MNI US OPEN - EUR Buoyed as Knot Warns Markets Could Underestimate ECB

NEWS

NORGES BANK (MNI): Norges Bank on Hold, Sees Next Hike Likely March

Norges Bank left the policy rate unchanged at 2.75% with Governor Ida Wolden Bache stating that the next hike was likely in March, with the commentary pointing to a 25bps hike, in line with MNI's expectation. There was no new set of forecasts accompanying the Monetary Policy and Financial Stability Committee's decision but its analysis said the domestic labour market was tight, perhaps slightly more so the central bank had expected.

ECB (BBG): ECB’s Knot Sees ‘Multiple’ Half-Point Hikes to Tame Prices

European Central Bank Governing Council member Klaas Knot said there’ll still be more than one half-point increase in interest rates, with the inflation situation remaining unsatisfactory. Investors, who’ve been softening bets on monetary tightening, may be underestimating the ECB’s commitment to tame prices, Knot told CNBC on Thursday. Policymakers are focused currently on the risk of doing too little, he said.

NEW ZEALAND (MNI): Ardern Steps Down as PM, Election Called For 14 October

New Zealand Prime Minister Ardern has announced that she will be stepping down as leader of the Labour Party by 7 February, tendering her resignation as Prime Minister. She noted that she "no longer has enough in the tank" to do the job justice. Ardern will remain an MP through April, with no plans beyond that point.

JAPAN (MNI): BOJ Sees Mild Wage Hikes, Broad-Based Hikes Needed

A board-based rise in wages is needed, including for part-time jobs and among small businesses, in order for wage increases to gain traction at an economy-wide level, the Bank of Japan’s full text Outlook Report released Thursday said. It is projected in this Outlook Report that wage growth will accelerate gradually, albeit at a moderate pace, it said.

CHINA (MNI): LPR On Hold, But Ample Tools to Boost Growth

(MNI) Beijing - China's reference lending rates are expected to remain unchanged in January as confidence about an economic recovery grows after the easing of Covid controls, and as measures to expand credit and shore up the property sector gain traction, advisors and analysts said.

MALAYSIA (MNI): Malaysia’s Central Bank Keeps Overnight Policy Unchanged

The Bank Negara Malaysia provided a dovish surprise, keeping its Overnight Policy Rate unchanged at 2.75%. All but one economist surveyed by Bloomberg called for a 25bp hike, with the lone dissenter correctly predicting the actual outcome. The BNM said that domestic "growth for 2022 is expected to exceed the earlier projected range of 6.5% - 7.0%" but "in 2023 is expected to moderate amid a slower global economy."

INDONESIA (MNI): Bank of Indonesia Hikes Key Rate by 25bp, Matching Expectations

Bank Indonesia met expectations as it raised the 7-Day Reverse Repo Rate by 25bp to 5.75%, in line with the consensus call. Governor Warjiyo noted that "the more calculated decision on policy rate increase is a follow-up step to ensure continued lower expected inflation and inflation in a front-loaded, pre-emptive, and forward-looking measure."

DATA

JAPAN DATA (MNI): Japan Dec Exports Post 22nd Rise; Auto Exports Slow

• JAPAN POSTS JPY1.45 TLRN TRADE DEFICIT IN DEC
• JAPAN DEC EXPORTS +11.5% Y/Y; NOV +20.0%
• JAPAN DEC IMPORTS +20.6% Y/Y; NOV +30.3%

December exports data support the Bank of Japan's view that exports are trending higher as supply-side constraints ease, but bank officials are worried about the impact of a slowing global economy in the first and second quarters of 2023.

Bank officials expect a slowdown in the U.S. economy caused by Federal Reserve rate hikes to become more apparent this year, slowing an increase in Japan’s exports, although bank officials don’t expect to see a big economic downturn.

JAPAN DATA (MNI): BOJ's Dec Real Export Index Drops 4.7% M/M

The Bank of Japan's real export index, calculated using Ministry of Finance trade data, fell 4.7% m/m in December for the first drop in four months following a revised 0.1% rise (from a preliminary 0.04% fall) in November. The figures were calculated by MNI based on BOJ data and confirmed by bank officials. The BOJ will release details of the index on Tuesday.

AUSTRALIA DATA (MNI): RBA Pause Debate Stoked by Dec Jobs Slowdown

• AUSTRALIA DEC UNEMPLOYMENT RATE +3.5%
• AUSTRALIA DEC EMPLOYED PERSONS CHANGE -14.6K
• AUSTRALIA DEC LABOR PARTICIPATION RATE +66.6%
• AUSTRALIA DEC F-T EMPLOYED PERSONS CHANGE 17.6K

The debate over the timing of a pause in the Reserve Bank of Australia's rate hike campaign has been renewed after December jobs data showed signs the red-hot labour market may no longer be tightening. Employment fell by 14,600 jobs according to the Australian Bureau of Statistics, disappointing market expectations for a gain of 25,000 jobs and the participation rate dipped 0.2pp to 66.6%, although the unemployment rate remained steady at a 48-year low of 3.5%.

