MNI US OPEN - PBOC Cut RRR in Bid to Provide Additional Stimulus

NEWS

CHINA (MNI): PBOC Cuts Reserve Requirements, Unlocking CNY1 Tln

MNI (Beijing) Easier U.S. monetary policy should give the People’s Bank of China more room to support the economy, Governor Pan Gongsheng told reporters on Wednesday, announcing a 50-basis-point reserve requirement ratio cut effective Feb 5 to unlock CNY1 trillion. The Bank also lowered targeted relending rates for agriculture and small business by 25bp from Friday, moves which together with deposit rate cuts will help lower the benchmark Loan Prime Rate, Pan said, adding that the Bank will ensure liquidity for government debt issuance and enhance tools to prevent one-way forex moves.

MNI BOC PREVIEW - JANUARY 2024: Expecting Too Soon for Cuts Reiteration

The BoC is unanimously expected to hold its policy rate at 5% with greater focus on the statement’s tone and macro forecasts before Macklem’s press conference. One important area will be to what extent the BoC sees the recent resurgence in its preferred core inflation metrics as “bumps along the way” in a path back towards the 2% inflation target. The market has pushed back fully pricing a first rate cut from April to June and analysts expect hawkish leaning commentary. We expect similar and accordingly see risk skewed to a dovish surprise if greater weight is put on the softer aspects of nuanced data or inflation forecasts are lowered.

MNI ECB PREVIEW - JANUARY 2024: No Change for Now, But Policy Rate Cuts Looming

No changes are expected at this week’s ECB policy meeting. President Lagarde will likely use the press conference to push back against market expectations of policy rate cuts in the near-term, while also entertaining the possibility of easing policy later in the year. In other words, the overall message will be that the ECB is getting closer to easing policy, but it is not there yet.

MNI NORGES BANK PREVIEW - JANUARY 2024: Watchful of Guidance Changes

The Norges Bank are unanimously expected to leave the policy rate on hold at 4.50% to begin 2024.Main interest will lie in whether any changes are made to the policy guidance, though we expect the primary guidance paragraph/quote from Governor Bache to be broadly unchanged. We think only a sizeable shift in stance will be enough to prompt a material reaction from NOK, as this meeting is viewed by many as a formality, before more interesting questions on the rate path arise in March.

MIDDLE EAST (RTRS): US Strikes Targets in Iraq After Forces Wounded

The United States carried out strikes in Iraq against three facilities linked to Iran-backed militia on Tuesday, the Pentagon said, after a weekend attack on an Iraqi air base that wounded U.S. forces. U.S. troops in Iraq and Syria have been attacked about 150 times by Iran-aligned militants since the Israel-Gaza war started in October, creating pressure on President Joe Biden to respond militarily, despite political sensitivities in Baghdad.

US (BBG): Trump Defeats Haley in New Hampshire in March Toward Nomination

Former President Donald Trump won the New Hampshire primary, dealing a blow to his only remaining major rival Nikki Haley and solidifying his status as the Republican party’s likely nominee. The Associated Press called the contest for Trump at 8 p.m. Tuesday. He was leading Haley by about 9.6 percentage points with about 50% of the vote counted. This is the second consecutive time the AP has made a quick call in favor of the Republican frontrunner.

US (BBG): Biden Beats Back New Hampshire Challenge as Write-In Candidate

President Joe Biden fended off a challenge from within his own party in New Hampshire, defeating Representative Dean Phillips in a race seen as a referendum on his ability to beat Republican Donald Trump in November. With 39% of votes counted, Phillips had only 20.5% of the vote, an extraordinary victory for the president as a write-in candidate. The victory will help quell calls for Biden, 81, to pass the torch to a younger Democrat.

NATO (WaPo): Turkey Votes in Favor of Sweden’s NATO Membership After Months of Delay

After 20 months of demands, obstruction and delay, the Turkish parliament voted Tuesday night in favor of Sweden joining NATO, clearing one of the final hurdles for a major expansion of the military alliance set in motion by Russia's invasion of Ukraine. Turkish President Recep Tayyip Erdogan still needs to sign the ratification document. Assuming he does, Hungary would be the last remaining holdout. Officials there have previously signaled that they would not, ultimately, stand in the way.

