MNI US OPEN - BoJ's Ueda Says Easy Conditions to Continue After NIRP Exit

NEWS

US (MNI): Fed's Bostic Wants More Certainty in Inflation Fight

Atlanta Federal Reserve President Raphael Bostic said Thursday he is still not thoroughly convinced inflation is on track to the central bank's 2% target and will need to see continuing evidence of ebbing prices pressures to build greater confidence. "Though the upside surprise in the January CPI will probably translate, at least partially, into a higher PCE inflation report, these [disinflationary] trends will not likely be substantially reversed as a result of one month’s data," he said in prepared remarks. "But even if that is not the case, I require more confidence before declaring victory in this fight for price stability."

US/ISRAEL (BBG): Biden Warns Netanyahu to Protect Civilians Before Rafah Assault

President Joe Biden again urged Israeli Prime Minister Benjamin Netanyahu to hold off on an assault on the southern Gaza city of Rafah without a plan to protect civilians, in the latest US effort to head off a humanitarian catastrophe as Israel prepares for an attack. In a call on Thursday, Biden “reiterated his view that a military operation should not proceed without a credible and executable plan for ensuring the safety of and support for the civilians in Rafah,” the White House said in a statement.

ECB (BBG): Villeroy Says ECB Should Favor Gradual Cuts Over Acting Too Late

The European Central Bank should avoid waiting too long to cut rates as it will still have flexibility over the pace and degree of policy loosening after its first move, Governing Council member Francois Villeroy de Galhau said. The Bank of France governor said it now seems established that the ECB will cut rates at some point this year and added that the risk of moving too late exists “at least” as much as that of moving too soon. In an interview with Belgian newspaper L’Echo, he said the central bank has three types of flexibility: when, how fast, and how far it reduces borrowing costs.

ECB (MNI): Schnabel Stresses Importance of Productivity Growth

We note the following passages on the importance of productivity growth in bringing inflation to target from ECB Schnabel's speech titled "From laggard to leader? Closing the euro area's technology gap": "Persistently low, and recently even negative, productivity growth exacerbates the effects that the current strong growth in nominal wages has on unit labour costs for firms. This increases the risk that firms may pass higher wage costs on to consumers, which could delay inflation returning to our 2% target".

UK (MNI): By-Election Wins Cement Labour as Election Frontrunners

Two parliamentary by-elections held on 15 Feb have delivered defeats for the incumbent Conservatives, with the main opposition Labour party overturning sizeable majorities in both. In the seat of Wellingborough, Labour overturned an 18.5k vote majority on a swing of 28.5%, the second-highest swing from Conservative to Labour in any constituency since the Second World War. Labour also comfortably overturned a 11.2k Conservative majority in the southwest English seat of Kingswood. The results have not led to a shift in political betting markets, with Labour already viewed as strong favourites to win a majority in the next general election.

UK (BBG): London’s Prime Homes Suffer Sharpest Price Drop in Five Years

It’s a been bad start to the year for London’s luxury homes. Prices for properties in prime areas of London, defined as 34 exclusive neighborhoods including Belgravia, Mayfair and Kensington, were down 7.1% in January compared with a year earlier. That’s the largest decline in almost five years, according to data compiled by researcher LonRes. Sales, meanwhile, slipped 16% as higher interest rates affected demand and more supply came to the market.

GERMANY (MNI): Lindner - '2% of GDP Defence Spending Target is Enough'

Speaking at the Munich Security Conference, German Defence Minister Christian Lindner states that the NATO, "2% [of GDP] defence spending target is enough, it is already a challenge to maintain this [level of] spending". Lindner claims that "We don't just spend less on defence than the US, we are also less efficient in defence spending."

BOJ (MNI): Easy Conditions to Continue Post-Neg Rates - BOJ Ueda

Bank of Japan Governor Kazuo Ueda said on Friday that the possibility is high that accommodative financial conditions will likely continue after the Bank removes its negative interest rate policy. Ueda told lawmakers that the BOJ will examine whether it is appropriate for the BOJ to continue with a large-scale easy policy, including the negative rate policy, if the bank can foresee the achievement of its 2% target.

BOJ (MNI): BOJ to Mull New Policy Framework - Ex-BOJ Kameda

The Bank of Japan will consider a new policy framework after it exits negative interest rates to avoid market disruption and will refrain from signalling its hiking intentions to maintain maximum flexibility, former BOJ Chief Economist Seisaku Kameda told MNI. Kameda, now executive economist at Sompo Institute Plus, the insurance giant’s research arm, told MNI in an interview the Bank will target maximum flexibility when it exits its easy policy settings. He declined, however, to speculate on the BOJ’s options.

