MNI US OPEN - UK GDP Sees Modest Bounce in January

NEWS

US (BBG): Trump Wins Republican Nomination, Setting Up Rematch With Biden

Donald Trump has clinched the Republican presidential nomination, capping off a stunning political comeback fueled by grievance and vengeance and formally entering what’s poised to be the longest and costliest general election in recent memory. The former president on Tuesday night crossed the threshold for the number of delegates needed to become the GOP nominee, the Associated Press reported. That allows Trump free rein to consolidate the Republican Party’s political operation and fully turn his attention toward a rematch with President Joe Biden.

US/CHINA (BBG): Biden Eyes Chinese Shipbuilding Subsidies as Tensions Simmer

US President Joe Biden pledged to look into a petition from a group of unions asking his administration to review China’s subsidies for shipbuilders, as tensions between the world’s two largest economies simmer on trade and key supply chains during a critical American election year. US Trade Representative Katherine Tai “will take a hard look at this petition in accordance with the law,” Biden said Tuesday DC time in a post on social media platform X, formerly known as Twitter.

ECB NON-MONETARY POLICY MEETING - MARCH 2024: An Updated Framework in the Offing

The ECB is set to reveal the outcome of its operational framework review later today. There are no fixed times for any releases. The meeting begins this morning, we expect announcements in the afternoon. Source reports point to a demand-driven floor liquidity system and play down the likelihood of an MRR hike. Today may only provide an outline of the updated framework. Expect a narrowing of the refinancing/deposit rate gap in the coming months.

ECB (BBG): ECB More Likely to Cut Rates in June Than April, Villeroy Says

The European Central Bank will lower borrowing costs in the spring, with June more likely than April for a first move, Bank of France Governor Francois Villeroy de Galhau said. “We will probably cut rates in spring, and spring in Europe is from April to June 21,” Villeroy said on France Info radio. “It’s perhaps more probable in June — we are very pragmatic and will see depending on the data.”

ECB (BBG): ECB Rate Cut Decision to Come in Next Few Meetings, Kazaks Says

The European Central Bank will soon start lowering borrowing costs, according to Governing Council member Martins Kazaks. If the economy “roughly follows” the ECB’s forecasts, “then the decision to start reducing interest rates could be made within the next few meetings,” the Latvian central banker said in a blog post on Wednesday.

ECB (BBG): ECB Must Take Bet on Rate Cut as Prices Abate, Wunsch Says

European Central Bank Governing Council member Pierre Wunsch reiterated that policymakers will eventually have to lower borrowing costs without being completely sure that inflation is returning to the 2% target. At some point, “we’ll have just to say, okay, we believe it’s going to work and we’re going to take a decision and I don’t think it’s going to be, you know, before so long,” the Belgian central bank chief said.

JAPAN (BBG): Toyota Agrees to Wage Hikes, Bolsters BOJ Policy Shift View

Toyota Motor Corp. met its labor union’s demands for increases in salary and bonuses in full for the fourth straight year, in another sign that a sustainable wage-price cycle may be taking hold in Japan’s economy as the central bank considers the timing of a long-awaited interest rate hike. The yen rose and government bond futures fell — signs traders were adding to bets on an imminent move by the Bank of Japan — after early reports that the world’s largest carmaker reached agreement with its unions on Wednesday.

JAPAN (BBG): Japan’s Chief Economist Sees Progress in Beating Deflation

Japan’s economy is making progress on exiting deflation judging from recent price data, the government’s chief economist said, amid growing speculation over the Bank of Japan’s first interest rate hike in more than a decade. “Various data show that the Japanese economy is gradually improving after 25 years,” said Tomoko Hayashi, chief economist at the Cabinet Office, in an interview with Bloomberg on Tuesday. “This is a very important moment for us.”

BOJ (BBG): BOJ Is Said to Mull Axing ETF Buys, Continuing Bond Purchases

Bank of Japan officials are considering scrapping the buying of exchange-traded funds, a measure introduced in 2010, provided the central bank’s inflation target comes into sight, according to people familiar with the matter. The officials see little need to keep buying ETFs to limit risk premiums in a market that recently hit a record high, according to the people.

CHINA (BBG): Country Garden Misses Yuan Bond Payment for First Time

Country Garden Holdings Co. missed a coupon payment on a yuan bond for the first time, adding to the woes of the Chinese developer that is facing a lawsuit seeking its liquidation offshore. The builder’s main onshore unit hasn’t fully prepared a 96 million yuan ($13 million) coupon that came due on Tuesday for a 4.8% yuan bond maturing in 2026, the company said in a response to Bloomberg. There is a 30 trading-day grace period for the payment, it added.

