MNI EUROPEAN OPEN: FED Risks Overcutting as Inflation Lingers

Dec-05 05:56By: Jamie Grant

Europe

EXECUTIVE SUMMARY

FED RISKS OVERCUTTING AS INFLATION LINGERS-RYDING - MNI
CHINA’S POLICY TONE AIMED AT 5% GDP - MNI
RUSSIA WILL TAKE DONBAS BY FORCE: PUTIN - BBC
FUTURE RBA ADJUSTMENTS SEEN AS MINOR - MNI
CONCERNS GROW OVER TAKAICHI’S BOJ BOARD PICKS - MNI

Fig 1: EUR/AUD Approaching Key Pivots as the AUD Starts to Outperform

Source: MNI - Market News/Bloomberg/Refinitiv.

PRIVATE CREDIT (BBG): "Private credit firms are set to be stress tested for the first time by the Bank of England, after the central bank on Thursday unveiled the plans as part of its second system-wide exploratory scenario (SWES) exercise."

ECB (MNI): ECB Speak Wrap (Nov 19– Dec 4): Dovish leaning Governing Council (GC) members have had less airtime than usual over the past two weeks, with centrist and hawkish-leaning voices taking centre stage.

UKRAINE (BBC):”President Vladimir Putin has warned again that Ukrainian troops must withdraw from Ukraine's eastern Donbas region or Russia will seize it, rejecting any compromise over how to end the war in Ukraine.”

FRANCE-CHINA RELATIONS (China Daily):”President Xi Jinping said on Thursday that China and France should always demonstrate the strategic vision and independence of a major country, offer each other understanding and support on issues concerning core interests and major concerns, and safeguard the political foundation of bilateral ties.”

FED: (MNI INTERVIEW): The Federal Reserve will likely be going too far in easing monetary policy if it lowers interest rates again as widely expected next week, RDQ Economics chief economist John Ryding told MNI.

FED: (BBG): “National Economic Council Director Kevin Hassett said the Federal Reserve should cut interest rates at its meeting next week and predicted a reduction of 25 basis points as speculation grows that President Donald Trump is readying his nomination to lead the central bank.”

JAPAN

BOJ (MNI POLICY) : Concerns Grow Over Takaichi's BOJ Board Picks

ECONOMY (BBG): “Japan’s households unexpectedly cut spending for the first time in six months, in a sign of the fragility of domestic demand as the Bank of Japan prepares to consider raising borrowing costs later this month.”

OTHER

AUSTRALIA (MNI ): Future RBA Adjustments Seen As Minor Tweaks To 3.6% Rate

AUSTRALIA (BBG): “Is the Australian economy firing up or hitting a wall?”

INDIA-RUSSIA (BBC):”Russian President Vladimir Putin has arrived for a two-day visit to India, where he was embraced by Prime Minister Narendra Modi ahead of an annual summit held by both countries.”

JAPAN HOUSEHOLDS (BBG): “Japan’s households unexpectedly cut spending for the first time in six months, in a sign of the fragility of domestic demand as the Bank of Japan prepares to consider raising borrowing costs later this month.”

CHINA

ECONOMY (MNI): China's Positive 2026 Policy Tone Aimed At 5% GDP

PROPERTY SECTOR (MNI): China To Target City Specific Near-term Housing Stimulus

MNI China Press Digest Dec 5: Yuan, CPI, New Loans

MNI: PBOC Net Drains CNY161.5 Bln via OMO Friday

MNI (BEIJING) - The People's Bank of China (PBOC) conducted CNY139.8 billion via 7-day reverse repos, with the rate unchanged at 1.40%. The operation led to a net drain of CNY161.5 billion after offsetting maturities of CNY301.3 billion today, according to Wind Information

The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.4057% at 10:12 am local time from the close of 1.4376% on Thursday.
The CFETS-NEX money-market sentiment index, measuring interbank money-market liquidity, closed at 49 on Thursday, the same as the close on Wednesday. A higher reading points to tighter liquidity condition, with 50 representing an equilibrium.

