MNI US OPEN - French CPI Falls Short of Forecast

NEWS

MNI Fed Preview: February 2023 - Downshift, With “Ongoing” Concern

The Fed will downshift its rate hike pace in February for the second consecutive meeting, to 25bp from 50bp. The dovish risks to this meeting appear at least partly priced in, including some expectations of Statement language acknowledging decelerating inflation, or a clear signal that the end of the hiking cycle is near. However, there are many ways Powell could re-emphasize the FOMC’s view that the job is not nearly done yet.

MNI ECB Preview: February 2023 - With 50bp Fully Priced For February, Focus Shifts To The March Meeting

The ECB is set to hike policy rates by 50bp at the February meeting – a position that has now been well telegraphed and fully priced by the market. There is unlikely to be any surprise policy innovation beyond some technical details on how QT will be implemented. Markets will look for any clues on the March policy rate decision and we believe it more likely than not that Lagarde will hint at a similar sized hike at that meeting.

MNI BOE Preview: February 2023 - Vote Split Could See Dovish Reaction

The MNI Markets team expects a 50bp hike at the February 2023 MPC meeting, but see around a 30% probability subjectively of a 25bp hike instead. We think there is better risk-reward to position for a dovish outcome than for a hawkish move due to our expectations that there could be a more dovish vote split than the market expects.

GLOBAL (MNI): Global Economy 'Less Gloomy' in 2023, IMF Says

The global economy faces another challenging year of subpar growth and hot inflation, though some downside risks in China and Europe have moderated, according to the IMF's latest projections. The Washington-based fund raised its 2023 global GDP forecast two-tenths to 2.9%, still well below the average of 3.8% since 2000. Global inflation is expected to fall to 6.6% this year from 8.8% in 2022, much worse than the pre-Covid average of 3.5%.

JAPAN (MNI): IMF Ups Japan 2023 GDP View to +1.8% vs. Oct +1.6%

The International Monetary Fund on Tuesday upgraded its forecast for growth in Japan’s gross domestic product this year to 1.8% from its October estimate of 1.6% but lowered its 2024 growth forecast to 0.9% from October’s 1.3%. “Growth in Japan is projected to rise to 1.8% in 2023, with continued monetary and fiscal policy support,” the IMF’s World Economic Output Update said.

NORTH KOREA (MNI): More US-SK Drills as Kim Calls For 'Exponential' Increase in Nukes

On a visit to South Korea, US Secretary of Defense Lloyd Austin III has committed to an expansion in military drills with Seoul and an enhanced nuclear deterrence in an effort to counter North Korea's stated intentions in boosting its military and nuclear capabilities.

DATA

EUROZONE DATA (MNI): Upside Q4 GDP Likely Reflects Weaker Imports & Irish Distortions

• EUROZONE Q4 2022 ADV PRELIM GDP +0.1% Q/Q (FCST -0.1%); Q3 +0.3% Q/Q (EA19)
• EUROZONE Q4 2022 ADV PRELIM GDP +1.9% Y/Y (FCST +1.7%); Q3 +2.3% Y/Y (EA19)

Eurozone Q4 prelim flash estimates recorded a +0.1% q/q GDP expansion, outpacing forecasts of a -0.1% q/q contraction. GDP grew +1.9% y/y in Q4, 0.2pp above expectations, albeit slowing from +2.3% y/y in Q3. This data is likely skewed upwards marginally by the Irish print, which recorded a +3.5% q/q 'boom'. This was on the back of strong manufacturing sector data, which is often subject to multinational reporting distortions.

EUROPEAN DATA (MNI): German & Swiss December Retail Sales Drag on Q4 Growth

• SWISS DEC RETAIL SALES -1.7% M/M, -2.8% Y/Y
• GERMANY DEC RETAIL SALES -5.3% M/M (FCST -0.2%); -6.4% Y/Y

German retail sales contracted sharply in December, falling by 5.3% m/m, outpacing expectations of a modest 0.2% decline. This was largely evident in the Q4 flash GDP print, whereby the fall in private consumption largely accounted for weaker Q4 economic performance. Robust consumption had elevated growth through the first three quarters. Swiss retail trade also fell in December, down 1.7% m/m and 2.8% y/y. Across both economies, high inflation, led by elevated energy and food prices is dampening demand, feeding into weak Q4 growth.

FRANCE DATA (MNI): Inflation Accelerates as Energy Support Measures Unwound

• FRANCE JAN FLASH HICP +0.4% M/M (= FCST); DEC -0.1% M/M
• FRANCE JAN FLASH HICP +7.0% Y/Y (= FCST); DEC +6.7% Y/Y

French harmonised inflation was in line with consensus expectations, at +0.4% m/m (after -0.1% in Dec), rising 0.3pp to +7.0% y/y in the January flash (only 0.1pp below the November high). French inflation had been expected to reaccelerate in January due to the winding back of government energy support measures which saw fuel and regulated gas prices jump recently.

