MNI US OPEN - PBOC's Hefty 5Y LPR Cut Aimed at Mortgage Support

NEWS

US/ISRAEL (BBG): US Warns Israel Against an Attack on Rafah in UN Draft

The US proposed a UN Security Council resolution warning against an Israeli assault on Rafah in the southern Gaza Strip and calling for a temporary cease-fire, according to a copy of the draft text seen by Bloomberg. “Under current circumstances a major ground offensive into Rafah would result in further harm to civilians and their further displacement including potentially into neighboring countries, which would have serious implications for regional peace and security,” the draft says. “Such a major ground offensive should not proceed under current circumstances.”

PBOC (MNI): Hefty 5Y LPR Cut Aimed at Mortgage Support

MNI (Beijing) China’s bigger-than-expected cut to the Loan Prime Rate’s five-year plus tenor has sent a strong signal of support to the property market and will make further central bank easing more likely should the economy continue to soften and the U.S. Federal Reserve turns dovish. According to a People's Bank of China statement on Tuesday, the five-year plus LPR maturity, based on the PBOC’s Medium-term Lending Facility rate and quotes submitted by 20 banks, was reduced 25 basis points to 3.95% from 4.2%, its biggest cut yet, while one-year LPR remained unchanged at 3.45%. Investors had anticipated a 5-10bp cut.

PBOC (MNI): LPR Cut Benefits Consumption - Financial News

MNI (Beijing) The hefty cut to Loan Prime Rate's five-year plus tenor will benefit investment and consumption while reducing interest payment of house buyers, Financial News, a newspaper affiliated with the central bank, reported on Tuesday. The newspaper said the promotion of stable real-estate sector development in 2024 was crucial, with the moderate reduction of residential mortgage interest rates a key strategy. The paper noted the reduced interest expenses will boost recovery in consumer spending.

BOE (MNI): Broadbent "Doesn't Rule Out a Policy Easing at Some Point This Year."

Full paragraph: "In the MPC's main forecasts in February... projected inflation two years from now was certainly lower than it is today, but still slightly above the 2% target. This certainly doesn't rule out a policy easing at some point this year. In my view that is the more likely direction in which Bank Rate is likely to move. But even if that proves to be the case, the timing of any adjustment can only depend on the actual evolution of the economic data, and in particular the three sets of indicators - the tightness of the labour market, wage growth and services inflation"

NATO (MNI): Hungary Set to Vote on Ratification of Sweden's Accession 26 Feb

The Hungarian National Assembly is set to vote on the ratification of Sweden's NATO bid when it reconvenes following its winter break on Monday 26 February. The Hungarian gov't has long-delayed the ratification, despite claiming previously that it would not be the final country to do so (a claim disproved by Turkey's ratification in January). PM Viktor Orban and other figures from his right-wing populist Fidesz Party have previously said that comments from Swedish officials regarding EU rule of law violations in Hungary required explanations from PM Ulf Kristersson before the ratification could proceed.

RBA (MNI): RBA Board Stresses Future Hike Risk - Minutes

The Reserve Bank of Australia board aimed to stress the risk of further cash rate hikes due to high uncertainty over returning inflation to its 2-3% target band at the Feb 6 meeting, the published minutes showed Tuesday. “Members agreed that it was appropriate not to rule out a further increase in the cash rate target,” the minutes noted. Governor Michele Bullock took an agnostic stance towards the future path of the cash rate following the board’s decision to hold it at 4.35% earlier in the month. She stressed either cuts or hikes were possible.

INDIA (BBG): India Farmers Reject Government Offer on Guaranteed Crop Prices

Indian farmer groups rejected a government offer to guarantee minimum prices for some crops currently traded with no such safeguard, and are expected to resume the ongoing protest on Wednesday. The farmers, who are seeking price guarantees for 23 crops, traveled toward the Indian capital last week demanding that the government fulfills that promise, made at the end of the 2021 protest. After multiple rounds of talks, the federal government offered to guarantee minimum prices on a small number of crops, including pulses. Growers had temporarily halted their protests to consider the proposal.

THAILAND (BBG): Thai PM Seeks Emergency Rate Cut, Pressuring Central Bank

Thailand’s Prime Minister Srettha Thavisin asked the central bank to urgently hold an unscheduled meeting of its Monetary Policy Committee to cut interest rate, saying the latest data indicated that the nation’s economy was in a crisis. “I would like to implore the MPC to urgently call a committee meeting to consider reducing interest without waiting for a scheduled meeting,” Srettha posted on X late Monday.

