MNI EUROPEAN OPEN: USD Softens As Inauguration Approaches

EXECUTIVE SUMMARY

• TRUMP TO DECLARE NATIONAL ENERGY EMERGENCY UNLOCKING NEW POWER - BBG 
• LOCKHART SEES FED ON HOLD ‘TIL AT LEAST MIDYEAR - MNI INTERVIEW 
• CHINA, US TO STRENGTHEN TRADE DIALOGUE - OFFICIAL - MNI BRIEF 
• CHINA LPR HOLDS STEADY - MNI BRIEF 

Fig. 1: USD BBDXY Index Versus Risk Reversal (1 month) 

Source: MNI - Market News/Bloomberg

UK

FISCAL (MNI INTERVIEW): The UK government has the capacity to bring forward a provision allowing it more flexibility around its fiscal targets, potentially allowing it to avoid being forced into announcing tax hikes or spending cuts in March, though politically such a move would not be without risk, an economist at the Institute for Government thinktank told MNI.

GEOPOLITICS (MNI BRIEF): Bank of England Governor Andrew Bailey said Friday that with destructive nationalism returning and a growing hostility to global bodies, international institutions like the IMF and World Bank had to be supported and improved.

POLITICS (BBC): “President-elect Donald Trump will want to do a good deal with the UK, Chief Secretary to the Treasury Darren Jones has insisted. Jones, the chancellor's second-in-command, said he was confident UK-US trading relationships could be deepened and that Peter Mandelson will be "brilliant" as the new UK ambassador to the US.”

POLITICS (EURONEWS): “Polish Prime Minister Donald Tusk met with British Prime Minister Keir Starmer in Warsaw on Friday to discuss NATO cooperation and support for Ukraine, among other things. Starmer's visit took place on the way back from Ukraine, where he spoke with President Volodymyr Zelenskyy on Thursday.”

EU (BBC): “The UK has banned European vessels from catching the silvery fish species in its North Sea waters to protect marine wildlife that depend on it for food. But the EU is challenging the move, arguing it discriminates against Danish vessels that fish sandeel commercially, breaching the post-Brexit trade deal.”

EU

GERMANY (POLITICO): “Trump’s second term will bring a “maximum concentration of power with the president,” Germany’s ambassador to the U.S. warns in confidential document obtained by Reuters.”

GERMANY (POLITICO): “Germany will be the prime European target of U.S. President Donald Trump's trade tariffs once he's in office, German Economy Minister Robert Habeck said on Saturday. The warning by Habeck, who is the Green Party’s lead candidate in Germany’s Feb. 23 election, came on the same day as a slightly more positive statement by his center-right opponent Friedrich Merz, who called Trump “very predictable.””

GERMANY (POLITICO): “European Commission President Ursula von der Leyen appeared in public on Friday, having shaken off serious illness ― and promptly dived straight into national politics by backing Friedrich Merz to become Germany’s next chancellor.”

GERMANY (DW): “With rising poll numbers and renewed purpose, the socialist Left Party presented a united front at its convention this weekend.”

ITALY (POLITICO): “Italian Prime Minister Giorgia Meloni will attend U.S. President-elect Donald Trump’s inauguration in Washington on Monday, her office confirmed on Saturday. Trump conspicuously snubbed the continent’s centrist mainstream, including European Commission President Ursula von der Leyen, in his invitations.”

RUSSIA (BBC): “Russia and Iran have agreed to closer military co-operation, in a move announced during a visit to Moscow by President Masoud Pezeshkian. The two countries signed a 20-year "strategic partnership" treaty, covering areas ranging from defence and technology to energy and trade.”

US

POLITICS (BBG): “President-elect Donald Trump is poised to invoke emergency powers as part of his plan to unleash domestic energy production while seeking to reverse President Joe Biden’s actions to combat climate change, according to people familiar with the matter." 

POLITICS (BBG): " President-elect Donald Trump celebrated the eve of his second inauguration with a rally Sunday at the Capital One Arena in downtown Washington, then a black tie dinner blocks away with a who’s who of Trump’s biggest financial backers and political allies, alongside business titans seeking proximity to power." 

FED (MNI INTERVIEW): The Federal Reserve is likely to wait until midyear or later in 2025 to reduce interest rates any further, after assessing whether inflation has continued to cool and what priorities might have emerged from the incoming Trump administration, former Atlanta Fed President Dennis Lockhart told MNI. 

