MNI US OPEN - EUR Stabilises With ECB in the Balance

NEWS

MNI ECB PREVIEW - MARCH 2023: 50bp Hike Still on the Cards, Explicit Guidance for May Unlikely

President Lagarde has strongly guided the market to a 50bp hike in March and stressed that this would happen unless an extreme scenario materialises. Cleary the failure of Silicon Valley Bank (SVB) is an extreme event. With the fallout of SVB ongoing at the time of writing, and the situation fluid, the ECB’s prior pre-commitment for March is clearly in doubt. Absent any further communication from the ECB, we still expect the ECB to hike by 50bp in March given the persistence of underlying inflation and resilience of the euro area economy, but our conviction is much weaker at this point.

CORPORATE (BBG): Credit Suisse Taps $54 Billion From Central Bank; Shares Surge

Credit Suisse Group AG shares surged the most on record after the lender tapped the Swiss National Bank for as much as 50 billion francs ($54 billion) and offered to repurchase debt, seeking to stem a crisis of confidence that has sent shockwaves across the global financial system. The announcement followed a frantic trading session in which worries about Credit Suisse’s financial health roiled global markets, alarmed regulators across Europe and the US and prompted some firms to reassess their exposure to the bank.

EUROZONE (MNI): March to Date Signals Increased Recession Risk But Still Low

There is a significant risk that recent banking-related developments, which have now spread across the Atlantic to Europe, could result in a more severe slowdown in growth. March estimates of the probability of a euro area recession 6-months ahead are up 16pp from February but it still remains very low at 36% and well below the 50% signal point.

RIKSBANK (MNI): Survey - Prices Rising But May Have Peaked

The Riksbank's business survey showed that firms were planning to raise prices further over the next 12 months and faster than normal, but it did found some signs that inflation may have peaked, with anticipated price rises less than last year.

JAPAN (MNI): BOJ to Modify YCC After June - Kameda

New Bank of Japan Governor Kazuo Ueda will likely widen the band around the 10-year bond yield target or possibly scrap the pinpoint long-term interest rate target after the June meeting, a former BOJ chief economist told MNI. “(Incoming) BOJ Governor (Kazuo) Ueda in confirmation hearings said that he will carefully, politely monitor economic data, so I don’t think the BOJ will act in April immediately after he takes office,” Seisaku Kameda, now executive economist at Sompo Institute Plus, said in an interview.

JAPAN (MNI): BOJ to Close in on 2% Target in FY25 - Kameda

The Bank of Japan’s first forecast for inflation in fiscal 2025 may be close to its 2% target as policymakers judge the long-hoped-for virtuous cycle of higher prices and wage rises may be gathering traction, a former BOJ chief economist told MNI. “I expect cost-push inflation to last for the first half of next fiscal year (starting April) and cost-push inflation may be stronger than the BOJ expected,” Seisaku Kameda, now executive economist at Sompo Institute Plus, said in an interview.

JAPAN/SOUTH KOREA (MNI): Leaders Talk Up Good Relations At Rare Meeting In Japan

Wires carrying comments from a joint presser between Japanese PM Fumio Kishida and South Korean President Yoon Suk-yeol taking place in Tokyo. Comes on the occasion of the first visit from a South Korean head of state to Japan in 12 years. Kishida: 'We agreed to restart shuttle diplomacy.' Yoon: 'We will strengthen communication in various areas including economics and politics.'

AUSTRALIA (MNI): Strong Aussie Jobs Keeps RBA Hike On Radar

Another 25bp hike by the Reserve Bank of Australia remains on the radar after the unemployment rate fell more than expected, according to data from the Australian Bureau of Statistics released on Thursday. Governor Philip Lowe cited February labour force data as one of four key indicators he would watch ahead of the April 4 meeting, with the addition of a better-than-expected 64,600 jobs and a drop in the unemployment rate to a near-50 year low of 3.5% from 3.7% in January underlining the resilience in the labour market despite 350bp of cumulative tightening.

INDONESIA (MNI): Indonesia Watchful of Banking Risks After Holding Key Rate

Indonesia left its benchmark interest rate unchanged for a second straight month, while pledging to insulate the economy from the effects of turbulence in the global banking system. Bank Indonesia kept the seven-day reverse repurchase rate at 5.75% on Thursday, as seen by 26 of 28 economists surveyed by Bloomberg. Two had expected the authority to add another quarter-point hike to its 225 basis points of increases since August.

