MNI US OPEN - ECB Sticks to Script, Points to Post-March Hikes

NEWS

ECB (MNI): ECB’s Muller Says Rates May Need to Stay High ‘Quite Some Time’

The European Central Bank’s planned half-point increase in interest rates this month will probably be followed by more hikes, with borrowing costs to remain elevated for a while, according to Governing Council member Madis Muller. “It’s most likely this won’t be the last rate rise in this cycle,” the Estonian central bank chief said Friday in Ljubljana. “It’s quite possible that interest rates will need to stay high for quite some time so that we can be sure that inflation will come back to, and remain at, close to 2%.”

ECB (MNI): Vasle Reiterates That He Sees More Interest Rate Hikes Beyond March

Slovenian ECB representative Vasle reiterates that he sees more interest rate hikes as being needed beyond March, and that it is important that the policy mix backs slowing inflation. Nothing new there from the ECB member, who had said back in early February: "For the time being, we are firmly determined to continue with the increases," and "With core inflation persisting at such high levels, it's clear rates will have to be moved into a restrictive zone"

ECB (MNI): Wunsch Says Rates May Need to Hit 4%, Core Inflation Key

Bloomberg have covered comments made by ECB Governing Council Member Pierre Wunsch, who suggested that a peak benchmark interest rate of 4% (in line with market pricing) may be required if inflationary impulses remain elevated. Wunsch pointed to "the evolution of core inflation" as the key driver re: the ECB's terminal rate. He went on to stress that "If we don't get clear signals that core inflation is going down, we will have to do more," which means that "looking at rates of 4% would not be excluded."

UK (MNI): Times Report Energy Price Guarantee to be Extended

The Times reports "Jeremy Hunt is poised to extend the government's 2,500 energy price guarantee for another three months in an effort to limit increases in people's bills." That had been widely expected for some time now, but is the most concrete evidence we have seen so far.

CHINA (MNI): PBOC's Yi Satisfied with Rates, RRR Cuts Effective

People’s Bank of China Governor Yi Gang told a briefing on Friday that said he was satisfied with the current real interest rate and that a reduction in the reserve requirement ratio would be an effective way to inject liquidity, suggesting limited room for policy rate cuts and the possibility of a lower RRR depending on the economic outlook.

CHINA (MNI): China Will Prioritise Growth, Boost Demand - CPPCC

China will prioritise economic growth, boost domestic demand and accelerate the recovery of consumption this year, though the external situation is complicated, said Guo Weimin, spokesman for the first session of the 14th National Committee of the Chinese People's Political Consultative Conference in a briefing on Friday.

CHINA (MNI): China's Consumption Rebound on Track but Risks Remain

High frequency data including measures of air traffic and subway riding indicate Chinese consumption has rebounded since the start of the year, but while this reduces the need for monetary stimulus, economists told MNI that this weekend’s National People’s Congress is still likely to see more fiscal spending and moves to boost the labour market.

CHINA (MNI): Yuan Supported by Rebound But Firm USD Risks Move Above 7

The Chinese yuan is expected to be supported by the recovery in economic activity, but the possible renewed strength in the U.S. dollar risks pushing it above the closely watched 7 level and keeping the People’s Bank of China alert to any sharp moves in the currency, economists and traders told MNI.

JAPAN (MNI): BOJ Vigilant Against Weaker Private Consumption

Bank of Japan officials are alert to the risk that private consumption may lose momentum as low-income households are hit by high electricity and gas charges in addition to high food prices, MNI understands. Officials judge that private consumption is weakening as pent-up demand slows and amid high utility charges, though consumption is viewed as broadly holding up.

JAPAN (BBG): Japan Is Rare Leader in Asian Dollar Bond Sales Amid Surge

Japanese firms added this week to their rare leading position in Asian dollar bond issuance, joining a global rush to lock in borrowing costs in the US investment-grade primary market. Trading house Sumitomo Corp. and Norinchukin Bank priced US-currency debt, helping push bond deals from Japan to more than $24 billion so far in 2023, a record from the nation for that period, Bloomberg-compiled data show.

RUSSIA (MNI): Finance Ministry Announces Cuts to FX Sales

The Finance Ministry said Friday it will sell RUB119.8b ($1.6 billion) during the March 7-April 6 period under a budgetary mechanism aimed at insulating the economy from the ups and downs in oil prices. The amount is over 40% less than in the previous month (BBG). A Reuters report on Thursday suggested Russia's finance ministry would to increase its sales of foreign currency for state reserves to about $2.4 billion in the coming month, so this announcement is lower than expected.