FED (MNI INTERVIEW): The Federal Reserve will cut interest rates twice more at most this year starting in June, and could well halt its easing cycle after that as inflation remains fairly sticky and economic conditions robust, former New York Fed economist Steven Friedman told MNI. 

FED (MNI BRIEF): The Federal Reserve Board of Governors said Friday it has withdrawn from the Network of Central Banks and Supervisors for Greening the Financial System, a consortium of central bankers supporting the Paris climate goals. 

US/CHINA (BBG): “Donald Trump pledged to delay enforcement of a national security law that threatened to ban TikTok. Yet it’s not clear whether the app’s Chinese parent is able — or willing — to secure a US backer in time to avoid a permanent shutdown.” 

TOKENS (BBG): " A digital token debuted by President-elect Donald Trump has rattled the cryptocurrency market, attracting billions of dollars of trading volume while stoking concerns about conflicts of interest." 

OTHER 

CANADA (MNI INTERVIEW): Canadian firms are already holding back investment and hiring until they see if Donald Trump follows through on threats of a 25% tariff, the CEO of industrial equipment supplier Wajax told MNI, adding he expects trade penalties will be diluted to avoid raising prices for American households.

CANADA (MNI): The Bank of Canada said Friday its pandemic interest-rate guidance was unclear and in any future economic slump it will tie pledges more closely to its regular inflation target, a review coming before an election this year where the leading Conservative candidate has said he will fire Governor Tiff Macklem over such policies. 

MIDDLE EAST (RTRS): “Hamas released three Israeli hostages and Israel released 90 Palestinian prisoners on Sunday, the first day of a ceasefire suspending a 15-month-old war that has devastated the Gaza Strip and inflamed the Middle East.” 

CHINA 

US/CHINA (MNI BRIEF): China and the U.S. can strengthen dialogue and negotiation on economic and trade issues, as the two countries have significant common interests and room for cooperation despite friction, Xinhua News Agency reported citing Chinese Vice President Han Zheng on Monday.

LOAN PRIME RATES (MNI BRIEF): China's Loan Prime Rate remained unchanged according to a People's Bank of China statement on Monday, in line with expectation as the central bank held its easing pace on the increasing pressure of the yuan. 

PROPERTY (SECURITIES DAILY): "China’s property market has shown recent signs of stabilisation, with home prices in first-tier cities trending upwards for three consecutive months and transaction volume remaining at a high level, Securities Daily reported, citing Zhang Bo, director at 58 Anjuke Real Estate Research Institute." 

CHINA MARKETS

MNI: PBOC Net Injects CNY98.2 Bln via OMO Monday

MNI (BEIJING) - The People's Bank of China (PBOC) conducted CNY123 billion via 7-day reverse repos, with the rate unchanged at 1.50%. The operation led to a net injection of CNY98.2 billion after offsetting the maturity of CNY24.8 billion today, according to Wind Information.
 

• The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 2.0453% at 09:47 am local time from the close of 2.1244% on Friday.
• The CFETS-NEX money-market sentiment index, measuring interbank money-market liquidity, closed at 46 on Friday, compared with the close of 45 on Thursday. A higher reading points to tighter liquidity condition, with 50 representing an equilibrium.

MNI: PBOC Sets Yuan Parity Lower At 7.1886 Mon; -1.80% Y/Y

MNI (BEIJING) - The People's Bank of China (PBOC) set the dollar-yuan central parity rate lower at 7.1886 on Monday, compared with 7.1889 set on Friday. The fixing was estimated at 7.3361 by Bloomberg survey today.

MARKET DATA

UK JAN. RIGHTMOVE HOUSE PRICES +1.7% M/M; PRIOR -1.7%
UK JAN. RIGHTMOVE HOUSE PRICES +1.8% Y/Y; PRIOR +1.4%

JAPAN NOV. CORE MACHINE ORDERS +3.4% M/M; EST. -0.8%; PRIOR +2.1%
JAPAN NOV. CORE MACHINE ORDERS +10.3% Y/Y; EST. +4.2%; PRIOR +5.6%
JAPAN FINAL NOV. INDUSTRIAL OUTPUT -2.2% M/M; OCT. +2.8%
JAPAN FINAL NOV. INDUSTRIAL OUTPUT -2.7% Y/Y; OCT. +1.4%
JAPAN NOV. CAPACITY UTILIZATION -1.9% M/M; PRIOR +2.6%
JAPAN TERTIARY INDUSTRY INDEX NOV. -0.3% M/M; EST. +0.1%; PRIOR +0.1%

