CHINA: Yields Continue to Test Lower Despite Pledges To Stabilize/Support Mkts
Dec-16 03:08
- Various Chinese authorities have pledged to support the ailing economy through more effective fiscal policies and a focus on stability in the housing and equity markets.
- China New Services reported over the weekend quotes from the Vice Minister of the Housing Ministry saying that ‘the government will promote the recovery of the property market through measures such as increasing demand and controlling the supply of land for new development.’ (as per BBG).
- The Securities Regulatory Commission spoke of its intention to ‘enhance market monitoring for futures and spot trading, strengthen supervision of margin trading, derivatives and quantitative trading (as per SRC website)
- The Ministry of Finance said that it intends to deliver more effective and sustained fiscal policies next year and well as improved macroeconomic regulations, whilst increasing the issuance of local government special bonds whilst expanding the areas in which they invest.
- Whilst equity market weakness has been highly visible, the slow grind lower in yields may not have received the focus necessary as key technical levels were broken last week.
- CGB 10YR finished the week at 1.78%, 14bps lower on the week.
- For some time, market commentators had focused on 2.15% as a key level seen important to authorities.
- The PBOC is known to be protective of the steepness of the curve and what it represents as a health check for the overall economy.
- Some market observers interpreted the authorities comments on markets as suggesting that the potential for intervention to stop the grind lower in yields could be imminent.
- Technical analysis of the TFTH5 future confirms the positive bias in place with the 20-day EMA above the 50-day EMA.
- The CGB 10YR has ignored suggestions of intervention with a very strong open, the 10YR yield down -5.5bp at 1.726%
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
US OUTLOOK/OPINION: US Macro Weekly: Fed Shifts Hawkish As Disinflation Stalls
Nov-15 21:51
Our weekly US Macro publication is out (PDF):
- US “Inflation Week” brought largely in-line results, with sequential core CPI coming in a little lower than expected, and headline CPI and core PPI a little higher than expected.
- But overall the takeaway was that there was relatively little if any disinflationary progress in October, exacerbated by what looks like a small sequential acceleration in the core PCE reading for the month.
- The cumulative effect of surprisingly hawkish Fed commentary combined with the slight upside in core PCE (with a helping hand from solid initial jobless claims among other data demonstrating continued resilience) saw a notable shift in rate cut pricing this week.
- The December FOMC meeting appears to be "live", nearing 50/50 implied probability of a hold at one point Friday morning, versus closer to 20% at the start of the week.
- At the end of this document we highlight two major shifts in FOMC tone this week: one is that a "pause" was introduced as a possibility by a senior FOMC member (Gov Kugler); the other is that there is growing concern over the implications of soaring longer-end rates.
- Neutral rate-talk also dominated, and in a hawkish direction - Dallas Fed's Logan mused that the Fed had already perhaps already reached neutral rates.
- It's probably still the case that the FOMC is still in the "thinking about thinking about slowing rate cuts" stage, which means a December cut is the default. But some of the groundwork for a less dovish rate cut path appears to have been laid since the US election (the potentially hawkish implications of which, FOMC members didn't venture into).
- This week’s heavy data slate gives way to a quieter schedule Nov 18-22, with key macro highlights including flash November PMIs and housing market data, with FOMC speakers also of interest after this week’s shift (including Cleveland Fed Pres Hammack).
US OUTLOOK/OPINION: Atlanta Fed GDPNow Steady, PCE Upgraded Despite Control Miss
Nov-15 21:08
The Atlanta Fed's GDPNow estimate for Q4 remained steady at 2.5% Q/Q annualized in the Nov 15 update, reflecting higher personal consumption expenditures (now 2.8% vs 2.7% in the prior day's update), offset by downgrades to equipment/ nonresidential structure investment.
- The stronger PCE figure comes despite a softer-than-expected Retail Sales Control Group figure - we think this is a reflection of the higher revision to September's Control Group, which will statistically carry over into the Q4 growth rate.
USDCAD TECHS: Bull Cycle Extension
Nov-15 21:00
- RES 4: 1.4210 2.0% 10-dma envelope
- RES 3: 1.4140 1.500 proj of the Oct 17 - Nov 1 - 6 price swing
- RES 2: 1.4122 3.0% Upper Bollinger Band
- RES 1: 1.4106 High Nov 15
- PRICE: 1.4077 @ 16:54 GMT Nov 15
- SUP 1: 1.3959 High Nov 1 / 6
- SUP 2: 1.3891/22 20-day EMA and a key S/T support / Low Nov 6
- SUP 3: 1.3785 50-day EMA
- SUP 4: 1.3611 Low Oct 8
A strong rally in USDCAD this week reinforces the current bullish condition. The pair has topped 1.3959, the Nov 1 / 6 high. This break confirms a resumption of the uptrend and has also resulted in a breach of 1.3977, the Oct 13 2022 high. 1.4140 marks the next upside level. Initial firm support to watch lies at 1.3891, the 20-day EMA. A short-term pullback would be considered corrective.
