MNI US OPEN - EUR On Top as Spanish CPI Comes in Hot

NEWS

MNI Fed Preview: February 2023 - Downshift, With “Ongoing” Concern

The Fed will downshift its rate hike pace in February for the second consecutive meeting, to 25bp from 50bp. The dovish risks to this meeting appear at least partly priced in, including some expectations of Statement language acknowledging decelerating inflation, or a clear signal that the end of the hiking cycle is near. However, there are many ways Powell could re-emphasize the FOMC’s view that the job is not nearly done yet.

US (BBG): Biden, McCarthy Lay Out Debt-Ceiling Stances for Feb. 1 Meeting

President Joe Biden agreed to meet House Speaker Kevin McCarthy on Feb. 1 to discuss raising the debt ceiling and avoiding a US default as Republicans seek a deal that includes government spending cuts. The meeting will pit Biden’s refusal to negotiate over the US debt limit against McCarthy’s call for reductions in federal spending as a condition of any deal.

US (BBG): McCarthy Thinks He Can Find ‘Responsible’ Way to Raise Debt Ceiling

House Speaker Kevin McCarthy (R-Calif.) said that he will meet with President Biden on Wednesday and is looking for a deal to raise the debt ceiling in exchange for unspecified cuts to the federal budget. "I want to find a reasonable and responsible way that we can lift the debt ceiling but take control of this runaway spending," McCarthy said during an interview Sunday on CBS's "Face the Nation."

JAPAN (MNI): BOJ's Kuroda Sees Core CPI Below 2% In Mid-FY23

Bank of Japan Governor Haruhiko Kuroda on Monday repeated his view that the year-on-year rise in the core Consumer Price Index would fall below 2% around the middle of next fiscal year. Kuroda told lawmakers that Japan’s core CPI rose 4% y/y in December but the rise was due mainly to the pass-through of higher costs caused by the rise of import prices, though the year-on-year rise of import prices was easing.

JAPAN (MNI): BOJ Wary As 10-Year Yield Rise Hits Some Banks

Bank of Japan officials are closely watching banks unable to dispose of bond losses triggered by December's shock widening of the 10-year yield target to gauge whether their ability to lend or serve their intermediation role has been impaired, MNI understands.

JAPAN (MNI): BOJ Maintains Scale of JGB Ops in February

The Bank of Japan on Monday left the frequency and the scale of Japanese government bond purchase operations in February unchanged from January amid the distortion of bond markets. BOJ Governor Haruhiko Kuroda on Monday told lawmakers that more time was needed to assess the impact of the December’s decision to widen the range around its 10-year yield target.

JAPAN (BBG): BOJ’s 2% Inflation Target Should Be Long-Term Goal, Panel Says

A new policy accord with the government should make the BOJ’s 2% inflation target a long-term goal, according to recommendations made by a panel at the Japan Productivity Center.

CHINA (MNI): China's Premier Li Pledges to Boost Consumption

Chinese Premier Li Keqiang called for efforts to accelerate the recovery of consumption as the main driver of the economy, while continuously promoting opening-up and stabilising foreign trade, according to a State Council executive meeting last Saturday. More supportive measures will be unveiled to promote the fast restart of enterprises after Chinese New Year, boost car buying, and increase bank credit for consumption.

NEW ZEALAND (BBG): NZ’s Hipkins Boosts Chances of Labour at Election, Poll Shows

New Zealand’s new Prime Minister Chris Hipkins has boosted his party’s chances at this year’s election, with a poll showing him neck-and-neck with his opponents less than eight months out from the ballot. Support for Hipkins’ Labour Party rose 5 percentage points to 38% in a 1News/Kantar poll published Monday in Wellington, while the main opposition National Party fell 1 point to 37%. National’s ally the ACT Party had 10% support, and Hipkins’ partner the Green Party fell to 7%.

