MNI EUROPEAN OPEN: Oil Spike Adds To Risk Off Mood
EXECUTIVE SUMMARY
- TOUGHER US SANCTIONS TO CURB RUSSIAN OIL SUPPLY TO CHINA AND INDIA - RTRS
- FORMER FED VICE CHAIR SEES NO RISK TO FED AUTONOMY UNDER TRUMP - BBG
- CANADA SAYS HAS LEVERAGE AGAINST TRUMP TARIFFS - MNI BRIEF
- PBOC TO RAISE KEY PARAMETER FOR SHORING UP YUAN - MNI BRIEF
- CHINA 2024 OIL IMPORTS DOWN 1.9% - MNI BRIEF
- PBOC TO ENSURE YUAN STABLE, HK CNH HUB - PAN - MNI BRIEF
Fig. 1: Oil Prices Spiking On Fresh US Sanctions On Russia
Source: MNI - Market News/Bloomberg
UK
DEBT (MNI INTERVIEW): The UK Treasury could justify sitting tight on fiscal policy through to the autumn despite the recent rise in borrowing costs and even if new forecasts in March show it missing fiscal goals, Senior Research Economist at the Institute for Fiscal Studies Isabel Stockton told MNI, though she added that it would be unsurprising if it used a spring review to squeeze spending.
DEBT (BBG): “Chancellor of the Exchequer Rachel Reeves returns to the UK from China on Monday with the Labour Party keen to brush off market turmoil around its fiscal difficulties and emphasize the government’s long-term ambitions.”
HOUSING (BBG): “UK home sellers made the lowest profit in more than a decade last year as high interest rates and a cost-of-living squeeze sapped demand.”
EU
CROATIA (BBG): “Croatian President Zoran Milanovic won a second term as voters in the Balkan nation delivered a resounding election victory to a populist leader who has denounced NATO expansion and military aid to Ukraine.”
UKRAINE (BBG): “Ukraine is ready to return captured North Korean soldiers if leader Kim Jong Un can facilitate an exchange for Ukrainian soldiers being held in Russia, according to President Volodymyr Zelenskiy. “
US
WEATHER (BBG): “At least two rounds of vicious, dry Santa Ana winds are expected to blast through Southern California early this week, bringing powerful gusts that will challenge fire crews struggling to contain two destructive blazes and likely force thousands more residents to evacuate.”
JOBS (MNI BRIEF): U.S. employers added 256,000 jobs in December and the unemployment rate unexpectedly fell a tenth to 4.1%, dampening market hopes for further interest rate cuts from the Federal Reserve this year.
FED (BBG): “The Federal Reserve’s independence won’t be in jeopardy once President-elect Donald Trump takes office, neither are inflation and the labor market, according to former Federal Reserve Vice Chair Randal Quarles.”
OTHER
OIL (RTRS): “ Chinese and Indian refiners will source more oil from the Middle East, Africa and the Americas, boosting prices and freight costs, as new U.S. sanctions on Russian producers and ships curb supplies to Moscow's top customers, traders and analysts said.”
CANADA (MNI BRIEF): Canada's Foreign Affairs Minister says her nation has "leverage" to use against 25% tariffs proposed by U.S. President-elect Donald Trump and is taking ideas to rework the retaliatory measures that worked during Trump's first term to her cabinet colleagues Friday.
CANADA (MNI INTERVIEW): Canada must avoid a broad trade war with the United States because the resulting frictions would be too damaging for its industrial base, Canadian Manufacturers & Exporters President Dennis Darby told MNI Friday.
HONG KONG (MNI BRIEF): The People’s Bank of China will increase the allocation of its foreign exchange reserves in assets in Hong Kong and expand the HK-Mainland Connect schemes to support growth of financial markets, said Governor Pan Gongsheng on Monday according to the Bank’s website.
CHINA
YUAN (MNI BRIEF): The People’s Bank of China raised a key parameter to unlock more foreign debt finance and encourage capital inflow on Monday to shore up the yuan. According to the PBOC’s website, the Bank will work with the State Administration of Foreign Exchange, to raise the macro-prudential adjustment parameter for cross-border financing by enterprises and financial institutions from 1.5 to 1.75, effective Jan 13.
YUAN (MNI BRIEF): The People’s Bank of China will prevent any risk of the yuan exchange rate overshooting and enhance Hong Kong’s role as an offshore hub, said governor Pan Gongsheng on Monday, according to a statement on the PBOC’s website.
OIL (MNI BRIEF): “China imported 47.8 million metric tonnes of crude oil in December, down from 48.5 mmt in November, as total inbound shipments finished the year declining 1.9% y/y, data from the General Administration of Customs showed on Monday.”
