MNI US OPEN - ECB Speakers Stick to Lagarde's Script

NEWS

US/CHINA (BBG): Top US, China Officials to Meet in Bangkok, Maintaining Ties

US National Security Advisor Jake Sullivan and Chinese Foreign Minister Wang Yi will meet soon, maintaining the high-level contacts that were revived after the countries’ presidents met in California. The Sullivan-Wang session will take place in coming days in Thailand, the Foreign Ministry in Beijing said in a statement Friday. Wang will sign an agreement waiving visa requirements for travelers during a visit to Bangkok from Friday to Monday, the ministry said separately.

US (BBG): Biden Freezes Approvals to Export Gas, Imperiling Major Projects

The Biden administration on Friday halted the approval of new licenses to export US liquefied natural gas while it scrutinizes how the shipments affect climate change, the economy and national security — a moratorium likely to disrupt plans for billions of dollars in projects. The Energy Department study will build on an existing analysis that underpins the agency’s review of proposals to send more natural gas to European, Asian and other countries that are not US free-trade partners.

US/BRAZIL (BBG): Lula Invites Biden to Brazil to Further Diplomatic Ties

Brazilian President Luiz Inacio Lula da Silva invited his US counterpart, Joe Biden, to visit Brazil, according to two Brazilian government officials familiar with the plan. In a letter, Brazil’s president said the invitation would commemorate 200 years of diplomatic relations between the two countries. Lula has personal respect for Biden and is grateful for the US’s quick recognition of his election in November 2022 amid attempts to discredit the result, according to people close to the Brazilian president.

ECB (RTRS): ECB Open to March Pivot, Possible June Cut if Data Allow

European Central Bank policymakers are open to a change in their rhetoric at their next meeting, paving the way for an interest rate cut possibly in June, if upcoming data confirms inflation has been vanquished, four sources told Reuters. The ECB kept interest rates unchanged at a record-high 4% on Thursday and gave no hint that it is even contemplating a start to easing. But policymakers know that the time to start discussing a first rate cut is approaching, provided that inflation and wage data confirm that price growth is already heading to the ECB's 2% goal this year, the sources close to the matter said

ECB (MNI): Forecasters Lower Eurozone Inflation Views - ECB

Professional forecasters have revised lower both headline and ex-energy and food HICP expectations for eurozone inflation from the previous quarter, the latest ECB survey showed on Friday. Headline inflation was expected to decline from 2.4% in 2024 to 2.0% in both 2025 and 2026, the Survey of Professional Forecasters showed. Longer-term HICP inflation expectations (for 2028) were also revised down, by 0.1 percentage point, to 2.0%. Inflation in the Eurozone stood at 2.9% in December, with core (ex-energy, food, alcohol and tobacco) inflation at 3.4%.

ECB (MNI): ECB Edging Closer to Lower Rates - Kazaks

The ECB is getting closer to lower interest rates, barring external shocks, but for now policymakers remain "data dependent, not date dependent" Latvia central bank head and Governing Council member Martins Kazaks said Friday. His comments came the day after the ECB held its policy rates for a third straight meeting, but offered no formal guidance on when rate cuts could start. Kazaks told Bloomberg TV the potential for supply-side shocks was a reason for patience, but that the "Red Sea issue" had been contained for now. He again noted inflation continued in a slowing trend and would slow further this year.

ECB (BBG): ECB’s Simkus Open-Minded on April Decision, Will Look at Data

European Central Bank Governing Council member Gediminas Simkus said that while he’s less optimistic than markets on the prospect of an April reduction in interest rates, he’s open-minded and will look at the data that arrives in the meantime. “The further we go into the year of 2024, the likelihood of a cut increases,” Simkus told reporters Friday in Riga.

ECB (BBG): ECB Didn’t Turn Dovish at Meeting This Week, Vujcic Says

There was no relaxation in tone from European Central Bank on Thursday, Governing Council member Boris Vujcic said after markets stepped up bets on interest-rate cuts following less pushback than anticipated by President Christine Lagarde. The Croatian central bank chief said Friday that he didn’t consider the messaging in her news conference to be dovish after the ECB held its deposit rate at 4% for a third meeting.

