MNI US OPEN - Focus Turns to UK Budget, Powell Testimony, BOC Rate Decision

NEWS

UK 2024 BUDGET PREVIEW: No Rabbits from the Hat

Chancellor of the Exchequer Jeremy Hunt’s Budget statement on Wednesday comes as the government looks to re-establish a reputation for fiscal responsibility following the market backlash to the Truss-Kwarteng mini-budget of October 2022. We look at the potential measures that can be introduced and estimates of the costings. We analyze what this means for the remit and the breakdown across different maturities, along with sellside expectations. We outline with new gilts / syndications we expect in FY24/25.

MNI BOC PREVIEW - MARCH 2024: A Stepping Stone to April Guidance Shift?

The BoC is unanimously expected to hold its policy rate at 5% for a fifth meeting running. The median analyst recently saw a first cut in June whilst OIS has a cumulative 20bp priced for June with a July move fully priced instead. Guidance is expected to be little changed ahead of a potentially more impactful April meeting just five weeks away, and we instead focus on the latest discussion on underlying inflation. Data will no doubt continue to set the tone.

MNI ECB PREVIEW - MARCH 2024: Still on Hold, But Inching Closer to a Cut

There is no indication from the GC that an imminent cut is coming and with policymakers still waiting on Q1 wage data, the March ECB meeting will be a relatively low-key event. However, updated staff macroeconomic projections (likely showing slightly weaker inflation and economic activity) and the press conference provide an opportunity for the ECB to hint more strongly at the prospect of cuts on the near horizon. Given the very cautious approach to easing by the ECB, with the GC wanting sufficient confirmatory evidence from inflation and wages, we stick with our expectation that the first policy rate cut will be delivered in June.

US (WaPo): Trump Pulls Closer to GOP Nomination With Super Tuesday Wins

Donald Trump won resounding primary victories in more than a dozen states Tuesday, pulling closer to securing the Republican presidential nomination and catapulting more fully into a rematch with President Biden. Trump led his last standing GOP rival, Nikki Haley, by large margins in most of the 15 states that held primaries or caucuses on "Super Tuesday," with victories projected by the Associated Press from the Deep South to New England. He won delegate-rich Texas and California, led handily in more moderate Massachusetts, and was winning by well over 60 points in Oklahoma with almost all of the vote counted there Tuesday night.

BOJ (BBG): Japan’s Biggest Bank Readies for BOJ Rate Liftoff This Month

One question is obsessing Tokyo’s financial markets — when will the Bank of Japan exit negative interest rates? The country’s biggest bank expects the move to come in two weeks and is positioning itself accordingly. Mitsubishi UFJ Financial Group Inc.’s view is much more definitive than the swap market, which rates the chances of BOJ Governor Kazuo Ueda changing policy this month at about 50%. “I think it’s necessary to end the negative interest rate in March, not April,” Hiroyuki Seki, head of global markets business at Mitsubishi UFJ Financial Group Inc., said in an interview.

BOJ (BBG): BOJ is Said to Gain Confidence in Wage Growth Before Rate Call

Bank of Japan officials are getting more confident over the strength of wage growth, according to people familiar with the matter, a development that supports the view among traders and economists that the BOJ will scrap its negative interest rate in March or April. A consensus has yet to emerge among officials on whether the central bank should move at the end of its policy meeting on March 19 or wait until April. While some officials can back the BOJ raising rates in March given the strength in wages, others take the view that the bank won’t be able to confirm the price target is in sight by then given uncertainties over how wages will sustain inflation, the people said.

BOJ (MNI): Weaker Econ Data Risk May Push March BOJ Action

The Bank of Japan could exit negative rates and end yield curve control at the March 18-19 meeting to avoid potentially weaker economic data due out in April that may threaten its ability to adjust easy policy settings, MNI understands. BOJ officials believe a wait-and-see attitude could risk economic data deteriorating, and lessen the chance of an exit at the April 25-26 board session.

