Potential Fed Rate Hike in December Might Push Short-End Yields Higher — Market Talk
0624 GMT - J.P. Morgan continues to expect a 25-basis-point interest-rate hike by the Federal Reserve in December, with risks skewing toward Treasury yields reversing higher, led by the front end. "Though we are unwilling to turn bearish," its rates strategists say in a note. However, if equities find firmer footing, J.P. Morgan would look to shift underweight at the front end of the Treasury curve. Money markets price in an almost 80% probability for a Fed rate hike in December as odds increased after Friday's stronger-than-expected employment data. ([email protected])0614 GMT - Citi's out-of-consensus call for the U.S. Treasury to reduce 20-year supply didn't pan out and it now changes its view, strategist Jason Williams says in a note, referring to the Treasury's latest quarterly refunding announcement last week. "We do not expect Treasury to reduce 20-year supply going forward unless there is a material new high in 20-year yields, perhaps closer to 6% and likely over," he says. On Wednesday, the Treasury took no action and guided toward eventual coupon increases, "although perhaps not in the very long-end," Williams says. ([email protected])0531 GMT - China is likely to face deflationary risks in 2027 if oil prices normalize, according to Citi analysts in a research note. The country's consumer-price index inflation moderated in October, missing market expectations, the bank says. "We believe risks could remain tilted to the upside for producer price index but to the downside to consumer price index in the near-term despite elevated uncertainties around oil price and the Middle East situation," the bank says. This may increase the rise of "bad inflation" in the near term, they note. Downstream sectors could be squeezed by both higher input prices and sluggish end demand at the same time, they note. ([email protected])0516 GMT - There are signs of tentative Bitcoin buying interest after the recent selloff, but that doesn't yet imply a reversal, says Linh Tran at XS.com. Lower prices may have attracted dip-buyers, with sentiment getting a slight lift from Asian equities and U.S. stock futures improving at the start of the week. But that's not enough to confirm large capital flows have returned to Bitcoin, Tran says. Key drags--particularly ETF outflows and expectations of higher U.S. interest rates--have yet to improve enough to clear the way for an uptrend. What happens next depends heavily on U.S. inflation data and ETF flows. For the recovery to have grounds to continue, inflation needs to cool more than expected and ETF outflow pressure needs to ease. Bitcoin pares gains and is last up 0.7% at $74,516. ([email protected])0458 GMT - China's inflation is likely to remain low next year, says ING in a research note. The country's consumer price index moderated in October as food costs matched a 13-month low, driven by a sharp decline in vegetable prices. However, non-food inflation remained unchanged on account of costlier transportation fuels amid higher oil prices, and costlier communication appliances due to more expensive tech components. The producer price index extended its climb, backed by coal mining, oil and gas prices. "If higher producer prices hold, these costs should be passed on to consumers," it says. ([email protected])0428 GMT - Taiwan's economy could take the largest hit among regional peers if the global AI demand loses momentum, say HSBC analysts in a research note. Taiwan's 2027 GDP growth could take a 4.4 percentage-point hit if the global demand for AI hardware slows down by 20%, they estimate. The most immediate risk comes from growing political and regulatory opposition to new data centers, they say. HSBC reckons that Taiwan, Malaysia, Singapore, and Korea could face the greatest vulnerability given their key roles throughout the AI hardware supply chain. "If the AI supercycle slows down, it could weigh heavily on Asian growth, since the other engines of economic activity are currently performing sluggishly," they say. ([email protected])0401 GMT - China's latest CPI inflation print shows that domestic demand remains weak, says Zhiwei Zhang, chief economist at Pinpoint Asset Management. Policymakers have yet to roll out any significant stimulus, possibly because export growth has been phenomenally strong, he adds. Focus now turns to the Central Economic Working Conference in December, where policymakers will set the growth target for 2027. "One question on my mind is whether China will change its growth target next year somewhat," says Zhang. Trump's upcoming meeting to China will also be watched for signals on the future direction of U.S. China policy. The last two meetings of the countries' leaders went very well, Zhang says, but a recent call between officials suggests some tensions on economic issues. ([email protected]; @ivy_jiahuihuang)0350 GMT - The New Zealand dollar firmed in Asia even as traders await an official declaration on the winner of Saturday's knife-edge election. Traders are betting that the center-right National Party will win with the help of minor parties, says Sean Callow, senior currency strategist at ITC Markets. If Labour is defeated, it will remove the prospect of the Reserve Bank of New Zealand's policy mandate being widened to include full employment. The conservatives are expected to retain an inflation target only. At 0330 GMT, the New Zealand dollar traded at 55.84 US cents, up from 55.55 US cents at the open. ([email protected]; @JamesGlynnWSJ)0139 GMT - Bitcoin regains ground in Asia trade after falling last week in the market turmoil sparked by the U.S. midterms. The AI stock rout, worries about regulation and Middle East uncertainty have hurt sentiment. Strong U.S. jobs data firming rate-hike expectations added to the pressure, though an end-of-week rally in tech lent support. Still, the cryptocurrency market retains its consistent pattern of weakness, says Julian Pineda at StoneX. Only a handful of currencies have managed convincing stability in recent sessions, as the absence of steady demand allows selling pressure to regain control, he says. Unless Bitcoin generates price action capable of improving broader confidence, weakness may persist. Bitcoin is up 0.9% at $74,736, off last week's highs around $80,000. ([email protected])0027 GMT - Japanese stocks rise, rebounding from Friday's selloff, following solid U.S. jobs data. Machinery and financial stocks are leading gains. Mitsubishi Heavy Industries gains 6.3% and Mizuho Financial Group is 5.2% higher. The dollar is at 158.21 yen, compared with Y157.92 as of Friday's Tokyo stock market close. Investors are closely watching corporate earnings as well as any developments in the Middle East. Mitsui O.S.K. Lines is scheduled to release its results later Monday. The Nikkei Stock Average is up 1.7% at 58409.30. ([email protected]; @kosakunarioka)0004 GMT - A memory-chip boom is likely to sustain South Korea's gross domestic product growth, but a downturn, if any, in chip exports could weigh on the economy from the second half of 2027, Citigroup's Jin-Wook Kim says. In the base case, semiconductor exports are expected to rise 53% in 2027 and 21% in 2028, supporting GDP growth of 3.3% and 3.0%, respectively, the economist writes in a note. Sticky inflation could prompt the Bank of Korea to raise rates in November and February to 3.50%, Kim says. In an alternative scenario, semiconductor exports could contract 2% in 2027 and 14% in 2028, dragging GDP growth to 2.6% and 1.5%, respectively, he says. Weaker demand could allow the BOK to end its hiking cycle and cut rates to 2.50% by early 2028, he adds. ([email protected])2346 GMT - Japanese stocks may rise after Friday's selloffs and solid U.S. jobs data. Nikkei futures are up 1.1% at 58220 on the SGX. The dollar is at 158.37 yen, compared with Y157.92 as of Friday's Tokyo stock market close. Investors are focusing on corporate earnings as well as any developments in the Middle East. Mitsui O.S.K. Lines is set to announce its results later Monday. The Nikkei Stock Average fell 6.0% to 57434.77 on Friday. ([email protected])