MNI US OPEN: CPI AWAITED AS BOJ POLICY SHIFT SPECULATION SPURS JPY

NEWS

MNI US CPI Preview: Core Services Ex Shelter Keenly Watched

Core CPI inflation is seen nudging up to 0.3% M/M in December after surprising lower with 0.20% in Nov as the three main areas of core - shelter, services ex shelter and goods - all moderated. Market expectations have tilted closer to another stepdown to a 25bp hike on Feb 1 (31bp priced) on softer than expected AHE growth within payrolls and a significant miss for ISM services as new orders slumped. We see high sensitivity to surprises in either direction, especially if in stickier, less idiosyncratic categories.

ECB (MNI): EZ Consumer Inflation Expectations Dip - ECB Survey

Consumer expectations for average euro area inflation fell in November, according to the ECB’s November 2022 survey results, at the same time as growth and income expectations edged upwards, while unemployment expectations edged down slightly. The data will help policymakers ahead of the February 2 Governing Council meeting, as they discuss their next moves on policy normalization.

JAPAN (MNI): BOJ to Mull Side-Effects of Easy Policy at Jan Meet

The Bank of Japan will likely examine the side-effects of its easy policy at the January 17-18 policy meeting, as distortions in the financial markets continue despite December's widening of the acceptable 10-year JGB yield, Yomiuri Shimbun reported on Thursday.

JAPAN (MNI): BOJ Regional Report Shows Wages Set to Rise

Japanese firms are considering implementing wage hikes or increasing wages on the back of solid profits and ongoing labour shortage, supporting the central bank's view and boosting hops of hitting the 2% price target, according to Bank of Japan branch managers.

CHINA (MNI): China Ready to Promote International Tourism

(MNI) Beijing - China is ready to work with other parties to promote international tourism following Beijing’s downgrading of Covid-19 to "level B management and control", the Ministry of Commerce (MOFCOM) said at a press conference on Thursday.

GERMANY (MNI): Credit Availability Tighter for German Firms - Ifo

More German firms reported greater difficulty obtaining bank lending in December than in previous months, as lenders raise and show more reluctance extending loans, the Munich-based Ifo Institute reported Thursday. According to the latest quarterly Ifo survey, almost 30% of companies saw lending constraints from banks in December, up from 24.3% in September.

US/INDIA (MNI): US & India Form New Working Group to Build Bilateral Trade

Following a meeting between India's Minister of Commerce and Industry Piyush Goyal and US Trade Representative Katherine Tai at the 13th US-India Trade Policy Forum in New Delhi, the two countries have agreed to form a new working group intended to boost bilateral trade.

MNI BoK Preview: 25bp Hike, Then Pause

Tomorrow the BoK is expected to deliver a 25bps hike, which would take the policy rate to 3.50%. This isn’t a uniform expectation with 5 out of 16 economists surveyed by Bloomberg expecting no change, while the remainder are forecasting a 25bps hike. Our base case is for a 25bps hike and then a pause by the BoK.

DATA

NORWAY NOV MAINLAND GDP +0.2% M/M, AGG GDP +0.2% M/M (MNI)

CHINA DATA (MNI): China's Dec CPI Rises; PPI Continues Decline

• CHINA DEC CPI +1.8% Y/Y VS MEDIAN +1.8%; NOV +1.6% Y/Y
• CHINA DEC CPI +0.0% M/M VS -0.2% M/M NOV
• CHINA DEC NON-FOOD CPI +1.1% Y/Y VS +1.1% Y/Y NOV
• CHINA DEC FOOD PRICES +4.8% Y/Y VS +3.7% Y/Y NOV
• CHINA DEC PPI -0.7% Y/Y VS MEDIAN -0.1% Y/Y; NOV -1.3% Y/Y
• CHINA DEC PPI -0.5% M/M VS +0.1% M/M NOV

China's December Consumer Price Index rose to 1.8% y/y, in line with the median forecast of 1.8%, and faster than November’s 1.6% y/y pace as entertainment sector and traffic recovered after the covid reopening, and food costs increased, data from the National Bureau of Statistics (NBS) released on Thursday showed.

Pork prices, the main CPI driver, rose by 22.2% y/y, compared with 34.4% the previous month, while price of flight tickets jumped 26.7%, up 7.8 percentage points from November, the NBS said.

JAPAN (MNI): December Sentiment Dips but Outlook Improves

Japan's sentiment index fell for a second straight month in December, but the outlook index for two to three months ahead rose for the first time in four, , according to the Economy Watchers released by the Cabinet Office Thursday showed, prompting the government to keep its assessment unchanged.

