MNI US OPEN - Focus on Fed Speak Ahead of Blackout Period

NEWS

POLITICAL RISK (BBG): Houthis Fire Missiles at Another US-Owned Ship in the Red Sea

Houthi militants in Yemen fired missiles at an American-owned commercial vessel on Thursday, the same day President Joe Biden acknowledged US airstrikes have not halted the Red Sea attacks. The Houthis launched two anti-ship ballistic missiles at the Chem Ranger, a Greek-operated tanker, US Central Command said in a statement posted on social media platform X. It was the third such attack in three days. “The crew observed the missiles impact the water near the ship. There were no reported injuries or damage to the ship,” Central Command said in the statement.

POLITICAL RISK (BBG): US, China Urges Calm as Pakistan, Iran Look to Ease Tensions

Diplomats from Washington to Beijing asked Pakistan and Iran to show restraint after the two nations engaged in back-and-forth missile strikes, with both sides now showing signs they don’t want tensions to escalate. “We have repeatedly said Iran is a friend,” Pakistan Foreign Ministry spokeswoman Mumtaz Zahra Baloch said by phone on Friday. “We do not want an escalation and we also got similar kind of sentiments from their side. So we are taking it further.”

US (MNI): Biden Administration Approves Additional $4.9b in Student Debt Relief

US President Joe Biden has issued a statement confirming that his administration has authorised an additional USD$4.9bln in student debt relief. Biden: "Today, my Administration approved debt cancellation for another 74,000 student loan borrowers across the country, bringing the total number of people who have gotten their debt cancelled under my Administration to over 3.7 million Americans through various actions."

US (NYT): Trump Asks Supreme Court to Rule He Is Eligible to Hold Office

Former President Donald J. Trump urged the Supreme Court on Thursday to reverse a ruling barring him from the primary ballot in Colorado and to declare him eligible to seek and hold the office of the presidency. Mr. Trump’s brief, his main submission in an extraordinary case with the potential to alter the course of the presidential election, was a forceful recitation of more than half a dozen arguments about why the Colorado Supreme Court had gone astray in ruling him an insurrectionist barred from office by the Constitution.

US/EUROPE (BBG): Lagarde Says Best Defense Against Trump Second Term Is Attack

European Central Bank President Christine Lagarde said the best plan to prepare for a possible return of Donald Trump to the White House in 2025 is to bolster Europe’s single market. “The best defense, if that’s the way we want to look at it, is attack,” Lagarde told a panel in Davos on Friday. “To attack properly, you need to be strong at home. So being strong means having a strong, deep market, having a real single market.”

ITALY (MNI): Meloni Seeks Euro Election Leverage for Tax Drive-Aides

Italian prime minister Giorgia Meloni is planning to use European Parliament elections in June to increase her grip on the governing coalition, as she seeks to push more aggressively for policies including a flat tax on incomes, two sources close to her told MNI. In a bid to win a landslide victory for her Brothers of Italy party, Meloni is considering standing in the elections herself at the head of the list, though she would resign from the European Parliament once elected in order to carry on as prime minister, they said.

SNB (BBG): SNB’s Jordan Says Inflation Forecast Suggests No Hikes Needed

“The inflation forecast currently shows that further interest rate increases are not necessary to maintain price stability,” Swiss National Bank President Thomas Jordan tells Aargauer Zeitung. “The battle against inflation is not yet completely won, but we have a much better situation than last year. According to our forecast, inflation should remain below 2% for the next three years.”

CHINA (BBG): China’s Biggest Broker Curbs Short Sales After Stock Rout

China’s largest brokerage has suspended short selling for some clients in mainland markets amid a deepening rout in the nation’s stocks, according to people familiar with the matter. State-owned Citic Securities Co. has stopped lending stocks to individual investors and raised the requirements for institutional clients earlier this week after so-called window guidance from regulators, said the people, asking not be identified discussing a private matter.

CHINA (RTRS): China Orders Indebted Local Governments to Halt Some Infrastructure Projects

China has instructed heavily indebted local governments to delay or halt some state-funded infrastructure projects, three people with knowledge of the situation said, as Beijing struggles to contain debt risks even as it tries to stimulate the economy. Increasing its efforts to manage $13 trillion in municipal debt, the State Council in recent weeks issued a directive to local governments and state banks to delay or halt construction on projects with less than half the planned investment completed in 12 regions across the country, the sources said.

CHINA (MNI): China to Slow Local Government Offshore Financing Further

MNI (Beijing) Local government financing vehicles will find issuing into the offshore bond market increasingly difficult as authorities aim to reduce their debt levels and the risk of asset mismatch between low return municipality projects and high offshore financing costs, a policy advisor and market insiders told MNI.

BOJ (MNI): Board to Consider Hold; Wages, Services in Focus

The Bank of Japan will likely maintain its easy policy, including negative interest rates and yield curve control, at the Jan 22-23 meeting, despite strong wage hike reports from branch managers, as the economy fails to show signs of meeting the Bank’s 2% inflation target. Strong wages at some firms amid persistent labour shortages have encouraged policymakers and reinforced conditions that may drive a policy exit as early as March.