 MARKETS

US TSYS: Tsys Futures Trade In Narrow Ranges Ahead Of Inauguration

• Unsurprisingly tsys futures have been very quiet today, we have traded in narrow ranges however right now trade off session lows with TU unchanged at 102-23+, while TY is -01¼ at 108-15+
• The medium-term trend in futures remains bearish, however Wednesday’s gains and Thursday’s follow through, highlight a stronger S/T corrective cycle. The contract has traded through the 20-day EMA, at 108-17. This exposes 109-06, the Dec 31 high, and 109-18+, the 50-day EMA. A clear break of the 50-day average is required to strengthen a bullish theme. The bear trigger has been defined at 107-06, the Jan 13 low.
• Donald Trump plans to sign over 200 executive orders on Day 1, focusing on immigration, energy, deregulation, and government reforms. Key actions include declaring a border emergency, resuming border wall construction, reversing Biden-era energy policies, pausing offshore wind leases, and reinstating merit-based federal hiring. Additional measures include withdrawing from the Paris Climate Accord, suspending security clearances for officials linked to the Hunter Biden laptop story, and imposing a "DOGE" hiring freeze, per Fox News.
• It is Martin Luther King day today, so no cash tsys trading or data. Focus will be squaring on the Inauguration of President Trump and any executive orders he signs on day 1, while corporate earnings are to kick off on Tuesday.

JGBS: Cash Bonds Modestly Richer, 40Y Supply Tomorrow, BoJ Decision On Fri

JGB futures are firmer and at session highs, +10 compared to settlement levels.

• In November, core machine orders data significantly exceeded expectations. Additionally, both Industrial Production (year-over-year) and Capacity Utilization (month-over-month) showed improvement, although both metrics remain in negative territory. However, the Tertiary Industry Index for November declined by 0.3% month-over-month, falling short of the estimated 0.1% growth.
• The BoJ is expected to raise interest rates on Friday barring any market shocks when U.S. President-elect Donald Trump takes office, a move that would lift short-term borrowing costs to levels unseen since the 2008 global financial crisis.
• A tightening in policy would underscore the central bank's resolve to steadily push up interest rates, now at 0.25%, to near 1% - a level analysts see as neither cooling nor overheating Japan's economy. (per RTRS)
• The cash US tsy market and stock exchanges are closed today for Martin L. King Day. Also noteworthy, the Federal Reserve entered its policy blackout at midnight Friday through January 30.
• Cash JGBs are 1-2bps richer across benchmarks beyond the 1-year. The benchmark 10-year yield is 0.7bps lower at 1.196% versus the cycle high of 1.262%.
• Swap rates are 1-2bps lower. Swap spreads are little changed.
• Tomorrow, the local calendar will see 40-year supply.

AUSSIE BONDS: Subdued Session, Strong Demand For Green Bond

ACGBs (YM +1.0 & XM +0.5) are slightly stronger after a subdued session.

• The local market has lacked direction with the local calendar empty and cash US tsys out for Martin L. King Day.
• Cash ACGBs are flat to 1bp richer.
• Swap rates are 1bp lower.
• The bills strip is flat to -1 across contracts.
• RBA-dated OIS pricing is flat to 2bps softer across meetings today. A 25bp rate cut is fully priced for April (102%), with the probability of a February cut at 62% (based on an effective cash rate of 4.34%).
• The local calendar is light this week after key December labour market data last Thursday. The highlights are the Westpac Leading Index on Wednesday and S&P Global PMIs (P) on Friday. The focus is now on Q4 CPI data released on Wednesday, January 29.
• Today's sale of the A$300mn of the 4.25% 21 June 2034 green bond drew a cover ratio of 5.18x, the highest on record for the green bond.
• The AOFM plans to sell A$800mn of the 2.75% 21 June 2035 bond on Wednesday and A$700mn of the 1.50% 21 June 2031 bond on Friday. 

BONDS: NZGBS: Subdued Session Ahead Of Q4 CPI On Wed

In local morning trade, NZGBs closed flat to 2bps cheaper, with a flatter curve, on a subdued day of trading with cash US tsys out for Martin L. King Day. US Tsy futures (TYH5) is trading at 108-15, -0-02+ from closing levels.