BOJ (MNI): Ex-BOJ Momma Sees Risk Policy Holds in April

The Bank of Japan will likely abolish its negative interest rate, yield curve control and overshooting commitment in April, but poor services prices and wage rises could force it to delay adjustment until July or later, former BOJ Executive Director and Chief Economist Kazuo Momma told MNI. “My baseline scenario is the triple abolishment in April,” Momma, now executive economist at Mizuho Research and Technologies, told MNI in an interview. But the Bank could delay change should services prices and wages fail to rise as much as the BOJ expects, he added, noting about a 30% chance of a delay until July or later exists should the BOJ deem it a serious risk.

CHINA/PHILIPPINES (BBG): Philippines Preparing for Economic Fallout With China Amid Spat

The Philippines is seeking new avenues for trade in a bid to build economic resilience amid the possibility that escalating maritime tensions with its top trading partner China may lead to sanctions, according to the government’s top diplomat. Relations between the two nations have been strained over the past year as President Ferdinand Marcos Jr. pursues a more assertive posture to counter China’s sweeping claims of the disputed South China Sea. Part of that effort has seen Manila turn to its longtime ally, the US, for security as well as much-needed investments to spur one of Asia’s fastest-growing economies.

DATA

UK DATA (MNI): Strong Retail Sales Rebound - But Little MonPol Impact

• UK JAN RETAIL SALES +3.4% M/M, +0.7% Y/Y
• UK JAN RETAIL SALES EX-FUEL +3.2% M/M, +0.7% Y/Y

The ONS notes that this was the largest inc-fuel monthly rise since April 2021 (returning volumes to November 2023 levels). But this also followed December 2023's record fall (which was revised down a little further to -3.3% M/M from -3.2% M/M. Biggest upwards contributors to the data were food stores with all subsectors except clothing increasing M/M. As we noted before this is probably partly an issue with the seasonal adjustment of the data in December. But in Y/Y terms that's only the second positive print since April 2022. We still see no impact on monetary policy from this release.

SWEDEN DATA (MNI): LFS Unemployment Rate Steady

• SWEDEN JAN UNEMPLOYMENT 8.5%

Swedish January LFS SA unemployment rate was steady at 8.2%, in line with consensus. It its November MPR, the Riksbank forecasted Q1 '24 unemployment at 8.3%, which seems on track given the labour market is expected continue to gradually loosen in the coming months. The seasonally adjusted employment rate was steady at 69.2% for the fourth consecutive month. The Central Bank's forecast is for a softening in the employment rate to 68.9% in Q1 '24.

FRANCE JAN CPI -0.2% M/M, +3.1% Y/Y (MNI)
FRANCE JAN HICP -0.2% M/M, +3.4% Y/Y (MNI)

RATINGS: Friday’s Slate

Potential sovereign rating reviews of note scheduled for after hours on Friday include:

• Fitch on Belgium (current rating: AA-; Outlook Negative)
• Fitch on the Netherlands (current rating: AAA; Outlook Stable)
• Moody’s on Ireland (current rating: Aa3; Outlook Stable)
• Moody’s on Switzerland (current rating: Aaa; Outlook Stable)
• S&P on Estonia (current rating: AA-; Outlook Negative)
• Scope Ratings on Portugal (current rating: A-; Outlook Stable)

FOREX: Stronger Equity Markets Hold Little Sway Over Dollar

• The greenback holds the bulk of the Thursday losses, with the softer-than-expected January retail sales release still holding sway on currency markets. The JPY is the poorest performer in G10, while NZD and SEK are among the strongest on the day.
• GBP's poor performance this week continues, with GBP among the poorest performers again in G10 despite a generally firmer January retail sales release. This keeps GBP/USD within range of the week's lows - and further reinforces the gravity of the 200-dma - crossing at 1.2566 today.
• Stronger equity markets have had little impact on currency markets so far Friday, with markets particularly wary of the stacked option expiry slate for the Friday cut - interest has been building sharply in option strikes layered between $1.07 to $1.08 as the week progressed - we note E9.6bln notional is set to roll-off between $1.0725 and $1.0800 today - interest that has doubled since Monday of this week.
• US data rounds off the week, with building permits and housing starts numbers crossing alongside the January US PPI. The prelim UMich sentiment data is set to follow, with markets expecting 1yr inflation expectations unchanged, and a 0.1ppt step lower for the 5-10yr metric. Fedspeak due includes Barr, Daly and Barkin.

EGBS: Weaker as UK Retail Sales and Cautious Schnabel Weigh

Core/semi-core EGBs are softer on the day, as firmer-than-expected UK retail sales and hawkish Fed-speak overnight continue to weigh on wider global core FI.