DATA

EUROZONE JAN ECONOMIC CONFIDENCE 99.9 (FCST 97.0); DEC 97.1r (MNI)

GERMAN DATA (MNI): Muted Private Consumption Drives Q4 Contraction

• GERMANY PREL Q4 GDP SA -0.2% Q/Q (FCST 0.0%); Q3 +0.5%r Q/Q
• GERMANY PREL Q4 GDP WDA +1.1% Y/Y (FCST +1.3%); Q3 +1.4%r Y/Y

German GDP surprised to the downside in the Q4 flash data, contracting by -0.2% q/q against expectations of flat growth and slowing from the upwardly revised +0.5% q/q growth of Q3. Surging energy prices generated the bulk of the fall in private consumption which largely accounted for weaker Q4 economic performance. Despite the surprise to expectations, the contraction was largely in line with contractionary signals from PMI readings throughout the fourth quarter.

SPAIN DATA (MNI): Upside Surprise & Core CPI Jump Kick of EZ Inflation Round

• SPAIN JAN FLASH CPI -0.5% M/M (FCST -1.9%); DEC 0.0% M/M
• SPAIN JAN FLASH CPI +5.8% Y/Y (FCST +4.8%); DEC +5.5% Y/Y

The fourth largest eurozone economy kicked off the round of prelim January CPI data with a substantial upside surprise on the headline print. Fuel prices largely accounted for the boost. On the month, prices fell by -0.5% m/m, softer than the -1.9% expected. Today's upside surprises are in part due to major re-weighting (clothing less heavily weighted, transport more heavily weighted), re-basing and changes in the coverage of gas and electricity market prices.

SWITZERLAND DATA (MNI): KOF Barometer Signals Robust Start to Q1

• SWITZERLAND JAN KOF BAROMETER 97.2 (FCST 93.4); DEC 91.5r

The Swiss KOF Barometer improved for a second consecutive month in January, jumping 5.7 points to 97.2, outpacing forecasts by nearly four points. Despite remaining below the medium-term average, the KOF Barometer implies the Swiss economy is on the rebound, which is largely broad-based.

NEW ZEALAND (MNI): NZ Trade Deficit Doubles In 2022

New Zealand's trade deficit narrowed month-on-month in December, but it did little to help the full year 2022 trade deficit more than double from the previous year. Goods exports rose 11% y/y to NZD6.7 billion in December, while imports rose 1.8% y/y to NZD7.2 billion, according to StatsNZ. The monthly trade balance was a deficit of NZD475 million. The annual trade deficit was NZD14.5 billion in 2022, up from NZD7.1 billion in 2021.

FOREX: EUR Rallies on Spanish Inflation Beat

• USD/JPY slipped sharply through mid-Asia hours on the back of a publication from the Japan Productivity Centre - notably headed by Yuri Okina, a leading candidate for a senior position at the BoJ in the upcoming reshuffle - who wrote that the BoJ and government should commit to longer-term policy objectives around inflation. The pair shed around 80 pips on the report's release, bottoming out at 129.21 before bouncing into the European open.
• The EUR is the strongest currency across G10, bouncing on the release of a much higher-than-expected Spanish CPI print. Y/Y CPI hit 5.8%, a 1 percentage point beat on expectations, prompting EUR/USD to trade north of the 1.09 handle at the NY crossover.
• The inflation release will raise concerns about other regional CPIs this week, with Germany, France, Netherlands and the Eurozone-wide figure on the docket ahead of Thursday's ECB decision. 50bps remains well-priced from the ECB, with the peak rate the point of focus for the press conference. Rates markets briefly priced a peak of 3.5% following the Spanish inflation release.
• Datapoints are few and far between Monday, with focus resting on the busy second half of the week, from the Fed, ECB and BoE decisions as well as a frantic earnings calendar and the US jobs report release on Friday. ECB's Villeroy is scheduled to speak, but is unlikely to address policy directly.

