MNI US OPEN - German State Level Data Suggests Stickiness in Core CPI

NEWS

US (BBG): US Lawmakers Strike Deal to Avoid Imminent Government Shutdown

Congressional leaders reached a last-minute deal to avoid a disruptive US government shutdown, setting up another clash with ultra-conservatives who swiftly blasted the agreement. The deal would provide one week of temporary funding to avert a March 2 partial shutdown and fund parts of the government through Sept. 30. The remainder of the US government, including the Defense and Homeland Security departments, would still face a potential March 23 shutdown.

US (BBG): Trump Taken Off Illinois Ballot by Judge Over Insurrection

An Illinois judge barred Donald Trump from appearing on the Republican presidential primary ballot, marking the third state to impose such a ban on the former president for his role in the insurrection at the US Capitol on Jan 6.Cook County Circuit Judge Tracie Porter paused her decision Wednesday and gave Trump until Friday to appeal. Porter based her ruling on a provision in the US Constitution’s 14th Amendment known as the insurrection clause. The measure bars people from returning to office if they took an oath to support the Constitution and then engaged in insurrection.

RUSSIA/UKRAINE (BBG): Ukraine Sees Risk of Russia Breaking Through Defenses by Summer

Ukrainian officials are concerned that Russian advances could gain significant momentum by the summer unless their allies can increase the supply of ammunition, according to a person familiar with their analysis. Internal assessments of the situation on the battlefield from Kyiv are growing increasingly bleak as Ukrainian forces struggle to hold off Russian attacks while rationing the number shells they can fire.

BOE (MNI): UKT Announces Clare Lombardelli to Replace Ben Broadbent on MPC

UK Treasury confirms Clare Lombardelli to replace outgoing Ben Broadbent on the MPC as of July 1st, taking the role of Deputy Governor for Monetary Policy. Lombardelli is currently OECD's Chief Economist and G20 Finance Deputy, and as you'd expect from an OECD economist, Clare Lombardelli clearly very research-oriented - she recently presented OECD's views on inflation, who see Red Sea tensions as a risk for "significantly" higher inflation - meaning central banks are "right" to be cautious on cutting rates ahead.

ECB (RTRS) ECB to Keep Floor Under Market Rates But With Eye on Demand

The European Central Bank will continue putting a "floor" under market interest rates in the years to come, but banks will play a greater role in deciding how much liquidity they want, four sources told Reuters. The ECB is reviewing how it steers short-term interest rates in a new era in which inflation is higher and the massive amount of cash pumped into the banking system via stimulus programmes over the last decade is no longer needed and even creates some unwanted side-effects.

ECB (POLITICO): ECB’s Holzmann: Don’t Expect Serious Rate-Cut Debate Before June

The European Central Bank is unlikely to discuss cutting interest rates seriously before June, Governing Council member Robert Holzmann said in an interview with POLITICO on Wednesday. And while the Austrian National Bank Governor expects a lively debate about policy easing in June, his best bet is that the ECB won’t move even then. “We will decide based on the data. If the data is not there, there will not be a decision — and for good reason,” Holzmann said, indicating there was a reluctance to blindly believe in models.

EUROPE (BBG): Kyiv Pledges to Curb EU Export Surges to Calm Protesting Farmers

A senior Ukrainian official said Kyiv is prepared to limit surges in exports into the European Union as a way to allay mounting concerns of Polish farmers after Warsaw threatened to temporarily shut the border for trade. Deputy Economy Minister Taras Kachka, who was in Warsaw for talks on Wednesday, aimed to defuse increasingly violent protests in the EU by farmers lashing out over the impact of exports from the war-battered nation on local markets. Ukraine may use monitoring and licensing instruments to curb shipments in cases of abrupt surges, the official said.

CHINA (MNI): China Vows Consistent, Predictable Macro Policies

MNI (Beijing) China will boost consistency of its macro policies, within a stable and predictable policy environment, while speeding up the development of “new productive forces”, according to a Politburo meeting presided over by President Xi Jinping on Thursday. Proactive fiscal policy must be moderately intensified while improving efficiency, and prudent monetary policy must be “flexible, appropriate, precise and effective”, the meeting emphasised.

