Futures Rise As Yields Hit 1 Week High, China Stimulus Hopes FIzzle

Futures inch higher, reversing earlier losses even as bond yields gain 3bps to rise to a one week high, and the USD is once again rising. As of 8:00am ET, S&P 500 and Nasdaq 100 inched up 0.1% and 0.2% respectively with Mag7 names mostly higher premarket, even as other large cap tech names are hit post-earnings after software giant Oracle slid as much as 8.8% after quarterly results underwhelmed. Nvidia looked set to extend losses following news that China is probing the AI chipmaker over alleged anti-monopoly violations. US-listed Chinese shares also slipped, ceding gains notched the previous day after Beijing pledged to loosen monetary policy. The commodity complex is weaker as energy items fail to hold yesterday’s gains. Today shapes up to be a quiet macro day ahead of CPI.

In premarket trading, Oracle dropped 7% after the software company reported second-quarter results that are seen as underwhelming in the wake of robust stock performance. Homebuilder Toll Brothers declines 3% after the luxury builder’s profit-margin projection fell short of estimates. Here are some other notable premarket movers:

• Alibaba slips 2% along with other US-listed Chinese stocks as traders book profits after a rally spurred by policymakers’ pledges to boost growth.
• C3.ai a data-analysis software company, gains 3% after reporting quarterly revenue that topped estimates and raising its full-year sales forecast.
• Designer Brands slides 19% after the parent company of footwear and accessories chain DSW cut its adjusted earnings per share guidance for the full year.
• Ferguson drops 7% after the plumbing and HVAC supplies company posted a quarterly profit that missed estimates.
• Fluence Energy falls 8% after the provider of energy storage systems said it intends to offer $300m aggregate principal of convertible senior notes due 2030 in a private offering.
• MongoDB declines 6% after the database software company announced the departure of its CFO and COO, Michael Gordon.
• UniQure soars 88% after the company reached an agreement with the FDA on key elements of an accelerated approval pathway for AMT-130.

Investors have been monitoring the upsurge in geopolitical risk in the Middle East, after rebel forces toppled Bashar-al-Assad’s regime in Syria. Oil prices eased, however, as concerns over a looming supply glut overshadowed the political risks and China’s stimulus plan. Looking ahead, Wednesday’s CPI print will be the final major price reading before the Fed’s policy meeting next week. Any indication that progress has stalled on the inflation front could well undercut the chances of a third straight reduction in rates. Bloomberg’s Dollar Spot Index and Treasury yields edged higher suggesting inflation is once again ascendant.

“Markets seem to have run out of steam going into the end of the year and participants are waiting for some kind of fresh catalyst,” said Lee Hardman, a strategist at MUFG Bank Ltd.

Turning to the upcoming inflation data, Hardman noted that even a relatively robust monthly payrolls reading had not derailed bets on further policy easing. Money markets currently see about an 80% chance of a quarter-point easing next week. “It would have to be a really bad CPI report tomorrow to make the market pare back expectations for a cut this month,” he said. “You have to assume if it comes in in line with expectations, it’s not going to really alter the view.”

Elsewhere in this week’s main events, we get a flood of central bank decision, with the European Central Bank expected to cut rates for the fourth time this year, amid a deteriorating economic outlook and political turmoil in France and Germany. The Swiss National Bank is also forecast to trim rates on Thursday.

A key focus will be China’s Central Economic Work Conference — due to start Wednesday — where authorities could hint at more fiscal support to follow up their pledge for “moderately loose” monetary policy in 2025. Chinese stocks rose as much as 3.3% on Tuesday, only to hand back most of those gains by the close.

“The proof will be in the pudding but these statements do seem to show the authorities are poised to take more aggressive action and are encouraging,” said Rupert Thompson, chief economist at IBOSS, Kingswood Group.

