MNI US OPEN - BoC Could Signal Peak Rate is Nearing

NEWS

US (MNI): Fed Has Further to Go to Conquer Inflation - IMF Econ

Central banks have further to go to ensure inflation will come back down to target, IMF Chief Economist Pierre-Olivier Gourinchas said Tuesday, also pushing back against notions the Federal Reserve will be able to pause its rate-hiking cycle sooner despite recent positive signs on inflation.

MNI Bank Of Canada Preview - Jan 2023: Watching Guidance For A Final Hike

The BoC is expected to opt for a final 25bp hike to 4.5%. The 25bp hike is almost fully priced but the Bank had form last year at surprising markets, and five analysts expect no change. A recent easing in financial conditions could see statement language err on the moderately hawkish side.

POLITICAL RISK (MNI): Top U.S. & Russian Officials Tour Africa Amid Competition for Influence

U.S. Treasury Secretary Janet Yellen has arrived in South Africa today, a day after the departure Russian Foreign Minister Sergei Lavrov. For Yellen, this is the final stop of her tour of the continent, with President Joe Biden due to follow suit later this year. Lavrov headed further to Eswatini, Botswana and Angola and will return for another leg of his tour later in the year.

JAPAN (MNI): Japan Govt Lowers Econ View, Exports Weaker on China

Japan's government lowered its main economic assessment from the previous month for the first time since February 2022 and also lowered its assessment of the world economy for the second straight month, the Cabinet Office said on Wednesday. The government also lowered its assessment of exports, hit by the slower Chinese economy, for the first time since November 2021.

JAPAN (MNI): BOJ to Wait Until Aug to Gauge Wages - Momma

The Bank of Japan will have to wait until August to gain good insight in whether wage increases are gaining traction, though inflation is expected to moderate over coming months, a former BOJ chief economist said.

NEW ZEALAND (MNI): RBNZ to Boost Foreign Reserves

The Reserve Bank of New Zealand will increase its foreign reserves to be able to support the NZ dollar after striking an agreement with the Minister of Finance, the central bank said Wednesday. The reserves, which have remained largely unchanged since 2007, will be increased by an unspecified amount and will occur gradually over time to minimise any financial market impact.

TURKEY (MNI): Security Council Meets With Ukraine, Sweden & Greece On Agenda

Turkish President Recep Tayyip Erdogan is set to preside over a meeting of the Security Council to discuss, among other issues, the 'grain corridor' through the Black Sea from Ukraine, tensions with Greece, and Sweden's application to NATO.

DATA

GERMAN DATA (MNI): IFO Survey Confirms Solid Uptick in Outlooks

• GERMANY JAN IFO BUSINESS CLIMATE 90.2 (FCST 90.3); DEC 88.6
• GERMANY JAN CURRENT ASSESSMENT 94.1 (FCST 94.9); DEC 94.4
• GERMANY JAN IFO EXPECTATIONS 86.4 (FCST 85.3); DEC 83.2

The IFO business climate index was broadly in line with expectations in January, improving by 1.6 points to 90.2. Despite current situation passements edging down (a reminder that the economy continues to face strong headwinds), the expectations index rose 3.2 points, beating expectations yet in line with flagged upside risk following the record jump in ZEW survey expectations.

UK DATA (MNI): Initial Core PPI Easing Evident

• UK PPI OUTPUT DEC -0.8% M/M (FCST +0.1%), +14.7% Y/Y; NOV +16.2% Y/Y
• UK PPI INPUT DEC -1.1% M/M (FCST -0.8%); +16.5% Y/Y; NOV +18.0% Y/Y

Annualised input PPI slowed for a fifth (sixth) consecutive month in December to +16.5% y/y (output +16.5% y/y), 8.1pp below the June record high. Downwards pressure came largely from crude oil, and to a lesser extent from other parts/equipment and metals. Easing supply bottlenecks alongside weakening demand is supporting slowing factory-gate inflation.

SPAIN DATA (MNI): Swift Decline in PPI, Core Pressures Ease Further

• SPAIN DEC PPI -1.7% M/M; NOV -2.4%r M/M
• SPAIN DEC PPI +14.7% Y/Y; NOV +20.5%r Y/Y

Spanish PPI eased further in December, implying a lower eurozone print due next Friday. With PPI firmly below summer peaks, the focus for the ECB has shifted towards core consumer inflation data. PPI ex-energy eased for a sixth consecutive month, down 1.1pp at +11.1% y/y. Despite a lagged effect, this is a positive sign for easing core CPI in the eurozone in months to come.

AUSTRALIA DATA (MNI): CPI Data Signal Growing Domestic Price Pressures, RBA To Hike

• AUSTRALIA Q4 CPI +1.8% Q/Q
• AUSTRALIA Q4 TRIMMED CPI +1.7% Q/Q

Australia's Q4 and December CPI data printed significantly stronger than expected and showed that while Q4 was under the RBA's 8% forecast, the final month of the year was higher. The details show growing domestically driven inflation with the more global components stabilising. This data is concerning and has all but confirmed a February rate hike and probably a March one too (the February 22 WPI will be key here).

