MNI US OPEN - Fed's Waller Says Easing Cycle Can Begin in Smaller Steps

NEWS

FED (MNI): Fed Easing Cycle Can Begin in Smaller Steps - Waller

Federal Reserve Governor Christopher Waller on Wednesday said the central bank's easing cycle can begin later and in smaller steps, adding that there is no reason to have "big cuts in policy." "When we've gone fast in the past in cutting rates it's almost always because some shock has hit the economy," he said in Q&A at the Economic Club of New York after a speech. Asked whether his preference for seeing a couple months of better inflation data means that he'd take a cut off the table for the May FOMC meeting, Waller declined to rule it out. "A couple months is a couple of months. We're getting two more [inflation] reports before May. Could be. Maybe not. Depends," he said, noting he was keeping his answer "ambiguous."

US (BBG): United States Affirmed at AA+ by S&P

United States's long-term foreign currency debt rating was affirmed by S&P at AA+. Outlook remains stable. "The outlook remains stable, indicating our expectation of continued economic resiliency; proactive, effective monetary policy execution; and our view that government officials will continue to resolve near-term fiscal deadlines, such as addressing the debt ceiling, in a timely manner."

MNI EUROZONE INFLATION PREVIEW: March 2024

Eurozone inflation is seen relatively steady in March, with analyst consensus for headline HICP at 2.6% Y/Y (vs 2.6% prior) and core at 3.0% (3.1% prior). As the ECB Governing Council consensus appears to be converging on a first rate cut at the June meeting, incoming inflation data is taking heightened focus. The recent trajectory in underlying HICP has seemingly been disinflationary enough to satisfy even ardent hawks that further progress could warrant a cut by mid-year.

ECB (MNI): ECB’s Panetta Says Conditions Being Created for Policy Easing

Conditions across the eurozone are "being created to initiate monetary easing,” Bank of Italy Governor Fabio Panetta said on Thursday during the presentation of the national bank’s 2023 economic results, although he added little in the way of further detail. The Bank of Italy registered gross losses of EUR7.1 billion in 2023 that turned into a net profit of EUR 0.8 billion after an EUR 7.9 billion disbursment from the general risk fund.

BOE (MNI): BOE’s Haskel Warns Against Rushing to Cut Interest Rates

In an FT interview, Haskel has said that interest rate cuts "are a long way off", noting that although the fall in headline inflation was welcome, it is "not informative" about the persistence of underlying inflation. Haskel continued to point to mismatches of skills with the FT paraphrasing him saying that "jobseekers could be in the wrong part of the country or have the wrong skills for the work on offer." He did however note that the labour market was "less badly impaired than we thought it was" and together with the fall in core goods prices and services inflation this drove his change of vote at the March MPC meeting to that for unchanged rates rather than another 25bp hike (as he voted for in February).

BOJ (MNI): BOJ's Easy End Not a Shift to Tightening Stance - Opinions

The Bank of Japan board's decision to end easy policy settings last week did not represent a regime shift toward monetary tightening, but rather part of efforts to achieve the price stability target, one board member noted at the March 18-19 meeting, according to the summary of opinions released on Thursday. A separate member noted there was no need for rapid rate rises, echoing Governor Kazuo Ueda's remarks following the meeting's conclusion.

CHINA (MNI): China Sovereign Fund Continues to Purchase ETFs

MNI (Beijing) Central Huijin Investment, Chinese sovereign funds, and insurance companies have continued to make significant allocations to exchange-traded funds (ETF) according to recently published annual reports, noted the Shanghai Securities Journal hosted by Xinhua News Agency. The Huaxia CSI 300 ETF report showed Huijin increased its holdings by more than 1 billion shares in the second half of 2023. Huijin announced its purchase of ETFs and stated it would continue to increase its holdings on Oct 23, 2023 when several ETFs experienced increased trading volumes towards the end of the day.

CHINA (BBG): Old Xi Speech on China’s Monetary Tools Catches Trader Eyes

A line from a 172-page book citing President Xi Jinping’s comments on the nation’s monetary tools became a hot talking point among stock and bond traders Thursday. China should enrich its toolbox of monetary policies and the central bank should gradually increase the buying and selling of government bonds in its open-market operations, Xi was cited as saying in a book published this month. The snippet was taken from his speech — which was previously not fully released — during a twice-a-decade financial policy meeting in October.