DATA

EUROZONE DATA (MNI): Energy Drives Sharp PPI Slowdown, Core PPI Remains Robust

• EUROZONE JAN PPI -2.8% M/M (FCST -0.4%); DEC +1.1% M/M
• EUROZONE JAN PPI +15.0% Y/Y (FCST +17.8%); DEC +24.6% Y/Y

Eurozone factory-gate inflation eased sharply in January, falling -2.8% m/m and cooling a marked 9.6pp to +15.0% y/y. This was substantially lower than the -0.4% m/m and +18.8% y/y expected by consensus. The decline was chiefly due to the -9.4% m/m fall in energy prices and skewed further to the downside by the massive -25.2% m/m fall in Irish PPI (which tends to be volatile).

FRANCE DATA (MNI): Contractionary IP Signals a Weak Start to EZ Jan Data

• FRANCE JAN INDUSTRIAL PROD -1.9% M/M (FCST -0.2%); DEC +1.5%r M/M
• FRANCE JAN INDUSTRIAL PROD -2.2% Y/Y (FCST +0.2%); DEC +1.4% Y/Y

French industrial production slid -1.9% m/m after the +1.5% m/m auto and electricity production boost in December. A sharp fall in transport equipment production drove the decline, which was more marked than the mild -0.2% m/m downturn expected by consensus. Looking forward, the French manufacturing industry weakened further in the February PMI data. New Orders contracted sharply again, led by a sharp decline in export orders.

SPAIN DATA (MNI): Strong Services PMI Accompanied By Record Output Inflation Growth

• SPAIN FEB SERVICES PMI 56.7 (FCST 53.7); JAN 52.7

Spanish services jumped four points to a firmly expansive 56.7 in the February PMI print, outpacing forecasts of a more modest one-point uptick. This is the fourth month of growth and the highest services PMI since April 2022. Growth momentum stemmed from robust demand and employment in February. Yet the increase in service prices implies that further strength in the sector will add to inflationary pressures. Output cost inflation accelerated by the strongest rate on record in February, driven by strong wage pressures and energy costs.

GERMANY JAN TRADE BALANCE EUR 16.7 BLN (FCST 11BLN); DEC 10.0BLN (MNI)

ITALY FEB SERVICES PMI 51.6 (FCST 52.3); JAN 51.2 (MNI)
ITALY FINAL WDA 4Q GDP: -0.1% Q/Q (= PRELIM. DATA) (MNI)

EUROZONE FINAL FEB SERVICES PMI 52.7 (FLASH 53.0); JAN 50.8 (MNI)
UK FEB FINAL SERVICES PMI 53.5 (FLASH 53.3); JAN 48.7 (MNI)
GERMANY FINAL FEB SERVICES PMI 50.9 (FLASH 51.3); JAN 50.7 (MNI)
FRANCE FINAL FEB SERVICES PMI 53.1 (FLASH 52.8); JAN 49.4 (MNI)

JAPAN DATA (MNI): Japan Tokyo Inflation Eased to +3.3% Y/Y In February

The core consumer price index (excluding fresh food) in the Tokyo area, a leading indicator of the national average, rose 3.3% in February, eased from the 4.3% increase registered in January. Energy costs increased 5.3% y/y in February, quickly down from the 26.0% y/y growth last month. The core-core CPI (excluding fresh food and energy) -- a key indicator of the underlying trend of inflation -- edged up 3.2% y/y in February, following last 3.0% y/y growth.

JAPAN DATA (MNI): Japan's Q4 Revised GDP Seen Little Changed

Japan's economy grew at largely similar pace as initially estimated in the October-December quarter, although capital investment is expected to be slightly better than the initial estimate, economists predicted in the wake of a key government survey. The median forecast by six economists for revised Q4 GDP is a rise of 0.2% on quarter, or an annualized 0.8%, compared with the preliminary estimate of a rise of 0.2% q/q, or an annualized 0.6%. The forecasts ranged from 0.2% to 0.4% q/q, and 0.6% to 1.5% annualized.

RATINGS: Friday’s Sovereign Rating Slate

Sovereign rating reviews of note scheduled for after hours on Friday include:

• Fitch on Austria (current rating: AA+; Outlook Negative) & the Czech Republic (current rating: AA+; Outlook Negative)
• Moody’s on Hungary (current rating: Baa2; Outlook Stable)
• S&P on Cyprus (current rating: BBB; Outlook Stable)
• DBRS Morningstar on the European Union (current rating: AAA, Stable Trend)

FOREX: Greenback Edges Lower on Low Volume Profit-Taking

• The greenback is softer early Friday, with markets happy to take profits on the Thursday dollar rally after Bostic's appearance late yesterday. Bostic seemed to reinforce that while further tightening is a near-certainty from the Fed, a re-acceleration of rate hikes beyond 25bps is less likely. As a result, the greenback is the poorest performer in G10 ahead of the NY crossover, although recoveries in the likes of the EUR, GBP have been shallow.
• Additionally, participation has been low, with volumes and activity generally comfortably below recent averages for this time of day. GBP trades more favourably, with GBP benefiting from an upside revision to the final February services and manufacturing PMI releases.
• Unusually for the first Friday of the month, there is no Nonfarm Payrolls release today (3rd March is too close to the end of the survey period for the data to be compiled), keeping focus on the ISM Services Index later today after the market-moving manufacturing release this week.
• Outside of data releases, Fed's Logan, Bostic and Bowman are all scheduled to make appearances - although none of speeches are seen addressing policy directly.

