MNI US OPEN - OER Volatility Poses Risks to Core Reversion in US Inflation Report

NEWS

MNI US CPI PREVIEW: OER Volatility Poses Risks to Expected Core Reversion

Consensus puts core CPI inflation at 0.3% M/M in February with little skew either side. OER inflation will be watched particularly closely, with a surprisingly narrow range across analysts considering the surprise divergence with primary rents data in last month’s report and some methodological uncertainty. Supercore inflation is seen moderating from an extremely strong increase in January, likely boosted by seasonality concerning start-of-year price hikes, but is still expected to show a strong pace.

US (BBG): BofA Strategists Boost S&P 500 Profit Forecast to Join Top Bulls

The S&P 500 will deliver stronger-than-expected earnings in 2024, powered by resilient economic growth and artificial intelligence breakthroughs, according to Bank of America Corp. strategists, who are now among Wall Street’s most bullish profit forecasters. The team including Ohsung Kwon and Savita Subramanian raised their earnings-per-share estimate to $250 from $235, tying with BMO Capital Markets and Deutsche Bank AG for the most optimistic outlook among strategists tracked by Bloomberg. BofA’s EPS target for 2025 is $275.

EU (MNI): ECOFIN Backs Changing EIB Policy to Allow Financing of Defence Projects

Wires reporting that according to draft conclusions from the ECOFIN meeting, EU finance ministers are due to sign off on the Commission proposal to alter the lending policy for the European Investment Bank (EIB). This change would allow the EIB to finance defence projects as part of the EU's efforts to ramp up defence production in order to bolster supplies to Ukraine and the EU's own security in the face of Russian aggression

BOJ (BBG): BOJ Is Said to Mull March Hike With Outcome Too Close to Call

Bank of Japan officials are edging closer to raising interest rates and will decide whether to move this month at next week’s policy meeting, with the outcome currently too close to call, according to people familiar with the matter. A final decision will be made after officials see the initial tally from spring wage talks due Friday, according to the people. A strong result could create the final push for a rate increase in March even as some retain the cautious view that the bank should wait until April to see more data, the people said.

BOJ (RTRS): BOJ to Offer Guidance on Bond Buying Pace Upon Ending YCC

The Bank of Japan will likely offer numerical guidance on how much government bonds it will buy upon ending negative interest rates and yield curve control (YCC), to avoid causing market disruptions, said four sources familiar with its thinking. With inflation exceeding the BOJ's 2% inflation target for well over a year, many market players expect the central bank to pull short-term interest rates out of negative territory either next week or in April.

BOJ (BBG): BOJ Ueda Says Steps, Content of Policy Tweaks Vary on Situation

The Bank of Japan will consider adjusting its negative interest rate policy, yield curve control program and other monetary easing measures when achieving 2% inflation target is in sight, Governor Kazuo Ueda says in parliament on Tuesday Ueda says he won’t comment on reports regarding daily moves in financial markets and the views of market participants.

CHINA (MNI): China to Strengthen Stock Market Oversight

MNI (Beijing) China will likely increase stock market regulation, such as tighter IPO rules and strengthened law enforcement, to create a fairer trading environment and restore investor confidence, which could push A-shares up 50%, a policy advisor told MNI in an interview. Pointing to the Shanghai Composite Index (SCI)’s underperformance, which has hovered at about 3,000 since 2007, Lin Yixiang, chairman at TX Investment Consulting and former vice president at the Securities Association of China, said trading irregularities – such as insider trading, market manipulation and fraudulent IPOs – had undermined the market.

CHINA (MNI): PBOC Says to Open Markets, Promote Global Yuan Role

MNI (Beijing) China will further open up its financial markets and promote yuan internationalisation, the People’s Bank of China said in a statement on its social media account on Wednesday, in the latest of a string of recent Chinese official announcements pointing to greater financial openness. The PBOC will optimise procedures for foreign capital to enter Chinese markets and expand business, while any new pilot rules will provide equal treatment for domestic and foreign financial institutions, it said on WeChat. The country will improve market connectivity mechanisms and enrich investable industries and asset types.

