Nikkei fresh highs again

Asia market update: US/UK finally strike Houthis; BOJ may lower 2024 inflation outlook; Nikkei fresh highs again; CN struggle with deflation continues; CN trade surplus in-line; Focus on US PPI tonight.

General trend

- US and UK forces struck multiple military sites belonging to the Houthis in Yemen, after telegraphing the likelihood of strikes earlier in the day. WTI Crude Oil rose steadily through the Asia morning, WTI Crude +2.5%.

- Japan BOJ said to be considering lowering its FY24 inflation outlook to mid-2% range; Japan 2-yr JGBs yields moved down to zero, meeting lows of last August.

- JP 30-yr Treasury auction better bid this time around, with bid-to-cover of 3.00x and a tail of only 40bps v 120bps last December.

- China CPI and PPI continued to show deflation on a y/y basis, although monthly CPI logged a small gain. Overall 2023 CPI at 0.2% well below the official target of 3%. 2023 overall PPI was negative at -3.0%.

- China Dec trade surplus met expectations on the top line, and posted the fastest export growth since April 2023 (USD terms).

- China Customs Agency said that the complexity and uncertainty of the external environment are expected to rise in 2024, including the Red Sea issue.

- HK-listed EV names down on Tesla earlier price cuts? XPeng -5%, NIO -2.5%, Li Auto -2.9%, BYD -0.3%.

- Note that the PBOC last cut the RRR on a Friday (Sept 15th 2023), as well as on a Friday last March, with the PBOC MLF setting due next Monday.

- US equity FUTs were overall down slightly during Asia trading.

- Geopolitical concerns ahead of weekend.

Looking ahead (Asian time zone)

- Fri UK GDP and Industrial Production.

- Fri night US PPI.

Holidays in Asia this week

- N/A.

Headlines/economic data

Australia/New Zealand

- ASX 200 opens -0.1% at 7,495.

- Australia Nov Home Loans Value M/M: 1.0% v 1.3%e.

- Dock disputes disrupt operations at major ports around Australia - Australia press.

China/Hong Kong

- Hang Seng opens -0.5% at 16,216.

- Shanghai Composite opens -0.2% at 2,880.

- China Dec CPI M/M: +0.1% V -0.4%E; Y/Y: -0.3% V -0.5% PRIOR [3rd straight decline in CPI].

- China Total 2023 Trade Surplus at CNY5.78T (released ahead of Dec trade figures).

- China Dec trade balance: $75.3B V $75.6BE.

- China Dec trade balance (CNY-denominated): 540.9B V 490.8B prior.

- China Customs Agency: The complexity and uncertainty of external environment are expected to rise in 2024; Red Sea issue will disrupt trade in 2024 - Among major Chinese exporters, 3/4 of firms expect China exports to remain the same or rise in 2024.

- Approx. 256 funds in China have been in the process of liquidating stocks in the past year - China press citing data from Wind.

- US Sec of State Blinken to meet with Snr China official Liu Jianchao on Friday, ahead of Taiwan elections on Saturday - financial press.

- Commerce Sec Raimondo: Discussed plans for in-person meeting between US-China working group with China's Commerce Sec Wang (overnight update) CN.

- China Commerce Ministry (MOFCOM): Min has spoken to his US counterpart recently; expressed concern over US suppressing of Chinese companies (overnight update).

- China PBOC said to support healthy development of Shanghai property market – press (overnight update).

- China MOF to guide social capital for digital asset management - China press (overnight update).

- China PBOC sets Yuan reference rate: 7.1050 v 7.1087 prior.

- China PBOC Open Market Operation (OMO): Sells CNY65B in 7-day reverse repos; Net drains CNY10B.

Japan

- Nikkei 225 opens +1.6% at 35,601.

- Fast Retailing shares rise +5% post-Q1 estimates beat, highest since Oct 13.

- Japan Nov BOP Current Account: ¥1.926T v ¥2.385Te (largest on record for Nov, second straight month of record amount).

- Japan Dec Bank Lending Y/Y: 3.1% v 2.8% prior.

- Japan Dec Eco Watchers Current Survey: 50.7 v 49.5 prior; Outlook Survey: 49.1 v 49.4 prior.

