MNI US OPEN - BoJ's Uchida Talks Down Protracted Tightening Cycle

NEWS

US/MIDDLE EAST (BBG): US Kills a Leader of Iran-Backed Militia in Baghdad Drone Strike

The US killed the commander of an Iran-backed militia with a drone strike in Baghdad on Wednesday night, as the White House targets groups responsible for a deadly attack on an American base last month. The leader belonged to Kataib Hezbollah and was “responsible for directly planning and participating in attacks on US forces in the region,” the Pentagon said, without naming them. “The United States will continue to take necessary action to protect our people.”

US (BBG): Senate GOP Blocks Border Deal; Future of Ukraine, Israel Aid Unclear

The Senate voted down a sweeping national security and border reform package on Wednesday after most Senate Republicans banded together with a handful of Democrats to reject the legislation their leadership helped negotiate for months. The bill included more than $60 billion in aid for Ukraine as it fends off a Russian invasion and $14 billion for Israel in its war in Gaza, and has long been a top national security priority for President Biden.

US (BBG): Biden’s Natural Gas Export Freeze Probed by House Committee

A House committee is probing the Biden administration’s decision to pause liquefied natural gas export approvals, asking the Energy Department to justify why a moratorium on project approvals is needed while the agency conducts a study that could take more than a year. In a letter sent to Energy Secretary Jennifer Granholm, the House Committee on Science, Space, and Technology asks why the department’s study on how LNG shipments affect climate change, the economy and national security is needed and how the analysis will differ from previous studies on the issue. The letter, sent Wednesday, requests a briefing from the agency by March 1.

EU (MNI): EU Nears Fiscal Rules Deal in Trilogue Talks - Sources

Three-way institutional talks to finalise new European Union fiscal rules are nearing a deal this week which would see more flexibility for borrowing to finance investment and possibly measures to protect disadvantaged members of society, officials close to the talks told MNI. Representatives of the European parliament are insisting on easier treatment for investment as the price for accepting tougher rules limiting budget deficits to 1.5% of GDP over the medium term which were agreed by member states Dec 20.

UK (MNI): Opposition Labour Set to Sideline GBP28bn Green Investment Plan

The main opposition centre-left Labour party is later today set to sideline its highly-trailed GBP28bn 'green investment' plan that it has previously indicated would be a key pillar of its manifesto ahead of the general election expected later in 2024. Policies of opposition parties would not usually garner much market interest. However, the strong likelihood of Labour coming to power in the election (84% implied probability of winning a majority according to betting markets) means that policy announcements by Sir Keir Starmer are likely hove into view as the election approaches given their potential impact on gov't finances and the overall state of the British economy.

GERMANY (MNI): German Insolvencies Steady, But Rise Expected - IWH

The number of German firms declaring themselves bankrupt was steady in January 2024, the latest analysis by the Leibniz Institute for Economic Research Halle (IWH) shows, though the number was still around 40% higher year-on-year and 20% above the January average from 2016-2019. Some 1077 companies went bust last month, affecting around 14,000 jobs at the largest 10% of firms - half the level seen in December, but double the pre-crisis average, with SMEs in industry and trade the worst affected.

CHINA (MNI): High Local Targets Hint at Further China Gov. Leverage

MNI (Beijing) Chinese local governments have set lofty GDP targets they aim to meet with increased investment and consumption, but tighter scrutiny over debt raising and falling fiscal revenue will restrain their capacity and could lead the central government to issue more bonds, policy advisors told MNI. The 31 provincial-level governments across China unveiled their 2024 targets at the annual local Two Sessions meetings last week, setting their weighted average GDP target at 5.4% y/y, compared to 2023’s actual 5.2% print.

CHINA (MNI): China's Mega Cities to Ease Homebuying Limits Progressively

MNI (Beijing) First-tier cities in China will likely ease homebuying restrictions progressively to stimulate demand without stirring up house prices, however, limited policy intensity and low consumer confidence could still stunt any durable sales rebound, advisors and analysts told MNI. Guangzhou last month completely eased restrictions on large home sales, while Shanghai also allowed single non-local residents to buy homes in some suburban areas, following the Ministry of Housing and Urban-Rural Development's decision at the end of Jan

BOJ (MNI): High Uncertainty, Despite 2% Strengthening - BOJ Uchida

Bank of Japan Deputy Governor Shinichi Uchida's comments on Thursday has somewhat weakened the chance of a March policy change, despite noting the probability of the Japanese economy achieving the 2% price target had increased. “The 2% target is expected to be achieved in a desirable manner accompanied by wage increases," Uchida told business leaders in Nara City. "The likelihood of realising this outlook has been gradually rising, although there remain high uncertainties over future developments.”

BOJ (MNI): Accommodative Stance to Persist After Negative Rates - BOJ

A senior Bank of Japan official said on Thursday that accommodative financial conditions will continue should the BOJ remove its negative interest rate policy. Seiichi Shimizu, executive director in charge of monetary policy at the BOJ, told lawmakers the Bank's aim was to achieve the 2% price target in a stable and sustainable manner accompanied by wage hikes.