UK (MNI): Former Minister Calls For Sunak's Removal, But No Critical Mass Yet

A former minister has called for the removal of PM Rishi Sunak as leader of the Conservative Party in a move that could spark a re-emergence of the internal divisions that are seen to have contributed to the incumbent party's polling slide. Sir Simon Clarke, who served as Levelling-Up, Housing and Communities Secretary during the short-lived tenure of Liz Truss, wrote in The Daily Telegraph that the PM must be replaced in order to give the Conservatives a fighting chance in the upcoming general election (seen as likely in Q424).

GERMANY (BBG): Hedge Fund Qube Makes $1 Billion Short Bet Against German Stocks

Qube Research & Technologies Ltd. has amassed a short bet of more than $1 billion against German companies amid a downturn in global demand that’s slowing Europe’s biggest economy. The hedge fund added to wagers against the likes of automaker Volkswagen AG over the last two weeks, including disclosing a $131.8 million short against Deutsche Bank AG, according to data compiled by Bloomberg from regulatory filings. It’s the biggest disclosed short seller of the country’s stocks, the data show.

FRANCE (BBG): French Farmers Plan More Protests in Growing Clash With Macron

France’s farmers continued to block major roads across the country on Wednesday, demanding urgent action from President Emmanuel Macron’s government to cut back costs and burdensome regulation. Areas around the southern cities of Bordeaux and Lyon continue to see the worst disruption with tractors and farm vehicles blocking major highways. Farmers from most regions plan more action to exacerbate traffic around the country in the coming days, Arnaud Rousseau, the head of the FNSEA union said.

CHINA (MNI): CSRC Pledges Better Protection, Return For Investor

MNI (Beijing) China’s top securities regulator said it will make investor protection, especially for small- and mid-sized investors a top priority and prompt listed companies to provide better returns to stabilise the capital market and restore confidence, according to a statement on China Securities Regulatory Commission's website on Wednesday.

BOJ (MNI): Firm Wage- and Price-Setting Behaviour Spreads - BOJ

The Bank of Japan believes positive company wage and price setting behaviour is spreading gradually, according to the full text of the Outlook Report released on Wednesday. “A quantitative analysis using time-series data shows that moves to reflect wages in selling prices have been spreading, albeit moderately,” the BOJ said. “It is important to determine whether the linkage between wages and prices would strengthen by continuously conducting qualitative analyses."

JAPAN (BBG): Japan’s Unions Amplify Wage Hike Calls as Negotiations Kick off

Japanese union leaders stepped up their campaign to persuade companies to come through with ambitious wage increases as annual pay negotiations with corporations kicked off. “This year’s wage talks will be a critical moment in the transition to an economy with steadily rising wages and prices, and the biggest challenge is to share awareness throughout society,” Tomoko Yoshino, leader of the Japanese Trade Union Confederation, known as Rengo, said at a seminar on Wednesday.

N.KOREA/S.KOREA (MNI): SK Defence Chief Warns of 'End of Kim Regime' if North Launches War

South Korea's Defence Minister Shin Won-sik gave a warning to an increasingly belligerent North Korea on 24 Jan, saying to troops on a visit to Cheongju air base that "If the Kim Jong-un regime opts for the worst choice of waging war, you should be at the vanguard of removing the enemy's leadership at the earliest possible time and put an end to the regime,". The comments mark some of the most hard-line from a South Korean gov't official since the recent escalation in tensions.

AUSTRALIA (BBG): Australia’s PM Plans to Amend Tax Cuts Despite Vote Pledge

Australia’s Prime Minister Anthony Albanese plans to scale back tax cuts for the nation’s wealthy in favor of low- and middle-income earners, local media reported, a politically risky move after he pledged ahead of the 2022 election to keep the legislated package unchanged. Albanese’s cabinet signed off on the changes to the legislation, known as the Stage 3 tax cuts, following a meeting on Tuesday, according to the Australian Financial Review. The new legislation will be put to the center-left Labor party’s lawmakers ahead of an announcement by the prime minister.

MALAYSIA (BBG): Malaysia Leaves Rates Unchanged, Remains Wary of Price Risks

Malaysia left its benchmark interest rate unchanged on Wednesday, giving itself room to act should price pressures flare up once the government cuts fuel subsidies later this year. Bank Negara Malaysia kept the overnight policy rate at 3% for its first monetary policy meeting of the year, as predicted by all of the 21 economists in a Bloomberg survey. The central bank last adjusted borrowing costs in May, when it raised the benchmark by 25 basis points.