Uncertainty on whether China will follow up on its stimulus pledges weighed on Europe’s Stoxx 600 index, which is set to snap an eight-day winning streak. Chinese shares pared gains into the close with the Stoxx 600 now down 0.2%, led by declines in miners and consumer products while automobile and health care stocks are the biggest outperformers. Here are the biggest movers Tuesday:

• Shares of 4iG surge 7.4% to highest level since mid-Sept. 2023, after Portfolio.hu reported that Chairman Gellert Jaszai presented the satellite plans of the Hungarian IT, telecommunications company to Elon Musk at a meeting in US
• Spar Nord Bank shares surge as much as 49%, marking their biggest gain on record, after Nykredit Realkredit tabled a takeover offer at a big premium to Monday’s closing share price
• FirstGroup shares rise as much as 4.5%, hitting a three-month high, after the transport company entered the London bus market by acquiring operator RATP Dev Transit London for an enterprise value of £90 million
• Pantheon Resources shares surge as much as 26% to a six-month high after the oil and gas exploration company announced its Megrez-1 well as a discovery, according to a statement
• Ashtead shares drop as much as 11%, the most since November 2023, after the equipment rental giant lowered its guidance for the year due to softer conditions in the US
• Delivery Hero shares fall as much as 11% in Frankfurt after the initial public offering of its Middle Eastern unit Talabat saw shares turn negative during its first day of trading in Dubai
• Husqvarna falls as much as 7%, the most since Sept. 11, after the Swedish garden and outdoor equipment maker gave a bleak 4Q outlook, a move DNB says will lead to 2024 EPS estimate cuts of 18-25%
• Allianz falls as much as 2.1% after the German insurance company set new targets across a three-year period that failed to inspire investors in a stock that’s already outperformed the market this year
• Allfunds Group shares drop as much as 9.5% after Oddo BHF double-downgraded to underperform from outperform and set a new Street-low price target, saying the European fund distribution platform’s business model faces increasing pressure
• Moonpig shares slide as much as 12%, the biggest intraday decline since April 25, after the online gifting company reported first-half revenue that missed consensus estimates

Earlier in the session, HK/China opened stronger but faded as the market saw little follow through buying post the Politburo meeting.  Furthermore , investors do not expect the CEWC to surprise to the upside. The one standout within China was the retail buying which focused on the CSI500 and CSI1000 ETFs. In Korea, the market found a near-term bottom amidst the political turmoil.   From a sector perspective, AI names were generally weaker as NVIDIA’s anti-trust probe overnight weighed on sector regionally as well as the Oracle earnings miss.

• Australia: S&P/ASX 200 -0.36%. RBA kept its policy rate unchanged at 4.35% for the 9th consecutive meeting. However, the central bank gained “some confidence” that inflation was moving back toward its target. Meanwhile, a sharp decline in Australian business confidence for Nov. Banks led the decline with ANZ Group AU -1.8%, Westpac WBC AU -1.9%, NA Bank NAB AU -2.8%. Tech also declined as a selloff in major US tech names. Zip Co -5.2%, Megaport MP1 AU -5.4%, and Wistech Global WTC AU -4.4%.
• Taiwan: TAIEX -0.65%. Market saw some slight profit taking today, although that makes it the worst performing day in 2 weeks. TSMC 2330 TT -1% reported Nov sales after market close, down ~13% MoM but 4Q24 still in line with cons. Mid/Small caps underperformed with AI names mostly under pressure, as the NVIDIA’s anti-trust probe in China news and ORACLE’s weaker guidance.
• Korea: KOSPI +2.43%. Index gapped higher on strength as the market rebounded from the late selling caused by political uncertainties onshore. Despite the strength, market dynamics remained like the trends witnessed most recently as retail investors remained as the main net sellers in the index while locals provided flow support; foreigners that were dip-buyers yesterday also sold into the strength today.
• Japan: Nikkei 225 +0.53%. Japanese stocks defied the selloff on Wall Street overnight, where major US technology names faced pressure. Market expectations remain divided on the timing of the next Bank of Japan interest rate hike, with forecasts ranging between December and January. Among notable performers, index heavyweights such as Toyota Motor 7203 JP +1.3%, Sony Group 6758 JP +4.1%, and Tokyo Electron 8035 JP +3.5% saw strong gains.
• China: SHSZ300 +0.73%. Markets were volatile as early morning rally faded over the day. Rally was significantly weaker than during September’s policy stimulus blitz because investors remain wary of the lack of policy specifics, while retail investors continue to be active. Lightly owned sectors like tourism and high beta plays like brokers outperformed, as did liquor as some investors put on policy bets.
• Hong Kong: Morning rally faded in the PM with HSI closing down -0.5%. Move lower likely driven by investors staying on the sidelines because they are 1/ they are apprehensive about buying into headlines without concrete policies following false starts over the past few months and 2/ they are not expecting a major beta upbeat from the CEWC and might buy on weakness later in the week. Most sectors dipped with property and tech amongst top losers, HSTECH -1.4%. Likewise, brokers continued to lag as investors took profit. Wuxi complex names saw some weakness following policy driven rally over the past 2 days – Wuxi XDC 2268 HK -0.8%, Wuxi Biologics 2269 HK -3.9%, Wuxi AppTec 2359 HK -3.6%.
• India: Nifty edged slightly higher in early trading today, helped by gains in software firms before seeing a small dip to fall below the 24600 level. The index is currently down 0.2%. Amongst the sectors, IT, Realty and Metals are leading in green while Energy, Autos & Pharma are lagging in red. Broader markets are relatively outperforming Nifty with Mid/Small caps up in the range of 0.1-0.2%.