ECB (BBG): ECB’s Muller Says It’s Too Soon to Talk About Interest-Rate Cuts

It’s still too early for the European Central Bank to consider cutting interest rates as core inflation and wage growth remain elevated, Governing Council Member Madis Muller says in statement. It’s reasonable to expect that borrowing costs will remain on hold at the next “several” meetings. There’s too little confidence that inflation has been defeated.

ECB (BBG): ECB’s Panetta Sees Common Safe Asset as Crucial for Europe

European Central Bank Governing Council member Fabio Panetta renewed pressure on the continent to jointly issue bonds — calling it a “critical” step for the common currency, despite political resistance. “A scarce supply of safe euro-denominated assets is perhaps the single most important constraint on the Capital Markets Union, and hence on the global reach of the euro,” the Italian central bank chief said Friday in a speech in Riga, Latvia.

EU/UKRAINE (BBG): EU Likely to Agree on Aid for Ukraine Next Week, Rinkevics Says

European Union leaders are moving toward an agreement next week to transfer some €50 billion ($54.1 billion) in aid to Ukraine, Latvia’s leader said. President Edgars Rinkevics said an agreement for Kyiv will either involve a deal with all 27 member states, or a “different mechanism” that would work if unanimity isn’t achieved. Hungary blocked the funding at a meeting in Brussels last month. EU leaders return for a summit on Feb. 1 to finalize a deal.

RUSSIA/UKRAINE (MNI): Kremlin Pushes Back on Report Claiming Putin 'Testing Waters' on US Talks

The Kremlin has pushed back on a 25 Jan Bloomberg report claiming that "Vladimir Putin is testing the waters on whether the US is ready to engage in talks for ending Russia’s war in Ukraine." Kremlin spox Dmitri Peskov states that the report is "completely untrue". According to the article, Putin has "put out feelers to the US via indirect channels to signal he’s open to discussion, including potentially on future security arrangements for Ukraine, according to two people close to the Kremlin."

UK/CANADA (BBG): UK, Canada Blame Each Other as Trade-Deal Talks Break Down

The UK paused talks to strike a free-trade deal with Canada, with each side accusing the other of obstructing progress. The two countries have been negotiating for almost two years on replacing an interim deal put in place following Britain’s departure from the European Union. The breakdown in talks effectively leaves the UK at risk of being in a worse position than it was as a member of the bloc when it comes to Canada trade.

FRANCE (BBG): Macron Makes Last-Ditch Bid to Stop Farmers Blockading Paris

Emmanuel Macron’s government will try to defuse French farmers’ fury over falling incomes and stringent European regulations, in an attempt to stop demonstrations from escalating into a blockade of Paris. Protests that began in the south of France have spread through the week, as farmers blocked major roads and snarled traffic around the country with go-slow processions. Some unions have urged their members to cut off the main routes into Paris on Friday afternoon.

ITALY (MNI): No Rifts in Gov't on Ukraine Support - Defence Minister

In an interview with Italian daily Corriere Della Sera, Defence Minister Guido Crosetto has sought to reinforce the gov'ts commitment to supporting Ukraine. This follows the initial submission of a resolution to parliament by a senior lawmaker from the right-wing populist League (the party Crosetto hails from) that sought to curtail Rome's support to Kyiv.

CHINA (BBG): China Asks Firms to Not Add Holdings in Short-Term LGFV Bonds

China’s securities regulator has asked some investors to refrain from increasing their exposure to less-than-one-year dollar bonds issued by local government financing vehicles, said people familiar with the matter. Representatives of the China Securities Regulatory Commission sent the so-called window guidance to some Chinese asset managers in Hong Kong early this week to request that they no longer buy more of these notes, the people said, asking not to be identified as the matter is private.