FRANCE DATA (MNI): Q4 Flash GDP Shows Substantial Decline in Demand

• FRANCE Q4 FLASH GDP +0.1 Q/Q (FCST 0.0%); Q3 +0.2% Q/Q
• FRANCE Q4 FLASH GDP +0.5% Y/Y (=FCST); Q3 +1.0% Y/Y
• FRANCE DEC CONSUMER SPENDING -1.3% M/M; -5.6% Y/Y

French GDP flash data showed the economy slowed to +0.1% q/q and +0.5% y/y in Q4, implying a 0.1pp upside surprise on the q/q print. Final domestic demand was a considerable downwards driver in Q4, contributing -0.2 points after +0.9 points in Q3. Gross fixed capital formation slowed, whilst net exports contributed positively (adding +0.5 points) after a previously negative contribution due to a sharp decline in (mainly energy) imports. Inventories contributed -0.2 points after +0.3 points in Q3.

GERMANY JAN UE RATE (SA) 5.5% (= FCST); DEC 5.5% (MNI)

ITALY Q4 FLASH GDP -0.1% Q/Q, +1.7% Y/Y (MNI)

UK DEC M4 +1.6% VS NOV 2.5% (MNI)
UK DEC MORTGAGE APPLICATIONS 35,600 VS 46,200 NOV (MNI)

CHINA DATA (MNI): China's Mfg PMI Back to Expansion Territory in Jan

• CHINA JAN MANUFACTURING PMI 50.1 VS 47.0 IN DEC

China's Purchasing Managers' Index (PMI) rose to 50.1 in January, returning to expansion territory after three months as Covid controls were lifted and production activity gradually recovered, data from the National Bureau of Statistics on Tuesday showed.

JAPAN DATA (MNI): Japan Dec Retail Sales Post 10th Straight Y/Y Rise

• JAPAN DEC RETAIL SALES +3.8% Y/Y; NOV +2.5%
• JAPAN DEC RETAIL SALES +1.1% M/M; NOV -1.3%

Japan's retail sales rose 3.8% y/y in December for the 10th straight rise following a 2.5% gain in November, showing that consumer spending remained solid as Bank of Japan officials expected, despite the rise in daily necessities prices, the Ministry of Economy, Trade and Industry showed on Tuesday.

JAPAN DATA (MNI): Japan's Dec Industrial Production Dips, BOJ Eyes Q1

• JAPAN DEC INDUSTRIAL OUTPUT -0.1% M/M; NOV +0.2%
• JAPAN Q4 FACTORY OUTPUT -3.1% Q/Q VS. +5.8% IN Q3

Bank of Japan officials are vigilant against risks to a recovery in industrial production in the first quarter of 2023 as both exports and production will be under pressure due to a slowing global economy, with industrial production dipping in December.

JAPAN DATA (MNI): Japan Jan Consumer Confidence Rises for 2nd Month

Japan's consumer confidence index posted the second straight rise in January as most components improved from the previous month, easing the Bank of Japan's concerns over the outlook for private consumption, data released by the Cabinet Office on Tuesday showed. The consumer confidence index rose 31.0 in January from 30.3 in December, the latest Consumer Confidence Survey data showed. The latest survey was conducted from January 7 to January 20.

JAPAN DEC JOBLESS RATE AT 2.5%, UNCHANGED FROM NOV 2.5% (MNI)

AUSTRALIA DATA (MNI): RBA Set to Hike Despite Slide In Dec Retail Sales

• AUSTRALIA DEC RETAIL SALES -3.9% M/M

The Reserve Bank of Australia's inflation fighting focus is unlikely to deter it from hiking again despite December retail sales recording the fourth largest month-on-month decline, snapping a run of 11 consecutive monthly increases, market pricing suggests

AUSTRALIA DATA (MNI): Aussie Private Sector Credit Growth Slows - RBA

The Reserve Bank of Australia's 300bp of rate hikes since May continues to cool private sector credit growth, which fell to its slowest month-on-month pace in December since April 2021 according to data released by the central bank on Tuesday.

FOREX: NOK Slides as Norges Bank Confirmed Upped FX Purchase Plan

• The USD trades firmer ahead of NY hours, with a spell of greenback strength following the softer-than-expected French inflation release. Volumes picked up across futures markets to make for a busier-than-expected morning, possibly catching markets off guard given the delay to German inflation data originally slated for today.
• NOK is the poorest performer in G10, as the Norges Bank confirmed a larger than expected schedule for February FX purchases. Consensus looked for an unchanged clip of NOK 1.5lbn per day, not the NOK 1.9bln confirmed this morning. EUR/NOK rallied to new cycle highs in response, touching 10.8982 in early European trade.
• AUD trades similarly poorly after a softer-than-expected retail sales release overnight, which dropped 3.9% on the month vs. Exp. -0.2%. AUD/USD is holding just above the $0.70 handle at typing, but a break below would open losses toward $0.6994 - a move that would narrow the gap with the 50-dma support of $0.6832.
• MNI Chicago Business Barometer is the data highlight Tuesday, with markets expecting a read of 45.1 - in line with the prior month. Elsewhere, the Employment Cost Index and January consumer confidence releases could draw focus on top of Canadian GDP.
• There are no central bank speakers of note, with the ECB, Fed and BoE respecting their pre-decision media blackout periods.

