MNI US OPEN - Eurozone Recession Risk Estimates Creep Higher

NEWS

EUROZONE (MNI): Recession Risk Estimates Rise but Still Well Below 100%

High energy costs and rising rates are putting considerable strain on the euro area economy. The European Commission is forecasting a shallow recession that began in Q4 2022 and continued in Q1 2023. This is consistent with our recession probability estimates, which are still well below 100%, but point to a risk that the recession continues into Q2 2023.

ECB (BBG): ECB’s Rehn Says Acting Swiftly Now Can Avoid ‘Volcker Shock’

European Central Bank Governing Council member Olli Rehn said frontloading interest-rate increases to stem inflation may mean officials don’t have to take even more drastic action down the line. “By acting swiftly now, we should be able to avoid what is often called a ‘Volcker shock’,” he said Monday in a column, referring to the “rigorous disinflationary policies of the early 1980s” by former Federal Reserve chief Paul Volcker.

GERMANY (MNI): Defence Minister Lambrecht Resigns

German Defence Minister Christine Lambrecht has announced her resignation following a poorly received New Year's message and sustained criticism of the Defence Ministry's handling of the war in Ukraine. Critics have stated despite an EUR100bn investment fund for the Bundeswehr created by Chancellor Olaf Scholz, defence spending has failed to climb significantly meaning that Germany will again fall short of the 2% of GDP spend on defence as NATO expects.

EU-UK (MNI): Joint Statement to Set Out NI Protocol Steps After Cleverly/Sefcovic Call

Early this afternoon, UK Foreign Secretary James Cleverly, Secretary of State for Northern Ireland Chris Heaton-Harris and European Commission VP Maros Sefcovic will hold a videoconference to discuss the Northern Ireland protocol. The two sides are expected to deliver a joint statement after the call. Note that there will not a be a full resolution announced, but it could include agreed steps towards resolving the long-running issue.

CHINA (MNI): China Should Grow 5% But Property A Drag - Hofman

MNI (Beijing) - China should achieve growth in line with expectations of about 5% this year, but a post-zero-Covid consumption-led rebound will be constrained by a continuing house price downturn and high youth unemployment, former World Bank Country Director in China Bert Hofman told MNI.

JAPAN (MNI): BOJ May Mull YCC End as Early as January; Ex-aide

The Bank of Japan may consider removing yield curve control as early as January meeting but it doesn’t mean a withdrawal of easy policy, just a change of method, former BOJ executive director Kazuo Momma said at the weekend, News Socra reported.

JAPAN (MNI): BOJ JGB Buying Continues; Market Speculation Intact

The Bank of Japan continues to buy bonds Monday, as it attempts to quell speculation it is again set to tweak its yield curve control at this week's policy meeting. The BOJ on Monday conducted extraordinary bond buying operations, in addition to its unlimited purchases of JGBs with a remaining life of 5 to 10 years at a fixed-rate of 0.50% and 2-year bonds at 0.030%.

DATA

JAPAN DATA (MNI): Japan Dec CGPI Higher As Inflation Broadens

JAPAN DEC CORP GOODS PRICE INDEX +10.2% Y/Y; NOV REV
JAPAN DEC CORP GOODS PRICE INDEX +0.5% M/M; NOV REV +0.8%

The year-on-year rise in Japan's corporate goods price index accelerated to 10.2% in December, picking up from November’s revised 9.7% but below the record high 10.3% seen in September, data released by the Bank of Japan Monday showed, indicating upstream price pressures are still building, but are yet to be passed on to consumers.

FOREX: EUR/USD Fails to Build on Fresh Cycle Highs

• EUR/USD started Asia-Pac trade positively, with the pair bid up to new multi-month highs at 1.0874. This momentum found offers at the high and hit reverse, fading through to European hours where th pair sits broadly flat on Friday's close.
• The price action is mimicked across equity futures markets, as the e-mini S&P holds just above handle support at 4,000 despite very early strength. Price action and volumes are expected to fade as the day progresses, with US traders absent until Tuesday.
• NZD is marginally the strongest performer while JPY is the weakest in G10. Price action and ranges are more muted, however, with markets exhibiting more consolidative price action ahead of another back-loaded busy week.
• With US markets closed for MLK Day, focus remains on the UK, Europe and Canada, with CB speakers today including BoE's Bailey and ECB's de Cos. Canadian datapoints are also due, with the November manufacturing sales and BoC business outlook on the docket.

