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China CPI Surges To Seven-Year High

Morning Briefing December 10th 2019

Tuesday’s data calendar throws up several data releases ofnote including the UK’s short-term monthly indicators at 0930GMT and Germany’s ZEW survey at 1000GMT. In the US the publication of the final non-farm productivity figures at 1330GMT is worth noting.

The ZEW current conditions index is forecast to improve further to -22.0 in December following November’s reading of -24.7. However, the index remains far below the long-term average despite the recent improvements. On the other hand, the expectations index rose substantially in November to -2.1 after October’s -22.8. In December, markets are looking for a further improvement to 0.3 which would be the highest reading since April 2019. The more timelier Sentix index is in line with expectations, showing increases for the headline as well as the current situations and the expectations index.

The UK’s monthly GDP is anticipated to increase by 0.1% in October which would be a three-month high. M/M GDP fell for two consecutive months, while the three-month average climbed to 0.3% in September, revealing a five-months high. However, markets are looking for the three-month average to slow to 0.0% in October. Meanwhile, industrial production is expected to rebound to 0.2% m/m in October following two successive months of decline. On the other hand, markets project monthly construction to decline by 0.1% in October. The monthly index of services is forecast to edge up by 0.1pp to 0.1%, while the three months average is projected to slow by 0.2pp to 0.2%.

US non-farm productivity forecast to decline in Q3

Markets are looking for nonfarm business sector labour productivity to fall by 0.1% in Q3 in contrast to the preliminary results reporting a decline by 0.3%. The preliminary report also states an increase in output (2.1%) and hours worked (2.4%). Meanwhile, productivity increased by 1.4% on an annual basis. Unit labour costs are anticipated to increase by 3.4% in Q3, a slightly lower value that reported by preliminary report which showed an increase of 3.6% in the third quarter.

Tuesday’s highlights in terms of events is the first day of the FOMC meeting taking place in Washington.

Global Economic Trading Calendar


BOND SUMMARY: It was a session of two halves for JGBs, with price action spilling over into the broader core FI space. A tepid 5-Year auction prompted JGB futures to extend their slump, ignited earlier upon the breach of Monday’s trough. The offering saw the widest tail since Feb 2016 with low price at 100.80 vs. BBG projection of 100.89. However, after marking a new YtD low of 151.86, the paper staged a dynamic recovery and now sits at 152.25, just 1 tick shy of settlement. Cash yield dynamics was in focus, with 10-Year yield briefly turning +ve for the first time since March. At typing, the yield curve runs flatter; 10-Year yield still flirts with the zero level.- T-Notes started on a firmer note amid a flurry of conflicting headlines re: int’l & cross-party USMCA talks, but faded as participants seemingly warmed to the idea that a deal is nigh. The paper last trades +0-03 at 129-02. Yields sit around neutral lvls. Eurodollars last seen -0.5 to +1.0 tick thru reds.- Ozzie YM +2.0 & XM +3.5; yields 2.1-4.2bp lower, curve is flatter. Bills trade -1 to +3 ticks thru reds. Firmer than exp. Chinese infl. data may have applied a modicum of pressure. The AOFM sold A$150mn of the 0.75% 21 Nov ’27 I/L ACGB.

FOREX: The Antipodeans edged higher in reaction to China’s inflation data. Headline CPI accelerated more than projected to +4.5% Y/Y from +3.8%, while PPI printed at -1.4% Y/Y with consensus forecast calling for -1.5%. The yuan failed to follow suit and remained limited as the outlook for U.S.-China trade negotiations remains clouded ahead of the looming Dec 15 tariff deadline. Broader caution may have kept G10 crosses stuck within fairly tight ranges.- Earlier, AUD looked through domestic data & comments from RBA Gov Lowe, who did not touch upon monetary policy issues in his speech.- China’s inflation data kept USD/JPY afloat after a round of sales over the Tokyo fix dragged it off highs. The yen lags all of its G10 peers.- Headlines re: int’l & cross-party negotiations of the USMCA trade pact put a bid into MXN, as the crystallising general message was that a deal is nigh. USD/MXN extended its recent losing streak and dropped below yesterday’s high.

Technical Analysis


H0 Bund was firmer yesterday. The near-term risk however is still skewed to the downside following the recent pullback. The focus is on last weeks low of 171.61 where a break would expose a deeper pullback towards key support at 170.92, Nov 8 low. For a bullish focus to return, price needs to hold above 171.61 and trade through 173.30, Dec 4 high. This would open the near-term bull trigger at 173.61, Nov 28 high and the trendline resistance at 173.76.


EUROSTOXX50 rallied Friday to maintain the recovery off the Dec 3 low of 3594.80 however, some selling pressure surfaced yesterday. Attention for now is on resistance at 3729.74, Dec 2 high and the key level at 3733.45, Nov 19 high. A break of the latter would confirm a resumption of the underlying bull trend. A failure to hold onto recent highs and a move lower though would turn attention to the trendline support at 3617.30 and key support at 3594.80, low Dec 3.

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