CHINA (BBG): China Asks Some Banks to Limit Backing for Offshore LGFV Bonds

Chinese regulators told some of the country’s lenders to limit their use of a repayment-support mechanism that has backed offshore bond issuance by local government financing vehicles, according to people familiar with the matter. At least four commercial banks, including China Bohai Bank Co. and Hengfeng Bank Co., were asked last week to limit use of the so-called standby letter of credit, or SBLC, which is a pledge by a lender to repay the debt if the issuer can’t, the people said, asking not to be identified as the matter is private.

RUSSIA (BBG): Ukraine Drone Strike Halts Unit of Lukoil Refinery in Russia

Ukrainian drones attacked Russian oil refineries overnight, threatening a recovery in the nation’s fuel-processing capacity just as seasonal demand picks up. Lukoil PJSC’s Norsi plant in the Nizhny Novgorod region halted a unit after “an incident,” its press service said on Tuesday. The statement came shortly after the region’s governor Gleb Nikitin spoke in his Telegram account about a drone attack on the Norsi facility that resulted in a blaze. A strike near Surguteftegas PJSC’s Kirishi refinery didn’t cause any damage.

RUSSIA/UKRAINE (BBG): Ukraine Strengthens Front Line Defenses to Halt Russia’s Advance

Ukraine’s armed forces are trying to fortify their defenses along the front line as Russia seeks to press home its advantage in manpower and ammunition. President Volodymyr Zelenskiy said late Monday that Ukraine is digging trenches and erecting barriers along the 2,000 kilometer (1,200 mile) front where his forces are struggling with an acute shortage of ammunition. Ukraine’s military is being squeezed by a standoff in Congress since late year which has seen House Republicans block President Joe Biden’s efforts to release $61 billion of funding.

ARGENTINA (BBG): Argentina Cuts Rates to 80% in Surprise Move as Inflation Cools

Argentina’s central bank unexpectedly cut its benchmark interest rate to 80% from 100% as policymakers see monthly inflation cooling while the peso continues to strengthen against the US dollar in parallel markets. Despite annual inflation over 250%, the monetary authority cited a range of factors in explaining the cut late Monday night, including its steady rebuilding of reserves.

DATA

UK DATA (MNI): UK Wage Growth Slows in January - ONS

• UK JAN AVE WEEKLY EARNINGS +5.6% YY
• UK JAN AVE WEEKLY EARNINGS EX-BONUS +6.1% YY
• UK FEB PAYROLLS +20K to 30.4 MLN
• UK NOV-JAN LFS UNEMPLOYMENT RATE 3.9%

UK wage growth slowed again in the three months to January, the Office for National Statistics said Tuesday, with total and ex-bonus outcomes below both Bank of England and market expectations. Total wage growth was 5.6%, down from 5.8% in the previous period and 0.1pp below forecast. Ex-bonuses, wages rose 6.1% year-on-year. ONS director of economic statistics Liz McKeown said recent trends in the jobs market are continuing "with earnings, in cash terms, growing more slowly than recently but, thanks to lower inflation, real terms pay continues to increase".

Source: ONS

EUROZONE DATA (MNI): Irish Inflation Slows But Core Sticky - Central Bank

Consumer price rises continue to slow in Ireland, although inflationary pressures remain strong, with core HICP inflation remaining higher and stickier than the headline rate throughout the current projection period, the Central Bank of Ireland said on Tuesday in its latest quarterly bulletin. However, headline HICP inflation is still forecast to decline over the next years, and at a faster pace than previously expected, falling to 2.0% in 2024, 1.8% in 2025 and 1.4% in 2026 -- all below the current eurozone projections published by the ECB on Mar 7. It was the first time in over two years that Irish inflation projections have fallen below those for the eurozone.

GERMAN DATA (MNI): Slowing Pace on High-inflation Items Disinflation Breadth in February

German final February HICP was unrevised from the flash readings as expected at+2.7% Y/Y (+3.1% Jan) and +0.6% M/M (-0.2% Jan). The final reading of CPI was also unrevised at +2.5% Y/Y (+2.9% Jan) and +0.4% M/M (+0.2% M/M). Core CPI printed at 3.4% M/M (+3.4% Jan). For the monthly headline CPI Y/Y, this represented the lowest value since June 2021.