RBNZ (MNI): Chief Economist Fuels Debate Over RBNZ Rate Cut Timing

A recent presentation by the Reserve Bank of New Zealand's chief economist aimed at tempering market rate cut expectations has fuelled debate among former staffers over when the central bank will likely make its move, with some calling the Reserve's bluff, and others making the case for a reduction in the third quarter. John McDermott, executive director at Motu Economic and Public Policy Research and RBNZ assistant governor between 2007-2019, said some market participants underestimated the monetary policy committee (MPC)’s desire to see more quarterly data before it judges inflation under control, noting the Q3 CPI print could be decisive.

TURKEY (BBG): New Turkey Central Banker Keeps Door Open for Hikes If Needed

Turkey’s new central bank governor said monetary policy may be tightened even further, following aggressive interest rate hikes under his predecessor. Fatih Karahan. “Monetary policy will be tightened should inflation expectations, pricing behaviour, government spending, tax policy, wages and private consumption lead to a significant deviation from our inflation outlook expectations,” Fatih Karahan said at an event in Ankara Thursday to present the bank’s latest projections. The central bank maintained its estimate that year-on-year inflation will slow to 36% by the end of 2024, 14% a year later and 9% by the end of 2026.

RBI (BBG): India Central Bank Signals No Rush to Cut Interest Rates

India’s central bank stuck to its hawkish policy stance on Thursday as inflation remains well above its target, suggesting it’s in no hurry to cut interest rates until later in the year. The Monetary Policy Committee voted five-to-one to keep the benchmark repurchase rate at 6.5%, a move predicted by all of the 42 economists in a Bloomberg survey. The panel also decided to retain its policy stance at “withdrawal of accommodation,” disappointing some analysts who had predicted a shift to neutral.

DATA

CHINA (MNI): China January CPI Falls to Over 14-Year Low

• CHINA JAN CPI -0.8% Y/Y VS MEDIAN -0.6%; DEC -0.3% Y/Y
• CHINA JAN CPI +0.3% M/M VS +0.1% M/M DEC
• CHINA JAN PPI -2.5% Y/Y VS MEDIAN -2.6% Y/Y; DEC -2.7% Y/Y
• CHINA JAN PPI -0.2% M/M VS -0.3% M/M DEC

MNI (Beijing) China's Consumer Price Index fell more than expected by 0.8% y/y in January, falling further from December's 0.3% decline to hit the lowest level since September 2009, sending a deflationary signal amid softened demand, data from the National Bureau of Statistics showed Thursday. The drop in January CPI underperformed the market consensus of -0.6%, while the NBS attributed it to the higher comparison base as the Chinese New Year was in January last year when the relaxation of Covid-19 restrictions lifted pent-up demand.

JAPAN DATA (MNI): Japan Jan Sentiment Index Drops; Outlook Index Rises

Japan's sentiment index in January posted the first drop in three months, falling 1.6 to a seasonally adjusted 50.2, but the outlook index for two-three months ahead posted its first straight rise, helping the government maintain its assessment, the the Cabinet Office's Economy Watchers report showed on Thursday.

FOREX: JPY Fades as Uchida Talks Down Protracted Tightening Cycle

• JPY trades softer headed into NY hours, with markets focusing on the comms policy from BoJ's Uchida overnight. The policymaker acknowledged the likely need for tighter policy in Japan in the near-term, but played down the prospect of a more protracted tightening cycle after a first theoretical rate hike. He stated that it is hard to see Japan requiring a sharp hiking pace after rate lift-off, helping a recovery in EUR/JPY toward the upper-end of the January/February range.
• CHF sits at the upper-end of the G10 table, reversing a small part of the Wednesday weakness. Resultingly, EUR/CHF is trading back toward the 50-dma mark at 0.9400 - tempering the sharp rally off the February lows.
• GBP similarly trades well, with GBP/USD firmer for a third session, narrowing the gap with 1.2678, the 50-dma. Further progress here opens 1.2673, the 50% retracement for the downleg from the late Dec cycle high. Broader macro newsflow has been few and far between but markets continue to note a possible bottoming-out of the housing market, as the RICS house price balance data improved ahead of expectations, reinforcing the message from last week's upswing in the Nationwide House Price Index.
• Weekly jobless claims data provide the latest look at the US jobs market, with wholesale trade sales and inventories data set to follow. The speakers slate is again busy, with Fed's Barkin, ECB's Vujcic, Wunsch and Lane as well as BoE's Mann on the docket.

EGBS: Core/Semi-Core Off Session Lows; Peripheries Tighten

Core/semi-core EGBs have recovered from intraday lows, with little in the way of fundamental drivers prompting the reversal.

