MNI US OPEN - Eurozone Inflation Expectations Dip Over 1- and 3-Year Horizons

NEWS

GLOBAL: Davos Forum Begins

Davos forum kicks off in earnest Tuesday, with the World Economic Forum dominating the agenda until the weekend. Our hand-selected agenda found here. Today's highlights include:

• 1200GMT/0700ET - NATO's Stoltenberg, FM's of Saudi Arabia, Germany, Finland, Nigeria
• 1315GMT/0815ET - Ukraine's Zelenskyy
• 1600GMT/1100ET - US NatSec Adviser Sulivan

US (MNI): Iowa Win Cements Trump's Frontrunner Status, Attention Turns to NH

A commanding victory in the first-in-the-nation Iowa caucuses has cemented former President Donald Trump's frontrunner status for the Republican 2024 presidential nomination. Trump won 51.0% of caucus-goer's votes, compared to 21.2% for Florida Governor Ron DeSantis - a surprise second place performance - and 19.1% for former South Carolina Governor Nikki Haley. Tech entrepreneur Vivek Ramaswamy came in a distant fourth place with 7.7% of the vote. Following this result he withdraw from the race and offered his endorsement to Trump.

US (BBG): Morgan Stanley’s Wilson Says US Earnings Beats Will Come Easily

Slashed earnings estimates are creating the optimal platform for US companies to beat expectations this earnings season, according to Morgan Stanley’s Michael Wilson. Analysts’ consensus estimate for fourth-quarter results has dropped 7% over the past three months, with earnings growth now expected to be flat compared to the year before, a team of strategists led by Wilson wrote in a note on Tuesday.

ECB (BBG): ECB Rate Cut is Very Probable But Timing Open, Villeroy Says

The European Central Bank is likely to start lowering borrowing costs this year but the exact timing will depend on data, according to Governing Council member Francois Villeroy de Galhau. “Expect very probably a rate cut this year but the question of a season is a premature one,” the Bank of France chief told Bloomberg Television. He declined to comment directly on market expectations, but said the ECB will “probably be a bit more patient.”

ECB (BBG): ECB’s Centeno Says Inflation Trajectory ‘Very Positive’: CNBC

“We target medium term inflation, we don’t target February inflation, and the trajectory is very positive right now,” European Central Bank Governing Council member Mario Centeno told CNBC. “We are in a good trajectory, inflation is coming down, the economy is shaky, it’s not growing, this stagnation for five quarters, it’s really different from what happened in the US in the same period — we need to take care of it”

ECB (RTRS): ECB Must Not Jump the Gun With Rate Cuts, Finland's Valimaki Says

The European Central Bank is making progress in lowering inflation to 2% but needs more evidence before rate cuts come on the agenda and policymakers should wait "a bit longer" rather than move prematurely, Finnish policymaker Tuomas Valimaki said. The ECB ended its quickest interest rate hike cycle in September and with inflation now slowing, the topic of policy easing is creeping up the agenda, though investors and policymaker differ greatly on the timing of the first move.

GERMANY (MNI): ECB at Risk of Overtightening - Suedekum

Increases in German wages will continue to outpace price rises for some time, leading German economist Jens Suedekum told MNI, though he added that eurozone inflation could fall more quickly than expected and that monetary policy risks being too tight. "I think we will see a movement towards 2% pretty soon, and the change in fiscal policy - this slight austerity - will add to this disinflationary impact that we will have in Germany," said Suedekum, professor of International Economics at Duesseldorf University and a member of the Federal Ministry for Economic Affairs and Climate Action’s Scientific Advisory Board.

CHINA (BBG): China Weighs More Stimulus With $139 Billion of Special Bonds

China is considering 1 trillion yuan ($139 billion) of new debt issuance under a so-called special sovereign bond plan, only the fourth such sale in the past 26 years, as authorities seek more money to finance intensifying efforts to shore up the world’s second-largest economy. The proposal under discussion by senior policymakers would involve the sale of ultra-long sovereign bonds to fund projects related to food, energy, supply chains and urbanization, people familiar with the matter said.