MNI: PBOC Sets Yuan Parity Higher At 7.0749 Fri; +2.74% Y/Y

MNI (BEIJING) - The People's Bank of China (PBOC) set the dollar-yuan central parity rate higher at 7.0749 on Friday, compared with 7.0733 set on Thursday. The fixing was estimated at 7.0740 by Bloomberg survey today.

MARKET DATA

AUSTRALIA FOREIGN RESERVES NOVEMBER A$110.5bn, PRIOR A$107bn

JAPAN HOUSEHOLD SPENDING YoY OCTOBER -3.0%; EST 1.0%, PRIOR 1.8%

JAPAN LEADING INDEX CI OCT P 110. EST 109.3; PRIOR 108.2

JAPAN COINCIDENT INDEX OCT P 115.4; EST 115.0; PRIOR 114.9

SOUTH KOREA BoP CURRENT ACCOUNT BALANCE OCTOBER US$6,814bn; PRIOR US$14,244bn

SOUTH KOREA BoP GOODS BALANCE US$7.81bn; PRIOR us$14,24bn

MARKETS

US TSYS: Early Gains Moderate, Front End Yields Lower with 10-Yr Flat

Earlier gains for bond futures moderated in the afternoon, with the US 10-Yr bond future. The 10-Yr had rising by +04 earlier but now +02 in the Asia afternoon at 112-25+. TYH6 has upper resistance from the 50-day EMA of 112-27+ which it failed to break earlier.

Cash is given back earlier gains also withe the 10-Yr now flat on the day, having been down -1bps at midday.

The 2-Yr is down -0.4bps at 3.521%
The 5-Yr is down -0.3bps at 3.671%
The 10-Yr is flat at 4.10%
The 30-Yr is up +0.3bps at 4.759%

Tonight's focus for issuance will be a 6,13 and 26 week bills as well as a 3-Yr US$58bn note auction.
Key data for bond markets tonight in the US will be Personal Income/Spending, PCE Prices, Univ of Mich Sentiment/Current Conditions/Expectations and Inflation expectations.

JGBS: Twist-Flattener As 30YY Extends Post-Supply Decline, Dec Hike At 89%

JGB futures are little changed, +4 compared to settlement levels, after a relatively subdued session.

"Based on recent developments in corporate earnings, wage negotiations, the yen's depreciation in the FX market, and dialogue with the government, it has become increasingly clear that the BOJ is gaining confidence in raising rates at the upcoming December meeting," BofA economist Takayasu Kudo says in a note. The economist expects the BOJ to raise rates in June 2026, followed by hikes in January and July 2027. DJ via BBG
BOJ-dated OIS currently assigns an 89% probability to a 25bp hike in December, rising to 104% by March 2026. As recently as 21 November, markets saw less than a 20% chance of a December move. Notably, investors are now pricing in more than two 25bp hikes by October 2026.
Cash US tsys are slightly richer in today's Asia-Pac session after yesterday's modest sell-off.
Cash JGBs have twist-flattened across benchmarks, with yields 0.5bp higher to 5bps lower. The benchmark 10-year yield is 0.7bp lower at 1.934% versus the cycle high of 1.941%, set yesterday.
Swaps have also twist-flattened, with rates 1bp higher to 5bps lower.
On Monday, the local calendar will see Cash Earnings, Q3 GDP (F), BoP Current Account Balance and Bank Lending.

Source: Bloomberg Finance LP

AUSSIE BONDS: Respite After A Heavy Week & Even Heavier November

ACGBs (YM +4.0 & XM +1.5) are stronger after a heavy and an extremely heavy November (see chart).

