MNI US OPEN - BoC Expected to Opt for Conditional Pause

NEWS

ECB (MNI): Prudent ECB Policy Essential - BOI's Visco

The European Central Bank should continue to conduct policy "with prudence”, guided by new data but without risking financial stability or the fragile economic recovery, Bank of Italy’s Governor Ignazio Visco said at an event in Rome Wednesday. Reuters cites ECB's Visco as stating that he does not appreciate ECB colleagues' statements on future and prolonged increases in interest rates, adding that the ECB council has agreed to decide on rates meeting-by-meeting without forward guidance. Visco possibly (but not necessarily) referring to recent interview with ECB's Holzmann in Handelsblatt, who outlined his preference for four further 50bps hikes at the ECB back on March 6th.

ECB (MNI): ECB Likely To Be Forced To Support Bond Markets

The European Central Bank is likely to have to push interest rates substantially above 4% and will be forced to intervene to support some sovereign bond markets as it reduces its balance sheet, an advisor to the German government told MNI. The ECB is widely expected to raise its deposit rate by 50 basis points to 3% next week, and strengthening core inflation means chances of another half-point hike in May are rising, Gabriel Felbermayr said in an interview, noting that real interest rates were still stuck “way into negative territory.”

MNI BoC Preview - March 2023: Maintaining The Conditional Pause

The BoC is unanimously expected to keep rates on hold at 4.5% on Wednesday and for the most part echo January’s pivot to guidance of a conditional pause whilst leaving the door open to further hikes. Data has been mixed. Employment was far stronger than expected but CPI showed some moderation and GDP was surprisingly soft, albeit partly offset by hawkish implications from weaker productivity growth.

RIKSBANK (MNI): No Reversal, Next Hike 25 Or 50bps - Riksbank Breman

The question facing Riksbank policymakers is whether to hike by 25 or 50 basis points at the next meeting, First Deputy Governor Anna Breman told reporters Tuesday, as she also made the case for publishing a three-year rate path with no reversal of the hikes factored into it. The next policy decision will be taken at the April meeting and the Riksbank will update its quarterly rate projections then, with Breman making clear that after a further hike she thinks that the three year rate path should is unlikely to show any reversal.

NATO (MNI): Finland Parliament Speaker Says Hungary is Unable to Give Date for NATO Vote

Finnish Parliament Speaker Matti Vanhanen told reporters that Hungary supports his country's entry to the NATO but has so far been unable to provide a date for holding a parliamentary vote on the matter.

JAPAN (MNI): Powell Shakes BOJ View On US Recovery in Mid-2023

Bank of Japan officials are wary their forecast for a U.S.-led global economic recovery in mid-2023 could be threatened by higher-than-expected U.S. rates after Federal Reserve chairman Jerome Powell delivered a hawkish policy outlook, MNI understands.

CHINA (MNI): China to Create National Financial Supervisory Authority - Caixin

China will create a new national financial supervisory authority to replace the China Banking and Insurance Regulatory Commission in an overhaul of its financial regulators to enhance supervision and strengthen risk management, according to Caixin. The new regulator will report directly to the State Council and will be responsible for ensuring investor protection, and will assume supervision of large companies from the People's Bank of China.

MNI RBA Review - March 2023: Decisions to Be More Data Dependent

The RBA hiked rates 25bp to 3.6% at its March meeting, which brought it closer to pausing. RBA Governor Lowe reiterated this in his speech on Wednesday. The meeting statement was less hawkish thus making the Board more data dependent. Upcoming data will be very important in determining the outcome of the April meeting. Another 25bp move is likely in April unless the data, especially on employment, are very disappointing.

MNI Insight: Global Macro Chart Pack - 2023 is Likely to be a Bumpy Ride

2022 finished on a soft note for global trade/growth indicators. Early indications are that 2023 has started on a better footing, with key PMIs proving resilient, while consensus forecasts are generally nudging higher for key economies/regions. In Asia, trade bellwethers suggest some improvement as well, while the China reopening is seen as positive, although there was some disappointment that the official 2023 growth target, ‘around 5%’, was not more ambitious.

