MNI US OPEN - JPY The Focal Point as Markets Gear For New Governor

NEWS

EU (MNI): Commitment to Level Playing Field on State Aid, Hardliners Win on Migration

Earlier this morning the European Council published its agreed conclusions following a marathon extraordinary Council summit, with agreements reached on controversial migration issues (a major political flashpoint in certain member states) and on the potential loosening of state aid rules in order to counter the US' Inflation Reduction Act.

RUSSIA (MNI): Russian Production Cuts Signals Difficulties Placing Barrels

Crude markets have rallied on Novak’s earlier comments about a 500,000 bpd Russian crude production cut in March. Novak said in his statement "As of today, we are fully selling the entire volume of oil produced, however, as stated earlier, we will not sell oil to those who directly or indirectly adhere to the principles of the price cap."

UKRAINE (MNI): Claims That Russian Missile Entered Romanian Airspace

There are reports hitting wires and social media claiming that a Russian cruise missile entered the airspace of Moldova as well as Romania earlier this morning. Romania is a NATO member state, making any entry of Russian missiles into its airspace a situation fraught with the potential for escalation.

JAPAN (MNI): Japanese Government to Nominate Kazuo Ueda for BoJ Governor

Various outlets reporting Kazuo Ueda will be nominated for the BoJ governor role after Amamiya rejected the role. Kazuo Ueda not a name that had been raised in previous reports - currently a professor at University of Tokyo and had been a BoJ board member 1998 - 2005. The reports add that Uchida and Himino are to be nominated for deputy governor positions.

JAPAN (MNI): Himino, Uchida Nominees for Deputy Governor Position

Himino (former FSA commissioner) and Uchida (current exec director of Monetary Policy at the BoJ) make up the deputy governor spots. Little known about Himino's policy views, but Uchida has been quoted as saying: "The Bank of Japan won't rule out raising interest rates before adjusting the size of its balance sheet when the time comes to exit from monetary easing".

JAPAN (MNI): BOJ Alert as Rising Yields Pressure Fragile Banks

Bank of Japan officials are alert to the risk that further changes to its yield curve control policy could encourage market participants to target regional financial institutions that lack adequate capital to dispose of unrealised losses on yen-denominated bond holdings, MNI understands.

DATA

UK DATA (MNI): No Growth in Q4 as Services Slow

• UK DEC GDP -0.5% M/M, +0% 3MM, +0.6% 3M Y/Y

The UK economy was flat in Q4, data released by the Office for National Statistics on Friday showed, as a slowdown in December almost pushed the economy into recession. The data came in just below the Bank of England's forecast of 0.1% growth, but on its own, it won't swing the needle on a future policy decision, with upcoming labour market and inflation data likely to be more important.

UK DEC IND PROD +0.3% M/M, -4.1% Y/Y
UK DEC MANUF OUTPUT +0% M/M, -5.6% Y/Y
UK DEC CONSTRUCTION OUTPUT +0% MM, +0.3% 3M3M, +3.7% YY
UK DEC TRADE BALANCE GBP -7.15BN

NORWAY JAN CPI +0.2% M/M, +7% Y/Y
NORWAY JAN CORE CPI +0.2% M/M, +6.4% Y/Y

ITALY DATA (MNI): Italy Dec IP Boost to Help Balance German Contraction

• ITALY DEC SA IND OUTPUT +1.6% M/M (FCST +0.2%); NOV -0.1%r M/M
• ITALY DEC IND OUTPUT +0.1% Y/Y (FCST -1.7%); 2022 WDA IND OUTPUT +0.5%

Italian industrial production was robust into year end, up +1.6% m/m and a modest +0.1% y/y in December, outpacing expectations and breaking a three-month streak of contractionary m/m readings. Total Q4 industrial output fell by -0.9% in Q4 compared to the previous quarter, implying a drag on Q4 GDP. The Italian economy contracted by -0.1% q/q in the Q4 flash print, largely on weaker agriculture and industrial production, outweighing strong services sector performance.

