MNI US OPEN - Markets Gearing For Most-Watched BoJ Meet in Years

NEWS

ECB (MNI): More Hikes Needed for Risk Balance Debate: ECB Lane

The European Central Bank has hiked its main policy rates into the "ballpark" of neutral territory but more will be needed, Chief Economist Philip Lane said in an interview with the FT published Tuesday. Lane said rates were not yet at a level where the risks to further increases were two-sided when balancing growth and inflation, but accepted the balance would be more symmetric once further progress had been made.

UK (MNI): BOE Looks at Raising Equilibrium Jobless Estimate

The Bank of England will examine whether to increase its estimate of the level of unemployment compatible with stable inflation in its February Monetary Policy Report, a move which could mean it was less likely to slow the pace of interest rate hikes as joblessness rises.

MNI BoJ Preview - January 2023: Ensuring Corporate Liquidity & Not Much Else

The recent round of well-documented press speculation, indicating that the BoJ will conduct a review of the side effects of its ultra-loose policy settings at the upcoming monetary policy meeting, coupled with the shrouding of trust in the Bank’s communication channels after last month’s surprise YCC tweak, has led to a meaningful market test of the BoJ’s will ahead of the meeting.

JAPAN (MNI): Govt May Present BOJ Candidates on Feb 10 - Press

The government is considering presenting nominees for the Bank of Japan governor and deputy governors to the Diet around February 10, Reuters reported, citing government and ruling party sources.

GERMANY (MNI): Boris Pistorius to Serve as Next Defence Minister - Multiple Outlets

A number of German media outlets are reporting that Social Democratic Party politician Boris Pistorius is set to replace Christine Lambrecht as defence minister. The new minister faces a major immediate task in navigating increasingly vocal calls from allies to provide main battle tanks to Ukraine to assist in its fight against Russia's invasion.

US/RUSSIA (MNI): Russia Intel Chief-Another Meeting w/CIA Director Possible

Russia's state-run TASS reporting comments from Director of the Foreign Intelligence Service (SVR) Sergei Naryshkin stating that a second meeting between he and US Central Intelligence Agency (CIA) Director William Burns may be possible. The two previously met in November 2022 in the Turkish capital Ankara. Asked by TASS if another meeting would take place, Naryshkin stated that "It's possible."

DATA

UK DATA (MNI): Initial Signs of Cooling Labour Market

• UK NOV ILO UNEMPLOYMENT RATE +3.7%
• UK NOV AVE WEEKLY EARNINGS +6.4% YY
• UK DEC CLAIMANT RATE +4%
• UK DEC PAYROLLS +28,000

The November/December UK labour market reiterated that the UK labour market remains tight, yet signs of initial cooling are beginning to materialise. RTI payrolls slowed for a third consecutive month, moderating to +28k, half that of the consensus forecast and around 40k lower than recorded in November. The unemployment rate appears to not be tightening further. At 3.7% in November this is unchanged from October and 0.2pp above the August low of 3.5%.

GERMAN DATA (MNI): Rebound in ZEW Outlooks as Prices Ease & China Reopens

• GERMANY ZEW JAN CURRENT SITUATION -58.6 (FCST -57.0); DEC -61.4
• GERMANY ZEW JAN EXPECTATIONS 16.9 (FCST -15.0); DEC -23.3

The January ZEW survey signalled an optimistic kick-off to 2023, as the expectations index rebounded by a huge 40.2 points to re-enter positive territory (for the first time since Feb '22) at 16.9. This was the fourth month of improved outlooks and outpaced forecasts substantially, which expected a more mild 8-point increase. A much more modest improvement was recorded in the current situation assessment (up 2.8 points at -58.6).

GERMANY DEC FINAL HICP +9.6% Y/Y (= FLSH); NOV +11.3% Y/Y (MNI)
GERMANY DEC FINAL HICP -1.2% M/M (=FLSH ); NOV 0.0% M/M (MNI)

ITALY DEC HICP FINAL +12.3% Y/Y (=FLSH); NOV +12.6% Y/Y

CHINA DATA (MNI): China's Economy Grew 3% In 2022, Misses Govt Target

• CHINA 2022 REAL GDP +3.0% Y/Y VS MEDIAN +2.7% Y/Y: NBS
• CHINA Q4 2022 REAL GDP +2.9% Y/Y VS MEDIAN +1.7% Y/Y; Q3 +3.9%
• CHINA Q4 2022 REAL GDP +0.0% Q/Q VS MEDIAN -1.0% Q/Q; Q3 +3.9

MNI (Beijing) - China's economy grew at a better-than-expected 3% pace in 2022, though it it fell short of the government's 5.5% target and marked one of the lowest growth rates in decades as pandemic control measures weighed heavily on activity, data released by the National Bureau of Statistics on Tuesday showed.

