MNI US OPEN - Simkus Says ECB Could Cut in April or June

NEWS

US (BBG): NYCB Poised to Drop to Lowest Level Since 1997 as Rout Extends

New York Community Bancorp shares sink as much as 16% in premarket trading on Wednesday, set to drop to their lowest level since since January 1997, as its credit grade was cut to junk by Moody’s less than a week after the regional lender alarmed shareholders by slashing payouts and reported a surprise quarterly loss. JPMorgan also downgraded its rating on the stock.

US (NYT): Biden Sails to Victory in Nevada’s Primary as He Heads Toward Nomination

President Biden coasted to victory on Tuesday in Nevada’s Democratic presidential primary election, carrying his party’s second recognized nominating contest against token opposition. The Associated Press declared Mr. Biden the winner shortly after polls closed in Nevada, giving him his second easy triumph in four days, after he took 96 percent of the vote in South Carolina’s primary on Saturday.

ISRAEL (MNI): Hamas Proposes Counter Proposal for 135-Day Ceasefire - RTRS

Reuters claims to have seen a draft of the counterproposal from Hamas regarding a ceasefire. The group's plan would see the fighting halted for 135 days in three 45-day phases to allow for the return of all Israeli hostages in return for the release of Palestinian prisoners. The draft claims that "By the end of the third phase, Hamas would expect the sides to have reached agreement on an end to the war." On 6 Feb, Qatari PM Sheikh Mohammed bin Abdurrahman Al Thani stated in a briefing that the Israeli proposal had been received a 'generally positive' response from Hamas.

ECB (MNI): ECB Could Cut in April or June - Simkus

The European Central Bank could cut rates in April or June, but uncertainty is too great for clear forward guidance and more confirmation is needed of a sustainable decline in inflation before deciding on the timing and the pace of subsequent easing, Bank of Lithuania Governor Gediminas Simkus told MNI. Most of the impact of ECB tightening so far has already been transmitted to the economy, with “the time for rate cuts approaching," Simkus said in an interview.

ECB (BBG): ECB’s Schnabel Says Data Caution Against Cutting Rates Soon

Recent economic figures and aggressive market bets on rapid interest-rate cuts mean the European Central Bank should be patient before loosening borrowing costs, according to Executive Board member Isabel Schnabel. Citing sticky services inflation, a resilient labor market, a notable loosening of financial conditions and tensions in the Red Sea, “this cautions against adjusting the policy stance soon,” she said in a Financial Times interview.

ECB (MNI): Neutral Rate Little Changed From Pre-Covid - ECB Staff

The eurozone's natural real rate of interest has recently been estimated to be around zero, or similar to pre-pandemic levels, ECB staff noted in the bank's latest Economic Bulletin. However, the staff note that a "suite of models and approaches for gauging r* produces a wide range of estimates, reflecting a high degree of uncertainty". Since the second half of 2023, estimates obtained from term structure models and semi-structural models have ranged between about minus three-quarters of a percentage point to around half a percentage point, the Bulletin stated.

RIKSBANK (MNI): Floden and Jansson Remain Board Doves in Minutes

Comments from the remaining Executive Board members in the January minutes suggest Jansson and Floden remain toward the dovish end of spectrum, while Breman and Bunge's stances are more balanced (similar to Theden). On the timing of rate cuts: Breman and Bunge note it is likely the policy rate will be cut earlier than the November forecast indicated, but do not assign a timeframe. Jansson provides more colour, stating that "a first rate cut at the meeting either in May or in June currently feels significantly more realistic [than March]".

UK (MNI): UK Treasury, BOE Must Do QT Value-for-Money - TSC

Lawmakers have called on the Bank of England to work with the Treasury in order to factor in the scale of losses from quantitative tightening into its decision making on the pace and scales of asset sales. A Treasury Select Committee report published Wednesday says the BOE and Treasury need to look at how the hit from QT to the public purse could be limited, as Threadneedle St's current QT programme does not factor in the losses to taxpayers through the Treasury idemnity of its asset purchase and sales programme, with the pace of gilt sales largely determined by the Bank's assessment of what the market can absorb without distorting pricing and at which maturities with regard to monetary policy.

