MNI US OPEN - Lagarde Says ECB Can’t Commit to Cuts Beyond Likely June Move

NEWS

US/CHINA (BBG): US Weighs Sanctioning Huawei’s Secretive Chinese Chip Network

The Biden administration is considering blacklisting a number of Chinese semiconductor firms linked to Huawei Technologies Co. after the telecom giant notched a significant technological breakthrough last year, people familiar with the matter said. Such a move would mark another escalation in a US campaign to ringfence and curtail Beijing’s AI and semiconductor ambitions. It would ratchet up the pressure on a Chinese national champion that’s made advances despite existing sanctions, including producing a smartphone processor last year that many in Washington thought beyond its capabilities.

US (BBG): Intel Wins Almost $20 Billion in Chips Incentives for US Plants

The US will award Intel Corp. $8.5 billion in grants and as much as $11 billion in loans to help fund an expansion of its semiconductor factories, the Commerce Department announced Wednesday, marking the largest award from a program designed to reinvigorate the domestic chip industry. The package will support more than $100 billion in US investments from Intel, including efforts to produce cutting-edge semiconductors at large-scale plants in Arizona and Ohio, the department said on Wednesday.

ECB (MNI): Lagarde Says ECB Can’t Commit to Cuts Beyond Likely June Move

The European Central Bank can’t commit to further reductions in borrowing costs after a likely first move in June, according to President Christine Lagarde. In a speech Wednesday, Lagarde reiterated that “when it comes to the data that is relevant for our policy decisions, we will know a bit more by April and a lot more by June.” Beyond that, the monetary-policy path is unclear. “Our decisions will have to remain data dependent and meeting-by-meeting, responding to new information as it comes in,” she told a conference in Frankfurt.

ECB (BBG): ECB Is Planning to Give Investors Glimpse of Wage Indicators

The European Central Bank is planning to routinely publish internal pay measures being used by officials to gauge inflation risks as they consider when to cut interest rates. The so-called wage trackers, which are designed to deliver data on salaries in a speedy manner and are often cited by policymaker in speeches, will be made openly available “later this year,” according to an spokesperson. That prospect would offer investors a fuller version of the picture that officials are getting on the strength of pay pressures in the economy.

EU (BBG): EU Agrees to Extend Trade Benefits to Ukraine as Farmers Protest

The European Union got closer to extending trade support for Ukraine for another year, while creating stronger safeguards to prevent imports of certain products getting too high. Representatives of EU governments and the bloc’s parliament reached a provisional agreement early Wednesday to renew the suspension of import duties and quotas on Ukrainian exports to the EU until June 2025, according to a statement.

CHINA (MNI): LPR Cut Likely Following Policy Rate Reduction

MNI (Beijing) The People’s Bank of China will likely cut its policy rates and guide down the reference lending rate later this year as inflation remains soft and weighs on the economy's real funding cost, however, its refreshed remit from the central government to ensure banks' profits and prevent idle funds could limit the reduction's size. The Loan Prime Rate, based on the rate on the PBOC's medium-term lending facility (MLF) and quotes submitted by 20 banks, was held at 3.45% for the one-year maturity and 3.95% for over-five-year maturity on Wednesday, in line with expectations, following the PBOC's decision to hold the MLF rate steady last week.

CHINA (BBG): Tencent Sales Disappoint After Pervasive Chinese Slowdown Bites

Tencent Holdings Ltd.’s revenue missed estimates, in another sign that China’s faltering economic recovery is taking a toll on its gaming and social media portfolios. Revenue rose a less-than-expected 7% to 155.2 billion yuan ($21.6 billion) for the three months ended December, compared with the 157.4 billion yuan average forecast. Net income was 27 billion yuan, versus the 33.3 billion yuan projected. On Wednesday, Tencent also said it was at least doubling its share buyback program to more than HK$100 billion ($12.8 billion) in 2024.

CHINA (BBG): China to Use Public Auctions for Sale of Special Ultra-Long Debt

China plans to issue its special ultra-long sovereign notes mainly through public auctions in the interbank market rather than through targeted sales, people familiar with the matter said. The government will start selling the bonds from the second quarter at the soonest, they said, with one of them adding that the tenors may be as long as 50 years. China’s top economic planning body is currently reviewing projects the nation can spend the proceeds on, according to the people, who asked not to be identified as the information is private.

CHINA/AUSTRALIA (BBG): Chinese Premier Li Qiang on Track for Australia Visit, Wong Says

Australia is preparing for a visit by Chinese Premier Li Qiang, the country’s second-most senior leader, in a sign that improving relations between Canberra and Beijing weren’t upended by recent setbacks. “The prime minister looks forward to welcoming Premier Li to Australia. I’m pleased that this is on track and we agreed on work to prepare for that meeting,” Foreign Minister Penny Wong told reporters in Canberra on Wednesday after meeting her Chinese counterpart Wang Yi.