BOJ (MNI): BOJ's Takata Foresees 2% Target, Sees Exit Debate

Bank of Japan board member Hajime Takata said on Thursday he foresees the achievement of the bank’s 2% price target and the Bank must consider a flexible policy exit, flagging the possible near-future policy change. Takata told business leaders in Otsu City, that corporate price- and wage-setting behaviours had changed, and sustainable wage hikes alongside the improvement of corporate profits and high prices and the norm – that wages and prices do not rise – are moving toward a turning point.

BOJ (MNI): Weak Yen Fuels Wage, Prices; Authorities Vigilant

Japanese authorities note the yen’s recent bout of weakness has helped fuel the wage-price virtuous cycle, however, they remain vigilant against rapid depreciation, despite the belief domestic and U.S. policy change will strengthen the currency, MNI understands. The weak yen has increased exporters’ profits and wages at major firms, which has filtered through to wage hikes at other companies, an important factor the Bank of Japan wants to see before it potnetially commits to ending negative rates at either the March or April meeting.

AUSTRALIA (MNI): High Savings Keep Aussie Arrears Low, Make RBA Job Harder

High levels of excess savings, which have defied domestic and international economic models, have helped keep mortgage arrears low and will lead the Reserve Bank of Australia to hold the cash rate at 4.35% for longer, ex staffers tell MNI. Australia’s largest banks have recently reported climbing mortgage arrears rates and warned the situation could deteriorate as more borrowers roll off lower fixed rates onto higher variable-interest loans. MNI recently noted 30-day arrears within nonconforming residential mortgage securitisations among non-bank lenders had also begun to tick higher.

RUSSIA (MNI): Putin Delivers Annual Address, Speaks on Ukraine & Security

President Vladimir Putin is delivering his annual address to the Federal Assembly. Putin claims that an "absolute majority of Russians support the 'special military operation' in Ukraine." Says that "we will not allow anyone to interfere into our domestic affairs". Putin: "Russia is ready for a dialogue with US on strategic stability....US is at the same time trying to inflict a strategic defeat on Russia...There are baseless accusations against Russia over attempts to deploy weapons in space...US statement on readiness for talks on strategic stability is demagoguery."

HUNGARY (MNI): NBH Governor Says PM Has Launched "Significant Attack" on CenBank Independence

Prime Minister Viktor Orban’s government has launched a “significant attack” against the central bank's independence and autonomy with a planned modification of the law governing the institution, Governor Gyorgy Matolcsy said. EURHUF spiked higher on the comments, erasing Thursday morning's losses but falling just shy of the early August/late September highs of 394.67/394.65. A break here would place the cross at a near 1-year high.

COMMODITIES (BBG): Iron Ore Rises From Four-Month Low With Focus on Chinese Economy

Iron ore futures in Singapore bounced back after plunging to their lowest level since October earlier this week on uncertainty over China’s economic prospects. Prices have fallen more than 9% this month as investors grow more cautious about the outlook for steelmaking activity in China. But the market is still exposed to potential upside if Beijing rolls out more decisive policies to address the country’s real estate crunch, according to Citigroup Inc.

DATA

GERMAN DATA (MNI): MNI Projects Core CPI Stickiness From State Level Data

• BAVARIA FEB CPI +0.5% M/M, +2.6% Y/Y (MNI)
• NRW FEB CPI +0.6% M/M, +2.6% Y/Y (MNI)
• SAXONY FEB CPI +0.3% M/M, +3.0% Y/Y (BBG)
• HESSE FEB CPI +0.5% M/M, +2.1% Y/Y (BBG)

We have now received state data that equates to 89.1% weighting of the national February flash German CPI print (due at 13:00GMT/14:00CET). MNI estimates that national CPI (non-HICP print) rose by +0.5% m/m and 2.6% y/y - in line with consensus expectations. However, current tracking of core CPI (ex-energy and food, based on 50% of the national index) implies 3.5% Y/Y (vs 3.4% in January) and 0.6-0.7% M/M, per our calculations - which look more elevated than expected coming into the session. For perspective, Morgan Stanley - which had one of the highest analyst forecasts for February Euro core HICP and was one of the few to break out German core CPI expectations - had expected 3.1% Y/Y / 0.3% M/M core, which they said represented "strong momentum".

