, the belly of the curves has outperformed throughout the session with the 2y5y20y fly dropping 1bp. The 10yr is trading -0.4bps at 4.685%.
- Focus will all be on Nonfarm payrolls tonight, with growth seen at circa 160k in December as some recent distortions from hurricanes and strikes are increasingly in the rear-view mirror, and with a relatively narrow range to analyst estimates. The unemployment rate is broadly seen holding at 4.2%, although at an unrounded 4.246% in November it wouldn’t surprise if it rounded to 4.3%. A ‘high’ 4.3% would still be notable, though, for a fresh recent high.
- MNI US Payrolls Preview: Test For Fading Rate Cut Expectations - See here
- Projected rate cuts through mid-2025 look a little firmer vs. late Wednesday levels* as follows: Jan'25 at -1.7bp, Mar'25 -11.0bp (-10.2bp), May'25 -16.4bp (-15.4bp), Jun'25 -26.9bp (-24.1bp).
JGBS: Little Changed, Range-Bound Session Ahead Of US Payrolls
JGB futures are weaker, -11 compared to settlement levels, after a range-bound session.
- Outside of the previously outlined household spending, there hasn't been much by way of domestic drivers to flag. The positive surprise on real spending will be welcomed by the authorities, but spending has remained largely negative in y/y terms for the past 2 years.
- Today's data is unlikely to shift near-term BoJ thinking. They have time to assess such trends and await early 2025 wages outcomes.
- BOJ-dated OIS pricing is 1-6bps softer across meetings compared to pre-December MPM levels, with January 2025 leading the decline.
- Market expectations currently indicate: a 28% probability of a 25bp hike in January; a cumulative 82% chance by May; and a full 25bp increase not fully priced in until June 2025.
- Cash US tsys are slightly richer in today’s Asia-Pac session ahead of tonight’s US Nonfarm Payrolls.
- Cash JGBs are little changed across benchmarks. The benchmark 10-year yield is 0.5bp higher at 1.189%, just shy of the fresh cycle high of 1.192% set early today.
- The swaps curve has twist-steepened, pivoting at the 20-year, with rates 2bps lower to 3bps wider.
- The local market is closed on Monday for the Coming-of-Age Day holiday.
AUSSIE BONDS: Cheaper On A Subdued Pre-US Payrolls Friday
ACGBs (YM -3.0 & XM -4.0) are cheaper and hovering near Sydney session lows on a subdued pre-US payroll Friday.
- Outside of the previously outlined household spending, there hasn't been much by way of domestic drivers to flag.
- Cash US tsys are slightly richer in today’s Asia-Pac session after yesterday’s modest gains. Nonfarm payrolls growth is seen at circa 160k in December as some recent distortions from hurricanes and strikes are in the rear-view mirror.
- Cash ACGBs are 2-4bps cheaper with the AU-US 10-year yield differential at -16bps.
- Swap rates are flat to 1bp higher.
- The bills strip is -1 across contracts.
- RBA-dated OIS pricing is flat to 2bps firmer across meetings today. A 25bp rate cut is more than fully priced for April (118%), with the probability of a February cut at 75% (based on an effective cash rate of 4.34%).
- Monday, the local calendar will see Melbourne Institute Inflation and ANZ-Indeed Job Advertisements data.
- AOFM Bond issuance will resume next week, with A$800mn of the 3.50% 21 December 2034 bond to be sold on Wednesday and A$700mn of the 2.75% 21 November 2027 bond on Friday.
BONDS: NZGBS: Closed With A Modest Twist Steepening Ahead Of US Payrolls
NZGBs twist-steepened, with benchmark yields closing 1bp lower to 1bp higher, on a data-light session ahead of tonight’s release of US Nonfarm payrolls for December.
- Nonfarm payrolls growth is seen at circa 160k in December as some recent distortions from hurricanes and strikes are in the rearview mirror and with a relatively narrow range to analyst estimates. The unemployment rate is broadly seen holding at 4.2%, although at an unrounded 4.246% in November, it wouldn’t surprise if it rounded to 4.3%. A ‘high’ of 4.3% would still be notable for a fresh recent high.
- Swap rates closed 1-2bps lower, with a steeper 2s10s curve.
- RBNZ dated OIS pricing closed flat to 4bp softer across meetings, with late 2025 leading. 51bps of easing is priced for February, with a cumulative 131bps by November 2025.
- In the $-bloc, rate expectations through July 2025 have softened significantly over the past month, with the exception of the US, where expectations remained largely unchanged. Over the period, NZ saw a decline of 36bps, Australia softened by 30bps, and Canada eased by 19bps.
- The local calendar will see Building Permits and Filled Jobs on tap on Monday.
FOREX: USD Ticks Up Amid Muted Session As Markets Await US NFP Later
Forex trends in the G10 space have been muted, albeit with a slightly positive USD bias, as markets await the US NFP print later. Aggregate moves are not much beyond 0.10% at this stage. The USD BBDXY index sits up a touch from end Thursday levels, last near 1313.8.
- USD/JPY has traded a little over 30pip range. Dips under 158.00 have been supported and we last tracked near 158.30/35, around session highs. Recent highs in the pair just above 158.50 remain intact. Earlier data showed better than expected real household spending figures, but we are still negative from a y/y standpoint. This is unlikely to unnerve the BoJ around any urgent need to raise policy rates.
