MNI US OPEN - New Forecasts See EU Swerving Recession

NEWS

EUROPE (MNI): European Commission Raises Growth Forecast

The European Commission raised its eurozone growth forecast to 0.9% in 2023, up from 0.3% in its autumn estimates and said a feared technical recession around Q4 2022 and Q1 2023 will now be avoided, thanks to a strong labour market, falling energy prices and improving economic confidence.

ECB (BBG): ECB’s Guindos Says Rate Increases Beyond March to Depend on Data

European Central Bank Vice President Luis de Guindos said incoming economic data will determine the path for borrowing costs following next month’s planned half-point increase. “What we did the other day was raise interest rates by 0.5 percentage point, announce our intention to raise them again by 0.5 and after that we will go depending on the data that is produced,” Guindos told Spain’s Onda Cero radio on Monday.

ECB (BBG): ECB Must See Inflation Moving to 2% to Slow Hikes, Centeno Says

The outlook for inflation would need to head back to near the European Central Bank’s target to justify a slowing in the pace of interest-rate increases, according to Governing Council member Mario Centeno. New quarterly projections due in March will be “very important” in determining the path of monetary policy, the Portuguese central bank head said Monday. While he declined to speculate on the level at which borrowing costs may peak, he said the so-called terminal rate is approaching.

EQUITIES (BBG): Goldman Strategists Turn Neutral on Stocks, Prefer Non-US Assets

A team of Goldman Sachs strategists raises stocks to neutral from underweight over the next three months, seeing “attractive upside” outside of the US. “We remain selective on cyclical risk and unprofitable growth stocks within equities and prefer up-in-quality exposure after the strong rally YTD,” strategists led by Christian Mueller-Glissmann write in a note

US (BBG): US Shoots Down Fourth Object as China Flings New Accusation

The US military had never shot down an object in American airspace before taking out a Chinese balloon off South Carolina earlier this month. Now it’s becoming a near-daily occurrence. Officials said they had started watching the skies more closely in the days since the alleged Chinese spy balloon traversed US territory, provoking both a national uproar and a new round of tensions with China. That resulted in shootdowns of smaller objects over Alaska on Friday, northern Canada on Saturday, and Michigan on Sunday.

GERMANY (MNI): Centre-Left Lose Berlin State Election for First Time in 22 Years

The centre-left SPD of Chancellor Scholz has lost the Berlin state election. It has governed the city state for 22 years. Support for the SPD fell 3pp to 18.4% and its partner the Greens -0.5pp also to 18.4%, which means they won't be able to form another coalition. The centre-right CDU was the winner on the night gaining 10.5pp to 28.2%. The far left Linke lost 1.9pp to 12.2% and the far-right Alternative for Germany gained 1.1pp to 9.1%.

UK (BBG): UK Politicians Hold Secret Brexit Cross-Party Summit: Observer

UK politicians and business leaders met in “high secrecy” for a two-day cross-party summit to address the problems caused by Britain leaving the European Union, the Observer reported, citing documents it obtained.The meeting took place Thursday and Friday, and featured senior Tory and Labour politicians from both sides of the Brexit debate, according to the newspaper. It was aimed at discussing how the UK’s relations with neighboring European countries could be improved.

CHINA/JAPAN (MNI): Kyodo-Diplos Preparing for Informal Talks at Munich Sec Conference

Japan's Kyodo News reporting that senior diplomats from China and Japan are looking to hold a set of informal discussions on the sidelines of the Munich Security Conference taking place in Germany 17-19 Feb. The Chinese Foreign Ministry confirmed earlier today that Director of the Office of the Central Foreign Affairs Commission Wang Yi will be in attendance at the conference. Kyodo reports that both sides are working to arrange talks between Wang and Japanese Foreign Minister Yoshimasa Hayashi.

CHINA (MNI): SOEs to Prioritise Investment in Supply Chains, New Industries

State owned enterprises in 2023 will prioritise investing in projects to improve people's livelihoods and new industries, according to a recent notice from the State-owned Assets Supervision and Administration Commission. Central enterprises will focus on expanding effective investment in building a manufacturing power, securing supply chains, and improving food and energy supplies.

AUSTRALIA (MNI): Treasurer to Receive RBA Review on March 31

Australian Treasurer Jim Chalmers said he will receive a report from the Reserve Bank of Australia review panel on March 31 and will respond to it before the May Budget, he said on Sunday. The Treasurer was pressed on a briefing given by RBA governor Philip Lowe to rates traders hosted by investment bank Barrenjoey last Thursday. The meeting coincided with a rise in bond yields.

DATA

EUROPEAN DATA (MNI): More Upbeat EC Winter Forecast Narrowly Avoids Recession

The European Commission's Winter '23 forecast was more upbeat, lifting growth expectations for the euro area to +0.9% in for 2023 (+0.8% in EU) and implying a technical recession will be avoided. This is 0.5 (0.6pp EU) stronger than the Autumn forecast.

