MNI US OPEN - Powell Says Fed Needs More Disinflation Evidence to Cut

NEWS

US (MNI): Powell Says Fed Needs More Disinflation Evidence to Cut

Federal Reserve officials are optimistic about a steady recent slowing in inflation but want to see it continue for a while longer before they take the “important step” of beginning interest rate cuts, Fed Chair Jerome Powell told 60 Minutes in an interview airing Sunday. “The prudent thing to do is to, is to just give it some time and see that the data continue to confirm that inflation is moving down to 2% in a sustainable way,” he said in an interview recorded Thursday, repeating that he thinks a move at the March meeting is unlikely.

US (MNI): Senate Releases Border Deal, Johnson Declares Bill "DOA" in House

Senate negotiators have released the final text of their long-awaited US-Mexico border security bill as part of a USD$118 legislative package which includes President Biden's National Security supplemental request for new funding for Ukraine and other US allies. The bill proposes the biggest overhaul of border policy in decades, closing pathways to asylum, boosting detention capacity, and providing the White House enhanced powers to shut down the border if migrant crossings exceed a daily or weekly threshold.

US/UK/MIDDLE EAST (WPT): Houthis Promise ‘Escalation’ After U.S., British Strikes in Yemen

The Houthis said they would retaliate after U.S. and British forces launched a new wave of strikes targeting sites used by the Iranian-backed militant group in Yemen. The joint attacks "will not go unanswered, and we will meet escalation with escalation," Mohammed Al-Bukhaiti, a member of the Houthi political bureau, said early Sunday local time. The strikes on Yemen targeted 13 locations associated with Houthi storage facilities and weaponry, U.S. Defense Secretary Lloyd Austin said.

GLOBAL (MNI): Soft Landing Path for Fed, ECB Cut Around Midyear - OECD

The Federal Reserve and ECB will see inflation moderate enough to cut interest rates in middle quarters of this year with the global economy seeing improved prospects for a soft landing, the OECD said Monday. "Scope exists to start lowering nominal policy rates provided inflation continues to ease, with policy rate reductions beginning in the United States and the euro area by the second and third quarters of 2024 respectively, but the policy stance should remain restrictive for some time to come," according to the Paris-based group's updated Outlook report.

SWEDEN (MNI): Swedish Monetary Policy Restrictive Through H1 - IMF

Sweden faces exceptionally high uncertainty over its inflation outlook and monetary policy will need to stay restrictive throughout the first half of 2024, the International Monetary Fund said in preliminary remarks ahead of its comprehensive Article IV report on the economy, published Monday. The Riksbank board stated following its first meeting of 2024 that it was not ruling out a cut in the first half. The IMF, however, urged caution over easing, stating that the country is facing two-sided inflation risks and recommending that the central bank sticks to a data driven approach.

CHINA (MNI): China to Control IPO Quality, Increase Delisting

MNI (Beijing) China’s top securities regulator said it will strictly control the quality of initial public offerings and increase delisting efforts to improve the quality of listed companies and maintain capital-market stability, according to a statement by the China Securities Regulatory Commission on its website Sunday. The CSRC will encourage and support various institutional investors to increase counter-cyclical allocation and guide more medium and long-term funds to enter the market, the statement said.

CHINA (MNI): China Farm Price Index Highest Since Jan 2023

MNI (Beijing) China’s wholesale agricultural product price index reached 135.59 on Monday, the highest level since January 2023, according to the Ministry of Agriculture and Rural Affairs. Today’s level marks 20 consecutive days the index has increased, Chinese data provider Wind noted.

BOJ (MNI): BOJ to Pursue Market Friendly Hikes After Policy Exit

The Bank of Japan will likely gradually raise its overnight rate to 1% after it moves away from negative levels, but will likely avoid signalling a clear hiking path amid uncertainty over the level of the neutral rate of interest and concern tighter policy might overly strengthen the yen, MNI understands. As the removal of negative rates draws closer, bank officials are considering how high the bank could theoretically raise its short-term policy interest rate after the adjustment. Economic and price developments will drive the pace of hikes, however, bank officials want to see the policy rate rise to at least 1% to revive market function.

BOJ (BBG): BOJ Offers to Buy Japanese Bonds After Spikes in Repo Rates

The Bank of Japan offered to buy bonds in two fund-supplying operations to contain an increase in a key short-term interest rate. The central bank said it would purchase ¥5 trillion ($34 billion) of bonds and futures on Monday and ¥4 trillion on Tuesday, with a minimum yield of minus 0.1%. These are the first such operations since July and conform with the view that the BOJ will try to limit gains in short-term rates, even as it edges toward a policy shift in the coming months to end the world’s last subzero benchmark interest rate.

