MNI US OPEN - Contagion Concerns Bleed Into Europe Pre-NFP

NEWS

EQUITIES (BBG): SVB Races to Prevent Bank Run as Funds Advise Pulling Cash

Panic spread across the startup world as worries about the financial health of Silicon Valley Bank, a major lender to fledgling companies, prompted Peter Thiel’s Founders Fund and other prominent venture capitalists to advise portfolio businesses to withdraw their money, even as the bank’s top executive urged calm. The turmoil followed a surprise announcement from Santa Clara, California-based SVB that it was issuing $2.25 billion of shares to bolster its capital position after a significant loss on its investment portfolio.

FED (MNI): Fed Implications of SVB Crisis

A few thoughts on the unfolding SVB Financial situation and what it means for Fed policy:

• SVB's story and share price collapse yesterday appears to be fairly straightforward: rising US interest rates resulted in a combination of 1) losses on MBS and other fixed income security holdings 2) increasing short-end funding costs 3) SVB's unusually high exposure to the waning tech/start-up space.
• As for Fed policy, SVB is not a game-changer but it will certainly alter the discussion if not the outcome of the March FOMC. The pre-FOMC blackout which starts tonight couldn't come at a worse time, creating a limited window in which to comment pre-Mar 22nd decision on both the Fed's view of potential systemic risk from SVB, or the latest key macro data. The Fed has a long history of hiking rates until something "breaks". To be sure, it would be taking it too far to interpret the SVB episode as the beginning of a systemic crisis, let alone evidence that they've done enough to quell inflation.
• Even if Powell exudes calm on the financial stability front, the more dovish and centrist FOMC participants will be mindful going into the meeting that the hiking cycle has gone on for exactly a year, about enough time for the lagged effects of tightening to start to be seen.

Bloomberg consensus looks for still strong nonfarm payrolls growth of 225k in February after the storming 517k of January. If both still stand it would be only limited payback after mild weather and favourable seasonal factors seen in January. Revisions to that January figure are likely to play an important role after Fed Chair Powell opened the door to a 50bp hike in his Senate appearance.

FRANCE/UK (MNI): Macron Hosts Sunak for First Franco-British Summit Since 2018

French President Emmanuel Macron is set to host UK Prime Minister Rishi Sunak in Paris for the first Franco-British summit since 2018. Macron and Sunak are set to hold talks at 1000GMT/1100CET, with a post-meeting presser taking place at around 1400GMT/1500CET. The meeting is seen as a chance to 'reset relations' between the UK and France, which have been strained in recent years amid the process of the UK withdrawing from the EU.

JAPAN (MNI): BOJ Keeps YCC, Maintains Forward Guidance on Rates

The Bank of Japan board left monetary policy settings unchanged at its last meeting under Governor Haruhiko Kuroda on Friday, stating the economy continued moving in line with its baseline scenario despite lingering downside risks and high uncertainties. The BOJ kept the target for the overnight interest rate at -0.1% and will purchase a necessary amount of JGBs - without setting an upper limit - so that 10-year JGB yield will remain within a 50bp band around zero percent.

JAPAN (MNI): Kuroda Entrusts Ueda with Achieving 2% Target

Bank of Japan Governor Haruhiko Kuroda said on Friday that it was regrettable the 2% price target hasn’t been achieved, although Japan is no longer in a deflationary environment. He said he entrusted incoming governor Kazuo Ueda with the achievement of the 2% price target, an outcome that eluded him in his decade-long stewardship of the bank. “I have been known Mr. Ueda for a long-time ago and used to discuss various issues.

Bank of Japan Governor Haruhiko Kuroda added that it was premature to discuss an exit strategy from easy monetary policy that has been a feature of his tenure. “Generally speaking, when the BOJ faces an exit, how to adjust policy interest rates and how to reduce the balance sheet…that’s two important issues,” Kuroda told reporters.

JAPAN (MNI): BOJ Keeps Recovery View; Cuts Exports, Production

The Bank of Japan board on Friday left its overall economic assessment, but lowered its assessment of exports and production due to slowing global growth. “Japan’s economy, despite being affected by factors such as high commodity prices, has picked up as the resumption of economic activity has progressed while public health has been protected from Covid-19,” the BOJ said in a statement following the completion of a two-day policy meeting.

CHINA (BBG): Xi’s Third Term as President Cements Effort to Consolidate Power

Chinese lawmakers unanimously voted to give Xi Jinping a third term as president Friday, completing his ascension to supreme leader of the world’s No. 2 economy. Xi won the vote in the National People’s Congress 2,952-0, officially giving him five more years in power and demonstrating his unrivaled grip over the ruling Communist Party. He also won unanimously in 2018, the same year China abolished constitutional provisions that would’ve barred him from a third term.

CHINA (MNI): Top Banker Seen as PBOC Governor Amid Regulator Shake-up

The incoming People’s Bank of China governor’s immediate task will be to support a recovery amid sluggish domestic demand, while coordinating longer term with a new regulator to manage risks in a financial system burdened with debt after a decade of expansion, policy advisers told MNI.