POLICY (MNI BRIEF): The People’s Bank of China will reduce interest rates and the reserve requirement ratio to maintain ample liquidity and support financing of the economy, said Governor Pan Gongsheng on Monday in Hong Kong according to a statement on the PBOC’s website.
ECONOMY (YICAI): “The Chinese economy is expected to grow by 4.8-5.2% y/y in Q4, rising from Q3’s 4.6% and achieving the annual growth target of around 5%, Yicai.com reported, citing analysts. Despite a higher comparison base, additional policies launched since September have driven a recovery in consumption, real estate and industrial production, while exporters rushed shipments ahead of anticipated new tariffs also supported growth, the newspaper said.”
LOCAL DEBT (SECURITIES DAILY): “Chinese provincial and city governments on Monday will issue local government bonds for the first time this year, Securities Daily reports. Local governments will sell more than CNY720 billion of special bonds during Q1, of which new special bonds exceeds CNY300 billion and refinancing special bonds of more than CNY410 billion.”
CHINA MARKETS
MNI: PBOC Net Injects CNY10.7 Bln via OMO Monday
MNI (BEIJING) - The People's Bank of China (PBOC) conducted CNY24.8 billion via 7-day reverse repos, with the rate unchanged at 1.50%. The operation led to a net injection of CNY10.7 billion after offsetting the maturity of CNY14.1 billion today, according to Wind Information.
- The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.9416% at 10:2 am local time from the close of 1.7472% on Friday.
- The CFETS-NEX money-market sentiment index, measuring interbank money-market liquidity, closed at 66 on Friday, compared with the close of 49 on Thursday. A higher reading points to tighter liquidity condition, with 50 representing an equilibrium.
MNI: PBOC Sets Yuan Parity Lower At 7.1885 Mon; -2.21% Y/Y
MNI (BEIJING) - The People's Bank of China (PBOC) set the dollar-yuan central parity rate lower at 7.1885 on Monday, compared with 7.1891 set on Friday. The fixing was estimated at 7.3450 by Bloomberg survey today.
MARKET DATA
NEW ZEALAND NOV BUILDING PERMITS M/M 5.3%; PRIOR -5.2%
NEW ZEALAND NOV FILLED JOBS M/M 0.3%; PRIOR -0.2%
AUSTRALIA DEC MELBOURNE INSTITUTE INFLATION M/M 0.6%; PRIOR 0.2%
AUSTRALIA DEC MELBOURNE INSTITUTE INFLATION Y/Y 2.6%; PRIOR 2.9%
AUSTRALIA DEC ANZ JOB ADS M/M 0.3%; PRIOR -1.8%
CHINA DEC EXPORTS Y/Y 10.7%; MEDIAN 7.5%; PRIOR 6.7%
CHINA DEC IMPORTS Y/Y 1.0%; MEDIAN -1.0%; PRIOR -3.9%
CHINA DEC TRADE BALANCE $104.84BN; MEDIAN 100BN; PRIOR $97.44BN
MARKETS
US TSYS: Tsys Futures Edge Lower, Cash Trading Remains Closed
- Not surprisingly it has been a quiet session for Tsys with cash trading closed with Japan out. Short-end tsys futures have broken below Friday's lows, however ranges have remained tight. TU has traded sideways since this morning, last -00⅞ at 102-15+, while TY is -04+ at 107-08.
- There was a decent flattening across curves on Friday, with the 2s10s dropping 4.5bps to 38bps, while the 5s30s & 2s30s both fell about 10bps. The 10yr closed at 4.759%, breaking above the 2024 highs, with sights now on the 2023 highs of 5.01%.
- Former Fed Vice Chair Randal Quarles dismissed concerns over the Fed's independence under Trump, emphasizing its structural resilience to political pressure. He noted that tariffs are unlikely to drive inflation significantly and predicted limited labor market impacts from potential deportations. With US inflation progress stalling and a resilient labor market, the markets are now expect just one Fed rate cut in 2025 and not until October/December meetings.
- Projected rate cuts through mid-2025 have cooled slightly throughout the session vs. Friday morning levels*: Jan'25 at -0.7bp (-1.7bp), Mar'25 -5.1bp (-10.1bp), May'25 -9.2bp (-15.9bp), Jun'25 -16.9bp (-25.6bp), Jul'25 -18.7bp (25.5bp).
- The calendar is light on today, with just NY Fed 1-Yr Inflation Expectations & Federal Budget Balance, focus will turn to PPI & CPI later in the week.
