MNI ASIA OPEN: Focus Turns To Fed Following BOJ Action

NEWS

US (MNI): March "Dot Plot" To Show Fewer Fed Cuts, Ex-Officials Say
Federal Reserve officials are likely to signal less urgency to lower interest rates this year than they had in December after disinflation lost momentum in January and February, with a majority penciling in two or three rate cuts for 2024 in projections to be updated Wednesday, former Fed officials told MNI.

US (MNI): Fed Patience To Be Limited By Election - Reinhart
The Federal Reserve's wait-and-see mode on monetary easing will be limited by political constraints and the timing of the November elections, meaning the first interest rate cut is likely in June and not later, former Fed Board division of monetary affairs chief Vincent Reinhart told MNI.

US (MNI): Fed Set For June Cut, Risks Later Move - Sheets
The Federal Reserve can take its time to assess incoming economic data but the baseline is the central bank starts its easing cycle in June, former Fed board economist Nathan Sheets told MNI, adding that the risks are are tilting toward a later cut. Recent inflation reports have been challenging and it remains to be seen whether they reflect noise or signal, but Fed officials have to time wait and see, said Sheets, who thinks three rate cuts are likely this year.

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.

CANADA (MNI): Canada CPI Slows More Than Expected For Second Month
Canada's headline inflation rate came in slower than economists predicted and core prices slowed for a second month in February, the kind of sustained progress that central bank policymakers say is needed to lower the highest interest rates in decades. Consumer price gains slowed to 2.8% from a year earlier from January's 2.9% pace, Statistics Canada said Tuesday from Ottawa, bucking the economist consensus for an acceleration to 3.1%. Core measures tracked by the Bank of Canada also decelerated with the "median" index down to 3.1% from 3.3% and "trim" to 3.2% from 3.4%.

GLOBAL (MNI): US/Israeli Officials To Meet Next Week To Discuss Rafah Operation
White House Press Secretary Karine Jean-Pierre has told reporters that a senior US interagency team composed of military, intelligence, and humanitarian officials will hold a meeting with Israeli counterparts in Washington "early next week" to discuss an upcoming Israeli military operation in Rafah. Jean-Pierre says the US is, "deeply concerned about report citing imminent famine in Gaza," adding that, "Israel needs to allow unimpeded access for relief aid."

BOJ (MNI): Economy to Drive Future Rate Hike Path - BOJ's Ueda
Bank of Japan Governor Kazuo Ueda refrained from elaborating on the pace of future interest rate rises, stressing further hikes will depend on economic developments and prices. “We will decide on the policy interest rate like other central banks that are focused on how the economy and prices evolve,” Ueda told reporters. Inflation expectations remain far from 2% and the BOJ must continue with its easy policy, he said, ruling out an imminent rate hike. But he added stronger-than-expected inflation and growing upside risks to prices would drive policy action.

UK (MNI): UK Inflation Preview - February 2024
Inflation is expected to continue to normalise across the major categories in February (albeit with some offsetting positive base effects from energy prices relative to those seen in January). Analysts are generally split between both headline and services inflation printing in line with the BOE’s February MPR forecast or seeing a repeat of the 0.1ppt downside surprise to the Bank’s forecast seen last month.

UK (MNI): BOE WATCH - March Hold Seen, Fresh Cut Clues Likely Sparse
The Bank of England is set to leave policy on hold and is likely to leave its guidance unchanged on Thursday after its March meeting, providing few, if any, fresh clues as to the likely timing of its first rate cut this cycle. In February the Monetary Policy Committee altered its statement to show a cut was on the table but Governor Andrew Bailey and colleagues gave away little regarding its timing.

UK (MNI): Reeves Outlines Three Guiding Economic Principles For Labour Government
Shadow Chancellor of the Exchequer, Rachel Reeves, delivering the Mais Lecture to Bayes Business School, University of London, has laid out the economic vision which would underpin a Labour administration. Reeves says, Labour would stop fiscal rule changes outside of emergency situations, restore climate impact into BOE policy remits, seek closer UK-Europe relations, and recommit to a ban on zero-hour contracts.

CHINA (MNI): China To Further Open Up Bond Market To Foreigners
(MNI)Beijing - China will further open up its banking and insurance sectors and broaden the participation of foreign financial institutions in the domestic bond market, according to an action plan issued by the State Council on Tuesday. Restrictions will be lifted on foreign access to manufacturing and there will be more access to sectors including telecommunications and health care, according to the plan.

SWITZERLAND (MNI): SNB WATCH - Dovish Tilt, With March Cut Not Ruled Out
With inflation continuing to surprise policymakers to the downside, a March rate cut by the Swiss National Bank will not come as a surprise, although a move at the June meeting -- which follows those by the Federal Reserve and the European Central Bank-- remains most likely.