UK (BBG): Barratt to Buy Redrow in Deal Creating UK’s Biggest Homebuilder

Barratt Developments Plc has agreed to buy rival Redrow Plc, a deal that would create the UK’s biggest homebuilder. With the acquisition, Barratt Developments is taking a major bet on the prospects for a rebound in Britain’s beleaguered housing market ahead of a general election. The deal would give Barratt access to a vast land bank at a time when pledges to increase housing output are likely to play a central role in the upcoming general election. The all-share offer values Redrow at more than £2.5 billion ($3.2 billion), according to a statement Wednesday.

GERMANY/CHINA (BBG): Germany’s Scholz to Travel to Beijing in April: FAZ

German Chancellor Olaf Scholz will travel to Beijing April 15-16 with a delegation of German business leaders, Frankfurter Allgemeine Zeitung reports, citing an invitation from the Asia-Pacific Committee of German Business it saw. Federal Press Office didn’t immediately respond for comment, FAZ says. Scholz last traveled to Beijing in November 2022.

CHINA (MNI): CSRC Leadership Switched After Meetings With Xi Jinping

MNI (London) Chinese state media confirms that China have removed Yi Huiman as head of the securities regulator, appointing Wu Qing in place. Change in personnel at the CSRC follows Xi Jinping's meetings with stock market regulators earlier this week - news which had provided markets with another dose of heightened expectations for a more solid rescue plan for Chinese markets. Markets will be on watch for any policy changes that could accompany the switch in leadership.

CHINA (MNI): China Copper Demand to Slow, Supply Risks, Prices Increase

MNI (Beijing) Growth in Chinese copper demand will slow to 3-4% y/y in 2024, as work on electrical grids and new energy slows, however, policy support for copper intensive housing completions and new energy industries will underpin consumption into late 2025, analysts told MNI. Policymakers’ renewed focus on completing unfinished properties and urban village renewal will support demand until next year before decreasing, said He Tianyu, a Shanghai-based senior copper analyst at CRU.

CHINA (MNI): China to Focus on Solar, Wind Power in 2024 - NEA

MNI (Beijing) China will focus on the construction of large-scale wind and solar power generation bases, according to officials from the National Energy Administration (NEA) on Wednesday. At a 2024 analysis meeting, officials said policy support for new energy was needed to sustain industrial development. However, growth in Chinese copper demand will slow to 3-4% y/y in 2024, as work on electrical grids and new energy slows, local analysts recently told MNI.

INDIA (BBG): India Mulls Extending Parboiled Rice Tax in Risk to World Supply

India, the world’s top rice shipper, may extend an export tax on the parboiled variety as part of efforts to ease food inflation ahead of national elections, a move that could keep world supply tight and send prices to new peaks. The government of Prime Minister Narendra Modi, who will seek a third term in the polls due in the first half of this year, is considering keeping the export levy at 20%, according to people familiar with the matter. There is no immediate proposal to ban exports of parboiled rice, said the people, who asked not to be identified as the talks are confidential. The tax is currently due to expire March 31.

DATA

GERMANY DATA (MNI): 7th Consecutive Fall in Industrial Production Amid Broader Weakness

German Industrial Production missed expectations in December at -3.0% Y/Y (working day adjusted, vs -2.4% survey and -4.3% prior revised from -4.8%) and -1.6% M/M (seasonally adjusted, vs -0.5% cons and -0.2% prior, revised from -0.7%). This also marked the fourth consecutive miss against consensus for the M/M series and the seventh monthly decline in a row. The less volatile 3M/3M measure also paints a weak picture at -1.8% (vs -1.8% prior), the seventh month in a row below -1%.

SPAIN DATA (MNI): Fall in December IP Despite Recent Survey Recoveries

Spanish industrial production ended the year on a weak note, printing at -0.3% M/M SWDA in December (vs a 6-analyst consensus of -0.1% and a 0.1pp upwardly revised +1.1% prior) and -0.2% Y/Y SWDA (vs a 0.1pp upwardly revised +0.9% prior). The unadjusted annual series saw a larger -4.0% Y/Y decline (vs a 0.1pp downwardly revised 1.0% prior).