AUSSIE BONDS: Short End Leads Market Lower, US CPI On Wed & AU Jobs On Thu
ACGBs (YM -15.0 & XM -10.0) are sharply weaker and hovering near Sydney session cheaps.
- Outside of the previously outlined MI Inflation Index and ANZ-Indeed job advertisements, there hasn't been much by way of domestic drivers to flag.
- There have been no cash dealings in US tsys in today’s Asia-Pac session with Japan out for a holiday. TYH5 is, however, weaker at 107-07+, -0-05 from NY closing levels. This week, CPI and PPI inflation measures are on Wednesday and Thursday respectively. The scheduled Fed speaker docket is muted with the Fed Blackout on Friday.
- Cash ACGBs are 10-14bps cheaper, led by the short end.
- Swap rates are 9-12bps higher, with the 3s10s curve flatter.
- The bills strip has sharply bear-steepened, with pricing -5 to -15.
- RBA-dated OIS pricing is 3-16bps firmer across meetings today. A 25bp rate cut is now less than fully priced for April (97%), with the probability of a February cut at 65% (based on an effective cash rate of 4.34%).
- Tomorrow, the local calendar will see Westpac Consumer Confidence data.
- AOFM Bond issuance will resume this 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 to be sold on Friday.
BONDS: NZGBS: Heavy Session But Outperformance Vs. ACGBs
NZGBs closed at session cheaps, with benchmark yields 7bps higher. The NZGB 10-year did, however, outperform ACGBs, with the NZ-AU yield differential 6bps narrower.
- There have been no cash dealings in US tsys in today’s Asia-Pac session with Japan out for a holiday. TYH5 is, however, weaker at 107-07, -0-05+ from NY closing levels.
- Outside of the previously outlined building approvals and filled jobs data, there hasn't been much by way of domestic drivers to flag.
- Swap rates closed 7-8bps higher, with the 2s10s curve flatter.
- RBNZ dated OIS pricing closed 2-7bps firmer across meetings, with October leading. 49bps of easing is priced for February, with a cumulative 126bps by November 2025.
- Tomorrow, the local calendar will see the results of the NZIER Business Opinion Survey.
- On Thursday, 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: Fresh Lows For GBP, EUR, & AUD, Yen Outperforms
The USD remains on the front foot, particularly against GBP and EUR, which typically don't move much during the Asia Pac time zone. The USD BBDXY index was last above 1321.7, above intra-session highs from Friday's US session.
- As the session has unfolded GBP losses have accelerated. GBP/USD was last near 1.2130/35, off a little over 0.60% and the worst G10 performer so far today. This is fresh lows in the pair back to 2023.
- There don't appear any fresh catalysts for the move, other than continuation of losses from last week, amid financial stability/twin deficit concerns.
- EUR/USD is back to 1.0210, testing under Friday lows as well. This puts the pair back to levels last seen in 2022. We are around 0.30% weaker against the USD. SEK is off around 035% as well, last near 11.26 against the USD.
- AUD and NZD initially showed some resilience but this hasn't been sustained. AUD/USD was last sub 0.6135, fresh lows back to 2020. NZD/USD is close to 0.5550. We had Australian and NZ data prints, but they didn't shift the sentiment needle.
- Equity sentiment has been weak throughout the region, following losses in US markets on Friday (weighed by higher US yields post NFP). There has been no US Tsy cash trading so far today, with Japan markets out.
- Yen is benefiting from the risk averse tone, with USD/JPY upticks towards 158.00 sold. We were last near 157.50, around 0.15% stronger in yen terms.
- There were a raft of headlines earlier around PBoC support for the yuan, but this didn't support CNH greatly.
- Looking ahead, it is relatively quiet with just NY Fed 1-Yr Inflation Expectations & Federal Budget Balance on tap.
EQUITIES: Asian Equites Fall Following US Jobs
Asian markets declined as stronger-than-expected US jobs data dampened hopes for further Fed rate cuts, with the MSCI Asia Pacific Index down 1.1% and benchmarks in Hong Kong, Taiwan, and South Korea leading losses. Chinese stocks extended declines despite record-high exports, with investors awaiting more pro-consumption policies. Brent crude rose above $81 a barrel after aggressive US sanctions on Russia, adding inflationary pressure for central banks.
- India's Nifty 50 and Sensex slumped to multi-month lows, pressured by surging oil prices, rising Treasury yields, and weak earnings growth, with financial services stocks driving the decline.
- GS strategists remain bullish on Chinese stocks, predicting a 20% rise by year-end despite recent market turmoil. They expect sentiment and liquidity to improve by late Q1 2025 due to better tariff and policy clarity. Goldman recommends government consumption proxies, exporters benefiting from a weaker yuan, and select tech, infrastructure, online retail, media, and healthcare stocks, while upgrading consumer services to overweight.
