MNI US OPEN - Markets Eye Another Moderation in Job Gains

NEWS

MNI US Payrolls Preview: Watching AHE For Rate Cut Direction

As has been the case for many months now, consensus looks for a slight moderation in payrolls growth in January to a still stronger than sustainable pace after last month's broadly in line outcome.

MNI Fed Review: February 2023 - Only As Hawkish As The Data Allow

Market rate hike expectations dropped and rate cut expectations rose as the FOMC delivered a halfhearted hawkish message at the February meeting. While the Statement leaned hawkish, and the message overall was that another “couple” of 25bp hikes were the central expectation, Chair Powell cracked open the door to potential rate cuts in H2 2023.

EUROZONE (MNI): Professional Forecasters Up Inflation Outlook: ECB

Professional forecasters have revised up their inflation expectations for both 2023 and 2024 to stand at 5.9% and 2.7% respectively, the ECB's latest survey shows. The Q1 survey showed an increase from 5.8% and 2.4% respectively. The outlook for 2025 -- a first in this survey -- was 2.1%, while the longer-term inflation expectation was revised lower to 2.1% from 2.2% in the Q4 reading. According to the survey, the upward revisions primarily reflect changes to expectations for core inflation.

ECB (BBG): Simkus Says March Hike May Not Be Last Half-Point Move

European Central Bank Governing Council member Gediminas Simkus said next month’s planned half-point increase in interest rates may not be the last. Speaking in Vilnius a day after the ECB lifted borrowing costs to 2.5% to battle inflation, Simkus said only something “very big” would be able to stop March’s move from happening.

ECB (BBG): ECB’s Kazimir Says March Rate Hike Probably Won’t Be Last

European Central Bank Governing Council member Peter Kazimir said next month’s planned hike in borrowing costs probably won’t be the last. “I think the March increase will not be the last. We will decide how many more will be needed afterward”.

ITALY (MNI): PM Visits Sweden & Germany, Talks Migration & Green Deal Industrial Plan

Italian PM Giorgia Meloni engages on a whistlestop tour of northern Europe today, visiting Stockholm for talks with Swedish PM Ulf Kristersson and then onto Berlin to meet with German Chancellor Olaf Scholz. Meloni's talks with Scholz are set to focus on the Green Deal Industrial Plan seeking to counter the US Inflation Reduction Act.

JAPAN (MNI): New BOJ Gov Must Keep Rates Low, Ensure Recovery

The three leading candidates to be the next Bank of Japan governor need to be sensitive to the importance of low interest rates embedded in the economic policies of the Kishida administration and be alert to the risks of derailing Japan's economic recovery from any tweaks to decade-long easy policy, MNI understands.

CHINA (MNI): China to Fully Reopen Borders with HK and Macau

China will fully reopen its border with Hong Kong and Macau next Monday, and will drop quotas and scrap a COVID-19 test that was required before travelling, said the State Council’s Hong Kong and Macau Affairs Office in a statement on Friday.

AUSTRALIA (MNI): 25bp Hike Expected; Eyes on Revised Forecasts

The Reserve Bank of Australia is expected to deliver another 25bp hike on Tuesday, with updated forecasts at the first meeting of the year set to shape market pricing of the peak rate as policymakers confront inflation that remains well above target.

DATA

EUROZONE DATA (MNI): Core PPI Records First Negative M/M Since May '20

• EUROZONE DEC PPI +1.1% M/M (FCST -0.4%); NOV -1.0r% M/M
• EUROZONE DEC PPI +24.6% Y/Y (FCST +22.4%); NOV +27.0r% Y/Y

Eurozone factory-gate inflation disappointed in the December data, only stepping down 2.4pp to +24.6% y/y, as prices accelerated by +1.1% m/m (vs -0.4% expected). This headline print will be distorted to the upside, due to the marked +43.2% m/m jump in Irish PPI, largely driven by a surge in wholesale energy prices. Overall energy prices accounted for the bulk of upwards pressure on the month, accelerating by +2.5% m/m (likely largely Ireland-driven), followed by nondurable consumer goods at +0.5% m/m.