MNI RBA PREVIEW - FEBRUARY 2024: Prolonged Hold from Cautious RBA

The RBA is unanimously expected (Bloomberg consensus) to leave rates unchanged at 4.35% at its February 6 meeting given lower-than-projected Q4 CPI and activity data have been soft since the last meeting. But it is likely to be too soon to remove the tightening bias given still elevated domestic price pressures and tight labour market. The meeting statement is likely to acknowledge the softer data but sound cautious pointing out that the inflation fight has not yet been won and that significant uncertainties persist.

TURKEY (BBG): Turkey’s Surprise Central Banker Switch Has Investors Upbeat

Investors who recently turned bullish on Turkey are unruffled by the shock departure of the its central-bank governor, showing trust in the personal guarantee of President Recep Tayyip Erdogan that the shift to market-friendly policies will continue. In the past, surprise late-night changes at Turkey’s central bank have fueled periods of financial stress. This time appears different, investors said, thanks largely to new Governor Fatih Karahan’s credentials.

DATA

EUROZONE DATA (MNI): Producer Prices Remain in Deflation

• EUROZONE DEC PPI -0.8% M/M, -10.6% Y/Y

Eurozone Producer Prices for December came in largely in line with expectations at -10.6% Y/Y (vs -10.5% cons; -8.8% prior) and -0.8% M/M (vs -0.8% cons; -0.3%prior). Excluding the energy component, producer prices printed -0.4% Y/Y (vs -0.4% prior) and -0.1% M/M (vs -0.2% prior). The energy component saw more deflationary pressures on the Y/Y print to -27.5% Y/Y (vs -23.9% prior), the most since September 2023. Energy prices also deflated on the month at -2.3% M/M (vs -1.0% prior).

UK DATA (MNI): Labour Market Data Indicate Labour Market Tightened More in the Previous Quarter

ONS: "The reweighted estimates suggest that over the last five months, though the employment rate has remained broadly flat, the unemployment rate may have fallen, offset by an increase in the rate of economic inactivity; however, some uncertainty remains in these estimates." The latest estimate for unemployment is now 3.9% in the 3-months to November. This is down 0.3ppt from the 4.2% that had previously been expected. The new data has fallen from a peak of 4.3% in the 3-months to July. Whereas the ONS' previous estimates based on alternative data had the unemployment rate broadly stable.

UK JAN SERVICES PMI 54.3 (FLASH: 53.8); DEC 53.4 (MNI)

SPAIN DATA (MNI): Higher Services Employment Feeding Through to Higher Services Inflation

• SPAIN JAN SERVICES PMI 52.1 (FCST: 52.3); DEC 51.5

The Spain services PMI shows that increased employment levels was pushing wages higher and these cost increases were being passed on. This theme was not picked up so much in the press release for the Eurozone-wide flash PMI data for the month - but if it became more widespread would start to create issues for the ECB.

EUROZONE JAN SERVICES PMI 48.4 (FLASH: 48.4); DEC 48.8 (MNI)
GERMANY JAN SERVICES PMI 47.7 (FLASH: 47.6); DEC 49.3 (MNI)
FRANCE JAN SERVICES PMI 45.4 (FLASH: 45.0); DEC 45.7 (MNI)
ITALY JAN SERVICES PMI 51.2 (FCST: 50.8); DEC 49.8 (MNI)

AUSTRALIA DATA (MNI): Trade Data Show Softening Capex Imports & Strong Commodity Volumes

• AUSTRALIA DEC TRADE BALANCE A$+10959

The merchandise trade surplus narrowed slightly in December as export growth underperformed import growth. It came in at $10.96bn after $11.76bn with imports rising 4.8% m/m and exports 1.8%. The data doesn't change the view of the economy with signs that the domestic economy is softening and export growth solid to Australia's largest trading partner. Goods exports rose for the third consecutive month in December but were still down 5% y/y but this improved from -8.5%.

AUSTRALIA DATA (MNI): MI Inflation Gauge Holds Above 4%

The Melbourne Institute's inflation gauge has been stickier in coming down than headline inflation for the last year. The January reading moderated to 4.6%from 5.2%, helped by lower petrol prices, but remains above November's 4.2%. MI's trimmed mean measure eased to 4.4% from 5.2% but higher than November's 3.8%. The December and Q4 CPIs surprised to the downside and the RBA is unanimously expected to keep rates at 4.35% on Tuesday.

FOREX: Greenback Favoured for Second Session

• The USD is favoured in early Monday trade, with the greenback firmer for a second session after Friday's solid payrolls release. An appearance from Fed chair Powell on 60 Minutes has added to the hawkish market reaction, within which the host suggested markets may have to wait until a few months before the Presidential election in November for the first Fed rate cut.
• Currency markets are generally busy, with volumes sitting ahead of average for this time of day. Desks suggest that Asia-Pac interbank FX volume was 40-50% above the recent norms, with adjustments in Fed pricing front and centre when it came to discussions, although Tsy yields are back from their Asia highs (which went beyond Friday’s post-NFP extremes across the curve).
• EUR/GBP is slightly firmer for a third consecutive session, with the cross seemingly finding a base at 0.8513. JPY trades well, firmer against most others in G10 on the back of a surge in front-end repo rates in local markets, which prompted a BoJ bond-buying response to contain the move.
• Focus for the Monday session turns to the January ISM services release and the latest SLOOS release from the US. Central bank speak includes Fed's Bostic and Goolsbee, although the latter has spoken relatively recently. BoE's Huw Pill is also set to speak, however he already made an appearance on Friday, after last week's unchanged BoE rate decision.