BONDS: Looking Ahead to ISM Services

• Core fixed income is trading higher this morning in a session that has seen a steady flow of European data and ECB speakers but no huge surprises to the status quo. Even so, Bunds, gilts and Treasuries are all higher on the day with curves bull flattening, having reversed the majority of yesterday's moves lower.
• The highlight of the US session will be the US ISM services print, due at 15:00GMT / 10:00ET, with particular focus on the prices and employment subcomponents.
• There will be a speech from BOE's Executive Head of Markets, Andrew Hauser (non-MPC member) on the lessons learnt from last year's LDI intervention, with the text due for release at 11:00GMT / 6:00ET. We are also still due to hear from ECB's Wunsch as well as the Fed's Logan, Bostic and (after the European session) Bowman.
• TY1 futures are up 0-12+ today at 110-28+ with 10y UST yields down -5.4bp at 4.005% and 2y yields down -3.2bp at 4.856%.
• Bund futures are up 0.31 today at 132.01 with 10y Bund yields down -4.0bp at 2.706% and Schatz yields down -2.0bp at 3.181%.
• Gilt futures are up 0.20 today at 998.84 with 10y yields down -3.2bp at 3.846% and 2y yields down -3.0bp at 3.649%.

EQUITIES: E-Mini S&P Trend Conditions Bearish Despite Recovery From Thursday Low

Eurostoxx 50 futures remain above last 4175.00, the Feb 24 low. Key support to watch is 4202.50, the base of a bull channel drawn from the Oct 13 low - the line was pierced yesterday. While channel support holds, the broader uptrend remains intact and a resumption of gains would expose the bull trigger at 4323.00, Feb 16 high. A break of this hurdle would resume the uptrend. On the downside, a breach of the channel base alters the picture. S&P E-Minis trend conditions are bearish despite the recovery from Thursday’s session low. Price remains below the 50-day EMA, at 4018.89 and sights are set on 3901.75, the Jan 19 low and 3887.62, the 76.4% retracement of the Dec 22 - Feb 2 bull cycle. Resistance to watch is at both the 50-day EMA and 4033.48, the 20-day EMA. Note that a clear break of both these EMAs would signal a possible reversal.

• Japan's NIKKEI closed higher by 428.6 pts or +1.56% at 27927.47 and the TOPIX ended 24.95 pts higher or +1.25% at 2019.52.
• Elsewhere, in China the SHANGHAI closed higher by 17.739 pts or +0.54% at 3328.393 and the HANG SENG ended 138.08 pts higher or +0.68% at 20567.54.
• Across Europe, Germany's DAX trades higher by 117.89 pts or +0.77% at 15465.92, FTSE 100 higher by 15.7 pts or +0.2% at 7970.34, CAC 40 up 34.85 pts or +0.48% at 7326.77 and Euro Stoxx 50 up 27.03 pts or +0.64% at 4273.24.
• Dow Jones mini up 16 pts or +0.05% at 33016, S&P 500 mini up 4.75 pts or +0.12% at 3987.5, NASDAQ mini up 16.5 pts or +0.14% at 12080.

COMMODITIES: Gold Trades Ahead of 50-Day EMA

WTI futures remain above the Feb 22 low of $73.80. The contract has continued to appreciate this week and yesterday breached resistance at the 50-day EMA - the average intersects at $77.92. A continuation of gains would signal scope for a test of resistance at $80.78, the Feb 13 high. On the downside, a breach of support at $73.80 is required to reinstate the recent bearish theme. Trend conditions in Gold remain bearish and price is trading just ahead of the 50-day EMA, at $1846.0. The bearish break of the 50-day EMA, in mid-February, strengthened the case for bears. Sights are on $1800.0 and $1787.3, the 50.0% retracement of the uptrend between Sep 28 2022 and Feb 2. On the upside, a clear break of the 50-day EMA would ease bearish pressure and signal scope for a strong short-term bounce.

• WTI Crude down $0.24 or -0.31% at $77.81
• Natural Gas up $0.05 or +1.63% at $2.81
• Gold spot up $9.69 or +0.53% at $1846.05
• Copper up $2.75 or +0.67% at $409.8
• Silver up $0.15 or +0.74% at $21.0494
• Platinum up $5.36 or +0.56% at $970.94