MNI US OPEN - BoJ Rebuff Market Pressure

NEWS

JAPAN (MNI): BOJ On Hold; Keeps Forward Guidance; Expands Ops

The Bank of Japan board decided to keep monetary policy unchanged on Wednesday as the policymakers examine the impact of last month's decision to widen the range of its 10-year yield target aimed at restoring the functioning of financial markets.

The BOJ maintained its easing forward guidance for the policy rates, showing the policymakers are vigilant against the near-term downside risk to economy and saw the need to keep easing bias regarding the outlook for monetary policy. The short term policy rate was maintained at -0.1% and the 10-year yield target range was maintained at 50bp around zero percent.

JAPAN (MNI): Kuroda Dismisses Market Speculation On YCC Hike

Bank of Japan Governor Haruhiko Kuroda dismissed the chance of a near-term policy change, citing downside risks to economy and inability to achieve the 2% price target over the bank's projection period, but he left open the possibility of shifting the yield curve control policy to a shorter maturity.

ECB (BBG): Villeroy Says Lagarde’s Half-Point ECB Guidance Still Valid

Guidance from European Central Bank President Christine Lagarde that borrowing costs will continue to be lifted in half-point steps for some time still holds, according to Governing Council member Francois Villeroy de Galhau. Speaking to Bloomberg TV at the World Economic Forum in Davos, the Bank of France chief said it’s too soon to talk about the size of the likely interest-rate increase in March, after people familiar with officials’ thinking told Bloomberg that moderating inflation and declining energy prices may warrant a smaller hike.

OIL (BBG): Oil Market Faces Bigger Surplus Even as China Reopens, IEA Says

Global oil markets face a bigger surplus this quarter than previously expected, with demand still constrained despite China’s bid to reopen its economy from Covid lockdowns. World supplies will exceed consumption by roughly 1 million barrels a day in the first three months of the year, the International Energy Agency said in a monthly report. While the organization made a modest upgrade to its outlook for China after the easing of restrictions, it doesn’t expect to see annual demand growth there until the second quarter.

US/CHINA (MNI): Yellen to China VP - Misunderstandings Should Not Worsen Econ Relations

Chinese Vice-Premier Liu He told US Treasury Secretary that there needs to be "serious communication" between the two nations regarding the global economy and climate change, stating that he was ready for an in-depth conversation. Liu: ""We do believe that we have to always bear in mind the bigger picture, try to manage our differences appropriately and seek common ground. In this way, hopefully we can work together to maintain the overall stability of Chinese-US relations."

CHINA (MNI): Provinces Target 5.9% Growth on Average In 2023

China's 31 provinces have announced an average GDP growth target of 5.9% in 2023, 0.4 pp lower than the average target of 6.3% in 2022, according to Yicai.com. The news outlet said expanding domestic demand and industrial transformation were seen as priorities, when it analysed the outcome of recent local two-session meetings.

TURKEY (MNI): Erdogan States 14 May Will Be Date For General Election

President Recep Tayyip Erdogan has re-stated that the country's presidential and legislative elections will take place on 14 May, a month earlier than they needed to be. The outcome is one of the most uncertain in Turkish democratic history. Turkey's economic situation of high inflation and pressure on household finances would usually make the incumbent vulnerable.

DATA

EUROZONE DATA (MNI): Dec Core Remains Elevated As Headline Edges Lower

• EUROZONE DEC FINAL HICP -0.4% M/M (FLSH -0.3%); NOV -0.1% M/M
• EUROZONE DEC FINAL HICP +9.2% Y/Y (= FLSH); NOV % Y/Y
• EUROZONE DEC FINAL CORE CPI +0.6% M/M, +5.2% Y/Y; NOV +5.0% Y/Y
• EUROZONE NOV CONSTRUCTION OUTPUT -0.8% M/M, +1.3% Y/Y

Eurozone final HICP was confirmed slowing by 0.9pp to +9.2% y/y in the final December data. The month-on-month fall in prices was revised 0.1pp lower to -0.4% m/m. This confirms a second consecutive month of slowing headline CPI, largely driven by lower energy prices which contributed around 1pp less to the headline print than in November.