CHINA (MNI): China Macro Policy to Strengthen Investment Focus

MNI (Beijing) China's macro policymakers will continue to strengthen counter-cycle efforts this year to support investment as weak external demand drags down exports, a prominent policy advisor said in a forum on Wednesday. Justin Lin Yifu, dean of the Institute of New Structural Economics at Peking University and a member of the Standing Committee of the Chinese People's Political Consultative Conference (CPPCC) National Committee, the top political advisory body, said fiscal and monetary policy will remain expansionary to help the economy reach the "around 5%" GDP growth target.

CHINA (MNI): Hainan Bonds to Fund World's Largest Freeport

MNI (Beijing) China plans to invest hundreds of billions of yuan in building up the world’s largest free-trade port in Southeast Hainan by 2025 and aims to pay for much of it with local government bond sales at home and abroad, a high-ranking provincial official told MNI, adding that authorities will closely monitor the use of the funds as risk management is now being prioritised over stimulating GDP growth.

CHINA/AUSTRALIA (BBG): China Proposes End to Punitive Wine Tariffs, Australia Says

Australian vintners and lawmakers said China proposed lifting punitive tariffs on the nation’s wine, signaling the end is near to a three-year trade dispute as both countries seek to strengthen ties. Treasury Wine Estates Ltd. referenced China’s plan in an exchange filing on Tuesday, adding that the final decision will be made in the “coming weeks.” The Ministry of Commerce in Beijing did not respond to a question about when they would release the report.

DATA

UK DATA (MNI): UK GDP Sees Modest Jan Bounce as Shoppers Return

• UK JAN GDP +0.2% M/M, -0.1% 3MM, -0.2% 3M Y/Y
• UK JAN SERVICES INDEX +0.2% M/M, +0% 3MM
• UK JAN CONSTRUCTION OUTPUT +1.1% MM, -0.9% 3M3M, +0.7% YY
• UK JAN IND PROD -0.2% M/M, +0.5% Y/Y
• UK JAN MANUF OUTPUT +0% M/M, +2% Y/Y
• UK JAN TRADE BALANCE GBP -3.13BN

MNI (London) UK GDP recovered some ground in January, helped by a strong recovery in retail sales, the Office for National Statistics said Wednesday, with data largely confirming Bank of England expectations. GDP grew 0.2%, bouncing back from a 0.1% decline in December that helped tip the UK into a technical recession in the second half of the year, however, the ONS noted "over the last three months as a whole, the economy contracted slightly.”

FOREX: JPY Shrugs Off ETF Report, EUR/NOK Reverses Off Resistance

• EUR came under modest early pressure on the back of a softer-than-expected German wholesale price index release (-3.0%, Prev. -2.7%) and a dovish lean from ECB's Kazaks, who stated that while uncertainty remains high, there is no need to delay the ECB's rate reduction too much. EUR/USD faded through overnight lows, but remains comfortably off the post-CPI low posted yesterday at 1.0902.
• Across G10, JPY and CHF are the poorest performers. Focus in Japan remains on wage-setting ahead of the final Rengo pay tally on Friday - ahead of which Toyota have agreed union demands for pay rises and bonuses "in full", bolstering the BoJ's plans to consider a rate hike next week. A report that the Bank of Japan are said to be mulling ending their ETF purchase programme with the price goal in sight provided some short-lived support for JPY - but the pair remains in closer proximity to yesterday's highs - crossing at 148.12.
• NOK trades slightly firmer, reversing a small part of the weakness posted since the beginning of the week. EUR/NOK has been capped by resistance at the 200- and 100-dmas of 11.5016 and 11.5204 respectively - levels that could remain a focus on any dovish outturn from the Norges Bank next week.
• The Wednesday schedule is far more muted, with no tier one data from the US or Europe

US TSYS: Light Bear Flattening in Tight Ranges, 30-Year Supply Due Later

The modest Tsy rally that came alongside an early London EGB rally has faded.

• EGBs are off session highs and gilts are under some light pressure.
• TYM4 last unchanged at 111-05+, in a narrow 111-04+ to 111-10+ range.
• Tsy yields are little changed to 1.5bp higher with the curve bear flattening.
• FOMC-dated OIS shows ~81bp of ’24 cuts, with yesterday’s post-CPI move extending a little.
• ~19bp of cuts are priced through June.
• 30-Year Tsy supply headlines the U.S. schedule today. That comes after weaker demand at yesterday’s 10-Year auction & Monday’s well-received 3-Year offering.
• The pre-FOMC Fedspeak blackout period continues.