FOREX: EUR Buoyed as Knot Warns Markets Underestimating ECB Rate Path

• After trading sideways for the bulk of the Asia-Pac session, EUR/USD picked up alongside comments from ECB's Knot, who stated he sees "multiple" 50bps rate hikes from the bank, adding that markets may be underestimating the bank's policy path. EUR/USD recovered well back above the 1.08 handle, although has stopped short of any test on the Wednesday high at 1.0887.
• JPY is extending the recovery off the BoJ-inspired low this week, and is among the strongest currencies in G10. This confirms price action on Wednesday as corrective, keeping yesterday's 127.57 a focus for USD/JPY bears.
• AUD, NZD are among the poorest performers in G10. Markets moves follow a weaker than expected jobs report out of Australia as well as the unexpected resignation of the NZ PM Jacinda Ardern. AUD/USD eyes support at the 0.6821 200-dma for direction.
• Norway's Norges Bank kept policy unchanged, alongside consensus expectations, but against a minority who saw further tightening today. In name-checking March as the next most likely hike., the bank have confirmed a return to gradualism for Norwegian monetary policy, and softer language on rates may signal 3.00% is the peak of the cycle for now.
• Focus turns to the weekly US jobless claims releases as well as December housing starts and building permits. Fed and ECB speakers will also be carefully watched, with Fed's Collins, Brainard & Williams due as well as ECB's Knot.

BONDS: Mixed Trade, With Lagarde And US Housing Data Eyed

Global core FI is trading mixed, with futures slightly off overnight highs. Yields are mostly lower with curves mixed (US bull steepening, UK bull flattening, Germany twist flattening) ahead of several central bank speakers and US housing data.

• German instruments are underperforming ahead of ECB Pres Lagarde's Davos appearance at 0530ET/1030GMT.
• She's anticipated to continue the pushback against speculation the ECB could step down the size of hikes to 25bp as soon as the March meeting. DNB's Knot added to the hawkish chorus earlier in the session, boosting ECB hike pricing.
  
• Norges Bank held rates as widely expected; little broader market reaction.
• US data in focus today includes jobless claims, Philly Fed, and more interestingly housing starts/building permits, which will be eyed in the context of Wednesday's unexpected NAHB survey bounce.
  
• We hear from Fed's Brainard, Collins and Williams, and ECB's Knot (again) and Schnabel. We also get the accounts of the December ECB meeting.
• $17B 10Y TIPS auction is today's US gov't supply.

Latest levels:

• Mar 10-Yr futures (TY) up 2/32 at 115-31 (L: 115-26.5 / H: 116-08)
• Mar Bund futures (RX) down 29 ticks at 140.01 (L: 139.82 / H: 140.73)
• Mar Gilt futures (G) up 24 ticks at 105.22 (L: 104.9 / H: 105.68)
• Italy / German 10-Yr spread 0.6bps wider at 174.4bps

EQUITIES: Eurostoxx Pullback Considered Corrective After Printing Fresh Cycle High Wed

EUROSTOXX 50 futures bullish conditions remain intact and the recent shallow pullback is considered corrective. Futures have recently cleared resistance at 4043.00, the Dec 13 high and a bull trigger. The break marks a key short-term positive development and paves the way for gains towards 4215.00 next, a Fibonacci projection. Moving average studies are in a bull-mode condition, reinforcing the bull theme. Initial firm support is 4015.70.S&P E-Minis traded lower Wednesday and a key short-term resistance has been defined at 4035.25, the Jan 17 high. Attention is on support at 3931.73, the 50-day EMA. A break of this average would highlight a potential bearish reversal and expose support at 3891.50, the Jan 10 low. On the upside, the contract needs to clear 4035.25 to cancel any developing bearish threat and instead confirm a resumption of recent bullish activity.

• Japan's NIKKEI closed lower by 385.89 pts or -1.44% at 26405.23 and the TOPIX ended 19.31 pts lower or -1% at 1915.62.
• Elsewhere, in China the SHANGHAI closed higher by 15.873 pts or +0.49% at 3240.279 and the HANG SENG ended 27.02 pts lower or -0.12% at 21650.98.
• Across Europe, Germany's DAX trades lower by 103.19 pts or -0.68% at 15079.15, FTSE 100 lower by 42.65 pts or -0.54% at 7787.78, CAC 40 down 44.67 pts or -0.63% at 7038.72 and Euro Stoxx 50 down 27.88 pts or -0.67% at 4146.46.
• Dow Jones mini down 143 pts or -0.43% at 33248, S&P 500 mini down 14.75 pts or -0.37% at 3931.25, NASDAQ mini down 33.5 pts or -0.29% at 11444.

COMMODITIES: WTI Future Price Action Reverses Lower From Wed 82.38 One-Month High

WTI futures traded higher yesterday but price has reversed lower from the $82.38 session high. Attention is on support at $77.47, the 20-day EMA. A break of this average would highlight a stronger bear threat and expose support at $72.46, the Jan 5 low. On the upside, key short-term resistance has been defined at $82.38 where a break would reinstate the recent bullish theme. Trend conditions in Gold remain bullish and the yellow metal traded to a fresh cycle high earlier this week. This confirmed an extension on the uptrend and maintains the price sequence of higher highs and higher lows. Note that moving average studies are in a bull mode position - reflecting the uptrend. The focus is on $1934.4 next, the Apr 25, 2022 high. Support to watch lies at $1860.5, the 20-day EMA. Short-term pullbacks are considered corrective.

• WTI Crude down $1.15 or -1.45% at $78.33
• Natural Gas down $0.01 or -0.24% at $3.297
• Gold spot up $7.13 or +0.37% at $1911.65
• Copper down $3.5 or -0.83% at $419.9
• Silver down $0.01 or -0.05% at $23.4685
• Platinum down $3.87 or -0.37% at $1038.57