In FX, the Bloomberg Dollar Spot Index rises 0.1%. The Aussie dollar is among the weakest of the G-10 currencies, falling 0.6% against the greenback after the RBA said it’s “gaining some confidence” that inflation is moving sustainably toward target. AUD/USD was down 0.8% to 0.6389 (spot closed up 0.8% on Monday after China’s top leaders signaled bolder economic support in 2025) after traders lifted expectations the RBA may cut interest rates at its February meeting to a 64% chance, up from about 50% prior to the policy decision, according to meeting-linked swaps data compiled by Bloomberg

“The RBA is still mostly cautious but ‘gaining confidence’ in the inflation outlook,” said Sean Callow, senior FX analyst at Intouch Capital Markets in Singapore. “AUD/USD has now unwound yesterday’s China stimulus-inspired bounce but if China does deliver next year, it should outweigh any careful RBA easing”

In rates,treasuries are under pressure in early US trading, led by bear-steepening in gilts where UK 30-year yield reached highest levels since Nov. 22. Treasury supply is also a factor, with first of this week’s three coupon auctions ahead at 1pm New York time. US yields are 1bp-4bp higher on the day with 2s10s, 5s30s spreads steeper by about ~1bp; 10-year is around 4.24% with UK counterpart lagging by 2bp and Germany’s outperforming by 2bp. The week’s auction cycle begins with $58b 3-year new issue and includes $39b 10-year and $22b 30-year reopenings Wednesday and Thursday.

In commodities, oil prices decline, with WTI falling 0.6% to around $68 a barrel. Spot gold climbs $9 to ~$2,670/oz. Bitcoin rises toward $98,000.

It’s a quiet US economic data calendar which only includes the NFIB small business confidence print (101.7, exp.95.3), and 3Q final nonfarm productivity at 8:30am. Fed officials are in self-imposed quiet period ahead of their Dec. 18 Fed policy announcement.