CHINA DATA (MNI): China's Jan CPI Rises, PPI Continues to Decline

• CHINA JAN CPI +2.1% Y/Y VS MEDIAN +2.1%; DEC +1.8% Y/Y: NBS
• CHINA JAN CPI +0.8% M/M VS +0.0% M/M DEC
• CHINA JAN PPI -0.8% Y/Y VS MEDIAN -0.5% Y/Y; DEC -0.7% Y/Y
• CHINA JAN PPI -0.4% M/M VS -0.5% M/M DEC

China's Consumer Price Index rose 2.1%y/y in January, which was in line with market expectations but up from December’s 1.8% y/y as food prices increased due to Chinese New Year and consumption recovered after the lifting of Covid controls, data from the National Bureau of Statistics released on Friday showed.

The producer price index fell 0.8% y/y due to lower oil and coal prices, compared to a 0.7% decline in December. The print was worse than the forecast 0.5% y/y fall. On a monthly basis, PPI fell 0.4%, compared with the previous 0.5% decline.

CHINA DATA (MNI): China's Jan New Loans Surge to Record High

• CHINA JAN NEW LOANS CNY 4.90 TRLN VS MEDIAN CNY4.20 TRLN
• CHINA END-JAN OUTSTANDING CNY DEPOSITS +12.4%; END-DEC +11.3%
• CHINA JAN TSF CNY5.98 TRLN VS MEDIAN CNY5.40 TLN

China’s new loan jumped in January at stronger-than-expected pace as efforts to boost credit expansion took effect after Covid controls were eased, People's Bank of China data showed on Friday. China’s new loan rose to CNY4.93 trillion in January from December’s CNY1.44 trillion, beating expectations for CNY4.2 trillion, as corporate loans rose by CNY4.68 trillion.

CHINA END-JAN M2 +12.6% Y/Y VS MEDIAN +11.7% Y/Y
CHINA END-JAN M1 +6.7% Y/Y VS +3.7% Y/Y END-DEC
CHINA END-JAN M0 +7.9% Y/Y VS +15.3% Y/Y END-DEC

RBA (MNI): RBA Ups Inflation Forecast, Warns More Hikes Needed

The Reserve Bank of Australia repeated its warning of more interest rate rises after lifting its inflation forecasts for 2023 amid elevated price pressures, while also raising its growth forecast for the first half of 2023, according to the Statement on Monetary Policy released Friday.

RATINGS: A Couple of AAA, Stable Ratings on a Thin Slate

Sovereign rating reviews of note scheduled for after hours on Friday include:

• Moody’s on Germany (current rating: Aaa; Outlook Stable)
• S&P on Switzerland (current rating: AAA; Outlook Stable)

FOREX: JPY The Focal Point as Markets Gear for New BoJ Governor

• JPY has been the focal point of the Friday session, rallying on the back of local press reports that University of Tokyo academic and former BoJ board member Kazuo Ueda is to be nominated as the BoJ governor next week. The reports added that Amamiya - former frontrunner for the role - had turned down the nomination, to which markets responded by bidding JPY higher.
• USD/JPY slipped over 150 pips in the initial response, putting the pair at 129.81, before staging a recovery as wires cited Ueda comments in favour of policy continuity in the short-term.
• SEK sits at the other end of the G10 table, weaker against most others as markets very modestly backtrack the Thursday post-Riksbank strength.
• NOK found a minor bid on the back of higher-than-expected inflation figures. CPI-ATE rose to 6.4% - uncomfortably higher than the Norges Bank's December projections. The release bolsters the case for a March 25bps rate hike, and raises concerns over the need for further tightening beyond this quarter.
• Focus Friday turns to the Canadian jobs report, with markets expecting a net change in employment of +15k and a higher unemployment rate at 5.1%. Prelim University of Michigan sentiment also crosses, at which markets expected 1yr inflation expectations to tick higher to 4.0% from 3.9%.