- Japan releases weekly flows data [period ended Jan 5th]: Foreign buying of Japan equities: +¥296.2B v -¥120.0B prior; Japan buying of foreign bonds: +¥542.3B v -¥167.4B prior.

- Japan 2-year JGB yield moves to zero, to lows of last August.

- BoJ said to consider lowering its inflation outlook for FY24 TO MID-2% range – PRESS (overnight update)

- Japan sells ¥900B V ¥900B indicated in 30-year JGB bonds; AVG yield: 1.6290% V 1.6230% prior; bid-to-cover: 3.00X V 2.62X PRIOR

- Japan sells ¥5.6T v ¥5.6T indicated in 3-Month Bills; Avg Yield: -0.2080% v -0.1775% prior; bid-to-cover: 3.20x v 3.25x prior

- More press reports that BOJ considers to cut inflation and growth outlooks; BOJ's overall assessment of price trends remains intact - press

- Tier1 analysts push back Bank of Japan (BOJ)'s NIRP and YCC removal from Jan to Apr-July 2024 with Apr to be base case (overnight update)

- Japan BOJ Branch Managers' meeting outcome: Osaka Branch managers' comments (overnight update)

South Korea

- Kospi opens -0.1% at 2,536

Other Asia

- (TW) TTN Research Alert: First key 2024 elections set to take place this Saturday, Jan 13th, with results likely by US noon; Taiwan’s ruling Democratic People’s Party (DPP) aims to become the first party to win a third consecutive presidential election

- Philippines Nov M3 Money Supply Y/Y: 7.0% v 8.2% prior

- Philippines Pres Marcos names Fin Min Diokno as Monetary Board Member - Philippine press

North America

- Tesla (TSLA) Price of Revamped Model 3 in China said to decline by ~6% to CNY245.9K; Model Y price in China said to decline by ~2.8% to CNY258.9K - US financial press (stock -1% A/H)

- Earnings Day Ahead: UnitedHealth, JPMorgan, Bank of America

- (US) Dec CPI M/M: 0.3% V 0.2%E; Y/Y: 3.4% V 3.2%E (1st acceleration in 3 months); (ex-food/energy) M/M: 0.3% v 0.2%e; Y/Y: 3.9% v 3.8%e (lowest since May 2021)

- (US) Initial Jobless Claims: 202K V 210KE (lowest since mid-Oct); continuing claims: 1.83M V 1.87ME (lowest since early Nov)

- (US) Treasury $21B 30-year bond reopening draws 4.229% V 4.344% prior; bid to cover 2.37 V 2.43 prior and 2.42 over last 8 reopenings

- (US) Fed's Mester (voter): March is probably too early for a rate cut; Today's inflation data doesn't change my view of where the Fed is

- (US) Fed’s Barkin (voter): Looking to be convinced inflation is heading to target

- (US) Dec monthly budget statement: -$129.4B V -$87.5BE

- (US) Fed's Goolsbee (non-voter for 2024); Fed can't answer the question of what it is going to do at March meeting without seeing the data

Europe

- *(EU) US/UK strike Houthi targets in Yemen - financial press, citing US officials.

- Yemen Houthis leader: We will respond to any attack by the US, and the response will be bigger than the recent one with drones and missiles - TV address.

- (EU) ECB’s Vujcic (Croatia): Risks to inflation outlook are balanced - press interview.

- (EU) EU is considering naval operations in the Red Sea amid ongoing Houthi attacks.

Levels as of 00:20 ET

- Nikkei 225 +1.3%; ASX 200 -0.1%; Hang Seng +0.1%; Shanghai Composite +0.1%; Kospi -0.8%.

- Equity S&P500 Futures -0.1%; Nasdaq100 -0.1%; Dax +0.1%; FTSE100 +0.3%.

- EUR 1.0970-1.0985; JPY 144.84-145.41; AUD 0.6684-0.6715; NZD 0.6230-0.6259.

- Gold +1.0% at $2,039/oz; Crude Oil +2.0% at $73.45/brl; Copper +0.2% at $3.7988/lb.