MNI US OPEN: Soft European inflation drives ECB repricing

NEWS

US (MNI): Fed's Brainard: Supply Shocks Call for Tighter Policy

A long series of supply shocks call for tighter monetary policy to keep inflation expectations anchored, and longer run shifts in demographics, supply chains and Earth's climate may mean inflation will be more volatile in the future, Federal Reserve governor Lael Brainard said Monday. In a speech prepared for the Bank for International Settlements annual conference in Basel, Switzerland, Brainard reflected on lessons from high inflation as a result of Covid-19 and Russia's invasion of Ukraine.

CHINA (MNI): China to Vaccinate Elderly, Refine Covid Measures

China's health authorities will fast-track the vaccination of the elderly and implement more precise measures to control outbreaks, officials said at a National Health Commission press conference on Tuesday. Pandemic control measures must not be inflexible nor variable at different levels, and must be pertinent to specific needs, officials said. Infections should be treated in a scientific manner and authorities will resolve the reasonable demands of the masses, officials said.

CHINA (MNI): China’s Energy Costs to Jump as Growth Rebounds

China’s energy prices will jump once the economic recovery gathers steam, but that won’t deter foreign industrial companies from investing more capital to tap prospective growth in domestic demand, Joerg Wuttke, President of the European Union Chamber of Commerce in China, told MNI.

OIL (MNI): Latest EU Discussions on Russian Cap Fail to Find Consensus

There was hope that EU talks last night might represent a breakthrough towards an agreement on a Russian oil price cap but diplomats remain divided. Diplomats discussed a lower price cap of $62/bbl, down from the $65-70/bbl region but it is still too high for Poland and the Baltic nations. They have disputed the level saying it is already well above the level at which Russian oil is being sold, which is around $52/bbl. The group opposed to $62/bbl also want to see a review mechanism added to the instrument for later price revisions, as well as a firmer plan on a new package of sanctions on Russia.

NATO (MNI): Sec Gen-Ukraine Support There 'As Long As Needed' Ahead of Foreign Ministry Summit

NATO Secretary General Jens Stoltenberg, speaking at the Aspen-GMF Bucharest Forum stated that support for Ukraine from the alliance will be in evidence as long as it is required, seeking to nix claims about mission fatigue among some NATO members.

DATA

GERMAN DATA (MNI): MNI Estimates a 3-4 Tenths Miss for German National CPI

• SAXONY NOV CPI -0.3% M/M, +9.9% Y/Y
• BAVARIA NOV CPI -0.3% M/M, +10.9% Y/Y
• BADEN WUERT NOV CPI -0.2% M/M, +9.6% Y/Y
• HESSE NOV CPI -0.4% M/M, +9.7% Y/Y; OCT +9.9% Y/Y
• NORDRHEIN WESTF. NOV CPI -0.8% M/M; +10.4% Y/Y (OCT +11%)

We have now received state data that equates to a 83.7% weighting in the national German CPI print. MNI calculations estimate that CPI fell -0.5%M/M, which would be equivalent to a 10.0%Y/Y increase. The Bloomberg consensus is for a -0.2%M/M fall and a 10.4%Y/Y increase - so based on our calculations there has been a 3 tenths miss to M/M and a 4 tenths miss to the Y/Y print.

SPAIN DATA (MNI): Cooling Headline Inflation Masks Core Uptick

• SPAIN NOV HICP -0.5% M/M (FCST +0.1%); OCT +0.1% M/M
• SPAIN NOV HICP +6.6% Y/Y (FCST +7.1%); OCT +7.3% Y/Y

Spanish headline harmonised CPI decelerated by 0.5% m/m, cooling by 0.5pp to +6.6% y/y in the November print. Fuel prices and energy largely underpinned the decline in prices compared to November 2021. Despite the continued moderation in the headline print, core CPI is anticipated to have ticked up by 0.1pp to +6.3% y/y in the November flash. As such, this print confirms the need for continued monetary tightening to make a dent in underlying inflationary pressures. German CPI is also forecasted to slow (due at 1300 GMT), following a slew of regional state data in the morning.

EUROZONE NOV ECO CONFIDENCE 93.7 (FCST 93.2); OCT 92.5 (MNI)
EUROZONE NOV CONSUMER CONFIDENCE -23.9 (= FLSH); OCT -27.5 (MNI)
EUROZONE NOV SERVICES CONFIDENCE 2.3 (FCST 2.0); OCT 1.8 (MNI)
EUROZONE NOV INDUSTRIAL CONFIDENCE -2.0 (FCST -0.5); OCT -1.2 (MNI)

UK OCT M4 MONEY SUPPLY +0% M/M, +4.8% Y/Y (MNI)
UK BOE OCT MORTGAGE APPROVALS 58,977 (MNI)
UK BOE OCT CONSUMER CREDIT GBP0.77 BLN (MNI)
UK BOE OCT SECURED LENDING GBP3.97 BLN (MNI)

SWISS Q3 GDP +0.2% Q/Q, +0.5% Y/Y (MNI)

SWEDEN OCT RETAIL SALES -7.7% Y/Y (MNI)
SWEDEN Q3 GDP +2.5% Y/Y (MNI)

JAPAN OCT RETAIL SALES +4.3% Y/Y; SEP +4.8% (MNI)
JAPAN OCT RETAIL SALES +0.2% M/M; SEP +1.5% (MNI)
JAPAN OCT JOBLESS RATE AT 2.6% VS. SEP 2.6% (MNI)

BOND SUMMARY: ​European Inflation Driving a Repricing of ECB Expectations and Core FI

