- US in focus via way of ADP, Jobless Claims and FOMC minutes and latest pronouncements; German Orders and Retail Sales, Australia and Sweden CPI, French Consumer Confidence and Samsung earnings to digest; Villeroy and Waller speeches; UK 5-yr, German 10-yr, US 30-yr and Canada 2-yr auctions
- Hefty government and corporate bond issuance likely aggravating rise in bond yields
- USA: ADP seen posting moderate rise, but markets likely to place greater weight on JOLTS rebound and another expected low jobless claims print
- USA: FOMC minutes to shed light on differing views on how to respond to Trump regime policy changes; perhaps shed slight on QT prospects given higher for longer rates view
EVENTS PREVIEW
The US will be the focal point of the day ahead of tomorrow’s state funeral of former president Jimmy Carter, with the December FOMC minutes, ADP Employment, weekly jobless claims and a speech by Fed’s Waller, as well as Trump doubling down on his de nouveau expansionist claims on Canada, Greenland and the Panama Canal. That said, there is plenty from the overnight run to consider with the fall in Australian core CPI seemingly opening the door to a February rate cut, German Factory Orders collapsing and Retail Sales slipping, Samsung Electronics earnings, French Consumer Confidence and Swedish inflation all on the ‘to digest’ list. 2025 has certainly started with a bang above all in bond markets. It remains to be seen whether the sharp rise in Treasury yields is primarily about markets giving up on Fed rate cuts, fearing the return of Trump as president, another debt ceiling impasse in Congress, and inflation risks, or exaggerated by this week’s 3, 10 & 30-yr UST supply and an avalanche of new corporate issuance (as is seasonally typical), but the rise certainly should be seen as a warning against all forms of complacency, above all for equity markets, and given the well documented imbalances in many portfolios (perhaps most notably to USD assets, tech stocks). The other major talking point remains China, with the focus above all on the CNY, which for the time being (as evidenced by the large divergence between spot rates and the official daily fixing) the authorities appear determined to defend. The idea that the inexorable fall in China’s bond yields, and the prospect of even more rate cuts makes the CNY a suitable candidate for carry trades falls rather flat on its face, when one considers that offshore overnight CNY lending rates have soared to 8.1% today, with the 1-mth rate at 4.45%. But speculation about a protracted period of devaluation, in part as a response to trade tensions with the US will not be going away in any hurry.
** U.S.A. – December ADP Employment, FOMC minutes **
– ADP Employment is seen little changed at 139K vs. November’s 146K, which stood in sharp contrast to the solid 194K rise in official Private Payrolls, though as previously noted, the ADP survey aligns better with the Household survey which generates the Unemployment Rate. The ADP outturn will in any case be of less significance for markets than the unexpected jump in JOLTS Job Openings (8.098 Mln vs. expected 7.74 Mln) yesterday, with today’s weekly Initial Claims seen remaining very low at 215K, and underlining that labour demand in the US remains solid. What is implemented in terms of immigration controls by the incoming Trump regime will however be the most important factor in the near term balance of risks to the labour market outlook. The FOMC minutes will offer insights into what Powell described as a ‘closer call’ on the rate cut that was delivered, and the discussion around how the FOMC should prepare for and react to prospective policy changes from the executive and legislative arms of government, on which Powell noted there were differing views. While the latter will be front and centre for the FOMC in terms of the rate trajectory and outlook for the economy, it will be also interesting to see what if any views were expressed on QT (Fed balance sheet run-off), above all in a higher for longer rates scenario.
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