CORPORATE (BBG): Netflix Posts Best Customer Gain Since Surge During Pandemic

Netflix Inc. signed up 13.1 million customers in the final three months of 2023, the streaming giant’s best quarter of growth since viewers were stuck at home in the early days of the pandemic. The strong tally exceeded Wall Street’s estimate of 8.91 million and beat projections in every region of the world, with Netflix adding more than 5 million customers in Europe, the Middle East and Africa alone. Sales rose to $8.83 billion, the company said Tuesday, also topping forecasts.

DATA

EUROZONE DATA (MNI): Germany and France Weakness Somewhat Offset By Rest Of EZ

• EUROZONE JAN FLASH MANUFACTURING PMI 46.6 (FCST 44.8); DEC 44.4
• EUROZONE JAN FLASH SERVICES PMI 48.4 (FCST 49.0); DEC 48.8

The services component of the Eurozone January flash PMI printed at a below-expected 48.4 (vs 49.0 cons, 48.8 prior), as telegraphed by the French and German misses earlier. The manufacturing component above expected at 46.6 (vs 44.7 cons, 44.4 prior), also partly reflecting the German/French beats, and a 9-month high. The composite reading reached a 6-month high at 47.9 (vs 48.0 cons, 47.6 prior).

GERMAN DATA (MNI): Flash Jan PMI Strikes Similar Tones to France, Manufacturers Note Red Sea Disruption

• GERMANY JAN FLASH MANUFACTURING PMI 45.4 (FCST 43.7); DEC 43.4
• GERMANY JAN FLASH SERVICES PMI 47.6 (FCST 49.0); DEC 49.3

Similarly to France, the Germany flash Jan PMI saw services come in lower-than-consensus and manufacturing higher, prompting further support for EGBs. Though again, both remain below 50. Services printed at 47.6 (vs 49.3 cons and prior) - a 5-month low and the second consecutive deceleration - while manufacturing was 45.4 (vs 43.7 cons, 43.4 prior). As previewed by our earlier post, there was evidence of continued wage pressures in services (as in France) and some impact of Red Sea disruptions on manufacturers.

FRANCE DATA (MNI): Wage Pressures Remain Evident in Services Flash Jan PMI

• FRANCE JAN FLASH MANUFACTURING PMI 43.2 (FCST 42.5); DEC 42.1
• FRANCE JAN FLASH SERVICES PMI 45.0 (FCST 46.0); DEC 45.7

The French January flash PMIs remained in contractionary territory to start 2024. Manufacturing PMI beat expectations (43.2 vs 42.5 cons, 42.1 prior), but the Services miss (45.0 vs 46.0 cons, 45.7 prior) prompted an initial leg up in Bund and OAT futures. Wage pressures were once again highlighted as an upside driver of input costs amongst service firms.

UK DATA (MNI): PMI Shows Stronger Than Expected Output, But Higher Cost Pressures

• UK JAN FLASH MANUFACTURING PMI 47.3 (FCST 46.6); DEC 46.2
• UK JAN FLASH SERVICES PMI 53.8 (FCST 53.1); DEC 53.4

Like in the Eurozone, the UK manufacturing PMI came in higher-than-expected at 47.3 (46.7 exp, 46.2 prev), a 9-month high. However, in contrast to the Eurozone, the services PMI was also above expectations at 53.8 (53.2 exp, 53.4 prev), an 8-month high. We are starting to see some initial impacts on input prices from the Red Sea situation and wage pressures are still seeing service input prices increase. Overall, this is a relatively hawkish report for the MPC - demand stronger than expected, but pressures also increasing.

UK DATA (MNI): Xpert HR Median Pay Remains at 6% for Third Consecutive Month

• UK OCT-DEC MEDIAN PAY AWARDS +6% :XpertHR

XpertHR median basic pay award in the 3 months to the end of December 2023 remained at +6% for the third consecutive month. XpertHR believe "pay awards have peaked from last year, with more than half of 2024 deals expected to be lower than those awarded in 2023." Already some January 2024 pay deals are coming through, and the Xpert HR senior content manager said "almost half of January 2024 pay deals are lower than the same employees received a year ago."