GERMANY FEB UE RATE (SA) 5.9% (FCST 5.8%); JAN 5.9% (MNI)
GERMANY FEB JOB VACANCIES (SA) -8K; JAN -1K (MNI)
GERMANY FEB UE TOTAL (SA) 2.713MN; JAN 2.701MN (MNI)

FRANCE DATA (MNI): CPI a Touch Above Expected, HICP In-Line, Services Disinflation Limited

• FRANCE FEB HICP +0.9% M/M, +3.1% Y/Y
• FRANCE FEB CPI +0.8% M/M, +2.9% Y/Y
• FRANCE JAN PPI -1.3% M/M, -5.1% Y/Y
• FRANCE GDP Q4 2ND EST +0.1% Q/Q
• FRANCE JAN CONSUMER SPENDING -0.3% M/M, -0.7% Y/Y

French annual CPI was a touch above consensus in February at 2.9% Y/Y (vs 2.8% cons, 3.1% prior). On an NSA monthly basis, prices rose 0.8% M/M (again 0.1pp above consensus, vs -0.2% prior). HICP was in-line with consensus on an annual basis (3.1% Y/Y vs 3.4% prior) and 0.1pp above on the month (0.9% M/M vs -0.2% prior). Services CPI inflation decelerated just 0.1pp to 3.1% Y/Y - markets and the ECB may have been anticipating/hoping for a more marked fall. The press release notes that increased rents and transport drove up services prices on a monthly basis.

SPAIN DATA (MNI): Inflation Firmer Than Expected; Electricity Drives Disinflation

• SPAIN FEB FLASH CORE CPI +3.4% Y/Y
• SPAIN FEB FLASH CPI +0.3% M/M, +2.8% Y/Y

Spanish preliminary February HICP came in slightly firmer-than-expected at+2.9% Y/Y (vs +2.8% cons and 3.5% prior), with the sequential reading a more sizeable upside miss at 0.4% M/M (vs +0.2% cons and -0.2% prior). The nationalCPI measure data came in line at 2.8% Y/Y (vs +2.8% cons; +3.4% prior) and 0.3% M/M (vs +0.4% cons; +0.1% prior). Core inflation also slightly exceeded expectations, printing at +3.4% Y/Y (vs 3.3% cons and 3.6% prior). For the core rate, this represents the 8th consecutive decline and the lowest value since March 2022.

UK JAN M4 MONEY SUPPLY -0.1% M/M, -2.2% Y/Y (MNI)
UK BOE JAN CONSUMER CREDIT GBP1.88 BLN (MNI)
UK BOE JAN MORTGAGE APPROVALS 55,227 (MNI)
UK BOE JAN SECURED LENDING GBP-1.09 BLN (MNI)

SWEDEN DATA (MNI): Q4 GDP Revised Lower, But Still Above Riksbank Forecasts

• SWEDEN Q4 GDP -0.2% Y/Y
• SWEDEN JAN RETAIL SALES -1.2% Y/Y

Swedish Q4 GDP was revised 0.2pp lower to -0.1% Q/Q, while Q3's figure was revised a touch higher to -0.1% Q/Q. Thus, Sweden remains in "technical recession", having seen negative Q/Q GDP growth for three consecutive quarters now.
The Riksbank had forecasted Q4 GDP at -0.4% Q/Q in the November MPR, so the revised reading is still above this level. On an annual basis, Q4 GDP was -0.2% Y/Y (flash: 0.0% Y/Y, Q3 upwardly revised to -1.1% Y/Y from -1.4% prior). The Riksbank had forecasted -0.8% Y/Y in the November MPR.

SWISS Q4 GDP +0.3% Q/Q, +0.6% Y/Y (MNI)
SWISS KOF FEB ECONOMIC BAROMETER 101.6 (MNI)

CHINA DATA (MNI): China Feb PMI to Remain Contractionary, More Rate Cut Seen

MNI (Beijing) China’s official manufacturing Purchasing Manager’s Index will likely print within the contractionary zone at 49% or lower, due to the recent Chinese New Year holiday and the economic recovery’s weak upward momentum, which may push the central bank to cut policy rates in coming months, sources familiar with the index told MNI. PMI printed at 49.2% in January, the index’s fourth consecutive month in contraction. The National Bureau of Statistics will release the refreshed data on March 1.