BONDS: Core Fixed Income Moving Lower This Morning, With SONIA Seeing Biggest Moves

• Cored fixed income has moved lower this morning, with SONIA and Euribor futures also moving lower.
• SONIA futures and the short-end of the gilt curve have seen the biggest moves this morning, with SONIA futures up to 8.5 ticks lower - potentially on concerns over second round effects from higher public sector wage settlements (with weekend reports suggesting that the government will make improved offers to rail unions this week which could set a framework for wider public sector wage growth).
• We have heard some relatively hawkish comments from ECB's Rehn, but nothing particularly out of the ordinary for him. Even so, Euribor futures are up to 4.5 ticks lower today but the bigger moves in the German curve have been seen further out the curve with 2s10s steepening this morning.
• US cash is closed today for the MLK holiday with futures following Bund / gilt futures lower.
• Looking ahead, it's a busy week for UK data and we have central bank decisions from Japan, Canada and Norway.
• TY1 futures are down -0-6 today at 114-18+.
• Bund futures are down -0.61 today at 137.70 with 10y Bund yields up 3.6bp at 2.201% and Schatz yields up 1.4bp at 2.591%.
• Gilt futures are down -0.63 today at 103.58 with 10y yields up 4.7bp at 3.411% and 2y yields up 5.3bp at 3.508%.

EQUITIES: Bullish E-Mini S&Ps Target 4043.0 Dec 15 High

EUROSTOXX 50 futures bullish conditions remain intact and the contract is trading higher again today. Futures have recently cleared resistance at 4043.00, the Dec 13 high and a bull trigger. The break represents a key short-term positive development and paves the way for gains towards 4215.00 next, a Fibonacci projection. Moving average studies are in a bull-mode condition, reinforcing the bull theme. Initial firm is at 3981.10. S&P E-Minis traded higher last week. The contract has cleared resistance at the 50-day EMA and this has strengthened the short-term bullish condition. Price has also traded above the 4000.00 handle to open 4043.00 next, the Dec 15 high. Key support and the bear trigger has been defined at 3788.50, the Dec 22 low. A reversal lower and a break of this support would resume bearish activity.

• Japan's NIKKEI closed lower by 297.2 pts or -1.14% at 25822.32 and the TOPIX ended 16.77 pts lower or -0.88% at 1886.31.
• Elsewhere, in China the SHANGHAI closed higher by 32.286 pts or +1.01% at 3227.592 and the HANG SENG ended 8.06 pts higher or +0.04% at 21746.72.
• Across Europe, Germany's DAX trades higher by 12.64 pts or +0.08% at 15099.02, FTSE 100 higher by 9.74 pts or +0.12% at 7853.69, CAC 40 down 6.02 pts or -0.09% at 7017.01 and Euro Stoxx 50 down 4.1 pts or -0.1% at 4146.76.
• Dow Jones mini down 87 pts or -0.25% at 34329, S&P 500 mini down 17.75 pts or -0.44% at 4000.75, NASDAQ mini down 81.75 pts or -0.7% at 11527.

COMMODITIES: Gold Trades to Fresh Trend High, Focus on Apr 25 High Next

WTI futures traded higher last week and a short-term bull theme remains intact. A continuation higher would signal scope for a test of resistance at $81.50, the Jan 3 high and a bull trigger. Clearance of this hurdle is required to strengthen a bullish theme. The broader trend outlook still appears bearish. A reversal lower would expose the bear trigger that has been defined at $70.31, the Dec 9 low. Trend conditions in Gold remain bullish and the yellow metal has traded to a fresh trend high today. This confirms an extension on the current uptrend and maintains the positive price sequence of higher highs and higher lows. Note that moving average studies are in a bull mode position - reflecting the uptrend. The focus is on $1934.4 next, the Apr 25, 2022 high. Support to watch lies at $1843.5, the 20-day EMA.

• WTI Crude down $0.43 or -0.54% at $79.41
• Natural Gas up $0.21 or +6.23% at $3.627
• Gold spot down $5.82 or -0.3% at $1914.32
• Copper down $5.1 or -1.21% at $416.3
• Silver down $0.07 or -0.3% at $24.1909
• Platinum down $10.61 or -0.99% at $1057.92