MNI US OPEN - Chinese Inflation Decelerates, US CPI Seen Hitting New High

NEWS

MNI STATE OF PLAY: Korea CB Eyes Won, Prices On Rates
Increasing economic uncertainty amid high coronavirus case numbers will see the Bank of Korea tread cautiously even as it has signalled more hikes for early 2022 to cool the economy with currency and inflation levels the keys for policy decisions. The BOK is mostly expected to keep its benchmark rate at 1.00% at Friday's policy-decision meeting and wait until February as it further assesses monetary and financial conditions, according to sources who spoke to MNI.

MNI BRIEF: Japan Dec Sentiment Edges Up But Outlook Drops
Japan's sentiment index posted the fourth straight gain but the index linked to drinking and eating services worsened from the previous month, and the outlook index for two to three months ahead fell for the second straight month, the Economy Watchers released by the Cabinet Office on Wednesday showed.

MNI BRIEF: BOJ: All 9 Japan Regions Raise Econ Views From Oct
All nine regions in Japan upgraded their economic assessments from three months ago in the wake of the end of pandemic curbs, the Bank of Japan's quarterly regional economic report said on Wednesday.

ECB (Bloomberg): Bank of France Governor Francois Villeroy de Galhau says the European Central Bank will do what is necessary to get inflation around 2% in the medium term. Adds that in a year, inflation will be back below 2%, and "We are quite close to the summit of the hump”

FED (Bloomberg): Former NY Fed President Dudley writes: "Don’t Freak Out About the Fed’s Big Balance Sheet"
With the U.S. Federal Reserve on track to complete its asset purchase program in March and start raising interest rates soon thereafter, attention has turned to the next step in the monetary tightening process: reducing the central bank’s holdings of more than $8 trillion in Treasury and mortgage-backed securities. For those who worry that this “quantitative tightening” could bring unpleasant surprises along the lines of the money-market convulsions that occurred in 2019, I have comforting news: The Fed will be seeking to ensure that it’s about as exciting as watching paint dry.

DATA

CHINA (MNI): December CPI And PPI Ease More Than Expected
China's December consumer price index eased to 1.5% y/y from 2.3% in November, below the median forecast of 1.7%, according to the National Bureau of Statistics on Wednesday. The deceleration is attributed to declining vegetable and pork prices amid sufficient supply, the NBS said. Core CPI, excluding food and energy prices, was up 1.2% y/y, flat from the previous month.

CHINA (MNI): China Dec M2 Quickens To 9-Month High
China's M2 money supply growth quickened to 9.0% y/y in December from November's 8.5%, hitting the highest level since April 2020 and outshining the median forecast of 8.6%, data released by the People's Bank of China on Wednesday showed. Among the key metrics, M1 growth accelerated to 3.5% y/y from the previous 3.0% gain. Aggregate financing was CNY2.37 trillion, slightly down from CNY2.61 trillion in November, basically in line with the forecast of CNY2.40 trillion. On an annual basis, it grew 10.3%, compared to 10.1% last month. New loans edged down to CNY1.13 trillion from the previous CNY1.27 trillion, also lower than the median forecast of CNY1.25 trillion.

MNI: EUROZONE NOV IP +2.3% M/M, -1.5% Y/Y; OCT -1.3%r M/M

FOREX: USD is mixed in G10 ahead of inflation

• A steady trading session for FX during our morning European session.
• Market participants have mainly been on the side line, something that is noticed across most assets.
• USD pared some of its overnight weakness, albeit close to flat against CHF, AUD, EUR, GBP, JPY.
• On either side of the spectrum, the Dollar is up 0.14% against the SEK and down 0.57% versus the NOK.
• ALL EYES are on the US CPI, but Mr Powell will still want to see a second release in February for the January reading, ahead of the first expected hike in March.
• Today will nonetheless give the market its first clue on how gradual or aggressive to Fed will be in their tightening cycle.
• Besides the US Inflation, speakers include, BoE Cunliffe, Fed Kashkari and BoJ Kuroda.
• US also release their Beige Book

BOND SUMMARY: Treasuries try to find equilibrium ahead of CPI

• The Treasury curve has seen the most interesting moves overnight with 2-year UST yields up 3.0bp while 10-year yields move up 1.1bp. These have largely been retracements following Powell's less hawkish than expected comments yesterday as the market looks towards CPI later today (the highlight of the session). See our preview of US CPI here. We argue that the lasting market reaction will be not just determined by the magnitude of the surprise, but the likely persistence.
• In 10-year space, gilts are the outperformers again (following yesterday's outperformance). There is probably a little more uncertainty in the UK given the political situation at present. Boris Johnson will be tested at PMQs today after allegedly attending a summer party, but this is unlikely to have any real impact on monpol or fiscal policy, so shouldn't really impact markets too much other than through uncertainty channels.
• TY1 futures are down -0-1+ today at 128-11 with 10y UST yields up 0.8bp at 1.745% and 2y yields up 2.5bp at 0.910%.
• Bund futures are up 0.22 today at 170.01 with 10y Bund yields down -1.8bp at -0.85% and Schatz yields down -0.8bp at -0.592%.
• Gilt futures are up 0.15 today at 123.23 with 10y yields down -1.6bp at 1.153% and 2y yields down -0.7bp at 0.824%.

EQUITIES: European markets follow Asian stocks higher

• Japan's NIKKEI up 543.18 pts or +1.92% at 28765.66 and the TOPIX up 32.54 pts or +1.64% at 2019.36
• China's SHANGHAI closed up 29.991 pts or +0.84% at 3597.432 and the HANG SENG ended 663.11 pts higher or +2.79% at 24402.17
• German Dax up 81.9 pts or +0.51% at 16024.27, FTSE 100 up 58.18 pts or +0.78% at 7549.89, CAC 40 up 31.75 pts or +0.44% at 7215.67 and Euro Stoxx 50 up 27.82 pts or +0.65% at 4309.59.
• Dow Jones mini up 27 pts or +0.07% at 36154, S&P 500 mini up 1.5 pts or +0.03% at 4707, NASDAQ mini down 2.25 pts or -0.01% at 15831.75.

COMMODITIES: Precious metals lower, everything else higher

• WTI Crude up $0.61 or +0.75% at $81.72
• Natural Gas (NYM) up $0.17 or +4.1% at $4.424
• Natural Gas (ICE Dutch TTF) up $2.41 or +3.07% at $81.155
• Gold spot down $5.93 or -0.33% at $1815.8
• Copper up $8.85 or +2% at $451.15
• Silver down $0.09 or -0.38% at $22.6997
• Platinum down $1.51 or -0.15% at $973.6