MNI US OPEN - Further Pushback from ECB on Rate Cut Pricing Likely

NEWS

MNI ECB PREVIEW - JANUARY 2024: No Change for Now, But Policy Rate Cuts Looming

No changes are expected at this week’s ECB policy meeting. President Lagarde will likely use the press conference to push back against market expectations of policy rate cuts in the near-term, while also entertaining the possibility of easing policy later in the year. In other words, the overall message will be that the ECB is getting closer to easing policy, but it is not there yet.

NORGES BANK (MNI): Norges Bank Leaves Policy on Hold 'For Some Time'

Norges Bank left its policy rate unchanged at 4.5% at its January meeting and said that it was likely to stay there "for some time". The central bank re-used the guidance it provided in December. While the most likely scenario was a prolonged period of unchanged policy it retained the guidance line that it could hike if cost inflation remain elevated or cut if there was a more pronounced slowdown.

US/ISRAEL (WaPo): U.S. Envoy Discusses Possible New Israel-Hamas Hostage Deal in Qatar

The top U.S. mediator for the Middle East is traveling the region to encourage discussions on the release of hostages held by Hamas in Gaza, but U.S. officials emphasized Wednesday that there was little progress to report. Brett McGurk, the top National Security Council official on the Middle East, was in Qatar on Wednesday amid renewed hope for a breakthrough on hostages and a pause in the fighting in Gaza.

US (MNI): Fed Says Bank Term Funding Program To End In March

The Federal Reserve Board Wednesday announced that its Bank Term Funding Program will cease making new loans as scheduled on March 11, and adjusted the program's interest rate higher for loans made before the deadline. The Fed announced effective immediately the interest rate applicable to new BTFP loans has been adjusted such that the rate on new loans extended from now through program expiration will be no lower than the interest rate on reserve balances in effect on the day the loan is made.

US (BBG): Biden’s Plans for LNG Threatens to Stall Export Projects

The Biden administration is set to unveil plans within days for intensifying environmental scrutiny of applications to export natural gas, potentially stalling massive planned projects for months, if not longer. The administration’s approach could be announced as soon as the end of this week, according to people familiar with the matter who asked not to be named because there’s been no public announcement. White House officials have spent weeks deliberating over the issue — including how aggressive to get — as they navigate competing environmental, economic and political concerns tied to tens of billions of dollars in US gas trade.

EU (BBG): EU Tries to Soothe Farmers Anger as Protests Keep Spreading

European Commission President Ursula von der Leyen said Thursday that it’s time to address the growing divisions over agriculture as she tried to respond to burgeoning protests from farmers over green policies and subsidy cuts in a crucial election year for Europe. “We all have the same sense of urgency,” she said in a speech kicking off a strategic dialog with the agricultural sector. “Things have to improve.”

NATO (MNI): 'No Urgency' on Approving Sweden Bid - Hungary Parliament Speaker

In an interview with Index.hu, Speaker of the National Assembly Laszlo Kover stated that there was 'no urgency' in parliament's process to ratify Sweden's NATO accession. This is despite Turkey having approved Stockholm's bid earlier this week, leaving Hungary as the only NATO holdout, and an apparent change of heart from PM Viktor Orban who stated on 24 Jan that he wants to see the National Assembly approve ratification "at the first opportunity."

UK (The Times): Jeremy Hunt’s Tax Cuts Likely to be Reversed After the Election, Warns IFS

Tax cuts being readied for the budget are likely to be reversed after the election as the next government faces the worst debt challenge since the 1950s, the Institute for Fiscal Studies (IFS) has warned. Labour’s £28 billion green borrowing pledge will still leave state investment lower than it currently is but mean even less money for day-to-day spending, analysis by the think tank also finds.

JAPAN (MNI): Japan Govt Tweaks CPI Assessment; 2nd Straight Month

Japan’s government tweaked its consumer price index assessment for the second straight month but left its main economic assessment from the previous month in January for the third straight month, the Cabinet Office said on Thursday. Consumer prices “have been rising moderately recently,” the government said. The previous view held consumer prices “have been rising at moderate tempo recently.”

RBA (MNI): Tax Cuts, Fiscal Policy Seen Complicating RBA's Job

The Australian government’s fiscal stance will add upward pressure to inflation, reducing the likelihood of a Reserve Bank of Australia cash-rate cut until late 2024 at the earliest and potentially adding to further rate rises, prominent economists and former staffers told MNI. Brendan Coates, economic policy program director at the Grattan Institute, said the stage three tax cuts – while likely already baked into RBA and Treasury forecasts – will keep inflation elevated.