- Apple's Chinese suppliers saw their shares drop after analyst Ming-Chi Kuo projected 2025 iPhone shipments at 220-225m units, below Wall Street's 240m consensus. Apple shares fell 2.4% on Friday following the report. Key suppliers, including AAC Technologies (-3.8%), Hon Hai (-4.1%), Quanta (-3.7%), and GoerTek (-2.6%), experienced declines here in Asia
- Traders now expect limited Fed rate cuts in 2025, with fed fund futures now pricing in just a single rate cut around the Oct/Dec meetings the markets remain cautious ahead ahead of key US inflation data this week.
- APAC markets: Japanese equities closed, South Korea's KOSPI is -1%, KOSDAQ -1.20%, Taiwan's TAIEX -2.10%, Hong Kong's HSI -1.15%, China's CSI 300 -0.45%, Australia's ASX200 -1.30%, New Zealand's NZX50 -0.55%
OIL: Building On Friday Gains, Multi Month Highs Post Fresh US Sanctions
Monday oil trends are seeing an extension of Friday's gains. Brent crude was last comfortably above $81/bbl, in terms of the active contract. WTI was around $78.2/bbl in latest dealings, with both contracts up around 2%. We were up over 3.5% in Friday trade for these oil benchmarks.
- For WTI, the stronger reversal to the upside has resulted in a breach of key short-term resistance at $76.41, the Oct 8 high. Clearance of this hurdle strengthens a bull theme and opens $79.59, the Jul 5 ‘24 high. For Brent, mid August highs from 2024 around $82.40/bbl may be an upside focus point.
- Sentiment is being supported by fresh sanctions from the US administration on Russia, with the U.S treasury issuing details on a widely speculated list of further sanctions on Russian oil entities. Still, BBG notes they are quite comprehensive relative to what was already in place (see this link).
- The new US sanctions on Russian crude and products is bullish for oil globally, but history has shown Russian barrels generally find markets despite sanctions, Platts said.
- Data today showed softer China oil import volumes, which were down in y/y terms for Dec last year, but this has done little to impact positive sentiment at this stage.
GOLD: Uptrend Continues, Equity Vol Offsetting Higher USD/Yields
After getting close to $2700 on Friday, gold sits slightly lower in the first part of Monday trade. We were last sub $2690, off modestly versus end NY levels from Friday. Still, we remain very much in buy the dip mode, with the firmer US yield/USD backdrop post NFP on Friday not upsetting the recent uptrend in bullion. Last week's +1.88% gain was the best since late Nov last year.
- Working in gold's favor has been more risk aversion emanating from equity markets. US futures continue to track lower in Monday trade so far, down 0.44% for Eminis and 0.60% for Nasdaq futures. The US VIX index tested above 20% on Friday as well.
- A clean break above $2700 could see mid Dec 2024 highs above $2726 targeted.
UP TODAY (TIMES GMT/LOCAL)
| Date | GMT/Local | Impact | Country | Event |
| 13/01/2025 | - | *** |  CN | Money Supply |
| 13/01/2025 | - | *** | CN | Social Financing |
| 13/01/2025 | - | *** | CN | New Loans |
| 13/01/2025 | 1600/1100 | ** |  US | NY Fed Survey of Consumer Expectations |
| 13/01/2025 | 1630/1130 | * | US | US Treasury Auction Result for 13 Week Bill |
| 13/01/2025 | 1630/1130 | * | US | US Treasury Auction Result for 26 Week Bill |
| 13/01/2025 | 1900/1400 | ** | US | Treasury Budget |
| 14/01/2025 | 0500/1400 |  JP | Economy Watchers Survey | |
| 14/01/2025 | 0735/0835 |  EU | ECB's Lane speech on Europe, Asia and the Changing Globe | |
| 14/01/2025 | 0830/0830 |  GB | BOE's Breeden speech on Financial Stability | |
| 14/01/2025 | 0900/1000 | * |  IT | Industrial Production |
| 14/01/2025 | 1000/1000 | * | GB | Index Linked Gilt Outright Auction Result |
| 14/01/2025 | 1000/1000 | * | GB | Index Linked Gilt Outright Auction Result |
| 14/01/2025 | 1100/0600 | ** | US | NFIB Small Business Optimism Index |
| 14/01/2025 | 1330/0830 | *** | US | PPI |
| 14/01/2025 | 1355/0855 | ** | US | Redbook Retail Sales Index |