EUROZONE JAN SERVICES PMI 50.8 (FLASH 50.7); DEC 49.8 (MNI)

FRANCE DATA (MNI): Auto Production Boosts IP to Robust End to Q4

• FRANCE DEC INDUSTRIAL PRODUCTION +1.1% M/M (FCST +0.3%); NOV +2.0% M/M
• FRANCE DEC INDUSTRIAL PRODUCTION +1.4% Y/Y (FCST +0.8%); NOV +0.7% Y/Y

French industrial production saw a stronger-than-anticipated end to the year in December, expanding by +1.1% m/m and +1.4% y/y. Transport equipment production (largely other transport equipment) was the key driver in December, jumping +8.3% m/m after stalling in November. Extractive industries also jumped, up +6.0% m/m after -0.3% m/m, however this boost will likely be in part reversed in January due to strike action stalling production.

FRANCE JAN SERVICES PMI 49.4 (FLASH 49.2); DEC 49.5 (MNI)

GERMANY JAN SERVICES PMI 50.7 (FLASH 50.4); DEC 49.2 (MNI)

GERMAN DATA (MNI): Jan Prelim CPI to be Published Thursday

The German flash CPI for January will be published at 0700 GMT next Thursday, February 9. The data was postponed due to a technical processing problem.

SPAIN JAN SERVICES PMI 52.7 (FCST 52.5); DEC 51.6 (MNI)

ITALY JAN SERVICES PMI 51.2 (FCST 51.0); DEC 49.9 (MNI)

UK JAN SERVICES PMI 48.7 (FLASH 48.0); DEC 49.9 (MNI)

AUSTRALIA (MNI): Aussie New Home Loans Drop For 11th Month

Australian house lending fell for an 11th consecutive month in December as the Reserve Bank of Australia's aggressive tightening campaign raises borrowing costs and squeezes new loan sizes. Total house lending ended 2022 with a decline of 4.3% m/m to AUD23.44 billion and is now down 27.7% from its January 2022 peak, according to the Australian Bureau of Statistics. Owner-occupier housing loans fell 4.2% m/m to AUD15.6 billion.

FOREX: EUR/USD Staging Shallow Post-ECB Bounce

• The EUR is on the front foot early Friday as markets recover their ECB-induced losses posted into the Thursday close. EUR/USD has bounced off the overnight low at 1.0882 to trade either side of the 1.09 handle. The pullback in the pair is deemed corrective from a technical perspective, with the broad trend direction remains up for now - resistance at 1.0929, the Jan 26 high, has been cleared. This maintains the bullish price sequence of higher highs and higher lows and clears the way for a climb towards 1.1054, a Fibonacci projection.
• High beta and growth proxy currencies are slightly lower to start the final session of the week, as equities maintain a modest risk-off tone after poorly received earnings from megacap firms Apple, Amazon and Alphabet after-market Thursday. As a result, AUD and CAD make up the worst performers among G10 FX.
• The January payrolls report is the highlight on the Friday calendar, with markets expecting 189k jobs added over the month of January - although the unemployment rate is seen ticking higher by 0.1ppts to 3.6%. Average hourly earnings will also be noted to gauge the scale or viability of any potential Fed easing into year-end.
• The ISM services index follows, with markets expecting the data to show a return to growth at 50.5.