• Swap rates finished unchanged.
• RBNZ dated OIS pricing close flat to 4bps firmer. 46bps of easing is priced for February, with a cumulative 106bps by November 2025.
• Tomorrow, the local calendar will see the Performance Services Index and Card Spending data. The PSI rose to 49.5 in November, the highest since February.
• However, the focus of the week will be Wednesday’s Q4 CPI data which is forecast to show moderation in headline and non-tradeables inflation.
• Headline returned to the RBNZ’s 1-3% band in Q3 and is expected to ease 0.1pp to 2.1% y/y posting a 0.5% q/q rise in Q4. The RBNZ forecasted 0.4% q/q & 2.1% y/y in November. Non-tradeables are projected to rise 0.8% q/q which would result in the annual rate moderating to around 4.7% y/y from 4.9%.
• November net migration prints on Thursday. Initial readings have tended to be revised down over H2 2024 as immigration slows. The softening labour market has discouraged people moving to NZ and encouraged New Zealanders to shift to Australia.

FOREX: USD Weaker As Markets Await Trump Inauguration, Recent Ranges Holding

The USD is weaker across the board against all of G10 FX. The BBDXY index is around 0.25% softer, last near 1313. Recent lows in the index (1306.74) are still intact to the downside. We are seeing a slight outperformance trend from higher beta plays. 

• Sentiment appears to be on the improve due to carry from Trump and Xi's phone call on Friday. The market grabbing onto any sense of better relations between the two countries. Trump also reportedly told his advisors that he would like to travel to China (per the WSJ over the weekend).
• Regional equity markets are mostly firmer, with Hong Kong the best performer, likely aided the FX risk mood. US equity futures are down but only slightly and this follows strong cash gains on Friday. There is no US cash Tsy trading today due to Martin L. King Day later in the US. Tsy futures are slightly softer.
• NZD/USD is up nearly 0.50%, last near the 0.5610/15 area. Recent highs at 0.5651 remain intact. For AUD/USD we are lagging slightly, up close to 0.35%, last near 0.6215 (likewise recent highs at 0.6246 haven't been breached. USD/CNH is sub 7.3300 and below its 20-day EMA support point.
• USD/JPY is back under 156.00, but Friday lows under 155.00 haven't been threatened at this stage. EUR/USD is up 0.30%, last near 1.0305. SEK has gained 0.40%, while GBP is back above 1.2200.
• Looking ahead, it is a relatively quiet start to the week data wise. We have the German ZEW, some ECB speak, along with UK Labor data. In Canada, the CPI prints.

ASIA STOCKS: China & Hong Kong Equities Rallies Follow Trump & Xi Jinping Call

China and Hong Kong equities are rallying, buoyed by optimism over improved US-China relations following a positive pre-inauguration call between Donald Trump and Xi Jinping. The CSI 300 Index rose as much as 1.2%, led by gains in tech stocks like Shengyi Technology (+8.9%) and Eoptolink Tech (+7.4%). In Hong Kong, the Hang Seng Index is 2.3% higher, while the Hang Seng Tech Index jumped 3.25%, with e-commerce giants JD.com (+5.8%) and Alibaba (+3%) driving the rally.

• The market also reacted to China leaving its loan prime rates unchanged, with the one-year rate at 3.1% and the five-year rate at 3.6%. Education shares advanced after government guidance promoting AI and stricter curriculum controls, with New Oriental Education & Technology rising 6%. Additionally, reports of re-lending facilities supporting A-share buybacks have boosted sentiment, benefiting privately-run firms.
• Traders aggressively bought call options on Chinese stock-linked ETFs like FXI and KWEB on Friday, driven by optimism over a positive Trump-Xi call signaling potential easing in trade tensions. This activity pushed one-month implied volatility on FXI to its highest since mid-December, with bullish bets also driving significant gains in both ETFs.
• Overall, the markets are balancing optimism with caution over potential trade tariffs under Trump's incoming administration.

ASIA STOCKS: Asian Equities Head Higher As US-China Tensions Ease

Asian markets traded higher today, driven by optimism over easing US-China tensions following a positive call between Donald Trump and Xi Jinping. The MSCI Asia Pacific Index rose 1.2%, with notable gains in Hong Kong, where the Hang Seng Index climbed 2.3%, and mainland Chinese shares also advanced. Japanese stocks rebounded, with the Topix Index posting its biggest intraday jump since early December, as tech and financial shares gained on expectations of a potential Bank of Japan rate hike. Broader sentiment was supported by hopes for improved US-China trade relations, though concerns about Trump's upcoming policies, including tariffs and deregulation, tempered enthusiasm. 