CHINA DEC INDUSTRIAL OUTPUT +1.3% Y/Y VS MEDIAN +0.3% Y/Y (MNI)
CHINA DEC UNEMPLOYMENT RATE +5.5% VS NOV +5.7% (MNI)
CHINA 2022 RETAIL SALES 0.2-% Y/Y VS JAN-NOV -0.1% Y/Y (MNI)
CHINA DEC RETAIL SALES -1.8% Y/Y VS MEDIAN -8.0% Y/Y (MNI)

FOREX: JPY Implied Vols Surge Pre-BoJ

• Markets have run JPY implied vols considerably higher Tuesday as traders pre-position for the BoJ meeting early Wednesday in Asia-Pac hours. Overnight vols began to capture the BoJ decision today, and have rallied from ~18 points yesterday to north of 50 vol points this morning - the highest level since July 2016.
• The market gyrations mean markets would have to see an approx 275 pip move in either direction to cover the premium paid on an ATM straddle, a sure sign that markets are anticipating acute volatility in the wake of the decision.
• JPY trade slightly lower through the NY crossover, putting USD/JPY just north of the Y129.00 level, but still well within range of the recent lows at 127.23. CHF trades firmest across G10, while USD makes furtive gains amid lower equity markets. Earnings season resumes today, with Goldman Sachs and Morgan Stanley the highlights Tuesday.
• Canadian CPI is the data highlight Tuesday, with markets expecting inflation to slow to 6.4% on a Y/Y basis. Focus should also be paid to the speaker slate, as Fed's Williams appears at an event at the New York Fed, although it remains to be seen whether he'll comment on the economy.

BONDS: A Little Lower

• Core fixed income has been grinding lower this morning with gilts and Treasury futures both marginally lower than yesterday's intraday lows.
• UK labour market data showed wage growth a little stronger than expected but the rest of the report was mixed - pointing to early signs of a (very small) slowdown in the labour market (from very tight levels).
• The German ZEW survey also showed a big increase in its expectations component, moving into positive territory for the first time since February.
• Looking ahead there are no major US data releases today but we will receive Canadian CPI and the market will have one eye on UK inflation data due tomorrow as well as tomorrow's slew of US data releases (retail sales, PPI, IP among the highlights).
• We have seen decent gilt (new 3-year) and Bobl (new 5-year) auctions in larger sizes than normal this morning without too much market impact.
• TY1 futures are down -0-7 today at 114-17+ with 10y UST yields up 4.6bp at 3.551% and 2y yields down -0.5bp at 4.230%.
• Bund futures are down -0.27 today at 137.94 with 10y Bund yields up 1.5bp at 2.186% and Schatz yields up 1.9bp at 2.579%.
• Gilt futures are down -0.42 today at 103.53 with 10y yields up 4.5bp at 3.427% and 2y yields up 6.3bp at 3.546%.

EQUITIES: Eurostoxx Futures Bullish Conditions Intact as Contract Trades to Fresh Cycle High

EUROSTOXX 50 futures bullish conditions remain intact and the contract traded to a fresh trend high Monday. Futures have recently cleared resistance at 4043.00, the Dec 13 high and a bull trigger. The break represents a key short-term positive development and paves the way for gains towards 4215.00 next, a Fibonacci projection. MA studies are in a bull-mode condition, reinforcing the bull theme. Initial firm support is at 3998.70. S&P E-Minis traded higher last week. The contract has cleared resistance at the 50-day EMA and this has strengthened the short-term bullish condition. Price has also traded above the 4000.00 handle to open 4043.00 next, the Dec 15 high. Key support and the bear trigger has been defined at 3788.50, the Dec 22 low. A reversal lower and a break of this support would resume bearish activity.

• Japan's NIKKEI closed higher by 316.36 pts or +1.23% at 26138.68 and the TOPIX ended 16.58 pts higher or +0.88% at 1902.89.
• Elsewhere, in China the SHANGHAI closed lower by 3.347 pts or -0.1% at 3224.245 and the HANG SENG ended 169.08 pts lower or -0.78% at 21577.64.
• Across Europe, Germany's DAX trades lower by 42.78 pts or -0.28% at 15091.59, FTSE 100 lower by 13.27 pts or -0.17% at 7846.84, CAC 40 down 12.81 pts or -0.18% at 7029.88 and Euro Stoxx 50 down 11.66 pts or -0.28% at 4145.27.
• Dow Jones mini down 95 pts or -0.28% at 34321, S&P 500 mini down 15.5 pts or -0.39% at 4002.5, NASDAQ mini down 62.5 pts or -0.54% at 11545.

COMMODITIES: Short-Term Bullish WTI Future Theme Intact

WTI futures traded higher last week and a short-term bull theme remains intact. A continuation higher would signal scope for a test of resistance at $81.50, the Jan 3 high and a bull trigger. Clearance of this hurdle is required to strengthen a bullish theme. The broader trend outlook still appears bearish. A reversal lower would expose the bear trigger that has been defined at $70.31, the Dec 9 low. Trend conditions in Gold remain bullish and the yellow metal traded to a fresh trend high Monday. This confirms an extension on the current uptrend and maintains the positive price sequence of higher highs and higher lows. Note that moving average studies are in a bull mode position - reflecting the uptrend. The focus is on $1934.4 next, the Apr 25, 2022 high. Support to watch lies at $1850.4, the 20-day EMA.

• WTI Crude down $0.22 or -0.28% at $79.65
• Natural Gas up $0.33 or +9.59% at $3.743
• Gold spot down $8.27 or -0.43% at $1908.18
• Copper down $8.8 or -2.09% at $413.15
• Silver down $0.24 or -0.98% at $24.035
• Platinum down $6.79 or -0.64% at $1060.26