BONDS: Partially Reversing Some of Yesterday's Huge Rally

• Core fixed income, particularly Bunds, is trading lower today following the huge rallies seen in both bunds and gilts yesterday.
• There have been no real headline drivers to the move, but some moves lower given the magnitude of yesterday's moves was to be expected.
• Looking ahead, the big release of the day is the US employment report at 13:30GMT / 8:30ET. Consensus looks for a slight moderation in payrolls growth in January to a still stronger than sustainable pace after last month’s broadly in line outcome. Annual benchmark revisions could make the initial read more complicated, but barring large surprises we suspect focus will be on AHE, which has abated a bit in the words of Powell after its own large revisions. Primary dealer analysts have an unusually distinct skew to a hawkish surprise from both AHE growth and the unemployment rate.
• We are also due to receive the ISM services report at 15:00GMT / 10:00ET.
• TY1 futures are down -0-1+ today at 115-16 with 10y UST yields up 0.1bp at 3.396% and 2y yields down -1.1bp at 4.095%.
• Bund futures are down -1.20 today at 138.63 with 10y Bund yields up 6.8bp at 2.141% and Schatz yields up 4.4bp at 2.522%.
• Gilt futures are down -0.41 today at 107.18 with 10y yields up 3.7bp at 3.040% and 2y yields down -0.9bp at 3.160%.

EQUITIES: E-Mini S&P Ease Off Thursday Highs

The EUROSTOXX 50 futures trend needle points north. The contract has breached resistance at 4206.00, the Jan 18 high. The clear break of this level confirms a resumption of the current uptrend and paves the way for gains towards 4269.50, a Fibonacci projection. Note that the trend remains overbought. A pullback, if seen, would represent a healthy correction. A break of 4097.00, the Jan 19 low, would signal the start of a short-term bear cycle.S&P E-Minis traded higher Wednesday and in the process cleared recent highs to confirm a resumption of the current bull cycle that started Dec 22. A key resistance and a bull trigger at 4180.00, the Dec 13 high, has been pierced. A clear break of this level would confirm a resumption of a broader uptrend and open 4250.00, the Aug 26 2022 high. Initial firm support has been defined at 4007.50, the Jan 31 low.

• Japan's NIKKEI closed higher by 107.41 pts or +0.39% at 27509.46 and the TOPIX ended 5.09 pts higher or +0.26% at 1970.26.
• Elsewhere, in China the SHANGHAI closed lower by 22.264 pts or -0.68% at 3263.406 and the HANG SENG ended 297.89 pts lower or -1.36% at 21660.47.
• Across Europe, Germany's DAX trades lower by 110.24 pts or -0.71% at 15399.4, FTSE 100 higher by 13.87 pts or +0.18% at 7833.71, CAC 40 down 28.37 pts or -0.4% at 7137.9 and Euro Stoxx 50 down 20.15 pts or -0.48% at 4220.97.
• Dow Jones mini down 77 pts or -0.23% at 34020, S&P 500 mini down 31.75 pts or -0.76% at 4159.75, NASDAQ mini down 212.75 pts or -1.66% at 12634.25.

COMMODITIES: Gold Prices Moderate, Erasing Post-Fed Gains

A sharp sell-off on Wednesday and weakness Thursday in WTI futures has reinforced current bearish conditions. The contract has breached support at $78.45 this week, the Jan 19 low. The move lower undermines the recent bull theme and a continuation would signal potential for an extension to $72.74, the Jan 5 low. On the upside, the bull trigger has been defined at $82.66, Jan 18 high. A break of this level is required to reinstate the recent bullish theme. Trend conditions in Gold are bullish and Thursday’s move lower is considered corrective. This week’s print above 1949.20, the Jan 26 high, confirms a resumption of the uptrend and maintains the bullish price sequence of higher highs and higher lows. The focus is on $1963.0, a Fibonacci retracement. Initial firm support to watch lies at $1907.40, the 20-day EMA and $1900.9, the Jan 31 low. A break of this zone would signal a short-term reversal.

• WTI Crude up $0.22 or +0.29% at $76.02
• Natural Gas down $0.02 or -0.77% at $2.438
• Gold spot up $1.61 or +0.08% at $1914.7
• Copper up $3.5 or +0.86% at $412.3
• Silver up $0.03 or +0.13% at $23.5047
• Platinum up $4.07 or +0.4% at $1028.99