MNI EUROPEAN OPEN: CHINA'S INDUSTRIAL PROFITS FALL

EXECUTIVE SUMMARY

• UK WILL OUTPERFORM ITS STRUGGLING EUROPEAN NEIGHBOURS
• FRANCE’S NEW PREMIER VOWS TO NARROW DEFICIT
• US CONTINUING CLAIMS RISE TO HIGHEST IN MORE THAN THREE YEARS.
• JAPAN PLANS RECORD BUDGET WITH RAMPED-UP DEFENSE SPENDING
• CHINA's INDUSTRIAL PROFITS DECLINE -7.3% IN NOVEMBER.
• CHINA REFRAINS FROM CUTTING INTEREST RATES 

Fig. 1:  China Industrial Profits y/y

Source: MNI - Market News/Bloomberg

UK  (BBG)  The UK will outperform its struggling European peers in the next 15 years, helping it to cling onto its place among the world’s biggest economies, according to long-term projections.  Britain and France will remain in sixth and seventh position by 2039, respectively, as Germany, Italy and Spain slip down the leaderboard, the Centre for Economics and Business Research predicted. 

EU

FRANCE (BBG): France’s new premier Francois Bayrou vowed to sharply narrow the nation’s deficit to close to 5% of GDP, a plan that threatens a repeat of the stand-off which toppled the last government.

US

US:  (BBG)  Recurring applications for US unemployment benefits rose to the highest in more than three years, adding to signs that it is taking longer for out-of-work people to find a job.

OTHER 

JAPAN BUDGET (BBG): “Japanese Prime Minister Ishiba’s cabinet  is expected to approve a record initial budget Friday for the next fiscal year that will ramp up spending on defense and support for local economies.  The budget for the year starting in April 2025 will total around ¥115.5 trillion ($735 billion), according to a draft of the plan obtained by Bloomberg on Wednesday. 

JAPAN RATES (BBG):  Bank of Japan Governor Kazuo Ueda avoided giving a clear signal that he might raise interest rates next month by reiterating the need to keep monitoring risks for the economy in comments that nudged down the yen. 

CHINA 

CHINA RATES (BBG): China refrained from cutting the interest rate and drained the most cash since 2014 with a one-year policy tool, keeping its powder dry ahead of a possible escalation in trade tensions with the US next year.  The People’s Bank of China held the interest rate on the one-year medium-term lending facility steady at 2% — a move predicted by nine of 10 economists surveyed by Bloomberg. The authorities also withdrew a net 1.15 trillion yuan ($158 billion) from the financial system with the tool, the most since 2014. 

CHINA INDUSTRIAL PROFITS (BBG) :  China’s industrial profits for November fell -7.3% y/y, This compared to the -10% decline for October.  The year to date result was a decline of -4.7% at CNY6.6tn and was the fourth consecutive month of declines, capturing the period from when stimulus measures were first announced and highlights the ever present malaise for Chinese industrial companies, driven by the declining property sector. 

CHINA MARKETS

MNI: PBOC Injects CNY6.2 Bln via OMO Today. 

MNI (BEIJING) - The People's Bank of China (PBOC) issued CNY107.8 billion via 7-day reverse repos, with the rate unchanged at 1.50%. The operation led to an injection of CNY6.2 billion after offsetting the maturity of CNY101.6 billion today, according to Wind Information.
 

• The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.5000% at 09:26 am local time from the close of 1.5971% on Thursday.
• The CFETS-NEX money-market sentiment index, measuring interbank money-market liquidity, closed at 44 on Thursday, compared with the close of 45 on Wednesday. A higher reading points to tighter liquidity condition, with 50 representing an equilibrium.

MNI (BEIJING) - The People's Bank of China (PBOC) set the dollar-yuan central parity rate lower at 7.1893 on Friday, compared with 7.1897 set on Thursday. The fixing was estimated at 7.2990 by Bloomberg survey today.

The PBOC started setting daily central parity rates on Jan 4, 2007.

On July 21, 2005, China switched to a managed-float formula against a basket of currencies, weakening the yuan's peg to the dollar

Since March 17, 2014, the yuan has been allowed to move 2% in a range on either side of the daily fixing against the dollar.

MARKET DATA

TOKYO DEC. OVERALL CONSUMER PRICES RISE 3.0% Y/Y; EST. +2.9%

TOKYO DEC. CORE CPI RISES 2.4% Y/Y; EST. +2.5%

TOKYO DEC. CPI EX-FRESH FOOD, ENERGY RISES 1.8% Y/Y; EST. +1.9%

JAPAN NOV. JOBLESS RATE 2.5%; EST 2.5%

JAPAN NOV. JOB-TO-APPLICANT RATIO IS 1.25; EST. 1.25

JAPAN NOV. INDUSTRIAL OUTPUT -2.3% M/M; EST. -3.5%

JAPAN NOV. RETAIL SALES RISE 1.8% M/M; EST. 0.5%

SOUTH KOREA DEC BUSINESS SURVEY  61; PRIOR 66 

CHINA NOV. INDUSTRIAL PROFITS YTD Y/Y -7.3%; PRIOR -10.0%. 

