Tepid risk tone weighs on European indices, DXY flat ahead of US PMIs - Newsquawk US Market Open

• European bourses are mostly lower; US futures are modestly in the green.
• DXY is flat, and GBP strengthens post-PMI while the JPY lags a touch.
• EGBs softer with OATs underperforming slightly post-Moody's downgrade, PMIs in focus.
• Crude slips amid a tepid risk tone, metals largely contained.
• Looking ahead, US Flash PMIs, ECB's Schnabel and BoC’s Macklem.

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EUROPEAN TRADE

EQUITIES

• European bourses began the European session on a modestly mixed footing, with indices generally trading on either side of the unchanged mark. As the morning progressed, sentiment slipped a touch to display a slightly negative picture in Europe. Today's EZ PMIs strengthens the case for further ECB easing, but had little impact on the complex.
• European sectors hold a strong negative bias, with a clear defensive tilt given the risk tone. Healthcare takes the top spot, after heavyweight Novo Nordisk (+1.9%) gains after it announced regulatory approval for Catalent deal. Autos parks itself at the foot of the pile, weighed on by losses in Porsche SE (-1.7%) after the automaker withdrew guidance.
• US equity futures are very modestly on a firmer footing, with sentiment a little better vs in Europe. The NQ marginally outperforms vs peers.
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FX

• DXY is flat and has been trading within a very tight 106.75-92 range for much of the European morning. As it stands the index currently trades towards the bottom end of Friday’s 106.71-107.18 range; and quite a bit away from its 21 DMA at 106.47. US Flash PMIs due later.
• EUR is flat vs the Dollar, with price action fairly choppy as traders react to a slew the EZ PMI metrics dotted throughout the morning. ECB President Lagarde spoke today, with her commentary very much in-fitting with her remarks made at her press conference. EUR/USD traded choppily to the French figures, but ultimately edged a little higher on the German release. Since, the upside has been pared to reside around 1.05.
• JPY is essentially flat, but is the G10 laggard thus far. Overnight, the Japanese PMI release showed manufacturing rebounding and services improving. USD/JPY sits in a very tight 153.31-96 range, a touch above Friday’s 153.79.
• GBP is on a stronger footing, in reaction to the region’s PMI release which saw the Services figure above expectations and further into expansionary territory, while Manufacturing was a touch softer. Cable currently trades at the top end of today’s 1.2609-72 range, with today’s peak coinciding with its 21 DMA at 1.2670.
• Antipodeans are marginally firmer vs the Dollar; the Kiwi outperforms vs the Aussie. AUD currently trades at the mid-point of a 0.6348-82 range, and just within Friday’s confines. NZD/USD on the other hand, has topped the best from Friday and currently trades just off the day’s best at 0.5786.
• Norges Bank said it is to purchase NOK and sell foreign currency to fund transfers to the government for FY24. This helped to strengthen the NOK, with EUR/NOK slipping from 11.7440 to 11.7130 over the course of eight minutes; thereafter, extended to a session low of 11.7030 before paring almost the entire move.
• S&P affirmed Mexico "BBB" foreign currency and "BBB+" local currency long-term rating; Outlook remains Stable.
• Brazilian President Lula has been discharged from the hospital and has recovered well and can resume normal work activities but is to avoid long-haul flights, according to the medical team.
• PBoC set USD/CNY mid-point at 7.1882 vs exp. 7.2769 (prev. 7.1876)
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FIXED INCOME