BONDS: EGBs Lead Core FI Lower Following Spanish Inflation Beat

• EGBs have led core fixed income lower this morning following a higher-than-expected Spain HICP print. There were some methodological changes behind some of the increase but the overall result was that Y/Y HICP was a whole percentage point higher than expected at 5.8%Y/Y, an increase on December's 5.5%Y/Y print.
• At the time of writing Schatz yields are over 6bp higher on the day with a very mild flattening of the German curve. USTs and gilts yields are 2-3bp higher on the day.
• Markets will already likely have one eye on further Eurozone inflation prints tomorrow with the FOMC, BOE and ECB decisions all due ahead of the US employment report on Friday. It is certainly a busy week!
• TY1 futures are down -0-4 today at 114-15+ with 10y UST yields up 3.0bp at 3.535% and 2y yields up 2.1bp at 4.223%.
• Bund futures are down -0.70 today at 136.74 with 10y Bund yields up 5.8bp at 2.295% and Schatz yields up 6.2bp at 2.633%.
• Gilt futures are down -0.25 today at 104.39 with 10y yields up 2.8bp at 3.349% and 2y yields up 3.2bp at 3.474%.

EQUITIES: Equity Futures Begin Week on Soft Footing

EUROSTOXX 50 futures remain above support at 4097.00, Jan 19 low and the contract is trading just ahead of key short-term resistance at 4206.00, Jan 18 high. A break of this level would confirm a resumption of the uptrend and pave the way for a climb towards 4215.00, a Fibonacci projection. Note that the trend remains overbought. A pullback, if seen, would represent a healthy bull trend correction. Support to watch is 4094.60, the 20-day EMA. S&P E-Minis traded higher last week to confirm a resumption of the current uptrend. The breach of resistance has resulted in a print above the 4100.00 handle and an extension higher would open 4180.00, the Dec 13 high and a bull trigger. Initial firm support has been defined at 3954.84, the 50-day EMA. A move below the average would be seen as a bearish development and signal a short-term reversal.

• Japan's NIKKEI closed higher by 50.84 pts or +0.19% at 27433.4 and the TOPIX ended 0.26 pts lower or -0.01% at 1982.4.
• Elsewhere, in China the SHANGHAI closed higher by 4.504 pts or +0.14% at 3269.318 and the HANG SENG ended 619.17 pts lower or -2.73% at 22069.73.
• Across Europe, Germany's DAX trades lower by 58.12 pts or -0.38% at 15090.98, FTSE 100 lower by 16.59 pts or -0.21% at 7749.17, CAC 40 down 29.65 pts or -0.42% at 7067.56 and Euro Stoxx 50 down 28.12 pts or -0.67% at 4150.03.
• Dow Jones mini down 172 pts or -0.51% at 33864, S&P 500 mini down 29.25 pts or -0.72% at 4053, NASDAQ mini down 121.25 pts or -0.99% at 12093.5.

COMMODITIES: WTI Futures Target $78.45 Jan 19 Low, Signaling Potential Reversal

WTI futures remain below $82.64, the Jan 23 high. Key short-term resistance is located at $82.66, the Jan 18 high. Clearance of this hurdle would reinstate the recent bullish theme and expose $83.14, the Dec 1 high and $85.33, a Fibonacci retracement. On the downside, the support to watch lies at $78.45, the Jan 19 low. A break of this level would signal a potential reversal and allow for a deeper pullback. Trend conditions in Gold remain bullish and the yellow metal is holding on to the bulk of its latest gains. Recent cycle highs confirm an extension of the uptrend and maintain the price sequence of higher highs and higher lows. Moving average studies remain in a bull mode position - reflecting the uptrend. The focus is on $1963.0 next, a Fibonacci retracement. Initial firm support to watch lies at $1897.00, the 20-day EMA.

• WTI Crude down $0.76 or -0.95% at $79.08
• Natural Gas down $0.18 or -6.39% at $2.661
• Gold spot down $5.43 or -0.28% at $1922.57
• Copper down $2.2 or -0.52% at $420.35
• Silver up $0.09 or +0.39% at $23.6927
• Platinum down $2.88 or -0.28% at $1012.33