JAPAN DATA (MNI): Japan Output Forecast Could Make BOJ Cautious

• JAPAN JAN INDUSTRIAL OUTPUT -7.5% M/M; DEC +1.4%

Japan's industrial output fell 7.5% m/m in January for the first drop in two months following December's 1.4% rise, driven largely by the decline of automobile production and general-purpose and business oriented machinery, data released by the Ministry of Economy, Trade and Industry showed on Thursday. The fall however will not shake the Bank of Japan's outlook as the halt of auto production, which declined 17.8% m/m in January for the first drop in two months following +1.1% in December, was temporary.

JAPAN DATA (MNI): Japan's Jan Trimmed Mean Rises 2.6% vs. 2.6%

Japan's trimmed mean measure of underlying inflation rose 2.6% in January, unchanged from December's 2.6%, following September's record high of 3.4%, showing pass-through of cost increases continued slowing as import prices fell y/y for the 10th straight month, data released by the Bank of Japan showed on Thursday. The trimmed mean follows data last Friday showing Japan's annual core consumer price index rose 2.0% in January, down from December's 2.3%, the 22nd straight month above the 2% target.

JAPAN JAN RETAIL SALES +2.3% Y/Y; DEC +2.4% (MNI)
JAPAN JAN RETAIL SALES +0.8% M/M; DEC -2.6% (MNI)

AUSTRALIA DATA (MNI): Through The Volatility Retail Sales Stagnating

• AUSTRALIA JAN RETAIL SALES +1.1% M/M

Retail sales have been volatile over the festive period. They rose a less-than-expected 1.1% m/m in January but December was revised up 0.6pp to -2.1% m/m. Spending was up 1.1% y/y but 3-month momentum while still positive moderated. With goods inflation at 3.7% y/y in January, sales volumes likely fell again, in line with the RBA's assessment that "consumption growth is weak". With higher rates and continued cost-of-living pressures, this situation looks unlikely to improve soon.

FOREX: JPY on Top as Takata Signals Growing Confidence in Price Targets

• JPY sits on top in currency markets, with USD/JPY touching a pullback low of Y149.61 in early London trade. Tokyo hours saw the JPY rally on the back of some hawkish comments from BoJ's Takata, who pointed to the Bank's inflation target being within sight. Nonetheless, we still see the trend outlook remaining bullish and today's sell-off - for now - appears to be a correction.
• Yields across core EGBs as well as US Treasuries have stepped higher, with the 10y yield cresting above 4.31% on the back of a stubborn set of regional German inflation numbers. The releases suggest upside risks for the national print later today, spelling issues for the ECB's policy plans this year - typified by comments from ECB's Holzmann, who stated that serious ECB rate cut discussions are unlikely before June.
• NOK and NZD are the poorest performers as commodity-tied currencies remain very modestly softer - while EUR and USD are flat-to-higher, but second to JPY in European trade.
• A busy US data session is set to follow, with the MNI Chicago Business Barometer the highlight - seen improving to 48.0 from 46.0 previously. Weekly US jobless claims data is also due, on top of personal income/spending and the latest PCE deflators. Fedspeak picks up, with Bostic, Goolsbee and Mester headlining.

EGBS: Under Pressure as Details of German State Level Inflation Appear Firm

Core/semi-core EGBs remain under pressure as markets digest the totality of this morning's Eurozone national/state CPI prints.

• While the French and Spanish flash inflation readings appeared a touch firmer than consensus expectations, most focus has been on the German state-level data. MNI's tracking indicates that while headline inflation appears on track to match consensus, there are upside risks to the core print, which will be weighing on EGBs.
• On a more dovish note, Geman retail sales were weak and unemployment unexpectedly rose to 5.9% in February (from 5.8% prior), though these were of secondary focus to the inflation data.
• The German and French cash curves have bear flattened, with the short-end under pressure as OIS contracts price out 2024 ECB rate cuts: There are now 84bps of cuts priced through the remainder of 2024 (vs 93bps this morning).
• Bunds are -55 ticks at 131.66. Should Bunds sustain a clear break of the Feb 22 low at 131.78, the next focus is on 131.49, the 61.8% retracement of the Oct 4 - Dec 27 bull phase. Clearance here would strengthen a bearish theme.
• 10-year periphery spreads to Bunds are wider with the exception of Greece, with the 10-year BTP/Bund spread +1.3bps wider at 143.9bps.
• The German national CPI print is the next focus at 1300GMT/1400CET, while US PCE at 1330GMT will also be of interest.