• South Korean equities have struggled today with political uncertainty seen as the major driver, the KOSPI last trades 0.20% lower. Foreign investors had been better buyers of South Korean equities to kick the year off, however we another day of over $200m of outflows we are now effectively flat in terms of net flows.
• Indian equities have seen heavy outflows totaling $4.5b to start the year, the Nifty 50 is trading up 0.20% today as earnings season kicks off.
• Equities in Australia & New Zealand have been mixed today, the ASX20 trades up 0.45%, while the NZX 50 closed 0.30% lower.
• US equity futures are trading slightly lower in Asia Today, please note there will be no cash equity trading tonight for Martin Luther King Day. Focus will be largely on the Inauguration of Trump and any executive orders he may sign on Day 1.

OIL: Crude Little Changed As Awaits Direction From The US

Oil is close to flat during APAC trading today with Brent around $80.70/bbl after an intraday low of $80.76 and WTI $77.44 following a drop to $77.25/bbl. US President-elect Trump said he’ll declare a national energy emergency to unlock powers, but the impact of his administration on oil prices remains unclear. The USD index is down 0.3%.

• Trump wants to use a “national energy emergency” to be able to increase domestic oil and gas production and reverse Biden’s climate change policies, according to Bloomberg. Uncertainty remains elevated though with no details on how this declaration would be used or its impact on domestic and global markets or if he will even be able to use it. Thus, there has been little market response to the news.
• In response to questions on the issue, Trump said on Sunday “we’re going to be using our emergency powers to allow countries and entrepreneurs and people with a lot of money build big plants, AI plants, ... We need double the energy that we already have”.
• Action on sanctions against Iran and Russia and tariffs on Canada, a large oil supplier to the US, are also significant uncertainties that oil markets are awaiting direction on. The Treasury secretary nominee Bessent has indicated that measures against Russia should be tightened.
• The US is closed for the Martin Luther King holiday but attention is on President-elect Trump’s inauguration later today and which executive orders he’ll sign on the first day.
• Later the Eurogroup meeting takes place and German December PPI, euro area November construction and the BoC business survey are released. 

Gold Off Lows as World Watches Inauguration.  

• Having softened into Friday’s close, gold opened lower today, trending down in the morning session.
• Closing at US$2,703.25 on Friday, gold trended down to $2,689.47 before rebounding in the afternoon, above key technical levels to be at $2705.40.
• The weaker than expected US inflation release last week gave hope to interest rate cuts by investors, boosting gold’s fortunes and ensuring a third week in a row of gains.
• Gold had an excellent 2024 in the back of expectations for interest rate cuts and resumption of purchases by key Global Central Banks and a report by the World Gold Council forecasts that this trend will continue in 2025.
• Gold is sensitive to interest rate changes and with the outlook for the FED at the next meeting still unclear, data releases will be a key input into gold's near term direction as it tracks the probability of a FED cut.
• The incoming President’s proposed policies present a mixed headwind for gold with increased geo-political risk could increase demand for gold’s safe haven status, whilst said policies may also ignite the USD which traditionally is challenging for gold.
• In a recent research report released by State Street Global Advisors, it projects gold bullion to hit US$3,100 in 2025 (as per BBG). 

UP TODAY (TIMES GMT/LOCAL) 

Date	GMT/Local	Impact	Country	Event
20/01/2025	0430/1330	**	JP	Industrial Production
20/01/2025	0700/0800	**	DE	PPI
20/01/2025	1000/1100	**	EU	Construction Production
20/01/2025	-		EU	ECB's Lagarde and Cipollone in Eurogroup meeting
20/01/2025	1530/1030	**	CA	BOC Business Outlook Survey
21/01/2025	0700/0700	***	GB	Labour Market Survey
21/01/2025	1000/1100	***	DE	ZEW Current Expectations Index
21/01/2025	-		EU	ECB's De Guindos in ECOFIN Meeting
21/01/2025	1330/0830	***	CA	CPI
21/01/2025	1330/0830	**	US	Philadelphia Fed Nonmanufacturing Index