CHINA (MNI): Conditions "Ripe" for China CPTPP in 2024

MNI (Beijing) China is confident in meeting Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) standards, seeing conditions in 2024 as "ripe" for Beijing's accession to the trading block, according to Wang Shouwen, answering an MNI question at a press conference Friday. Beijing was taking China's application seriously, Wang added. On trade, Wang Wenshou, Minister of Commerce, said China's exporters faced weak external demand and rising geopolitics this year. However favourable conditions such as strong competitiveness and new growth areas would mean trade remained stable.

BOJ (BBG): BOJ Minutes Hint at Proximity of Rate Hike as Exit Talk Grows

Bank of Japan board members deepened their discussions last month over the timing of an exit from the world’s last negative interest rate, according to minutes of the December policy meeting that may fuel market expectations of a move in March or April. “Members shared the recognition that it was important for the bank to continue to deepen discussions on issues such as the timing of the exit from the current monetary policy and the appropriate pace of raising policy interest rates thereafter,” according to the minutes of the December 18-19 gathering released Friday.

JAPAN (MNI): Japan Govt Sees FY24 GDP at 1.3% vs. FY23's 1.6%

Japan's government has lowered its real GDP forecast for fiscal 2024 starting on April 1 to 1.3% from FY2023's forecast of 1.6% due to the slowing global economy, the Cabinet Office said on Friday. The government’s based its forecast on the view that domestic demand, such as private consumption and capital investment, will boost economic growth. Private consumption and capital investment are expected to rise 1.2% and 3.3% y/y in FY2024, revised up from 0.1% and 0.0% this fiscal year.

JAPAN (MNI): Lawmakers to Begin Session With Discussion of LDP Political Funding Scandal

The after waves of the political funding scandal continue to rattle Japan's ruling Liberal Democratic Party (LDP) as the Diet started its 150-day regular session today, setting the stage for a grilling of Prime Minister Fumio Kishida by opposition lawmakers. At the request of the main opposition Constitutional Democratic Party of Japan (CDP), parliament is expected to debate the political kickbacks affairs on Monday, one day before the Prime Minister delivers his policy speech. The session normally opens with the policy speech, but the LDP agreed to a schedule change.

CORPORATE (FT): Elon Musk’s AI Start-Up Seeks to Raise $6b From Investors

Elon Musk’s xAI is in discussions to raise as much as $6b from investors as part of efforts to challenge OpenAI, the Financial Times reports, citing people familiar with the matter. Wealthy individuals and investors were approached in recent weeks, including family offices in Hong Kong, FT cites the people as saying. Also targeting sovereign wealth funds in the Middle East, as well as investors in Japan and South Korea.

DATA

UK JAN GFK CONSUMER CONFIDENCE INDEX -19 (MNI)

FRANCE JAN CONSUMER SENTIMENT 91 (MNI)

SWEDEN (MNI): Unemployment Rate Converges Toward Riksbank Forecast

• SWEDEN DEC UNEMPLOYMENT 7.7%

Swedish seasonally adjusted unemployment for December rose to 8.2%, above November's 7.9% and consensus estimates of 8.1%. Unemployment is thus seen converging to the Riksbank's November MPR forecast, which saw the Q1 '24 rate at 8.3%. The labour market is therefore evolving broadly in line with the Riksbank's expectations, and does not suggest any curveballs at next week's decision, where rates are firmly expected to be held steady (although changes to the QT pace are likely).

NORWAY (MNI): Retail Sales Remain Subdued, But Point to Gradual Recovery in Goods Consumption

Norwegian retail sales for December fell -0.9% M/M (vs +0.4% prior). The consensus of +0.2% M/M was formed from just 3 analysts. Excluding motor vehicles and petrol stations, sales fell -2.7% M/M (vs +2.1% prior). The monthly measures can be volatile, so better inferences can be drawn from the 3m/3m measure. The headline reading grew +0.3% 3m/3m (vs -0.6% prior), while the ex-motor vehicles measure grew +0.6% 3m/3m (vs -0.5% prior).