JAPAN DATA (MNI): Japan Dec Exports Rise First in Two Months

• JAPAN POSTS JPY62.1 BLN TRADE SURPLUS IN DEC
• JAPAN DEC EXPORTS +9.8% Y/Y; NOV -0.2%
• JAPAN DEC IMPORTS -6.8% Y/Y; NOV -11.9%

Japan's exports posted the first y/y rise in two months in December, up 9.8% vs. November's 0.2% fall, due to increased automobile and auto parts exports, data released by the Ministry of Finance showed on Wednesday. Automobile exports rose 35.9% in December, accelerating from 16.3% y/y in November, while auto-part shipments rose 13.6% vs. November's 10.2% fall. The data was largely within the Bank of Japan's view.

AUSTRALIA DATA (MNI): Westpac Leading Index Stabilising But Signals Soft Growth

The December 6-month annualised Westpac leading indicator, which leads detrended growth by 3 to 9 months, was flat after rising 0.2% in November. The index itself moved sideways over Q4 signalling growth steadied. And Westpac notes that the improvement in the 6-month rate shows that economic momentum is stabilising rather than picking up, and that it remains soft. The shift into positive territory has been driven by stronger commodity prices, especially iron ore.

NEW ZEALAND DATA (MNI): Q4 CPI Rises 4.7% from Q3's 5.6%

New Zealand’s Consumer Price Index rose 4.7% y/y over the December 2023 quarter, down from Q3’s 5.6% and in line with market and Reserve Bank of New Zealand expectations. Tradable inflation fell 0.2% q/q, lower than the market’s 01% forecast, while non-tradeable inflation was 1.1%, higher than the market's 0.8% expectations. CPI increased 0.5% q/q, down from Q3’s 1.8%.

FOREX: USD Backtracks as PMIs Prompt EUR, GBP Recovery

• The USD is backtracking, making the the greenback weaker against all others in G10. Better European data helped aid the move among major pairs, with German and French manufacturing data faring well, despite services remaining weak. UK data was more well-grounded, helping the composite PMI edge to 52.5 vs. Exp. 52.1.
• Stronger PMI data across Europe and the UK has contributed to the recovery in EUR/USD and GBP/USD, but GBP has outperformed, resulting in fresh YTD lows for EUR/GBP. The price action makes for five negative sessions in the past six and 0.8524 as the next downside target.
• This drags spot away from the most sizeable strike in the cross for today's NY cut: E459mln rolling off at GBP0.8545. BoE pricing firmed slightly on the PMI print, with May meeting rate cut pricing pared back to ~12bps and reducing the odds of a 25bps cut to below 50%.
• SEK and EUR proxies more broadly are faring well, keeping SEK toward the top end of the G10 pile. In a partial reversal of yesterday's price action, the USD is the weakest headed through to the NY crossover.
• The Bank of Canada rate decision takes focus going forward. While markets expect little change in headline policy (rates seen unchanged at 5.00%) with greater focus on the statement’s tone and macro forecasts before Macklem’s press conference. Prelim US PMI stats is sole US release of note, with speech schedules remaining quiet as the ECB and Fed remain inside the pre-rate decision media quiet period.

EGBS: Remain Firmer But Off Intraday Highs as Flash PMIs Come Across Stagflationary

Core/semi-core EGBs have moved off intraday highs as the details of the January flash PMIs implied less of a dovish conclusion than the headline figures initially suggested.

• While the services PMIs were lower-than-expected in both France and Germany, both reports noted evidence of continued wage pressures amongst service sector firms. The Eurozone-wide release also noted the stagflationary impact of Red Sea disruptions on manufacturers.
• The stronger-than-expected UK flash PMI also weighed on the space.
• Bunds are +15 ticks at 134.08, after printing a post-data high of 134.42, though today's price action remains contained within yesterday's range.
• Pre-data support in wider core FI came from the PBoC's RRR cut announcement, detailed elsewhere.
• German and French yields are 2-3bps lower today, while periphery spreads to Bunds are tighter. Buoyant European equities alongside inferences that Spain/Italy will have supported the Eurozone-wide flash PMI print have enabled today's compression, with the 10-year BTP/Bund spread 2.6bps narrower at 154bps at typing.
• The remainder of today's regional docket is light, while the BoC decision at 1445GMT may garner some cross-border interest.

GILTS: Lower Still, Initial Support Breached in Futures, 10s Above 4.00%

The combination of firmer-than-expected domestic PMI data and softer-than-recent trend demand at the latest gilt auction (GBP4.0bn of the 4.50% Jun-28 gilt) applies pressure to the space.

