MNI US OPEN - BoJ on Hold, Ueda Hints at April End to NIRP

NEWS

BOJ (MNI): BOJ on Hold; Keeps 1% 10-Yr JGB Yld as Reference

The Bank of Japan board on Tuesday decided to keep its yield curve control and negative interest rate policy as a virtuous cycle between wages and prices has not strengthened sufficiently to achieve the bank’s 2% target. The BOJ kept the short-term interest target at -0.1%, the long-term interest rate target at around zero percent, and the upper end of for 10-year Japanese Government Bond yields at 1% as a reference.

BOJ (MNI): Ueda Hints at April End to Negative Rates

The Bank of Japan’s 2% inflation target is in sight as signs build of a virtuous cycle between wages and prices, Governor Kazuo Ueda said on Tuesday after the BOJ left policy unchanged at its meeting, in comments which pointed to a possible move away from negative rates in April. “If the virtuous cycle strengthens and if the BOJ can be confident of the 2% price target, the Bank will examine whether it is appropriate for the BOJ to continue with easy policy, including the negative interest rate policy,” Ueda told reporters

BOJ (MNI): Policymaker Caution Could Impede Board Consensus

The Bank of Japan's board remains divided over whether sufficient evidence of sustainable wage inflation exists to justify a move away from negative rates, meaning Governor Kazuo Ueda's opinion will carry more weight, though officials still hope to achieve consensus, MNI understands. Board members Naoki Tamura and Seiji Adachi believe current conditions sufficient to remove negative rates soon.

US (MNI): Haley Wins Dixville Notch, But Polls Show NH Set to Break Heavily for Trump

In a convention of US presidential elections, the unincorporated community of Dixville Notch, New Hampshire cast its votes in the Republican presidential primary at midnight on 23 Jan. All six votes went to former South Carolina governor Nikki Haley. However, the broader and more impactful story is that opinion polling in the run-up to today's primary in the Granite State shows former President Donald Trump holding a commanding lead over Haley. The latest from Trafalgar has Trump on 58%, Haley on 35% with 5% undecided.

US/UK (BBG): US and UK Strike Yemen’s Houthis Again to Stop Red Sea Attacks

The US and UK launched more airstrikes against the Houthis in Yemen on Monday, the latest salvo in an effort to stop the Iran-backed group’s attacks on ships in the Red Sea. Monday night’s moves marked the eighth round of allied attacks on the Houthis since the first on Jan. 12. American and British forces said they hit eight targets, including an underground storage site and locations for launching missiles and carrying out air-surveillance.

ISRAEL (BBG): Israel Says 24 Soldiers Killed in Gaza in Worst One-Day Toll

Israel said 24 of its soldiers were killed in Gaza on Monday, marking the worst single-day death toll for the military since the war against Hamas began in October. At around 4 p.m. local time in central Gaza, militants fired on an Israeli tank and, at the same time, there were massive explosions at two nearby buildings, a spokesman for the Israel Defense Forces said on Tuesday. The resulting blasts near the border fence with Israel killed 21 servicemen.

EUROZONE (MNI): EZ Bank Credit Standards Tighten in Q4 - ECB Survey

Banks across the eurozone tightened credit standards further for loans or credit lines to enterprises in Q4 2023, the ECB's latest Bank Lending Survey showed. The BLS is closely watched by policymakers on the ECB's Governing Council and will in part guide the thinking behind the timing of the first cycle rate cut. The tightening of conditions added to the "substantial cumulative tightening since 2022", the survey noted, which, together with weak demand, has contributed to the strong fall in loan growth to firms.

FRANCE (BBG): French Farmers to Extend Protests to Pressure Government

French farmers said they will gradually extend protests across the country until the government responds to their concerns over rising costs and bureaucracy. “Every minute, we’re hearing that new blockades are being set up,” Arnaud Rousseau, the head of the FNSEA farming union, said on RMC radio on Tuesday. “It can last a day, it can last a week, it can last as long as necessary for answers to be provided.”

CHINA (MNI): Policy Rate Cut Still Live, RRR Reduction

MNI (Beijing) The People’s Bank of China could reduce its policy rates as soon as late Q1 or early Q2 should the economy continue to struggle, however, its recent injection of 7-day repo has lowered the likelihood of a reserve requirement ratio cut before Chinese New Year, economists and analysts told MNI. The Loan Prime Rate, based on the PBOC’s medium-term lending facility (MLF) rate and quotes submitted by 20 banks, remained at 3.45% for the one-year maturity and 4.2% for the over five-year maturity on Monday, its fifth consecutive month on hold, according to the central bank’s website. The pause was in line with expectations.