JAPAN (MNI): Abe Faction to Dissolve Itself in Major Shakeup of Japanese Politics

The Sankei Shimbun is reporting that the largest and most powerful faction of the governing Liberal Democratic Party (LDP) - the Abe faction, or 'Seiwa Policy Research Group' - will dissolve itself amid the continued fallout of a funding scandal. With PM Fumio Kishida and former LDP Secretary General Toshihiro Nikai also announcing the dissolution of their factions on 19 Jan, this leaves a significant number of LDP lawmakers without factional homes.

JAPAN (BBG): Japan’s Pension GPIF Plans to Use More Derivatives for Hedging

Japan’s Government Pension Investment Fund plans to start using bond futures in foreign markets and currency forwards to reduce risks it faces in rebalancing its portfolio, starting the next financial year that begins in April. “It is quite a challenging task to rebalance our ¥200 trillion ($1.35 trillion) portfolio without affecting markets too much,” Masataka Miyazono, the head of GPIF, said at a news conference in Tokyo on Friday, noting that agile rebalancing is important to deal with rising market volatility.

DATA

UK DATA (MNI): Disappointing Retail Sales Place More Question Marks Over Consumer Spending

• UK DEC RETAIL SALES -3.2% M/M, -2.4% Y/Y
• UK DEC RETAIL SALES EX-FUEL -3.3% M/M, -2.1% Y/Y

Looking more at the retail sales release, it was a pretty broad-based decline in sales in December. The ONS notes that this is the largest monthly fall since January 2021. Non-food store sales (which saw the bulk of the positive surprise in November with a revised +2.7% M/M increase) fell -3.9% M/M in December. The ONS notes "Department stores, clothing shops and household goods retailers reported sluggish sales too as consumers spent less on Christmas gifts, but had also purchased earlier during Black Friday promotions, to help spread the cost."

GERMAN DATA (MNI): Producer Prices Deflation Reflected in Inflation Breadth Metrics

German December Producer Prices fell faster than expected at -8.6% Y/Y (vs-8.0% Y/Y cons, -7.9% Y/Y prior) and -1.2% M/M (vs -0.4% cons, -0.5% prior). The main driver for the decrease in prices on a yearly basis, as expected, continues to be energy (-23.5% Y/Y vs -21.4% prior), ex-energy, producer prices increased by +0.3% Y/Y (the same as in November). Intermediate goods prices decreased -3.7% Y/Y (vs -4.1% prior), driven by metals (-9.4% Y/Y vs -10.5% prior) and chemical resources (-10.4% Y/Y). Durable goods prices ticked up +3.0% Y/Y (+4.0% Y/Y prior).

CHINA DATA (BBG): New Foreign Investment Into China Drops to Lowest in Three Years

New foreign direct investment into China fell last year to the lowest level in the three years, as companies in Hong Kong and overseas became less willing to put new money into the mainland. New actually utilized foreign investment in 2023 was 1.1 trillion yuan ($153 billion), according to data released by the Ministry of Commerce on Friday. That was 8% lower than in 2022, which was the highest on record in comparable data going back to 2014.

JAPAN DATA (MNI): Japan Dec Core CPI Rises 2.3% vs. Nov 2.5%

• JAPAN DEC CORE CPI +2.3% Y/Y; NOV +2.5%
• JAPAN DEC CORE-CORE CPI +3.7% Y/Y; NOV +3.8%
• JAPAN DEC SERVICES PRICES +2.3% Y/Y; NOV +2.3%

The y/y rise of Japan's annual core consumer inflation rate decelerated to 2.3% in December from November’s 2.5%, showing the pass-through of cost increases continues to weaken, data released by the Ministry of Internal Affairs and Communications showed on Friday. December's index stayed above the Bank of Japan’s 2% target for the 21st consecutive month. The underlying inflation rate measured by the core-core CPI (excluding fresh food and energy) rose 3.7% y/y in December, also slowing from November's 3.8% and for the fourth straight deceleration.

FOREX: GBP Fails to Benefit as Retail Sales Post Worst in 3 Years

• The USD Index has faded further off the January high, and back below the 200-dma at 103.466. Moves mirror the retreat in the US 10y yield and the uptick in the e-mini S&P, which has narrowed the gap with first resistance at 4838.00 and the cycle high of 4841.50.
• UK retail sales data came in soft, with December ex auto fuel sales slipping 3.3% on the month vs. Exp. -0.7%. It was a broad-based decline in sales, and the largest monthly fall since January 2021, with evidence that Christmas shopping was shifted forward to take advantage of Black Friday sales in November. GBP/USD is softer as a result, however yesterday's range remains intact for now. This keeps support at 1.2648, with the sell-on-rallies theme holding into the end of the week.
• Scandi currencies trade well on the recovery in equity markets, with NOK and SEK among the best performers in G10. NOK has gained an additional tailwind thanks to the stronger Brent crude futures price puts oil to new weekly highs.
• Canadian retail sales and the prelim Uni of Michigan sentiment release is the focus for Friday trade. Markets expect Michigan inflation expectations to hold steady at 3.1%. Existing home sales is set to follow. Fed speakers to come ahead of the media blackout period include Fed's Goolsbee, Daly and Barr, while ECB's Lagarde appears on a panel.