DATA

ITALY FINAL FEB HICP +0.1% M/M (FLASH +0.2%); JAN -1.5% M/M (MNI)

NORWAY DATA (MNI): Jan GDP Contraction Due to Auto Sales Slump

• NORWAY MAINLAND JAN GDP -0.2% M/M (= FCST); DEC +0.3%r M/M

The Norwegian economy contracted by -0.2% m/m in January, after having grown by +0.3% m/m in December. Yet this decline was largely auto-based, driving the marked fall in wholesale and retail trade, which contributed -0.3pp to headline GDP in January. Auto sales slumped on the back of new taxation of electric vehicles in 2023. This underpinned the -11.5% m/m fall in household consumption recorded, which rose +0.1% m/m when excluding car purchases.

JAPAN DATA (MNI): Japan's Feb Exports Accelerate; Auto Exports Rise

• JAPAN FEB EXPORTS +6.5% Y/Y; JAN +3.5%
• JAPAN POSTS JPY897.7 BLN TRADE DEFICIT IN FEB
• JAPAN JAN CORE MACHINE ORDERS +9.5% M/M; DEC +0.3%

February exports accelerated due to rising automobile exports but the Bank of Japan will likely maintain the view that exports have been more or less flat as global growth slows. Japan's exports rose 6.5% y/y in February for the 24th straight rise following a 3.5% rise in January, and imports rose 8.3% y/y for the 25th straight gain following a 17.8% increase in January, data released on Thursday by the Ministry of Finance showed.

JAPAN DATA (MNI): BOJ's Feb Real Export Index Rises 1.5% M/M

The Bank of Japan's real export index, calculated using Ministry of Finance trade data, rose 1.5% m/m in February for the first rise in three months following a revised -2.8% decline in January. The figures were calculated by MNI based on BOJ data and confirmed by bank officials. The BOJ will release details of the index on Wednesday.

AUSTRALIA DATA (MNI): Labour Market Remains Tight, RBA Uncertain Given Bank Concerns

• AUSTRALIA FEB EMPLOYED PERSONS CHANGE 64.6K
• AUSTRALIA FEB UNEMPLOYMENT RATE +3.5%

Employment bounced back 64.6k after declining the previous two months and the unemployment rate returned to 3.5%, close to its October 2022 low. The labour market remains very tight with little sign of easing pressures, thus this data along with the solid NAB business survey point to a further 25bp hike in April. However, market turmoil and overseas banking issues are muddying the waters for the next RBA meeting.

NEW ZEALAND DATA (MNI): RBNZ Peak Rate in Focus After Weak Q4 GDP

The Reserve Bank of New Zealand's peak rate forecast will be tested after Q4 GDP printed lower than expected and well below the central bank's forecast on Thursday. New Zealand's economy contracted 0.6% q/q in Q4 according to StatsNZ, well below market expectations for a 0.2% q/q contraction and the RBNZ's forecast for a 0.7% q/q expansion outlined in February's Monetary Policy Statement.

FOREX: EUR On More Stable Footing Pre-ECB

• EUR vols remain well elevated ahead of the ECB decision later today, with markets split down the middle on whether the ECB stick to guidance of a 50bps hike, or a slower 25bps step today.
• An overnight EURUSD straddle breaks even on a swing of ~90pips - making for the largest premium since the mid-December Fed and ECB meetings. Yesterday's currency volumes were pretty fearsome: M3 EUR futures saw over 350k contracts trade for the first time this year making for cumulative daily activity of over 50% above average.
• The greenback is softer against most others, with the shoring of concerns surrounding Credit Suisse helping prop up sentiment across the board. This week's volatility continues to make its presence felt, however, evident in very shallow bounce for EUR/USD and GBP/USD off the Wednesday lows.
• NZD is the poorest performer in G10, with pressure following Q4 GDP printed, which came in below expectations at -0.6% Q/Q and much weaker than the RBNZ forecast of +0.7%.
• Outside of the ECB decision, weekly US jobless clams, import/export price indices and the housing starts/building permits releases for February.

