MNI US OPEN - ECB Hike Looks Done Deal, With Focus on March Messaging

NEWS

MNI ECB Preview: February 2023 - With 50bp Fully Priced for February, Focus Shifts to the March Meeting

The ECB is set to hike policy rates by 50bp at the February meeting – a position that has now been well telegraphed and fully priced by the market. There is unlikely to be any surprise policy innovation beyond some technical details on how QT will be implemented. Markets will look for any clues on the March policy rate decision and we believe it more likely than not that Lagarde will hint at a similar sized hike at that meeting.

MNI BOE Preview: February 2023 - Vote Split Could See Dovish Reaction

The MNI Markets team expects a 50bp hike at the February 2023 MPC meeting, but see around a 30% probability subjectively of a 25bp hike instead. We think there is better risk-reward to position for a dovish outcome than for a hawkish move due to our expectations that there could be a more dovish vote split than the market expects.

EUROZONE (MNI): Latest Recession Probability Falls Towards 50%

The risk of a recession around mid-year has moderated in the December update of the six months-ahead recession probability model. This is consistent with the better than expected GDP data for the last quarter of 2022, low and stable unemployment and improving economic sentiment. This result is suggesting that the euro area may be able to avoid recession but if there is one, it is likely to be shallow.

US (BBG): U.S. to Boost Military Role in the Philippines as Fears Over Taiwan Grow

Washington and Manila announced a plan to give the American military access on four new locations in the Southeast Asian country, a strategic partner in the region. The United States is increasing its military presence in the Philippines, gaining access to four more sites and strengthening the Southeast Asian nation’s role as a key strategic partner for Washington in the event of a conflict with China over Taiwan.

JAPAN (MNI): BOJ's Wakatabe Maintains Commitment to Easy Policy

Bank of Japan Deputy Governor Masazumi Wakatabe said on Thursday that the BOJ’s commitment to continuing with monetary easing has not changed at all, despite the bank widening the range around its 10-year yield target in December. “The BOJ modified its conduct of yield curve control in order to improve market functioning while maintaining accommodative financial conditions,” Wakatabe told business leaders in Shizuoka City.

JAPAN (BBG): Kuroda Ally Ito Sees Chance of BOJ Starting Unwinding in 2023

The Bank of Japan may be able to step toward normalizing policy this year by achieving its sustainable inflation target, according to Takatoshi Ito, an ally of Haruhiko Kuroda and a contender to replace him in April. “Governor Kuroda’s successor will need a delicate balance in handling policy, but if things go well, 2023 could become a historic year when the BOJ achieves its price target and starts stepping toward normalization,” Ito said in an article for Forbes Japan.

JAPAN (MNI): BOJ Needs More Than One-Off Wage Hikes - Wakatabe

Bank of Japan Deputy Governor Masazumi Wakatabe said on Thursday that one time wage hike weren't sufficient for the BOJ to assess the likelihood of achieving its 2% price target in a stable and sustainable manner.

CHINA (MNI): China's Rebound at Risk from Balance Sheet Recession

Economic scarring inflicted by three years of Covid, coupled with weak balance sheets and lower productivity, risks undermining the government’s push to deliver growth of over 5% and its long-term ambition of high-quality development, policy advisers said.

CHINA (MNI): PBOC to Expand Quota for Policy Financial Tool

The People's Bank of China is likely to expand the lending quota of policy financial instrument to fund infrastructure projects and spur the economy, China Securities Journal reported citing analysts on Thursday. The tool, implemented by three policy banks, have supported 2700 projects since being launched in 2022, analysts said, noting it has become a key measure to push credit expansion.

DATA

GERMANY DEC TRADE BALANCE 10.0B (FCST 9.3B); NOV 10.9B (MNI)

AUSTRALIA DATA (MNI): Approvals Boosted by Apartments, Private Houses Struggling

• AUSTRALIA JAN BUILDING APPROVALS +18.5% M/M, -3.8% Y/Y

Headline building approvals for December rose a much stronger than expected 18.5% m/m after declining 8.8% the previous month. However, the result was driven by the highly volatile apartment sector whereas private house approvals fell for the fourth consecutive month. While monetary tightening and rising costs were expected to slow the sector, the RBA is likely to be monitoring it closely for the degree of the correction.

FOREX: Greenback Remains Underwater Post-Fed, With Attention Shifting to Lagarde

• The greenback is maintaining the post-Fed losses, with the USD Index holding underwater for much of the European morning. The index is around 0.8% off the Powell press conference highs, but has clawed back a small part of the losses posted overnight.
• Growth proxies and high beta currencies are favoured this morning, putting NZD and SEK at the top of the G10 pile. NZD/USD's overnight print of 0.6538 marked the highest level since early June last year, opening next resistance at $0.6576.
• Meanwhile, EUR/SEK sits lower but holds close to the cycle highs printed this year at 11.4022. A hawkish turnout for the ECB could tilt the cross back above this level, putting EUR/SEK on track to test the pandemic high at 11.4262.
• Focus rests on central banks for the rest of the Thursday session, with the Bank of England decision due first at 1200GMT/0700ET, followed by the ECB at 1315GMT/0815ET. Both banks are seen raising rates by a 50bps clip today, with attention turning to their subsequent press conferences for clues on the future trajectory for rates.
• Outside of central banks, weekly US jobless claims data is also due, as well as factory orders for December.