UK (MNI): No Income Tax Cut Alongside Expected NIC Reduction - Times

Steven Swinford at The Times posts on X: "Budget latest: Most of today's Budget is already out there - the 2p NI cut is the centrepiece along with a series of revenue raisers. There are some claims that Jeremy Hunt will announce an additional 1p cut in income tax today on top of the NI cut. He won't. The big unanswered question is whether he will reduce the profile of future public spending rises from 1% to 0.75%, which would mean big cuts for unprotected departments. It looks difficult to make the figures add up without doing so but we'll know in a few hours.

GERMANY (MNI): German Growth, Inflation Seen Lower in 2024 - ifo

Germany is likely to grow this year even more slowly than previously expected, the ifo Institute said on Wednesday, although the bounce back in 2025 could be modestly better. Ifo's growth forecast for the current year has been cut to 0.2%, down from 0.7% in January and 0.9% in December -- coming after GDP declined 0.3% in 2023. For next year, ifo raised its growth estimate by 0.2 percentage point to 1.5%

FRANCE (BBG): France’s 2023 Deficit ‘Significantly’ Above 4.9%, Le Maire Says

France’s public deficit was “significantly above” 4.9% of gross domestic product because of a shortfall in tax receipts, Finance Minister Bruno Le Maire told Le Monde. France still aims to trim to the deficit below 3% of GDP in 2027 and to balance its public finances in 2032, Le Maire said in an interview with the paper published on Wednesday.

EU (MNI): EU Vote Pushes Back Fiscal Rule Implementation - Officials

European Union officials have agreed to set a deadline for member states to submit four- or seven-year fiscal structural plans of Sept 20 as the process of approving the bloc’s new fiscal is made slower by upcoming European parliament elections, officials told MNI. The structural plans can only be presented once the European Commission provides states with their long-term debt trajectories in its annual Country Specific Recommendations, but the Commission has made clear that it will wait before doing so until after the June 6-9 elections in order to avoid becoming embroiled in national politics.

CHINA (MNI): Global Loosening Gives China Policy Space - Pan

MNI (Beijing) Major economies are expected to loosen monetary policy in 2024 and the USD will weaken, allowing the People’s Bank of China (PBOC) greater policy space, Pan Gongsheng, PBOC governor said at a press conference on Wednesday. China’s central bank had policy reserves and “rich toolbox” in place to maintain a flexible approach to conditions this year, with policymakers looking to balance growth with risk management, Pan added, noting that the authorities would take measures to support stablisation of prices and expectations, whist paying attention to the balance sheet health of banks.

CHINA (MNI): China Confident Will Reach GDP Target - NDRC

MNI (Beijing)China can attain this year's economic growth target of 'around 5% in a high-quality manner', Zheng Shanjie, director of the NDRC said on Wednesday. Zhang said the economy would benefit from a firmer foundation compared to last year, and the government would take measures to attract foreign investment and boost confidence for the private sector.

CHINA (MNI): Shanghai to Boost Futures Products in Yuan Hub Bid

MNI (Beijing) Shanghai will further open up its financial markets and introduce more products including futures and options for foreign investors in a bit to build up a global hub for the yuan-denominated asset allocation, said Jin Penghui, head of Shanghai branch of People’s Bank of China, during the National People’s Congress.

CHINA (BBG): China to Set Up New Relending Program for Tech, PBOC Chief Says

China will set up new relending program for technological innovation and transformation, People’s Bank of China Governor Pan Gongsheng says at a briefing. There is room for reserve requirement ratio to fall further. China will take maintaining price stability and promoting a moderate recovery in prices as important considerations in monetary policy.

RBNZ (BBG): RBNZ May Be Able to Cut Sooner If Fed Eases First, Conway Says

New Zealand’s central bank may be able to start cutting interest rates sooner than it currently expects to if the US Federal Reserve begins easing later this year, chief economist Paul Conway said. “If the Fed, for example, did start to cut toward the end of this year and we didn’t” then “that would show up first and foremost in the exchange rate,” Conway said on a webinar hosted by Harbour Asset Management Wednesday in Wellington.

MNI NBP PREVIEW - MARCH 2024: Extended Pause

The recent weeks have seen consensus consolidate around the view that the NBP could keep interest rates unchanged for several quarters, possibly through the remainder of the year. With the MPC heading into its final rate decision of 1Q2024, we expect them to stay on hold this time around and consider it likely that monetary policy settings will remain fixed through end-2024. However, this does not make this week’s meeting a mere placeholder. The central bank will unveil the details of its updated macroeconomic projection, which will inform their deliberations in the coming months.