DATA

UK DATA (MNI): UK GDP Sees Modest Jan Bounce As Football Returns

• UK JAN GDP +0.3% M/M, +0% 3MM, +0.1% 3M Y/Y
• UK JAN SERVICES INDEX +0.5% M/M, +0% 3MM

A return of Premier League football and more kids in their classrooms in January helped UK GDP bounce back from the decline seen in December, the Office for National Statistics said Friday. GDP rose 0.3% month-on-month, recovering part of the 0.5% decline seen in December. On a rolling 3-month basis, growth was flat, the ONS said.

UK JAN IND PROD -0.3% M/M, -4.3% Y/Y (MNI)
UK JAN CONSTRUCTION OUTPUT -1.7% MM, -0.7% 3M3M, +0.6% YY (MNI)
UK JAN TRADE BALANCE GBP -5.86BN (MNI)

NORWAY DATA (MNI): Inflation Eases in Feb After January Rebound

• NORWAY FEB CPI +0.4% M/M, +6.3% Y/Y; JAN +7.0% Y/Y
• NORWAY FEB UNDERLYING CPI +0.7% M/M, +5.9% Y/Y; JAN +6.4% Y/Y

Norwegian CPI surprised to the downside in the February data, easing by 0.7pp to +6.3% y/y on the headline print, vs +6.8% y/y expected by consensus. Prices rose +0.4% m/m. The Norges Bank's closely watched CPI-ATE (ex. energy and tax changes) cooled by 0.5pp to +5.9% y/y. This was lower than the modest 0.1pp slowing expected. In January, CPI-ATE had accelerated to a high of +6.4% y/y.

ITALY DATA (MNI): PPI Drops on Sharp Fall in Energy Prices

• ITALY JAN PPI -9.9% M/M; DEC +3.8% M/M
• ITALY JAN PPI +11.6% Y/Y; DEC +39.2% Y/Y

Italian factory-gate inflation eased substantially in January, falling by -9.9% m/m and by a marked 27.6pp to +11.6% y/y. The fall in PPI was largely energy based, after the -21.6% m/m plunge in energy inflation. Month-on-month upticks were recorded across other subcomponents, implying that underlying price pressures continue to build: consumer goods (+0.6%), capital goods (+0.3%), intermediate goods (+0.4%).

GERMANY FEB FINAL HICP +1.0% M/M (= FLASH); JAN +0.5% M/M

CHINA DATA (MNI): China's February TSF Strong on Robust Loans, Government Debt

• CHINA END-FEB M2 +12.9% Y/Y VS MEDIAN +12.5% Y/Y
• CHINA FEB TSF CNY3.16 TRLN VS MEDIAN CNY2.20 TLN
• CHINA FEB NEW LOANS CNY 1.81 TRLN VS MEDIAN CNY1.49 TRLN
• CHINA END-FEB OUTSTANDING CNY DEPOSITS +12.4%; END-JAN +12.4%

China’s aggregate financing beat market expectations in February due to strong growth in new loans and government bond issuance, People's Bank of China data showed on Friday.

JAPAN DATA (MNI): Japan Feb CGPI Rises to 8.2%, Slows from Jan's 9.5%

• JAPAN FEB CORP GOODS PRICE INDEX +8.2% Y/Y; JAN UNREV
• JAPAN FEB CORP GOODS PRICE INDEX -0.4% M/M; JAN UNREV 0.0%
• JAPAN JAN HOUSEHOLD SPENDING -0.3% Y/Y; DEC -1.3%
• JAPAN JAN HOUSEHOLD SPENDING +2.7% M/M; DEC -1.4%

The year-on-year rise in Japan's Corporate Goods Price Index slowed to 8.2% in February, down from January’s unrevised 9.5% and indicating that upstream cost increases have peaked out, data released by the Bank of Japan Friday showed. The data showed that pass-through of cost increases in the intermediate and downstream industries continues as there is a time lag before firms transfer high costs to retail prices, which then push up consumer prices. The CGPI fell 0.4% from the previous month, also slowing from 0.0% in January. The February’s drop was due mainly to the government’s subsidies to lower gas and electricity charges.

RATINGS: Friday's Sovereign Rating Slate

Sovereign credit rating reviews of note scheduled for after hours on Friday include:

• Fitch on Belgium (current rating: AA-; Outlook Stable) & Cyprus (current rating: BBB-; Outlook Stable)
• S&P on Norway (current rating: AAA; Outlook Stable) & Portugal (current rating: BBB+; Outlook Stable)
• DBRS Morningstar on Greece (current rating: BB (high), Stable Trend)

FOREX: JPY Slips as Kuroda Keeps Tiller Steady in Final Meeting

• Asset prices are closely following the spillover from the fallout of Silicon Valley Bank late yesterday, with markets watching carefully for any similar issues at other exposed banking names. European equities were sold from the off, with the EuroStoxx50 Bank Index erasing six weeks of gains having gapped lower at the open.
• The uncertainty surrounding global financials has led to outperformance in the CHF, while high yielding currencies are hit the hardest. Data releases remain a background driver, with softer CPI hitting the NOK, while firmer-than-expected monthly UK GDP data puts the currency at the top of the G10 pile.
• Elsewhere, JPY is comfortably the poorest performing currency across G10, sliding after the unchanged BoJ rate decision and defying the minority view that Kuroda could tweak yield curve control at his final meeting.
• Focus moving forward rests on the February nonfarm payrolls release, at which markets look for job gains of 225k over the month and an unchanged unemployment rate at 3.4%. The Canadian equivalent is also due, where consensus looks for an uptick in the unemployment rate to 5.1%.