CHINA (MNI): China Steel Demand Low in Q1

MNI (Beijing) China demand for steel has made a slow start to the year as the real estate market continues to decline and the intensity of infrastructure construction slows down, the China Iron and Steel Association said Thursday. The association said iron and steel producers must be produce in a self-disciplined manner that balances supply and demand. Mills should “oppose low-price dumping and resist engaging in vicious competition” the notice added.

CHINA (MNI): China Trade with Emerging Markets to Rise

MNI (Beijing) Robust trade with emerging markets will support China’s imports and exports in 2024, with foreign trade expected to rise marginally over 2023's softer levels and despite western countries’ continued efforts to “de-risk” away from Chinese-made goods, a prominent trade advisor told MNI in an interview. The worldwide restock will continue, a soft landing of the U.S economy will likely drag up global goods trade and warming cross-border direct investment will boost demand, said Zhao Jinping, senior research fellow at Chongyang Institute of Financial Studies of Renmin University of China.

CHINA/AUSTRALIA (BBG): China Scraps Tariffs on Australian Wine as Relations Improve

China lifted its punitive tariffs on Australia’s wine exports, signaling an end to a three-year campaign of trade pressure on Canberra and raising hopes for a revival of the billion-dollar industry. The Ministry of Commerce in Beijing announced the move on Thursday. The industry has been anticipating the announcement for weeks after some Australian vintners and lawmakers said the Asian nation had made an interim recommendation to lift the import taxes.

GLOBAL (BBG): Lloyd’s of London Sees Baltimore Bridge Claims in Billions

Insurance payouts for the Tuesday’s collapse of the Francis Scott Key Bridge in Baltimore could be among the largest ever in marine insurance, according to Lloyd’s of London Chief Executive Officer John Neal. “This has the potential to be one of the largest marine losses in history,” Neal said in an interview with Bloomberg News on Thursday. “It’s a multi-billion dollar loss. I think it has to be but I think it is a little too early to say what you actually think it’s going to cost.”

GLOBAL (MNI): Central Bank Credibility to Be Tested in 2024

Central banks across the developed world will have their credibility and communications tested over 2024 as they decide between continuing to fight inflation by maintaining elevated interest rates or easing as economic growth slows, a former Reserve Bank of New Zealand economist told MNI. “This is really the first test of what wins out and central bank credibility,” said Leo Krippner, research fellow at the Singapore Management University who served as a senior advisor to the RBNZ until 2019.

MNI POLITICAL RISK ANALYSIS: Turkey Local Election Preview

On Sunday 31 March Turkey holds its local elections. Dozens of metropolitan mayoralties, thousands of district municipal mayoralties and provincial councillors, and tens of thousands of municipal councillors will be up for election. While local elections would usually be viewed as an event with only minor implications for national politics and markets, that is not the case this electoral cycle. In this briefing we outline how the nationwide vote share and the performance of major parties in key cities could have a significant impact not only on Turkey’s short-to-medium term political and economic outlook, but also its longer-term political system.

VENEZUELA (BBG): Maduro Tests Limits of Biden Administration’s Fair-Election Deal

Venezuela’s President Nicolas Maduro has so brazenly disrespected his promise for free and fair elections that allies in Colombia and Brazil took to publicly condemning his crackdown on the opposition. Barring the opposition’s primary winner, Maria Corina Machado, and her little-known substitute, Corina Yoris, from running in this year’s presidential race are among the latest violations of the deal that Maduro struck five months ago with the Biden administration to allow democratic elections in exchange for the removal of some of the crippling sanctions imposed years ago on the crisis-torn country.

DATA

UK DATA (MNI): UK Data Confirms Recession; Growth Overall in 2023

• UK Q4 GDP -0.3% Q/Q, -0.2% Y/Y

UK GDP fell by an unrevised 0.3% in Q4 2023, following an unrevised fall of 0.1% in the previous quarter, the Office for National Statistics said Thursday, confirming two two consecutive quarters of decline and a technical recession. For calendar 2023 as a whole, GDP is estimated to have increased by an unrevised 0.1% compared with 2022. “Our updated set of GDP figures shows quarterly growth unrevised across 2023, with a little growth in the first quarter and small contractions in the latter half of the year," ONS Director of Economic Statistics Liz McKeown said.

