MNI EUROPEAN OPEN: Sharp Fall In China Bond Yields Continues

Dec-13 05:12By: Jonathan Cavenagh

Europe

EXECUTIVE SUMMARY

TRUMP ADVISERS SEEK TO SHRINK OR ELIMINATE BANK REGULATORS- WSJ
BOJ TANKAN: KEY SENTIMENT RISES, SOLID CAPEX PLANS - MNI
BOJ TANKAN: BUSINESS INFLATION EXPECTATIONS SOLID - MNI BRIEF
CHINA YIELDS HIS FRESH RECORD LOW AS CEWC REINFORCES EASING BETS - BBG
RBA DETAILS HYPOTHETICAL MONETARY POLICY PATHS - MNI BRIEF

Fig. 1: China Government Bond Yields Tracking Lower Post CEWC

Source: MNI - Market News/Bloomberg

CONSUMERS (BBG): “UK consumer confidence remained subdued in December with households reluctant to splash out on big-ticket items ahead of Christmas amid ongoing economic uncertainty, a survey found.”

ECB (MNI ECB WATCH): The European Central Bank said it was cutting its benchmark Deposit Rate by 25 basis points on Thursday for a third consecutive meeting and dropped a reference in its statement to keeping rates sufficiently restrictive for as long as necessary to achieve its inflation target.

FRANCE (BBG): “French President Emmanuel Macron will name a new prime minister on Friday morning via a statement, his office said on Thursday evening.”

GERMANY/CHINA (MNI INTERVIEW): A German industrial leader shares his insight on German FDI into China next year. On MNI Policy MainWire now.

ITALY/MIDDLE EAST (BBG): “Italy is planning a business summit in the Gulf region next month to promote its “Mattei” development and migration plan for Africa.”

REGULATION (WSJ): “The Trump transition team has started to explore pathways to dramatically shrink, consolidate or even eliminate the top bank watchdogs in Washington.”

RATES (MNI INTERVIEW): Big Deficit Means Higher US Rates-SEC’s Ghamami

FED (MNI BRIEF): There is an “80%” chance President-Elect Donald Trump will allow Federal Reserve Chair Jerome Powell to serve out his full term that ends in May 2026, Stephen Moore, an economic advisor to Trump's transition said Thursday.

TECH (BBG): “Broadcom Inc., a chip supplier for Apple Inc. and other big tech companies, rallied in late trading after predicting a boom in demand for its artificial intelligence chips.”

OTHER

JAPAN (MNI): Benchmark business sentiment rose over the last three months, but sentiment for major non-manufacturers posted its first drop in two quarters, the Bank of Japan’s December Tankan business sentiment survey showed Friday.

JAPAN (MNI POLICY): BOJ officials see rice and labour costs driving CPI and expectations higher. On MNI Policy MainWire now, for more details please contact sales@marketnews.com.

JAPAN (MNI BRIEF): Japanese company inflation expectations one-, three- and five-years out remained solid over the last three months, supporting the Bank of Japan's view that the relationship between prices and wages continues to change, the BOJ December Tankan survey released on Friday showed.

AUSTRALIA (MNI): Strong November employment data has made the RBA's easing task harder. On MNI Policy MainWire now.

AUSTRALIA (MNI BRIEF): The Reserve Bank of Australia has laid out hypothetical scenarios for monetary policy should demand either weaken or remain strong and hinder its target of returning underlying inflation to the 2.5% midpoint by the second half of 2026.

CANADA (MNI INTERVIEW): BOC Gradualism May Withstand Tariffs: CD Howe

CHINA

GROWTH (BBG): "China’s economy likely grows slower than official figures suggest, and a rate of expansion of around 3% to 4% is probably a realistic outlook for the coming years, according to a prominent Chinese economist."

YIELDS (BBG): "China’s bond rally got a fresh shot in the arm from a key economic meeting, where promises of interest rate cuts helped send the benchmark yield to a fresh record low."

FISCAL (SECURITIES TIMES): “Beijing is expected to issue CNY2-3 trillion of special treasury bonds next year to support infrastructure construction and improve public welfare, Securities Times reported, citing Zhang Ming, deputy director at the Institute of Finance, Chinese Academy of Social Sciences, as the Central Economic Work Conference emphasised a more proactive fiscal policy.”