AUSTRALIA (BBG): Australia to Curb Tax Cuts for Rich, Help Low-Income Earners

The harsh economic reality confronting many Australians means Prime Minister Anthony Albanese is set to break a key campaign promise. Australia will amend controversial legislated tax cuts by reducing the windfall for wealthy households to provide greater relief for low- and middle-income earners, Albanese said in a speech Thursday. He added that a second consecutive budget surplus in the current fiscal year is “a possibility.”

INDIA (RTRS): India May Keep 2024/25 Gross Borrowings Close to Current Year's Level

India's federal government may keep its gross market borrowing for 2024/25 close to this fiscal year's level, according to two government sources, as it looks to rein in its borrowings that have more than doubled, mainly due to pandemic spending. India may peg its gross market borrowing for next fiscal year at between 15 trillion rupees ($180.47 billion) and 15.5 trillion rupees, when Finance Minister Nirmala Sitharaman presents the federal budget on Feb. 1, the two officials aware of the development told Reuters.

MNI CBRT PREVIEW - JANUARY 2024: One Last Hike

Further tightening from the CBRT is expected this week, with the benchmark one-week repo rate widely expected to be raised by 250bps to 45%. Though this may mark the final step in the central bank’s tightening cycle, recent central bank communication has signalled that interest rates are likely to remain elevated for a prolonged period of time given inflationary risks. Accordingly, sell-side analysts are expecting rates to be maintained at 45% until Q3 at the earliest, with some expecting no change for the remainder of the year.

CORPORATE (BBG): Musk Fails to Convince Tesla Investors to Overlook Slowdown

Tesla Inc. shares plunged after Elon Musk’s pitch to look past slower sales growth fell flat with investors. The stock fell 8% in early trading Thursday, after Tesla narrowly missed earnings estimates and warned its rate of expansion will be “notably lower” this year. The company spent all of 2023 cutting prices to boost sales, which ate into profits. The effectiveness of that strategy is waning, and executives cautioned they’re approaching the limits of efforts to cut costs on the current vehicle lineup.

DATA

GERMANY DATA (MNI): IFO Points to Downside Growth Risks in Early 2024

• GERMANY JAN IFO CURRENT CLIMATE INDEX 87.0 (FCST 88.5)
• GERMANY JAN IFO EXPECTATIONS 83.5 (FCST 84.8)
• GERMANY JAN IFO BUSINESS CLIMATE INDEX 85.2

Germany's IFO Business Confidence Index slipped to 85.2 in January, weaker than the 86.6 expected and the 86.3 prior (downwardly revised). The Current Assessment and Expectations readings were each weaker than expected, and fell to 87.0 and 83.5 respectively (from 88.5 and 84.2 respectively prior, with Expectations downwardly revised)

FRANCE JAN MANUF SENTIMENT AT 99 (MNI)

SWEDEN DATA (MNI): PPI Suggests Potential for Further Disinflation in Core Goods CPI

Swedish December PPI signalled that further disinflation in core goods CPI is likely in the near-term, with the PPI ex-energy index disinflating to +1.4% Y/Y(vs +1.9% prior), the third consecutive monthly fall. Both consumer and capital goods annual inflation rates fell, but remain positive at +3.4% Y/Y (vs +4.1% prior) and +5.0% Y/Y (vs +5.9% prior). Swedish goods (ex-energy) CPI was 4.0% Y/Y in December, down from a peak of 9.4% Y/Y in December '22. However, ongoing tensions in the Red Sea could pose an upside risk to future PPI prints. We will look to see if these concerns are noted in the January PMI round.

FOREX: Markets Anticipate Muted Response to Thursday ECB

• Currency markets are largely holding their late Wednesday session moves, with USD/JPY comfortably off yesterday's lows and holding above Y147.50. EUR/USD and GBP/USD are similarly creeping off lows, but the mid-week highs remain out of reach for now.
• The Norges Bank made no change to either rates or guidance at this morning's decision, with the bank pledging to keep rates at current levels for an extended period. The policy statement acknowledged that the currency is stronger than expected, however there was little change to the economy since December's projections. NOK firm modestly once the rate decision had concluded, with firmer oil prices likely having a bigger impact than policy this morning. EUR/NOK has printed lower lows for a fourth session, with the trend outlook remaining bearish for now.
• The ECB rate decision takes focus going forward. Despite broad consensus for no change at today’s ECB decision, EUR overnight vols have crept higher, with EUR/GBP implied nearing the best levels of 2024 having printed just over 8 points. This equates to markets pricing a ~25 pip swing in the cross over the course of the decision – a move which would bring yesterday’s lows of 0.8536 into contention in the event of EUR weakness. A weaker EUR into the Thursday NY cut would put the E300mln expiry at 0.8500 into play.
• US data picks up into the Thursday session, with advanced Q4 GDP on the docket as well as weekly jobless claims and the prelim December durable goods orders read. Fedspeak is expected to remain muted, with the FOMC inside their pre-decision media blackout period.

