MNI ASIA OPEN: Bank of Japan's Interest Rate Policy In Focus

NEWS

JAPAN (MNI): BoJ Preview - March 2024: Policy Normalisation Is Here
Regarding the decision this week, the primary question revolves around whether the central bank will immediately terminate its negative interest rate policy (NIRP) or postpone such action for another month and a half. While a move in March is not set in stone, we anticipate the BoJ to announce the attainment of its 2% price stability target and exit NIRP.

JAPAN (Nikkei): BOJ to End Yield Curve Control, ETF Buying Tuesday, Nikkei Says
The Bank of Japan is poised to end its yield curve control and purchases of risk assets on Tuesday, Nikkei reported, without saying where it got the information. The Japanese newspaper said the BOJ will also end its negative short-term policy rate stance the same day. It will continue buying some Japanese government bonds in order to keep bond yields from spiking, though will scrap its framework for tamping down rates known as YCC, the Nikkei said.

US (MNI): Fed Will Bide Its Time On Rate Cuts - Lockhart
The Federal Reserve is moving cautiously in evaluating whether disinflation will continue before pulling the trigger on rate cuts this year, former Atlanta Fed President Dennis Lockhart told MNI, adding he sees no sign of a resurgence in price pressures. Investors' dovish interpretation of Chair Jerome Powell's comment to Congress this month that the FOMC was “not far" from being able to cut rates is overdone, Lockhart said in an interview.

US (MNI): Fed Preview - March 2024: No 2024 Dot Change Expected, But Some Longer-Run Intrigue
Going into the March FOMC meeting, analyst expectations for 2024 Fed rate cuts have converged firmly on June as the starting point, but there remains a wide range of expectations otherwise. The “median” analyst whose previews we read for this report saw 75bp of Fed funds rate cuts in 2024 compared with 125bp pre-January meeting.

US (MNI): Inflation Risk To US Soft Landing - IMF’s Adrian
Stubborn U.S. inflation could prevent the Federal Reserve from cutting interest rates as quickly as investors expect, raising the risk the economy will slow more than expected or that financial turmoil might resurface, IMF financial counselor and director of the Monetary and Capital Markets Department Tobias Adrian, told MNI.

US (MNI): US Regulators Need More Oversight - IMF’s Adrian
U.S. regulators need stronger rules to ensure financial stability, including ways to allow large banks to fail, and must boost their resolve to act when supervisory concerns surface as they did ahead of last year’s regional bank turmoil, IMF financial counselor and director of the Monetary and Capital Markets Department Tobias Adrian told MNI.

GLOBAL (MNI): Sullivan: A Major Ground Operation In Rafah Would Be "A Mistake"
White House National Security Advisor Jake Sullivan has told reporters that President Biden told Israeli Prime Minister Benjamin Netanyahu today that Israel has, "a right to go after Hamas," but took the strongest position yet against a major ground operation in Rafah.

US (MNI): US: Schumer May Have To Move This Week To Salvage Bipartisan Tax Bill
Senate Majority Leader Chuck Schumer (D-NY) may have to schedule a cloture vote on the USD$78 billion bipartisan tax bill this week or risk the legislation stalling permanently in the Senate Finance Committee.

• The legislation, which extends child tax credits in return for some business tax deductions, is currently delayed in committee after negotiations between Chair Ron Wyden (D-OR) and ranking Republican Mike Crapo (R-ID) last week failed to reach a compromise which would avoid a re-write of the bill.

UK (MNI): Mann Re-appointed To BOE MPC, Term To End Aug 2027
Catherine Mann, a high profile hawk on the Bank of England Monetary Policy Committee, has been re-appointed to a second term three-year term which will end in August 2027. Mann joined the MPC in September 2021 and Independent members typically serve for the maximum two-three year terms. She has built a reputation for making the hawkish policy case, based on concerns over high inflation feeding through to elevated inflation expectations and higher wage and price setting.

EU (MNI): EU To Approve Boost To EIB Defence Lending
European leaders will approve a boost in European Investment Bank lending to the defence sector, to be made possible by expanding the definition of non-lethal dual-use technologies which qualify for loans, according to draft conclusions of a March 21-22 summit. The increase in lending could total EUR4-7 billion, officials told MNI.

NORWAY (MNI): Norges Bank Preview - Mar '24: Cuts Still Some Way Off
The Norges Bank are unanimously expected to leave the policy rate on hold at 4.50%. Main interest will lie in the updated policy rate path projection within the March Monetary Policy Report, which will inform the guidance around how long rates will be held at current levels.

• The MNI Markets Team expects a small downward revision to the rate path, with key variables tracking below the December MPR forecasts.
• This will likely see the first full 25bp rate cut brought forward a little earlier in Q4 2024 than the current rate path indicates.