AUSTRALIA NOV TRADE BALANCE A$+13201 (MNI)

FOREX: JPY On Top as Local Report Stirs Policy Speculation

• JPY sits firmer against all others in G10 following an overnight report in Yomiuri, which suggested the Bank of Japan would take a closer look at the side-effects of their monetary policy and yield curve control programme. The report has stirred speculation that the Bank could change tack on policy sooner-than-expected, and has raised the focus on the January 18th policy meeting. USD/JPY has drifted lower throughout European trade, with the downside accelerating on the break below the Monday low at 131.31.
• Elsewhere, price action is more muted as markets sit on the sidelines ahead of the inflation release. EUR/USD remains either side of the 1.0750 level, while AUD/USD sits just above the $0.69 after yesterday's inflation-inspired strength.
• EUR/CHF's break above parity has held for a second session and could mark a material technical break higher. The solid close above the 200-dma opens progress toward 1.0092 - the 61.8% retracement for the June - September downleg.
• US inflation data marks the focus for asset prices going forward, with consensus looking for a slowdown in CPI to 6.5% on the year and 5.7% core. The release is seen as one of the most important economic releases of recent weeks, and could prove pivotal for the February's FOMC decision, at which markets remain split between a 25 and 50bps rate hike.

BONDS: Cautious Optimism That CPI Report Won't Produce Hawkish Surprise

Global core FI is stronger with curves mostly flatter, and Gilts outperforming Treasuries and Bunds ahead of the highly anticipated US inflation report.

• Bonds are trading with cautious optimism that the much-anticipated US inflation release won't produce a hawkish surprise. This is corroborated by US dollar weakness and broad equity strength.
• While headline CPI is expected to have retreated in December (-0.1% M/M survey), core CPI is the focus of today’s US inflation report (0830ET/1330GMT), seen picking up to 0.3% M/M from 0.2% prior. Jobless claims data is out simultaneously but as usual won’t be a market mover.
• Periphery EGBs continue to rally following Wednesday’s dovish-leaning ECB news (including an MNI sources piece pointing to potential for slower rate hikes in the spring), with BTP/Bund 10Y spreads testing the 180bp mark.
• Fed speakers include Barkin, Bullard and Harker; BoE's Mann speaks as well.
• $18B 30Y Tsy re-open auction features later in the session.

Latest levels:

• Mar US 10-Yr futures (TY) up 1/32 at 114-15 (L: 114-11 / H: 114-22)
• Mar Bund futures (RX) up 25 ticks at 137.89 (L: 137.63 / H: 138.45)
• Mar Gilt futures (G) up 20 ticks at 103.88 (L: 103.64 / H: 104.14)
• Mar BTP futures (IK) up 41 ticks at 115.31 (L: 114.94 / H: 115.8)
• Italy / German 10-Yr spread 2.2bps tighter at 180.9bps

EQUITIES: European Equity Futures Reach Fresh Cycle Highs Ahead of US CPI

EUROSTOXX 50 futures bullish conditions remain intact and the contract traded higher yesterday. Futures have cleared resistance at 4043.00, the Dec 13 high and a bull trigger. The clear break represents a key short-term positive development and paves the way for gains towards 4175.50 next, the Feb 16 high. Moving average studies are in a bull-mode condition, reinforcing the current positive trend condition. Initial support lies at 3944.00. S&P E-Minis traded higher Wednesday and the contract is holding on to this week’s gains. Price has cleared resistance at the 50-day EMA and this has strengthened the short-term bullish condition. Price is approaching the 4000.00 handle where a break would open 4043.00, 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 level would resume bearish activity.

• Japan's NIKKEI closed higher by 3.82 pts or +0.01% at 26449.82 and the TOPIX ended 6.93 pts higher or +0.36% at 1908.18.
• Elsewhere, in China the SHANGHAI closed higher by 1.613 pts or +0.05% at 3163.451 and the HANG SENG ended 78.05 pts higher or +0.36% at 21514.1.
• Across Europe, Germany's DAX trades higher by 69.83 pts or +0.47% at 15017.04, FTSE 100 higher by 41.7 pts or +0.54% at 7766.71, CAC 40 up 56.02 pts or +0.81% at 6980.21 and Euro Stoxx 50 up 24.3 pts or +0.59% at 4124.06.
• Dow Jones mini down 24 pts or -0.07% at 34086, S&P 500 mini down 2.25 pts or -0.06% at 3988, NASDAQ mini down 4.25 pts or -0.04% at 11473.

COMMODITIES: WTI Futures Traded Higher Wednesday Despite Broader Bearish Outlook

WTI futures traded higher Wednesday to extend the recent recovery. A continuation higher would signal scope for a test of resistance at $81.50, the Jan 3 high and a bull trigger. Clearance of this hurdle is required to strengthen a bullish theme. The broader trend outlook 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 continues to trade higher, extending the current uptrend. This week’s move higher maintains the positive price sequence of higher highs and higher lows and note that moving average studies are in a bull mode position - reflecting the current uptrend. The focus is on $1896.5, a Fibonacci retracement. On the downside, support to watch lies at $1825.2, Jan 5 low.

• WTI Crude up $0.24 or +0.31% at $77.65
• Natural Gas up $0.08 or +2.23% at $3.753
• Gold spot up $6.18 or +0.33% at $1882.31
• Copper down $2.95 or -0.71% at $413.5
• Silver up $0.28 or +1.21% at $23.6919
• Platinum up $0.41 or +0.04% at $1074