• USTs are rangebound in a tight 109-27+ to 109-31+ band ahead of Flash PMIs from the US but with the focus firmly on Wednesday’s FOMC. Given contained action for the benchmark yields are also relatively steady but are lower across the curve, which itself is marginally flatter.
• Bunds are pressured, but yet to deviate significantly from the unchanged mark in a tight 134.43-73 band. PMIs sparked modest two way action with the net read being bearish as the German economy fares better than expected in some areas. Into the EZ-wide release, Bunds edged a little higher but the poor manufacturing situation saw Bunds pare back those gains. As it stands, Bunds reside just in the red as the dust settles post-PMIs and remarks from ECB speakers thus far are yet to move the dial; ahead, the often influential Schnabel is scheduled.
• OATs are softer and moved in tandem with EGBs on the German metrics after being relatively unreactive to their own PMIs which focused firmly on political uncertainty. As a reminder, and weighing, Moody's downgraded France a notch with the outlook stable, due to increased political uncertainty and a low probability that the gov’t will succeed in reducing the deficit.
• Gilts are a touch firmer but little changed overall into the UK Flash PMI release, which was mixed but in a delayed reaction weighed on Gilts, given services strength and inflationary internals, pressuring them from a 94.50 high back towards but not testing earlier 94.24 lows.
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COMMODITIES

• WTI and Brent began the session modestly in the red before slipping further as the European session got underway given the tepid risk tone for the region. Brent'Feb 2025 sits just shy of USD 74/bbl.
• Gold is firmer and at the top-end of parameters for today. XAU found itself under pressure in APAC trade and slipped to a USD 2643/oz base before bouncing back and residing at USD 2662/oz highs.
• Base metals are mostly on the back foot, given the risk tone; Copper is a little more contained, not really deriving any direction from the morning’s PMIs or before than from China activity data and commentary.
• Marathon's Detroit refinery (140k BPD) union workers voted to ratify a pay deal following a three-month strike, according to a union post on X.
• Damage to two tankers in the Black Sea caused an oil products spill, according to Interfax.
• Nigeria's maritime agency reported an oil spill at the Shell loading terminal in Nigeria's Delta region after a pipeline ruptured, according to Reuters.
• Libya's NOC declared force majeure at its Zawiya facility following clashes, according to Bloomberg.
• Nornickel CEO Potanin said the company will move to positive free cash flow in 2025 and, until then, shareholders will need to be patient with dividends, according to Russian media RBC.
• Some Japanese aluminium buyers agree to a January-March premium of USD 228/t, +30% from the current quarter, according to Reuters sources.
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NOTABLE DATA RECAP

• EU HCOB Manufacturing Flash PMI (Dec) 45.2 vs. Exp. 45.0 (Prev. 45.2); HCOB Composite Flash PMI (Dec) 49.5 vs. Exp. 48.1 (Prev. 48.3); HCOB Services Flash PMI (Dec) 51.4 vs. Exp. 49.4 (Prev. 49.5)
• EU Wages In Euro Zone (Q3) 4.4% (Prev. 4.5%, Rev. 4.9%); Labour Costs YY (Q3) 4.6% (Prev. 4.7%, Rev. 5.2%)
• French HCOB Services Flash PMI (Dec) 48.2 vs. Exp. 46.5 (Prev. 46.9); HCOB Composite Flash PMI (Dec) 46.7 vs. Exp. 45.8 (Prev. 45.9); HCOB Manufacturing Flash PMI (Dec) 41.9 vs. Exp. 43.0 (Prev. 43.1)
• German HCOB Services Flash PMI (Dec) 51.0 vs. Exp. 49.3 (Prev. 49.3); HCOB Composite Flash PMI (Dec) 47.8 vs. Exp. 48.0 (Prev. 47.2); HCOB Manufacturing Flash PMI (Dec) 42.5 vs. Exp. 43.2 (Prev. 43.0)
• UK Flash Services PMI (Dec) 51.4 vs. Exp. 51.0 (Prev. 50.8); Flash Composite PMI (Dec) 50.5 (Prev. 50.5); Flash Manufacturing PMI (Dec) 47.3 vs exp. 48.2 (Prev. 48.0)
• UK Rightmove House Prices (Dec) M/M: -1.7% (Prev. –1.4%); Y/Y 1.4% (Prev. 1.2%).