SWITZERLAND (MNI): SNB Preview - March 2024: Dovish Tilt on the Cards
The March SNB decision could go either way, with markets split between a hold at 1.75% and a 25bps cut. Inflation has slipped closer to the middle of the SNB target range, clearly undershooting inflation forecasts. CHF has depreciated in nominal and real terms during first months of 2024 as SNB switch to a neutral FX approach.

BCB WATCH (MNI): Brazil Cenbank To Cut 50bp, Focus On Guidance
Brazil's Central Bank is expected to make its sixth consecutive 50-basis-point reduction in its official Selic rate on Wednesday, taking it to 10.75%, though it is unclear whether it will maintain guidance pointing to additional cuts of the same size at “the next meetings.”

BANXICO WATCH (MNI): Banxico Set To Initiate Easing Cycle
The Central Bank of Mexico is set to reduce its overnight interbank interest rate by 25 basis points to 11.00%, on Thursday, commencing an easing cycle after seven meetings during which it held borrowing costs unchanged. Banxico board members will also debate how to communicate their next steps, and to direct expectations correctly while preserving room for maneuver

DATA

US DATA: NAHB Housing Index Highest Since July

• The NAHB housing market index surprisingly increased 3pts to 51 (cons 48) in March after 48 in Feb, leaving it at its highest since Jul’23.
• Present sales (+4pts) led the latest increase, followed by prospective buyer traffic (+3pts) and then prospects for future sales (+2pts).
• The regional breakdown for the overall index was mixed. The south (largest region) increased just 2pts, the Midwest increased a very strong +11pts (largest increase since coming out of shutdowns), whilst the west (-2) and northeast (-1) both declined after strong increases the prior month.
• Despite the latest aggregate increase, there remains a large disconnect with far more elevated homebuilder price-to-book ratios on a historical basis..

CANADA DATA: Energy Drives First Industrial Prices Increase In Four Months 

• Industrial Product Price Index +0.7% MOM vs consensus for no change; -1.7% YOY, the 5th consecutive YOY decline.
• Increase led by energy and petroleum products with prices +5.4% as conventional crude oil prices rose and NA refineries were impacted by shutdowns and seasonal maintenance.
• Excluding energy and petroleum the IPPI was +0.1% MOM.
• Raw materials +2.1% MOM after +1.2% in Jan, driven by crude energy products (+5.7% MOM).
• Canada's February CPI is released tomorrow.

CANADA DATA: Home Sales Resurgence Expected In Spring 

• Canadian Real Estate Association says its home sales price index was flat at 0% MOM in February after -1.3% in Jan, adding that "considering how stable the seasonally adjusted MLS HPI tends to be, shifts this abrupt are exceedingly rare."
• Sales fell -3.1% MOM in February after +3.7% in Jan, but were up 19.7% Y/Y. The year-ago rate is biased higher by Feb'23 being the lowest for a February for the past two decades, before the Feb'24 figure has increased back to only around 5% below its 10-year average.
• The MLS HPI sees prices up 0.8% YOY vs 3.5% YOY for average resale prices.
• Sales-to-new listings ratio 55.6%, close to the long term average of 55% as new listings +1.6%.
• "With so much demand having piled up on the sidelines, the story will likely be less about the exact timing of interest rate cuts and more about how many homes come up for sale this year.”
• The home sales release adds to concerns over a housing market resurgence similar to what happened last spring.

US TSYS: Paring Losses After Fresh YTD Yield Highs Across The Front-End And Belly

• Treasuries have pulled back a little further off lows, with TYM4 at 109-27+ off 109-24+.
• It has seen a limited test of the bear trigger at 109-25+ (Feb 23 low), with a sustained clearance having scope to then open 109-14+ initially (Nov 28, 2023 low).
• Volumes are limited though, only nudging over 1mn for approx. 70% of recent sessions for the time of day.
• In cash space, 5Y yields touched fresh YTD highs after the 2Y did so earlier on, and 10s stopped just 0.25bps shy of their high of 4.3486%.
• As it is, cash Tsy yields currently sit 0.5-3bp higher, with 2s10s climbing 2bps to -40bps to just hold within last week's range.
• Today’s corporate issuance has been touted as a driver for the sell-off, whilst a highlight for limited flow saw FVJ4 106.00 puts targeting a ~10bp move higher in 5YY to ~4.45% by Friday’s expiry.
• Fed swaps briefly showed more than a 50% likelihood of no change in the June meeting. CME’s FedWatch currently shows 50.8% chance of a 25bp cut and 3.4% of a 50bp cut.
• Upcoming focus is on the BoJ decision overnight, with Nikkei adding to recent reports across multiple newswires that the BoJ is to end YCC and ETF purchases along with the heavily sourced exit of negative interest rates. The 20Y re-open sees some issuance focus tomorrow but with the FOMC decision on Wed looming large.