GERMANY MAR UE RATE (SA) 5.9% (FCST 5.9%); FEB 5.9% (MNI)
GERMANY MAR UE TOTAL (SA) 2.719MN; FEB 2.714MN (MNI)
GERMANY MAR UE NET CHANGE (SA) +4K; FEB +12K (MNI)
GERMANY MAR JOB VACANCIES (SA) -6K; FEB -8K (MNI)

ITALY MAR CONSUMER CONFIDENCE 96.5 (MNI)
ITALY MAR BUSINESS CONFIDENCE 97 (MNI)

SWEDEN FEB RETAIL SALES +0.3% Y/Y (MNI)

SWISS KOF MAR ECONOMIC BAROMETER 101.5 (MNI)

AUSTRALIA DATA (MNI): Underlying Retail Sales Weak

• AUSTRALIA FEB RETAIL SALES +0.3% M/M

Retail sales in February rose 0.3% m/m, slightly less than expected, to be up1.6% y/y after +1.1% m/m and 1.2% y/y in January. Spending remains soft though looking through recent volatility and 3-month momentum continued to deteriorate and is now negative. February was boosted by Taylor Swift's concerts which drove a 4.2% m/m and 0.5% m/m increase in clothing & footwear and restaurant & caf sales respectively. Trend retail sales rose 0.1% m/m and household goods fell 0.8% also indicating soft underlying consumption. Recent robust spending on eating out and big events show that people are still prepared to consume for special occasions.

FOREX: USD Firms on Waller, Golden Cross Provides Background Support

• EUR/USD trades at daily lows just ahead of the NY crossover, extending the USD's gains posted following the formation of a golden cross technical pattern in the USD Index (50-dma > 200-dma). Hawkish comments from Fed's Waller proved key, who spoke after the Wednesday US close to argue that the Fed should delay, or reduce altogether, an easing cycle in light of recent inflation data.
• The weight in EUR/USD has been pushed through on generally firm volumes - with notable uptick in activity on the break of the overnight lows, potentially signalling the break of stops to accelerate the move. Price action so far today confirms the bearish theme is still dominant and further USD strength should result in a test of 1.0695, the bear trigger. Weakness to this mark is unlikely today, but next week's CPI Exp survey and the March inflation read could prove instrumental.
• This keeps the USD the firmest in G10, with JPY also similarly strong. Antipodean currencies are the poorest performers, with AUD and NZD trading soft, while SEK is weaker again after the Riksbank rate decision this week pointed to a potential rate cut at either the May or June meetings.
• Focus ahead turns to tertiary US GDP data, the Canadian growth release for January, weekly US jobless claims data and the final print for UMich sentiment. MNI Chicago PMI is also set for release, with markets expecting the gauge to rise to 46.0 from 44.0. The central bank speaker slate is quiet, with just ECB's Villeroy scheduled after the European close.

US TSYS: Waller Weighs

Fed Governor Waller remained on the hawkish side of the Fed-Dove spectrum in early Asia trade, pressuring Tsys.

• ~73bp of Fed cuts now priced through year end, ~16.5bp priced through June
• Hawkish BoE comments have also weighed.
• Yields are 1.5-6.5bp higher across the curve, with bear flattening seen.
• Waller’s hawkish remarks have pushed yields away from this week’s lows.
• 2s10s and 5s30s stick within recent ranges.
• TYM4 last -0-08+ at 110-19+ (110-18 to 28+ range), on elevated volume of ~331K. Yesterday’s low is being tested.
• Beyond there, initial support is seen at the Mar 21 low 110-08+.
• A reminder that yesterday’s rally topped out at 110-31+, briefly piercing resistance at the 50-day EMA. Yesterday’s high is now the initial resistance point.
• A reminder that cash Tsys are set to close early today (14:00 NY), ahead of the Easter weekend.
• Weekly jobless claims, pending home sales, final Q4 GDP, the MNI Chicago PMI and final UoM sentiment data are due later today.
• Month-end extensions (seen as relatively limited for Tsys) and quarterly portfolio rebalancing (seen as -ve for equities & +ve for bonds) flow will also be eyed.
• PCE data and comments from Fed Chair Powell are due on Friday, when U.S. rates markets are closed.

EGBS: Softer Following Hawkish Fed/BoE Speakers; Strong USD

Core/semi core EGBs are softer this morning, as hawkish comments from Fed's Waller and BoE's Haskel and notable morning USD strength have weighed on the space. A reminder that French and Italian flash March inflation prints are due tomorrow morning.

