MNI US OPEN - Dearth of Data Keeps Market Watching CB Speakers

NEWS

ECB (BBG): Villeroy Says ECB Needs to Be Pragmatic on Size of Rate Hikes

The European Central Bank needs to be pragmatic as it raises interest rates in the coming months to get to a level by the summer that is sufficiently high to bring inflation back toward 2%, Governing Council member Francois Villeroy de Galhau said.

ECB (BBG): Only Softer Core Inflation Can Shift ECB on Rates, Holzmann Says

Only a slowdown in core inflation can alter the European Central Bank’s resolve to raise interest rates, according to Governing Council member Robert Holzmann. While there’s hope that headline consumer-price gains have peaked, that’s not the case for underlying inflation, Holzmann said Wednesday. Officials must watch the latter very closely, he said.

ECB (MNI): Energy, Inflation Drag on 2023 EZ Consumption - ECB

High energy prices, uncertainty and declining real disposable income will continue to dampen consumer spending in 2023, according to the latest pre-release from the European Central Bank's January Economic Bulletin. Durable goods are likely to be particularly affected, despite reduced supply bottlenecks. Services consumption is also likely to weaken as reopening effects gradually fade.

BONDS (BBG): Gundlach Says Listen to the Bond Market Rather Than Fed on Rates

Prominent fixed-income manager Jeffrey Gundlach said investors trying to figure out how the interest-rate situation will play out should pay attention to the bond market rather than the Federal Reserve. “My 40 plus years of experience in finance strongly recommends that investors should look at what the market says over what the Fed says,” the DoubleLine Capital LP Chief Investment Officer told listeners on a webcast Tuesday.

JAPAN (MNI): More Households See Hit from Rising Prices - BoJ

Higher prices are impacting Japan's households at a greater rate than three months ago, the Bank of Japan's latest quarterly consumer survey shows, increasing concerns that low real incomes will weigh further on consumption levels. The number of survey respondents pointing to prices higher than a year ago stood at 94.3% in December, up from 91.8% in September, with the average rate rising to 12.1% from 10.3%.

RUSSIA (BBG): Russia to Sell Yuan from Wealth Fund as Low Oil Hits Budget

Russia said it will begin selling and buying yuan and other foreign currencies on the Moscow Exchange as soon as Friday under a budgetary mechanism aimed at insulating the economy from the ups and downs in oil prices.

SOUTH KOREA (MNI): 25bp Hike Expected, Tightening Pause on Radar

The Bank of Korea is expected to raise its Base Rate by 25bp to 3.5% at Friday's meeting, steering it to a level cited by Governor Rhee Chang-yong as a possible peak rate, as policymakers prioritise fighting inflation despite a slowing economy.

DATA

SPAIN NOV IP -0.7% M/M, -1.1% Y/Y SA: OCT -0.6%r M/M (MNI)

ITALY RETAIL SALES +0.8% M/M, +4.4% Y/Y (BBG)

AUSTRALIA NOV RETAIL SALES +1.4% M/M (MNI)
AUSTRALIA CPI +7.3% Y/Y (EXP: 7.2%): OCT +6.9% (BBG)

FX SUMMARY: AUD Favoured as Hotter CPI Bakes In RBA Action for February

• Currency markets have picked up where they left off early Wednesday, with risk proxies moderately outperforming and EUR/USD holding well above the 1.07 handle.
• AUD's outperformance follows a modest beat on expectations for November CPI this morning, which edged higher to 7.3% Y/Y and 5.6% on a trimmed mean basis. This keeps a bullish theme intact, with the pair having cleared 0.6893, the Dec 13 high this week to confirm a resumption of the uptrend that started Oct 13. The focus is on 0.6976, a Fibonacci projection. Key support lies at 0.6688, the Jan 3 low.
• The stronger EUR theme gathered pace somewhat on comments from ECB's Holzmann - a historically hawkish member of the governing council. Holzmann stressed the need for the bank to act cautiously in their approach to quantitative tightening - a comment that helped narrow IT-GE government bond yield spreads and thereby shore up the single currency.
• JPY and GBP are among the poorest performers so far. Moves have helped reinforce the bullish outlook for EUR/GBP, which eyes 0.8907 next, a Fibonacci retracement point. Note too that moving average studies highlight a bullish backdrop, reinforcing the current trend direction.
• Markets remain in a holding pattern ahead of Thursday's CPI release, with Wednesday seeing very little in terms of data. As such, more attention will likely be paid to the speaker slate, as ECB's Villeroy, Rehn and de Cos are all on the docket.