SOUTH KOREA (MNI): Fitch Affirms Korea At AA-; Outlook Stable

Fitch notes that "Korea's rating balances robust external finances, resilient macroeconomic performance and a dynamic export sector against geopolitical risks related to North Korea, lagging governance indicators relative to 'AA' category peers and structural challenges from an ageing population." "Credit and policy buffers remain sufficient to manage near-term risks, but Korea has seen a relative weakening of its fiscal metrics compared with peers over the past five years."

INDIA/RUSSIA (BBG): India Cautious on Contracted Russian Oil as US Sanctions Bite

India’s state-run oil refiners are shying away from contracted Russian crude supply as the once-booming trade becomes much harder under tighter enforcement of US sanctions. The biggest state-owned refiner Indian Oil Corp. will likely reduce the amount of crude received under so-called term supply, while Bharat Petroleum Corp. and Hindustan Petroleum Corp. have decided against making firm commitments to take contracted oil next financial year, six people familiar with the matter said, asking not to identified because the information is private.

ISRAEL (BBG): Israel Sells $8 Billion of Bonds in Return to Global Markets

Israel sold $8 billion of international bonds, the nation’s first such transaction in public markets since the war erupted with Hamas — and its biggest sale of dollar notes on record. The government issued $2 billion of notes due in five years, $3 billion bonds maturing in 10 years and $3 billion notes due in 30 years, according to people familiar with the matter. They asked not to be identified because they’re not authorized to speak about it.

EGYPT (BBG): Egypt Devalues Currency by More Than 30% After Big Rate Hike

Egypt devalued its currency, allowing it to weaken around 35%, following a massive interest-rate hike by a country embroiled in its worst economic crisis in decades. The pound plunged to 48.18 per dollar as of 12 p.m. in Cairo on Wednesday, having traded at about 30.9 for the past year. It moved minutes after the central bank raised rates at an unscheduled meeting and said it will allow the market to determine the exchange rate.

COMMODITIES (BBG): Saudis Lift Oil Price to Asia After OPEC+ Extends Output Cuts

Saudi Arabia increased prices of its main oil grade to buyers in Asia next month after the OPEC+ group agreed to extend output cuts into the middle of the year. Crude has traded in a tight range around $80 a barrel in London this year as concerns over demand and sluggish economic growth outweigh geopolitical risks linked to the war in the Middle East and attacks on ships around the Red Sea. State producer Saudi Aramco increased its flagship Arab Light crude for Asia at a premium of $1.70 a barrel to the regional benchmark. That’s higher than expectations in a survey of refiners and traders last week.

FED: Powell Text for House Appearance Perhaps at 0830ET

There is no publicly known time for the publication of Chair Powell’s prepared remarks for his testimony before the House at 1000ET. Of the past eight, four have been released at the same time as the scheduled start, one has been 1 hour prior, two 1.5 hours prior and one 3.5 hours prior. However, there does however appear to be a pattern of a text release at 0830ET when it comes to speaking to the House first before the Senate on Thu, as is the case for this Congressional round.

• Jun 23 – House then Senate. Appearance 1000ET. Text 0830ET -- 1.5hrs early
• Mar 23 – Senate then House. Appearance 1000ET. Text 1000ET -- same time
• Jun 22 – Senate then House. Appearance 0930ET. Text 0930ET -- same time
• Mar 22 – House then Senate. Appearance 1000ET. Text 0830ET -- 1.5hrs early
• Jul 21 – House then Senate. Appearance 1200ET. Text 0830ET -- 3.5hrs early
• Feb 21 – Senate then House. Appearance 1000ET. Text 1000ET -- same time
• Jun 20 – Senate then House. Appearance 1000ET. Text 1000ET -- same time
• Feb 20 – House then Senate. Appearance 0930ET. Text 0830ET – 1hr early

