BONDS: NZGBS: Closed Slightly Richer & At Bests But OIS Firmer

Gold is a touch higher in the first part of Monday dealings, last near $2641. This follows Friday's 0.67% loss, amid a generally supported US yield backdrop and caution from Fed officials around the inflation outlook. Bullion is still up from end 2024 levels ($2624.5).  

• US yields have pushed higher today (+1-2bps firmer), although hasn't weighed materially on gold at this stage.
• Spot gold is close to the 20 and 50-day EMA support zones, although the 100-day, which sits near $2600, is arguably more important. We tested sub this support zone on a number of occasions through late 2024 but each time the dip was supported.
• A fresh cycle high in the US 10yr real yield may see gold revisit these lows. On the topside, gold has found selling interest above $2700 since late November.
• Focus will rest on the FOMC minutes and US NFP print later this week. 

Oil prices are off their intraday high to be down slightly during APAC trading today but are still close to the three-month high. Brent rose to $76.89/bbl but is now down 0.1% to $76.47. WTI reached $74.39/bbl before trending down to $73.90. The USD index is down 0.1% but off its intraday low.

• Some Middle Eastern pricing is signalling that demand has picked up from Asia and markets are waiting for prices from Saudi Arabia to confirm this. Crude from sanction-hit Iran and Russia has become scarcer, as sanctions target their shadow fleets.
• The market continues to expect excess supply in 2025 with demand from China likely to remain soft and non-OPEC supply forecast to rise with the risk OPEC+ decides to begin output normalisation. Morgan Stanley is projecting a surplus of around 700kbd this year. But there is a lot of uncertainty surrounding the new US administration and geopolitics.
• Later the Fed’s Cook speaks. US & European December services/composite PMIs and preliminary December German CPI data are released.  

Reaction to the Caixin services PMI beat hasn't been positive across China assets. Yuan gains were mostly around the CNY fixing outcome, while onshore equities are up from session lows, sitting modestly in positive territory. Local bond yields are up a touch, but the 10yr remains sub 1.60%. 

• The Caixin services PMI showed similar trends to the official PMIs. The services side comfortably beating expectations, up to 52.2, versus 51.4 forecast and 51.5 prior. The composite index still fell to 51.4 from 52.3, due to softness in manufacturing (50.5 from 51.5, which printed last Thursday).
• The China Citi surprise index remains in positive territory, but off late Dec highs. Market growth expectations are steady for 2025, at 4.5% as per BBG consensus forecasts.
• Thursday's inflation prints will be important, given the PBoC stated recently further policy adjustments are coming at an appropriate time (RRR and interest rate cuts). This should generally keep onshore bonds supported, although local media stated we could see more volatility this year (see this link).
• For USD/CNH, the CNY fixing bias remains skewed against depreciation pressures. Whilst the pair has broken higher, the focus remains on controlling the pace of depreciation pressures. Bill issuance in Hong Kong is also expected to be stronger in January. Recent highs near 7.3700 may hold, but the market is still likely to buy dips in the pair, a firm theme since the US election in early Nov.  The 20-day EMA support zone is near 7.3100.
• For local equities, the CSI 300 is testing levels last seen in Sep last year. The index has spent little time sub 3800 since this period last year.