ON DECK FOR WEDNESDAY, DECEMBER 17
KEY POINTS:
- US Treasury yields pop higher on higher oil prices
- Trump’s blockade of Venezuelan oil is driving oil higher…
- …but what took so long after spurning Canadian heavy oil for years?
- BoE cut cemented by softer UK CPI
- Fed’s Waller to speak — and be interviewed
- BCCh cut, signals it may be done
- BI held against minority expectations for a cut
- BoT cut, signals willingness to do more if needed
- South African rates rally post-CPI
Nonfarm payrolls are so yesterday, it seems (recap here).
US Treasury and Canadian government bond yields are punching a touch higher across the curve as oil prices jump by over 2%. The latter is being driven by Trump’s oil blockade against Venezuela that was announced late yesterday.
What took so long?! For years, the US was ok with accepting Venezuelan heavy crude while denying the Keystone XL extension from Canada, but suddenly Washington is pro-democracy, at least abroad. Still, the recent moves in WTI have seen more weakening than strength which probably has more to do with concern about the global economy relative to supply than geopolitical matters; it’s off from a peak of US$68 back in June to over $11 cheaper today. The Western Canadian Select (WCS) heavy crude discount to light sweet crude has widened by about $4 to -$13 over this period as the price plunges from US$65 in June to US$42 or so now.
UK CPI CEMENTS EXPECTATIONS FOR A BoE CUT
UK CPI largely cemented expectations for the BoE to cut tomorrow and added to expectations for up to 50bps of additional easing next year. Gilts are outperforming other global benchmarks with yields down by about 4–5bps across the curve. Sterling is the weakest cross to the USD.
CPI slipped by -0.2% m/m NSA (0% consensus) and fell to 3.2% y/y (3.5% consensus, 3.6% prior). Core CPI also fell by -0.2% NSA which was the weakest month of December on record when comparing like months of December over time (chart 1). Core CPI edged two-tenths lower to 3.2% (consensus 3.4%). Services CPI cooled to 4.4% (4.5% consensus and prior), see chart 2.
FED’S WALLER TO SPEAK, THEN SHUFFLE OFF TO HIS JOB INTERVIEW
The North American calendar will be quiet today. The only thing of note is a speech on the outlook by Federal Reserve Governor Waller (8:15amET). Waller is a dove, but more of a moderate one than the extreme ones like Miran. Waller looks through inflation risk from tariffs but in my view needs to more fully explain his view on other inflation drivers.
Trump also mentioned he’ll be interviewing Waller today, so watch for possible headlines on that. Suddenly there may three candidates after Trump had just said he narrowed it down to the two Kevins (Warsh and Hassett) after previously saying he had already made up his mind. Chaos is par for the course.
CENTRAL BANK ROUND-UP
Three decisions by regional central banks were a warm-up act to how the week will end with the ECB, BoE and BoJ decisions starting tomorrow into Friday.
BCCh cut 25bps late yesterday as widely expected. The vote was unanimous. Today’s quarterly monetary policy report (here) upgraded the growth outlook with 2025 at 2.4%, 2026 at 2–3% from 1.75–2.775%, and 2027 unchanged at 1.5–2.5%. The MPR raised the 2026 inflation outlook to 3.2% from 3%. Inflation is “foreseen to reach its 3% target during the first quarter of 2026.” At 4.5%, the overnight rate is barely withing the estimated 3½% to 4½% neutral rate range.
The Bank of Thailand cut 25bps to 1.25% as widely expected. The vote was unanimous. The bias was slightly dovish, indicating a willingness to adjust further and while downgrading expected GDP growth. Inflation is forecast to be just 0.3% in 2026 while returning to target in early 2027.
Bank Indonesia held its policy rate unchanged at 4.75% against a sizeable minority within consensus that anticipated a 25bps reduction. The central bank emphasized that there remains further room for easing while maintaining an eye on currency stability. The rupiah was little changed overnight.
SARB watchers got a treat with a downside surprise in CPI. CPI slipped by -0.1% m/m (0% consensus) but core landed on expectations at 0.1% m/m and 3.2% y/y. South Africa’s rates curve rallied a touch but the rand appreciated with most of that move coming well after the release.
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