HUNGARY (MNI): NBH Could Slow Rate Cuts To 75-50bp - Ex-Governor
The Hungarian National Bank will slow the pace of rate cuts from 100 basis points a meeting to 75 or even 50 when it meets next week, as it fends off concerns over government meddling, former NBH governor Andras Simor told MNI.

DATA

CANADA DATA: Underlying Inflation Sees Sizeable Step Lower

• The February CPI report looks out and out dovish across the main core CPI measures.
• The average of the BoC’s preferred core measures (median and trim) printed 3.15% Y/Y (cons 3.35) after an unrevised 3.35%.
• The three-month run rate dropped to 2.2% annualized from 3.1% (3.2 prior to revisions), its lowest since Jan’21 and close to the 2% target midpoint.
• Whilst only three months, the six-month also pushed lower from 3.2% to 2.6% for its first reading back in the 1-3% target band since May’21.
• Alternate core measures are showing notably softer rates still: CPIxFE and CPIX saw 1.4% and 0.0% annualized over three months, or 2.8% and 2.1% Y/Y respectively.
• Averaging all four measures for a simple measure of underlying inflation, ‘underlying’ inflation slowed from 2.5% to 1.5% over the past three months, the six-month rate fell from 2.8% to 2.1% and the Y/Y fell from 3.1% to 2.8% Y/Y.
• More broadly, StatsCan notes: “Notable contributors to the deceleration included the indexes for cellular services, food purchased from stores, and Internet access services.”

US DATA: Single Family Units Continue To Drive Overall Housing Activity

• February housing starts and building permits came in stronger than expected, with January's figures also revised upward - but the divergence between single family and multi-unit housing activity remains stark.
• Total Starts totalled 1,521k on an annualized basis (1,440k expected, 1,374k prior - revised up 43k). Permits came in at 1,518k (1,496k expected, 1,489k prior - revised up 19k). That meant Starts grew 5.9% Y/Y, with Permits +2.4% Y/Y, suggesting overall housing construction activity is picking up more broadly.
• Looking at the underlying data though, single family permits made up 1,031k of permits highest since May 2022 and the 13th consecutive monthly increase, with multi-units just 487k - a slight uptick from January but in a broader downtrend that started in mid-2022.
• Likewise, single-family starts came in at 1,129k - the highest since April 2022 - while multi-unit starts remained below the 400k mark for another month (392k), and well below late 2022/early 2023 levels.

US TSYS: Front End Sees Push Back To Highs Late In The Session

• Front end Tsys have pushed back to earlier highs but further out the curve keep within session ranges.
• Yields sit 1.5-5bps lower on the day, led by 3s, bull steepening with 2s10s at -39.3bps (+1.3bps).
• The day’s drivers were initially some European spillover before more notably a miss for CAD CPI and then the first stop for a 20Y auction since Nov. Auction details included a solid 2bp trade through along with the highest bid-to-cover since Jun and lowest dealer take since Sep.
• TYM4 trades at 110-05+ (+ 11+), off a post-auction high of 110-08. Resistance is seen at 110-26 (20-day EMA) but yesterday’s 109-24+ pierced the bear trigger at 109-25+ (Feb 23 low) and has opened 109-14+ (Nov 28 low).
• TY cumulative volumes of 1.2m again lag recent averages (70-75%) for the time of day, with tomorrow’s FOMC decision looming.
• Fed Funds implied rates have drifted lower from the June meeting onwards, whilst the Dec implied rate continues to hover around the median dot from the Dec SEP ahead of tomorrow’s new dot plot and forecasts.
• Cumulative cuts from 5.33% effective: 0.5bp Mar, 2.5bp May, 16.5bp Jun, 26.5bp Jul and 73bp Dec.

EGBs-GILTS CASH CLOSE: Bull Steeper Between Central Bank Flashpoints

Core EGBs and Gilts strengthened Tuesday with curves leaning bull steeper.

• The first major risk event of a busy week had little impact on European instruments, with the Bank of Japan's decision to end negative interest rate and yield curve control policy well-anticipated.
• With little news flow or data (German ZEW beat expectations but not a market-mover), supply was a key theme.
• Gilts ticked higher on a solid Oct-43 auction, helping UK instruments outperform global counterparts. Syndications of 10Y BTPei (E5bln) and Feb-50 EU Green (E7bln) saw sizes at the high end of expectations.
• Periphery EGB spreads widened on the day, with GGBs weakest.
• Wednesday's agenda begins with UK inflation ahead of Thursday's BoE decision; we also get ECB commentary from Lagarde, Lane and Schnabel, and after the cash close, the Fed decision and assorted communications.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 3.3bps at 2.919%, 5-Yr is down 2.4bps at 2.453%, 10-Yr is down 0.9bps at 2.45%, and 30-Yr is up 1.1bps at 2.611%.
• UK: The 2-Yr yield is down 4.3bps at 4.26%, 5-Yr is down 4.5bps at 3.954%, 10-Yr is down 3.2bps at 4.057%, and 30-Yr is down 0.5bps at 4.513%.
• Italian BTP spread up 3.2bps at 125.4bps / Spanish bond spread up 1.5bps at 80bps

