MNI US OPEN - EUR/GBP Snaps Losing Streak as UK Services Inflation Slips

NEWS

ECB (BBG): ECB’s De Cos Urges Caution Amid ‘Encouraging’ Inflation Data

Recent euro-zone inflation data are encouraging, but the European Central Bank must remain cautious and monitor other economic developments, according to Governing Council member Pablo Hernandez de Cos.

SCOTLAND (MNI): Sturgeon To Resign As First Minister

Scotland's First Minister Nicola Sturgeon is set to resign from office. BBC: "The Scottish National Party leader is expected to make the announcement at a hastily-arranged news conference in Edinburgh. It is not clear exactly when she will leave office." Due to speak at 1100GMT (0600ET, 1200CET). Sturgeon has served as first minister since 2014. Recent polling has shown dissatisfaction with her left-wing populist pro-independence Scottish National Party (SNP)'s handling of the devolved govt' departments it controls, with healthcare shown as the most pressing issue for respondents above independence in one recent poll.

G7 (MNI): Japan Confirms Meeting of CB Govs & Fin Mins on G20 Sidelines Feb 23- Kyodo

Japan's Kyodo News has confirmed that according to the Japanese presidency of the group, the finance ministers and central bank governors of the G7 nations will hold talks on the sidelines of the G20 finance ministers and central bank governors meeting in Bangalore, India on 23 February.

JAPAN (MNI): Kishida Hopes BOJ Will Cooperate Closely with Govt

Prime Minister Fumio Kishida said on Wednesday that he strongly hopes the Bank of Japan under governor-elect Kazuo Ueda will work in close cooperation with the government in achieving economic growth accompanied by wage hikes. Kishida's comments hint that he hopes the BOJ won't raise interest rates sharply, which would worsen the foundation for an economic recovery.

CHINA (BBG): China Warns of Retaliation Against US Entities in Balloon Saga

China warned that it will retaliate against the US over violations of its sovereignty, potentially escalating a lingering dispute just as both nations’ foreign ministers plan to attend a security conference in Germany.

CHINA (MNI): China’s Policy Banks Need Capital Boost in Growth Push

China’s three policy banks are expected to recapitalise to meet demands for increased lending to bolster growth at a time when Beijing has taken a conservative approach to expanding the balance sheets of its central bank and fiscal authorities, policy advisers and economists said.

RBA (MNI): Lowe Says Rates Not at Peak Yet

Reserve Bank of Australia Governor Philip Lowe signalled the prospect of a tenth hike in interest rates in testimony before the Senate economics committee on Wednesday. "We've got an open mind. I don't think we're at the peak yet," Lowe said. "How far we have to go up, I don't know. It's going to depend on the inflation data, the resilience of spending, the strength of the global economy and what's happening with prices and wages."

RBA (MNI): Finance Minister Has "Full Confidence" In RBA Governor Lowe

Finance minister Gallagher has said to the Senate estimates committee that the government has "full confidence" in RBA governor Lowe. She also reiterated that the central bank is independent when Greens senator McKim urged her to intervene in monetary policy.

TURKEY (MNI): Equity Market Surges on Re-Open

Turkey’s equity market surged at the open, with the BIST-100 up 9.36% at the time of typing, as trading resumed following last week’s closure due to the earthquakes. In addition to market stabilisation measures announced in the past few days (lower reserve ratios among banks in earthquake struck areas, looser regulations and rules around stock buybacks, limits on gold imports), the central bank has said that it will buy government bonds that pension funds are required to sell under measures intended to mitigate the market fallout. The central bank plans to make total up to TRY8bln in purchases, including TRY3bln worth of bonds and sukuk on Wednesday.

CORPORATE (BBG): Lufthansa Group Grounds All Flights on IT System Problem

Lufthansa Group has grounded all flights due to an IT problem, company spokesman tells Bloomberg in a phone call.