BOND SUMMARY: Holzmann Comments Push Core FI Higher

Core fixed income has been moving higher through this morning as terminal rate expectations have shifted lower after comments from ECB's Holzmann which were considered less hawkish than his usual communication.

• Schatz yields are down 2.2bp on the day, dragging 2-year UST yields a similar amount, but it is 2-year gilt yields that have seen the biggest move at the short-end of the govvie curve, moving with a higher beta than Schatz.
• However, in the 10-year space there have been similar moves for both Bunds and gilts, with yields down around 8bp for both, more than the 5bp decrease in UST yields.
• This has therefore seen the biggest flattening of the 2s10s curve in Germany (around 5.5bp), with gilts and USTs seeing around 3.5bp of flattening.
• Looking ahead, markets already have one eye on tomorrow's US CPI print.
• TY1 futures are up 0-10 today at 114-010 with 10y UST yields down -5.1bp at 3.571% and 2y yields down -2.3bp at 4.227%.
• Bund futures are up 0.85 today at 137.05 with 10y Bund yields down -7.9bp at 2.225% and Schatz yields down -2.2bp at 2.618%.
• Gilt futures are up 0.88 today at 102.75 with 10y yields down -8.3bp at 3.472% and 2y yields down -4.9bp at 3.399%.

EQUITIES: Eurostoxx Futures Continues Climb Towards 4100.00 Handle

EUROSTOXX 50 futures bullish conditions remain intact and the contract is trading at its recent highs. 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 to 4100.00 next. Moving average studies are in a bull-mode condition, reinforcing the current positive trend condition. Initial support lies at 3927.00, the 20-day EMA. S&P E-Minis traded higher Monday but failed to hold on to the session high. Key resistance at 3918.27, the 50-day EMA, has been breached. A continuation higher and a clear break of this EMA would suggest potential for a stronger recovery and highlight a possible reversal that would open 4000.00 next. On the downside, a break lower would confirm a resumption of the downtrend - the bear trigger is 3788.50, the Dec 22 low.

• Japan's NIKKEI closed higher by 270.44 pts or +1.03% at 26446 and the TOPIX ended 20.37 pts higher or +1.08% at 1901.25.
• Elsewhere, in China the SHANGHAI closed lower by 7.669 pts or -0.24% at 3161.838 and the HANG SENG ended 104.59 pts higher or +0.49% at 21436.05.
• Across Europe, Germany's DAX trades higher by 47.11 pts or +0.32% at 14814.71, FTSE 100 higher by 29.48 pts or +0.38% at 7721.71, CAC 40 up 21.44 pts or +0.31% at 6887.15 and Euro Stoxx 50 up 15.32 pts or +0.38% at 4070.77.
• Dow Jones mini up 5 pts or +0.01% at 33852, S&P 500 mini down 1.75 pts or -0.04% at 3938.5, NASDAQ mini down 19.25 pts or -0.17% at 11257.

COMMODITIES: Gold Approaches 1896.5 Retracement Level

WTI futures failed to hold on to Monday’s gains. A bearish theme remains intact following the sell-off on Jan 3 and 4. Key support and the bear trigger lies at $70.31, the Dec 9 low. A break of this level would confirm a resumption of the broader downtrend and maintain a bearish price sequence of lower lows and lower highs. This would open $68.19, a Fibonacci projection. On the upside, key resistance is at $81.50, the Jan 3 high. Trend conditions in Gold remain bullish and the yellow metal continues to trade higher, extending the current uptrend. The 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 $0.15 or +0.2% at $75.29
• Natural Gas up $0.04 or +0.96% at $3.675
• Gold spot up $7.33 or +0.39% at $1883.37
• Copper up $3.7 or +0.91% at $412.05
• Silver up $0.38 or +1.6% at $23.8868
• Platinum up $12.38 or +1.14% at $1092.63