DATA

EUROZONE DATA (MNI): GDP Revised Down 0.1pp to Flat Growth in Q4

• EUROZONE Q4 GDP 0.0% (=FCST, VS +0.1% FLASH); Q3 +0.4% Q/Q
• EUROZONE Q4 GDP +1.8% (FLASH +1.9%); Q3 +2.4% Y/Y

The euro area stalled in the Q4 final GDP print, after GDP was downgraded by 0.1pp on both the Q/Q and Y/Y headline figures. This was largely in line with expectations following the 0.2pp downwards revision to German GDP. The component breakdown confirmed that private spending was particularly weak into year-end, as persistent inflationary pressures and weak consumer sentiment continue to reduce spending appetite. Q4 household final consumption expenditure fell -0.9% q/q, after +0.9% q/q in Q3, accounting for -0.4pp on the headline q/q GDP figure.

GERMAN DATA (MNI): Industrial Production Signals More Robust Start to 2023

• GERMANY JAN INDUSTRIAL PROD +3.5% M/M (FCST +1.4%); DEC -2.4%r M/M
• GERMANY JAN INDUSTRIAL PROD -1.6% Y/Y (FCST -3.7%); DEC -3.3%r Y/Y

German industrial production jumped +3.5% m/m in January, outpacing forecasts of a softer +1.4% m/m rebound. Production remained -1.6% y/y below January 2022 levels. Strong growth in electronics and chemicals boosted the headline m/m print, whilst substantial contractions were recorded across auto and pharma industries.

GERMAN DATA (MNI): Retail Sales Post Contractionary Start to Q1

• GERMANY JAN RETAIL SALES -0.3% M/M (FCST +2.3%); DEC -1.7% M/M
• GERMANY JAN RETAIL SALES -6.9% Y/Y

German retail sales (real) contracted by -0.3% m/m and -6.7% y/y in January. This was weaker than the -0.3% m/m fall anticipated by consensus. Compared to pre-pandemic January 2023, retail sales were -0.6% lower. A continuation of this trend would drag on Q1 growth after the high cost of living and weak sentiment saw household consumption fall -1.0% q/q (vs -0.6% expected) in Q4 2022.

JAPAN DATA (MNI): Japan's Feb Sentiment Posts First Rise in 4 Months

Japan's sentiment index posted the first rise in four months in February and the outlook index posted the third straight rise, prompting the government to upgrade its assessment from the previous month, the Economy Watchers survey released by the Cabinet Office Wednesday showed. The Economy Watchers sentiment index for the current economic climate rose a seasonally adjusted 3.5 points to 52.0 in February from 48.5 in January. The outlook index for two to three months ahead rose 1.5 points to 50.8 in February from 49.3 in January.

FOREX: Greenback Tops Key Tech Mark For First Time Since '21

• As the dust settles following the hawkish appearance from Fed's Powell yesterday, the USD Index built on recent gains overnight, confirming a key bullish break of the 100-dma. Markets broke and closed above this mark (today at 105.466) for the first time since June 2021 - a move which presaged a multi-year rally for the currency amid the Fed's post-pandemic tightening drive.
• AUD and NZD trade more favourably, partially reversing the Tuesday weakness to rally against most others.
• In her first public speech since being appointed to the BOE MPC in August last year, BoE's Dhingra confirmed her place on the dovish side of the bank board, voicing her preference for unchanged policy in the near-term for the Bank of England - raising further the risk for split votes at the MPC going forward.
• JPY trades on the backfoot, keeping the week's best levels in EUR/JPY under pressure ahead of NY hours. A break above 145.57 would mark a significant bullish break for the cross - putting prices at the best levels since December. The equity backdrop remains supportive, with outperformance again noted in the Nikkei 225 overnight - futures traded clear of the Q4 2022 highs Wednesday.
• Focus Wednesday turns to the Bank of Canada rate decision, at which the Bank are seen keeping policy rates unchanged at 4.50% for the first time since their tightening drive kicked off in 2021. USD/CAD prints a new YTD high at 1.3774 ahead of the NY crossover.

BONDS: Global Short End Continues to Underperform Post-Powell

Global core FI continues to weaken in early Wednesday trade, with no clear out/underperformers but a general theme of bear flattening evident.