FOREX: AUD on Top as CPI Shoots Higher

• Australia posted a stronger set of inflation data, which was uniformly above market expectations, and helped pushed market pricing to a 25bps hike for the February meeting. CPI at 8.4% was well above the 7.7% expectation, meaning Australia ended 2022 with inflation well ahead of target. The release prompted some sell-side analysts to consider the likelihood of a 50bps move at the RBA's February meeting, putting AUD ahead of all others in G10 ahead of the NY crossover.
• Conversely, NZ inflation came in below RBNZ expectations, which has worked against the NZD and yield momentum for the currency. NZD/USD fell to 0.6467, but dips have been supported, through the European morning.
• JPY is gaining against most others in G10, with some focus paid to BBG citing an ex-BoJ economist in expecting the new BoJ governor to shift away from the yield curve control programme. EUR/JPY has traded poorly across European hours, and sits below yesterday's 131.26 lows ahead of the NY crossover.
• The Bank of Canada rate decision takes focus Wednesday, with the bank seen raising rates by 25bps to 4.50% for the final hike of the cycle. Data releases and central bank speakers are few and far between Wednesday, with the Fed remaining inside their media blackout period.

BONDS: Gilts Lead the Way Higher Again

• Gilts are once again the biggest movers in core FI space with SONIA futures up more than 10 ticks on the day following this morning's PPI prints (which saw further softening of input and output prices in both November and December). UK terminal rate pricing has fallen to around 95bp from 100bp at yesterday's close but pricing for next week's meeting has only moved a little lower to 44bp (from 45bp).
• The German IFO data was mixed with expectations better than expected but the current assessment a little worse and there are no scheduled Fed, ECB or BOE speakers as we approach next week's meetings.
• The moves higher in core FI have been consistent with the sell off in equities.
• TY1 futures are up 0-5+ today at 115-06+ with 10y UST yields down -2.2bp at 3.433% and 2y yields down -0.3bp at 4.148%.
• Bund futures are up 0.65 today at 138.98 with 10y Bund yields down -4.3bp at 2.106% and Schatz yields down -3.2bp at 2.500%.
• Gilt futures are up 0.80 today at 105.64 with 10y yields down -6.4bp at 3.209% and 2y yields up 1.7bp at 3.368%.

EQUITIES: Equity Futures Consolidate Close to Recent Highs

EUROSTOXX 50 futures remain above support at 4097.00, the Jan 19 low. The trend outlook is bullish, however, the cycle is overbought and this continues to warn of the potential for a short-term corrective pullback. A move lower would allow the overbought reading to unwind and open 4067.20, the 20-day EMA and a key near-term support. Key resistance and the bull trigger is at 4206.00, the Jan 18 high. A break would resume the uptrend.S&P E-Minis traded higher Monday and breached resistance at 4035.25, the Jan 17 high. The break cancels a recent bearish threat and resumes short-term bullish conditions. Note that moving average studies are in a bull mode condition and this reinforces current trend conditions. The focus is on 4090.75 - last seen in mid-December. Key short-term support lies at 3901.75, the Jan 19 low. A break would reinstate a bearish threat.

• Japan's NIKKEI closed higher by 95.82 pts or +0.35% at 27395.01 and the TOPIX ended 7.77 pts higher or +0.39% at 1980.69.
• Across Europe, Germany's DAX trades lower by 5.73 pts or -0.04% at 15091.11, FTSE 100 higher by 13.92 pts or +0.18% at 7771.64, CAC 40 up 3.41 pts or +0.05% at 7054.22 and Euro Stoxx 50 down 6.36 pts or -0.15% at 4147.33.
• Dow Jones mini down 70 pts or -0.21% at 33760, S&P 500 mini down 13.75 pts or -0.34% at 4019.25, NASDAQ mini down 71 pts or -0.6% at 11839.5.

COMMODITIES: WTI Futures Contracts Continue Pullback From Monday High

WTI futures traded higher Monday but the contract has pulled back from its recent highs. Key short-term resistance is located at $82.66, the Jan 18 high. Clearance of this hurdle would reinstate the recent bullish theme and expose $83.14, the Dec 1 high and $85.33, a Fibonacci retracement. On the downside, the support to watch lies at $78.45, the Jan 19 low. A break of this level would signal a potential reversal. Trend conditions in Gold remain bullish and the yellow metal has traded to a fresh cycle high yesterday. This confirms an extension of the uptrend and maintains the price sequence of higher highs and higher lows. Moving average studies remain in a bull mode position - reflecting the uptrend. The focus is on $1963.0 next, a Fibonacci retracement. Support to watch lies at $1884.1, the 20-day EMA. Short-term pullbacks are considered corrective.

• WTI Crude down $0.37 or -0.46% at $79.97
• Natural Gas down $0.14 or -4.39% at $3.115
• Gold spot down $8.31 or -0.43% at $1928.79
• Copper down $0.5 or -0.12% at $424.65
• Silver down $0.14 or -0.61% at $23.5416
• Platinum down $11.26 or -1.06% at $1050.36