MARKETS

• US TSYS: Little Changed Ahead Of Retail Sales Data

US TSYS: Little Changed Ahead Of Retail Sales Data

TYH5 is 108-22, +0-01 from NY closing levels. 

• Cash US tsys are ~1bp richer in today’s Asia-Pac session.
• Yesterday Treasury futures gapped higher after the strong $44B 7Y note auction stopped 2.2bp through with high yield of 4.532% vs. 4.554% WI, indirect take-up surged to a new record high of 87.88% from 64.08 prior (this year’s low).
• At 108-22, initial technical resistance for the Mar'25 10Y contract is still well above at 110-03+ (20D EMA). Curves retreated from earlier steeper levels, currently mixed: 2s10s -0.583 at 24.425 (23.998 low vs. 27.611 high), 5s30s +1.662 at 32.778 (30.154 low / 33.404 high).
• Friday's US data calendar: Advance Goods Trade Balance (-$101.3B, -$98.3B prior rev), Wholesale Inventories MoM (0.2%, 0.1%) and Retail Inventories MoM (0.1%, 0.3%) at 0830ET.

• JGBS: Little Changed After BOJ’s SOO (Dec) & Mixed Local Data Drop

JGBS: Little Changed After BOJ’s SOO (Dec) & Mixed Local Data Drop

JGB futures are stronger, +8 compared to the settlement levels, after dealing in a narrow range for most of the session.

• One BOJ board member said the upside risks to prices doesn’t suggest there’s a pressing need to raise interest rates at this stage and yen carry trade positions haven’t been built up, according to a summary of opinions from the central bank’s latest meeting.
• The Bank of Japan released for the first time estimates on how future interest rate hikes could affect its earnings, which showed it will briefly suffer red ink of up to $13 billion if short-term borrowing costs were to go up to 2%. The estimates, disclosed on Thursday in a research paper, underscore the BOJ's resolve to keep pushing up short-term interest rates - now at 0.25% - to levels deemed neutral to the economy in coming years. (per RTRS)
• Cash US tsys are ~1bp richer in today’s Asia-Pac session.
• Cash JGBs are slightly mixed across benchmarks, with yield swings bounded by +/- 1bp. The benchmark 10-year yield is unchanged at 1.098% versus the cycle high of 1.113%.
• The swaps curve has twist-steepened, pivoting at the 20-year zone, with rates 1.5bps lower to 3bps higher.
• On Monday, the local calendar will see Jibun Bank PMI Mfg data. 

• AUSSIE BONDS: Strong Session As Trading Resumed After Xmas Break

AUSSIE BONDS: Strong Session As Trading Resumed After Xmas Break

ACGBs (YM +5.0 & XM +5.0) are richer and at Sydney session highs on a data/newsflow-light session. 

• Slowing wages growth and an economy barely out of first gear have given the Reserve Bank more ammunition to consider an interest rate cut at its first meeting of 2025, providing a timeline for Prime Minister Anthony Albanese to call the federal election. (See Brisbane Times link)
• Cash US tsys are ~1bp richer in today’s Asia-Pac session. Friday's US data calendar: Advance Goods Trade Balance (-$101.3B, -$98.3B prior rev), Wholesale Inventories MoM (0.2%, 0.1%) and Retail Inventories MoM (0.1%, 0.3%) at 0830ET.
• Cash ACGBs are 6bps richer after the extended Christmas holiday with the AU-US 10-year yield differential at -19bps.
• Swap rates are 6bps lower.
• The bills strip is stronger, with pricing +2 to +3.
• RBA-dated OIS pricing is 1-4bps softer today. Market pricing has a 25bp rate cut more than fully priced by April (130%), with a 63% probability of a February cut.
• On Monday, the local calendar will see RBA's Jones Fireside Chat at the Conexus 2025 Superannuation Chair Forum.
• In terms of data, CoreLogic Home Values and S&P Global PMI Mfg are due on January 2. 

• BONDS: NZGBS: Strong Session Heading Into The Weekend

BONDS: NZGBS: Strong Session Heading Into The Weekend

NZGBs closed showing a bull-flattener, with benchmark yields flat to 6bps lower. The local market finished at its best levels, with positive spillover from ACGBs as a possible driver. 