JAPAN DATA (MNI): Japan Tokyo Jan Core CPI +1.6% Y/Y

• JAPAN JAN TOKYO CORE CPI +1.6% Y/Y; DEC +2.1%
• JAPAN JAN TOKYO CORE-CORE CPI +3.1% Y/Y; DEC +3.5%

The core consumer price index (excluding fresh food) in the Tokyo area, a leading indicator of the national average, registered a 1.6% increase in January, slowing down from the 2.1% growth in December. Energy costs decreased 20.1% y/y in January, dipping further from the 18.8% y/y drop last month. Processed food prices rose 5.7% y/y, lower than the previous 6.0% y/y increase. Prices for household durable goods increased 0.9% y/y, following the previous 0.4% y/y increase.

JAPAN DEC SERVICES PPI +2.4% Y/Y; NOV REV +2.4% (MNI)
JAPAN DEC SERVICES PPI +0.1% M/M: NOV REV +0.3% (MNI)
JAPAN JAN SERVICES PRICES +1.7% Y/Y; DEC +2.2% (MNI)

FOREX: Returning ECB Speak Sticks to Script, EUR/GBP Holds Inside Downtrend

• ECB speakers have returned after Thursday's rate decision, with Simkus, Panetta, Vujcic and others voicing their view on policy going forward. ECB members stuck to the messaging laid down by Lagarde yesterday, stressing that the rate cut path ahead is data dependent, and not date dependent - leaving market pricing with few fresh clues.
• Markets moves have left EUR/GBP inside the downtrend channel drawn off the late December high. 0.8521 marks the next downside level ahead of stronger support into 0.8493. EUR/USD now closely pinned to one of the most sizeable option expiries rolling off at today's cut, with E1.1bln rolling off at 1.0850 today.
• An early uptick in the US yield curve has faltered, helping cement a recovery off lows for both EUR/USD and GBP/USD. Moves similarly mirror the ~10 point creep higher for the e-mini S&P, steadying prices and sentiment into the NY crossover.
• CHF is among the session's strongest performers on the day, however markets are largely reversing the weakness noted in the currency Thursday. USD/CHF remains either side of the 50-dma, which has proved a strong magnet for prices across the past fortnight. 0.8607 remains the first support, weakness through which opens 0.8577 and below.
• Focus for the remainder of the week rests on the personal income/spending data for December, as well as the last PCE deflator stats before next week's Fed decision. FOMC members remain inside their pre-decision media blackout period.

EGBS: Core/Semi-Core Stronger on Dovish ECB Sources; Peripheries Tighten

Core/semi-core EGBs remain firmer on the day, after an initial pullback from best levels lost momentum. Bunds are +14 ticks at 134.67, having been unable to breach the first resistance at 134.97 (20-day EMA) earlier.

• The morning's firmness came following a dovish ECB sources piece from RTRS, alongside follow-through from a soft Tokyo CPI in Japan and solid demand metrics at last night's 7Y auction in the US.
• Today's ECB-speakers have mostly derived from the hawkish camp of the Governing Council, though they have generally re-iterated the stance of data- (not date-) dependency, introduced in yesterday's press conference, as well as echoing Lagarde's lines on the labour market and wage data.
• A weaker-than-expected GfK consumer confidence print from Germany alongside moderating inflation expectations in the ECB's latest Survey of Professional Forecasters will have also marginally helped today's bid.
• The German and French cash curves have bull-steepened, with 5-year tenors outperforming. Meanwhile, periphery spreads have tightened owing to this morning's strength in European equities alongside the wider core FI bid. The 10-year BTP/Bund spread has compressed 2.5bps to 151.2 - close to the tightest levels in almost 2-years.
• The remainder of today's regional calendar is light, with markets looking to the US PCE deflator release at 1330GMT.

GILTS: Off Best Levels

Gilts consolidate shy of early highs, with offshore matters generally dominating thus far. The move away from yesterday’s lows extends after key mid-December levels in futures & 10-Year yields were not tested by bears.