GILTS: Sell Off Extends

Gilts remain under pressure given the upside risks to core German CPI readings presented via the regional level data.

• Generally in line to firmer than expected CPI readings out of Spain & France also factor in.
• Futures move below initial support levels to print as low as 96.83.
• Next support comes in at the Dec 5 low (96.67)
• Cash gilt yields are 5.5-8.0bp higher, bear flattening.
• SONIA futures are +0.25 to -9.5, with recent lows breached in many contracts.
• BoE-dated OIS moves to price ~52bp of cuts for ’24, the shallowest level witnessed in the current pricing cycle.
• Local news flow has had little impact, with continued fiscal speculation, digestion of Wednesday comments from MPC hawk Mann and lower tier data all seen.
• More recently we got confirmation that the UK Treasury has appointed Clare Lombardelli to replace outgoing BoE Deputy Governor Ben Broadbent as of July 1^st. Lombardelli was known to be in the running for the vacancy. She is currently the OECD's Chief Economist and G20 Finance Deputy.
• The local calendar is thin for the remainder of the day, leaving focus on German national CPI & U.S. PCE data.

EQUITIES: Bullish Trend Condition in Eurostoxx 50 Futures Remains Firmly Intact

A bull cycle in Eurostoxx 50 futures remains firmly intact and the contract has traded higher this week. Moving average studies remain in a bull-mode position too, highlighting positive market sentiment. Sights are on 4904.40 next, a Fibonacci projection. Further out, scope is seen for a climb towards a bull channel top at 4981.90. The channel is drawn from the Oct 27 low. Initial firm support lies at 4774.50, the 20-day EMA. The trend condition in S&P E-Minis remains bullish and the contract continues to trade closer to its recent highs. The latest move higher again highlights the fact that corrections remain shallow - a bullish signal. Support to watch is 5016.21, the 20-day EMA. A clear break of this average would signal potential for a deeper retracement towards 4936.50, the Feb 13 low. A resumption of gains would open vol-band based resistance at 5153.29.

• Japan's NIKKEI closed lower by 41.84 pts or -0.11% at 39166.19 and the TOPIX ended 0.78 pts higher or +0.03% at 2675.73.
• Elsewhere, in China the SHANGHAI closed higher by 57.319 pts or +1.94% at 3015.171 and the HANG SENG ended 25.41 pts lower or -0.15% at 16511.44.
• Across Europe, Germany's DAX trades higher by 64.65 pts or +0.37% at 17662.71, FTSE 100 higher by 10.78 pts or +0.14% at 7635.74, CAC 40 up 4.81 pts or +0.06% at 7959.18 and Euro Stoxx 50 up 1.62 pts or +0.03% at 4884.75.
• Dow Jones mini down 130 pts or -0.33% at 38870, S&P 500 mini down 14.5 pts or -0.29% at 5067.75, NASDAQ mini down 52.25 pts or -0.29% at 17868.25.

COMMODITIES: WTI Futures Briefly Pierce Key Resistance at $79.09 Wednesday

WTI futures traded higher Wednesday and in the process, the contract has delivered a print above key resistance at $79.09, the Jan 29 high. This threatens the recent bearish theme and instead highlights potential for a continuation higher near-term, towards $81.70, a Fibonacci retracement. On the downside, support to watch is at $75.80, the 50-day EMA. A break would instead signal a possible top. Gold is unchanged and remains in consolidation mode. Recent activity has defined a key resistance at $2065.5, Feb 1 high, and a key support at $1984.3, Feb 14 low. Both levels represent important short-term directional triggers. A clear break of the Feb 1 high would highlight a short-term reversal and open $2088.5, the Dec 28 high. For bears, clearance of $1984.3 would expose an important support and bear trigger at $1973.2, the Dec 13 low.

• WTI Crude down $0.05 or -0.06% at $78.46
• Natural Gas down $0.01 or -0.74% at $1.871
• Gold spot down $0.09 or 0% at $2034.42
• Copper up $0.75 or +0.2% at $384.9
• Silver down $0.02 or -0.1% at $22.4333
• Platinum up $6.75 or +0.77% at $886.44