Cash US tsys are slightly richer in today's Asia-Pac session after yesterday's modest sell-off.
Cash ACGBs are 2bps lower to 1bp higher, with the AU-US 10-year yield differential at +59bps.
The bills strip has bull-flattened, with pricing flat to +3.
RBA-dated OIS pricing shows tightening across all meetings, with the probability of a 25bp hike rising from 3% for December to 104% by September and 121% by December 2026.
Tomorrow, the local calendar will be empty on Monday, ahead of NAB Business Confidence and the RBA Policy Decision on Tuesday.
Next week, the AOFM plans to sell A$300mn of the 4.75% 21 June 2054 bond on Monday and A$1000mn of the 1.00% 21 December 2030 bond on Wednesday.
GlobalCapital – “Australian semi-governments look set to increase their issuance of euro-denominated bonds in 2026 after the first prints by the new group of issuers were well received by SSA investors this year. QTC in May became the first Aussie semi-government to print a public euro benchmark with a €1bn 10 year deal. Four months later, TCV followed with a €2bn 15-year print.” – via BBG

Bloomberg Finance LP

BONDS: NZGBS: Bear-Steepener But NZ-AU 10Y Diff Still Near Cycle Low

NZGBs closed showing a bear-steepener, with benchmark yields flat to 6bps higher.

On a relative basis, NZGBs also had a tough day with the NZ-US and NZ-AU 10-year yield differentials 5bps wider. Nevertheless, the NZ-AU differential remains near its lowest since 2020 (see chart).
Cash US tsys are slightly richer in today's Asia-Pac session after yesterday’s modest sell-off.
Friday's US Calendar: Personal Income/Outlays, UofM Consumer Survey. Non-Farm payrolls are not released tomorrow, but are rescheduled for December 16.
NZ total new lending increased to NZ$14.59 billion in October from NZ$14.29 billion in September, according to data from the RBNZ. – MTN via BBG
Swap rates closed 3-6bps higher, with implied short-end swap spreads wider.
RBNZ-dated OIS pricing closed slightly firmer across meetings. 1bps of easing is priced for February, while November 2026 assigns 33bps of tightening.
Interest rate expectations across the $-bloc firmed over the past week out to June 2026, led by Australia (+15bps). Canada rose 6bps, while NZ and the US edged higher by 2bps and 3bps, respectively.
Tomorrow, the local calendar will be empty until next Wednesday, when RBNZ Governor Breman hosts a media Q+A alongside Net Migration data.

Bloomberg Finance LP

FOREX: USD - BBDXY Slightly Lower In Asia

The BBDXY has had a range today of 1213.22 - 1214.35 in the Asia-Pac session; it is currently trading around 1213, -0.05%. The USD has traded slightly softer in the Asian session as the PBOC did not push back as hard today in the CNY fix. Some key inflation data out of the US tonight should be the driver of price, the market will be focused on PCE tonight after mixed jobs data over the course of the week. The USD saw decent demand back toward the 1210 area and it looks like the range 1210-1230 is here to stay for the moment. On the day look for resistance again back towards the 1216-1218 area where sellers should remerge initially, support remains toward 1210 initially and then the more important 1205 area.

EUR/USD - Asian range 1.1641-1.1654, Asia is currently trading 1.1650. The pair stalled overnight and was unable to break through the 1.1680 area overnight. On the day it looks like we might consolidate ahead of the US inflation data. Look for dips back toward 1.1580-1600 to be supported initially looking to retest the 1.1680 area again.
GBP/USD - Asian range 1.3321-1.3334, Asia is currently dealing around 1.3330. The pair did not like it up back towards the 1.3400 area. I remain skewed toward shorts but patience is required and we are now approaching levels where I will be watching for any signs of potentially topping out. On the day GBP should see support back toward the 1.3260-1.3290 area, while above here look for the market to retest the 1.3350-70 area again at some point.
Cross asset : SPX +0.20%, Gold $4215, US 10-Year 4.092%, BBDXY 1213, Crude Oil $59.52
Data/Events : EZ Household Cons/GDP, Germany Factory Orders, France Trade Balance/ Industrial Production/Manufacturing Production, Spain Industrial Production, Italy Retail sales

Fig 1: BBDXY Spot Daily Chart

Source: MNI - Market News/Bloomberg Finance L.P

JPY: USD/JPY - Consolidates Around 155.00

The USD/JPY range today has been 154.92 - 155.23 in the Asia-Pac session, it is currently trading around 155.15, +0.05%. The pair has consolidated around the 155.00 area in a quiet session. The market is pricing in the fact that the Yen move looks like it could force the BOJ into action in December. This has stalled the upward momentum and should keep it contained in the short-term but I suspect the market will still look for opportunities to express a long USD at the right levels. Technically USD/JPY is still in an uptrend with the first big support back toward the 153-155 area which should see buyers reemerge. In today's Asian session I suspect we will continue to consolidate within a wider 154.50-156.00 range.

