MNI US OPEN - German National CPI & U.S. Risk Events Eyed

NEWS

MNI FED PREVIEW - JANUARY 2024: Dropping the Tightening Pretense

The Federal Reserve will hold rates steady for the 5th time in 6 meetings in January, further cementing expectations that the hiking cycle is over and that the next move will be a cut. Given participants’ pushback against 2024 market rate cut pricing since the December meeting, the main question will be the degree to which the Statement and Chair Powell leave the door open to a rate cut as soon as March. There is a good chance that the forward guidance will be amended to remove the tightening bias in favor of a more neutral stance, in light of recent disinflationary progress.

MNI BOE PREVIEW - FEBRUARY 2024: The End of the Tightening Bias?

The February MPC meeting will almost certainly see Bank Rate left on hold at 5.25% but there are three significant aspects of the decision that will be closely watched by markets – the vote split, the guidance and the forecasts. The Bank continues to reiterate that it is data dependent, and the story in the data has changed since both the November MPR forecasts were made and also since the December MPC meeting. On the vote: We still look for 1-2 hawkish dissenters and assign a 40% probability to Dhingra voting for a cut at this meeting.

UK (MNI): Times: Little Room for Tax Cuts in Budget - Hunt

Steven Swinford at The Times posts on X: "[Chancellor] Jeremy Hunt warned Cabinet that tax cuts in Spring budget may be smaller than expected. 'We are not likely to have as much room for tax cuts as we had in the Autumn,' he said. He blamed 'major structural weakness' of low productivity Treasury projections suggest there is 14bn of headroom compared to 35bn at time of Autumn Statement. Ministers say political imperative is to go big but are concerned the fiscal constraints may not allow."

FRANCE (BBG): France’s Attal Pledges to Fight for Farmers in Reform Drive

France’s Gabriel Attal pledged to continue granting concessions to protesting farmers as he seeks to move beyond a crisis that has dogged his first three weeks as prime minister. In a speech on Tuesday detailing the government’s broader priorities for the coming months, Attal added little to measures announced in the past few days to support the agriculture industry.

SPAIN (MNI): Defeat in Parl't on Catalan Vote Raises Red Flags for Sanchez Gov't

The Spanish gov't suffered a damaging defeat in the Congress of Deputies on 30 Jan after the hard-line Catalan separatist Junts per Catalunya (Junts, Together) voted against legislation intended to bring around an amnesty for those involved in the illegal Oct 2017 Catalan independence referendum. While the legislation was a key demand for Junts supporting the re-election of Pedro Sanchez as PM, the party argued that the proposed law did not go far enough. It argued that all cases related to the secession attempt were included in the amenesty, even those related to terrorism.

CHINA (RTRS): China's Major State Banks Defend Yuan as Stock Markets Slide

China's major state-owned banks were heavy sellers of dollars on Wednesday, three people with direct knowledge of their activity said, steadying the yuan as it came under pressure in currency trade as the economy remains shaky. State banks often act on behalf of China's central bank in the foreign exchange market, but they could also trade on their own behalf or execute clients' orders. One of the people said the selling was "very forceful" to defend the yuan at around 7.1820 per dollar in the onshore spot market.

CHINA (MNI): China Should Limit IPOs, Boost Growth to Lift Stock Market

MNI (Beijing) Authorities should provide more pro-growth policies, limit IPOs to rebalance supply and demand, and encourage more long-term funds to revive confidence in China’s stock market, policy advisors and market analysts told MNI. China’s top securities regulator said Sunday it would suspend restricted shares lending and crack down on illegal use of securities lending to reduce holdings and cash out. This followed a string of supportive measures last week including a 50bp cut to bank reserves, which helped lift A shares off three-year lows.

