CN bond rally continues surge as economy stalls, Japan PM snubbed by Trump

Asia Market Update: CN bond rally continues surge as economy stalls; Japan PM snubbed by Trump?; Canada govt wobbles; Focus on US Nov Retail Sales.

General trend

- The China bond rally continued at breakneck speed, 10-year yields falling a further 4bps overnight to 1.72% (was already at historical lows of ~2.05% on Nov 29th), despite all the recent govt stimulus designed to goose the economy. With stocks, property and starting a business now considered too risky by Chinese investors, govt bonds are presently seen as the only safe investment within China. Offshore Yuan again threatening the 7.30 level. Today, Chinese sources from last week’s CEWC meeting reported that China may increase its budget deficit ratio to a record 4.0% for 2025.

- An apparent snub of new Japan PM Ishiba by Pres-elect Trump, as Ishiba appears unable to have met with Pres-elect Trump himself in Florida, only Trump’s team. This is in stark contrast to former Japan PM Shinzo Abe, who formed a close friendship with Pres Trump in his first term, a relationship that helped Japan receive preferential trade and security treatment with the US.

- Asian stocks were mostly down, with AXS outperforming and Kospi under-performing. CN/HK equities continue recent weakness while Nikkei was flat.

- Both weekly and monthly consumer confidence indices out of Australia saw significant drops, pcp.

- New Zealand Treasury Half-Year fiscal and economic update sees an economic recovery expected from early 2025 with GDP growth of 0.5% in 2024/25, supported by lower interest rates, accelerating to 3.3% in 2025/26. Also forecasts an extra NZ$20B in bond issuance over next 4 years with a FY25 budget deficit at 4.1% of GDP; However, expects budget surplus by 2028-29. NZ 10-year yield +3bps shortly after the release.

- Pressure builds on Canadian PM Trudeau as Dep PM & Fin Min Freeland suddenly resigns, Trudeau has to rush to appoint new Fin Min in order to deliver budget, and a member of his own party (Chad Collins) calls for him to resign, along with the opposition.

- Overnight, generally better-than-expected PMIs out of Europe and US, although US still relatively outperforming EU.

- Before Asian trading began, Trump said to be planning 'sweeping changes' to cut EV support and strengthen protections to block cars and related materials from China, including all battery materials globally.

- US equity FUTs flat to slightly lower during the Asia session.

Looking ahead (Asian time zone)

- Wed Dec 18th AU Consumer Confidence, JP Trade Balance, ID Rate Decision, (Wed night US Nov Building Permits, FOMC Rate Decision).

- Thu Dec 19th JP BOJ Rate Decision, NZ Q3 GDP, (Thu eve UK BOE Rate Decision, US Final Q3 GDP).

- Fri Dec 20th NZ Trade Balance, JP N’tnl Nov CPI, CN LPR, (Fri night US Nov Core PCE).

Holidays in Asia this week

- No holidays in Asia this week.

Headlines/economic data

Australia/New Zealand

- ASX 200 opens -0.2% at 8,236.

- Australia Dec Westpac Consumer Confidence Index: 92.8 v 94.6 prior.

- Australia: New mandatory food and grocery code to be effective Apr 1st, 2025.

- Australia ANZ Roy Morgan Weekly Consumer Confidence Index: 83.9 v 85.5 prior (update).

- (AU) Quad nations to conduct first joint coast guard training in Jan in Japan – Nikkei.

- New Zealand Treasury Half-Year Economic & Fiscal Update: Economic Recovery expected from early 2025.

- New Zealand Nov Non Resident Bond Holdings: 61.2% v 62.0% prior.

- New Zealand to raise minimum wage by 1.5% from April 1st.

China/Hong Kong

- Hang Seng opens -0.6% at 19,678; Shanghai Composite opens -0.1% at 3,381.

- China Nov Client FX Net Settlement (CNY): 29.7B v 112.0B prior.

- China confirms to target a raised budget deficit to 4% of GDP in 2025 [would be highest on record] - financial press, citing sources from last week's CEWC.

- China PBOC confirms China and the US working group held final 2024 meeting; MOU related to insurance industry cooperation was announced - financial press.

- (US) REPORTEDLY TRUMP PLANS SWEEPING CHANGES TO CUT EV SUPPORT AND TO STRENGTHEN MEASURES BLOCKING CARS AND RELATED MATERIALS FROM CHINA, PLAN IMPOSE TARIFFS ON "ALL BATTERY MATERIALS GLOBALLY" [pre-Asian trading].

- China Premier Li Qiang: Reported to have held State Council study session - financial press.

- China Foreign Min Wang Yi: Hopes that new US govt will make 'right decisions' - financial press.

- Reportedly US Biden Admin investigating China's legacy chips [overnight update].

- China PBoC reiterates pledge from recent CEWC to lower RRR and interest rates when appropriate [overnight update].