Some key inflation data out of the US tonight should be the driver of price, the market will be focused on PCE tonight after mixed jobs data over the course of the week.
Bloomberg - “Japan household spending unexpectedly fell 3% in October from a year earlier, a sign of fragile domestic demand as the BOJ prepares to consider raising rates.”
Options : Close significant option expiries for NY cut, based on DTCC data: 155.00($1.94b), 157.00($895m). Upcoming Close Strikes : 155.00($1.22b Dec 8 ), 156.00($1.49b Dec 8 ), 156.00($740m Dec 10) - BBG.
The USD/JPY Average True Range(ATR) for the last 10 Trading days: 88 Points

Fig 1 : USD/JPY Spot Daily Chart

Source: MNI - Market News/Bloomberg Finance L.P

AUD/USD - Holds Above 0.6600, Looking To Test 0.6630

The AUD/USD has had a range today of 0.6605 - 0.6618 in the Asia- Pac session, it is currently trading around 0.6615, +0.05%. The AUD/USD continued to consolidate above 0.6600 in a quiet Friday session. There was not the same pushback by the PBOC today on the China fix so the USD traded slightly softer. The AUD price action remains very constructive and indicative of a market with solid buying interest. On the day, I suspect dips back toward the 0.6560-0.6580 area should continue to be supported. The AUD is now looking to build some momentum to once again test the top end of its recent range, a break of 0.6630 is needed to look toward the 0.6700 area.

MNI: Future RBA Adjustments Seen As Minor Tweaks To 3.6% Rate. Any adjustment to the Reserve Bank of Australia’s cash rate would only be a minor policy tweak rather than a fundamental shift and would likely be driven by short-term inflation pressures in 2026, former RBA economists told MNI.
Options : Closest significant option expiries for NY cut, based on DTCC data: 0.6500(AUD1.11b), 0.6600(AUD487m). Upcoming Close Strikes : 0.6475(AUD814m Dec 8 ) - BBG
The AUD/USD Average True Range for the last 10 Trading days: 34 Points

Fig 1: AUD/USD spot Daily Chart

Source: MNI - Market News/Bloomberg Finance L.P

NZD/USD - Consolidates Above 0.5750, Eyes The 0.5800-50 Area

The NZD/USD had a range today of 0.5758-0.5770 in the Asia-Pac session, going into the London open trading around 0.5765, +0.10%. The NZD/USD has drifted a little higher today in a quiet session. There was not the same pushback by the PBOC today on the China fix so the USD traded slightly softer. On the day, look for support now back towards the 0.5730-0.5750 area as the focus turns back to the more important 0.5800-50 resistance where I suspect sellers could return initially.

Some key inflation data out of the US tonight should be the driver of price, the market will be focused on PCE tonight after mixed jobs data over the course of the week.
Options : Closest significant option expiries for NY cut, based on DTCC data: 0.5700(NZD332m). Upcoming Close Strikes : 0.5670(NZD382m Dec 8 ), 0.5700(NZD557m Dec 10), 0.5730(NZD692m Dec 8 ) - BBG
The NZD/USD Average True Range for the last 10 Trading days: 34 Points

Fig 1: NZD/USD Spot Daily Chart

Source: MNI - Market News/Bloomberg Finance L.P

Asia Stocks Showing Signs that Rally is Faltering

Asian equities were mixed Friday as the FED decision gets closer, and concerns continue to grow for a BOJ rate rise, causing the NIKKEI to fall. The KOSPI is holding onto strong gains for the week as the AI / tech rally is supported by upcoming government policy on dividends. A surge in the share price for China's chipmaker Moore Threads in its trading debut sees tech investors assessing valuations of China's tech compared to Japan and Korea. India's Central Bank the RBI cut rates as expected whilst reducing their outlook for inflation and moving to neutral with their outlook for rates. Following the impact of US data overnight on bonds, eyes turn tonight back to US economic releases following Labour Market data overnight as markets look to firm up pricing for a cut.