BOJ (MNI): BOJ May Consider March Policy Change on Strong Data

While the April 25-26 meeting remains the most likely timing for policy adjustment, there is still an outside chance the Bank of Japan could look to end its negative rates policy in March 18-19 due to strong wage and prices data, MNI understands. Stronger-than-expected spring wage negotiations in-or-after February and results of the first wage hike survey due out on March 15 could help convince the more cautious policymakers that the Japanese economy can hit the bank’s 2% price target.

BOJ (MNI): Members Actively Discuss Exit Policy - BOJ Jan Opinions

Bank of Japan board members actively discussed an exit policy and a post-exit monetary policy at the Jan 22-23 meeting, the summary of opinions released on Wednesday showed. One BOJ board member said the conditions to terminate the negative interest rate policy are being met. While the other board members did not share the same view, some admitted conditions had elevated the probability of Japan's economy hitting the bank’s 2% price target, leaving the door open for the possible removal of the negative interest rate policy in future.

DATA

GERMAN DATA (MNI): MNI Sees Small Upside Risks to German National CPI Following State Data

• BAVARIA JAN CPI +0.2% M/M, +2.9% Y/Y (MNI)
• NRW JAN CPI +0.3% M/M, +3% Y/Y (MNI)
• HESSE JAN CPI 0% M/M, +2.2% Y/Y (BBG)
• SAXONY JAN CPI +0.4% M/M, +3.5% Y/Y (BBG)
• BRANDENBURG JAN CPI +0.1% M/M, +3.7% Y/Y (BBG)

We have now received state data that equates to 86.7% weighting of the national January flash German CPI print (due at 13:00 BST / 14:00 CET). MNI estimates that national CPI (non-HICP print) rose by +0.1-0.2% m/m and 2.9% y/y. This is based on the published index values for available state data. The data implies readings slightly below consensus on an annual basis (with the Bloomberg consensus coming into the session at +3.0% Y/Y). However, the M/M reading appears to have upside risks to the Bloomberg consensus of +0.1% M/M.

GERMANY JAN UE RATE (SA) 5.8% (FCST 5.9%); DEC 5.8% (MNI)
GERMANY JAN UE NET CHANGE (SA) -2K (FCST +12K); DEC +2K (MNI)
GERMANY JAN UE TOTAL (SA) 2.694MN; DEC 2.696MN (MNI)
GERMANY JAN JOB VACANCIES (SA) 0K; DEC +6K (MNI)

GERMAN DATA (MNI): Broad-Based Retail Sales Decline Continues

German December retail sales (ex. motor vehicles) were -1.6% M/M (seasonally-and calendar-adjusted, vs +0.6% cons and -0.8% prior, revised from -2.5%) and-4.4% Y/Y (vs -1.9% cons and -1.2% prior, revised from -2.0%). This is the second consecutive decline on a monthly basis, while the seasonally adjusted index hit the lowest level seen since February 2021. For 2023 real retail sales (ex. motor vehicles) fell -3.3% Y/Y (vs -0.7% in 2022) but were still +1.3% higher than pre-Covid levels (2019).

FRANCE DATA (MNI): Acceleration in Services Inflation Despite Lower-Than-Expected Headline Print

• FRANCE JAN HICP -0.2% M/M, +3.4% Y/Y
• FRANCE JAN CPI -0.2% M/M, +3.1% Y/Y
• FRANCE DEC PPI +0.1% M/M, -0.9% Y/Y

While the headline French flash inflation metrics printed below consensus on an annual and monthly basis, we note an acceleration in annual services CPI inflation to +3.2% Y/Y (vs +3.1% prior). A reminder that the January flash PMI signalled that wage pressures continue to drive inflationary pressures in the services sector. However, core inflation, which is not reported in the flash release, is likely to have continued decelerating in January, with non-energy industrial goods inflation estimated at +0.7% Y/Y (vs +1.4% prior).

