MNI US OPEN - Heavy Issuance Limits Bond Gains

NEWS

US/ISRAEL (BBG): Biden Hopes Gaza Cease-Fire Starts as Soon as Next Monday

US President Joe Biden said negotiators were making good progress toward a temporary pause in fighting between Israel and Hamas and that a cease-fire could begin as soon as the start of next week. “My national security adviser tells me that we’re close, we’re close,” Biden told reporters on Monday in New York, when asked when he thought a cease-fire would start. “We’re not done yet. My hope is by next Monday we’ll have a cease-fire.”

US (BBG): Trump’s Favorability Rating Reaches Highest Since 2022

The average favorable rating for Donald Trump hit its highest level since before the 2022 midterm elections, as the former president marches toward a likely November rematch against a less popular Joe Biden. The RealClearPolitics average of polls shows 42% of voters say they have a favorable opinion of Trump, up from an all-time low of 36% in December 2022. He’s now viewed better than Biden, whose poll numbers soared over Trump early in his presidency. Around 40% have a favorable opinion of Biden.

FED (MNI): Fed Needs Convincing Evidence Before Easing Policy - Schmid

Kansas City Fed President Jeff Schmid said Monday the central bank can be patient before easing monetary policy, while also staking out a position for a smaller Fed balance sheet and continued QT. "With inflation running above target, labor markets tight, and demand showing considerable momentum, my own view is that there is no need to preemptively adjust the stance of policy," he said in his first public remarks on the economy since taking office in August of last year. "Instead, I believe that the best course of action is to be patient, continue to watch how the economy responds to the policy tightening that has occurred, and wait for convincing evidence that the inflation fight has been won."

MNI EUROZONE INFLATION PREVIEW - FEBRUARY 2024: Services Under Scrutiny Ahead of March ECB Meeting

Eurozone core and headline inflation are expected to resume their downtrends in February on an annual basis, with headline printing a 3-month low 2.5% Y/Y (vs 2.8% prior) and core returning to below 3% for the first time since February 2022 at 2.9% (3.3% prior). February marks the first of a two-month sequence that typically sees reaccelerations in non-seasonally adjusted HICP (both core and headline), with March being typically pronounced, though the base effects from an especially strong Feb 2023 (especially in categories such as food) will help keep a lid on the overall print.

ECB (MNI): Market Measures of r* Steadier in Pandemic - ECB Economists

Financial market-based measures and surveys proved more reliable than macroeconomic models at estimating the neutral real rate of interest during the abrupt economic fluctuations of the pandemic, European Central Bank economists told MNI, adding that r-star is now at similar levels to pre-Covid times. “Models that really rely on extracting r-star measures based on economic fluctuations, they will translate these fluctuations that we saw during the pandemic into fluctuations in r-star,” the head of the ECB's Strategy Issues Section Claus Brand told an MNI podcast in which he was accompanied by senior economists Noemie Lisack and Falk Mazelis.

SECURITY (MNI): Macron Broaches 'Boots on the Ground' in Ukraine

At a summit in Paris on 26 Feb intended to allow European leaders to discuss the situation of the war in Ukraine, the French President Emmanuel Macron has confirmed that the prospect of European or NATO 'boots on the ground' in Ukraine had been raised in the talks. While any action of this nature is almost impossible to envisage in the short-to-medium term, Macron claimed that the idea should no longer be 'excluded'.

EUROPE (BBG): France, Netherlands Back Buying Non-EU Weapons for Ukraine

France and the Netherlands backed a plan to buy ammunition outside Europe to get much-needed military equipment to Ukraine faster, with a proposal expected in early March. The idea of purchasing hundreds of thousands of rounds from several countries was outlined by Czech Prime Minister Petr Fiala at an extraordinary summit of European leaders in Paris on Monday aimed at showing support for Kyiv and underscoring Western determination to help it win against Russia.