PBOC (YICAI): “China’s central bank will likely increase participation and regulation of the bond and the stock markets, following the Central Economic Work Conference’s call for the PBOC to expand its macro-prudential and financial stability functions, according to Lian Ping, chairman of the China Chief Economist Forum.”

CHINA/US (21ST CENTURY BUSINESS HERALD): “China’s exports to the U.S., which grew 8.0% in November, 1.2 percentage points higher than the overall, will remain robust in December as buyers rush orders ahead of expected tariffs in 2025, and sellers increase shipments before the Chinese New Year, 21st Century Business Herald has reported.”

CHINA MARKETS

MNI: PBOC Net Injects CNY14.2 Bln via OMO Friday

MNI (BEIJING) - The People's Bank of China (PBOC) conducted CNY205.1 billion via 7-day reverse repos, with the rate unchanged at 1.50%. The operation led to a net injection of CNY14.2 billion after offsetting the maturity of CNY190.9 billion today, according to Wind Information.

The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.6600% at 09:39 am local time from the close of 1.6927% on Thursday.
The CFETS-NEX money-market sentiment index, measuring interbank money-market liquidity, closed at 51 on Thursday, compared with the close of 56 on Wednesday. A higher reading points to tighter liquidity condition, with 50 representing an equilibrium.

MNI: PBOC Sets Yuan Parity Higher At 7.1876 Fri; -1.22% Y/Y

MNI (BEIJING) - The People's Bank of China (PBOC) set the dollar-yuan central parity rate higher at 7.1876 on Friday, compared with 7.1854 set on Thursday. The fixing was estimated at 7.2732 by Bloomberg survey today.

MARKET DATA

NEW ZEALAND NOV BUSINESSNZ MANUFATCURING PMI 45.5; PRIOR 45.7
NEW ZEALAND OCT NET MIGRATION SA 2790; PRIOR 2190

JAPAN Q4 TANKAN LARGE MFG INDEX 14; MEDIAN 13; PRIOR 13
JAPAN Q4 TANKAN LARGE MFG OUTLOOK 13; MEDIAN 12; PRIOR 14
JAPAN Q4 TANKAN LARGE NON-MFG INDEX 33; MEDIAN 33; PRIOR 34
JAPAN Q4 TANKAN LARGE NON-MFG OUTLOOK 28; MEDIAN 28; PRIOR 28
JAPAN Q4 TANKAN LARGE ALL-INDUSTRY CAPEX 11.3%; MEDIAN 10.0%; PRIOR 10.6%
JAPAN Q4 TANKAN SMALL MFG INDEX 1; MEDIAN -1; PRIOR 0
JAPAN Q4 TANKAN SMALL MFG OUTLOOK 0; MEDIAN -1; PRIOR 0
JAPAN Q4 TANKAN SMALL NON-MFG INDEX 16; MEDIAN 12; PRIOR 14
JAPAN Q4 TANKAN SMALL NON-MFG OUTLOOK 8; MEDIAN 11; PRIOR 11

JAPAN OCT F IP M/M 2.8%; PRIOR 3.0%
JAPAN OCT F IP Y/Y 1.4%; PRIOR 1.6%

UK DEC GFK CONSUMER CONFIDENCE -17; MEDIAN -18; PRIOR -18

MARKETS

GERMANY: Finance Minister Kukies Says Tax Relief Plans Not Possible in 2024

German finance minster Kukies was interviewed by Die Welt and noted that plans to pass a bill countering inflation-induced tax creep (which initially was to be passed under the now-collapsed traffic light coalition) will not be possible in 2024.

Kukies says this is due to time constraints and the door for passing remains open ahead of the election on 23 February.
However, a passing of any tax creep relief before then appears unlikely after the CDU opposition leader appeared to withdraw support for the measures last weekend.
Additionally, "the decision has been made as to the basis on which the Federal Ministry of Finance will implement the provisional budget for 2025. ‘We will largely base our spending on the government draft for 2025 from the summer,’ said Kukies. However, the government draft only forms the basis for calculation and does not release the government from the decision as to which expenditure may be incurred in accordance with the Basic Law."
Note that the irrespective of when the provisional budget is confirmed, the DFA is expected to announce Germany's issuance plans on Tuesday 17 December.