SWITZERLAND DATA (MNI): Labour Market Loosening Stalls

The Swiss unemployment rate remained unchanged at 2.2% in January as expected (seasonally adjusted; vs 2.2% cons and prior), after having slowly drifted higher in the last few months from two-decade lows. The SNB said in their December rate decision press statement that they expected unemployment to continue to rise gradually; private sector consensus sees the rate flat at 2.2% in 2024 and '25, however. The number of unemployed (SA) rose by 1.7k vs Dec 2023, to 102k, while the number of job vacancies rose 6.7k over the same period to 42k.

CHINA DATA (MNI): China January Forex Reserves Fall to USD3.22trln

MNI (Beijing) China's foreign exchange reserves dropped by USD18.7 billion to USD3.22 trillion by the end of January, a dip in line with market expectations, according to data released by the State Administration of Foreign Exchange on Wednesday. The decrease in FX reserves was attributed to the rising U.S. dollar index and mixed global financial asset prices, SAFE said, adding that China’s economic recovery will help ensure the basic stability of the scale of FX reserves.

JAPAN DATA (MNI): Japan Consumption Index Undermines BOJ's Solid View

The Bank of Japan's Consumption Activity Index fell 1.2% q/q in Q4 2023 for the first drop in two quarters following 1.0% in Q3, undermining the BOJ’s view that private consumption has continued to increase moderately, data released by the BOJ showed on Wednesday. The Consumption Index fell 2.0% m/m in December for the first drop in two quarters following 0.4% growth in November.

FOREX: GBP/USD Corrective Bounce Extends Into Second Session

• The recovery off breakout lows for GBP/USD has extended into a second session, coinciding with some very moderate slippage in the greenback. GBP/USD's two-day rally puts spot back toward the Monday high of 1.2640 as price re-enter the early 2024 range and erase the range breakout posted earlier in the week. We noted yesterday that FX options markets had been generally quiet, however GBP hedging was an exception - upside demand was evident via decent sized calls trading with 1.2565, 1.2660 and 1.2850 strikes. Nonetheless, GBPUSD bearish conditions remain intact, with the current recovery deemed corrective.
• BoE MPC members Breeden spoke earlier to confirm her tightening bias has shifted since December, with her focus - along with many other on the MPC - shifting to how long rates should be held at current levels.
• This sees GBP the firmest currency in G10 alongside SEK, while JPY and CHF are the poorest performers. A phase of CHF weakness followed the publication of FX reserves data for January, which ticked up to 662.4bln from 653.7bln. Revaluation factors are likely at play, however EUR/CHF remains on track to test the downtrending 50-dma of 0.9404.
• Trade balance data marks the calendar highlight Wednesday, with Canadian and US numbers for December due. Central bank speakers are set to include Fed's Kugler, Collins, Barkin and Bowman of the FOMC, while some attention may also be paid to appearances from Fed's Remache and Nordstrom who, while not monetary policymakers, oversee the Fed's SOMA and international markets functions at the NY Fed.

EGBS: Little Changed Wednesday Following Schnabel FT Interview

Core/semi-core EGB futures are a touch firmer Wednesday morning, though remain off intraday highs following ECB Schnabel's interview with the FT published this morning.

• Schnabel reiterated that the "last-mile" of bringing inflation to target "remains a concern", and emphasised the Eurozone's "worrying" recent decline in productivity, which has pushed up labour costs.
• In an interview recently published by MNI's Policy Team, ECB's Simkus noted that the central bank could begin easing in April or June.
• Bunds are +10 at 134.34 at typing, around 25 ticks shy of pre-Schnabel highs but comfortably within yesterday's range. Initial resistance is at 134.90, the 20-day EMA. German 7-year supply is due at 1030GMT.
• OAT and BTP futures are also a touch higher today, while yields are little changed.
• Peripheries have broadly tracked Bunds, leaving 10Y spreads flat to 0.5bp narrower.
• This morning's data docket was highlighted by German industrial production, which came in below consensus but also saw upward revisions to last-month’s data.
• The remainder of today's docket is quiet, with a slate of afternoon Fed-speak potentially garnering cross-border interest.

