MNI US OPEN - 1-Year Ahead Inflation Expectations Dip in Latest ECB CES

NEWS

US/MIDDLE EAST (BBG): US Strikes Houthi Drone Boats as Red Sea Attacks Continue

The US struck two Houthi sea drones in Yemen, as the Iran-backed group’s attacks around the Red Sea continue causing havoc in the shipping world. American forces hit the boats around 3.30 p.m. Yemen time on Monday, the latest of several strikes on Houthi positions since mid-January. “US forces identified the explosive USVs in Houthi-controlled areas of Yemen and determined they presented an imminent threat to US Navy ships and merchant vessels in the region,” the US military said late on Monday.

US/MIDDLE EAST (BBG): Blinken Meets Saudi Crown Prince on Mideast Push for Pause in Gaza War

The top U.S. diplomat spoke with Saudi Arabia’s de facto ruler as he sought to broker a pause in the fighting. His visit came the same day a drone struck a Syrian base used by U.S. forces and their allies. Secretary of State Antony J. Blinken began a diplomatic push in the Middle East on Monday for a deal that would pause the war in the Gaza Strip and release the hostages there, even as a drone struck a military base used by American troops and allied forces in eastern Syria.

ECB (MNI): Rejigged Inflation Expectations Mixed - ECB

Consumer inflation expectations were mixed in the ECB's latest consumer expectations survey, with the one-year ahead outcome a touch lower and the three-year horizon outlook slightly higher. The survey, which was rejigged and expanded for the December read and now includes five additional countries for a total of 11, saw the one-year ahead outlook fall to 3.2% from 3.5% in November (the five-country read for December was 3.1% from 3.2%), while the three-year expectation saw a modest uptick to 2.5% from 2.4% (December 2.4% from 2.2% for six countries).

ECB (BBG): ECB Follows Own Assessment, Not Market Expectations, De Cos Says

The European Central Bank looks to its own economic outlook rather than what investors anticipate when it sets monetary policy, according to Governing Council member Pablo Hernandez de Cos. The Spanish central bank chief expressed confidence that inflation is heading back to the 2% target but said officials will continue to be guided by data. While traders are leaning toward a cut in interest rates in April, most ECB policymakers seem to favor a move in June at the earliest.

CANADA (MNI): Realtors See Toronto Surge on Expected BOC Cuts in H2

Toronto home sales increased for a second month in January to rise more than a third over the past year, and are set for more gains as the Bank of Canada moves to cut interest rates, the city's real estate group said Tuesday. “Once the Bank of Canada actually starts cutting its policy rate, likely in the second half of 2024, expect home sales to pick up even further. There will be more competition between buyers in 2024 as demand picks up and the supply of listings remains constrained.

CHINA (BBG): China Margin Debt Drops Most Since 2016 Amid Stock Rout

China’s margin debt for stock trades fell by the most since early 2016 as a deepening slump triggered a rush to unwind leveraged positions. The outstanding balance of margin debt fell by 2.7% on Monday, the most since January 2016, when the stock market was reeling from a historic crash from a mid-2015 peak. The recent drop in margin trades have coincided with a heavier selloff for small cap shares, with the CSI 1000 Index falling more than 6% on Monday.

CHINA (MNI): CSRC to Push Institutions to Support A-Share Market

MNI (Beijing) The Chinese regulator will guide institutional investors to further support the A-share market, the China Securities Regulatory Commission said in a statement on Tuesday. The CSRC will continue to lead various market players, including public funds, private funds, securities companies and social security funds to enter the equity market, and support listed companies to increase repurchasing and hold their shares, and introduce more incremental funds into the A-share market, the regulator said.

CHINA (MNI): China Steel Output Up in January Y/Y

MNI (Beijing) China’s daily output of crude steel reached 2.01 tons for January, up 1.48% y/y but down 3.69% m/m, according to data released by the China Iron and Steel Industry Association on Tuesday. China’s steel demand could rebound this year following an estimated 2.2% decline in 2023 should government policies reverse property-sector weakness and new growth drivers expand.

BOJ (MNI): Attention Shifts to BOJ Uchida's Speech Tone Thursday

Market participants will focus on Bank of Japan Deputy Governor Shinichi Uchida's presentation to business leaders Thursday for any shift in tone that could quell expectations of a March policy shift. Policymakers' positive views on the removal of negative rates, published in the recent January meeting opinions, has fuelled speculation the Bank could adjust policy in March. BOJ Governor Kazuo Ueda in January highlighted the BOJ’s progress toward achieving the bank’s 2% price target but he gave no hints on whether the bank would remove the negative interest rate at its upcoming meetings in March or April.