SWISS DEC RETAIL SALES -0.6% M/M, -0.8% Y/Y (MNI)

CHINA DATA (MNI): China Jan Manufacturing PMI Remains in Contraction

• CHINA JAN MANUFACTURING PMI 49.2 VS 49.0 IN DEC

MNI (Beijing) China's manufacturing Purchasing Managers' Index rose by 0.2 points to 49.2 in January, remaining in the contractionary zone below the breakeven 50 mark for the fourth month, but ending three consecutive months of decline, data from the National Bureau of Statistics showed Wednesday.

JAPAN DATA (MNI): Japan Industrial Output Rises 1.8%, Outlook Weakens

• JAPAN DEC INDUSTRIAL OUTPUT +1.8% M/M; NOV -0.9%

Japan's industrial output rose 1.8% m/m in December for the first rise in two months following November's 0.9% fall, thanks to higher production of general-purpose and business oriented-machinery, and chemicals, data released by the Ministry of Economy, Trade and Industry showed on Wednesday. Production of motor vehicles rose 1.2% m/m, the first rise in two months following November's 2.5% fall.

JAPAN DATA (MNI): Japan Jan Consumer Confidence Hits 4th Straight Rise

Japan's consumer confidence index posted its fourth straight rise in January to 38.0 from 37.2 in December as all components improved from the previous month, easing concern over weaker spending after the Jan 1 earthquake, prompting the Cabinet Office to update its assessment for the second straight month, data showed on Wednesday. The January’s rise supported the Bank of Japan’s view that private consumption continued to be hit by high prices despite spending increasing moderately.

JAPAN DEC RETAIL SALES +2.1% Y/Y; NOV +5.4% (MNI)
JAPAN DEC RETAIL SALES -2.9% M/M; NOV +1.1% (MNI)

AUSTRALIA DATA (MNI): Aussie Quarterly CPI Misses Expectations at 4.1%

• AUSTRALIA Q4 TRIMMED CPI +0.8% Q/Q
• AUSTRALIA Q4 CPI +0.7% Q/Q

The Australian quarterly consumer price index rose 4.1% y/y over Q4 2023 from Q3’s 5.4%, lower than the forecasted 4.3%, while trimmed mean rose 4.2% from the prior quarter’s 5.1%, data from the Australian Bureau of Statistics showed Wednesday. "The CPI rose 0.6% in the December quarter, lower than the 1.2% rise in the September 2023 quarter. This was the smallest quarterly rise since the March 2021 quarter,” noted Michelle Marquardt, ABS head of prices statistics.

FOREX: Weak Selling Signal Going into Month End

• Despite seeing a small push lower following a French inflation miss, coming below consensus, the EURUSD has not quite managed to break the 1.0800 handle, only printing a 1.0806 low, and short of the support still eyed at 1.0793.
• The Dollar was and is still on the front foot during the European early session, and that is despite the US 10yr Yield falling and testing the 4% mark.
• Some pullback off the high in Equities, may have been somewhat supportive, but looking at the last 5 days, the Dollar is mixed, with CAD up 0.74% and EUR down 0.55% for that period.
• AUD was the overnight and early worst performer, after the Australian inflation came below consensus, but has been taken over by the NOK, as Oil (WTI) slips lower this morning.
• Note that most desks only sees weak USD sell signal going into Month End.
• Looking ahead, main focus will be on the Fed decision (expected unchanged rate), but we'll be getting US ADP, MNI Chicago PMI, and US Treasury Quarterly refunding before that event.

BONDS: Off Best Levels as Early Impulse Fades, Plenty of Risk Events Ahead

Initial European trade saw core global FI markets benefit from a combination of the late NY Tsy rally, downticks in U.S. & Chinese equity indices (the former post-big tech earnings and the latter on well-defined areas of economy worry/lack of fresh policy support), source reports flagging less room for UK fiscal easing and softer-than-expected French & Australian CPI prints.