CHINA/GLOBAL (MNI): Chinese Premier Li Speaks at WEF

MNI (London) Chinese Premier Li Qiang is speaking at the World Economic Forum meeting in Davos, Switzerland in one of the most closely-followed addresses at the event. Li: 'Lack of trust is aggravating risks to global growth and development...Essential that we discard prejudice and work as one to reduce trust deficit...World has entered a new period of turbulence and transformation...After all the shifts and changes of the years we should cherish communication and exchange...We should cherish openness and sharing, we should cherish all the more peace and stability."

GLOBAL (BBG): IMF’s Georgieva Sees Global Growth Bolstered by 2023 Tail Winds

The global economy is set to receive a boost in 2024 from a slightly stronger-than-anticipated performance last year, according to the head of the International Monetary Fund. While Managing Director Kristalina Georgieva refused to be drawn on how the Washington-based lender will revise its forecasts later in January, she pointed out that the US was “poised for a soft landing” as interest rates start to decline.

GLOBAL (BBG): IMF’s Gopinath Says Market Bets on Rate Cuts Are ‘Premature’

Market expectations for rapid interest-rate cuts are a bit premature because the battle against inflation isn’t yet over, International Monetary Fund official Gita Gopinath said. Speaking at the World Economic Forum in Davos, the fund’s first deputy managing director said that even after sharp hikes in borrowing costs in the last two years, the job is still not done as labor markets remain tight on both sides of the Atlantic.

MIDEAST (MNI): US Slams Iran for Strikes on Syria, Iraq; Raising Regional Risks

On the night of 15/16 Jan, the Iranian Revolutionary Guards Corps (IRGC) launched a number of ballistic missile attacks on sites in Syria and Iraq. The IRGC claimed that the missile strike on the city of Erbil in the Iraqi Kurdistan region was aimed at an alleged Mossad 'spy headquarters' based there. The attack killed four Iraqis and was came dangerously close to the US consulate in the city. Iran labeled the attack as retaliation to an Israeli strike that killed an IRGC commander in a suburb of Damascus in December.

DATA

EUROZONE DATA (MNI): Consumer Inflation Expectations Falling Fast - ECB

• ECB 1-YEAR CONSUMER INFLATION EXPECTATIONS 3.2%
• ECB 3-YEAR CONSUMER INFLATION EXPECTATIONS 2.2%

Consumer inflation expectations across the eurozone cooled markedly in November, with the outlook for 12 months ahead dropping to 3.2% from 4.0% in October, the latest European Central Bank survey showed on Tuesday. Expectations three years ahead slowed to 2.2% from 2.5%. The published inflation rate at the time of the survey was 2.9%, before dipping to 2.4% in the November print. The readings at the one-year and three-year horizons declined to their lowest levels since February 2022, well below the perceived past inflation rate. Uncertainty about inflation expectations over the next 12 months declined slightly.

GERMANY JAN ZEW CURRENT CONDITIONS -77.3 (MNI)
GERMANY ZEW JAN ECONOMIC EXPECTATIONS 15.2 (MNI)

UK DATA (MNI): Private Wages Slightly Softer Than Consensus, Much Softer Than BOE Expectations

• UK NOV TOTAL AWE 6.5% Y/Y, AWE EX-BONUS 6.6% Y/Y
• UK NOV UNEMPLOYMENT RATE 4.2% (EXPERIMENTAL DATA)
• UK DEC PAYROLLS -24K TO 30.2 MLN: HMRC/ONS

The private sector regular pay numbers at 6.5%Y/Y in the 3-months to November are marginally softer than the expectations from the previews we had read - but notably softer than the 7.2% the BOE has pencilled in for next month's release (there was no BOE expectation for today's release). HMRC payrolls are also a bit softer than expected while the unemployment rate was largely unchanged - but we don't pay much attention to the latter as it is still using the flawed methodology with the ONS not introducing the new methodology yet.