• The US, German and UK short ends are weakest on the curve, with 2Y yields up 3+bp across the board. The US 2Y yield made headlines by hitting a post-2007 high above 5.08% before retreating. Meanwhile, terminal hike pricing in Europe continued to rise on the back of Fed Chair Powell’s hawkish commentary Tuesday.
• That said, BoE and ECB hike prospects pulled back from multi-month / cycle (respectively) intraday highs of ~5.00% / 4.18%.
• BoE’s Dhingra delivered a dovish speech as expected, while Italy’s Visco took aim at his ECB colleagues, decrying multi-meeting rate hike guidance opposed to a meeting-by-meeting approach.
• German /Italian retail sales and German industrial production both beat expectations, while the Eurozone final GDP revision was in line.
• A fairly busy US data slate is highlighted by more employment indicators: ADP payrolls and JOLTS are the highlights, in addition to the Jan trade balance.
• Powell’s 2nd day of Congressional testimony is the speaker highlight (Barkin will also be eyed), with the Fed’s Beige Book out later. The Bank of Canada decision (pause expected) also bears watching.
• US supply includes $32B 10Y Note reopen.

• Jun 10-Yr futures (TY) down 3.5/32 at 110-27 (L: 110-20.5 / H: 110-31.5)
• Jun Bund futures (RX) down 16 ticks at 131.06 (L: 130.77 / H: 131.24)
• Jun Gilt futures (G) down 25 ticks at 99.83 (L: 99.55 / H: 99.96)
• Italy / German 10-Yr spread 1.5bps wider at 185bps

EQUITIES: E-Mini S&P Trades Below 4000.00 Following Post-Powell Move Lower

Eurostoxx 50 futures remain above key support - the base of a bull channel drawn from the Oct 13 low. The line intersects at 4230.60. While channel support holds, the broader uptrend remains intact. Monday’s gains resulted in a test of 4323.00, the Feb 16 high and bull trigger. A clear break would resume the uptrend. On the downside, a breach of the channel base alters the picture. The S&P E-Minis trend condition is bearish and yesterday’s move lower signals the end of the recent corrective bounce. A continuation lower would pave the way for weakness towards the next key support at 3925.00, Mar 2 low. This level is a bear trigger and a breach would confirm a resumption of the bear leg that started on Feb 2. For bulls, a break of 4082.50, the Mar 6 high, is required to reinstate a bullish theme.

• Japan's NIKKEI closed higher by 135.03 pts or +0.48% at 28444.19 and the TOPIX ended 6.23 pts higher or +0.3% at 2051.21.
• Elsewhere, in China the SHANGHAI closed lower by 1.851 pts or -0.06% at 3283.248 and the HANG SENG ended 483.23 pts lower or -2.35% at 20051.25.
• Across Europe, Germany's DAX trades lower by 23.51 pts or -0.15% at 15535.31, FTSE 100 lower by 25.57 pts or -0.32% at 7893.74, CAC 40 down 26.39 pts or -0.36% at 7312.88 and Euro Stoxx 50 down 8.28 pts or -0.19% at 4270.68.
• Dow Jones mini up 20 pts or +0.06% at 32885, S&P 500 mini up 1 pts or +0.03% at 3991, NASDAQ mini up 2.75 pts or +0.02% at 12172.

COMMODITIES: Gold Erases March Gains, Trend Conditions Bearish

A sharp sell-off in WTI futures Tuesday has defined a key near-term resistance at $80.94, the Feb 7 high. A break above this hurdle is required to reinstate the recent bullish theme that would open $82.89, the Jan 23 high and a key resistance. On the downside, support to watch lies at $75.83, the Mar 3 low. A continuation lower and a breach of this level would strengthen a bearish case and open $73.80, the Feb 22 low. Trend conditions in Gold remain bearish and yesterday’s strong sell-off reinforces this theme. The move lower signals the end of the recent corrective bounce and attention is on support and the bear trigger, at $1804.9. A break of this level would confirm a resumption of the downtrend and open $1787.3, a Fibonacci retracement. The yellow metal needs to breach $1858.3, the Mar 6 high, to signal scope for a stronger reversal.

• WTI Crude down $0.36 or -0.46% at $77.27
• Natural Gas down $0 or 0% at $2.687
• Gold spot up $1.51 or +0.08% at $1814.71
• Copper up $0.7 or +0.18% at $398.2
• Silver down $0 or 0% at $20.0723
• Platinum up $7.95 or +0.85% at $942.78