FX: Japanese Yen Continues To Weaken Following BOJ Overnight

• Although off session highs, the USD index has extended the recovery that began late last week, rising 0.26% at typing, and looking set to extend its streak of consecutive winning days to 4. Greenback strength has been driven on Tuesday by a strong USDJPY rally in the aftermath of the BOJ decision.
• Late upside across USDJPY puts pair at new highs and briefly tops the resistance mentioned a handful of times today at Y150.89 - clearing the path for a test on last November's highs at 151.91 a little further out - and levels that will likely re-ignite intervention speculation from the Japanese authorities.
• Move in currency markets coincides with resumed gains for equities, as the e-mini S&P sees buying interest up to yesterday's highs at 5240.25. We note the downside pressure on the front-end of the USD/JPY vol curve - highly correlated with JPY downside: USD/JPY 3m implied vols are now through the YTD lows to print levels last seen in March 2022.
• Elsewhere, the RBA decision overnight came in unchanged, as expected, and has worked against Antipodean currencies as the RBA dropped their tightening bias in the policy statement. AUDUSD (-0.44%) has backtracked below the 200-dma and traded within 4 pips of the 0.6500 handle, weakness through which would put prices at the lowest level since March 6th.
• Tight ranges for major pairs such as EURUSD, GBPUSD and USDCHF meant that the broad-based yen weakness kept focus on cross/JPY, a theme that may continue as we approach tomorrow’s Fed decision and press conference, given the Yen’s sensitivity to US yields.
• UK inflation kicks off Wednesday’s docket before all focus turns to the Fed’s summary of economic projections and Chair Powell. Markets will also be on the lookout for potential comments from ECB’s Lagarde, due to speak at the ECB and its Watchers Conference, in Frankfurt.

EQUITIES: S&P E-mini Holding Shy Of Monday’s High, Tech Lags

• The S&P 500 e-mini sits close to session highs of 5239.00 that stopped just shy of yesterday’s 5240.25. The bull trigger is seen at 5257.25 (Mar 8 high).
• In a reversal of yesterday’s AI-focused gains, the Nasdaq 100 lags today.
• E-minis: S&P 500 +0.4%, Nasdaq 100 +0.2%, Dow Jones +0.6% and Russell 2000 +0.6%.
• Within the S&P 500, energy (+1.0%) leads with WTI seeing similar-sized further increases, followed by utilities (0.8%) and IT (+0.7%). Communication services lag (-0.3%), weighed down by Alphabet (-0.5%) and Meta (-0.7%) in a limited retracement of strong gains yesterday, followed by real estate (-0.1%) and materials (almost flat).
• Nasdaq has still seen a sizeable turnaround on the day though, reversing losses of as much as 0.9%.
• NVidia has played a sizeable role in the latter, having pared losses of ~4% for currently +1.7% as its conference continues. It plans to take a larger share of an annual market opportunity of $250bn in data centers.

COMMODITIES: WTI Set For Highest Close Since October

• WTI is set for its highest close since late October on Tuesday as escalating Ukrainian drone attacks on Russian refineries sparked supply concerns.
  
• WTI is up 1.0% on the day at $83.5/bbl.
• WTI futures have started this week on a bullish note, after last week’s gains resulted in a break of $79.87, the Mar 1 high. The move higher confirms a resumption of the uptrend that has been in place since mid-December. Sights are on $83.87 next, the Oct 20 ‘23 high, a break of which would open $84.87, the Sep 15 ‘23 high and a key resistance.
• Henry Hub front month also traded higher on the day as cooler weather forecasts offset curtailed LNG feedgas flows.
• US natural gas APR 24 is up another 2.2% at $1.74/mmbtu.
• Spot gold edged down by 0.1% on Tuesday to $2,158/oz, as the yellow metal continues to consolidate ahead of tomorrow’s FOMC meeting.
• The trend condition in gold is bullish and the latest pullback is considered corrective and appears to be a bull flag - a continuation pattern. Having cleared $2135.4, the Dec 4 high, to deliver a fresh all-time cycle high, this has opened $2206.6, a Fibonacci projection. Firm support is $2117.4, the 20-day EMA.