POLITICAL RISK: Trump Proposes US Long Term Take Over Of Gaza Strip

In Tokyo morning trade, JGB futures are substantially weaker, -26 compared to settlement levels on 30 December, the last day of trade. 

• The local data calendar just has Dec PMI revisions on tap today. On Thursday, November labour cash earnings data is released, which will be of greater focus.
• Cash US tsys are 2-3bps cheaper in today’s Asia-Pac session after Friday’s heavy close.
• Cash JGBs are 1-2bps cheaper across benchmarks beyond the 1-year (+3.7bps). The benchmark 10-year yield is 2.1bps higher at 1.121% versus the cycle high of 1.134% set on 30 December 2024.
• Swap rates are 1-6bps higher, with the 20-30-year zone leading. Swap spreads are mostly wider.

The final December S&P Global composite PMI was revised up 0.3pp to 50.2, the third straight month at this level and signalling only slight growth in activity which is being driven by the services sector. The services PMI was revised up 0.4pp to 50.8 to be 0.3pp higher than November but the Q4 average eased to 50.8 from 51.1. Growth has been stuck at a lacklustre 0.2% q/q for the last three quarters, and the services PMI is suggesting that it is likely to remain weak or possibly moderate further.

• The S&P Global services report was mixed with higher inflation and lower employment but higher demand and confidence at its highest for more than two and a half years. The improvement in sentiment was due to expected rate cuts and “greater opportunities following the Australian elections”.
• The pickup in the December services PMI was driven by increased new business as “client interest” developed. Export orders grew for the first time in four months driven by the US and Asia.
• Cost pressures rose for the third straight month, but remain slightly below average, due to increased material, transport and wage costs. Selling price inflation picked up too but is also below average.
• There was marginal “job shedding” in December, the first since Covid-impacted August 2021. The shift was driven by less capacity pressures as outstanding work continued to be reduced but also difficulties finding skilled labour to replace voluntary leavers.
• See S&P Global report here.

Australia S&P Global services PMI vs GDP q/q%

European natural gas prices fell 1.3% to EUR 49.60 on Friday after a high of EUR 50.40 followed by a low of EUR 49.36 to end the week still up 3.3% as freezing weather impacts northern Europe. Russian flows through Ukraine ceased on Wednesday.

• Austria’s Gas Grid Management stated that flows through Germany and Italy have been sufficient to replace the end of Russian gas following a contract dispute with Gazprom stopped shipments.
• Europe’s competition for global supplies with Asia is likely to intensify this year with the end of Russian flows through Ukraine. In 2024, Asia’s LNG imports rose 7.3% to a record driven by China and India, based on ship-tracking data from Bloomberg. While to Europe they fell around 20%.
• US gas prices fell sharply as forecasts signal that severe wintery weather will ease across the Midwest and east coast of the US around mid-January and output picked up driven by higher prices. Henry Hub was down 8% to $3.37, lowest since December 27, to be down slightly on the week.
• The election of Trump as the next US President has increased expectations that US fossil fuel production will rise. However, before the end of his term President Biden is likely to ban new offshore oil and gas projects covering around 625mn acres of coast, according to Bloomberg. The area includes the Atlantic, Pacific and eastern Gulf of Mexico. The decision is likely to be announced today.