BOND SUMMARY: JGBs keep the lid on Govies

• A mixed start for Bund, with the contract trading in a tight range pre cash open.
• EGBs are nonetheless all in the red, after Nikkei reported that Amamiya refused the post of Governor and that Japan will nominate Kazuo Ueda as the next Governor at the BoJ.
• This put some pressure into JGBs, and in turn kept the lid on EGBs and Treasuries.
• Peripheral spread are all wider, Italy leads by 2.5bps, although is closer to flat against the German 10yr.
• Gilt future underperforms Bund, and the Gilt/Bund spread stands 2.8bps wider at the time of typing.
• UK GDP surprised to the downside for December but still came in line for the Q/Q print at flat (recall the BOE projected +0.1%Q/Q).
• US Treasuries are closer to flat, albeit a few ticks in the red at the time of typing, with investors waiting on the US prelim Michigan release.
• Looking ahead, US prelim Michigan is the only notable data for the day.
• Speakers, include BoE Pill, ECB Schnabel, de Cos, while Fed Waller and Harker are at a Crypto conference.

EQUITIES: Equity Futures Pull Back From Thursday Peaks

The EUROSTOXX 50 futures traded higher Thursday and breached 4265.00, Feb 3 high. Despite the pullback from yesterday’s peak, the fresh cycle high confirms a resumption of the uptrend and opens 4303.20, the 2.382 projection of the Sep 29 - Oct 4 rise from the Dec 20 low. Note that the trend is overbought. A pullback would represent a healthy correction. Key support lies at 4097.00, the Jan 19 low. Initial support is at 4167.50, the 20-day EMA. The S&P E-Minis trend condition is bullish and the latest pullback is considered corrective. Short-term support levels remain intact. Initial support lies at the 20-day EMA, at 4069.52. The more important level is at the 50-day EMA, at 4006.63. A resumption of gains would refocus attention on 4208.50, the Feb 2 high and bull trigger. A break would resume the uptrend. On the downside, a clear break of the 50-day EMA would alter the picture.

• Japan's NIKKEI closed higher by 86.63 pts or +0.31% at 27670.98 and the TOPIX ended 1.96 pts higher or +0.1% at 1986.96.
• Elsewhere, in China the SHANGHAI closed lower by 9.71 pts or -0.3% at 3260.673 and the HANG SENG ended 433.94 pts lower or -2.01% at 21190.42.
• Across Europe, Germany's DAX trades lower by 93.3 pts or -0.6% at 15441.22, FTSE 100 lower by 11.28 pts or -0.14% at 7908.94, CAC 40 down 17.62 pts or -0.25% at 7174.03 and Euro Stoxx 50 down 20.96 pts or -0.49% at 4231.88.
• Dow Jones mini down 2 pts or -0.01% at 33767, S&P 500 mini down 3.5 pts or -0.09% at 4094, NASDAQ mini down 31.75 pts or -0.26% at 12417.75.

COMMODITIES: WTI Spikes to $80.22 Fib Retracement After Russia Signals Oil Output Cut

WTI futures are holding on to this week’s gains. The contract has pierced resistance at the 50-day EMA - at $78.34. A clear break of this hurdle would strengthen the latest recovery and open $80.22, a Fibonacci retracement. Clearance of $80.22 would expose the key resistance at $82.66, the Jan 18 high. On the downside, a break below $72.25, the Feb 6 low, would reinstate a bearish theme. Trend conditions in Gold are bearish for now, and the yellow metal remains in a corrective cycle. This follows the strong sell-off on Feb 2 / 3 and sights are on the 50-day EMA, at $1855.5. The average represents a key support and has been pierced. A clear break would strengthen a bearish case and suggest scope for a deeper pullback - towards $1825.2, the Jan 5 low. On the upside, key resistance and the bull trigger is at $1959.7, the Feb 2 high.

• WTI Crude up $1.77 or +2.27% at $80.12
• Natural Gas up $0.04 or +1.56% at $2.482
• Gold spot up $1.45 or +0.08% at $1862.82
• Copper down $4.25 or -1.04% at $407.9
• Silver up $0.15 or +0.68% at $22.1138
• Platinum down $2.05 or -0.21% at $957