RBA (MNI): RBA Revises Return to 2-3% Target

The Reserve Bank of Australia has brought forward when it expects to return inflation to within its 2-3% target band, noting within its Statement on Monetary Policy the consumer price index should reach 2.8% y/y by the end of Q4 2025 from its previous 3% prediction. The Reserve board held the cash rate steady today at 4.35% for the third consecutive meeting. In the accompanying statement, the board maintained tightening language, noting "the Board expects that it will be some time yet before inflation is sustainably in the target range" and "a further increase in interest rates cannot be ruled out."

DATA

EUROZONE JAN CONSTRUCTION PMI 41.3 ; DEC 43.6 (MNI)

GERMAN DATA (MNI): Factory Orders Beat Driven by Aircraft One-Offs, Core Remains Weak

German factory orders for December easily beat expectations, rising by +2.7%Y/Y (vs -5.3% cons; -4.7% prior, revised from -4.4%) and +8.9% M/M (seasonally-adjusted; vs -0.2% cons; 0.0% prior, revised from +0.3%). For 2023 as a whole, factory orders declined -5.9% Y/Y. However, the December beat was strongly driven by volatile large ticket items, particularly in the airplane sector. Excluding one-off big ticket items, "core" new orders declined -2.2% M/M (vs -0.8% prior), the 4th consecutive monthly drop, with the less volatile 3M/3M measure coming in at -2.6% (vs -1.4% prior), the lowest since June 2023.

UK DATA (MNI): BRC-KPMG Total Retail Sales Growth Lowest Since August 2022

• UK BRC JAN BY VALUE SHOP SALES LFL +1.4% YY, TOTAL +1.2% YY

UK Total Retail Sales growth slowed to +1.2% Y/Y in January (vs +1.7% Y/Y prior) - the lowest since August 2022, similarly Like-For-Like Sales rose less at +1.4% Y/Y (vs +1.9% Y.Y prior). Total Retail Sales is now below the 3-month average growth of +1.9% as well as below the 12-month average growth of +3.4%. Although this is partly due to falling inflation. The main driver for the slowdown in sales growth was an increased rate of decline in Non-Food Sales to -1.8% 3M Y/Y (vs -1.5% 3M Y/Y prior) - which was below both the 12-month average decline of -0.5%.

JAPAN DATA (MNI): Japan Dec Negative Real Wage Narrows

The year-on-year drop of inflation-adjusted real wages, a barometer of households' purchasing power, narrowed to 1.9% in December from a 2.5% fall in November, preliminary data released by the Ministry of Health, Labour and Welfare on Tuesday showed. However, December’s data showed that real wages stayed in negative territory for the 21st straight month, impeding household spending which has been hit by high prices.

JAPAN DEC HOUSEHOLD SPENDING -2.5% Y/Y; NOV -2.9% (MNI)

FOREX: USD Off Overnight Lows, With Focus on Fed Speakers

• Having started the session on better footing, EUR is extending slippage off overnight highs, with EUR/USD's new daily low well in range of first support at the Monday pullback and cycle low of 1.0724 - clearance below here opens levels last seen in November last year.
• Pick up in volumes evident on the decline, with more sizeable activity evident in futures on the leg lower from 1.0737 to 1.0726 (cash equivalent of ~$600mln traded on the move). Slippage in spot tilts prices away from the most sizeable option expiries of the day, and well away from the E2.5bln that was set to roll off at 1.08 at today's NY cut.
• Moves not triggered by the ECB's CES, monpol pricing or that bumper German factory orders, shrugged off due to the presence of sizeable aircraft orders - and unlikely aided by a speech from ECB's de Cos, who confirmed expectations that the next likely move on rates will be a rate cut.
• The USD Index is off the overnight lows, but a more solid bounce is lacking. Antipodean and commodity-tied currencies are instead favoured, helping AUD, CAD to outperform modestly early Tuesday.
• Datapoints are few and far between Tuesday, with the Canadian Ivey PMI the sole release of note. As a result, more attention will likely be paid to the speaker slate - Fed's Mester, Kashkari and Collins are on the docket, as well as BoC governor Macklem - who speaks on the "effectiveness and the limitations of monetary policy".

BONDS: Bunds & Gilts Off Best Levels, Data, Central Bank Speak & Supply to Digest

Core global FI markets have pulled away from Asia-Pac bests.

