- US stock markets were closed for a National Day of Mourning.
- USD was firmer against most major peers ahead of NFP on Friday (exp. 160k) but with trade limited amid a lack of major catalysts during the US national mourning day for Jimmy Carter in which US stock markets were shut and Treasuries closed early for the day. Nonetheless, Fed speak was in full force, being the highlight of the day in which Fed's Harker and Collins noted stickier inflation than previously expected, while Collins also stated that the December Fed cut was a close call, but provided insurance for the labour market. Furthermore, Bowman said they should be cautious in considering changes to the policy rate and that she supported the December rate cut as a final step in policy calibration, while Schmid said interest rate policy may be near where it needs to be for the longer run and any further rate cuts should be gradual and data-driven.
- Looking ahead, highlights include Japanese Household Spending & Leading Index, Philippines Trade Data, Indonesia Retail Sales & Malaysian Industrial Production.
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LOOKING AHEAD
- Highlights include Japanese Household Spending & Leading Index, Philippines Trade Data, Indonesia Retail Sales & Malaysian Industrial Production.
- Click for the Newsquawk Week Ahead.
US TRADE
- US stock markets were closed for National Day of Mourning.
NOTABLE HEADLINES
- Fed’s Bowman (voter) said they should be cautious in considering changes to the policy rate and she supported the December rate cut as a final step in policy calibration, while she could have supported taking no action in December given the lack of progress on inflation and strength of the economy. Bowman said she prefers a cautious, gradual approach to adjusting policy and noted the current stance of policy may not be as restrictive as others may see it.
- Fed's Collins (2025 voter) favours fewer rate cuts in 2025 than anticipated just a few months ago, following strong employment data and lingering inflation but noted it is still appropriate to lower rates, according to Bloomberg. It was separately reported that Collins said the current outlook calls for a gradual and patient approach to rate cuts, while she supported the December Fed rate cut but it was a close call. Furthermore, Collins said the Fed is not on a pre-set path and policy is well positioned, while the current outlook is in line with Fed December projections.
- Fed’s Schmid (2025 voter) said interest rate policy may be near where it needs to be for the longer run and any further rate cuts should be gradual and data-driven. Schmid said the Fed is ‘pretty close’ to meeting both of its mandates and he wants the Fed to shrink its balance sheet further, while he added the Fed should work towards treasuries-only holdings, as well as noted that inflation is moving towards the target and growth is showing momentum. Furthermore, Schmid said the Fed won’t likely get to 2% inflation until 2026% and that the last stage to 2% could be the most challenging for monetary policy, while he added that the Fed’s quantitative tightening is somewhat at odds with rate cuts and he would oppose a move to stop a Fed balance sheet drawdown right now.
- Fed's Harker (2026 voter) said the Fed is still on a rate-cut path with future moves driven by data and the underpinnings of the economy are strong amid high uncertainty. Harker said it is appropriate for the Fed to take a bit of a pause amid uncertainty and the Fed can stay where it is for a little bit, while he doesn't see the Fed changing the rate control toolkit any time soon.
- US President said the federal government will cover 100% of costs for 180 days for California and noted that three major fires are still burning.
- US President-elect Trump and advisors reportedly previewed plans for 100 executive orders during a Senate Republican meeting on Wednesday, although it is unclear if all will be technical executive orders, or more broadly executive actions taken by Trump or federal agencies, according to Axios citing sources.
FX
- USD was firmer against most major peers ahead of NFP on Friday (exp. 160k) but with trade limited amid a lack of major catalysts during the US national mourning day for Jimmy Carter in which US stock markets were shut and Treasuries closed early for the day. Nonetheless, Fed speak was in full force, being the highlight of the day in which Fed's Harker and Collins noted stickier inflation than previously expected, while Collins also stated that the December Fed cut was a close call, but provided insurance for the labour market. Furthermore, Bowman said they should be cautious in considering changes to the policy rate and that she supported the December rate cut as a final step in policy calibration, while Schmid said interest rate policy may be near where it needs to be for the longer run and any further rate cuts should be gradual and data-driven.
- EUR mildly softened to beneath the 1.0300 handle against the dollar with the single currency not helped by the miss on Retail Sales.
- GBP continued its underperformance following the recent gilt market jitters despite comments from BoE's Breeden who was seemingly unfazed by the moves.