Market Snapshot

• S&P 500 futures little changed at 6,060.00
• STOXX Europe 600 down 0.3% to 519.78
• MXAP down 0.2% to 187.17
• MXAPJ down 0.4% to 589.37
• Nikkei up 0.5% to 39,367.58
• Topix up 0.3% to 2,741.41
• Hang Seng Index down 0.5% to 20,311.28
• Shanghai Composite up 0.6% to 3,422.66
• Sensex little changed at 81,457.79
• Australia S&P/ASX 200 down 0.4% to 8,392.97
• Kospi up 2.4% to 2,417.84
• ASIAN ECONOMIC DATA (all times E
• German 10Y yield up 0.8 bps at 2.13%
• Euro down 0.2% to $1.0529
• Brent Futures down 0.3% to $71.92/bbl
• Gold spot up 0.2% to $2,664.76
• US Dollar Index up 0.20% to 106.36

Top Overnight News

• Pete Hegseth’s odds of becoming Secretary of Defense rose after Sen. Ernst, a critical member of the Senate Armed Services Committee, inched closer to supporting him. Politico
• Boeing restarted production of its best-selling 737 MAX jetliner last week, about a month after the end of a 7 week strike by 33,000 factory workers. Reuters
• Washington debates whether to lift the terror designation from HTS, the rebel group that just overthrew Assad in Syria. Politico
• Senate Republicans are pushing ahead on their two-part reconciliation agenda with an initial bill focused on the border, energy, and defense (which could be paid for by overturning Biden’s student loan program) followed by a second one later in 2025 addressing taxes. Axios
• China’s trade numbers for Nov fall a bit short of expectations that trade tensions would offer a boost as businesses front-load shipments to get ahead of tariffs. Exports +6.7% Y/Y (vs. the Street +8.7%) and imports -3.9% (vs. the Street +0.9%). WSJ
• Xi Jinping has pledged that China will meet its ambitious GDP growth target of 5% this year and remain the engine of global economic expansion as Beijing steps up efforts to boost flagging investor confidence. FT
• The RBA is “gaining some confidence” that inflation is moving sustainably toward target, prompting traders to boost bets on interest-rate cuts starting as early as February. It left its cash rate at 4.35% today, as expected. BBG
• Israel stepped up its attacks on military sites in Syria, striking hundreds of targets and sending troops deeper into the country. Egypt and Saudi Arabia accused Israel of seeking to sabotage Syria’s security and stability. BBG
• Christiane Berner, the head of Germany’s most important trade union, called on the government to expand fiscal stimulus to provide more support to the economy. FT

A more detailed look at global markets courtesy of Newsquawk

APAC stocks were mostly firmer following a negative Wall Street lead, but with APAC players reacting to China easing its overall monetary policy stance. ASX 200 was the regional laggard and failed to benefit from a net dovish RBA, with the index dragged by a poor performance in Tech. Nikkei 225 eked mild gains amid the recent JPY weakness, but with gains capped as the currency claws back some losses in APAC trade. Hang Seng and Shanghai Comp were the regional outperformers after Politburo said China’s fiscal policy is to be more proactive next year, and monetary policy is to be moderately loose (prev. prudent), marking the first shift in the stance of monetary policy since 2011. Although bourses were off the best levels ahead of the Chinese Central Economic Work Conference.

Top Asian News

• China is confident in reaching its FY economic targets, CCTV reports; adds that it is willing to continue dialogue with the US, and will manage differences.
• Chinese official development faces challenges next year, according to Xinhua; monetary policy shift means low interest rates
• South Korea’s ruling party is discussing President Yoon’s potential resignation in February or March, with snap elections to follow two months later
• Australian Treasurer Chalmers said he is to consult with the Shadow Treasurer on the makeup of new RBA boards.
• Chinese President Xi said China has full confidence in achieving this year’s economic growth target, via Xinhua.
• China’s Politburo conducts a study session, according to Xinhua.
• South Korea Finance Ministry said recent market volatility is a bit excessive, and will respond with market stabilizing measures, according to Reuters.
• South Korean opposition leader Lee said they will pass the budget today, via Yonhap.
• Japanese Economy Minister Akazawa, when asked about revised Q3 GDP data, said while Japan has not emerged from deflation, a virtuous cycle of wage hikes and passing-through of prices has started, according to Reuters.
• Huawei suppliers to face further US limits under defence bill; firms with Huawei ties risk exclusion from Pentagon contracts, according to Bloomberg. House measures could put more pressure on Huawei’s supply chain.