NORWAY DATA (MNI): November GDP Indicator Consistent With Q4 Stagnation

Norway November mainland GDP was in line with analyst expectations at -0.2% M/M, while last month's reading was revised 0.1pp lower to +0.3% M/M. This means that monthly GDP now tracks in line with the Norges Bank's December MPR projections for October, and is 0.1pp higher than forecast for November. Overall, the data is broadly consistent with the Norges Bank's forecast of stagnation in Q4 '23.

JAPAN DATA (MNI): Japan Dec CGPI Flat Y/Y; Lowest Since Feb 2021

• JAPAN DEC CORP GOODS PRICE INDEX 0.0% Y/Y; NOV UNREV
• JAPAN DEC CORP GOODS PRICE INDEX +0.3% M/M; NOV REV +0.3%

The y/y rise in Japan's corporate goods price index slowed to 0.0% in December from November’s 0.3%, the 12th straight deceleration and its lowest level since February 2021 (-0.9% y/y), indicating that the consumer price index will continue to slow, Bank of Japan data showed Tuesday. Lower electric power, gas and water prices due to government subsidies drove December's decline. Pass-through of cost increases continued in beverages and foods but upward pressure on goods prices weakened.

AUSTRALIA DATA (MNI): Consumers Remain Depressed, Fewer Expect Further Tightening

Westpac's measure of consumer confidence fell 1.3% in January to 81.0, but is still in the depressed range it has been in since May last year. Inflation and rate pressures continue to weigh on households' finances but RBA tightening expectations have eased from last month. There are also increased concerns regarding the medium-term economic outlook. Markets don't expect any further rate hikes and expect the first full cut by Q3 but Q4 CPI on January 31 remains key to the February RBA decision.

FOREX: Dollar Dominant as Equity Spillover Undermines Risk

• The dollar is dominant ahead of the NY crossover, rising against all others in G10. Moves were initially triggered by a range breakout for European equities, as the cash open saw the Eurostoxx future break below the YTD low - triggering a flight from risk across cross-asset markets. This put the USD Index at new multi-month highs to narrow in on the 50-dma resistance at 103.231.
• Moves here triggered by a shift in risk sentiment, specifically the break lower for European stocks, rather than a specific headline or datapoint. USD/CNH made for a standout chart, with USD/CNH breaking higher to print new multi-month highs on both greenback strength, as reports that China are considering fresh stimulus spending failed to prop the currency.
• Volumes are healthy across the board given the return of US investors after the partial market closure on Monday, aiding EUR futures volumes to now sit close to double the average level you'd expect to see at this point of the session.
• EURUSD remains under some pressure after breaking the 50 day MA that was at 1.0907, which had held since November. Next immediate support undercuts at the 1.0877 Jan 5 low.
• Looking forward, an appearance from Fed's Waller should prove key, with markets very aware of the notable market impact he had when speaking on Fed policy back in December. Waller speaks on the economic outlook and Fed policy at 1600GMT/1100ET at the Brookings Institute. Data of note includes Canadian CPI, expected to show the Y/Y rate tick up to 3.4% from 3.1% prior.

BONDS: EGBs & Gilts Off Lows, Early Local Data & Equity Weakness Provides Support

EGBs & gilts are off lows with bulls looking to the weakness in major global equity indices, as well as softer-than-expected consumer inflation expectations readings from the ECB & UK wage data (post-long weekend Tsy catch up, soft demand at a JGB auction and Trump’s strong showing in Iowa were touted as negatives for bonds in Asia).