US TSYS: Tsys Futures Steady Ahead Of Quiet Session

There is little to mention for Tsys today, ranges have been very narrow volumes are below average, with little on the calendar tonight and fed speakers in blackout period ahead of the FOMC next week. TU is -00¾ at 102-31⅛, TY is -00+ at 110-11+.
Cash tsys have seen a decent steepening move over the week, with the 2s10s very briefly inverting on Dec 6 to trade at 13.152 now. The 2yr yield has risen 8bps over the past week to now trade 4.184%, while the 10yr is trading 16.5bps higher this week at 4.318%.
Michelle Neal, head of the New York Fed's markets group, will resign in March 2025 to join the private sector, marking the latest in a series of high-profile departures since 2022. Neal's exit comes at a critical time as the group handles liquidity withdrawal and monitors financial stability amid the US debt ceiling challenges. Anna Nordstrom will serve as interim head while a successor is sought, making Neal the third markets head to depart in under six years.

JGBS: Futures Range Bound, JGB Bonds Outperforming Recent US Sell-off

JGB futures have stayed within recent ranges in the first part of Friday trade. JBH5 (March 2025) was last 142.53, +.08 versus settlement levels. Earlier highs were at 142.62.

The Q4 Tankan survey came in mostly better than expected and points to a resilient growth/capex outlook. Inflation expectations were also solid.
Still, it wasn't robust enough to shift market expectations around next week's BoJ meeting. Market pricing is only giving close to a 16% chance of a hike next week. We were consistently above 60% in parts of late Nov.
The bias in JGB yields has been to edge lower, more so for short tenors, with swap rates behaving in a similar fashion. Japan bonds have outperformed the recent sell-off in US Tsy bond markets.
The 10yr JGB yield was last under 1.05%, slightly up from session lows. Yields have been slightly firmer in the 20-40yr tenor space.
Next week's main focus will rest on the Thursday's BoJ meeting.

BONDS: ACGBs Track Tsys Curves Steeper, RBA's Hunter Spoke Earlier

Aussie bonds are largely tracking moves made overnight in US tsys, with the majority of the curve now trading about 15-20bps cheaper over the past two sessions. There was nothing on the local data calendar today, however the RBA's Sarah Hunter did speak.

RBA Assistant Governor Sarah Hunter highlighted the central bank's focus on labor market and inflation trends, indicating policy adjustments might be needed if the unemployment rate and core inflation deviate from expectations. Despite Governor Michele Bullock's recent dovish tone, a surprising drop in unemployment to 3.9% complicates the outlook, with rates potentially staying at 4.35% for longer. Markets are now split, with swaps pricing the first rate cut in May, while currency traders anticipate an earlier easing.
ACGBs yields are off early morning highs, however are still trading 2.5bps to 5bps cheaper over the session. The 2yr is +2.8bps at 3.907%, after hitting lows of 3.76% post RBA on Tuesday, while the 10yr is +4.1bps at 4.302% vs weekly lows of 4.138%.
ACGB futures are currently YM -2.6 & XM -4.2
Swap curves have twist-flattened and are trading -8 to -1bps, with the short-end underperforming.
Bills strip is trading -2 to -7
RBA-date OIS pricing is steady today, however has cooled slightly over the week with Feb now pricing 12bps of cuts, from 14bps on Monday. There was 27bps of cuts priced in for the April meeting at the start of the week, and we last trade at 23bps of cuts, with the first full cut now price in for May, while the market has just 70bps of cuts priced out through to November 2025.
Next week there is little on the calendar as we head into Christmas, with just Westpac Consumer Confidence of note.

BONDS: NZGB Curve Steepens, FinMin Pushes For Exemption To US Tariffs

NZGBs continued the bear-steepening moves throughout the session, with yields closing 2bps to 3.5bps cheaper. New Zealand Finance Minister spoke to Bloomberg earlier, otherwise it has been a slow session, with yields largely tracking moves in us tsys overnight.