RBA (BBG): RBA Overhaul Hits Snag as Opposition Plans to Move Amendment

Australia’s government and the opposition are at loggerheads over the makeup of the Reserve Bank’s new monetary policy committee, a showdown that threatens to derail legislation needed to overhaul the institution. The Liberal-National coalition wrote to Treasurer Jim Chalmers on Wednesday saying it intends to move an amendment to the RBA reform bill that will require all current board members to transition to a new monetary policy committee. The current version would allow the treasurer to give them the option of joining the committee or a new governance board that will oversee the central bank.

BI (BBG): Indonesia Extends Rate Pause to Prop Rupiah Before Fed Decision

Indonesia’s central bank left borrowing costs unchanged as expected, with policymakers staying focused on shielding the rupiah from vulnerabilities emanating from the US rate outlook. Bank Indonesia held the benchmark BI-rate at 6% on Wednesday as forecast by all 38 economists in a Bloomberg survey. “The rupiah’s stability has been maintained,” BI Governor Perry Warjiyo told reporters Wednesday. “Going forward, the rupiah is predicted to be stable with a tendency to strengthen supported by BI’s stabilization measures,” he reiterated.

DATA

UK DATA (MNI): UK Inflation at Slowest Pace in 30 Months

• UK FEB CPI +0.6% M/M, +3.4% Y/Y
• UK FEB CORE CPI +0.6% M/M, +4.5% Y/Y
• UK FEB RPI +0.8% M/M, +4.5% Y/Y
• UK FEB OUTPUT PPI +0.3% M/M, +0.4% Y/Y
• UK FEB INPUT PPI -0.4% M/M, -2.7% Y/Y

UK inflation rose at the slowest pace in two-and-a-half years in February, data released by the Office for National Statistics on Wednesday showed, offering some relief to policymakers at the Bank of England ahead of expected rate cuts later in the year, although the pace remains well above the Bank's 2% target. CPI rose by 3.4% in the 12 months to February, down from 4.0% in January, while core CPI (excluding energy, food, alcohol and tobacco) rose by 4.5%, down from 5.1%. The CPI goods annual rate slowed from 1.8% to 1.1%, while the CPI services annual rate eased from 6.5% to 6.1%

UK DATA (MNI): Pay Awards Lowest Since Sep '22; Survey Indicates Further Falls - XpertHR

XpertHR median basic pay award in the 3 months to the end of February 2024 fell for the second consecutive month to +4.8%Y/Y (vs a revised +5.0%Y/Y prior - originally 5.1% Y/Y) - the lowest level since September 2022. On top of the normal monthly rolling quarter, XpertHR conducted a survey of 213 pay award forecasts for 2024, representing close to a quarter of a million UK employees from 158 organisations in the run-up to the April period. The median pay award forecast for 2024 is 4% with the modal forecast at 5% (with most in the 3-5% range).

GERMAN DATA (MNI): Energy Deflation Waning But Broad-Based Disinflation Elsewhere

• GERMANY JAN PRODUCER PRICES -4.1% Y/Y

German Producer Prices for February came in below expectations at -4.1% Y/Y (vs -3.8% cons; -4.4% prior) and -0.4% M/M (vs -0.1% cons; +0.2% prior). Looking at the individual categories, there was broad-based disinflation, particular in consumption goods (+0.4% Y/Y vs +1.1% prior) and non-durable goods (+0.2% Y/Y vs 1.1% prior). Durable goods inflated +1.5% Y/Y (vs +1.6% prior), investment goods inflated +2.8% Y/Y (vs 3.0% prior), and intermediate goods deflated 3.8% Y/Y (vs 3.7% prior). In all of these categories, the yearly rates were the lowest in the current inflation cycle.

ITALY JAN IP -1.2% M/M, -3.4% Y/Y (MNI)

CENTRAL BANK PREVIEWS

MNI FED PREVIEW - MARCH 2024: Countdown to Confidence

The FOMC will hold rates at the presumed peak of 5.25-5.50% at its March 19-20 meeting, while reiterating its cut-leaning forward guidance. Incoming data provides the FOMC with both the justification and the flexibility to be patient before making the first cut. It’s unlikely the signal provided by the Dot Plot / economic projections will be much different to the last edition in December, while the Statement will be little changed after January’s overhaul. It would only take two participants getting slightly more hawkish on 2024 rate prospects to move the median dot from 3 cuts to 2.

MNI BOE PREVIEW - MARCH 2024: Vote and Guidance

The March MPC meeting will be in focus this week with two key aspects: first the vote split and second the guidance. The MNI Markets team, and the majority of analysts, expect an unchanged vote, although we do note the possibility that either Haskel, and also possibly Mann, could vote for unchanged Bank Rate at this meeting. We also expect no material change to guidance. We look at risks to both of these - as well as potential changes to the guidance.

