MNI US OPEN - BoE Set to Follow Fed in Ending Tightening Bias

NEWS

MNI BOE PREVIEW - FEBRUARY 2024: The End of the Tightening Bias?

The February MPC meeting will almost certainly see Bank Rate left on hold at 5.25% but there are three significant aspects of the decision that will be closely watched by markets – the vote split, the guidance and the forecasts. The Bank continues to reiterate that it is data dependent, and the story in the data has changed since both the November MPR forecasts were made and also since the December MPC meeting. On the vote: We still look for 1-2 hawkish dissenters and assign a 40% probability to Dhingra voting for a cut at this meeting.

RIKSBANK (MNI): Riksbank Holds on Rates, Not Ruling Out H1 Cut

The Riksbank left its policy rate on hold at 4.0%, as widely expected, and stepped up the pace of asset sales and delivered surprisingly dovish guidance, stating that it could ease policy earlier than previously expected and that it did not rule out a rate cut in the first half of the year. The Executive Board said it now believed that there was a lower risk of inflation becoming embedded at high levels, which leaves the door open to an earlier rate cut.

US (BBG): House Passes $78 Billion Business, Child Tax Break Bill

The House passed a $78 billion business and child tax break bill that would provide a boon for US companies with large capital and domestic research expenditures and hand President Joe Biden an election-year political victory. The measure, which was approved by a vote of 357 to 70, now heads to the Senate where lackluster Republican support threatens to sink it over a provision that would allow some people with no taxable income to collect the child tax credit and other concerns.

US/MIDDLE EAST (BBG): US Strikes Houthis and Blames Iraq Group for Jordan Drone Attack

The US launched two separate strikes on Houthi targets in Yemen and intercepted a missile fired by the Iran-backed group, as the fallout from the Israel-Hamas war continues to roil the region. American forces destroyed a Houthi surface-to-air missile they said was being prepared for launch at around 3:30 p.m. Yemen time on Wednesday. Five hours later, the USS Carney, a destroyer, intercepted a Houthi anti-ship missile fired toward the Gulf of Aden and also shot down three drones in the area, according to US Central Command.

US/CHINA (MNI): US Firms in China Expecting More Profits in 2024

MNI (Beijing) U.S. firms in China have increased profit expectations and lowered risk assessment for U.S. China relations for 2024, according to a report by the American Chamber of Commerce on Thursday. Firms with an optimistic or slightly optimistic outlook on the economy increased to 38% from 32% last year. While companies feeling pessimistic on U.S. China relations fell from 36% in 2023 to 17% this year. In terms of FDI, firms that believe the Chinese government comittment to open up its economy reached 43%, up from 32% last year.

EU/UK (MNI): No 'Red Flags' on UK-NI Deal, But Commission 'Has Some Questions' - Varadkar

Irish Taoiseach (PM) Leo Varadkar speaking at the EUCO summit on the agreement reached between the UK gov't and political parties in Northern Ireland that seeks to restore the power sharing executive after two years without a functioning devolved gov't. Varadkar stays that the European Commission "has some questions" regarding the proposals the UK gov't that are intended to remove any checks on goods travelling between Great Britain and Northern Ireland.

CHINA (MNI): China to Enhance Fiscal Support Via CGB Issue

MNI (Beijing) China will strengthen fiscal efforts to boost investment and consumption to support economic recovery, officials of Ministry of Finance told reporters on Thursday in a briefing. The authorities will maintain an appropriate fiscal expenditure and allocate effectively funds raised by government bonds to bolster investment.

CHINA (MNI): Soft China Inflation to Persist, Oversupply Will Weigh

MNI (Beijing) China’s headline inflation rate will remain weak this year as consumption and the property sector improve moderately, while manufacturing oversupply will likely weigh on future prices over the long term, policy advisors and economists told MNI. The Consumer Price Index (CPI) could increase by Q2 after a challenging Q1, impacted by weak consumption due to low household income growth, a soft employment market and sluggish rental prices, said Cao Jing, associate research fellow at the Chinese Academy of Social Sciences’ Institute of Finance and Banking.

CHINA (BBG): China Vows to Keep ‘Necessary’ Strength for 2024 Fiscal Spending

China promised to maintain the “necessary intensity” for government spending this year — including by using the central budget to support investment — as Beijing looks to bolster demand and reduce local debt risks. “Fiscal expenditure in 2024 will keep up the necessary intensity,” said Li Xianzhong, head of the Treasury Department at the Ministry of Finance, during a briefing in Beijing on Thursday at which authorities said there is a foundation this year for an increase in fiscal income.

JAPAN (MNI): Japan Q4 GDP to Rise 0.3% Q/Q; 1.4% Annualised

Japan's economy in Q4 2023 is expected to have grown for the first time in two quarters, thanks to stronger capital investment and net exports, although private consumption was flat, economists predicted. Economists expect preliminary Q4 GDP to rise by 0.3% on quarter, or an annualised 1.4% following Q3's -0.7% q/q, or an annualized -2.9%. Economists predicted private consumption, which accounts for about 60% of GDP, to remain unchanged q/q vs -0.2% for Q3.