DATA

UK DATA (MNI): Basket Reweighting Generates Pronounced Fall in Services CPI

• UK JAN CPI -0.6% M/M (FCST -0.4%); DEC +0.4% M/M
• UK JAN CPI +10.1% Y/Y (FCST +10.3%); DEC +10.5% Y/Y
• UK JAN CORE CPI -0.9% M/M, +5.8% Y/Y (FCST +6.2%); DEC +6.3% Y/Y

The January inflation data for the UK saw downside surprises as prices declined -0.6% m/m, easing 0.4pp to +10.1% y/y. Transport was the key downwards driver in January, down -3.6% m/m alone and decelerating from +6.5% y/y in December to +3.1% y/y. The reversal of the December spike in airfares was the key driver. Core inflation fell -0.9% m/m, cooling 0.5pp to +5.8% y/y, the lowest since June 2021. Services inflation slowed by 0.8pp to +6.0% y/y, largely driving the lower headline print. This was again largely due to transport passenger services, and to a lesser extent restaurants and cultural services.

UK JAN OUTPUT PPI +0.5% M/M, +13.5% Y/Y (MNI)

EUROZONE DATA (MNI): Industrial Production to Drag on Q4 GDP

• EUROZONE DEC INDUSTRIAL PROD -1.1% M/M (FCST -0.8%); NOV +1.4%r M/M
• EUROZONE DEC INDUSTRIAL PROD -1.7% Y/Y (FCST -0.7%); NOV +2.8%r Y/Y

Eurozone industrial production contracted in December, falling -1.1% m/m and -1.7% y/y, outpacing forecasts of a softer decline. All sub-categories contracted on the month, barring energy production. Eurozone industrial production recorded a smaller contraction when taking into account volatility in Irish data, which declined sharply (-8.5% m/m) and is exposed to multinational reporting distortions.* All up, the data implies a small drag in IP Q4, alluding to a downwards contribution to GDP for the bloc.

SPAIN JAN HICP -0.4% M/M, +5.9% Y/Y (MNI)

NORWAY Q4 MAINLAND GDP +0.8% Q/Q (= FCST); Q3 +0.8% Q/Q (MNI)
NORWAY DEC MAINLAND GDP +0.4% M/M, AGG GDP +0.4% M/M (MNI)

CHINA (MNI): Key Indicators Show Recovery on Track - Shanghai Securities News

Recent high-frequency data shows China's economic recovery is gaining strength, which lays a good foundation for the economy in 2023, according to Shanghai Securities News. From January 30 to February 5, offline sales revenue for home appliances were up 41% y/y, and online sales up 158%. The paper said traffic and mobility flows in areas surrounding 100 leading incubators increased 17% in January m/m and 8.5% y/y, showing a rebound in the start-up sector. Job vacancies in the top 80 cities were up 14.3% m/m, according to the paper.

FOREX: EUR/GBP Snaps Losing Streak on Soft UK CPI

• The greenback is on the up early Wednesday, extending the recovery off the post-CPI lows printed Tuesday.
• USD strength has been particulatly noted against GBP following UK inlflation data. CPI fell short of forecast across both headline and core measures. GBP/USD slipped upon release, drifting to daily lows of 1.2071. Similarly, EUR/GBP bounced further off the 50-dma support to snap a seven-session losing streak.
• AUD trades heavy, slipping against all others in G10, on the back of local equity weakness and softer stock markets in China and Hong Kong. The currency wasn't impacted by RBA Governor Lowe's comments to a senate committee, at which he stated that rates needed to rise further but unsure by how much and that the Board was "serious" above bringing down inflation.
• Focus for the session ahead turns to US retail sales and empire manufacturing releases, both of which are expected to improve from the prior month. ECB's Lagarde is also scheduled to speak from Strasbourg.

