A new year, a new market? Well the markets couldn't decide anything over Christmas and the New Year. Plenty of voices predicting stocks and Bitcoin to crash but they didn't. Plenty of folks thinking US bond yields to rise further but they didn't.

Of course markets were thin, and one thing that has become apparent is that the euphoria of Trump the President, has waned with the realisation of what an epic task he has to perform.

Currently we are focusing on 5 (a lot) themes

1. US debt refinancing. The debt ceiling got kicked back a few months but Yellen has already told us that the US Govt will have problems paying it's bills by mid January. Trump's inauguration is on 20 Jan. The USD has been strong particularly against the Euro.

2 China deflation. Actually yes but the massive drop in Chinese Govt bond yields is also a function of flight to quality within China. All the stimulus is scaring domestic investors and they can't move the cash offshore so they buy best quality bonds. The Yuan peg may have broken and PBoC might have started letting it weaken slowly.

3 Continued EU economic weakness. Ms Lagarde's Xmas greetings contained messages about inflation and the digital Euro, neither of which was particularly encouraging. I mean why mention it if it isn't a problem? They should be working out how to deal with deflation instead. And the Euro is getting smashed.

4 Slide of emerging market currencies. Currently torching their FX reserves are Brazil, India and Indonesia. And future emerging market currencies have been hitting lows: Canada, Australia, United Kingdom, Eurozone.

5 Trump. 

Breaking

In Focus

Europe

Light on data for the last 2 weeks but next week sees EU and German CPI so maybe some fireworks given Ms Lagarde's Christmas message.

EU / USD Daily

EU M3 Money Supply November 2024

US

Primary dealers now have to confront massive US treasury rollovers and SLR (Supplementary Leverage Ratio) is back in focus.

The SLR  tells banks how much capital to set aside relative to their assets. While the Fed allowed banks to exempt US government debt from these calculations when Treasury-market liquidity evaporated in March 2020 so they could have more bandwidth to step in, they let that exemption lapse after a year.

A return to this exemption would allow banks to buy US Treasuries with infinite leverage and easily fund the insane amount of US Govt debt issuance needed in the next few months. Alternatively, without the exemption, treasury markets could easily go offered only and yields back up rapidly.

Treasury’s Elite Bond Dealers Will Struggle to Handle $50 Trillion Debt [Bloomberg]

DXY Daily

US Money Supply November 2024

Chicago PMI December 2024

US may hit new debt limit as early as Jan 14, Yellen says [Reuters]

"The Bond Markets Are Revolting" - Ed Dowd Exposes Biden Admin's "Incompetence... Or Fraud" [Zerohedge]

Japan

More talk of rate hikes, but only small ones I promise. Unfortunately USD / YEN is consolidating around 157.00 in what looks like a bull flag. Intervention level at 160.00 is just above and easily achievable.

Lots of strong data suggest inflation and economy stronger than expected which would support a rate hike, but they don't dare!

USD / YEN Daily

Bank of Japan Core CPI YoY December 2024

Japan Foreign Bond Buying December 2024

Japan Construction Orders YoY November 2024

Japan Retail Sales November 2024

BOJ deploys funds-supply tool again as yields creep up [Reuters] 

BoJ Minutes: If inflation trends align with expectations, gradual rate hikes possible [FX Street]

Japan Rolls Out More Yen Warnings as Market Liquidity Thins [Bloomberg]

China

The Yuan slides lower as the PBoC attempts to arrest the speed of decline. FX reserves data out next week.

10 year bond yields fall out of bed as the only release value for currency controls.

USD / OFFSHORE YUAN Daily

China 10 Year Bond Yield Daily

China PMIs December 2024

China Property Flare-Ups Resurface as Crisis Enters Fifth Year [Bloomberg]

Exclusive: China plans record $411 billion special treasury bond issuance next year [Reuters]

PBOC Seen Delaying Reserve Ratio Cut After $233 Billion Cash Injection Last Month [Bloomberg]

Why Are China’s Youth Boycotting Pensions? [Bloomberg]

Bitcoin (& Crypto)

BTC / USD Daily

Apparently Scott Bessent and Cynthia Lummis have been discussing a Bitcoin special reserve. BTC certainly seems to survived a possible head and shoulders continuation which some talking heads had been saying would lead price down to USD 75,000.

Russia is using bitcoin in foreign trade, finance minister says [Reuters]

Crypto Exchange’s Outflows Swell on North Korean Trader Concern [Bloomberg]

In The Background

CRE / Banks / CLOs

Liquidations abound in CRE but loans are being bought and so are properties. This elongated liquidation cycle will play out finally soon as banks have to declare their loan provisions. There are supposedly 63 banks on the FDIC Problem Bank List, a confidential list maintained by the Federal Deposit Insurance Corporation (FDIC) in the US. It identifies banks that are considered to be at risk of failing financially.

The FED also knows this problem is going to play out soon, Powell said so some time ago, and won't be looking forward to managing this with Trump as president.

Canada

Those annualised inflation numbers don't look good, M2 going parabolic and stagnant GDP growth doesn't bode well.
A bull flag on USD / CAD  suggests it's another currency in trouble.

USD / CAD Daily

Canada IPPI November 2024

Canada M2

United Kingdom

Cable has fared better than other currencies thanks to Liz Truss devaluing it significantly a couple of years ago. However it's time has come.

GBP / USD Daily 

UK GDP Q3 2024

Australia

The bear flag on the Aussie is even more pronounced as it hurtles to it's lowest value since COVID

AUD / USD Daily

‘Significant risk’ Australian inflation might stop falling: IMF [AFR]