• Executive Board member Schnabel's prepared remarks were cautious, re-iterating that low Eurozone productivity may delay inflation returning to the 2% target, given upward pressure on unit labour costs.
• These comments counter rhetoric from Scicluna (open to rate cut in March) and Villeroy (risk of cutting too late at least equal to that of cutting too early).
• Bunds are -43 ticks at 133.18, current -27 lower on the week and within well-defined technical parameters. The Feb 14 low of 132.77 is the first support with 134.21 (20-day EMA) seen on the upside.
• The German and French cash curves have bear steepened a touch, while periphery spreads to Bunds are tighter owing to the uptick in European equities. The 10-year BTP/Bund spread, currently -0.8bps at 148.8bp, operates close to its tightest levels since March '22.
• Looking ahead, US PPI at 1330GMT/1430CET will garner cross-market interest.

GILTS: Remain Softer on the Day, Retail Sales Weigh

Gilt futures show through early session lows, but remain well within the range witnessed earlier this week.

• The contract prints -42 at 97.52, just above worst levels of the day.
• Our technical analyst stresses that the bearish threat in the contract remains evident.
• Initial support and the bear trigger is seen at the Feb 13 low (96.81).
• Conversely, initial resistance is the 50-day EMA (98.71).
• Cash gilt yields are 3.0-3.5bp higher across the curve.’
• UK retail sales data provided the most prominent source of pressure (despite its volatile nature and perceptions re: limited feedthrough into monetary policy).
• SONIA futures are +0.5 to-5.0, operating off early session lows. The front end of the strip sees some very modest outperformance.
• BoE-dated OIS shows ~72bp of cuts through ’24, with the first 25bp step more than fully discounted through the end of the Aug ’24 gathering.
• Elsewhere, political headlines flagged at the open dominate broader UK news flow.
• Scheduled after hours comments from BoE’s Pill (19:40 London) headline the domestic docket into the weekend, although there will also be plenty of U.S. data and Fedspeak to digest.

EQUITIES: E-Mini S&P Returns Back Towards This Week's Highs

Eurostoxx 50 futures remain in a bull cycle. The contract has resumed its uptrend and traded to a fresh cycle high. This reinforces current conditions and the importance of the recent break of resistance at 4634.00, the Dec 14 high. Moving average studies are in a bull-mode position, highlighting positive market sentiment. Sights are on 4788.10, a Fibonacci projection. Initial firm support lies at 4664.80, the 20-day EMA. The trend condition in S&P E-Minis is unchanged and remains bullish. The pullback from Monday’s 5066.50 high is considered corrective and support to watch lies at 4957.27, the 20-day EMA. A clear break of this average would suggest potential for a deeper retracement, possibly towards the 4866.00 key support, the Jan 31 low. The trigger for a resumption of gains is 5066.50, the Feb 12 high.

• Japan's NIKKEI closed higher by 329.3 pts or +0.86% at 38487.24 and the TOPIX ended 32.88 pts higher or +1.27% at 2624.73.
• Across Europe, Germany's DAX trades higher by 125.6 pts or +0.74% at 17171.36, FTSE 100 higher by 53.13 pts or +0.7% at 7649.23, CAC 40 up 45.41 pts or +0.59% at 7788.08 and Euro Stoxx 50 up 31.36 pts or +0.66% at 4774.2.
• Dow Jones mini down 25 pts or -0.06% at 38830, S&P 500 mini up 9.75 pts or +0.19% at 5055.75, NASDAQ mini up 104.5 pts or +0.58% at 18016.75.

COMMODITIES: Gold Trades Back Above Key Short-Term Support at $2001.9

Recent gains in WTI futures, since Feb 5, still appear to be a correction. Key short-term resistance has been defined at $79.29, the Jan 29 high. Clearance of this level would be a bullish development. On the downside, support to watch lies at $71.41, the Feb 5 low. A break of this level would reinstate the recent bearish theme and pave the way for a move towards $69.56, the Jan 3 low. Gold has traded lower this week and the sell-off resulted in a break of $2001.9, the Jan 17 low and a key short-term support. The breach highlights a resumption of the bear leg that started Dec 28. A continuation lower would open $1973.2, the Dec 13 low and the next key support. On the upside, the yellow metal needs to clear resistance at $2065.5, the Feb 1 high, to reinstate a bullish theme.

• WTI Crude down $0.43 or -0.55% at $77.58
• Natural Gas up $0 or +0.13% at $1.583
• Gold spot up $1.5 or +0.07% at $2005.78
• Copper up $3.4 or +0.9% at $379.3
• Silver up $0.08 or +0.36% at $23.004
• Platinum down $7.51 or -0.83% at $892.89