BONDS: Early Rally Fades, With Focus On Data

Core FI has strengthened in Tuesday's early European trade, led by EGBs, as French inflation came in line with expectations (vs Spain's upside surprise yesterday).

• Bunds continue to outperform Treasuries and Gilts, though are well off session highs and trading within Monday's ranges with Month-end today, and the FOMC, ECB and BoE decisions looming later in the week.
• Morning data - which in addition to French CPI included a weak Eurozone bank lending survey, and poor German/French consumer numbers - did little to lessen Eurozone market rate hike pricing though. 50bp is 99% priced in for the ECB Thursday, and a further 45bp in March (highest since the start of the year).
• Attention turns to US data later in the session, with the 4Q Employment Cost Index potentially impacting the messaging at Wednesday's FOMC given the Fed's increasing focus on job market tightness.
• We also get the Jan MNI Chicago Business Barometer and Jan Consumer Confidence, and US house price data.

Latest levels:

• Mar 10-Yr US Tsy futures (TY) up 5.5/32 at 114-14.5 (L: 114-09.5 / H: 114-19)
• Mar Bund futures (RX) up 13 ticks at 136.83 (L: 136.54 / H: 137.3)
• Mar Gilt futures (G) up 6 ticks at 104.64 (L: 104.37 / H: 105.08)
• Italy / German 10-Yr spread 0.2bps tighter at 187.9bps

EQUITIES: E-Mini S&P Move Lower Considered Technically Corrective

EUROSTOXX 50 futures are consolidating above support at 4097.00, Jan 19 low. The contract is also trading just ahead of key short-term resistance at 4206.00, Jan 18 high. A break of this level would resume the uptrend and pave the way for a climb towards 4215.00, a Fibonacci projection. Note that the trend remains overbought. A pullback, if seen, would represent a healthy correction. Support to watch is 4101.40, the 20-day EMA. S&P E-Minis traded higher last week to confirm a resumption of the current uptrend. The move lower Monday is likely a correction. The recent breach of resistance has resulted in a print above the 4100.00 handle and an extension higher would open 4180.00, the Dec 13 high and a bull trigger. Initial firm support has been defined at 3957.89, the 50-day EMA. A move below the average would be seen as a bearish development and signal a reversal.

• Japan's NIKKEI closed lower by 106.29 pts or -0.39% at 27327.11 and the TOPIX ended 7.13 pts lower or -0.36% at 1975.27.
• Elsewhere, in China the SHANGHAI closed lower by 13.649 pts or -0.42% at 3255.669 and the HANG SENG ended 227.4 pts lower or -1.03% at 21842.33.
• Across Europe, Germany's DAX trades lower by 86.44 pts or -0.57% at 15039.8, FTSE 100 lower by 47.62 pts or -0.61% at 7737.43, CAC 40 down 36.89 pts or -0.52% at 7045.12 and Euro Stoxx 50 down 21.28 pts or -0.51% at 4137.35.
• Dow Jones mini down 100 pts or -0.3% at 33685, S&P 500 mini down 12.25 pts or -0.3% at 4020.25, NASDAQ mini down 51 pts or -0.43% at 11917.5.

COMMODITIES: Gold Trend Conditions Remain Bullish Despite Recent Pullback

WTI futures traded sharply lower Monday and in the process breached support at $78.45, the Jan 19 low. The move lower undermines the recent bull theme and a continuation would signal potential for an extension towards $72.74, the Jan 5 low. On the upside, the bull trigger has been defined at $82.66, the Jan 18 high. A break of this level is required to reinstate the recent bullish theme. Trend conditions in Gold remain bullish and the latest pullback is considered corrective. Recent cycle highs confirm an extension of the uptrend and maintain the price sequence of higher highs and higher lows. Moving average studies remain in a bull mode position - reflecting the uptrend. The focus is on $1963.0 next, a Fibonacci retracement. Initial firm support to watch lies at $1899.5, the 20-day EMA. A break would signal scope for a deeper pullback.

• WTI Crude down $1.03 or -1.32% at $76.87
• Natural Gas down $0.04 or -1.46% at $2.639
• Gold spot down $19.7 or -1.02% at $1903.8
• Copper down $6.8 or -1.62% at $413.05
• Silver down $0.51 or -2.18% at $23.0914
• Platinum down $17.42 or -1.72% at $996.21