BONDS: SVB and Payrolls in Focus

• Concerns around the fallout from SBV have been the main talking point in core fixed income markets this morning. We are now some way below the highs seen in Asian trading / around the European open but equally are notably higher than yesterday's close.
• Looking ahead, the main release of the day will be the US employment report. Ahead of the SVB fallout, a consensus reading with minimal revisions could have paved the way for 50bp on Mar 22 barring any CPI surprises Tuesday, but such an outright hawkish market reaction is now more questionable. Furthermore, notable downward revisions and/or February payback could draw a significantly dovish reaction after the ramping higher of Fed rate expectations. Also watch average weekly hours worked after their surprise surge, a not expected but potential tick higher on rounding to the u/e rate (3.43% in Jan) and AHE growth with primary dealer skew to a hawkish surprise.
• TY1 futures are up 0-16+ today at 112-00 (day's high at 112-13) with 10y UST yields down -4.9bp at 3.857% and 2y yields down -3.1bp at 4.841%.
• Bund futures are up 1.19 today at 132.88 (overnight high at 113.82) with 10y Bund yields down -9.9bp at 2.539% and Schatz yields down -12.2bp at 3.141%.
• Gilt futures are up 0.78 today at 101.26 (day's high at 102.06) with 10y yields down -7.9bp at 3.714% and 2y yields down -8.8bp at 3.713%.

EQUITIES: SVB-Inspired Equity Sell Off Bleeds into Friday Morning

Eurostoxx 50 futures are trading lower today. Price has moved below a key support at 4249.30 - the base of a bull channel drawn from the Oct 13 low. A clear break of this channel base would threaten the uptrend that has been in place since late September last year. An initial downside objective would be 4167.40, the 50-day EMA. Key resistance has been defined at the 4328.00, the Mar 6 high and the bull trigger. S&P E-Minis sold off Thursday and the contract is trading lower once again today. Price has cleared key short-term support at 3925.00, the Mar 2 low and this confirms a resumption of the bear cycle that has been in place since the Feb 2 reversal. The move lower signals potential for an extension towards the 3800.00 handle and support at 3788.50, the Dec 22 low. Initial firm resistance is seen at 4015.27, the 50-day EMA.

• Japan's NIKKEI closed lower by 479.18 pts or -1.67% at 28143.97 and the TOPIX ended 39.51 pts lower or -1.91% at 2031.58.
• Elsewhere, in China the SHANGHAI closed lower by 46.017 pts or -1.4% at 3230.077 and the HANG SENG ended 605.82 pts lower or -3.04% at 19319.92.
• Across Europe, Germany's DAX trades lower by 219.31 pts or -1.4% at 15411.86, FTSE 100 lower by 131.83 pts or -1.67% at 7748.1, CAC 40 down 105.65 pts or -1.44% at 7210.23 and Euro Stoxx 50 down 66.42 pts or -1.55% at 4219.7.
• Dow Jones mini down 115 pts or -0.36% at 32145, S&P 500 mini down 9 pts or -0.23% at 3911, NASDAQ mini up 13.75 pts or +0.11% at 12021.

COMMODITIES: Gold Trades Higher Again Friday, Remains Technically Bearish

A sharp sell-off in WTI futures Tuesday has defined a key resistance at $80.94, Feb 7 high. A break of this hurdle is required to reinstate the recent bullish theme that would open $82.89, the Jan 23 high and a key resistance. The contract is trading lower today, extending this week’s bearish move and sights are on $73.80, the Feb 22 low. A breach of this level would strengthen a bearish threat. Initial resistance is seen at $78.06, yesterday’s high. Trend conditions in Gold remain bearish and Tuesday’s strong sell-off reinforces this theme. The move lower signals the end of the recent corrective bounce and attention is on support at $1804.9, the Feb 28 low. A break of this level would confirm a resumption of the downtrend and open $1787.3, a Fibonacci retracement. The yellow metal needs to breach $1858.3, the Mar 6 high, to signal scope for a stronger reversal.

• WTI Crude down $0.4 or -0.53% at $75.37
• Natural Gas down $0.01 or -0.43% at $2.532
• Gold spot up $3.38 or +0.18% at $1833.96
• Copper down $2.65 or -0.66% at $401.4
• Silver up $0.02 or +0.08% at $20.0802
• Platinum down $8.71 or -0.92% at $939.27