• There has been some modest counter from rhetoric out of the ECB and a firmer-than-expected round of German ZEW expectations.
• Although IG supply remains evident, it comes at a stepped down pace vs. last week.
• The French Green OAT syndication has already attracted solid demand, building on the early ’24 theme re: EGB syndications.
• Bunds last unchanged at 132.25, with yields on the German curve now little changed on the day.
• 10-Year EGB spreads to Bunds are generally within ~0.5bp of yesterday’s closing levels.
• Gilt futures are +15, at ~100.20 1, -15 ticks shy of best levels. Cash gilt yields are 2.5bp lower to 1.5bp higher across the curve, twist steepening. 5s30s registers fresh cycle steeps.
• The latest round of I/L gilt supply generated strong demand metrics.
• Note that both ECB and BoE STIR pricing for ’24 meetings sits little changed on the day.
• Speakers from Davos will be eyed through the day, although NY comments from Fed Governor Waller provide the key scheduled risk event from here.
• Note that BoE Governor Bailey’s scheduled address has been postponed.

EQUITIES: Recent Move Lower in Eurostoxx 50 Futures Considered Technically Corrective

Eurostoxx 50 futures are trading just below the Jan 5 low of 4444.0. The primary trend direction is up and the recent move lower is considered corrective. MA studies are in a bull-mode position, signalling a rising trend cycle. However, a break of 4444.00 and 4450.00, the 50-day EMA, would undermine a bullish theme. This would open 4370.00, the Nov 28 low. For bulls, the trigger for a resumption of the uptrend is 4634.00, the Dec 14 high. S&P E-Minis continue to trade above the Jan 5 low. Key resistance and the bull trigger is unchanged at 4841.50, the Dec 28 high. A break of this level would resume the uptrend and open 4854.75, a Fibonacci projection. Support at the 20-day EMA of 4770.92 has recently been pierced. A clear break of this average would strengthen a short-term bearish threat and open the 50-day EMA, at 4679.50.

• Japan's NIKKEI closed lower by 282.61 pts or -0.79% at 35619.18 and the TOPIX ended 20.62 pts lower or -0.82% at 2503.98.
• Elsewhere, in China the SHANGHAI closed higher by 7.698 pts or +0.27% at 2893.989 and the HANG SENG ended 350.41 pts lower or -2.16% at 15865.92.
• Across Europe, Germany's DAX trades lower by 89.13 pts or -0.54% at 16534.25, FTSE 100 lower by 31.23 pts or -0.41% at 7563.43, CAC 40 down 29.79 pts or -0.4% at 7381.89 and Euro Stoxx 50 down 16.83 pts or -0.38% at 4437.85.
• Dow Jones mini down 149 pts or -0.39% at 37641, S&P 500 mini down 23.75 pts or -0.49% at 4792.75, NASDAQ mini down 112 pts or -0.66% at 16856.75.

COMMODITIES: Trend Signals in WTI Futures Remain Bearish

Trend signals in WTI futures remain bearish and the pullback from Friday’s high reinforces this theme. Resistance to watch is $74.44, the 50-day EMA. It has been pierced, a clear break would strengthen a bullish theme and expose $76.18, the Dec 26 high. Moving average studies remain in a bear-mode position, highlighting a downtrend. The trigger for a resumption of the downtrend is $67.98, Dec 13 low. Gold continues to trade above last week’s low of $2013.4 (Jan 11). Price is also trading ahead of key support at $2016.8 the 50-day EMA. A breach of both support points, would expose a key level at $1973.2, the Dec 13 low. For bulls, clearance of $2088.5 would reinstate the bull cycle that started Dec 13. This would open $2097.1, 76.4% of the Dec 4 - 13 bear leg, ahead of key resistance and the Dec 4 all-time high of $2135.4.

• WTI Crude up $0.19 or +0.26% at $72.86
• Natural Gas down $0.28 or -8.57% at $3.027
• Gold spot down $16.27 or -0.79% at $2040.4
• Copper up $3.2 or +0.86% at $377
• Silver down $0.16 or -0.69% at $23.0655
• Platinum down $11.8 or -1.29% at $905.48