MNI NORGES BANK PREVIEW - MARCH 2024: Cuts Still Some Way Off

The Norges Bank are unanimously expected to leave the policy rate on hold at 4.50%. Main interest will lie in the updated policy rate path projection within the March Monetary Policy Report, which will inform the guidance around how long rates will be held at current levels. The MNI Markets Team expects a small downward revision to the rate path, with key variables tracking below the December MPR forecasts. This will likely see the first full 25bp rate cut brought forward a little earlier in Q4 2024 than the current rate path indicates.

MNI SNB PREVIEW - MARCH 2024: Dovish Tilt on the Cards

Market pricing and consensus views for the SNB’s March decision are on a knife-edge between a 25bps cut or a hold at 1.75%. The decision will depend on the SNB’s longer-term assessment of inflation against deflation risks, as headline CPI has printed close to the middle of the SNB’s target range in recent months. A hold would likely be accompanied with a clearly dovish tilt in communication. Markets currently price 8-9bps of easing for the meeting, corresponding to about a 2/3 implied probability of a hold, while a 25bps cut to the deposit rate would likely be accompanied with cautious language on policy ahead.

MNI BCB PREVIEW - MARCH 2024: Focus on Potential Guidance Adjustment

All surveyed analysts believe that the Copom will continue the easing cycle with another 50bp cut, bringing the Selic rate down to 10.75%. Prior guidance in the January statement reiterated that economic conditions remain consistent with this strategy. However, several BCB officials have recently indicated the possibility of changing the forward guidance, and market participants will therefore be alert for any tweaks to the statement that provide clues on whether the easing pace could be adjusted in the coming meetings.

MNI CNB PREVIEW - MARCH 2024: Keeping Pace

Last-minute comments from Bank Board members, inspired reflection on market wagers, with remarks from Eva Zamrazilová and Jan Kubíček reducing the perceived odds that the push for a faster pace of rate cuts could muster sufficient support. Consensus looks for another 50bp reduction in the two-week repo rate, possibly coupled with cautious rhetoric from Governor Aleš Michl. We think that the sentiments of individual policymakers verbalised in their recent communications, persistent koruna weakness, and concerns about lingering risks to the inflation outlook limit the probability of faster monetary easing.

MNI CBRT PREVIEW- MARCH 2024: Hold Likely But Hawkish Surprise Possible

The Central Bank of Turkey are broadly expected to keep the one-week repo rate on hold at 45%, having communicated previously that its hiking cycle is complete, though the recent acceleration in TRY depreciation and increasing pressure on Turkish FX reserves may prompt a hawkish surprise. But given the proximity to the local elections on March 31, the central bank may decide to postpone any rate decision while it awaits more clarity on the inflation outlook.

FOREX: Further JPY Weakness Keeps USD/JPY Within Range of Multi-Decade Highs

• UK CPI came in to the soft side of expectations, however close enough to the Bank of England and sell-side view to mean little for current rates pricing. An August hike is fully priced, however the June meeting remains live, with 15bps of rate cuts currently priced in. GBP/USD saw brief weakness on the data release before the move reversed, however renewed USD buying as the pair within range of yesterday's lows 1.2668 ahead of the crossover.
• JPY is the weakest performing currency for a second session, with USD/JPY again keeping pressure on the cycle high and November 2023 best at 151.91. This level marks the bull trigger and strength through here puts the pair at multi-decade highs. An erratic move lower could raise market concern over Japanese intervention - however the authorities have, so far, remained quiet on FX moves.
• USD is the firmest performer in G10 so far, with JPY and SEK among the weakest.
• The Fed rate decision understandably takes focus going forward, and while markets expect little in terms of policy changes, the fresh dot plot and Summary of Economic Projections release will be carefully eyed. ECB speak remains thick and fast, with appearances from ECB's Lane, de Cos, Schnabel, Nagel and Villeroy all scheduled.
• Comments will follow on from Lagarde's appearance at the ECB Watchers conference - at which she coalesced around the recent central bank theme of waiting for more data by June for making a key rate decision.

US TSYS: A Little Firmer Alongside Global Peers

Tsys rally a little on UK CPI data.

• Yields 1.5-2.0bp lower across the curve after cash markets were closed in Asia hours owing to a Japanese holiday.
• TYM4 ticks further away from the support zone that was tested/pierced on Monday, last +0-04 at 110-08+.
• Contract sticks to a narrow 0-06 range, on below average volume of ~180K (turnover limited by Japanese holiday/cash closure in Asia).
• Yesterday’s high has been breached, first resistance is located at the 20-day EMA (110-24).
• FOMC-dated OIS shows ~17bp of cuts through June, ~27bp of cuts through July and ~74bp of total ’24 cuts.
• The latter has moved back towards the Fed’s existing median “dot” for the end of ’24 (75bp).
• The SEP and dot plot will be updated alongside today’s FOMC decision.