JAPAN DATA (MNI): Japan Feb CGPI Rises 0.6% Y/Y, Import Price Up

• JAPAN FEB CORP GOODS PRICE INDEX +0.6% Y/Y; JAN +0.2%
• JAPAN FEB CORP GOODS PRICE INDEX +0.2% M/M; JAN 0.0%

Japan's corporate goods price index rose 0.6% y/y in February against January’s 0.2%, the first acceleration in 14 months, while import price posted their first y/y rise in 11 months, up 0.2% y/y, data released by the Bank of Japan showed on Tuesday. The rise in import costs, which reversed their 0.1% fall in January, will increase pressure on firms to raise retail prices, slowing the y/y drop of goods prices, although the pace of the pass-through of cost increases in the downstream slowed.

FOREX: GBP Skids as Wage Data Prompts Reassessment of BoE Trajectory

• GBP trades poorly on the back of a softer-than-expected set of wage numbers, which have prompted markets to re-initiate easing bets for 2024. OIS markets have added close to 6bps of implied easing across this calendar year - making for full pricing of 3x25bps cuts by December. Resultingly, GBP/USD has been marked lower and is refuting the signals triggered by the recent bullish breakout. Pair is through the Monday and Friday lows, and now targets 1.2723 for direction.
• Unwinding some of the recent price action, JPY trades poorly on an intraday basis but is still holding the bulk of the recent strength. An appearance from BoJ's Ueda overnight helping trigger a modest wave of JPY selling, after he stated that he sees weakness in consumption statistics around non-durable goods in Japan - throwing a small dose of coldwater on recent BoJ normalization speculation. Nonetheless, a March hike remains well priced in JPY markets.
• NOK, SEK sit furtively firmer, but are generally trading with little conviction. Risk appetite seems key - and with European and US equity futures broadly rangebound early Tuesday, risk-proxy currencies should follow suit.
• US CPI takes focus going forward, with markets expecting headline Y/Y inflation to hold at 3.1%, but for core to moderate by 0.2ppts to 3.7%. BoE's Mann and Bailey are set to make appearances later today, following from Mann's comments late yesterday, where she reiterated her view that inflation still remains too strong in the UK.

US TSYS: A Touch Firmer on Gilt Rally, Very Tight Ranges Ahead of CPI

The rally in gilts lends some very light support to Tsys.

• UK labour market data has supported gilts and driven a dovish move in BoE pricing.
• TYM4 last +0-02 at 111-21, sticking to a narrow 0-04 range after recovering from Monday’s low.
• Familiar technical levels remain in place.
• Cash Tsy yields are 0.5-1.0bp lower across the curve.
• CPI data headlines the U.S. calendar today.
• FOMC-dated OIS prices ~89.5bp of ’24 cuts ahead of the release, with ~21.5bp of cuts priced through the June FOMC.
• Proximity to the data is seemingly limiting activity, with only ~164K TY futures changing hands so far.
• 10-Year Tsy supply is also due later today. That comes on the heels of yesterday’s relatively well-received 3-Year auction.

EGBS: German Curve Bull Flattens Ahead of Schatz Supply

Core/semi-core EGBs are a touch firmer but remain comfortably below yesterday's highs.

• There were limited spill overs from this morning's UK labour market data.
• Bunds are +15 ticks at 133.54, towards the top of today's tight 23 tick range. The first support remains at 134.18 (High Feb 7).
• Schatz futures are pressured ahead of this morning's E4.5bln supply, with contracts -1.5 ticks at 105.85.
• The German cash curve has bull flattened as a result, with the French curve showing similar dynamics.
• Periphery spreads to Bunds are tighter even as European equities move away from intraday highs. The 10-year BTP/Bund spread is -1.8bps at 130.8bps at typing.
• German February final HICP confirmed flash estimates, with improvements noted in MNI's inflation breadth indicator. Spanish, French and Spanish final HICP figures are due later this week.
• Main focus remains on US CPI at 1230GMT/1330CET.

GILTS: Most of Labour Market Data Rally Holds, STIRs Price Just Under 75bp of '24 BoE Rate Cuts

Gilts rallied on the back of the UK labour market data.