CHINA (MNI): Li Qiang Calls for Capital Market Support

MNI (Beijing) Chinese Premier Li Keqiang has called on authorities to support the capital market and introduce more long-term capital, after chairing a State Council meeting to review capital-market operation, Chinese state broadcaster CCTV reported on Tuesday citing analysts. The meeting emphasised efforts needed to improve market basic operation and balance investment with financing.

CHINA (MNI): China 2024 Steel Demand Hinges on Property Investment

MNI (Beijing) China’s steel demand will rebound this year following an estimated 2.2% decline in 2023 should government policies reverse property-sector weakness and new growth drivers expand, however, exports will likely fall following last year's 35.6% increase, local analysts and traders told MNI. China’s total steel consumption will hit 950 million tonnes in 2024, up 1% year-on-year, with output reaching about 1 billion tonnes, said Wang Guoqing, head of research at Lange Steel Information Research Center.

GLOBAL (BBG): EL Niño Ocean Warmth Past Its Peak, Australian Bureau Says

Sea surface temperatures in the central tropical Pacific have peaked and are now declining, according to a climate update from Australia’s Bureau of Meteorology. A return to neutral El Niño–Southern Oscillation (ENSO) levels is expected in the southern hemisphere autumn 2024.

MNI BOC PREVIEW - JANUARY 2024: Expecting Too Soon For Cuts Reiteration

The BoC is unanimously expected to hold its policy rate at 5% with greater focus on the statement’s tone and macro forecasts before Macklem’s press conference. One important area will be to what extent the BoC sees the recent resurgence in its preferred core inflation metrics as “bumps along the way” in a path back towards the 2% inflation target. The market has pushed back fully pricing a first rate cut from April to June and analysts expect hawkish leaning commentary. We expect similar and accordingly see risk skewed to a dovish surprise if greater weight is put on the softer aspects of nuanced data or inflation forecasts are lowered.

MNI NORGES BANK PREVIEW - JANUARY 2024: Watchful of Guidance Changes

The Norges Bank are unanimously expected to leave the policy rate on hold at 4.50% to begin 2024.Main interest will lie in whether any changes are made to the policy guidance, though we expect the primary guidance paragraph/quote from Governor Bache to be broadly unchanged. We think only a sizeable shift in stance will be enough to prompt a material reaction from NOK, as this meeting is viewed by many as a formality, before more interesting questions on the rate path arise in March.

DATA

JAPAN DATA (MNI): Japan Corp Loan Demand Drops - BOJ Survey

Demand for financing by Japanese corporates via banks fell from three months ago following a fall in capital investment and the improvement of fund-raising tools, according to a senior loan officer opinion survey released by the Bank of Japan on Tuesday. The fall of capex was not consistent with the BOJ's more optimistic view, which could increase concern over a moderate economic recovery.

JAPAN DATA (MNI): Japan's Dec Trimmed Mean Rises 2.6% vs. 2.7% - BOJ

Japan's trimmed mean measure of underlying inflation rose 2.6% in December, the third straight monthly deceleration following November's 2.7%, and September's record 3.4% high, showing pass-through of cost increases continued slowing as the import prices fell y/y for the ninth straight month, data released by the Bank of Japan showed on Tuesday. The trimmed mean came after data released on Friday showed Japan's annual core consumer inflation rate rose 2.3% in December, slowing from November's 2.5% and for the 21st straight month above the 2% target.

FOREX: Firmer JPY Fades into NY After Uneventful BoJ

• The BoJ decision came and went with no change to headline monetary policy - as expected. The JPY firmed on the back of Ueda's press conference, at which he noted that the Bank will examine whether to continue its sizeable monetary easing, including negative interest rates, when the Bank's inflation target is in sight. Nonetheless, JPY strength has faded into NY hours, with little meaningful follow through on BoJ policy.
• USD/JPY remains at the bottom-end of the daily range, but is off the 146.99 post-Ueda low. As flagged by implied vols ahead of the event, the BoJ reaction amounted to ~100 pips. Nonetheless, a bullish USDJPY theme remains intact and last week’s gains reinforce current conditions. Resistance at 146.41, the Jan 11 high, has recently been cleared, resuming the bull cycle.
• USD is softer, but well off session lows headed into NY hours as markets catch up with the ~3bps rise in the US 10y yield over the European open. This helped drag EUR/USD, AUD/USD and others further off session highs. Price action is relatively gradual at this stage, but unlike yesterday, volumes are faring better, with EUR, GBP and (unsurprisingly) JPY futures seeing decent activity.
• Focus for the remainder of the Tuesday session rests on the prelim Eurozone consumer confidence release on top of the January Richmond Fed Manufacturing Index. Central bankers at both the ECB and the Fed are inside their pre-decision media quiet periods, which should keep headline risk relatively low.

EGBS: Softer Following Hawkish BoJ Leanings; Peripheries Widen

Core/semi-core EGBs have recovered from intraday lows, but remain weaker on the day.