• Initial regional German CPI data helped bias the space away from best levels (with a particularly focus on the relatively firm print from the lowly-weighted Saxony), before the totality of the data/run rate for the national release (~2.9% Y/Y) limited the pullback.
• Still, there hasn’t been a meaningful bid in the time since, with continued supply burden (the EFSF became the latest to frontload their syndication schedule, along with the presence of Italian & German supply) and firmer than-expected Italian wage data (which was driven by a one-off government subsidy) resulting in some light pressure in recent trade.
• The failure of bond bulls to hold/develop a shallow breach of 4.00% in U.S. 10s also aided the pullback.
• Bund futures trade ~45 ticks shy of highs but are still ~55 ticks better off. Cash trade sees German benchmark yields printing 0.5-5.0bp lower on the day, with a bull flattening impulse.
• Peripherals are little changed to 2bp wider vs. 10-Year Bunds, with the presence of the Italian 15-Year BTP syndication (today’s business) providing the focal point on that front.
• Gilt futures are 0 ticks higher on the day, a little over 35 ticks off best levels. Cash gilt yields are 1.0-2.5bp lower, with a light flattening bias seen.
• Looking ahead, most of the focus will fall on U.S. matters, with the FOMC, QRA, ADP labour market data, MNI Chicago PMI and employment cost index all due. The aforementioned national German CPI print and supply headlines the European docket.

EQUITIES: This Week's Fresh Cycle Highs in E-Mini S&P Reinforces Uptrend

Eurostoxx 50 futures trend conditions remain firm and the contract is holding on to its recent gains. Key resistance at 4634.00, the Dec 14 high, has recently been cleared. The break confirms a resumption of the medium-term uptrend and sights are on the 4700.00 handle next. Initial firm support lies at 4549.60, the 20-day EMA. Key trend support has been defined at 4402.00, the Jan 17 low. The uptrend in S&P E-Minis remains intact and this week’s fresh cycle highs, reinforces current conditions. Resistance at 4841.50, the Dec 28 high, has recently been cleared. This confirmed an extension of the price sequence of higher highs and higher lows. Moving average studies remain in a bull-mode condition too, highlighting positive market sentiment. Sights are on 4982.62 next, a Fibonacci projection. Key support lies at 4753.05, the 50-day EMA.

• Japan's NIKKEI closed higher by 220.85 pts or +0.61% at 36286.71 and the TOPIX ended 24.17 pts higher or +0.96% at 2551.1.
• Elsewhere, in China the SHANGHAI closed lower by 41.979 pts or -1.48% at 2788.548 and the HANG SENG ended 218.38 pts lower or -1.39% at 15485.07.
• Across Europe, Germany's DAX trades lower by 19.73 pts or -0.12% at 16954.34, FTSE 100 lower by 5.92 pts or -0.08% at 7659.51, CAC 40 up 9.41 pts or +0.12% at 7686.58 and Euro Stoxx 50 up 1.99 pts or +0.04% at 4664.75.
• Dow Jones mini up 34 pts or +0.09% at 38646, S&P 500 mini down 25.5 pts or -0.52% at 4925.25, NASDAQ mini down 226.75 pts or -1.29% at 17362.

COMMODITIES: WTI Futures Continue to Trade Close to Recent Highs

WTI futures continue to trade closer to their recent highs. The contract has breached $76.31, the Dec 26 high. The clear break of this hurdle undermines the recent bearish theme and highlights a stronger short-term bullish condition. A continuation higher would signal scope for a climb towards $79.56, the Nov 30 high. On the downside, initial key support lies at $74.76, the 50-day EMA. Monday’s move lower appears - for now - to be a correction. Gold continues to trade above the Jan 17 low of $2001.9. 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 down $0.76 or -0.98% at $77.05
• Natural Gas down $0.03 or -1.4% at $2.047
• Gold spot up $2.55 or +0.13% at $2039.35
• Copper up $0.3 or +0.08% at $391.4
• Silver down $0.05 or -0.21% at $23.117
• Platinum down $0.32 or -0.03% at $926.42