EGBS: Off Intraday Highs, But Still Supported by Soft UK/DE Data

After finding a morning bid following soft German PPI and UK retail sales data, core/semi-core EGBs have drifted away from intraday highs.

• Bunds are 16 ticks higher at 134.11 , some 40 ticks above today's intraday low of 133.71. A clear break of the 20-day EMA at 135.49 is needed to ease bearish pressure.
• The details of the German December PPI pointed to further softening of core goods pressures in Europe's largest economy.
• This release, alongside earlier upticks in European equities has helped periphery spreads to Bunds tighten, with the 10-Year BTP/Bund spread 3.3bps tighter at 154.5bps. Portugal sees its sovereign rating reviewed by DBRS Morningstar after hours, but a change to the current "A" rating is unlikely.
• The German and French curves have flattened, with the former's yields flat to -2.5bps today.
• The regional Eurozone data docket is light today and the ECB has entered its pre-meeting quiet period (Lagarde's participation in a Davos panel on "Creating jobs for a new era" has not prompted any meaningful headline flow).
• Markets look ahead to US UoM inflation expectations and Fed-speak this afternoon.

GILTS: Holding Firmer Post-Retail Sales

Gilts hold firmer after the softer-than-expected domestic retail sales data, building further on yesterday’s recovery.

• Futures last show +30 at 99.01, 10 ticks off the peak of their 29-tick session range.
• Initial resistance comes in at the Jan 16 base/gap target (99.71). Bulls need to force a break there to start turning the tide more in their favour, with a bearish technical cycle still in play.
• Cash gilt yields are 2.5-5.5bp lower across the curve, with a light bull steepening bias.
• 10s tick further away from round number resistance at 4.00%, after Wednesday’s sell off ran out of steam just ahead of the level. Last print is 3.89%.
• SONIA futures are flat to 7.5bp firmer, with the reds outperforming.
• BoE-dated OIS shows ~117bp of cuts through ’24 post-data. A reminder that yesterday saw that measure trade within a couple of bp of 100bp of cuts, before closing at ~109bp of cuts.
• The local docket is essentially empty ahead of the weekend (save some bill issuance), which will leave focus on wider macro matters/market moves.

EQUITIES: E-Mini S&P Extends Recovery From Wednesday's Low

Eurostoxx 50 futures have this week breached support at the Jan 5 low of 4444.0. The primary trend direction is up and the recent move lower is considered corrective. However, the break below 4444.00 and 4450.70, the 50-day EMA, does suggest scope for an extension of the current bear cycle. A continuation lower would open 4370.00, the Nov 28 low. Initial resistance is 4536.00, the Jan 11 high. A break would highlight a potential reversal.S&P E-Minis have recovered from Wednesday’s low and this is seen as a short-term bullish development. 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, the 1.00 projection of the Nov 10 - Dec 1 - 7 price swing. Initial support is at 4746.25, the Jan 17 low. The 50-day EMA, at 4692.39, remains the key support.

• Japan's NIKKEI closed higher by 497.1 pts or +1.4% at 35963.27 and the TOPIX ended 17.94 pts higher or +0.72% at 2510.03.
• Elsewhere, in China the SHANGHAI closed lower by 13.505 pts or -0.47% at 2832.279 and the HANG SENG ended 83.1 pts lower or -0.54% at 15308.69.
• Across Europe, Germany's DAX trades higher by 64.13 pts or +0.39% at 16631.1, FTSE 100 higher by 49.96 pts or +0.67% at 7507.43, CAC 40 up 25.78 pts or +0.35% at 7425.79 and Euro Stoxx 50 up 18.99 pts or +0.43% at 4471.45.
• Dow Jones mini up 62 pts or +0.16% at 37721, S&P 500 mini up 16 pts or +0.33% at 4827.5, NASDAQ mini up 106 pts or +0.62% at 17218.

COMMODITIES: Short-Term Gains in WTI Futures Considered Corrective

Trend signals in WTI futures remain bearish and short-term gains are considered corrective. Resistance to watch is $74.28, 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 and continue to highlight a downtrend. The trigger for a resumption of the downtrend is $67.98, Dec 13 low. Gold has recovered from Wednesday’s low. However, this week’s print below the 50-day EMA and the break of support at $2013.4, the Jan 11 low, has strengthened a bearish threat and a resumption of weakness would open a key level at $1973.2, the Dec 13 low. For bulls, clearance of 2062.3, the Jan 12 high, is required to signal a reversal. This would expose $2088.5, the Dec 28 high.

• WTI Crude up $0.56 or +0.76% at $74.57
• Natural Gas down $0.04 or -1.33% at $2.659
• Gold spot up $5.41 or +0.27% at $2028.31
• Copper up $3.9 or +1.04% at $378.6
• Silver up $0.05 or +0.2% at $22.7835
• Platinum up $2.07 or +0.23% at $913.1