European bourses began the session entirely in the red and have continued to traverse the bottom end of today’s range throughout the morning. The pressure is seemingly a paring back of the prior day’s upside and as traders react to the poor performance in Wall St. in the prior session. European sectors hold a strong negative bias, in-fitting with the pressure seen across the complex. There are only a handful of sectors in positive territory, and with the breadth to upside marginal; Healthcare incrementally tops the pile, followed closely by Autos and Travel & Leisure. And in a turn of fortunes from the prior day, Basic Resources and Consumer Products both give back some of the strength seen on Monday. US equity futures have traded on either side of the unchanged mark, but have been edging higher in recent trade. White House says the Commerce Department has made a > USD 6.1bln investment in Micron (MU).

Top European News

• Kantar says UK grocery sales +2.5% Y/Y in the 4 weeks to December 1st; food inflation 2.6%.
• Germany’s engineering group VDMA expects a 2% real terms decline in 2025 (unchanged from prior forecast); 2025 expected to decline 8% in real terms (unchanged from prior forecast).
• IATA Outlook: Global airlines industry to reach a record 5.2bln passengers in 2025; industry set to make USD 26.6bln in profit in 2025 (prev. USD 31.5bln in 2024)

RBA

• RBA maintained its cash rate at 4.35% as expected, and noted that some upside risks to inflation appear to have eased. RBA noted recent data on inflation and economic conditions are still consistent with these forecasts, and the Board is gaining some confidence that inflation is moving sustainably towards target. RBA also said wage pressures have eased more than expected in the November SMP, and while underlying inflation is still high, other recent data on economic activity have been mixed, but on balance softer than expected in November. Click here for the release.
• RBA Governor Bullock, at the post-meeting presser, said RBA needs to think carefully on policy, recent data have been mixed with some softening; need to see more progress on underlying inflation; the Board did not discuss rate cut or rate hike. She added that she does not know if the RBA will cut rates in February, will have to watch data – wages and demand are slowing.

FX

• DXY is up for a third consecutive session and has been growing in strength throughout trade. From a macro perspective, markets are currently in waiting mode ahead of tomorrow’s CPI report which is expected to see a +0.3% M/M outturn for core CPI. DXY has gained a firmer footing on a 106 handle with a current session high at 106.41.
• EUR is a touch softer vs. the USD with not a great deal in the way of fresh macro drivers for the Eurozone. EUR/USD has slipped below yesterday’s 1.0532 low with focus on a potential test of 1.05.
• JPY is extending on yesterday’s losses vs. the USD with USD/JPY advancing further on a 151 handle. Fresh JPY drivers remain light in the run-up to the BoJ’s December meeting with odds of a 25bps hike now at 28% vs. 42% seen at the start of last week. The next upside targets come via the 28th November high at 151.95 and then the 200DMA at 151.98.
• GBP is trivially firmer vs. the USD as UK macro drivers remain light. For now, Cable is tucked within a 1.2736-65 range.
• AUD is the laggard across the majors post-RBA. The central bank maintained its Cash Rate at 4.35% as widely expected, but struck a dovish tone as it expressed confidence that inflation is moving sustainably towards the target. NZD/USD is lower but holding above Monday’s 0.5804 trough.
• PBoC set USD/CNY mid-point at 7.1876 vs exp. 7.2806 (prev. 7.1870)

Fixed Income

• USTs are incrementally extending on Monday’s losses following a bout of selling pressure in early European trade. Data focus will ultimately be on Wednesday’s inflation report, but ahead of that the US 3yr auction later today. The Mar’25 UST contract is below yesterday’s 111.04 low with the next target coming via Friday’s trough at 110.28+.
• A particularly choppy morning for German paper with the Mar’25 Bund contract continuing to oscillate around the 136 mark. French paper is marginally outpacing its German counterpart with the DE/FR spread narrowing to 74bps vs. yesterday’s opening levels of 76bps but wider than Friday’s 72.4bps trough.
• Gilts are a touch lower with UK paper having moved broadly sideways in recent sessions and as UK-specific updates remain light. Mar’25 Gilt is back below the 96.00 mark with a session low @ 95.42, whilst the corresponding 10yr yield briefly rose above 4.3% for the first time since November 28th.
• UK sells GBP 1.5bln 0.75% 2033 I/L Gilt: b/c 3.39x (prev. 3.17x) and real yield 0.745% (prev. 0.486%).