- JPY eked marginal gains after recent wages data from Japan but gains were capped with USD/JPY oscillating around 158.00.
- Banxico Minutes stated that most Banxico board members considered that the inflationary outlook in Mexico continued improving.
- Brazilian President Lula may make changes to the Cabinet before January 21st, according to Chief of Staff Costa.
FIXED INCOME
- T-Notes settled slightly higher and largely tracked gilts in quiet trade on account of the National Day of Mourning for President Carter.
COMMODITIES
- Oil prices were firmer with some attributing the upside to cold weather boosting winter fuel demand.
- Iraq set February Basrah medium crude OSP to Asia at USD + 0.05/bbl (prev. USD -0.60/bbl) to Oman/Dubai average and to Europe at USD -4.0/bbl vs Dated Brent (prev. USD -5.5/bbl), while it set the OSP to North and South America at USD -1.05/bbl vs ASCI, according to SOMO.
- Citi raised their average Brent prices to USD 71/bbl (prev. 65/bb) and WTI to USD 67/bbl for Q1 2025.
- Russia's Kremlin said there are still countries in Europe which are interested in "more competitive" Russian gas.
- Slovakia’s PM Fico said the government will adopt harsh reciprocal measures against Ukraine if the gas transit problem is not solved, while he added that retaliation options against Ukraine include halting humanitarian aid and could halt emergency electricity supplies to Ukraine.
GEOPOLITICAL
MIDDLE EAST
- US and Arab mediators have made some progress in Gaza peace talks although there is no deal yet.
- French President Macron is to visit Lebanon very soon and he congratulated Joseph Aoun who was elected by Lebanon’s parliament as President.
RUSSIA-UKRAINE
- US official said President Biden is set to announce new sanctions targeting the Russian economy this week and is likely to also sanction more Chinese entities for supporting Russia.
ASIA-PAC
NOTABLE HEADLINES
- China's Politburo Standing Committee held a meeting on January 9th, according to Xinhua.
- China’s MOFCOM said it will ask the EU to adjust its relevant practices in foreign subsidy probes after it determined that EU probes constitute trade and investment barriers, according to the Global Times.
- US Commerce Secretary Raimondo said the Biden administration is to finalise Chinese connected vehicle crackdown rules next week.
- BoJ's Nagoya branch manager said some firms including smaller ones are considering increasing wages this year at/above last year's pace, while BoJ’s Osaka branch manager said compared to the prior year, more large firms in the region are expressing willingness to hike wages earlier than before and a significant number of firms are keen to hike pay, so expect solid wage hikes in 2025 wage talks.
EU/UK
NOTABLE HEADLINES
- BoE's Breeden said recent evidence further supports the case to withdraw policy restrictiveness and expects to continue to remove restrictiveness gradually over time. Breeden said they are monitoring what happens in the gilt market and noted a lot of gilt price moves reflect global factors, while she added that gilt market moves have been orderly, so far so good. Breeden also said she doesn’t have a particular path for the Bank Rate in her mind now.
- BoE Monthly Decision Maker Panel data for December 2024 showed expectations for CPI inflation a year ahead rose from 2.7% to 2.8% in the three months to December, while three-year ahead CPI inflation expectation was 2.7% in the three months to December which is 0.1 percentage points higher than the three months to November.
- UK Treasury Minister Jones said the UK government does not comment on specific market movements and it is normal for the price of gilts to vary, while Jones added that UK financial markets continue to function in an orderly way and there is no need for any emergency intervention by the Chancellor.
DATA RECAP
- EU Retail Sales MM (Nov) 0.1% vs. Exp. 0.4% (Prev. -0.5%, Rev. -0.3%)
- EU Retail Sales YY (Nov) 1.2% (Prev. 1.9%, Rev. 2.1%)
- German Industrial Output MM (Nov) 1.5% vs. Exp. 0.5% (Prev. -1.0%)
- German Trade Balance (EUR)(Nov) 19.7B vs. Exp. 14.8B (Prev. 13.4B)
- German Exports MM (Nov) 2.1% vs. Exp. 2.0% (Prev. -2.8%)
- German Imports MM (Nov) -3.3% vs. Exp. 0.7% (Prev. -0.1%)
