MNI US OPEN - EUR Reverses Overnight Losses on New High for French Inflation

NEWS

ECB (MNI): Signs ECB Policy is Working in Inflation Fight - Lane

There are growing signs that the European Central Bank's monetary policy is starting to work, but the latest data still suggests a 50bps hike is needed in March, chief economist Philip Lane said in an interview published Tuesday, although adding that the central bank would continue tightening until it was confident inflation was heading back to the 2% target.

US (BBG): Supreme Court Weighs Biden Student Loan Plan Worth Billions

The Supreme Court is taking up a partisan legal fight over President Joe Biden's plan to wipe away or reduce student loans held by millions of Americans. The high court, with its 6-3 conservative majority, is hearing arguments Tuesday in two challenges to the plan, which has so far been blocked by Republican-appointed judges on lower courts. Arguments are scheduled to last two hours, but likely will go much longer. The public can listen in on the court’s website.

US (BBG): Biden Bars Companies From Using US Chips Act Cash for Buybacks

The Biden administration warned companies lining up for funding from the US Chips and Science Act that the money will come with major strings attached, including restrictions on investing in other countries and a limit on much-prized stock buybacks.

JAPAN (BBG): BOJ Deputy Hearings Suggest Any Future Review Would Be Long-Term

The Bank of Japan should take time over any future review if it undertakes one, according to deputy governor nominee Shinichi Uchida, a key engineer of the central bank’s easing program.“I feel it would be more appropriate for a new leadership to take time, a broader angle and conduct a wide-ranging review,” Uchida said, while noting that the BOJ will need to discuss whether a special review needs to be conducted in the first place.

CHINA (BBG): Xi Faces More Skepticism Within China as Global Problems Mount

As Xi Jinping prepares to begin his second decade as China’s president, he’s facing a new phenomenon: A much more skeptical public. The credibility deficit for Xi is particularly evident in Shanghai, a financial and trade hub that has long served as China’s window on the world. Interviews with more than a dozen people there in recent weeks showed a deep lack of trust about the path forward under Xi and his new right-hand man Li Qiang, who was rewarded with a promotion to premier after effectively locking people in their homes for two months last year.

CHINA (MNI): CCP - Economy Faces Triple Pressure - Low Demand, Supply Shock, Weak Expectations

MNI (London) - Comments from the Chinese Communist Party Central Committee being reported by state media there ahead of the 'Two Sessions' (Lianghui) meetings of the National People's Congress (NPC) and the Chinese People's Political Consultative Conference (CPPCC) getting underway on 5 and 4 March respectively. Central Committee: 'Triple pressures on country's development include demand contraction, supply shock, weakened expectation.' Central Committee: 'The foundation of economic recovery is not yet solid, and various unexpected factors may occur at any time.'

TURKEY (BBG): Election Spending Gave Turkish Economy a Boost Before Quakes Hit

Turkey’s economy grew faster than expected last quarter as the government ramped up spending ahead of elections, though two devastating earthquakes this month have clouded the outlook. Gross domestic product rose 3.5% in the October-December period from a year earlier, above the median estimate in a Bloomberg survey of analysts. Growth for the whole year was 5.6%, state statistics agency TurkStat data showed on Tuesday.

CORPORATE (BBG): Apple Suppliers Are Racing to Exit China, AirPods Maker Says

Apple Inc.’s Chinese suppliers are likely to move capacity out of the country far faster than many observers anticipate to pre-empt fallout from escalating Beijing-Washington tensions, according to one of the US company’s most important partners.