NOTABLE EUROPEAN HEADLINES

• Moody's cut France’s rating to "Aa3" from "Aa2", outlook stable, in an unscheduled rating revision, citing political fragmentation. Moody's said its view is that France's public finances will be substantially weakened over the coming years. The agency noted that France's political fragmentation is more likely to impede meaningful fiscal consolidation and said there is now a very low probability that the next French government will sustainably reduce the size of fiscal deficits beyond next year. However, France's local- and foreign-currency ceilings remain unchanged at AAA, according to Moody's.
• ECB Holzmann said it would be wrong to cut rates just to help the economy, according to Reuters.
• ECB's Lagarde says more rate cuts are to come and the direction of travel is clear, via Bloomberg; risks around inflation are two sided. "The ECB is also moving through its monetary policy cycle, and we are now at a stage where the darkest days of winter look to be behind us, and we can start to look forward instead."
• ECB's de Guindos says "our confidence that inflation will converge to target in 2025 is reflected in our monetary policy". US tariff increases could result in inflationary pressures.
• EU reportedly presses for new powers to combat threat of Chinese import surge and amid fears Brussels will struggle to fight back in a global trade war, according to FT.
• Norges Bank to purchase NOK and sell foreign currency to fund transfers to the government for FY24.
• SNB has adjusted the remuneration of sight deposits, lowers the threshold factor from 22 to 20 as of 1st February 2025.

NOTABLE US HEADLINES

• US DHHS nominee (under President-elect Trump) RFK Jr. is to attempt to win over the Senate by playing down the vaccine topic and sticking to Trump's messaging, via WSJ citing sources
• Tesla (TSLA) has raised the price of the Model S to USD 79,990 from USD 74,990 in the US and the price of the Model S Plaid to USD 94,990 from USD 89,990, according to its website.
• Meta (META) has urged the California Attorney General to stop OpenAI (MSFT) from becoming for-profit, according to WSJ.
• Nasdaq announced that Palantir Technologies (PLTR), MicroStrategy (MSTR), and Axon Enterprise (AXON) will be added to the index, while Illumina (ILMN), Super Micro Computer (SMCI), and Moderna (MRNA) will be removed as part of the annual reconstitution of the Nasdaq-100 Index, which will become effective prior to market open on Monday, December 23rd, according to Reuters.
• WSJ's Timiraos writes, ahead of this week's FOMC, "Investors widely expect a third-in-a-row rate cut this week. Officials are ready to slow—or even stop—lowering rates after that."

GEOPOLITICS

MIDDLE EAST

• "Progress in the negotiations of the exchange deal and may be completed after the Jewish holidays at the end of this month", according to Al Jazeera citing an informed source via Israeli press.
• US President-elect Trump and Israeli PM discussed the Gaza hostage deal bid and Syria on Sunday, according to Reuters.
• Israeli PM Netanyahu’s government approved a plan to expand settlements on Israeli-occupied Golan Heights. The statement said Netanyahu acted “in light of the war and the new front facing Syria” and out of a desire to double the Israeli population on the Golan, according to Reuters.
• Russia is pulling back its military in Syria but is not withdrawing from its main military bases, Syrian sources say, according to Reuters.
• Trump's Middle East envoy has met with the Saudi crown prince, according to Axios.
• "Syrian media: Strong explosions in the countryside of Tartous and Latakia resulting from an Israeli attack" according to Asharq News. Note: Russia has two bases in Syria – a naval base in Tartous and the Khmeimim Air Base near the port city of Latakia..
• "US sources to Alarabiya English: US army carried out strikes against Houthi sites in Yemen", according to Al Arabiya.

US-CHINA

• US Treasury Secretary Yellen said the Treasury continues to warn China about the potential for bank sanctions over transactions aiding Russia's war effort in Ukraine and will not rule out sanctions on Chinese banks. She noted that the largest Chinese banks are wary of the consequences. Yellen also said the US aims to reduce Russia's energy revenues, with options such as lowering the oil price cap and imposing more sanctions on 'dark fleet' tankers being considered. She emphasised the need for clear communication channels at all levels between the US and China, stating that leader-to-leader discussions alone are insufficient. Yellen added that the next US Treasury Secretary is likely to continue pushing back on currency manipulation if evidence is found.