COMMODITIES (BBG): Iron Ore Battered to Three-Month Low as China Concerns Escalate

Iron ore slumped to a three-month low despite extra support for China’s housing market as investors fretted that steel demand wouldn’t stage a strong recovery after the Lunar New Year break. Futures sank more than 5% in Singapore to hit the lowest intraday price since early November, following a drop in the week’s opening session. The weakness came even after Chinese banks cut a key reference rate for mortgages by a record amount, throwing more weight behind property-sector rescue efforts.

DATA

EUROZONE DATA (MNI): Negotiated Eurozone Wage Growth Slowed in Q4 - ECB

Euro area wage growth slowed modestly in the three months to end-December, the European Central Bank's negotiated wage tracker showed on Tuesday. Wage growth slowed to 4.46% q/q from 4.69% in the third quarter, the data showed. On an annual basis, wage growth in 2023 was 4.47%, up from 2.92% in 2022. The ECB's Governing Council is focussing on wage growth as a key metric in discussions over whether to cut rates. While the direction of the latest move will be encouraging, many will still be nervous at the elevated level of growth. Q1 data will be released on May 23 -- after the April policy meeting but before June's.

EUROZONE DATA (MNI): Indeed Wage Tracker Accelerates for 2nd Month in a Row

Yesterday's update to the Indeed.com Eurozone wage tracker showed a second consecutive monthly increase in the 3mma Y/Y rate. The January print rose to 3.89% Y/Y (3mma) vs 3.83% in December and 3.73% in November. We note the tracker still sits some way off the 5.15% Y/Y peak seen in October 2022, though. At a country level, the 3mma Y/Y rate increased in Germany to 4.45% (vs 4.41% prior). This comes after yesterday's German negotiated wages series rose to 3.29% Y/Y in December (vs 3.15% in November).

EUROZONE DEC CONSTRUCTION OUTPUT +0.8% M/M, +1.9% Y/Y (MNI)

FOREX: EUR Tilted to New Weekly Highs; CAD CPI on Tap

• EUR has been in demand across the European morning, helping tip EUR/USD through both the Monday and Friday highs with relatively little resistance. Markets moves came ahead of the release of the ECB's Euroarea negotiated wages release for Q4'23, which showed wages slowing to 4.5% from 4.7% in the prior quarter.
• The JPY is the poorest performing currency across G10, keeping the bull cycle in EUR/JPY, AUD/JPY and others intact. EUR/JPY now trades solidly above the mid-January highs, opening further progress toward the cycle best posted in November at 164.30.
• NZD/USD's short-term bounce extends, tipping NZD/USD to print higher highs and higher lows for a fifth consecutive session. This tilts prices toward first key resistance at the 50-dma of 0.6183, a break above which would extend the bounce off the February lows to near 150 pips.
• Focus for the session ahead turns to the Canadian CPI release, with markets watching for headline inflation to slow by 0.1ppts for the Y/Y CPI as well as the core trim figure. Central bank speakers are few and far between, with no key Fed or ECB representatives on the docket. BoE's Bailey, Broadbent, Greene and Dhingra are set to testify in front of UK lawmakers, however few fresh policy signals are expected.

EGBS: Off Highs But Remain Firmer Today; Little Impact From ECB Wage Data

Core/semi-core EGBs have moved away from intraday highs but remain firmer on the day.

• ECB Q4 negotiated wages softened to 4.5% (vs 4.7% prior), but markets were unmoved given the lagging nature of the indicator. For the ECB, the Q1 '24 data (due in May) will be most pertinent to gauge when the policy easing cycle can begin. ECB-dated OIS contracts currently price the first full 25bps rate cut by the June meeting, with 31bps of cuts priced.
• Otherwise, headline flow has been relatively light. Today's sovereign supply slate (GBP1.75bln 40y Gilt, E5bln 2y Schatz, Italian exchange auction and 10y EU bond syndication) will have helped cap rallies through the morning.
• In the Asia-Pac session, main impetus was the larger than expected 25bp reduction in the 5-Year LPR.
• Bunds are +36 ticks at 133.21 at typing. Schatz futures are just +3 ticks higher, with today's Schatz supply weighing at the short-end. The German cash curve has bull flattened as a result.
• Periphery spreads to Bunds are mixed, with the 10-year BTP/Bund spread -0.9bps tighter at 148.2bps and the 10-year PGB/Bund spread 1.1bps wider at 74.8bps.
• The remainder of today's regional docket is quite light, with today's BoE speakers at the Treasury Select Committee potentially garnering some cross-market interest.