INDIA (BBG): India Boosts Infrastructure Spending, Narrows Fiscal Deficit

India’s government will increase infrastructure spending by 11% in the coming fiscal year, boost housing and other services while still curbing its budget deficit, the finance minister said. In her last budget speech before elections, Finance Minister Nirmala Sitharaman hailed the economy’s prospects and the achievements of Prime Minister Narendra Modi’s government in boosting incomes. She vowed support for sectors targeted by Modi in the elections, namely farmers, young people, women and the poor.

DATA

EUROZONE DATA (MNI): Inflation Dip Opens ECB Path to Q2 Rate Cut Talks

• EUROZONE JAN FLASH HICP +2.8% Y/Y
• EUROZONE JAN FLASH CORE HICP +3.3% Y/Y

Eurozone inflation slowed in January, though the annual headline rate still sat just above November's two-year low, potentially offering ECB policymakers an opportunity to discuss a path to rate cuts, though perhaps not by as early as the March 7 meeting. Headline inflation slowed to an annual 2.8%, down from 2.9% in December, but above the 2.4% seen in November. Core inflation also decelerated, slowing to 3.3% from 3.4% in December, flash data released by Eurostat on Thursday showed.

EUROZONE DEC UNEMPLOYMENT RATE 6.4% (MNI)

ITALY DATA (MNI): Manufacturing PMI Improvement Comes With Cautionary Themes

• ITALY JAN FINAL MANUFACTURING PMI 48.5 (FCST: 46.8); DEC 45.3

Italian manufacturing PMI accelerated more quickly than expected in January, to 48.5 (vs 46.8 expected, 45.3 prior). This was the best reading since March 2023, with HCOB/S&P Global report characterizing January as "another challenging month" for manufacturers, but with "some glimmers of hope". The uptick in the index mirrored similar improvements elsewhere in the eurozone, but so too did cautionary themes including demand weakness and potential disruptions from Red Sea shipping. Employment dynamics appeared to be weak, with both input and output deflation evident.

ITALY JAN FLASH HICP -1.1% M/M, +0.9% Y/Y (MNI)

SPAIN DATA (MNI): Red Sea Tensions Flagged in Manufacturing PMI

• SPAIN JAN FINAL MANUFACTURING PMI 49.2 (FCST: 47.0); DEC 46.2

The Spanish January manufacturing PMI was stronger-than-consensus at 49.2 (vs 48.0 cons, 46.2 prior). The headline move is consistent with the January EC survey released earlier this week, which also rose to -5.2 from -6.5. While the manufacturing climate appears to show signs of bottoming out, it remains in contractionary territory and the ongoing Red Sea tensions have added an additional risk to the outlook.

EUROZONE JAN FINAL MANUFACTURING PMI 46.6 (FLASH: 46.6); DEC 44.4 (MNI)
GERMANY JAN FINAL MANUFACTURING PMI 45.5 (FLASH: 45.4); DEC 43.3 (MNI)
FRANCE JAN FINAL MANUFACTURING PMI 43.1 (FLASH: 43.2); DEC 42.1 (MNI)
UK JAN FINAL MANUFACTURING PMI 47.0 (FLASH: 47.3); DEC 46.2 (MNI)

CHINA DATA (MNI): Caixin Jan Manufacturing PMI Remains Flat From Dec

• CHINA JAN CAIXIN MANUFACTURING PMI 50.8 VS 50.8 IN DEC

MNI (Beijing) China's Caixin manufacturing PMI registered 50.8 in January, flat from December, staying in the expansionary zone above the breakeven 50 mark for the third month, with pro-growth policies taking effect, the financial publisher said Thursday. The production sub-index has been above 50 for the fifth time in six months, and the new orders sub-index has been in the expansion range for six consecutive months. External demand reversed falling, with the new export orders sub-index standing above 50 for the first time in seven months.

AUSTRALIA DATA (MNI): Home Approvals Falter During a Housing Shortage

The number of dwelling approvals was a lot weaker than expected in December falling 9.5% m/m to be down 24% y/y driven by a 25.3% m/m drop in the multi-dwelling component but private houses also fell 0.5%. Approvals for apartments are at their lowest level since the Covid-impacted June 2020. With the working age population rising 3% y/y, the lack of home building is a problem in a market that is already facing severe shortages and is likely to continue putting pressure on rents.