Commodities

• Choppy trade in the crude complex thus far in what has been a catalyst thin session; Brent’Jan 2025 currently sits towards the bottom end of a USD 71.71-72.24/bbl, after generally holding an upward bias throughout the morning.
• Precious metals are ever so slightly on a firmer footing, despite a relatively firmer Dollar and amid a catalyst-thin session thus far. Spot gold has gone as high as USD 2,673.79/oz, just ahead of its 50 DMA at USD 2,668.08/oz.
• Base metals hold a strong negative bias, giving back some of the prior day’s gains, which was sparked by a positive China Politburo readout. The pressure seen within the complex is also in-fitting with broader losses in the equities complex in Europe thus far.
• BofA sees TTF Gas prices averaging EUR 40/mwh in 2025; risk of a spike to EUR 75/mwh.

Geopolitics

• “Israeli forces are 20 km from Damascus, according to the Pro-Hezbollah Al Mayaden, as they seized more villages in southern Syria”, according to journalist Elster.
• Israel military spokesperson denies claims army has advanced to within 25km of Damascus; says troops have remained in the buffer zone.
• Israel’s Navy has carried out a large-scale operation to destroy the Syrian army fleet, according to sources cited by Al Arabiya.
• Israel has received intelligence indicating that Hamas is ready to compromise on some of its conditions, according to five Israeli officials cited by NYT.
• “Loud explosions heard in Damascus”, according to AFP journalists; details light.

US Event Calendar

• 06:00: Nov. SMALL BUSINESS OPTIMISM, est. 95.3, prior 93.7
• 08:30: 3Q Unit Labor Costs, est. 1.3%, prior 1.9%
• 08:30: 3Q Nonfarm Productivity, est. 2.2%, prior 2.2%

DB’s Jim Reid concludes the overnight wrap

In the first half of my career these two weeks into the holidays would have been back to back client Xmas lunches that often extended into the evening. Without wishing to offend the numerous clients I have Xmas lunched with over the years I’m glad those days are behind us. It was exhausting. Talking of fatigue, there was a bit of it in markets yesterday as the positive impact from China’s stimulus announcement, after we published yesterday morning, was eventually outweighed by the political uncertainty across several regions. China continues to rally this morning but remember that in the last week alone we’ve seen the French government voted down, the declaration of martial law in South Korea, the cancellation of Romania’s election, and the collapse of the Assad regime in Syria.

In terms of the China news we heard from the Politburo around an hour after we went to press yesterday. They said they would take a “moderately loose” position for monetary policy in 2025, and said there would be “more proactive” fiscal policy as well. On the former this follows 14 years of a “prudent” strategy.

Our economists and strategists believe this was an unusually strong indication as to the direction of travel, and there was a clear market response in the aftermath, with the Hang Seng moving from negative territory to end the day +2.76% higher. This morning the Hang Seng is a further +0.84% higher while the Shanghai Composite (+1.24%) is strong even if it’s halved its opening surge.

The positive impact from this story was evident in US and European markets yesterday too. For instance, the CAC 40 (+0.72%) was the top performer among the major European indices, as it has a concentration in luxury goods firms that will benefit from more Chinese demand. Another outperformer was the STOXX 600 Automobiles & Parts Index (+1.11%), as the sector also has a large trade exposure to China. Meanwhile in the US, the NASDAQ Golden Dragon China index surged +8.54%, and that’s an index that includes companies which are publicly traded in the US, but who do a majority of their business in China.