• Bunds are now -10 ticks at 134.20, +32 ticks above this morning's low. Well-defined technical levels contain price action, with 133.76 (Feb 6 low) the first support and 134.84 (20-day EMA) the first resistance. OATs are -5 ticks 128.74.
• German and French cash yields are flat to -2bps lower, while 10-year periphery spreads to Bunds have tightened, the latter aided by this morning's gains of Estoxx futures. The 10-year BTP/Bund spread is -1.1bps tighter at 156.2bps at typing.
• The MNI Policy Team reported this morning that the EU is nearing a deal on fiscal rules this week in three-way institutional talks.
• The remainder of today's docket features scheduled remarks from ECB's Lane at 1530GMT/1630CET, with comments from Vujcic and the usually hawkish Wunsch also scheduled at 1100GMT/1200GMT respectively.

GILTS: Curve a Little Flatter, Yields Off Session Highs in Fairly Contained Trade

Gilt traders have seemingly been happy to track the ebb and flow of wider core global FI markets early today.

• Headline flow has been light since London trade got underway, with much of the Asia-Pac focus falling on the dovish tinge (at least vs. wider market expectations) in the latest address from a BoJ Deputy Governor and a softer-than-expected round of Chinese CPI data, before the modest richening impulse quickly faded from most of the wider core global FI markets.
• Domestic news flow has not been market moving.
• The initial London move lower in futures/higher in yields has faded from extremes.
• Gilt futures sit -13 as a result, with the contract in the middle of its early 40-tick session range. Initial technical parameters on either side of current levels remain untouched.
• Cash gilt yields are 1bp higher to 2bp lower as the curve twist flattens.
• 2s10s continues to coil in a tight range (at least this week), while 5s30s flattens to fresh ’24 extremes.
• STIR markets are pretty much in line with pre-gilt open levels. SONIA futures sit flat to 4.5 lower through the blues, while BoE-dated OIS shows ~84bp of cuts through ’24.
• Comments from BoE hawk Mann (15:00 London) headline the local docket today.

EQUITIES: E-Mini S&P Holding Onto This Week's Gains

Eurostoxx 50 futures traded higher yesterday and again delivered fresh cycle highs, confirming a resumption of the current uptrend. This reinforces the bullish importance of the recent break of a key resistance at the Dec 14 high of 4634.00. The clear breach of the 4700.00 handle paves the way for a climb towards 4725.50, a Fibonacci projection. Initial firm support lies at 4607.40, the 20-day EMA. The trend condition in S&P E-Minis is unchanged and remains bullish - yesterday’s gains reinforce current conditions. The contract has traded to a fresh cycle high, confirming a resumption of the uptrend. Recent corrections have been shallow - this also highlights a strong uptrend. The focus is on 5050.14, a Fibonacci projection. On the downside, initial key short-term support has been defined at 4866.00, the Jan 31 low.

• Japan's NIKKEI closed higher by 743.36 pts or +2.06% at 36863.28 and the TOPIX ended 12.68 pts higher or +0.5% at 2562.63.
• Elsewhere, in China the SHANGHAI closed higher by 36.207 pts or +1.28% at 2865.903 and the HANG SENG ended 203.82 pts lower or -1.27% at 15878.07.
• Across Europe, Germany's DAX trades higher by 37.04 pts or +0.22% at 16958.21, FTSE 100 higher by 22.8 pts or +0.3% at 7651.15, CAC 40 up 41.31 pts or +0.54% at 7652.57 and Euro Stoxx 50 up 22.95 pts or +0.49% at 4701.8.
• Dow Jones mini up 3 pts or +0.01% at 38778, S&P 500 mini down 2.25 pts or -0.04% at 5013, NASDAQ mini up 9.75 pts or +0.05% at 17851.75.

COMMODITIES: Recent Short-Term Gains in WTI Futures Considered Technically Corrective

WTI futures remain soft following last week’s steep sell-off and short-term gains are considered corrective. A resumption of weakness would expose support at $70.62, the Jan 17 low, and $69.56, the Jan 3 low. For bulls, a reversal higher is required to refocus attention on the key short-term resistance at $79.29, the Jan 29 high. Clearance of this level would reinstate a bullish theme. Initial resistance is at $76.95, the Feb 1 high. Gold is unchanged and the metal continues to trade above the Jan 17 low of $2001.9. Recent short-term gains improved a bullish condition and a resumption of the bull cycle would signal scope for a climb towards $2088.5, the Dec 28 high and a key resistance. For bears, a stronger reversal lower would instead refocus attention on $2001.9, where a break is required to reinstate the recent bearish theme.

• WTI Crude down $0.23 or -0.31% at $73.64
• Natural Gas up $0.01 or +0.66% at $1.98
• Gold spot down $1.04 or -0.05% at $2033.8
• Copper up $0.55 or +0.15% at $374.2
• Silver up $0.15 or +0.66% at $22.355
• Platinum up $2.35 or +0.27% at $884.86