• German factory orders were touted as an early driver, although the breakdown of the release showed that some of the more volatile/one-off components provided the impetus for the comfortable upside surprise.
• Elsewhere, the burden of EGB supply provided some headwinds, before the recent syndication updates/auction results pointed to another round of solid to strong demand, upholding the early ’24 theme, which has lessened the market impact of the brisk pace of EGB issuance since the turn of the year.
• Predictably dovish rhetoric from Bank of Spain Governor de Cos and a mixed round of readings in the ECB’s latest consumer inflation expectations survey provided some modest support, which quickly faded.
• Bund futures sit +2 on the day, at recently registered session lows, while German cash yields are 0.5-1.0bp higher with a light bear steepening bias.
• 10-Year EGB spreads are little changed to a 2bp tighter vs. Bunds.
• Gilt futures are +39, sitting in the middle of their early 26-tick range. Cash gilt yields are 0.5-2.0bp lower, with the front end outperforming.
• The space has had to digest late Monday comments from BoE’s Pill, which were less hawkish than his Friday offerings, firmer-than-expected BRC like-for-like sales data which still registered the lowest Y/Y level seen since ’22 and the latest round of long-dated green gilt supply (which was easily digested/well received).
• ’24 cuts priced into ECB & BoE-dated OIS see some very modest divergence, with the former showing ~125bp (2bp less cuts vs. close) & the latter showing ~85bp of cuts ~1bp more than close.
• Looking ahead, supply considerations on both sides of the pond and Fedspeak provide the highlights from here.

EQUITIES: E-Mini S&P Holds Onto Bulk of its Recent Gains

Eurostoxx 50 futures remain firm and the contract has traded higher today and delivered fresh cycle highs, confirming a resumption of the current uptrend. This reinforces the bullish importance of the recent break of a key resistance at the Dec 14 high of 4634.00. A clear breach of the 4700.00 handle would pave the way for a climb towards 4725.50, a Fibonacci projection. Initial firm support lies at 4586.80, the 20-day EMA. A broader uptrend in S&P E-Minis remains intact and the contract is holding on to the bulk of its recent gains. The price has recently traded to fresh cycle highs, confirming a resumption of the uptrend. Recent corrections have been shallow - this also highlights a strong uptrend. The focus is on the psychological 5000.00 handle. On the downside, initial key short-term support has been defined at 4866.00, the Jan 31 low.

• Japan's NIKKEI closed lower by 193.5 pts or -0.53% at 36160.66 and the TOPIX ended 17.46 pts lower or -0.68% at 2539.25.
• Elsewhere, in China the SHANGHAI closed higher by 87.301 pts or +3.23% at 2789.486 and the HANG SENG ended 626.86 pts higher or +4.04% at 16136.87.
• Across Europe, Germany's DAX trades lower by 1.69 pts or -0.01% at 16903.62, FTSE 100 higher by 38.58 pts or +0.51% at 7652.28, CAC 40 up 17.21 pts or +0.23% at 7607.69 and Euro Stoxx 50 up 12.56 pts or +0.27% at 4668.09.
• Dow Jones mini down 34 pts or -0.09% at 38431, S&P 500 mini up 4.5 pts or +0.09% at 4966.5, NASDAQ mini up 46.5 pts or +0.26% at 17746.25.

COMMODITIES: WTI Futures Remain Soft Following Last Week’s Steep Sell-Off

WTI futures remain soft following last week’s steep sell-off. The move lower undermines the recent bullish theme and a continuation would expose support at $70.62, the Jan 17 low, and $69.56, the Jan 3 low. For bulls, a reversal higher is required to refocus attention on the key short-term resistance at $79.29, the Jan 29 high. A break of this level would reinstate a bullish theme. Initial resistance is at $76.95, the Feb 1 high. Gold has pulled back from last week’s high but - for now - remains above the Jan 17 low of $2001.9. Recent short-term gains improved a bullish condition and a resumption of gains would signal scope for a climb towards $2088.5, the Dec 28 high and a key resistance. For bears, a stronger reversal lower would refocus attention on $2001.9 where a break is required to reinstate the recent bearish theme.

• WTI Crude down $0.12 or -0.16% at $72.72
• Natural Gas up $0.01 or +0.24% at $2.086
• Gold spot down $0.48 or -0.02% at $2024.62
• Copper up $0.7 or +0.19% at $377.95
• Silver down $0.03 or -0.14% at $22.3225
• Platinum up $0.87 or +0.1% at $900.37