CHINA (MNI): PBOC Enhances Supports to Key Sectors

MNI (Beijing) The People’s Bank of China will make good use of relending preferential measures to support five key areas, the central bank said in a statement on Tuesday. The Bank will “effectively and fully” utilise monetary-policy tools, expand bank loans and manage existing loans to ensure supportive polices channel to certain sectors, including technology, green growth, small business, ageing and digital. The Bank will enhance policy guidance, strengthen policy incentives and reinforce assessment in order to guide financial institutions and improve their performance, the PBOC noted.

CHINA (MNI): Wang Tells Dombrovskis China Unhappy With EV Probe

MNI (Beijing) Beijing remains unhappy with the European Union probe into its electric vehicle subsidies because it lacks a factual basis, Minister of Commerce Wang Wentao has told EU Trade Commissioner Dombrovskis on Tuesday. The two officials met at the Ministerial Conference of the World Trade Organisation, with Wang telling EU counterparts China and the EU support the multilateral trading system and should work together to improve dispute settlement, fishery subsidies, investment facilitation, and e-commerce.

CHINA (MNI): China Should Boost Size Of Central Gov't Debt - Report

MNI (Beijing)China should optimise its debt structure and 'moderately' boost the proportion of central government debt, as local governments, facing declining land sale revenues but increased spending on social security and employment, are under greater repayment pressure, according to a report released by the Chinese Academy of Fiscal Sciences on Tuesday. Combined central and local governments' repayment of principal and interest exceeded CNY2.3 trillion in 2023, equivalent to the total fiscal expansion of about CNY8.86 trillion to boost investment, the report said, noting local governments’ growing pressure to manage debt risks has weakened the pro-growth policy effect.

JAPAN (BBG): Japan’s Second Transition Bond Sale Surprises With Firm Demand

Japan’s second sale of sovereign transition bonds met unexpectedly strong demand Tuesday, as banks snapped up debt that can burnish domestic investors’ sustainable financing credentials. The notes can also be sold to the Bank of Japan as the BOJ included previous 10-year issue in its debt-purchase operation on Feb. 21. Japan sold ¥799.8 billion ($5.3 billion) of five-year transition bonds at a 0.339% yield, compared with 0.35% estimated by traders in a Bloomberg survey.

AUSTRALIA/CHINA (BBG): Australia’s Trade Chief Says China’s Wine Tariff Review on Track

Australia’s Trade Minister Don Farrell is confident that a review of heavy tariffs on wine exports to China will be completed by the end of March, the latest test of improving relations between Beijing and Canberra. Farrell, in his interview with the Australian Broadcasting Corporation on Tuesday, said he met with his Chinese counterpart Commerce Minister Wang Wentao on the sidelines of the World Trade Organization’s conference in the United Arab Emirates on Monday.

MNI RBNZ PREVIEW - FEBRUARY 2024: Watching, Waiting & Worrying

The RBNZ is probably still “watching, worrying and waiting” thus there is no incentive to change rates in either direction and while we don’t expect a rate hike, we believe it will want to keep policy and thus financial conditions restrictive until it is confident that inflation will or has returned sustainably to the 1-3% target band. Given we expect the tightening bias to be retained, we also expect that the MPC will discuss a rate hike but then opt for no change. Guidance from the MPC is likely to emphasise the high degree of uncertainty and focus on risks to the inflation outlook.

DATA

UK (MNI): Lower Tier Inflation Measures Hit Lowest Levels Seen Since Early '22

• UK FEB BRC SHOP PRICES +0.4% M/M, +2.5% Y/Y

The latest UK Kantar grocery price inflation index reading showed the lowest Y/Y reading since Mar '22 (+5.5% Y/Y).
The BRC shop price index also fell to the lowest level seen since Mar '22 (+2.5% Y/Y, released overnight). The slowing in the BRC measure was largely driven by food prices, although that reading still runs at +5.0% Y/Y. The disinflation process in non-food goods stalled at +1.3% Y/Y, which will concern some given the need for a continued move lower to pull wider inflation closer to the BoE's target.