GILTS: Under Modest Pressure

Gilt futures extend the move away from yesterday’s best levels, last showing -35 at 98.35, registering fresh session lows in recent trade. The contract operates in a fairly contained 42-tick range. Well-established technical parameters remain untouched after yesterday’s rally eased the bearish threat.

• Cash gilt yields are 3-4bp higher across the curve.
• Cross-market feedthrough from comments made by ECB Executive Board member Schnabel were noted early on today.
• Decent demand at the relatively well-received round of 3.75% Mar-27 gilt supply did little to counter the bid, with focus on wider IG supply and a downtick in broader core global FI markets being felt.
• Comments from BoE MPC member Breeden had little impact, stressing a focus on wages, demand and inflation, while pointing to less inflationary worry at present and a few months of “key data” ahead. Breeden's speech concluded with "what does this mean for policy?" - and effectively shifted to focusing on how long rates need to be held at current levels, while playing down the odds of a revisit to near 0% rates.
• SONIA futures show flat to 4.5bp lower across the strip, with a modest steepening bias.
• BoE-dated OIS shows ~86bp of cuts through ’24.
• The local docket is limited for the remainder of the day.

EQUITIES: Fresh Cycle Highs in Eurostoxx 50 Futures Confirm Resumption of Uptrend

Eurostoxx 50 futures remain firm and the contract traded higher Tuesday and has delivered fresh cycle highs, confirming a resumption of the current uptrend. This reinforces the bullish importance of the recent break of a key resistance at the Dec 14 high of 4634.00. The clear breach of the 4700.00 handle paves the way for a climb towards 4725.50, a Fibonacci projection. Initial firm support lies at 4598.30, the 20-day EMA. The trend condition in S&P E-Minis is unchanged and remains bullish with the contract holding on to the bulk of its recent gains. The price has recently 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 lower by 40.74 pts or -0.11% at 36119.92 and the TOPIX ended 10.7 pts higher or +0.42% at 2549.95.
• Elsewhere, in China the SHANGHAI closed higher by 40.21 pts or +1.44% at 2829.696 and the HANG SENG ended 54.98 pts lower or -0.34% at 16081.89.
• Across Europe, Germany's DAX trades lower by 33.14 pts or -0.19% at 17000.47, FTSE 100 lower by 17.76 pts or -0.23% at 7663.38, CAC 40 up 1.54 pts or +0.02% at 7640.51 and Euro Stoxx 50 down 1.64 pts or -0.04% at 4689.23.
• Dow Jones mini up 15 pts or +0.04% at 38628, S&P 500 mini down 0 pts or 0% at 4974.75, NASDAQ mini up 9.5 pts or +0.05% at 17669.25.

COMMODITIES: Short-Term Gains Improve Bullish Conditions in Gold

WTI futures remain soft following last week’s steep sell-off. The move lower undermines the recent bullish theme and 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, the Jan 29 high. Clearance of this level would reinstate a bullish theme. Initial resistance is at $76.95, the Feb 1 high. Gold continues to trade above the Jan 17 low of $2001.9. Recent short-term gains improved a bullish condition and a resumption of bullish activity would signal scope for a climb towards $2088.5, the Dec 28 high and a key resistance. For bears, a stronger reversal lower would instead refocus attention on $2001.9 where a break is required to reinstate the recent bearish theme.

• WTI Crude up $0.46 or +0.63% at $73.81
• Natural Gas up $0.01 or +0.45% at $2.018
• Gold spot down $1.52 or -0.07% at $2034.4
• Copper down $0.6 or -0.16% at $377.45
• Silver down $0.15 or -0.65% at $22.2763
• Platinum down $7.49 or -0.83% at $898.83