SWITZERLAND DATA (MNI): Jan Inflation Outpaces Expectations, Core Edges Up

• SWITZERLAND JAN CPI +0.6% M/M (FCST +0.5); DEC -0.2% M/M
• SWITZERLAND JAN CPI +3.3% Y/Y (FCST +3.1%); DEC +2.8% Y/Y
• SWITZERLAND JAN CORE CPI +2.2% Y/Y; DEC +2.0% Y/Y

Rising energy prices boosted Swiss inflation to +0.6% m/m and +3.3% y/y, outpacing expectations by 0.2pp on the annualised measure. Hotels and food products prices also ticked up. Core inflation was stable on the month, yet accelerated by 0.2pp to +2.2% y/y. This data is based on the new weighting system drawn from Dec 2021-Nov 2022 consumption surveys and base-year 2020. Restaurants and hotels, recreation/culture and transport have been more heavily weighted (in part boosting the headline figure), whilst food, healthcare and rents have been assigned less weight.

FOREX: JPY Slides Ahead of Formal Ueda Nomination

• JPY is sliding early Monday, with the currency weaker against all others in G10 just a few days out from the formal nomination of Ueda as the new BoJ governor. His nomination is expected to be presented to parliament tomorrow, ahead of which EUR/JPY sits back above the 50-dma at 141.55 and USD/JPY just shy of the Y133.00 handle.
• Currencies are more mixed elsewhere, with the greenback solidly mixed. The USD Index closed back above the 50-dma on Friday, opening gains toward 103.964. A break above here puts the USD at the strongest level since early January.
• NZD is modestly the best performer ahead of the NY crossover, however recent ranges are being largely respected. Next target for NZD/JPY sits at 84.21, a break above which opens 84.92 in the medium-term.
• The schedule is less busy Monday, with few datapoints or risk events on the docket. Fed's Bowman, ECB's Knot and Centeno are scheduled to speak, while Lagarde and Panetta attend a Eurogroup meeting.
• Markets look to Tuesday for direction, with the January CPI report in focus. Analysts look for CPI to slow to 6.2% Y/Y, and 5.5% for the core metric.

BONDS: Curves Flatter With Futures Touching Recent Lows

Global core FI is trading mixed to open the week, with EGB futures slightly higher while Gilts and Treasuries are trading a little softer.

• Cash curves are modestly flatter with the short end underperforming amid solidifying 2023 central bank rate hike expectations: basically, a continuation of the price action seen in the middle of last week.
• Bund/Gilt/Tsy front futures briefly ticked down to the lowest levels since early/mid Jan in early European trade, but have edged up slightly since then.
• A fairly quiet schedule ahead today, but becomes increasingly busy the rest of the week including Tuesday's highly-anticipated US CPI release (our preview will be out later today)
• The speaker highlight is Fed Gov Bowman (0800ET) discussing banking supervision; we also get comments from ECB's Knot and Centeno.

Latest levels:

• Mar 10-Yr US Tsy futures (TY) down 0.5/32 at 112-21.5 (L: 112-18.5 / H: 112-24)
• Mar Bund futures (RX) up 21 ticks at 136.12 (L: 135.59 / H: 136.2)
• Mar Gilt futures (G) down 6 ticks at 103.9 (L: 103.52 / H: 103.93)
• Italy / German 10-Yr spread 0.4bps tighter at 184.1bps

EQUITIES: Eurostoxx Futures Trade Higher Monday, Resuming Uptrend

The EUROSTOXX 50 futures traded higher Thursday and breached 4265.00, Feb 3 high. Despite the pullback from last week’s best levels, 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. The contract has pierced initial support at 4069.52, the 20-day EMA. Firmer support lies at the 50-day EMA, at 4006.63. A clear break of this average would signal scope for a deeper pullback and potentially highlight a reversal. Key resistance and the bull trigger intersect at 4208.50, the Feb 2 high. A breach would resume the uptrend.

• Japan's NIKKEI closed lower by 243.66 pts or -0.88% at 27427.32 and the TOPIX ended 9.29 pts lower or -0.47% at 1977.67.
• Elsewhere, in China the SHANGHAI closed higher by 23.487 pts or +0.72% at 3284.16 and the HANG SENG ended 26 pts lower or -0.12% at 21164.42.
• Across Europe, Germany's DAX trades higher by 65.68 pts or +0.43% at 15360.48, FTSE 100 higher by 22.3 pts or +0.28% at 7903.29, CAC 40 up 48.09 pts or +0.67% at 7169.7 and Euro Stoxx 50 up 26.46 pts or +0.63% at 4219.25.
• Dow Jones mini up 4 pts or +0.01% at 33903, S&P 500 mini up 2.5 pts or +0.06% at 4102.25, NASDAQ mini up 26 pts or +0.21% at 12367.75.

COMMODITIES: Friday Rally Strengthens WTI Bull Cycle

WTI futures rallied Friday, marking an extension of the recovery from $72.25, the Feb 6 low. The rally has confirmed a break of the 50-day EMA, at $78.34, strengthening the current bull cycle and note that price has pierced $80.22, 76.4% of the Jan 18 - Feb 6 bear leg. A clear break of this level would expose the key resistance at $82.66, the Jan 18 high. On the downside, initial firm support has been defined at $76.52, the Feb 9 low. 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 down $0.93 or -1.17% at $78.84
• Natural Gas up $0.03 or +1.31% at $2.547
• Gold spot down $9.36 or -0.5% at $1859.46
• Copper up $1.15 or +0.29% at $403
• Silver down $0.16 or -0.7% at $21.8911
• Platinum down $9.35 or -0.98% at $942.11