EGBS: Firmer Following UK CPI Data; Peripherals Little Changed

Core/semi-core EGBs trade at their firmest since last Thursday, with Bunds +21 at 132.09.

• UK CPI and German PPI provided the initial bid, which has developed a little further since the gilt open.
• Main regional focus today will be on "The ECB and Its Watchers XXIV" conference in Frankfurt.
• ECB President Lagarde has already given her welcome address, which focused on familiar themes covered by ECB speakers in recent weeks.
• There was little net movement in ECB-dated OIS as a result.
• German cash yields are 2 to 3bps lower today. The upcoming 2044 and 2052 Bund auction may be limiting the rally.
• 10-year peripheral spreads to Bunds are little changed on the day, after drifting a little wider on Tuesday.
• The regional data calendar includes flash March consumer confidence, while the FOMC decision provides the major macro risk event.

GILTS: Off Post-CPI Highs, BoE Now Eyed

Gilts a little off highs with the rally in futures stalling ahead of initial resistance at 99.35.

• Contract last +39 at 99.12. 98.97-99.30 range.
• Cash gilt yields are 3.5-5.0bp lower across the curve, light bull steepening.
• Initial UK CPI-driven bid fades a little, with the services CPI release limiting the impact of the slightly softer-than-expected headline readings.
• GBP STIR little changed vs. pre-gilt open levels, but firmer post-CPI.
• SONIA futures last flat to +5.0, BoE-dated OIS showing ~70bp of ’24 cuts vs. ~66bp late yesterday.
• Domestic focus turns to tomorrow’s BoE decision.
• The ongoing ECB watchers gathering and upcoming U.S. FOMC decision will draw much of the macro interest before the BoE decision.

EQUITIES: Eurostoxx 50 Futures Continue to Trade Close to Recent Cycle Highs

A bullish trend condition in Eurostoxx 50 futures remains intact and the contract is trading at its recent highs. Moving average studies are in a bull-mode position and this continues to reflect positive market sentiment. Sights are on the psychological 5000.00 handle. Clearance of this level would strengthen the bullish condition. On the downside, initial firm support lies at 4876.40, the 20-day EMA. The trend condition in S&P E-Minis remains bullish. Recent fresh cycle highs, reinforce current conditions and note that price action continues to highlight the fact that corrections remain shallow. This is an important bullish signal, reflecting positive market sentiment. Support to watch is 5175.27 the 20-day EMA. A clear break of this EMA would open 5065.11, the 50-day EMA. Sights are on 5300.00 next.

• In China the SHANGHAI closed higher by 16.93 pts or +0.55% at 3079.686 and the HANG SENG ended 13.59 pts higher or +0.08% at 16543.07.
• Across Europe, Germany's DAX trades lower by 22.44 pts or -0.12% at 17957.37, FTSE 100 lower by 7.21 pts or -0.09% at 7724.77, CAC 40 down 65.83 pts or -0.8% at 8127.68 and Euro Stoxx 50 down 21.06 pts or -0.42% at 4982.13.
• Dow Jones mini down 29 pts or -0.07% at 39521, S&P 500 mini down 7 pts or -0.13% at 5238, NASDAQ mini down 25.75 pts or -0.14% at 18264.

COMMODITIES: WTI Futures Record Fresh Multi-Month High Tuesday

WTI futures traded higher Tuesday and a bull theme remains intact. Last week’s gains resulted in a break of $79.87, Mar 1 high. The move higher confirms a resumption of the uptrend that has been in place since mid-December last year. Sights are on $83.87 next, the Oct 20 ‘23 high. A break of this level would open $84.87, the Sep 15 ‘23 high and a key resistance On the downside, support to watch is $78.44, the 20-day EMA. The trend condition in Gold is bullish and the latest pullback is considered corrective and appears to be a bull flag - a continuation pattern. The yellow metal recently cleared $2135.4, the Dec 4 high, to deliver a fresh all-time cycle high. The break reinforces bullish conditions and opens $2206.6, a Fibonacci projection. S/T conditions are overbought, a deeper retracement would allow this set-up to unwind. Firm support is $2121.3, the 20-day EMA.

• WTI Crude down $0.92 or -1.1% at $82.6
• Natural Gas down $0.01 or -0.4% at $1.736
• Gold spot down $1.84 or -0.09% at $2156.27
• Copper down $2.5 or -0.61% at $405.1
• Silver down $0.09 or -0.37% at $24.7915
• Platinum down $1.82 or -0.2% at $894.53