• Futures closed the opening gap higher as a result, with the move extending further.
• The PBoC’s RRR cut & a Tsy bid were seen as supportive factors into the open, while spill over from European PMIs provided further support in initial Wednesday dealing. That was before the domestic data countered.
• The contract last shows -50 at 97.89, 8 ticks off the low of the early 95-tick range.
• Support at the Jan 17 low (98.00) is breached. Bears now look to the Dec 11 low/key support (97.39).
• Cash gilt yields sit 4.5-6.5bp higher on the day, with a bear flattening bias.
• 10-Year yields have moved beyond 4.00% for the first time this year, which would have added selling pressure. The Dec 11 high (4.085%) presents the next target for gilt bears on that front.
• SONIA futures sit flat to 7.0bp lower through the blues, at/just off worst levels of the day, with the early uptick more than reversed.
• BoE-dated OIS is little changed to ~5.5bp firmer on the day through ’24 contracts, with early receiver-side moves more than countered. ~21.5bp of cuts are now seen through the June-24 MPC, meaning a 25bp cut is now less than 90% priced.
• ~93bp of cuts are priced through ’24 on the whole, with yesterday’s extreme breached as the foray below 100bp of cuts extends a little further.

EQUITIES: Eurostoxx 50 Futures Extend Bounce From Last Week's Lows

Eurostoxx 50 futures have recovered from last week’s low of 4402.00 (the Jan 17 low) and the contract is holding on to its most recent gains. 4402.00 represents a key short-term support. A break of it would resume recent bearish pressure and open 4370.00, the Nov 28 low. On the upside, initial resistance to watch is 4536.00, the Jan 11 high. Clearance of this level would highlight a potential S/T reversal and a resumption of the primary uptrend. The uptrend in S&P E-Minis remains intact and this week’s move higher reinforces current conditions. Resistance at 4841.50, the Dec 28 high has been cleared, confirming an extension of the price sequence of higher highs and higher lows. Moving average studies remain in a bull-mode condition, highlighting positive market sentiment. Sights are on 4915.11 next, a Fibonacci projection. Key support lies at 4713.85, the 50-day EMA.

• Japan's NIKKEI closed lower by 291.09 pts or -0.8% at 36226.48 and the TOPIX ended 12.85 pts lower or -0.51% at 2529.22.
• Elsewhere, in China the SHANGHAI closed higher by 49.796 pts or +1.8% at 2820.772 and the HANG SENG ended 545.89 pts higher or +3.56% at 15899.87.
• Across Europe, Germany's DAX trades higher by 158.51 pts or +0.95% at 16784.51, FTSE 100 higher by 21.7 pts or +0.29% at 7507.4, CAC 40 up 37.07 pts or +0.5% at 7425.11 and Euro Stoxx 50 up 59.5 pts or +1.33% at 4525.41.
• Dow Jones mini up 53 pts or +0.14% at 38142, S&P 500 mini up 20.75 pts or +0.42% at 4915.75, NASDAQ mini up 131.25 pts or +0.75% at 17662.75.

COMMODITIES: Trend Conditions in WTI Futures Remain Bearish, Latest Recovery Deemed Corrective

Trend signals in WTI futures remain bearish and the latest recovery appears to be a correction - for now. The contract has pierced the 50-day EMA at $74.25. A clear break of it would strengthen a bullish theme and expose $76.31, the Dec 26 high and a near-term bull trigger. Moving average studies remain in a bear-mode position and continue to highlight a downtrend. The trigger for a resumption of the downtrend is $68.28, Dec 13 low. Gold is unchanged and trades above the Jan 17 low of $2001.9. Last week’s print below the 50-day EMA and the break of support at $2013.4, the Jan 11 low, has strengthened a bearish threat and a resumption of weakness would open a key level at $1973.2, the Dec 13 low. For bulls, clearance of 2062.3, the Jan 12 high, is required to signal a reversal. This would expose $2088.5, the Dec 28 high.

• WTI Crude up $0.41 or +0.55% at $74.78
• Natural Gas up $0.07 or +2.9% at $2.525
• Gold spot up $2.73 or +0.13% at $2032.23
• Copper up $8.9 or +2.35% at $388.4
• Silver up $0.33 or +1.48% at $22.7675
• Platinum up $7.03 or +0.78% at $911.57