GILTS: Several Factors Support, BoE's TSC Ongoing

Gilt futures have added 62 ticks and last trade at session bests of 97.92.

• Still, the bearish technical threat remains intact in the contract.
• Initial technical parameters come in the form of support at the Feb 13 low/bear trigger (96.81) & resistance at the 50-day EMA (98.71).
• Bulls need to overcome the latter to overturn the overarching technical theme.
• Cash gilt yields are 5-6bp lower across the curve, with the front end outperforming.
• Outright yield levels and the cut in China’s 5-Year LPR fixings have dominated when it comes to discussions/reasoning re: this morning’s contained rally in core global FI markets.
• Decent demand metrics at the latest round of 40-Year gilt supply also plays into the theme, with an extension of the rally seen post-auction.
• SONIA futures sit +0.25 to +8.5 through the blues, with the late reds and early greens outperforming at the margin.
• BoE-dated OIS moves to price ~74.5bp of cuts at typing vs. ~68bp at yesterday’s close.
• Goldman Sachs pushed their call re: the first BoE rate cut back to June from May.
• They still see a more aggressive rate cut path than the broader market, looking for 5 consecutive 25bp cuts between June and year end, with a terminal rate call of 3.00%.
• We flagged the attractiveness of received Dec ’24 MPC via Aug ‘24/Dec ’24 spread plays at the back end of last week.
• A Tsy Select committee hearing with BoE’s Bailey, Broadbent, Greene & Dhingra is ongoing. Broadbent doesn’t rule out policy easing at some point this year.

EQUITIES: E-Mini S&P Trend Condition Bullish Despite Latest Pullback

Eurostoxx 50 futures remain in a bull cycle. The contract has resumed its uptrend and traded to a fresh cycle high. This reinforces current conditions and the importance of the recent break of resistance at 4634.00, the Dec 14 high. Moving average studies are in a bull-mode position, highlighting positive market sentiment. Sights are on 4800.00 and 4848.00, a Fibonacci projection. Initial firm support lies at 4664.80, the 20-day EMA. The trend condition in S&P E-Minis is unchanged and remains bullish, despite the pullback off last week’s highs. The weakness off 5066.50 is considered corrective and support to watch lies at 4957.27, the 20-day EMA. A clear break of this average would suggest potential for a deeper retracement, possibly towards the 4866.00 key support, the Jan 31 low. The trigger for a resumption of gains is 5066.50, the Feb 12 high.

• Japan's NIKKEI closed lower by 106.77 pts or -0.28% at 38363.61 and the TOPIX ended 7.39 pts lower or -0.28% at 2632.3.
• Elsewhere, in China the SHANGHAI closed higher by 12.186 pts or +0.42% at 2922.73 and the HANG SENG ended 91.9 pts higher or +0.57% at 16247.51.
• Across Europe, Germany's DAX trades lower by 54.94 pts or -0.32% at 17042.31, FTSE 100 lower by 6.32 pts or -0.08% at 7723.65, CAC 40 up 16.24 pts or +0.21% at 7787.31 and Euro Stoxx 50 down 5.61 pts or -0.12% at 4758.84.
• Dow Jones mini down 72 pts or -0.19% at 38619, S&P 500 mini down 15.25 pts or -0.3% at 5004.25, NASDAQ mini down 78.25 pts or -0.44% at 17666.5.

COMMODITIES: WTI Futures Remain Close to Key Short-Term Resistance at $79.75

Recent gains in WTI futures, since Feb 5, still appear to be a correction. Key short-term resistance has been defined at $79.75, the Feb 16 high. Clearance of this level would be a bullish development. On the downside, support to watch lies at $71.41, the Feb 5 low. A break of this level would reinstate the recent bearish theme and pave the way for a move towards $69.56, the Jan 3 low. Gold traded lower early last week and the sell-off resulted in a break of $2001.9, the Jan 17 low and a key short-term support. The breach highlights a resumption of the bear leg that started Dec 28. A continuation lower would open $1973.2, the Dec 13 low and the next key support. On the upside, the yellow metal needs to clear resistance at $2065.5, the Feb 1 high, to reinstate a bullish theme.

• WTI Crude down $0.04 or -0.05% at $79.15
• Natural Gas down $0.03 or -2.11% at $1.577
• Gold spot up $7.61 or +0.38% at $2024.15
• Copper down $1.05 or -0.27% at $384.05
• Silver up $0.02 or +0.09% at $23.0455
• Platinum up $3.19 or +0.35% at $905.58