CHINA: Central Bank Drains Liquidity via OMO. 

ACGBs (YM -7.0 & XM -7.5) are cheaper after extending weakness induced by US tsys’ heavy close on Friday. This movement aligns with today's Asia-Pac session, where cash US tsys are 1-2bps cheaper, showing a slight steepening bias.

• US economic data and Treasury supply are being brought forward this week to accommodate Thursday's "day of mourning" to honour President Carter.
• Cash ACGBs are 8-13bps cheaper, with the 5-year underperforming. The AU-US 10-year yield differential is at -16bps.
• Outside of the previously outlined S&P Global Dec. PMIs, there hasn't been much by way of domestic drivers to flag.
• Swap rates are 7bps higher.
• The bills strip is showing -4 to -6 across contracts.
• RBA-dated OIS pricing is flat to 6bps firmer across meetings. A 25bp rate cut is more than fully priced by April (114%), with a February cut at a 57% chance.
• The local calendar heats up this week with the release of November CPI data on Wednesday. The calendar also sees Building Approvals tomorrow, and Retail Sales and Trade Balance on Thursday.
• AOFM Bond issuance is expected to resume in the week beginning 13 January 2025.

The JP Morgan global manufacturing PMI moderated to 49.6 in December from 50.0. While the Q4 average remained below the 50-breakeven level at 49.7, signalling a slight contraction in global manufacturing activity, it was 0.4pp higher than the Q3 average. Global IP and trade growth was fairly steady over 2024 and that trend continued in October and the PMI is signalling that that remained the case going into year end. 

• The CPB’s measure of global IP rose 0.3% m/m to be up 1.8% y/y in October, close to the 2024 and Q3 averages. 3-month momentum is positive at a steady rate. IP growth looks likely to continue but at lacklustre rates. Business sentiment in the PMI fell to a 3-month low, signalling a weak outlook.
• Global trade was flat in October with annual growth moderating to 1.7% from 2.5%, but still above the 2024 average but lower than Q3’s 2.3% y/y. 3-month momentum is picking up though. However, exports orders contracted at a faster pace in December with only 8 of the 30 countries surveyed recording a rise, according to the PMI.
• Apart from November, the manufacturing PMI has been in contractionary territory since July. The drop in December was driven by weaker orders and output with some regions particularly concerned about the impact of possible US tariffs (only 13 of 30 countries recorded a rise in production). Employment also fell but at a slower pace.
• Intermediate and capex sectors posted contractions in output, while consumer goods continued to grow (17th consecutive month).
• Cost pressures picked up to 54.4 from 53.9, 4-month high, but selling price inflation eased to a 9-month low.

Global growth

The USD/CNY fixing printed at 7.1876, versus a Bloomberg consensus of 7.3057. 

• The fixing was basically unchanged versus Friday's 7.1878 outcome. The fixing error narrowed to -1181pips, largely due to the lower fixing consensus from the market.
• The upside ceiling on USD/CNY spot today is 7.33135.
• Earlier comments from onshore media (backed by the PBoC) highlighted the central bank's ability to keep the yuan basically stable and that it has tools to deal with depreciation.
• USD/CNH is back sub 7.3500 post the fixing outcome. Earlier highs in the pair rest at 7.3647.