BONDS: EGBs & Gilts Hold Much of Early Weakness

EGBs and gilts sit a little above softest levels of the day after a combination of wider macro impulses (Fed chair Powell’s weekend interview & hawkish BoJ sources) and UK matters (corporate expectations re: price rises, ONS adjustments to labour market data and slightly firmer-than-flash final PMIs) providing the obvious sources of early pressure this week.

• ECB & BoE-dated OIS have unwound a little more of the rate cuts priced for ’24 across their respective strips (127bp of ’24 cuts now priced for the ECB, ~85bp for the BoE) but also sit a little off session extremes as core bonds stabilise.
• The burden of supply (via an ongoing EFSF 10-Year syndication and dual-tranche supply from the EU) will also be providing some background pressure.
• Final Eurozone services and composite PMI readings failed to alter the economic narrative, printing in line with the flash estimates.
• Eurozone PPI was near enough in line with expectations.
• Technical support in Bund futures (134.31) has held so far, with the contract registering a low of 134.33 (last 134.45). German cash yields are 4.0-4.5bp higher, with any early flattening pressure unwound.
• Peripheral spreads to 10-Year Bunds are little changed to 1bp tighter on the day.
• Gilts near enough respected early session lows post-domestic PMI data (lows of 98.20 thus far). Although the contract has broken last week’s base it has not tested initial support at the Jan 16 low (98.16), which protects the bear trigger (97.57).
• Cash gilt yields are 4-7bp higher, as the curve bear flattens.
• The U.S. ISM survey, aforementioned European supply, comments from BoE’s Pill & Fedspeak from Goolsbee and Bostic headline from here.

EQUITIES: Friday's Gains Reinforce Broader Uptrend in E-Mini S&P

Eurostoxx 50 futures remain firm and the contract is holding on to the bulk of its recent gains. Key resistance at the Dec 14 high of 4634.00 has recently been cleared. The break confirms a resumption of the medium-term uptrend and sights are on the 4700.00 handle next. Initial firm support lies at 4578.50, the 20-day EMA. Key trend support has been defined at 4402.00, the Jan 17 low. A short-term pullback would be considered corrective. A broader uptrend in S&P E-Minis remains intact and Friday’s gains reinforce this condition. The contract has traded to fresh cycle highs, confirming a resumption of the uptrend. Recent corrections have been shallow - this also highlights a strong uptrend. The focus is on the psychological 5000.00 handle. On the downside, initial key short-term support has been defined at 4866.00, the Jan 31 low.

• Japan's NIKKEI closed higher by 196.14 pts or +0.54% at 36354.16 and the TOPIX ended 17.03 pts higher or +0.67% at 2556.71.
• Elsewhere, in China the SHANGHAI closed lower by 27.967 pts or -1.02% at 2702.185 and the HANG SENG ended 23.55 pts lower or -0.15% at 15510.01.
• Across Europe, Germany's DAX trades lower by 15.01 pts or -0.09% at 16903.24, FTSE 100 higher by 11.36 pts or +0.15% at 7626.82, CAC 40 down 12.85 pts or -0.17% at 7579.06 and Euro Stoxx 50 down 4.46 pts or -0.1% at 4649.84.
• Dow Jones mini down 128 pts or -0.33% at 38637, S&P 500 mini down 12.75 pts or -0.26% at 4967.5, NASDAQ mini down 37.25 pts or -0.21% at 17696.

COMMODITIES: Gold Extends Pullback from Last Week's Highs

WTI futures remain soft following last week’s steep sell-off. The move lower undermines the recent bullish theme. A continuation would expose support at $70.62, the Jan 17 low, and $69.56, the Jan 3 low. For bulls, a reversal higher is required to refocus attention on the key short-term resistance at $79.29, Jan 29 high. A break of this level would reinstate a bullish theme. Initial resistance is at $76.95, the Feb 1 high. Gold has pulled back from last week’s high but remains above the Jan 17 low of $2001.9. Recent short-term gains have improved a bullish condition and a continuation higher would signal scope for a climb towards $2088.5, the Dec 28 high and a key resistance. For bears, a stronger reversal lower would refocus attention on $2001.9 where a break is required to reinstate the recent bearish theme.

• WTI Crude down $0.41 or -0.57% at $71.81
• Natural Gas up $0.02 or +0.72% at $2.093
• Gold spot down $17.46 or -0.86% at $2022.2
• Copper down $1.75 or -0.46% at $380.35
• Silver down $0.28 or -1.22% at $22.406
• Platinum down $1.58 or -0.18% at $895.04