MNI US OPEN - CPI to Provide Last Look Ahead of Fed

NEWS

CHINA (MNI): Economic Policy Meeting Called Off Amid COVID Spike

MNI (London) - The Economic Times reporting that Chinese authorities are set to delay a closely-watched economic policy meeting due to get underway on Thursday due to the sharp increase in COVID-19 infections in the capital.

EU/HUNGARY (BBG): EU Breaks Logjam on Ukraine Aid with Hungary Funding Deal

European Union countries reached a preliminary agreement to clear the way for Ukraine to receive crucial aid from the bloc after Hungary dropped its opposition. In return, member states reduced the amount of money it would suspend from Hungary over corruption concerns. Hungary had been vetoing an €18 billion ($19 billion) support package for Ukraine, a measure that requires the consent of all 27 EU members. As part of the deal struck among EU ambassadors on Monday, Hungary removed its block on the money.

RUSSIA (BBG): Russia Has Decided on Its Response to Oil-Price Cap: Vedomosti

The draft of the presidential decree on Russia’s response to the oil-price cap is agreed in general, the Vedomosti newspaper reported, citing an unidentified person with knowledge of the text and confirmed by two other people close to the government.

The draft bans selling oil if:

• The recipient of crude specified in the contract is a nation that has joined the price cap
• The contract contains a condition or reference to prices being equal to a certain threshold

Bank of Japan officials are awaiting March's Tankan survey to assess whether corporate inflation expectations continue to firm despite falling oil prices, offering the prospect of a virtuous cycle of higher prices and wages that is considered integral to any shift in the bank's easy policy settings in 2023.

AUSTRALIA (MNI): RBA Rate Hikes Weigh on Consumers

The Reserve Bank of Australia's decision to lift rates to a 10-year high continues to weigh on domestic consumers according to two closely-watched surveys of sentiment and spending intentions. The Westpac-Melbourne Institute Consumer Sentiment Index increased from 78 in November to 80.3 in December, though it remains at recessionary levels. Inflation, interest rates, the Budget and taxation, and economic conditions remain the main concerns.

AUSTRALIA (MNI): Growing Criticism of Government's Energy Cost Plan

There is an increasing number of voices opposing the government's plan to reduce energy costs for consumers. Analysts believe that the policy could lead to power shortages and cost jobs. Some manufacturers have welcomed the plan as they face crippling energy costs. Others are concerned about the government's interference in the market and that it won't impact prices until at least mid-2023.

DATA

UK DATA (MNI): UK Wages Higher But Inflation A Damper

• UK OCT ILO UNEMPLOYMENT RATE +3.7%
• UK NOV CLAIMANT RATE +3.9%
• UK NOV PAYROLLS ROSE 107,000 TO 29.9 MN - ONS/HMRC
• UK OCT AVE WEEKLY EARNINGS +6.1% YY

UK earnings continue to edge higher in nominal terms, the Office for National Statistics said Tuesday, but with inflation still in double digits, real wages are still showing significant annual declines. In nominal terms, earnings rose 6.1% year-on-year, both including and excluding bonus payments.

In real terms, measured against CPI, both measures fell by 3.9% y/y. Although real earnings continue to edge higher, offering concerns over future second round inflationary pressures for the Bank of England ahead of this week's policy decision, the weakness in real earnings and the hit to consumer spending power will also be a concern to policy makers.

GERMANY DEC ECONOMIC SENTIMENT INDEX -23.3 (MNI)
GERMANY DEC ZEW CURRENT CONDITIONS -61.4 (MNI)

ITALY OCT IP -1% M/M, -1.6% Y/Y (MNI)

NORWAY OCT MAINLAND GDP +0% M/M, AGG GDP -1% M/M (MNI)

FX SUMMARY: CPI Provides the Last Look Ahead of Weds Fed

• Currency markets generally trade inside their recent ranges early Tuesday, with the EUR/USD rate oscillating either side of 1.0550. Similarly, GBP/USD sits inside the week's range so far, with markets awaiting cues from the BoE, ECB and Fed later this week.
• On an intraday basis, there remains minor strength in commodity-tied currencies, putting the likes of AUD, NZD and NOK toward the top-end of the G10 pile as equities extend their recovery off the Monday low. The e-mini S&P remains around 80 points higher on the week, with a late rally into the Monday close largely responsible for the jump.
• Similarly, crude prices have worked their way higher, as concerns around an extended delay to flow through the Keystone Pipeline continue to circulate. This has kept NOK underpinned, with the EUR/NOK rate back below 10.50 ahead of Thursday's Norges Bank decision.
• Focus turns to the November CPI release due later today, with markets expecting a significant step lower to 7.3% and 6.1% for the headline and core Y/Y measures (down from 7.7% and 6.3% respectively).
• The release will be the final look for the FOMC ahead of Wednesday's FOMC rate decision, at which markets continue to expect the board to opt for a slower pace of tightening at 50bps.