Fitch Ratings expects NZ councils' operating performance to improve over the medium term due to stable funding from property rates and effective budget balancing rules. However, rising infrastructure spending will lead to higher debt levels, with debt growth outpacing operating balance growth in the near term. Debt metrics are projected to stabilize by fiscal 2028 as rate increases rebalance finances.
NZ's FinMin spoke to BBG earlier, where she has instructed diplomats to advocate for exemption from potential US tariffs under President-elect Donald Trump, emphasizing the balanced and valuable trade relationship between the two countries. While New Zealand exports NZ$15.8b annually to the US, including beef, wine, and dairy, Willis is optimistic that tariffs will not target New Zealand given its strong partnership with the US.
The 2yr yield jumped earlier, on what seems like very little news it last trades +2.2bps at 3.733% at session highs although it still remains the best performing tenor over the past week. Elsewhere across the curve the 5yr is outperforming today's moves trading +1.7bps at 3.90% while the 10yr is +3.4bps at 4.406%, with the 5s10s +0.7bps at 47.20 just off recent highs of 49.00.
The OIS market has 43bps of cuts priced in for the Feb meeting this has held steady most of the week. There is a cumulative 107bps of cuts priced in through to October 2025.
Next week the NZ Treasury will release Half-Year Economic & Fiscal Update, followed by GDP on Thursday.

FOREX: USD Biased Higher, Up Firmly For The Week

A positive USD bias has persisted for much of Asia Pac Friday trade to date, although aggregate moves aren't large at this stage. The USD BBDXY index is up a little, last above 1289.40. The index is tracking comfortably higher for the week and is now back to late Nov levels.

USD/JPY saw an initial move lower, printing 152.46 not long after the stronger Q4 Tankan printed. However, this was short lived, and we have since tested above 153.00.
The Q4 Tankan result, pointing to resilient economic activity/capex, along with solid inflation expectations, is not seen as shifting the near term BoJ outlook (next policy outcome announced Thursday Dec 19). Market pricing of a shift next week is just under 16% at this stage, we were above 60% in late November.
US-JP yield differentials continue to trend in favor of the USD. The next firm short-term resistance is at 153.66, a Fibonacci retracement.
AUD and NZD have also fallen, although losses are only close to 0.10% at this stage. We were weaker as China and Hong Kong markets opened weaker, amid disappointment from the CEWG (around no new stimulus details) but we sit slightly above these lows now. AUD/USD was last 0.6360/65, NZD around 0.5760/65.
US yields sit close to flat, while US equity futures are in the green, but away from best levels. Regional softness led by China/HK a likely weight.
EUR/USD is tracking lower, last under 1.0460.
Looking ahead, we have UK data headlined by monthly GDP. French CPI revisions are also due. In the US, only Nov trade prices are on tap.

ASIA STOCKS: China & HK Stocks Fall, Prop Slumps On Disappointing Policy Updates

Chinese equities are under pressure today as investors reacted cautiously to the government's signal of increased public borrowing and a higher fiscal deficit target for 2025 to bolster consumption. While the Central Economic Work Conference highlighted support for consumption, markets remained wary due to a lack of concrete measures. The CSI 300’s performance remains crucial heading into the weekend, with any disappointment potentially setting a negative tone through year-end.

Property Stocks have continued to sell-off through the mornings sessions after China's Central Economic Work Conference disappointed investors with a lack of concrete measures to address key economic challenges, including the property market slump. While the government emphasized fiscal spending to boost consumption and stabilize urban village renovation, no actionable strategies were outlined.
Hong Kong equities are lower across the board, with property indices the worst performing, Mainland Property Index is down 3.88%, the HS Property Index is 3% lower, while the wider HSI is down 1.65%.
Similar in China mainland equities with the BBG China Property Index falling 4.45%, while the CSI 300 is 1.80%, while similar across the wider Asian region today small-cap are outperforming large cap stocks with the CSI 2000 trading down just 0.75%.

ASIA STOCKS: Asian Equities Track US Markets Lower

Asian markets have retreated so far today, as risk sentiment weakened ahead of the Fed's meeting next week. Japanese and Australian equities fell, and Hong Kong futures signaled further declines following Wall Street’s overnight losses. Chinese markets focused on the government’s pledge to increase fiscal borrowing in 2025 to support consumption, though the lack of detailed measures limited optimism. South Korean stocks were flat, Meanwhile, the stronger USD and rising Treasury yields continued to weigh on Asian currencies, with concerns over limited room for further rate cuts in China adding to cautious sentiment.