DATA

SPAIN FEB FLASH HICP +1% M/M, +6.1% Y/Y (MNI)

FRANCE DATA (MNI): HICP at Fresh Euro-Era High of +7.2% in Feb Flash

• FRANCE FEB FLASH HICP +1.0% M/M (= FCST); JAN +0.4% M/M
• FRANCE FEB FLASH HICP +7.2% Y/Y (FCST +7.0%); JAN +7.0% Y/Y
• FRANCE Q4 GDP FINAL +0.1% Q/Q (= FLASH); Q3 +0.2% Q/Q

French HICP accelerated by 0.6pp to +1.0% m/m in the February, in line with expectations. On the headline annualised HICP, France registered a 0.2pp uptick to +7.2% y/y, outpacing expectations of remaining stable. In the report, manufactured products and services were the m/m upwards drivers for national CPI, boosted by a rebound in transport services prices. French GDP was confirmed at +0.1% q/q in Q4, narrowly avoiding flat growth.

FRANCE JAN PPI +2.7% M/M, +17.9% Y/Y (MNI)

SWISS Q4 GDP 0.0% Q/Q (FCST +0.1%) (MNI)
SWISS KOF FEB ECONOMIC BAROMETER 100 (MNI)

SWEDEN Q4 GDP -0.9% Y/Y (MNI)

JAPAN DATA (MNI): BOJ Vigilant Against Weaker Production in Q1

• JAPAN JAN INDUSTRIAL OUTPUT -4.6% M/M; DEC +0.3%

Bank of Japan officials are vigilant against weaker industrial production in the first quarter of 2023 as both exports and production are under pressure due to the slowing global economy and the shortage of semiconductors. Japan's industrial output fell 4.6% m/m in January for the first drop in three months following a 0.3% rise in December, according to data from the Ministry of Economy, Trade and Industry released on Tuesday. The decrease was caused by weaker production of motor vehicles, production machinery and electronic parts and devices.

JAPAN DATA (MNI): Japan Jan Retail Sales +6.3% Y/Y; 11th Monthly Rise

• JAPAN JAN RETAIL SALES +6.3% Y/Y; DEC +3.8%

Japanese retail sales rose 6.3% y/y in January, following the 3.8% y/y growth reported last month, marking the eleventh monthly rise. On a monthly basis, retail sales rose 1.9%, quickened from last 1.1% growth in December. General merchandise sales picked up 8.9% y/y, faster than the 3.9% y/y increase last month, while sales of fabric apparels and accessories rose 4.8% y/y, expanding from the increase of 0.8% y/y in December.

AUSTRALIA DATA (MNI): Strong Trade Position to Make Strong Contribution to Q4 GDP

The Q4 current account surplus was a lot higher than expected at $14.1bn an increase from the upwardly revised $0.8bn the previous quarter, as the trade surplus widened and the net primary income deficit declined. Higher commodity prices boosted mining export values. The trade surplus widened to $40.9bn from $31.5bn in Q3 and is expected to contribute 1.1pp to Q4 GDP published tomorrow, slightly less than the 1.3pp forecast.

AUSTRALIA DATA (MNI): Retail Sales Stable at Elevated Level Through the Volatility

• AUSTRALIA JAN RETAIL SALES +1.9% M/M

Retail sales in January came in stronger-than-expected at +1.9% m/m after a 4% drop in December and 1.7% rise in November. This left the annual rate stable at a robust 7.5% y/y. Retail is only part of overall consumption and tomorrow's Q4 GDP report will be watched closely for any slowing in total expenditure.

FOREX: Strong French Inflation Data Prompts EUR/USD to Reverse Overnight Losses

• The EUR is on the front foot early Tuesday, reversing overnight losses posted against the USD on the back of higher-than-expected French CPI for February. The data came alongside a solid bounce for consumer spending covering the same month, helping prompt markets to price in tighter policy and a higher peak rate for the ECB later this year.
• EUR/USD rallied to touch 1.0625 on the move, extending the recovery off yesterday's lows to just under a point. The move in USD/JPY was similarly notable, with spillover buying in EUR/JPY helping put the pair at the best levels since mid-December.
• A stronger retail sales release for Australia did little to prop up antipodean currencies which clearly continue to be sold in this environment as front-end rates march higher. AUD and NZD are again among the poorest performers in G10.
• The MNI Chicago Business Barometer marks the calendar highlight Tuesday, with Richmond Fed and February consumer confidence also on the docket. The speaker slate sees an appearance from Fed's Goolsbee, with text set to be released.