• The initial moves lower came as BoJ Governor Ueda's press conference leant on the hawkish side, after the decision itself featured few surprises.
• Bunds are -17 ticks at 134.30, 21 ticks above the day's lowest levels but still some 36 ticks off yesterday's high. OAT futures sit similarly, +21 ticks at typing.
• The German and French cash curves have bear steepened, with yields flat to +3bps at typing. Peripheries are a touch wider to Bunds with the 10-year BTP/Bund spread +1.4bps at 156.3bps.
• The ECB's Q4 '23 Bank Lending Survey reported another net tightening in credit standards, with more expected in Q1 '24, while loan demand continued to drop "substantially".
• Elsewhere, the week's supply has kicked off with the Netherlands and Germany, alongside a dual-tranche tap syndication from the EU.
• The remainder of today's regional docket is light, with Consumer Confidence highlighting at 1500GMT/1600CET. Focus remains on tomorrow's flash PMIs before the ECB decision on Thursday.

GILTS: Holding a Little Cheaper on the Day, Syndication Dynamics Eyed, Strong Demand Seen

Gilts participate in the BoJ-inspired weakness in wider core global Fi markets, with that matter applying the bulk of the pressure.

• Futures stick within the range witnessed over the last couple of sessions, through yesterday’s base, last -43 at 98.77, less than 10 ticks off the base of the 26-tick session range.
• Cash gilt yields are 1.0-2.5bp higher on the day, with intermediates leading that move.
• Recovery bids have remained relatively shallow and ranges are generally contained.
• Books are closed on the syndication of the new 4.375% Jul-54 gilt, with the book build already topping GBP70bn per the most recent update from bookrunners. That demand has allowed the spread to be set at the tighter end of the initial guidance range (3.75% Oct-53 gilt +1.75bp). Ahead of the syndication we looked for a GBP4-6bln transaction size.
• The presence of this syndication will be helping cap any rallies.
• SONIA futures are flat to -6.5 through the blues. Operating at/just off session lows.
• BoE-dated OIS is flat to ~3.5bp firmer through ’24 contracts, with ~104bp of cuts priced through ‘24 at present.
• Sizing and allocations surrounding the aforementioned gilt syndication, s well as related hedging activity, should dominate local matters through the remainder of the day.

EQUITIES: Uptrend in E-Mini S&P Remains Intact

Eurostoxx 50 futures have recovered from last week’s low of 4402.00 (the Jan 17 low). This level represents a key short-term support. A break of it would resume recent bearish pressure and open 4370.00, the Nov 28 low. On the upside, initial resistance to watch is 4536.00, the Jan 11 high. Clearance of this level would highlight a potential reversal and a resumption of the primary uptrend. The uptrend in S&P E-Minis remains intact and last week’s gains confirmed a resumption of the trend. Resistance at 4841.50, the Dec 28 high has been cleared, marking an extension of the price sequence of higher highs and higher lows. Moving average studies remain in a bull-mode condition, reinforcing the current bullish condition. Sights are on 4900.00 next. Key support lies at 4706.46, the 50-day EMA.

• Japan's NIKKEI closed lower by 29.38 pts or -0.08% at 36517.57 and the TOPIX ended 2.85 pts lower or -0.11% at 2542.07.
• Elsewhere, in China the SHANGHAI closed higher by 14.636 pts or +0.53% at 2770.976 and the HANG SENG ended 392.8 pts higher or +2.63% at 15353.98.
• Across Europe, Germany's DAX trades lower by 28.25 pts or -0.17% at 16663.19, FTSE 100 lower by 6.68 pts or -0.09% at 7484.09, CAC 40 down 19.85 pts or -0.27% at 7397.55 and Euro Stoxx 50 down 16.13 pts or -0.36% at 4466.71.
• Dow Jones mini down 22 pts or -0.06% at 38179, S&P 500 mini up 1 pts or +0.02% at 4881.75, NASDAQ mini down 0.25 pts or 0% at 17457.

COMMODITIES: Recovery in WTI Futures Deemed Technically Corrective, For Now

Trend signals in WTI futures remain bearish and the latest recovery appears to be a correction - for now. The contract has pierced the 50-day EMA at $74.25. A clear break of it would strengthen a bullish theme and expose $76.31, the Dec 26 high and a near-term bull trigger. Moving average studies remain in a bear-mode position and continue to highlight a downtrend. The trigger for a resumption of the downtrend is $68.28, Dec 13 low. Gold is trading above the Jan 17 low of $2001.9. Last week’s 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 down $0.29 or -0.39% at $74.37
• Natural Gas down $0.01 or -0.25% at $2.414
• Gold spot up $6.2 or +0.31% at $2028.56
• Copper up $2.95 or +0.78% at $378.75
• Silver up $0.17 or +0.77% at $22.278
• Platinum up $7.5 or +0.84% at $905.21