• ACGBs have benefited from the recent ramping up of easing expectations following the RBA’s perceived dovish shift at its December meeting.
• The local calendar was empty today and will remain so until the release of CoreLogic Home Values on January 2.
• The NZ-US 10-year yield differential closed 5bps lower at -16bps, its lowest level since late 2020.
• Swap rates closed 4-5bps lower, with the 2s10s curve unchanged.
• RBNZ dated OIS pricing closed little changed. 54bps of easing is priced for February, with a cumulative 125bps by November 2025.

• ASIA FX: Softer US Data Gives Dollar Boost on Rates View. 

ASIA FX: Softer US Data Gives Dollar Boost on Rates View. 

• Asia’s key currencies were mostly weaker today as the USD got a boost from weaker unemployment data and the prospect for rate cuts.
• The Korean Won and Indonesian rupiah had the largest underperformance, with the Won off -0.67% and the Rupiah off -0.388% in today’s trade.
• The Ringgit was not immune touching 4.4775 to be -0.185% for the day.
• India’s rupee’s struggles continue.  Having hit historically weak levels prior to the holiday break, it has continued today to be -0.151% at the open, at 85.39.
• The Yen had a slightly better day as the Finance Minister indicated the government’s support for the currency.  Yen traded at 157.65 in thin trading day ahead of the weekend.
• The Aussie dollar and NZ dollar will be little changed on the day.    

• Gold Rallies on Weaker US Data. 

Gold Rallies on Weaker US Data. 

• Gold rallied in light holiday markets following weaker-than-expected US data.
• The US reported the highest number of people with recurring applications for unemployment benefits in three years, adding to uncertainty as to the path for interest rates next year.
• As an asset that does not pay interest, gold has reacted positively to the forecasts for interest rate cuts.
• In thin trading over the holiday period, Gold opened at US$2,616.87 and edged higher throughout the session to US$2,633.58.
• Gold has had a very strong year this year up over 25% for the year on the back of projected interest rate cuts.
• The outlook for gold in 2025 became somewhat clouded when the Fed Reserve Chairman in the last meeting of the year, indicated that the potential for interest rate cuts next year was likely less than what is currently priced in. 

• Oil Edges Lower on US Data.

Oil Edges Lower on US Data.

• The US reported the highest number of people with recurring applications for unemployment benefits in three years, pushing thin trading markets for oil lower.
• WTI dipped below US$70 to lows of $69.33, only to edge higher into the Asia open at $69.64.
• Brent had reached a high of US$74.17 before falling down to $72.99 briefly, edging up to $73.26.
• The American Petroleum Institute said that inventories fell 3.2m barrels last week, the fifth consecutive drop.   
• US crude exports to China declined by more than a half in 2024 driven by both the slowing of the domestic economy and a shift in purchasing to Iranian oil.
• In Singapore data out shows total stockpiles fell by the most since 2004. 

UP TODAY (TIMES GMT/LOCAL) 

Date	GMT/Local	Impact	Country	Event
27/12/2024	1330/0830	**	US	WASDE Weekly Import/Export
27/12/2024	1330/0830	**	US	Advance Trade, Advance Business Inventories
27/12/2024	1530/1030	**	US	Natural Gas Stocks
27/12/2024	1600/1100		CA	Finance Dept monthly Fiscal Monitor (expected)
30/12/2024	0030/0930	**	JP	S&P Global Final Japan Manufacturing PMI
30/12/2024	0800/0900	***	ES	HICP (p)
30/12/2024	0800/0900	**	CH	KOF Economic Barometer
30/12/2024	1445/0945	***	US	MNI Chicago PMI
30/12/2024	1500/1000	**	US	NAR Pending Home Sales
30/12/2024	1530/1030	**	US	Dallas Fed manufacturing survey
30/12/2024	1630/1130	*	US	US Treasury Auction Result for 26 Week Bill
30/12/2024	1630/1130	*	US	US Treasury Auction Result for 13 Week Bill
30/12/2024	1800/1300	*	US	US Treasury Auction Result for Cash Management Bill
31/12/2024	0130/0930	***	CN	CFLP Manufacturing PMI
31/12/2024	0130/0930	**	CN	CFLP Non-Manufacturing PMI
31/12/2024	1355/0855	**	US	Redbook Retail Sales Index
31/12/2024	1400/0900	**	US	S&P Case-Shiller Home Price Index
31/12/2024	1400/0900	**	US	FHFA Home Price Index
31/12/2024	1400/0900	**	US	FHFA Home Price Index
31/12/2024	1500/1000	***	US	Conference Board Consumer Confidence
31/12/2024	1530/1030	**	US	Dallas Fed Services Survey
02/01/2025	2200/0900	**	AU	S&P Global Manufacturing PMI (f)
02/01/2025	0145/0945	**	CN	S&P Global Final China Manufacturing PMI
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