- AUD/USD is holding under 0.6200, but has maintained tight ranges so far today. We also had Australian household spending figures, which like yesterday's retail outcome, came in slightly below market expectations. NZD/USD is under 0.5600 as well, but up from recent lows (0.5572).
- Earlier US equity futures opened lower, but we are away from worst levels. Eminis and Nasdaq futures were last off around 0.30%. Rising cost estimates from the LA fires was a likely early headwind in this space. US yields are down a touch, but losses are less than 1bps.
- EUR/USD was last near 1.0300, while GBP/USD is close to 1.2300, both pairs little changed for the session. GBP is off around 1% over the past week, the weakest G10 performer amid fresh twin deficit concerns.
- Looking ahead, outside of the US NFP print we also have the Canadian jobs report.
EQUITIES: China Property Stocks Struggle To Start The Year
EQUITIES: Asian Equities Fall Ahead Ahead Of US Employment Data
Asian stocks are on track for a weekly loss as cautious sentiment prevails ahead of the US nonfarm payrolls report, with concerns over slower Fed rate cuts and rising Treasury yields. The MSCI Asia Pacific Index fell 0.4%, led by declines in Singapore, Australia, and Japan, with Fast Retailing dragging on fears of a China slowdown. Chinese stocks edged lower amid concerns over deflationary pressures and external risks, including potential tech sanctions. Regional markets face additional headwinds from slowing Chinese growth and geopolitical tensions, contributing to rising volatility.
- APAC Markets: Japan's Nikkei -1% & TOPIX -0.65%, South Korea's KOSPI now flat, Hong Kong's HSI -0.45%, China's CSI 300 -0.45, Taiwan's TAIEX -0.10%, Australia's ASX200 -0.50%, New Zealand's NZX 50 -0.20%
- US Equity futures are lower with Dow Jones -0.05%, S&P 500 -0.25% & NASDAQ -0.30%, all trading off session lows now.
OIL: Tracking Higher For The Third Straight Week
Brent crude has tracked sideways in the first part of Friday trade. The active contract was last just above $77/bbl. This follows Thursday's +1.00% gain. Trends have been mixed the past week, but we are up on last Friday levels by around 0.80% at this stage. WTI was just above $74/bbl in latest dealings, tracking up a more modest 0.20% for the week, (although WTI rose more last week). Both benchmarks are tracking up for the third straight week.
- For Brent, the technical set up looks bullish. We are very close to the 200-day EMA. A clean break highs may see $80/bbl round figure resistance targeted. Other key EMAs are lower, between $75.30 and $74.30/bbl, which could act as a support zone. We haven't tested sub the 100-day EMA so far this year.
- There have been a number of support points this past week, with lower US crude inventories pointing to tight supply. Cold conditions in parts of the US have also supported heating fuel demand. Fears over fresh US sanctions on Iran/Russia has also supported risk premiums in terms of the outlook.
- Concerns around a softer China growth backdrop have been offset by the above factors. Note we get China trade figures on Monday, with imports eyed in terms of the China demand pulse.
- Before that the main cross asset focus will be tonight's US NFP print.
GOLD: Positive Trend Maintained, Up Over 1% This Past Week
Gold is trading with a positive bias, as it has for much of the past week. We were last near $2673.5, up a further 0.25%, tracking firmer for the fourth straight session. We are comfortably higher versus end levels from last week, +1.30%.
- Intra-session highs from Thursday were at $2678.45, while broader upside focus is likely to rest on a re-test of $2700. The 100-day MA support zone remains a watch point, this level currently just above $2631.
- Gold is outperforming the resilient USD/US yield backdrop for the past week, but this has been a theme for a while. Asset allocation flows, particularly from central banks, an on-going support point.
- The upcoming NFP print will be a key focus point from a cross asset standpoint.
UP TODAY (TIMES GMT/LOCAL)
| Date | GMT/Local | Impact | Country | Event |
| 10/01/2025 | 0645/0745 | ** |  CH | Unemployment |
| 10/01/2025 | 0700/0800 | *** |  NO | CPI Norway |
| 10/01/2025 | 0700/0800 | ** |  SE | Private Sector Production m/m |
| 10/01/2025 | 0745/0845 | * |  FR | Industrial Production |
| 10/01/2025 | 0745/0845 | ** | FR | Consumer Spending |
| 10/01/2025 | 0800/0900 | ** |  ES | Industrial Production |
| 10/01/2025 | 0900/1000 | * |  IT | Retail Sales |
| 10/01/2025 | - | *** |  CN | Money Supply |
| 10/01/2025 | - | *** | CN | Social Financing |
| 10/01/2025 | - | *** | CN | New Loans |
| 10/01/2025 | 1330/0830 | * |  CA | Building Permits |
| 10/01/2025 | 1330/0830 | *** | CA | Labour Force Survey |
| 10/01/2025 | 1330/0830 | *** |  US | Employment Report |
| 10/01/2025 | 1330/0830 | ** | US | WASDE Weekly Import/Export |
| 10/01/2025 | 1500/1000 | ** | US | U. Mich. Survey of Consumers |
| 10/01/2025 | 1700/1200 | *** | US | USDA Crop Estimates - WASDE |
| 10/01/2025 | 1700/1200 | ** | US | USDA GrainStock - NASS |
| 10/01/2025 | 1700/1200 | *** | US | USDA Winter Wheat |
| 10/01/2025 | 1900/1400 | ** | US | Treasury Budget |