• Softer-than-expected German retail sales eased some pressure morning, but the downward trend has persisted.
• The remainder of this morning's data releases (in line German unemployment at 5.9%, Italian sentiment and higher-than-expected Eurozone M3 money supply) were not market movers.
• Comments from ECB's Panetta were in line with his dovish leanings, but did not deviate significantly from the status quo (i.e. June being the likely start date of the cutting cycle). Villeroy speaks later today at 1730GMT.
• Bunds are -25 ticks at 133.12, falling back within yesterday's range and trading flat on the week.
• The German and French cash curves have bear flattened today. See our earlier post for more on OAT widening vs EGBs this week.
• 10-year peripheral spreads to Bunds are wider, with the BTP/Bund spread 2.7bps wider at 134.8bps.
• Portuguese and Belgian flash March inflation are also scheduled for release today.

GILTS: Light Pressure Following Hawkish Central Bank Comments

The hawkish Waller-Haskel combination flagged elsewhere initially pressured gilt futures below 99.50, before a recovery to ~99.65.

• Still, the contract sticks to the range seen in recent sessions, after bulls failed to test initial resistance (100.05) yesterday.
• Initial support is located at the 20-day EMA (99.04).
• Bears need to force a break of key support at the Mar 15 low (98.05) to turn the short-term technical picture more in their favour.
• Gilt yields are 1.5-3.0bp higher, as the curve sees some light bear flattening.
• SONIA futures and BOE-dated OIS are roughly in line with pre-gilt open levels, a little off hawkish session extremes.
• Headline final Q4 UK GDP data was in line with expectations/initial readings.
• The local calendar is now limited ahead of the long Easter weekend.

EQUITIES: Bullish E-Mini S&P Close to Recent Cycle Highs

A bullish trend condition in Eurostoxx 50 futures remains intact and the contract has traded to fresh cycle highs this week. The climb once again confirms a resumption of the uptrend and maintains the price sequence of higher highs and higher lows. Moving average studies remain in a bull-mode position, highlighting positive market sentiment. Sights are on 5074.7, a Fibonacci projection. Initial firm support is at 4936.90, the 20-day EMA. The trend condition in S&P E-Minis is unchanged and remains bullish. Recent gains reinforce this theme and the break of 5257.25, Mar 8 high, confirmed a resumption of the uptrend. Note that moving average studies remain in a bull-mode position reflecting positive market sentiment. Sights are on 5416.33, the top of a bull channel drawn from the Jan 17 low. Initial firm support is 5226.59, the 20-day EMA. A move lower is considered corrective.

• Japan's NIKKEI closed lower by 594.66 pts or -1.46% at 40168.07 and the TOPIX ended 48.47 pts lower or -1.73% at 2750.81.
• Elsewhere, in China the SHANGHAI closed higher by 17.525 pts or +0.59% at 3010.664 and the HANG SENG ended 148.58 pts higher or +0.91% at 16541.42.
• Across Europe, Germany's DAX trades higher by 22.59 pts or +0.12% at 18487.34, FTSE 100 higher by 23.31 pts or +0.29% at 7953.34, CAC 40 up 22.04 pts or +0.27% at 8222.86 and Euro Stoxx 50 up 12.65 pts or +0.25% at 5092.06.
• Dow Jones mini down 7 pts or -0.02% at 40132, S&P 500 mini down 2.75 pts or -0.05% at 5306, NASDAQ mini down 11.75 pts or -0.06% at 18498.

COMMODITIES: Gold Trading Close to This Week's High

A bull theme in WTI futures remains intact and the latest pullback is considered corrective. Recent gains resulted in a break of $79.87, the Mar 1 high. The move higher confirms a resumption of the uptrend that has been in place since mid-December last year. Sights are on $83.87 next, the Oct 20 ‘23 high. A break of this level would open $84.87, the Sep 15 ‘23 high and a key resistance. Support to watch is $79.97, the 20-day EMA. The trend condition in Gold remains bullish and the yellow metal is trading closer to its recent highs. The initial rally on Mar 21 delivered another all-time high and confirmed a resumption of the primary uptrend. Moving average studies are in a bull-mode condition, reflecting positive market sentiment. This signals scope for a climb towards $2230.1, a Fibonacci projection. Key short-term trend support has been defined at $2146.2, the Mar 18 low.

• WTI Crude up $0.49 or +0.6% at $81.8
• Natural Gas down $0.01 or -0.81% at $1.706
• Gold spot up $1.73 or +0.08% at $2196.26
• Copper up $0.2 or +0.05% at $400.4
• Silver down $0.2 or -0.79% at $24.4635
• Platinum down $2.88 or -0.32% at $896.35