FOREX: Attention Turns to the BoE

• AUD is the worst performer in G10 against the Dollar, a continuation from the Australian inflation coming below expectation, but also saw some follow through in early trade, on the broader Dollar bid, as European Equities fell, as Bank stocks came under pressure, following some of the moves in local Banks in the US open Yesterday.
• AUDUSD has now broken the January and the December low, and targets 0.6500, which is the 61.8% retrace of the Oct/Dec rally.
• USD is up against all G10s, besides the Yen that sits just 0.07% up, but JPY has retained gains of 0.58% in the past 5 days.
• NOK is the second worst performer, but continues to find support at the 10.5643, the January high in USDNOK, printed a 10.5673 high.
• The broader base bid in the Dollar, pushed EURUSD through its initial support of 1.0793, but has bounced off 1.0780, as Equities recovered from their lows.
• Looking ahead, BoE and Presser are due, and out of the US, sees US IJC, ISM.

BONDS: Lower to Start Thursday Trade

In line to slightly-firmer-than expected European CPI data, the continued burden of supply (average demand at Spanish offering, well-received French supply), local digestion of yesterday’s FOMC decision and some marginally hawkish comments from the usually dovish ECB Governing Council member Herodotou (“we must not start easing very early because then inflationary pressures might come back... but should not delay it either because then it will affect growth”) combine to apply some pressure to EGBs this morning.

• Bund futures sit a little off worst levels of the day, last -53. German cash yields are 4-5bp higher across the curve, with the wings leading the move.
• 10-Year EGB spreads to Bunds are wider given the weakness in core global FI markets and most of the global equity benchmarks in the time since yesterday’s close. Tepid/average demand at the latest round of Spanish auctions also did little to support the space.
• Gilts also soften but outperform German peers across the curve. That outperformance is likely aided by a slightly-softer-than-flash final domestic manufacturing PMI print and the previously covered fiscal commentary from the Chancellor pointing to less headroom when it comes to fiscal easing.
• Gilt futures show -21 last, while cash gilt yields are 1-3bp higher, with the curve a touch steeper on the day.
• The BoE decision, ECB speak and U.S. data headline through the remainder of the day.

EQUITIES: E-Mini S&P Remains Close to Post-Fed Lows

Eurostoxx 50 futures remain firm and the contract is holding on to its recent gains. Key resistance at the Dec 14 high has recently been cleared. The break confirms a resumption of the medium-term uptrend and sights are on the 4700.00 handle next. Initial firm support lies at 4558.90, the 20-day EMA. Key trend support has been defined at 4402.00, the Jan 17 low. A short-term pullback would be considered corrective. The uptrend in S&P E-Minis remains intact and this week’s fresh cycle highs, reinforce current conditions. Resistance at 4841.50, the Dec 28 high, has recently been cleared. This confirmed an extension of the price sequence of higher highs and higher lows. Moving average studies remain in a bull-mode condition too, highlighting positive market sentiment. Sights are on 4982.62 next, a Fibonacci projection. Key support lies at 4753.05, the 50-day EMA.

• Japan's NIKKEI closed lower by 275.25 pts or -0.76% at 36011.46 and the TOPIX ended 17.06 pts lower or -0.67% at 2534.04.
• Elsewhere, in China the SHANGHAI closed lower by 17.808 pts or -0.64% at 2770.74 and the HANG SENG ended 81.14 pts higher or +0.52% at 15566.21.
• Across Europe, Germany's DAX trades lower by 48.97 pts or -0.29% at 16848.92, FTSE 100 higher by 29.7 pts or +0.39% at 7660.8, CAC 40 down 54.24 pts or -0.71% at 7600.97 and Euro Stoxx 50 down 13.41 pts or -0.29% at 4633.71.
• Dow Jones mini up 39 pts or +0.1% at 38325, S&P 500 mini up 14.25 pts or +0.29% at 4886, NASDAQ mini up 90.75 pts or +0.53% at 17340.25.

COMMODITIES: Bearish Threat in Gold Remains Present

WTI futures continue to trade closer to their recent highs. The contract has breached $76.31, the Dec 26 high. The clear break of this hurdle undermines the recent bearish theme and highlights a stronger short-term bullish condition. A continuation higher would signal scope for a climb towards $79.56, the Nov 30 high. On the downside, initial key support lies at $74.80, the 50-day EMA. This week’s move lower appears - for now - to be a correction. Gold continues to trade above the Jan 17 low of $2001.9. The recent print below the 50-day EMA and the break of support at $2013.4, the Jan 11 low, has strengthened a bearish threat and a resumption of weakness would open a key level at $1973.2, the Dec 13 low. For bulls, clearance of 2062.3, the Jan 12 high, is required to signal a reversal. This would expose $2088.5, the Dec 28 high.

• WTI Crude up $0.6 or +0.79% at $76.4
• Natural Gas up $0.05 or +2.48% at $2.153
• Gold spot up $1.27 or +0.06% at $2041.28
• Copper down $4.65 or -1.19% at $386.25
• Silver down $0.15 or -0.65% at $22.8163
• Platinum down $5.21 or -0.56% at $917.7