EGBS: Weaker Ahead of ECB Decision; BTPs Underperform

Core/semi-core EGBs have unwound the recovery seen through the Asia Pac session to trade lower on the day.

• The weaker-than-expected German IFO reading had a limited impact, with markets awaiting the ECB decision and press conference at 1315GMT/1415CET and 1345GMT/1445CET respectively.
• This morning's uptick in crude futures amid rising geopolitical risks will also have pressured the space.
• Bunds trade at their weakest levels since early December, currently -34 at 133.57, with the 133.34/133.30 region (circa 2.40% in yield) the next downside level eyed.
• The German and French cash curves have bear steepened, with yields 1-3bps higher.
• Today's issuance slate featured only Italy's BTP Short Term and 5/15-year BTPei auction, which will have contributed to BTP underperformance in the periphery space. 10-year BTP/Bund yields are 1.6bps wider at 157.5bps.

GILTS: Bulk of Early Weakness Holds, Key Technical Levels Untouched

Gilts have recovered from session lows, with the Dec 11 extremes in both futures and 10-Year yields remaining untested.

• Futures last print -37 at 97.75, 18 ticks off the base of the early 54-tick range.
• Cash yields are 2.0-3.5bp higher on the day, with a light steepening bias seen on the curve.
• When it comes to the recent cross-market widening of gilts vs. peers (spreads are off widest levels of the day across the curve) we point to the combination of heightened expectations surrounding pre-election UK fiscal stimulus and data releases, in addition to the related feedthrough from both into BoE-dated OIS pricing, as the meaningful drivers.
• Note that BoE-dated OIS now shows ~91bp of cuts through ’24, a little over 60bp off the late December dovish extremes.
• The moderation in the BoE cuts priced through the end of ’24 has comfortably outstripped the comparative move in ECB pricing since the start of last week (by ~22bp).
• SONIA futures are +0.5 to -5.0 through the blues. The reds are under the most pressure.
• Looking ahead, only lower tier local data is due today, which will likely leave focus on wider market matters and headline flow (the latest ECB decision and U.S. data provide the scheduled risk events of note).

EQUITIES: Sustained Move Higher in E-Mini S&P Reinforces Uptrend

Eurostoxx 50 futures have recovered from last week’s low of 4402.00 on Jan 17 and the contract traded sharply higher Wednesday. 4402.00 represents a key short-term support. A break of it would resume recent bearish pressure and open 4370.00, the Nov 28 low. On the upside, key resistance is at 4634.00, the Dec 14 high. Clearance of this level would confirm a resumption of the medium-term uptrend. Initial support lies at 4498.90, the 20-day EMA. The uptrend in S&P E-Minis remains intact and this week’s move higher reinforces current conditions. Resistance at 4841.50, the Dec 28 high has recently been cleared, confirming an extension of the price sequence of higher highs and higher lows. Moving average studies remain in a bull-mode condition, highlighting positive market sentiment. Sights are on 4952.45 next, a Fibonacci projection. Key support lies at 4721.08, the 50-day EMA.

• Japan's NIKKEI closed higher by 9.99 pts or +0.03% at 36236.47 and the TOPIX ended 2.7 pts higher or +0.11% at 2531.92.
• Elsewhere, in China the SHANGHAI closed higher by 85.337 pts or +3.03% at 2906.109 and the HANG SENG ended 312.09 pts higher or +1.96% at 16211.96.
• Across Europe, Germany's DAX trades lower by 55.45 pts or -0.33% at 16831.06, FTSE 100 higher by 0.1 pts or +0% at 7528.84, CAC 40 down 8.64 pts or -0.12% at 7444.02 and Euro Stoxx 50 down 5.63 pts or -0.12% at 4555.69.
• Dow Jones mini up 101 pts or +0.27% at 38067, S&P 500 mini up 4.5 pts or +0.09% at 4900.75, NASDAQ mini up 4.75 pts or +0.03% at 17621.5.

COMMODITIES: Break of 50-Day EMA Strengthens Bearish Threat in Gold

Trend signals in WTI futures remain bearish and the latest recovery still appears to be a correction - for now. The contract has traded through the 50-day EMA at $74.28. This opens $76.31, the Dec 26 high and a near-term bull trigger. A break of this hurdle would undermine the bearish theme. Moving average studies continue to highlight a downtrend. The trigger for a resumption of the downtrend is $68.28, Dec 13 low. Gold remains above the Jan 17 low of $2001.9 - for now. The recent 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 $0.98 or +1.31% at $76.24
• Natural Gas up $0.18 or +6.89% at $2.834
• Gold spot up $3.06 or +0.15% at $2014.88
• Copper up $0.4 or +0.1% at $387.45
• Silver up $0.16 or +0.69% at $22.7865
• Platinum down $2.24 or -0.25% at $900.94