Yet confirmation of the +5.2% y/y record core CPI print implies that prices continue to accelerate in a broad-based manner. Service inflation was up +0.7% m/m alone, increasing 0.2pp to +4.4% y/y. As such, the December data sees continued pressure for the ECB to hike further to get a grip of core price pressures. At the December meeting, President Lagarde stated further 50bp hikes are expected.

UK DATA (MNI): UK Inflation Slows, But BOE Set to Hike 50bp In Feb

• UK DEC CPI +0.4% M/M, +10.5% Y/Y
• UK DEC CORE CPI +0.5% M/M, +6.3% Y/Y
• UK DEC RPI +0.6% M/M, +13.4% Y/Y

Headline inflation in the UK slowed in December, but still remains clearly above 10% and core inflation was unchanged at 6.3% year-on-year, underlining the challenge the Bank of England's Monetary Policy Committee will have in coming months.

CPI rose 0.4% m/m in December and 10.5% year-on-year, which was modestly slower than the 10.7% seen in November, the Office for National Statistics said Wednesday. However, core inflation, a measure of the underlying price pressures excluding mainly food and energy costs, was unchanged at 6.3%. Both numbers remain well above the BOE's 2% target rate.

UK DATA (MNI): XpertHR Median Pay Holds Pace in Dec

• XPERT HR MEDIAN PAY AWARD 3M DEC +5.0%; Nov +5.0%

XpertHR's latest pay data found pay awards were up +5.0% in the three months ending December. This is over double last year's December figure as firms experience growing pressure from a tight labour market and the higher cost of living.

JAPAN DATA (MNI): Japan Nov Machine Orders Post 1st Drop in 2 Months

• JAPAN NOV CORE MACHINE ORDERS -8.3% M/M; OCT +5.4%

Bank of Japan officials will closely monitor the outlook for capital investment following weak machinery orders for November, which aren’t consistent with solid capex plans in the BOJ December Tankan survey. Japan's core machinery orders, which exclude volatile orders for power generation equipment and ships, fell 8.3% m/m in November, for the first drop in two months following a 5.4% rise in October, data released by the Cabinet Office showed Wednesday.

FOREX: Flurry of Short-Covering Sees USD/JPY Undergo Corrective Bounce

• JPY is sliding against all others in G10 as the BoJ worked against market pressure to abandon their flagship yield curve control policy. Implied vols were well bid into the event, pricing in a near 300 pip response in USD/JPY. This came to fruition, with a flurry of short-covering driving USD/JPY north of 131.50 - a move that's in the process of being faded as markets head through to the NY crossover.
• The USD/JPY rally stopped short of the 20-day EMA, which provided effective resistance and suggests the over-arching downtrend remains intact for now.
• USD strength followed the BoJ decision initially, but this has similarly reversed in favour of the EUR. Upside was bolstered by an appearance from ECB's Villeroy, who talked against recent sources reports that suggested the bank will imminently step down the pace of tightening. EUR/USD remains bid, showing above yesterday's highs to print at 1.0869 in recent trade.
• CHF also trades well, and is firmer against the EUR for a fourth consecutive session. Price has now dipped back below parity, making for a 150 pip fade off last week's best levels.
• US PPI data should be the focus for the Wednesday session, with markets expecting PPI to slip to 6.8% on the year, down from 7.4% on a final demand basis. Industrial production and the NAHB Housing Markets Index also cross. The speakers slate could also provide some interest, as Fed's Bostic, Harker and Logan appear. The Fed also release their latest Beige Book assessment.

BONDS: Curves Flatter With Drivers At Both Ends

Global cash curves are flatter in early Wednesday trade, with dovish short-term rate expectations being reconsidered, and the BoJ keeping a lid on long-end yields.

• While the BoJ's decision to maintain the status quo on monetary policy - including maintaining the current yield curve control regime - was widely anticipated by analysts, the lack of a hawkish surprise saw a strong rally across global core FI.
• 10Y JGB yields fell as much as 14bp and Tsys 9bp.
  