OTHER

• Russian President Putin says "is concerned about US development and deployment of short and medium-range missiles"; "we are not brandishing nuclear weapons, it a policy of nuclear deterrence".

CRYPTO

• Bitcoin made a new ATH overnight, just above USD 106k, but has since pared a touch to currently trade around USD 104.5k.

APAC TRADE

• APAC stocks saw an uninspiring start to the week following the mixed session on Wall Street on Friday and ahead of this week's risk events including the final FOMC, BoJ, and BoE meetings of the year.
• ASX 200 saw gold miners pressured by the recent pullback of the yellow metal towards USD 2,650/oz levels, with sentiment also weighed on by the downticks in prelim. Aussie PMIs.
• Nikkei 225 swung between modest positive and negative territory throughout the session as the index oscillated the 39,500 level, whilst the Japanese Flash PMI highlighted "stubborn inflation" with "anecdotal evidence placing particular emphasis on the impact of the weakness of the yen in relation to inputs sourced from abroad."
• KOSPI conformed to the broader risk tone with little sustained move after South Korean MPs successfully voted to impeach President Yoon in their second attempt.
• Hang Seng and Shanghai Comp fluctuated between modest gains and losses with little initial reaction seen to the Chinese activity data, which saw a marked miss in Retail Sales whilst Industrial Output saw a modest surprise uptick. Furthermore, Chinese markets failed to garner much support from weekend reports that China has room to further cut the RRR, according to PBoC officials on Saturday via CCTV.

SOUTH KOREAN NEWS

• South Korean MPs have successfully voted to impeach President Yoon in their second attempt, amid backlash following his brief move to impose martial law, according to BBC. Yoon was suspended from official duties at 19:24 local time on Saturday while PM Han is to continue as acting president, according to Yonhap.
• South Korea's acting president Han vowed to leave no vacuum in state affairs, build a solid security posture, and ensure the cabinet works hard to maintain trust with the US, Japan, and other partners. He also pledged efforts to operate financial and forex markets smoothly, according to Yonhap. Acting President Han said the country will maintain preparedness to prevent North Korea from stirring up provocations, secure national interests ahead of the new US administration, and prioritise national security above all else, according to News1 and Yonhap.
• South Korea's opposition leader Lee Jae-myung said the party has decided not to proceed with the impeachment of acting president Han, according to Reuters.
• Bank of Korea stated it is necessary to respond more actively to the economic impact compared with past impeachment periods, given heightened challenges in external conditions. It also said it will use all available policy instruments, in conjunction with the government, to respond to and avert escalation of volatility in financial and forex markets, according to Reuters.
• South Korea's Finance Minister said the government will continue to swiftly deploy market-stabilising measures as needed, seek more support measures for vulnerable sectors, and actively communicate with parliament to keep the economy stable. The minister also confirmed that the bi-annual economic policy plan will be announced before the end of the year, according to Reuters.
• South Korea's financial regulator said it will expand market-stabilising funds if needed to boost liquidity in bond and short-term money markets and expects financial markets to stabilise as recent political events are temporary shocks, according to Reuters.