- China Cabinet Meeting; Seeks urgency in implementing economic policies - State TV [overnight update].

- China said to sharply raise funding for the consumer goods and equipment trade-in program with the use of ultra-long special government bonds next year; China still has a lot of room for investment – press [overnight update].

- China PBOC sets Yuan reference rate: 7.1891 v 7.1882 prior.

- China PBOC Open Market Operation (OMO): Injects CNY355B in 7-day reverse repos; Net injects CNY214B v net injects CNY706B prior.

Japan

- Nikkei opens +0.3% at 39,589.

- Japan Chief Cabinet Sec: Maintains communication with Trump team on meeting with PM Ishiba [Ishiba appears unable to have met with Pres-elect Trump himself].

- Japan METI draft report aims for nation to expand nuclear power; Drops previous goal of cutting reliance on nuclear power; Nuclear power at 20% - US financial press.

- Japan Economic Revitalization Min Akazawa: Closely watching outcome of income tax ceiling talks.

- US Pres-elect Trump chooses George Edward Glass as Ambassador to Japan - financial press.

- JAPAN SELLS ¥1.0T VS. ¥1.0T INDICATED IN 20-YEAR JGB BONDS; AVG YIELD: 1.8790% V 1.8980% PRIOR; BID-TO-COVER: 3.38X V 3.52X PRIOR (NOV 2st 2024).

- (US) Softbank’s Masayoshi Son to announce $100B 4-year invest plan with Trump team – CNBC [overnight update].

- Reportedly Waymo will enter Japan's self-driving taxi market – press [overnight update].

Korea

- Kospi opens -0.1% at 2,487.

- South Korea acting Pres Han: To start implementing budget from Jan 1st - financial press.

- Follow up: South Korea Constitutional Court requests of Pres Yoon written answers (for hearing) by Dec 23rd - South Korean press.

- South Korea opposition party to hold debate on the Commercial Act on Dec 19th - South Korea press.

- South Korea prosecutors summon Pres Yoon to appear Dec 21st.

Other Asia

- (TW) Shanghai to resume group tours to Taiwan; China extends visa-free transit stays to 240 hours [up from prior 72 and 144 hours] - Taiwan press.

- Indonesia Central Bank (BI) offices said to be searched by Indonesia anti-graft body - Indonesia press.

- Singapore Nov Non-oil Domestic Exports M/M: 14.7% v 9.2%e; Y/Y: +3.4% v -1.0%e.

North America

- (CA) Safety Min Dominic Leblanc will be named Canada's new Fin Min and sworn in today - press.

- (CA) Canada Nov Annualized Housing Starts: 262.4K v 245.1Ke.

- (US) DEC EMPIRE MANUFACTURING: 0.2 V 10.0E; New Orders: +6.1 v +28.0 prior; Prices Paid: 21.1 v 27.8 prior.

- (CA) Canada Nov Existing Home Sales M/M: 2.8% v 7.7% prior.

- (CA) Canadian Fin Min Freeland said to resign - X post.

- (US) DEC PRELIMINARY S&P MANUFACTURING PMI: 48.3 V 49.7 PRIOR (6th month of contraction); Services PMI: 58.5 v 56.1 prior (23rd month of expansion); data signaled a further acceleration of economic growth in December.

- (US) Reportedly US Congressional stopgap spending bill would fund govt through March 14 and avert partial shutdown that's slated to begin on Sat (Dec 21st) - press.

- (CA) Canada PM Trudeau reportedly set to address Parliament amid speculation - Canada press.

Europe

- (SY) Senior US officials said to fear that Turkey's military build-up may signal preparations for incursion into Syria - WSJ.

- (IE) Ireland Central Bank Quarterly Bulletin: Steady growth and lower inflation projected amid rising geoeconomic risks.

- (PL) Poland Nov CPI Core M/M: 0.2% v 0.2%e; Y/Y: 4.3% v 4.3%e; Prices Paid: 21.1 v 27.8 prior.

- (BE) ECB's Wunsch (Belgium): Relative consensus that EU rates need to go close to neutral; Trump tariffs may be inflationary at the margin - press interview.

- (DE) GERMAN CHANCELLOR SCHOLZ DOES NOT SURVIVE CONFIDENCE VOTE IN BUNDESTAG (AS EXPECTED).

Levels as of 00:20 ET

- Nikkei 225 flat, ASX 200 +0.8%, Hang Seng -0.6%; Shanghai Composite -0.8%; Kospi -1.5%.

- Equity S&P500 Futures -0.1%; Nasdaq100 flat; Dax -0.1%; FTSE100 +0.1%.

- EUR 1.0507-1.0534; JPY 153.80-154.35; AUD 0.6351-0.6379; NZD 0.5766-0.5794.- Gold -0.1% at $2,667/oz; Crude Oil -0.8% at $70.19/brl; Copper -0.6% at

$4.1705/lb.