BONDS: Gilts Outperforming Ahead Of A Busy US Data Session

• UK yields reversed most of Tuesday's rise on a slowdown in core UK CPI data out this morning, which was driven by a slowdown in service inflation.
• This lessened conviction in a 25bp March BoE hike (92% priced vs 100% yest) and pulled down terminal rate pricing by around 15bp.
• The short-end / belly-led UK bull steepening underpinned strength in Bunds and to a lesser extent, Treasuries.
• A busy US data session ahead: though of lesser importance than yesterday's CPI reading, Feb Empire Manufacturing and Jan Retail Sales are the next key data points, followed by Industrial Production and the NAHB housing index.
• ECB's Lagarde speaks at 0900ET/1400GMT.
• In supply, in the US we get $15B 20Y Bond auction, with a German auction up shortly and ongoing Slovak and Belgian syndications today.

Latest levels:

• Mar 10-Yr US Tsy futures (TY) up 7/32 at 112-17.5 (L: 112-10.5 / H: 112-18)
• Mar Bund futures (RX) up 35 ticks at 135.56 (L: 135.15 / H: 135.6)
• Mar Gilt futures (G) up 97 ticks at 103.87 (L: 103.3 / H: 103.92)
• Italy / German 10-Yr spread 0.5bps wider at 179.1bps

EQUITIES: S&P E-Minis Steadies Following Turbulent Post-CPI Price Action

EUROSTOXX 50 futures traded higher Thursday last week to breach 4265.00, the Feb 3 high. Despite the pullback from last week’s best levels, the fresh cycle high confirms a resumption of the uptrend and opens 4303.20, the 2.382 projection of the Sep 29 - Oct 4 rise from the Dec 20 low. Note that the trend is overbought. A pullback would represent a healthy correction. Key support lies at 4097.00, the Jan 19 low. Initial support is at 4167.50, the 20-day EMA. The S&P E-Minis trend condition is bullish and the latest pullback is considered corrective. The contract has pierced initial support at 4069.52, the 20-day EMA. Firmer support lies at the 50-day EMA, at 4006.63. A clear break of this average would signal scope for a deeper pullback and potentially highlight a reversal. Key resistance and the bull trigger intersect at 4208.50, the Feb 2 high. A breach would resume the uptrend.

• Japan's NIKKEI closed lower by 100.91 pts or -0.37% at 27501.86 and the TOPIX ended 5.35 pts lower or -0.27% at 1987.74.
• Elsewhere, in China the SHANGHAI closed lower by 12.79 pts or -0.39% at 3280.492 and the HANG SENG ended 301.59 pts lower or -1.43% at 20812.17.
• Across Europe, Germany's DAX trades higher by 68.3 pts or +0.44% at 15436.18, FTSE 100 lower by 10.75 pts or -0.14% at 7952.82, CAC 40 up 56.06 pts or +0.78% at 7263.07 and Euro Stoxx 50 up 25.39 pts or +0.6% at 4261.19.
• Dow Jones mini down 80 pts or -0.23% at 34049, S&P 500 mini down 14.5 pts or -0.35% at 4133, NASDAQ mini down 55.25 pts or -0.44% at 12586.25.

COMMODITIES: Gold Breaks 50-Day EMA Support, Trend Conditions Bearish For Now

WTI futures showed above the Friday high ahead of the Monday close, marking an extension of the recovery from $72.25, the Feb 6 low. The rally has confirmed a break of the 50-day EMA, at $78.34, strengthening the current bull cycle. Prices have faded slightly since, however the medium-term view remains unchanged. Key resistance remains at $82.66, the Jan 18 high. On the downside, initial firm support has been defined at $76.52, the Feb 9 low. Trend conditions in Gold are bearish for now, and the yellow metal remains in a corrective cycle. This follows the strong sell-off on Feb 2 / 3 as well as the break of support at the 50-day EMA early Wednesday. A clear break here would strengthen a bearish case and suggest scope for a deeper pullback - towards $1825.2, the Jan 5 low. On the upside, key resistance and the bull trigger is at $1959.7, the Feb 2 high.

• WTI Crude down $1.43 or -1.81% at $77.79
• Natural Gas down $0.01 or -0.43% at $2.568
• Gold spot down $17.91 or -0.97% at $1837.03
• Copper down $6.35 or -1.56% at $402.65
• Silver down $0.32 or -1.48% at $21.5258
• Platinum down $7.7 or -0.82% at $927.4