BOND SUMMARY: Tsys Steady, Gilts Underperforming Pre-US CPI

Core global FI is mostly softer ahead of the first of the week's major risk events - US CPI (our preview is here).

• Treasury yields have largely traded sideways ahead of the release (0830ET/1330GMT) - core eyed most closely, 0.3% M/M survey, with a modest skew to the upside.
• A modestly risk-on atmosphere prevails, with S&P futures touching 4,000.
• Bunds are cheaper but yields have retraced from session highs, while Gilts are underperforming. EGB periphery spreads are mixed.
• Some attention on BoE pricing, with terminal rates pushing above 4.70% (Aug-Sep 2023) for the first time in a few weeks. Labour market data out earlier was largely in line, with higher nominal wages still negative in real terms on high inflation.
• German ZEW reading was mixed, with expectations slightly stronger than expected, but "current situation" was weaker.
• In the US, aside from CPI, the 30Y Bond re-open at 1300ET also features.

Latest levels:

• Mar US 10-Yr futures (TY) up 2.5/32 at 113-29 (L: 113-25 / H: 114-01)
• Mar Bund futures (RX) down 25 ticks at 140.23 (L: 139.77 / H: 140.4)
• Mar Gilt futures (G) down 42 ticks at 104.6 (L: 104.59 / H: 105.23)
• Italy / German 10-Yr spread 0.4bps wider at 189.3bps

EQUITIES: Eurostoxx Futures Consolidate Close to Recent Lows

EUROSTOXX 50 futures are consolidating. Trend conditions are bullish and the recent pullback is considered corrective. Recent high prints confirmed an extension of the uptrend that started in early October and this maintains the price sequence of higher highs and higher lows. The recent break of 3810.00, Aug 17 high, has also strengthened the case for bulls. The focus is on 4049.50, Feb 23 high (cont). Support to watch is 3903.30, the 20-day EMA. S&P E-Minis traded higher Monday but for now price remains closer to its recent lows. The recent move down is considered corrective. The uptrend that started on Oct 13 remains intact, however, attention is on support at the 50-day EMA, which intersects at 3953.99. A clear break of this EMA would threaten bullish conditions and suggest potential for a deeper reversal. The bull trigger, to resume recent bullish activity, is at 4142.50.

• Japan's NIKKEI closed higher by 112.52 pts or +0.4% at 27954.85 and the TOPIX ended 8.35 pts higher or +0.43% at 1965.68.
• Elsewhere, in China the SHANGHAI closed lower by 2.717 pts or -0.09% at 3176.325 and the HANG SENG ended 132.57 pts higher or +0.68% at 19596.2.
• Across Europe, Germany's DAX trades higher by 20.51 pts or +0.14% at 14326.67, FTSE 100 higher by 15.2 pts or +0.2% at 7460.52, CAC 40 up 5.49 pts or +0.08% at 6655.37 and Euro Stoxx 50 up 11.5 pts or +0.29% at 3932.88.
• Dow Jones mini up 39 pts or +0.11% at 34056, S&P 500 mini up 3.25 pts or +0.08% at 3995.25, NASDAQ mini up 9.25 pts or +0.08% at 11721.25.

COMMODITIES: Gold Trend Conditions Appear Bullish Despite Recent Pullbacks

Trend conditions in WTI futures remain bearish, however, the latest recovery highlights the start of a possible corrective cycle. A continuation higher would allow an oversold trend reading to unwind, ahead of a resumption of the downtrend. The next resistance is at $77.74, the 20-day EMA. On the downside, the bear trigger lies at $70.08, the Dec 9 low. A break would resume the downtrend. Trend conditions in Gold remain bullish and recent pullbacks appear to be a correction. A fresh trend high on Dec 5 reinforced a bullish theme and price has recently breached $1786.5, the Nov 15 high and a bull trigger, confirming a resumption of the uptrend. $1800.0 has been cleared and sights are on $1807.9, the Aug 10 high that has been pierced. A clear break would be bullish. Key trend support is at $1729.0, the Nov 23 low.

• WTI Crude up $1.01 or +1.38% at $74.05
• Natural Gas up $0.22 or +3.4% at $6.815
• Gold spot up $2.79 or +0.16% at $1784.23
• Copper up $2.25 or +0.59% at $382.4
• Silver up $0.04 or +0.17% at $23.3308
• Platinum down $0.34 or -0.03% at $1006.09