• A repricing of ECB rate hike expectations on the back of European inflation data this morning has been the key driver of core fixed income markets this morning. Based on state CPI data from Germany so far, MNI estimates that national German CPI fell by -0.5%M/M (a 10.0%Y/Y rise). This would imply a 3-4 tenth miss versus expectations of the national CPI print (although this might not imply quite the same for HICP but the direction is likely to be the same). Spanish HICP was 5-6 tenths softer than expected too, coming in at -0.5%M/M and from from +7.3% to 6.6%Y/Y.
• Market estimates of ECB pricing for December have fallen from about 62bp to 57bp and for the terminal rate have fallen from around 152bp to around 143bp. This has seen Schatz yields move over 9bp lower on the day and the whole German curve has shifted despite some small steepening.
• Later today we will hear from BOE Governor Bailey as he testifies ahead of the Lords Economic Affairs Committee while we also have US Conference Board consumer confidence data. We are due to hear from ECB's Schnabel and de Cos on non-mon pol topics.
• Today will also see the first BOE operation to sell some of its "temporary" long-dated and I/L gilt holdings that it built up through its financial stability purchases last month. The operation will be "demand-led" and has no set size - so could potentially see no sales at all.
• TY1 futures are up 0-7+ today at 113-05 with 10y UST yields down -1.2bp at 3.671% and 2y yields down -0.8bp at 4.433%.
• Bund futures are up 0.90 today at 141.32 with 10y Bund yields down -7.9bp at 1.906% and Schatz yields down -9.5bp at 2.019%.
• Gilt futures are down -0.06 today at 105.80 with 10y yields down -1.8bp at 3.102% and 2y yields down -1.7bp at 3.236%.

FOREX: Risk On keeps the lid on the Dollar

• The USD trades on the back foot during the overnight Asian session and into the morning European session.
• The driver has been the Risk On tone in Asia, with some hope that China could ease lockdown, but the main driver this morning has been the German regional and Spanish CPI, falling versus last readings.
• The Greenback is in the red across all the majors, beside the CHF, which saw a reversal off the low in USDCHF, and in EURCHF on the follow.
• CHF is up 0.12% at the time of typing against the USD.
• The Kiwi and AUD are the best performers in G10, up 1.27% and 1.23% respectively on the Risk On tone and lockdown easing hope in China.
• Looking ahead, after receiving 83.7% of the weighted state data in the national German CPI print.
• MNI calculations estimate that CPI fell -0.5%M/M, which would be equivalent to a 10.0%Y/Y increase.
• Besides the German National CPI, other data include,. US Consumer Confidence, Japan IP.
• ECB Guindos, de Cos, Schnabel, BoE Mann, Bailey, SNB Schlegel, are the speakers.

EQUITIES: Equity Futures Outlook Bullish Despite Monday Pullback

The EUROSTOXX 50 futures trend condition remains bullish with the contract trading closer to its recent highs. Last week’s gains maintain the recovery that started in early October and confirms an extension of the bullish price sequence of higher highs and higher lows. The recent break of 3810.00, Aug 17 high, also strengthened the case for bulls. The focus is on the 4000.00 psychological handle. Initial firm support is at 3840, the Nov 17 low. The S&P E-Minis outlook remains bullish Despite Monday’s move lower - the latest pullback is considered corrective. Recent consolidation in the daily chart appears to be a flag formation - if correct, this is a bullish continuation pattern. The contract has recently breached 3928.00, Nov 1 high, establishing a positive price sequence of higher highs and higher lows. The focus is on 4100.00 next. Firm support lies at 3887.16, the 50-day EMA.

• Japan's NIKKEI closed lower by 134.99 pts or -0.48% at 28027.84 and the TOPIX ended 11.34 pts lower or -0.57% at 1992.97.
• Elsewhere, in China the SHANGHAI closed higher by 71.199 pts or +2.31% at 3149.748 and the HANG SENG ended 889.8 pts higher or +5.14% at 18187.74.
• Across Europe, Germany's DAX trades higher by 9.2 pts or +0.06% at 14394.2, FTSE 100 higher by 39.1 pts or +0.52% at 7512.96, CAC 40 up 22.7 pts or +0.34% at 6687.9 and Euro Stoxx 50 up 12.5 pts or +0.32% at 3948.01.
• Dow Jones mini up 73 pts or +0.22% at 33943, S&P 500 mini up 15.5 pts or +0.39% at 3985.75, NASDAQ mini up 64.75 pts or +0.56% at 11681.

COMMODITIES: WTI Futures Trend Bearish, Gains Considered Corrective

Trend conditions in WTI futures remain bearish and gains are considered corrective. Yesterday’s initial move lower resulted in a break of the bear trigger at $74.96, Sep 28 low. This confirms a resumption of the downtrend and has opened $73.38, a Fibonacci projection and the $70.00 psychological handle. Initial resistance is at $79.90, Friday’s high. Short-term trend conditions in Gold remain bullish and the latest pullback is considered corrective. The yellow metal recently breached $1729.5, the Oct 4 high. This has strengthened a bullish theme and signals scope for $1800.0 and a key resistance at $1807.9, the Aug 10 high. The bull trigger is at $1786.5, the Nov 15 high. Initial firm support is seen at $1702.3, the Nov 9 low. First support to watch is at the 20-day EMA that intersects at $1730.3.

• WTI Crude up $1.22 or +1.58% at $78.46
• Natural Gas up $0.1 or +1.39% at $7.289
• Gold spot up $13.88 or +0.8% at $1754.78
• Copper up $3.7 or +1.02% at $365.2
• Silver up $0.29 or +1.4% at $21.2105
• Platinum up $10.81 or +1.09% at $1003.28