• A late Thursday source report from BBG hasn’t go much airtime but noted that “the Treasury is telling ministers that Chancellor Hunt is expected to have limited money for giveaways in his upcoming budget, signalling caution as members of the ruling Conservative Party push for tax cuts ahead of a general election.”
• The piece went on to suggest that “internal Treasury analysis shared with officials in recent days estimates that Hunt will have just £14bn of headroom when making his tax and spending decisions. That figure remains near historic lows, and is far less than some economists had projected.”
• This will likely be filtering into the gilt rally today.
• Futures last show +15 at 98.53, 25 ticks off the peak of the session’s 37-tick range.
• Gilt yields are 0.5-2.0bp lower on the day, with the 5- to 10-Year zone leading.
• SONIA futures sit -0.5 to +4.0 through the blues, operating off best levels.
• BoE-dated OIS is little changed to ~4bp softer across ’24 contracts. The first 25bp cut is fully discounted come the end of the June ’24 MPC, with ~103.5bp of cuts priced for ’24 on the whole (vs. ~90bp at one point yesterday).
• Wider market matters will likely dictate price action through the remainder of the day given the lack of scheduled risk events on the local docket.
• Next week’s local focus will fall on the latest BoE decision (expect our full preview of that event to cross on Tuesday).

EQUITIES: Eurostoxx 50 Futures Extend Recovery Toward Resistance at Mid-December High

Eurostoxx 50 futures have recovered this week from 4402.00, the Jan 17 low. 4402.00 represents a key short-term support. A break of this level would resume recent bearish pressure and open 4370.00, the Nov 28 low. On the upside, key resistance is at 4634.00, the Dec 14 high. Clearance of this level would confirm a resumption of the medium-term uptrend and open 4662.90, a Fibonacci projection. Initial support lies at 4508.80, the 20-day EMA. The uptrend in S&P E-Minis remains intact and this week’s move higher has reinforced current conditions. Resistance at 4841.50, the Dec 28 high has recently been cleared, confirming an extension of the price sequence of higher highs and higher lows. Moving average studies remain in a bull-mode condition, highlighting positive market sentiment. Sights are on 4952.45 next, a Fibonacci projection. Key support lies at 4729.00, the 50-day EMA.

• Japan's NIKKEI closed lower by 485.4 pts or -1.34% at 35751.07 and the TOPIX ended 34.27 pts lower or -1.35% at 2497.65.
• Elsewhere, in China the SHANGHAI closed higher by 4.114 pts or +0.14% at 2910.223 and the HANG SENG ended 259.73 pts lower or -1.6% at 15952.23.
• Across Europe, Germany's DAX trades lower by 6.86 pts or -0.04% at 16899.36, FTSE 100 higher by 81.51 pts or +1.08% at 7610.53, CAC 40 up 130.46 pts or +1.75% at 7593.24 and Euro Stoxx 50 up 25.83 pts or +0.56% at 4607.59.
• Dow Jones mini down 97 pts or -0.25% at 38112, S&P 500 mini down 14.25 pts or -0.29% at 4908.75, NASDAQ mini down 125.75 pts or -0.71% at 17508.25.

COMMODITIES: WTI Futures Breach Resistance at Late December High

WTI futures traded higher yesterday. The contract has breached resistance at $76.31, the Dec 26 high. A clear break of this hurdle undermines the recent bearish theme and highlights a stronger short-term bullish condition. A continuation higher would signal scope for a climb towards $79.56, the Nov 30 high. On the downside, a reversal lower would refocus attention on $69.56, the Jan 3 low. Gold is unchanged and remains above the Jan 17 low of $2001.9 - for now. The recent print below the 50-day EMA and the break of support at $2013.4, the Jan 11 low, has strengthened a bearish threat and a resumption of weakness would open a key level at $1973.2, the Dec 13 low. For bulls, clearance of 2062.3, the Jan 12 high, is required to signal a reversal. This would expose $2088.5, the Dec 28 high.

• WTI Crude down $0.66 or -0.85% at $76.69
• Natural Gas up $0.07 or +2.68% at $2.643
• Gold spot up $0.61 or +0.03% at $2021.58
• Copper down $0.65 or -0.17% at $385.8
• Silver up $0.01 or +0.03% at $22.9215
• Platinum up $5.11 or +0.57% at $898.88