BONDS: Core FI Remains Notably Lower But Volatility Continues

• Core fixed income remains notably lower this morning, led by EGBs and a general bear flattening of curves. However, markets remain volatile. Schatz yields for example at the time of writing are 16bp higher on the day, but 14bp off the high of 2.704% seen shortly after the cash open (and still over 5bp above the intraday lows).
• Bund futures fell around 120 ticks in overnight trading before falling a further 60 ticks in early European trading to a low of 135.78. We have since traded 100 ticks higher than that at 136.81 around 15 minutes ago and now are back close to the levels seen before Europeans got to their desks.
• Similar, but smaller, moves have been seen in Treasuries while gilts have seen the curve move in a more parallel fashion again today (underperforming Treasuries, but outperforming Bunds).
• TY1 futures are up 0-2 today at 115-06 with 10y UST yields up 2.9bp at 3.487% and 2y yields up 6.0bp at 3.951%.
• Bund futures are down -1.17 today at 136.45 with 10y Bund yields up 10.4bp at 2.228% and Schatz yields up 16.2bp at 2.551%.
• Gilt futures are down -0.66 today at 104.66 with 10y yields up 7.4bp at 3.391% and 2y yields up 7.6bp at 3.352%.

EQUITIES: Wednesday Price Action Confirms Resumption of Eurostoxx Future Downtrend

The Eurostoxx 50 futures move lower Wednesday marks a resumption of the current downtrend. The contract traded through Monday’s low and this reinforces last week’s breach of a key support at the base of a bull channel drawn from the Oct 13 low. The trendline break highlights a reversal of the uptrend that started late September 2022. The focus is on the 4000.00 handle next. Initial firm resistance is at 4212.50, the 20-day EMA. The short-term condition in S&P E-Minis remains bearish and short-term gains are considered corrective. Price last week cleared key short-term support at 3960.75, Mar 2 low to confirm a resumption of the bear cycle that has been in place since Feb 2. The move lower signals scope for an extension towards 3822.00 next, the Dec 22 low. Initial firm resistance is seen at 4031.46, the 50-day EMA.

• Japan's NIKKEI closed lower by 218.87 pts or -0.8% at 27010.61 and the TOPIX ended 23.02 pts lower or -1.17% at 1937.1.
• Elsewhere, in China the SHANGHAI closed lower by 36.424 pts or -1.12% at 3226.891 and the HANG SENG ended 335.96 pts lower or -1.72% at 19203.91.
• Across Europe, Germany's DAX trades higher by 80.8 pts or +0.55% at 14853.28, FTSE 100 higher by 45.46 pts or +0.62% at 7402.22, CAC 40 up 42.92 pts or +0.62% at 6944.35 and Euro Stoxx 50 up 24.47 pts or +0.61% at 4068.84.
• Dow Jones mini down 48 pts or -0.15% at 31869, S&P 500 mini down 2 pts or -0.05% at 3895.25, NASDAQ mini up 33.75 pts or +0.28% at 12291.75.

COMMODITIES: WTI Breaches Key $70.86 Dec 9 Low and $70.00 Support Levels

WTI futures remain vulnerable and yesterday’s move lower resulted in the break of key support at $70.86, the Dec 9 low. The move down confirms a resumption of the medium-term downtrend and reinforces current bearish conditions. Note too that price has cleared the psychological $70.00 handle. Attention is on $65.60, the Dec 3 2021 low. Initial resistance is at $72.56, yesterday’s high. Gold remains bullish and the metal traded higher yesterday. Resistance at $1858.3, the Mar 6 high, has recently been cleared and the latest rally signals scope for an extension towards $1959.7, the Feb 2 high and a key near-term resistance. On the downside, initial firm support is seen at $1851.9, the 50-day EMA. A break of this level is required to signal a top - this would expose the bear trigger at $1804.9, the Feb 28 low.

• WTI Crude up $0.35 or +0.52% at $68.2
• Natural Gas up $0.03 or +1.07% at $2.467
• Gold spot up $0.72 or +0.04% at $1921.51
• Copper up $3.5 or +0.91% at $389
• Silver up $0.1 or +0.46% at $21.9499
• Platinum up $6.07 or +0.63% at $975.21