Japanese equities are lower with the Nikkei 225 falling 0.7% and the Topix down 0.8%, as investors took profits following the index's climb past the 40,000 mark on Thursday. Weakness in U.S. markets weighed on electronics and precision equipment makers, while analysts noted that high valuations may temper further gains. Despite record share buybacks this year, investors are increasingly demanding more sustainable growth strategies, such as capital expenditure and M&A, to justify valuations.
South Korea equities are also slightly lower, with tech stocks dragging on the index, Samsung is trading 0.36% lower, while SK Hynix is down 1%, the KOSPI is 0.25% lower while small-cap stocks are trading higher with the KOSDAQ up 0.70%. Similar story in Taiwan with the TAIEX down 0.40%, flows in the region have been negative week on week.
Australian's ASX 200 has dropped 0.7%, led by declines in mining and financial stocks. Gold mining stocks also retreated as bullion prices slid 1.4% amid a selloff triggered by the economic uncertainty. Meanwhile, DigiCo Infrastructure REIT debuted on the Sydney exchange following Australia’s largest IPO in over six years, raising A$2b.

Oil Up for the Week on Sanctions Risk.

News of potential new Russian sanctions saw oil prices enjoy a three-day rally, but that ended overnight.
The IEA reiterated yesterday that they forecast large surpluses next year, even with OPEC+ confirming no increase to supply.
IEA estimates that on current output levels the oversupply expected could reach 950,000 barrels per day.
Having opened at US$70.43, WTI oscillated around those levels until the IEA statement before dropping to $69.14 only to finish at $70.02 and despite a sell off down to $69.87 in early Asia trading, has rallied back to $70.04.
WTI is set for a strong week thanks to the Russian sanctions news finishing +4.20% higher.
Brent followed a similar trading pattern, having opened at US$73.60, it quickly fell to $72.42 only to close at $73.40 where it has hardly moved all day and is on track to finish +3.30% up for the week.
US Treasury Secretary Janet Yellen said that ‘a softer global oil markets might create an opportunity for further action against Russia’s energy sector,’ whilst Donald Trump’s selection as National Security Advisor Mike Waltz reiterated that a ‘return to maximum pressure on Iran’ is a policy priority (as per BBG).
Canada has indicated that it is examining export taxes on oil to the US as a potential option should President Trump start a full-scale trade war. Export taxes would drive up the cost of oil for US consumption.

Gold Declines Post US Data.

Mixed data overnight was enough for gold traders to square positions as year end approaches.
Data overnight saw producer price inflation pick up by more than expected in November, at +0.4% MoM vs 0.3% prior, though core prices moderated as ex-food/energy registered 0.2% (from 0.3% prior} and initial jobless claims were higher than expected at 242k (sa, cons 220k)
Gold opened the day at US$2,680.84 only to trade down post the data release to an intra-day low of $2,675.29, to finish at $2,681.21
The futures market is exhibiting some unusual patterns as traders seek to hedge positions out to February, fearing gold may be caught up in the crossfire of Trump’s tariffs.
February future prices traded up to $60 an ounce above spot prices overnight, as estimates suggest tariffs if implemented on gold, could see prices fall by $300 an ounce.

UP TODAY (TIMES GMT/LOCAL)

Date	GMT/Local	Impact	Country	Event
13/12/2024	0700/0800	**	SE	Unemployment
13/12/2024	0700/0700	**	GB	UK Monthly GDP
13/12/2024	0700/0700	**	GB	Index of Services
13/12/2024	0700/0700	***	GB	Index of Production
13/12/2024	0700/0700	**	GB	Output in the Construction Industry
13/12/2024	0700/0700	**	GB	Trade Balance
13/12/2024	0700/0800	**	DE	Trade Balance
13/12/2024	0745/0845	***	FR	HICP (f)
13/12/2024	0800/0900	***	ES	HICP (f)
13/12/2024	0930/0930	**	GB	Bank of England/Ipsos Inflation Attitudes Survey
13/12/2024	1000/1100	**	EU	Industrial Production
13/12/2024	-	***	CN	Money Supply
13/12/2024	-	***	CN	New Loans
13/12/2024	-	***	CN	Social Financing
13/12/2024	1330/0830	**	US	Import/Export Price Index
13/12/2024	1330/0830	**	CA	Monthly Survey of Manufacturing
13/12/2024	1330/0830	**	CA	Wholesale Trade