The NIKKEI is down -1.40% today and is barely clinging onto a weekly gain as the KOSPI roared again up by 1% and over 3.6% for the week.
China's bourses are mixed with the Hang Seng down -0.25% today and flat for the week whilst the CSI 300 is up marginally and holding onto a 0.50% weekly gain. Shenzhen and Shanghai are up but on track for a weekly fall.
The NIFTY 50 is up marginally post the RBI by +0.20% yet remains down -0.3% for the week with profit taking driving things following recent new highs in place.
SE Asia's major bourses have delivered positive gains for the week with yet again the Jakarta Comp leading the way with gains of +1.7%, with the SE Thai +1.7% and FTSE Malay KLCI up +0.50%.

Oil Down After Strong Week, Brent Fails Key Tech Level

Both WTI and Brent failed to follow on from overnight gains and are down moderately in the Asia trading day.
WTI is down -0.33% to US$59.52, yet remains up over 1.5% for the week in its best week for a month.
Brent is down -0.29% to US$63.17 yet nearing flat on the week. With gains overnight Brent was near the 20-day EMA of 63.34 only to turn away with moderate falls today.

As the Ukraine and Russia talks appeared stalled, with Putin emphasizing that several points in the US backed peace plan were unacceptable, when added to news price cuts were enough to support prices for a second day.
OPEC+ had affirmed over the weekend a previous decision to pause production increases in the first quarter of next year, citing a period of weaker seasonal demand during winter months across much of Asia, Europe and North America and following that Saudi Arabia cut the price of its flagship crude grade to the lowest level in five years, amid persistent signs of a surplus in global oil markets. (source BBG)
The Trump administration extended a waiver for Lukoil PJSC's gas stations outside of Russia, allowing them to continue operations until late April 2026 (source BBG)

Gold Down for Week, Awaits FED

Gold is up +0.20% Friday at US$4,215.95 yet on track for moderate falls of around -0.50% for the week after last week's significant gains. Gold traders attention will remain firmly on the probabilities for a rate cut as the economic data flow continues between now and the FED.
Gold remains just over 3% below the October high of US$4,356.30 and sits above all major moving averages, with the 20-day EMA below at US$4,147.20
Having ended October weaker, Gold has rebounded since with a strong rally yet evidence suggests that ETF buying has been the driver and that potentially CB banks may be behind the recent run. (source BBG)
For the first time in 15-Years a new underground gold mine opened yesterday in South Africa, with the South African company West Wits Mining opening of the Qala Shallows project. (source BBG)

UP TODAY (TIMES GMT/LOCAL)

Date	GMT/Local	Impact	Country	Event
05/12/2025	0700/0800	**	DE	Manufacturing Orders
05/12/2025	0730/0730		GB	DMO to publish issuance calendar for FQ4
05/12/2025	0745/0845	*	FR	Industrial Production
05/12/2025	0745/0845	*	FR	Foreign Trade
05/12/2025	0800/0900	**	ES	Industrial Production
05/12/2025	0900/1000	*	IT	Retail Sales
05/12/2025	1000/1100	***	EU	EZ GDP 3rd (Regular)
05/12/2025	1330/0830	***	CA	Labour Force Survey
05/12/2025	1500/1000	***	US	U. Mich. Survey of Consumers
05/12/2025	1500/1000	**	US	University of Michigan Surveys of Consumers Inflation Expectation
05/12/2025	1500/1000	***	US	Personal Income and Consumption
05/12/2025	1510/1610		EU	ECB Lane in Panel at CEPR Paris Symposium
05/12/2025	1800/1300	**	US	Baker Hughes Rig Count Overview - Weekly
05/12/2025	1800/1300	**	US	Baker Hughes Rig Count Overview - Weekly
05/12/2025	1800/1300	**	US	Baker Hughes Rig Count Overview - Weekly
05/12/2025	2000/1500	*	US	Consumer Credit