DATA

EUROZONE DATA (MNI): EZ Retail Trade M/M Slightly Lower Than Expected

• EUROZONE JAN RETAIL SALES +0.1% M/M, -1% Y/Y

Eurozone volume of retail trade was marginally below consensus at +0.1% M/M in January (vs +0.2% M/M consensus, -0.6% M/M revised prior). On an annual basis, retail trade volume continued to decline, albeit a smaller decline than expected at -1.0% Y/Y (vs -1.3% Y/Y consensus, -0.5% Y/Y revised prior). Both 'Food, drinks, tobacco' and fuel contributed gains M/M, with the former seeing the first M/M rise since September 2023 at +1.0% M/M, whilst 'Automotive fuel ' trade volume printed it's fifth consecutive M/M increase at +1.7% M/M, making volume of trade for the category on an annual basis positive for the first time since March 2023.

EUROZONE FEB CONSTRUCTION PMI 42.9; JAN 41.3 (MNI)

UK FEB CONSTRUCTION PMI 49.7; JAN 48.8 (MNI)

GERMANY DATA (MNI): Trade Balance All-Time High as China Imports Fall & Exports Rebound

The German trade surplus for January came in at an all-time high of +E27.5bln(seasonally-adjusted; vs E21.0bln cons; E23.3bln prior, revised from E22.2bln). Export growth outstripped import growth. Exports +6.3% M/M (sa; vs +1.5% cons; -4.2% prior, revised from -4.6%) and imports +3.6% M/M (sa; vs +1.8% cons; -6.7% prior). On a yearly, non-sa/ca comparison, exports increased +1.5% Y/Y and imports decreased -7.5% Y/Y.

AUSTRALIA DATA (MNI): Aussie GDP Growth Prints at 0.2%

Australian GDP growth softened 10 basis points over Q4 2023, growing 0.2% q/q, in line with expectations, data from the Australian Bureau of Statistics showed Wednesday. GDP per capita improved 20bp to -0.3% q/q, while the household savings-to-income ratio rose to 3.2% q/q from 1.9% after eight consecutive quarterly falls. “Compensation of employees and government payments were the drivers of the increase in income received by households in December,” noted Katherine Keenan, head of national accounts at the ABS.

FOREX: JPY Bumped Higher as Reports See BoJ NIRP in the Balance at March Meeting

• JPY price action has been front-and-centre for markets across Wednesday morning, with a series of exclusive reports from MNI and Jiji further raising speculation of an exit from negative interest rate policy as soon as the March meeting. The headlines were met with JPY strength, which pressed USD/JPY to new pullback lows at 149.33 before stabilising.
• Two-week JPY vols, now capturing the outcome of the March 19th BoJ decision, are further bid, adding to yesterday's rally to touch 9.3 points and the highest level since early February. This tips 2w vols above the YTD average, but still just shy of the 12m rolling 2w vol. OIS markets now price a ~50% chance of a 10bp March hike (vs. 30% yesterday), with a BoJ exit from NIRP now fully priced through the end of the June meeting (vs. 90% prior).
• GBP sits mid-table in G10 ahead of the Spring Budget from the UK Chancellor later today. The Chancellor faces the task of rejuvenating an economy with limited fiscal headroom - a cut to National Insurance rates is expected to headline, with space seen too tight for any steps on income tax. GBP/USD is on the front-foot thanks to broad USD weakness headed into the crossover, however the pair has failed to make headway through the 1.2735 weekly high.
• Focus for the remainder of the Wednesday session turns to the ADP employment change release and JOLTS Job Openings data for January - ahead of the Bank of Canada rate decision - at which no change in headline policy is expected.

EGBS: Move Off Intraday Highs, Peripherals Tighten

EGBs have drifted away from intraday highs, taking cues from Gilts in the wake of speculation surrounding today's UK budget.

• Bunds are -41 ticks at 132.88, but the first support remains some way off at 132.08 (March 4 low).
• The German and French cash curves have lightly bear steepened on the day.
• 10-year periphery spreads to Bunds have tightened, with European equities performing strongly. The 10-year BTP/Bund spread is -2.5bps at 136.5bps, just shy of yesterday's low.
• Today's Eurozone data releases were not market movers: January retail sales growth remained negative Y/Y, albeit less so than consensus expectations, while February construction PMIs from Germany and the wider Eurozone remained comfortably below 50 in spite of an improvement vs Jan.
• Today's regional calendar is light, but cross-market focus will be on the aforementioned UK budget (1230GMT/1330CET), US JOLTS/ADP data and the BoC decision.