• In Europe, stronger-than-expected UK CPI data and pushback by the ECB's Villeroy on yesterday's dovish Bloomberg sources piece saw near-term BoE and ECB hike pricing firming.
• The Tsy curve has bull flattened, with Germany's twist flattening and the UK's modestly bear flattening. EGB periphery spreads are mixed.
• Attention turns to US data (PPI, retail sales, industrial production) and Fed communications (Beige Book, Atlanta's Bostic, Dallas' Logan, St Louis' Bullard, Philly's Harker). We also get a $12B 20Y Tsy auction.

Latest levels:

• Mar 10-Yr US Tsy futures (TY) up 9.5/32 at 114-31 (L: 114-16 / H: 115-04)
• Mar Bund futures (RX) up 2 ticks at 139.28 (L: 138.97 / H: 139.99)
• Mar Gilt futures (G) down 23 ticks at 104.22 (L: 103.97 / H: 104.97)
• Italy / German 10-Yr spread 0.4bps wider at 180.5bps

EQUITIES: Eurostoxx Futures, E-Mini S&P Holds on to Recent Gains

EUROSTOXX 50 futures bullish conditions remain intact and the contract is trading holding on to its recent gains. Futures have recently cleared resistance at 4043.00, the Dec 13 high and a bull trigger. The break marks a key short-term positive development and paves the way for gains towards 4215.00 next, a Fibonacci projection. Moving average studies are in a bull-mode condition, reinforcing the bull theme. Initial firm support is 4015.70. S&P E-Minis are trading at their recent highs and conditions remain bullish. The contract has cleared resistance at the 50-day EMA and this has strengthened the short-term bullish condition. Price has also traded above the 4000.00 handle to open 4043.00 next, the Dec 15 high. Key support and the bear trigger has been defined at 3788.50, the Dec 22 low. A reversal lower and a break of this support would resume bearish activity.

• Japan's NIKKEI closed higher by 652.44 pts or +2.5% at 26791.12 and the TOPIX ended 32.04 pts higher or +1.68% at 1934.93.
• Elsewhere, in China the SHANGHAI closed higher by 0.161 pts or +0.01% at 3224.406 and the HANG SENG ended 100.36 pts higher or +0.47% at 21678.
• Across Europe, Germany's DAX trades lower by 8.1 pts or -0.05% at 15181.25, FTSE 100 lower by 3.04 pts or -0.04% at 7848.4, CAC 40 up 5.13 pts or +0.07% at 7084.53 and Euro Stoxx 50 up 1.1 pts or +0.03% at 4176.31.
• Dow Jones mini down 12 pts or -0.04% at 34006, S&P 500 mini up 1.75 pts or +0.04% at 4010.75, NASDAQ mini up 6 pts or +0.05% at 11629.5.

COMMODITIES: WTI Futures Target 81.50 Bull Trigger

WTI futures traded higher last week and the bull theme remains intact as the contract extends its climb. The move higher has exposed resistance at $81.50, the Jan 3 high and a bull trigger. Clearance of this hurdle is required to strengthen a bullish theme and open $83.27, the Dec1 high. The broader trend outlook still appears bearish. A reversal lower would expose the bear trigger that has been defined at $70.31, the Dec 9 low. Trend conditions in Gold remain bullish and the yellow metal traded to a fresh trend high earlier this week. This confirms an extension on the current uptrend and maintains the positive price sequence of higher highs and higher lows. Note that moving average studies are in a bull mode position - reflecting the uptrend. The focus is on $1934.4 next, the Apr 25, 2022 high. Support to watch lies at $1855.9, the 20-day EMA.

• WTI Crude up $0.92 or +1.15% at $81.03
• Natural Gas down $0.13 or -3.74% at $3.452
• Gold spot up $3.12 or +0.16% at $1912.23
• Copper up $7.8 or +1.85% at $429.85
• Silver up $0.26 or +1.07% at $24.1841
• Platinum up $3.12 or +0.3% at $1046.35