But even as equities with China exposure did very well, that wasn’t always the case more broadly. Indeed, the S&P 500 (-0.61%) fell back from its record high on Friday, posting its largest decline in over three weeks. Sectorally, the downside for the index was led by financials (-1.41%) and communication services (-1.31%). And matters weren’t helped by Nvidia (-2.55%), which lost ground after China’s State Administration of Market Regulation had opened an antitrust probe. Despite Nvidia’s retreat, the Magnificent 7 (-0.27%) were a relative outperformer as Apple (+1.61%) reached another record high. Over in Europe, equities continued to advance, with the STOXX 600 (+0.14%) posting an 8th consecutive gain.

In terms of the various political developments around the world, there’s still no sign of a new French Prime Minister yet following Wednesday’s vote of no confidence. But investors don’t seem too alarmed about the situation, as the Franco-German 10yr yield spread tightened by another -1.8bps yesterday to 75.3bps. So there’s been a decent fall relative to its peak of 88.3bps the previous Monday, which was the highest since 2012. Moreover, spreads tightened across Europe, with both the Italian and Spanish 10yr spread over bunds reaching their tightest level in 3 years, at 107.7bps and 64.0bps respectively. That came amidst a fresh rise in the 10yr bund yield (+1.4bps), which moved up to 2.12%.

Over in the Middle East, the situation in Syria remains very unstable, and commodity prices moved up in light of the uncertainty. For example, Brent crude (+1.43%) was up to $72.14/bbl, and gold prices rose +1.18% to $2,665/oz. Meanwhile in Syria itself, television reported that Mohammed Al Bashir will form a transitional government, and Israel said they carried out strikes on chemical weapon sites in Syria. But there were concerns about what the situation might mean for the wider Middle East, as well as the potential for refugee flows into other countries.

In the meantime, US Treasury yields also moved higher ahead of tomorrow’s CPI report for November. That release is going to be crucial one, as it’s probably the last big piece of the jigsaw ahead of the Fed’s policy decision next week, where a rate cut is now priced in as an 86% probability. And in the meantime, yields moved up across the curve, with the 2yr yield (+2.1bps) rising to 4.13%, whilst the 10yr yield saw its largest daily rise in four weeks (+4.8bps to 4.20%). The move got further support thanks to the New York Fed’s Survey of Consumer Expectations for November. In fact, the share of people saying they expected their household financial situation to be better off in a year reached its highest since February 2020, just before the pandemic hit, while 1-year ahead inflation expectations ticked up after falling to a 4-year low the previous month. This morning in Asia, 10yr USTs are -1.2bps lower trading at 4.19% as I type.

Coming back to Asia, the KOSPI (+2.28%) is rebounding sharply after recent losses with the Nikkei (+0.32%) also higher. Elsewhere, the S&P/ASX 200 (-0.41%) is edging lower even after the Reserve Bank of Australia (RBA) sounded more dovish on the outlook for interest rates in its latest board meeting (more on this below). US equity futures are flat.

Moving onto the RBA’s decision, the central bank held interest rate steady at a 12-year high of 4.35% while flagging some confidence that inflation was moving towards its target, as economic growth cooled. In what was clearly a more dovish commentary, the RBA board also dropped earlier guidance that it couldn’t rule any policy change “in or out.” Our local economists now believe we’ll see a cut in February. Against that background, the Aussie (-0.81%) is losing ground trading at 0.6388 against the dollar as we go to print. Meanwhile, yields on the 3yr Australian Government bond are -4.9bps lower standing at 4.62%.

Early morning data showed that China’s exports increased +6.7% y/y in November, but slower than market expectations of +8.7%. It followed a robust rebound of +12.7% the previous month. Meanwhile, import data surprised with a decline of -3.9%, marking the sharpest fall since September 2023 as against a -2.3% loss in the previous month. Markets had expected imports to grow +0.9%. So perhaps some justification behind the Chinese authorities’ change of policy momentum yesterday.

To the day ahead now, and data releases from the US include the NFIB’s small business optimism index for November. In Italy, we’ll also get industrial production for October.