BONDS: Gilts Outperform Ahead of BOE/ECB Meetings

• Treasuries and Bunds are both off their overnight highs with yesterday's FOMC meeting now in the rearview mirror but the BOE and ECB meetings fast approaching. SONIA futures have almost seen as big a move as the Eurodollar strip overnight and BOE terminal rate expectations have seen the biggest move. This has led to a big outperformance for gilts - with 10-year yields moving 13.2bp since Tuesday's close against a 9.5bp fall for 10-year UST yields in the same timeframe.
• The BOE rate decision, statement and MPR are all due at 12:00GMT / 13:00CET with the press conference starting 30 minutes later. The MNI Markets team expects a 50bp hike at the February 2023 MPC meeting, but see around a 30% probability subjectively of a 25bp hike instead. Markets currently price around 44bp, around a 78% probability of a hike today. We think there is better risk-reward to position for a dovish outcome than for a hawkish move due to our expectations that there could be a more dovish vote split than the market expects. For the full BOE preview click here.
• The ECB rate decision is due at 13:15GMT / 14:15CET with the press conference due to begin 30 minutes later. The ECB is set to hike policy rates by 50bp at the February meeting – a position that has now been well telegraphed and fully priced by the market There is unlikely to be any surprise policy innovation beyond some technical details on how QT will be implemented Markets will look for any clues on the March policy rate decision and we believe it more likely than not that Lagarde will hint at a similar sized hike at that meeting. For the full ECB preview click here.
• TY1 futures are up 0-28 today at 115-12+ with 10y UST yields down -9.6bp at 3.415% and 2y yields down -9.1bp at 4.112%.
• Bund futures are up 0.44 today at 137.26 with 10y Bund yields down -2.9bp at 2.254% and Schatz yields up 1.0bp at 2.643%.
• Gilt futures are up 1.20 today at 105.71 with 10y yields down -13.4bp at 3.196% and 2y yields down -11.7bp at 3.316%.

EQUITIES: E-Mini S&P Trend Points North Ahead of Key CBs and Earnings Reports

The EUROSTOXX 50 futures trend needle points north. The contract has pierced resistance at 4206.00, the Jan 18 high. A clear break would confirm a resumption of the current uptrend and pave the way for gains towards 4230.50, the Feb 1 2022 high. Note that the trend remains overbought. A pullback, if seen, would represent a healthy correction. A break of 4097.00 would signal the start of a short-term bear cycle. S&P E-Minis traded higher Wednesday and in the process cleared recent highs to confirm a resumption of the current bull cycle that started Dec 22. The break exposes the key resistance and bull trigger at 4180.00, the Dec 13 high. Clearance of this level would confirm resumption of a broader uptrend and open 4250.00, the Aug 26 2022 high. Initial firm support has been defined at 4007.50, the Jan 31 low.

• Japan's NIKKEI closed higher by 55.17 pts or +0.2% at 27402.05 and the TOPIX ended 7.06 pts lower or -0.36% at 1965.17.
• Elsewhere, in China the SHANGHAI closed higher by 0.749 pts or +0.02% at 3285.67 and the HANG SENG ended 113.82 pts lower or -0.52% at 21958.36.
• Across Europe, Germany's DAX trades higher by 206.81 pts or +1.36% at 15441.34, FTSE 100 higher by 25.74 pts or +0.33% at 7798.09, CAC 40 up 39.53 pts or +0.56% at 7147.51 and Euro Stoxx 50 up 42.34 pts or +1.02% at 4227.22.
• Dow Jones mini down 42 pts or -0.12% at 34113, S&P 500 mini up 20.25 pts or +0.49% at 4152.75, NASDAQ mini up 171.25 pts or +1.38% at 12584.75.

COMMODITIES: Gold Clears January Resistances, Reaches Near 10-Month High Post-Fed

A sharp sell-off on Wednesday in WTI futures has reinforced current bearish conditions. The contract has breached support at $78.45 this week, the Jan 19 low. The move lower undermines the recent bull theme and a continuation would signal potential for an extension towards $72.74, the Jan 5 low. On the upside, the bull trigger has been defined at $82.66, the Jan 18 high. A break of this level is required to reinstate the recent bullish theme. Trend conditions in Gold remain bullish and the yellow metal traded higher Wednesday, clearing resistance at 1949.20, the Jan 26 high. This confirms a resumption of the uptrend and maintains the bullish price sequence of higher highs and higher lows. The focus is on $1963.0, a Fibonacci retracement. Initial firm support to watch lies at $1906.8, the 20-day EMA and $1900.9, the Jan 31 low. A break of this zone would signal a short-term reversal.

• WTI Crude up $0.2 or +0.26% at $76.35
• Natural Gas up $0.03 or +1.22% at $2.503
• Gold spot up $6.56 or +0.34% at $1955.4
• Copper up $4.55 or +1.11% at $415.95
• Silver up $0.33 or +1.37% at $24.2015
• Platinum up $9.87 or +0.98% at $1015.56