BONDS: French and Spanish CPIs Put Pressure on Futures Market

• Government Bonds futures fell across the board this morning, led by the French and Spanish CPIs coming above consensus.
• German 10yr Yield printed a 2.664% high, highest level since August 2011, but has faded a little at the time of typing, now at 2.636%.
• Peripheral spreads are all wider against the German 10yr, with Italy in the lead by 3.2bps, now trading at 185.7bps.
• Gilt recovers from the lows, and back at session high, but a fairly tight range for the contract, 39 ticks.
• Seeing very little in terms of volume on the pull back, more likely some Fast Money cover, for Gilt.
• Recall that Month End is a non event for the UK, with Bloomberg and MS having contracting durations for this Month.
• US Treasuries were kept under pressure, taking their cue from the European price action, but are also off their lows at the time of typing.
• Month end is decent for the US today, so could get potential flow during the later part of the European session.

EQUITIES: Eurostoxx Futures Trade Higher Monday, Though Remain Below Friday Highs

Eurostoxx 50 futures traded higher Monday and price remains above Friday’s low of 4175.00. Key support to watch is 4174.50, the base of a bull channel drawn from the Oct 13 low. While channel support holds, the broader uptrend remains intact and a continuation higher near-term would expose the bull trigger at 4323.00, Feb 16 high. A break of this hurdle would resume the broader uptrend. A breach of the channel base would alter the picture. S&P E-Minis trend conditions remain bearish and short-term signals suggest scope for an extension lower near-term. The contract continues to trade below the 50-day EMA, at 4025.09 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. On the upside, resistance to watch is 4054.80, the 20-day EMA. Note that a clear break of the 50- and 20-day EMAs would signal a possible reversal.

• Japan's NIKKEI closed higher by 21.6 pts or +0.08% at 27445.56 and the TOPIX ended 0.5 pts higher or +0.03% at 1993.28.
• Elsewhere, in China the SHANGHAI closed higher by 21.571 pts or +0.66% at 3279.605 and the HANG SENG ended 157.57 pts lower or -0.79% at 19785.94.
• Across Europe, Germany's DAX trades lower by 52.83 pts or -0.34% at 15313.06, FTSE 100 lower by 46.13 pts or -0.58% at 7892.97, CAC 40 down 31.57 pts or -0.43% at 7261.23 and Euro Stoxx 50 down 14.14 pts or -0.33% at 4230.33.
• Dow Jones mini down 53 pts or -0.16% at 32848, S&P 500 mini down 8.25 pts or -0.21% at 3979.5, NASDAQ mini down 33.25 pts or -0.28% at 12055.25.

WTI Futures Target $78.06 50-day EMA

WTI futures remain above last week’s lows and key short-term support has been defined at $73.80, the Feb 22 low. Moving average studies are in a bear-mode position and for now, this suggests potential for a continuation lower near-term. A break of the $73.80, would open $72.64, the Feb 6 low. Initial resistance to watch is at $78.06, the 50-day EMA. A clear break of this EMA would be a bullish development. Trend conditions in Gold remain bearish and price is trading below the 50-day EMA, at $1847.6. The break of this EMA, in mid-February, strengthened the case for bears. Sights are set on the $1800.0 handle and $1787.3, the 50.0% retracement of the uptrend between Sep 28 and Feb 2. On the upside, the 50-day EMA marks the first key short-term resistance. A clear breach of the EMA would ease bearish pressure.

• WTI Crude up $0.8 or +1.06% at $76.45
• Natural Gas down $0.05 or -1.72% at $2.688
• Gold spot down $6.62 or -0.36% at $1811.78
• Copper up $2.3 or +0.57% at $404.15
• Silver down $0.1 or -0.49% at $20.5371
• Platinum down $2.25 or -0.24% at $942.11