• Bulls couldn’t break 100.00 in futures for a second straight day, leaving familiar technicals intact. Contract last +31 at 99.92 (early range 99.79-99.98).
• Cash gilt yields are 3-5bp lower on the day.
• The curve bull steepens, with 5s30s moving further away from last week’s multi-month flats.
• SONIA futures are unchanged to +5.5, off best levels alongside gilts.
• BoE-dated OIS shows ~73bp of ’24 cuts after briefly pricing 75bp of cuts shortly after the gilt open.
• As a reminder, the data pointed to a softer labour market backdrop, in line with recent surveys, but we don’t see it as a gamechanger for the BoE in isolation. Our full review of the release should be published later today.
• That leaves the August MPC decision as the most obvious starting point for the cutting cycle, in our view.
• This outcome is fully discounted in STIR markets.
• Morgan Stanley believe that chances of a Q2 rate cut are “severely underpriced.”
• This morning will see the DMO come to market with GBP3.75bln of the 4.625% Jan-34 gilt.
• Comments from BoE hawk Mann are due later today, but she already reiterated her well-known stance yesterday.
• Elsewhere, comments from BoE Governor Bailey are due, but the setting limits the potential for market moving comments.

EQUITIES: Eurostoxx 50 Trend Conditions Remain Bullish, Highlighting Positive Sentiment

A bullish theme in Eurostoxx 50 futures remains intact and last week’s fresh cycle high reinforces this theme. Moving average studies remain in a bull-mode position - this continues to highlight positive market sentiment. Sights are on the psychological 5000.00 handle next. Further out, scope is seen for a climb towards a bull channel top at 5035.50. The channel is drawn from the Oct 27 low. Initial firm support lies at 4861.00, the 20-day EMA. The trend condition in S&P E-Minis is bullish and the latest pullback is considered corrective. Last week’s fresh highs reinforce current conditions. Note that price action continues to highlight the fact that corrections are shallow. This is a bullish signal highlighting positive market sentiment. Support to watch is 5137.36 the 20-day EMA. A clear break of this average would open 5022.53, the 50-day EMA. Sights are on 5300.00 next.

• Japan's NIKKEI closed lower by 22.98 pts or -0.06% at 38797.51 and the TOPIX ended 9.59 pts lower or -0.36% at 2657.24.
• Elsewhere, in China the SHANGHAI closed lower by 12.52 pts or -0.41% at 3055.935 and the HANG SENG ended 505.93 pts higher or +3.05% at 17093.5.
• Across Europe, Germany's DAX trades higher by 46.23 pts or +0.26% at 17792.35, FTSE 100 higher by 58.75 pts or +0.77% at 7727.97, CAC 40 up 6.32 pts or +0.08% at 8026.05 and Euro Stoxx 50 up 7.48 pts or +0.15% at 4937.9.
• Dow Jones mini down 10 pts or -0.03% at 38787, S&P 500 mini up 12.5 pts or +0.24% at 5135.75, NASDAQ mini up 84.5 pts or +0.47% at 18055.5.

COMMODITIES: Gold Recovers From Monday's Low, Trades Below Recent Highs

The WTI futures trend condition remains bullish despite the latest pullback - a correction. The recent breach of key resistance at $79.09, the Jan 29 high, reinforces a bullish theme. The clear break highlights potential for a continuation towards $81.70, a Fibonacci retracement. On the downside, support to watch is $76.57, the 50-day EMA. A break of this average would instead signal a possible top. Gold remains firm on the back of its latest rally and price is trading just below its recent highs. The yellow metal last week traded above $2135.4, the Dec 4 high, to deliver a fresh all-time cycle high. The break reinforces bullish conditions and signals scope for $2206.6 next, a Fibonacci projection. S/T conditions are overbought, however, this does not appear to be a concern for bulls - for now. Firm support is at $2088.5, the Dec 28 high and 20-day EMA.

• WTI Crude up $0.29 or +0.37% at $78.26
• Natural Gas up $0.01 or +0.28% at $1.763
• Gold spot down $5.63 or -0.26% at $2176.94
• Copper down $0.25 or -0.06% at $392.65
• Silver down $0.02 or -0.1% at $24.445
• Platinum down $7.63 or -0.81% at $930.39