GILTS: Off Lows, Fiscal Speculation Continues to Dominate

Gilts have stabilised after the initial pullback which seem to be aided by overnight fiscal speculation.

• To recap, a 2ppt cut to national insurance is set to form the centrepiece of today’s Budget.
• There was some press speculation surrounding the potential for an income tax cut announcement later today, although the latest reports/headlines have pushed back against that idea.
• Consensus seems to be moving towards a pre-election personal income tax cut.
• Gilt futures are back below 99.00 but stick comfortably within yesterday’s range (98.72-99.22 today).
• Cash gilt yields are 1.5-3.0bp higher with 10s leading the sell off.
• 10s are back above 4.00%, after a brief and limited move below on Tuesday.
• SONIA futures are off lows, flat to -4.0 through the reds.
• BoE-dated OIS shows ~59bp of cuts through ’24, with the major markers in that space sticking to familiar levels.

EQUITIES: E-Mini S&P Trend Conditions Bullish With Corrections Lower Shallow

The trend condition in S&P E-Minis remains bullish and the latest move lower appears to be a correction. Price action continues to highlight the fact that corrections are shallow - this is a bullish signal that highlights positive market sentiment. Support to watch is 5049.64, the 20-day EMA. A clear break of this average would signal potential for a deeper retracement towards 4935.76, the 50-day EMA. Sights are on 5170.86, a Fibonacci projection. A bullish theme in Eurostoxx 50 futures remains intact and Monday’s fresh cycle high reinforces this theme. Moving average studies remain in a bull-mode position and this set-up highlights positive market sentiment. Sights are on 4939.30 next, a Fibonacci projection. Further out, scope is seen for a climb towards a bull channel top at 5008.70. The channel is drawn from the Oct 27 low. Initial firm support lies at 4816.80, the 20-day EMA.

• Japan's NIKKEI closed lower by 6.85 pts or -0.02% at 40090.78 and the TOPIX ended 10.74 pts higher or +0.39% at 2730.67.
• Elsewhere, in China the SHANGHAI closed lower by 7.862 pts or -0.26% at 3039.931 and the HANG SENG ended 275.45 pts higher or +1.7% at 16438.09.
• Across Europe, Germany's DAX trades higher by 38.54 pts or +0.22% at 17736.77, FTSE 100 higher by 27.22 pts or +0.36% at 7673.42, CAC 40 up 20.12 pts or +0.25% at 7952.94 and Euro Stoxx 50 up 22 pts or +0.45% at 4915.07.
• Dow Jones mini up 94 pts or +0.24% at 38700, S&P 500 mini up 19.25 pts or +0.38% at 5105, NASDAQ mini up 126.75 pts or +0.71% at 18056.5.

COMMODITIES: Fresh Record Highs in Gold Reinforce Strong Bullish Conditions

The WTI futures trend condition remains bullish and last week’s break of key resistance at $79.09, the Jan 29 high, reinforces this theme. The clear breach of this hurdle highlights potential for a continuation towards $81.70, a Fibonacci retracement. On the downside, support to watch is $76.24, the 50-day EMA. A break would instead signal a possible top. The latest pullback is considered corrective. Gold remains firm on the back of the latest rally. The yellow metal yesterday traded above resistance at $2135.4, the Dec 4 high to deliver a fresh all-time cycle high. The break reinforces bullish conditions and signals scope for a climb towards $2177.6 next, a Fibonacci projection. Short-term conditions are overbought, however, this does not appear to be a concern for bulls - for now. Initial support lies at $2088.5, the Dec 28 high.

• WTI Crude up $0.77 or +0.99% at $78.87
• Natural Gas down $0.01 or -0.66% at $1.944
• Gold spot down $1.63 or -0.08% at $2126.56
• Copper up $1.7 or +0.44% at $386.4
• Silver up $0.06 or +0.24% at $23.7365
• Platinum up $4.95 or +0.56% at $888.97