GERMAN DATA (MNI): IFO Employment Decline is Further Evidence Labour Market Softening

The IFO Employment Barometer for February came in lower again, at 94.9 (vs 95.5 Jan), the weakest value since February 2021 and the second consecutive downtick. Overall, the report seems to confirm an ongoing modest softening in Germany's labour market, with the relative resilience of the private services sector not making up for weakness in manufacturing. This could begin translating into reduced upward wage pressures, a key concern for the ECB in considering when to cut rates this year.

GERMANY MAR CONSUMER CONF -29.0 VS FEB -29.6r - GFK (MNI)

FRANCE DATA (MNI): France Consumer Sentiment Deteriorates for First Time Since Sep-23

• FRANCE FEB CONSUMER SENTIMENT 89

France Consumer Sentiment came in lower than expected at +89 (vs 92 consensus, +91 prior). This was the first fall since September 2023. The 'General economic situation, next 12 months' sub-component declined -4 points from January to February 2024 printing at -42 - the first fall since August 2023, although we have seen a general improvement from -72 in July 2022 and this is the second highest reading since March 2022.

CHINA DATA (MNI): China Emerging Industry PMI Drops Below 50

MNI (Beijing)China's Strategic Emerging Industries Purchasing Managers' Index (EPMI) dropped to 45.5 in February, from January’s 50.8, and the first time below the confidence mark of 50 since September last year, according to data from the Chinese Academy of Science and Technology Development Strategy on Tuesday.The EPMI, which reflects business conditions of 300 enterprises across major emerging industries, saw most sub-indices decline, with production volume and product orders falling by 10.8 and 7.9 pp respectively, indicating a continued an easing of production-demand imbalance.

JAPAN DATA (MNI): Japan Jan Core CPI Rises 2.0% vs. Dec +2.3%

• JAPAN JAN CORE CPI +2.0% Y/Y; DEC +2.3%
• JAPAN JAN CORE-CORE CPI +3.5% Y/Y; DEC +3.7%
• JAPAN JAN SERVICES PRICES +2.2% Y/Y; DEC +2.3%

The y/y rise of Japan's annual core consumer inflation rate decelerated to 2.0% in January from December’s 2.3%, above the 1.9% market consensus, illustrating the pass-through of cost increases continued to weaken, data released by the Ministry of Internal Affairs and Communications showed on Tuesday. January’s CPI remained above the Bank of Japan’s 2% target for the 22nd consecutive month but was the lowest level since March 2022 when it rose 0.8%.

FOREX: USD Fades Early Weakness

• There's very little change for the Dollar during the early European session, with all G10 pairs/crosses trading within past ranges.
• The Dollar saw some small downside early continuation, with DXY hovering at session low, and tested its lower part of its against the ZAR, MXN, NOK, INR, JPY, SEK, CZK, and MYR during the European Equity cash open, with Risk tilted to the upside.
• The Japanese CPI beat has kept the Yen as the best performer in G10, up 0.29% against the Greenback, but still within that 150.00/151.00 range.
• AUD is the second best performer, taking its cue from the Risk On tone, but is off the best level at the time of typing.
• AUDUSD exchanges hands at 0.6550, and further extension higher will have market participants keeping a close eye on the large option expiry for today, with 3bn at 0.6595/0.6600.
• Cable made another attempt at the 1.2700 handle, failed last Thursday at 1.2709, but failed again today at 1.2697, and is now testing 1.2672 its intraday low.
• A clear break through the 1.2709 level, will open back to 1.2759, not a tech level, but where the pair was trading pre US February NFP.
• Looking ahead, main focus on the data front for today will be on the US prelim Durable Goods.
• Speakers include, ECB Elderson, BoE Ramsden, and Fed Barr.

EGBS: Supply Helps Cap Rallies

Core/semi-core EGBs have traded in a tight range through the morning, with today's heavy sovereign issuance schedule helping to cap rallies.