FX: Greenback Edges Higher As Front-End US Yields Reach YTD Highs

• The dollar index has been creeping higher across the US session, in line with the shift higher for US yields. Overall, G10 ranges have remained fairly contained ahead of significant event risk this week, however, emerging market currencies have been more negatively impacted to start the week.
• Naturally, ahead of the Bank of Japan early Tuesday, the focus will be on the Japanese Yen as the central bank debates whether to immediately terminate its negative interest rate policy or postpone such action for another month and a half. USDJPY is unchanged today in anticipation, hovering just above the 149.00 mark approaching the event.
• USDJPY is consolidating after extending its most recent bounce from 146.49, the Mar 8 / 11 low. The recovery appears to be a correction and a bear threat remains present following the recent sharp sell-off. A resumption of weakness would signal scope for a move towards 145.90, the Feb 1 low and a key support. A continuation higher would instead signal scope for gains towards 150.08, the Mar 6 high, ahead of the 150.89 key resistance, Feb 13 high.
• The most notable move in G10 today has been the Swiss Franc, with USDCHF 0.47% higher on the session as we approach the APAC crossover. Franc weakness comes ahead of the SNB decision later this week, which could go either way. Markets are currently split between a hold at 1.75% and a 25bps cut. CHF has depreciated in nominal and real terms during first months of 2024 as SNB switch to a neutral FX approach.
• As mentioned, the EM basket has been under pressure and most noticeable moves have been in ZAR and MXN, both weakening by close to 1% to start the week. The Mexican peso could likely stay in focus this week as we approach interest rate decisions in both the US and Mexico. Following Wednesday’s Fed meeting, Banxico is due to hold a key monetary policy meeting on Thursday, when it is broadly expected to start its easing cycle with a 25bp cut to 11%.
• BOJ takes focus in APAC Tuesday; however, the RBA are also meeting. Tuesday’s data highlight will be Canadian CPI for February.

EQUITIES: Holding Move Off Highs, Buy And Sell Programs Keep To Narrow Ranges

• The S&P 500 e-mini continues to hold the ~20pt pullback off earlier highs of 5240.25, but still climbs 0.7% on the day to offset Friday’s -0.7%.
• Technical analysis sees resistance at 5257.25 (Mar 8 high) after which lies the round 5300.00.
• The largest sell program of the day for the NYSE TICK index has recently rolled through with a still relatively small 806 names. Prior to that, the session was shaping up for the smallest range in the index since the day after Thanksgiving 2022.
• Nvidia has played a sizeable role in the move off highs, briefly turning negative earlier (currently +0.7%) having pared gains of as much as 5.2% at the start of its GPU Tech Conference.
• AI more broadly remains at the fore, with Alphabet gaining particularly strongly (+4.3%) followed by Meta (+2.0%) and Apple (+1.3%), but Microsoft (+0.4%) lags more notably.
• Alphabet’s strength tallies with communication services (+2.7%) clearing leading the day’s gains, followed by IT (+0.9%) and consumer discretionary (+0.85%). Health care and real estate (both +0.1%) and utilities (+0.35%) lag.
• Accordingly, the Nasdaq 100 outperforms (+1.2%), whilst the Dow (+0.4) and Russell 2000 (-0.2%) underperform.

COMMODITIES: Crude Makes Robust Gains, Spot Gold Steady Ahead Of Fed

• Crude futures rose further on Monday as an escalation in attacks on Russian refineries raised concern for oil product supplies.
• WTI is up 2.3% on the day at $82.9/bbl.
• WTI futures have now cleared the Fibonacci retracement point at $81.70, which has opened $84.66 next, the Oct 20 ‘23 high. On the downside, support to watch is $77.07, the 50-day EMA.
• Meanwhile, Henry Hub has rebounded today from the low of $1.646/mmbtu on March 15 and reversed much of the previous day’s losses. Upside comes from forecasts for colder weather across the US towards the end of March.
• US natural gas APR 24 is up 3.4% at $1.71/mmbtu.
• Spot gold rose by 0.2% on Monday to $2,160/oz, as the yellow metal remains steady ahead of Wednesday’s Fed interest rate decision.
• The recent break above $2135.4, the Dec 4 high, reinforces bullish conditions and signals scope for $2206.6 next, a Fibonacci projection. Short-term conditions are overbought and a deeper retracement would allow this set-up to unwind. Firm support is at $2112.9, the 20-day EMA.