NOTABLE ASIA-PAC HEADLINES

• IDC expects China's smartphone shipments to increase to 289mln in 2025, +1.6% Y/Y
• China has room to further cut the reserve requirement ratio (RRR), according to PBoC officials on Saturday via CCTV.
• China's Central Financial and Economic Affairs Commission deputy director said the country's GDP is expected to grow by about 5% this year, with foreign exchange reserves remaining above USD 3.2tln. He added that China's contribution to global economic growth is expected to be close to 30% and that employment and prices in China are expected to remain stable, according to Reuters.
• Chinese Stats Bureau stated that China is on track to achieve key economic targets in 2024, but more efforts are needed to promote continued economic recovery in 2025. It added the trend of recovery in consumption remained unchanged and that more policies would be implemented to expand domestic demand. It noted that while new policies had gained more traction, the external situation had become more complex and severe. The Bureau expects further improvement in the property market, emphasises the need to stabilise employment and increase incomes to boost consumption capacity, and anticipates that China's CPI will maintain modest increases. It also noted that China's economy is generally stable in November and sees increasing positive changes, according to Reuters.
• China Financial and Economic Affairs Commission says China will increase the size of government bonds, including local special bonds, in 2025, via Xinhua. Will promote stable household income growth next year through increasing direct fiscal support to consumers and improving social security. Will implement "appropriately loose" monetary policy to effective lower interest rate on local government debt. China still has big room for investment.
• PBoC injected CNY 753.1bln via 7-day reverse repos with the rate maintained at 1.50%.
• Moody's raised China's 2025 GDP growth forecast to 4.2% from 4.0%, according to Reuters.
• The US Treasury has told Nippon Steel (5401 JT) that the panel vetting its proposed acquisition of US Steel (X) has not reached a consensus on how to mitigate security risks, according to the FT.
• New Zealand NZIER Consensus Forecasts show that the economic growth outlook remains broadly unchanged relative to the previous release; GDP forecasts continue to suggest sluggish growth in the year to March 2025 before picking up to 2.2% in the following year.

DATA RECAP

• Chinese Retail Sales YY (Nov) 3.0% vs. Exp. 4.6% (Prev. 4.8%)
• Chinese Industrial Output YY (Nov) 5.4% vs. Exp. 5.3% (Prev. 5.3%)
• Chinese Urban Investment (YTD)YY (Nov) 3.3% vs. Exp. 3.4% (Prev. 3.4%)
• Chinese Surveyed Jobless Rate (Nov): 5.0% vs Exp. 5.0% (Prev. 5.0%)
• Chinese FDI (YTD) (Nov) -27.9% (Prev. -29.8%)
• Australian Manufacturing PMI Prelim (Dec) 48.2 (Prev. 49.4)
• Australian Services PMI Prelim (Dec) 50.4 (Prev. 50.5)
• Australian Composite PMI Prelim (Dec) 49.9 (Prev. 50.2)
• New Zealand Food Price Index (Nov) -0.1% (Prev. -0.9%)
• South Korean Trade Balance Revised (Nov) 5.59B (Prev. 5.61B)
• South Korean Import Growth Revised (Nov) -2.4% (Prev. -2.4%)
• South Korean Export Growth Revised (Nov) 1.4% (Prev. 1.4%)
• Indian HSBC Composite PMI (Dec) 60.7 vs Exp. 58.8 (Prev. 58.6)
• Indian HSBC Manufacturing PMI (Dec) 57.4 vs Exp. 56.9 (Prev. 56.5)
• Indian HSBC Services PMI (Dec) 60.8 vs Exp. 58.9 (Prev. 58.4)
• Japanese Machinery Orders YY (Oct) 5.6% vs. Exp. 0.7% (Prev. -4.8%)
• Japanese Machinery Orders MM (Oct) 2.1% vs. Exp. 1.2% (Prev. -0.7%)
• Japanese JibunBK Services PMI Flash SA (Dec) 51.4 (Prev. 50.5)
• Japanese JibunBK Manufacturing PMI Flash SA (Dec) 49.5 (Prev. 49.0)
• Japanese JibunBK Composite Op Flash SA (Dec) 50.8 (Prev. 50.1): The release noted "Stubborn inflation held back a stronger expansion of the Japanese private sector in December. Average input prices rose markedly again, and at the steepest rate for four months, with anecdotal evidence placing particular emphasis on the impact of the weakness of the yen in relation to inputs sourced from abroad. As such, the pace of selling price inflation also quickened on the month and was the fastest since May."