• Bunds are +15 ticks at 132.68, close to intraday highs but still well within yesterday's range.
• Monday's low of 132.33 has held today, with key support at 131.78 (Feb 22 low and bear trigger) below that.
• 30-year supply from Germany (Aug-50 Bund) and France (syndicated launch of May-55 OAT) will be weighing at the long-end, with cash curves showing a light bull steepening bias at typing.
• 10-year periphery spreads to Bunds are a touch wider - the 10-year BTP/Bund spread is +0.4bps at 145.6bps.
• Earlier today, Eurozone M3 money supply was below consensus at 0.1% Y/Y (vs 0.3% cons, 0.2% prior).
• The regional calendar is quiet today, with ECB's Elderson unlikely to focus on monetary policy topics at his 1200GMT speech.

GILTS: Pullback From Highs

Gilt futures continue to trade below session highs.

• Contract last +16 at 97.91 (97.76-98.15 range).
• The bearish technical backdrop in the contract remains intact, with well-defined levels untouched.
• Cash gilt yields are 3.0-3.5bp lower on the day, 10s remain comfortably above 4.00%.
• SONIA futures are flat to +2.5,
• BoE-dated OIS shows 65bp of ’24 cuts.
• The early bid came on the back of fresh speculation re: limited fiscal loosening at the Budget and a move lower in lower tier UK inflation measures.
• A relatively heavy round of global bond issuance then limited the rally.
• I/L gilt supply was well received.
• This afternoon’s comments from BoE Deputy Governor Ramsden are now eyed.

EQUITIES: E-Mini S&P Bullish With This Week's Pullback Considered Corrective

The bull cycle in Eurostoxx 50 futures remains firmly intact and the contract is holding on to its recent gains. Moving average studies are 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 4968.50. The channel is drawn from the Oct 27 low. Initial firm support lies at 4747.70, the 20-day EMA. The trend condition in S&P E-Minis remains bullish following last week’s gains and pullbacks are considered corrective. The move higher continues to highlight the fact that corrections remain shallow - a bullish signal. Support to watch is 5000.90, the 20-day EMA. A clear break of this EMA would signal potential for a deeper retracement towards the 4866.00 key support, Jan 31 low. A resumption of gains would open vol-band based resistance at 5137.13.

• Japan's NIKKEI closed higher by 5.81 pts or +0.01% at 39239.52 and the TOPIX ended 4.84 pts higher or +0.18% at 2678.46.
• Elsewhere, in China the SHANGHAI closed higher by 38.459 pts or +1.29% at 3015.481 and the HANG SENG ended 156.06 pts higher or +0.94% at 16790.8.
• Across Europe, Germany's DAX trades higher by 70.37 pts or +0.4% at 17493.68, FTSE 100 higher by 3.86 pts or +0.05% at 7688.19, CAC 40 up 7.1 pts or +0.09% at 7937.04 and Euro Stoxx 50 up 12.36 pts or +0.25% at 4876.55.
• Dow Jones mini up 22 pts or +0.06% at 39138, S&P 500 mini up 5.5 pts or +0.11% at 5085.75, NASDAQ mini up 31 pts or +0.17% at 18008.5.

COMMODITIES: Gold Trading Close to Last Week's Highs

Recent gains in WTI futures still appear corrective at these levels and key short-term resistance at $79.09, the Jan 29 high, remains intact. Clearance of this level would alter the picture and highlight a bullish development. A break would open $81.70, a Fibonacci retracement. Support to watch lies at $71.49, the Feb 5 low. A breach of this level would reinstate the recent bearish theme and pave the way for a move towards $69.79, the Jan 3 low. Recent price activity in Gold has defined key resistance at $2065.5, the Feb 1 high, and key support at $1984.3, the 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 up $0.07 or +0.09% at $77.6
• Natural Gas down $0.05 or -2.89% at $1.611
• Gold spot up $4.47 or +0.22% at $2035.72
• Copper up $2.75 or +0.72% at $386.2
• Silver up $0.12 or +0.54% at $22.6378
• Platinum up $9.07 or +1.03% at $889.64