EGBS: A Touch Firmer as Dovish ECB Speak Weighed Against Heavy Supply

Core/semi core EGBs have pared early gains but still sit firmer on the day, as markets weigh up heavy supply with this morning's ECB speak.

• Governing Council members Wunsch (after hours Tuesday) and Kazaks (this morning) came across dovish vs their usual leanings, with comments consistent with other recent ECB hawks regarding a potential cut in June.
• Those comments come against a backdrop of heavy morning supply: 3/7/15-year BTPs (and a BTP Green), 10-year Bund, 7/20-year Portuguese OTs, and a Slovenian 10-year syndicated tap.
• Bunds are +17 ticks at 133.30, still almost 100 ticks shy of Friday's post US labour report high. Futures remain in a short-term uptrend and the latest pullback is considered corrective.
• German and French cash yields are 1 to 2bps lower on the day, while 10-year periphery spreads to Bunds are a touch tighter with the exception of Greece. The 10-year BTP/Bund spread sits comfortably below 130bps, currently 1.1bps tighter at 126.8bps.
• The ECB is set to reveal the outcome of its operational framework review later today.
• The regional calendar is otherwise light, with comments from the ECB's Cipollone (1145GMT/1245CET) and Stournaras (1400GMT) scheduled.

GILTS: A Little Softer After Early Rally Fades, Syndication Eyed

Gilt futures are now lower on the day, with wider core global FI also off session highs.

• The launch of the New 1.25% Nov-54 I/L gilt will be adding some weight.
• Futures last -19 at 99.61 (range 99.60-100.08).
• Monday’s low (99.37) provides intermediate support, with the bullish technical move stalling a little.
• Cash gilt yields are 0.5-2.0bp higher.
• Macro headline flow has been light since the early ECB speak.
• Largely in line domestic economic activity data didn’t impact markets.
• Yesterday’s labour market data was always going to be more important for markets and BoE policy.
• ~70bp of BoE cuts are priced through year end.
• SONIA futures are -1.5 to +1.5, off early highs alongside gilts.

EQUITIES: E-Mini S&P Trading Close to Last Week's Highs

A bullish theme in Eurostoxx 50 futures remains intact and the contract is trading at its recent highs. Moving average studies are in a bull-mode position - this continues to highlight positive market sentiment. Price is approaching the psychological 5000.00 handle next. Further out, scope is seen for a climb towards a bull channel top at 5042.10. The channel is drawn from the Oct 27 low. Initial firm support lies at 4873.00, the 20-day EMA. The trend condition in S&P E-Minis remains bullish and the latest pullback is considered corrective. Last week’s fresh highs reinforce current conditions. Note that price action continues to highlight the fact that corrections remain shallow. This is an important bullish signal highlighting positive market sentiment. Support to watch is 5147.25 the 20-day EMA. A clear break of this average would open 5031.12, the 50-day EMA. Sights are on 5300.00 next.

• Japan's NIKKEI closed lower by 101.54 pts or -0.26% at 38695.97 and the TOPIX ended 8.73 pts lower or -0.33% at 2648.51.
• Elsewhere, in China the SHANGHAI closed lower by 12.1 pts or -0.4% at 3043.835 and the HANG SENG ended 11.39 pts lower or -0.07% at 17082.11.
• Across Europe, Germany's DAX trades higher by 10.06 pts or +0.06% at 17975.16, FTSE 100 lower by 0.56 pts or -0.01% at 7747.13, CAC 40 up 12.55 pts or +0.16% at 8100.03 and Euro Stoxx 50 up 6.66 pts or +0.13% at 4989.86.
• Dow Jones mini down 1 pts or 0% at 39031, S&P 500 mini down 2.25 pts or -0.04% at 5175, NASDAQ mini down 24.25 pts or -0.13% at 18203.5.

COMMODITIES: Gold Trend Conditions Bullish Despite Slight Pullback This Week

The WTI futures trend condition remains bullish and the latest pullback appears to be a correction. The recent breach of key resistance at $79.09, the Jan 29 high, reinforces a bullish theme. The clear break highlights potential for a continuation towards $81.70, a Fibonacci retracement. On the downside, support to watch is $76.61, the 50-day EMA. A break of this average would instead signal a possible top. The trend condition in Gold remains bullish and the latest pullback is likely a correction. The yellow metal last week traded above $2135.4, the Dec 4 high, to deliver a fresh all-time cycle high. The break reinforces bullish conditions and signals scope for $2206.6 next, a Fibonacci projection. Short-term conditions are overbought, a deeper retracement would allow this condition to unwind. Firm support is at $2095.2, the 20-day EMA.

• WTI Crude up $0.29 or +0.37% at $77.86
• Natural Gas down $0.01 or -0.7% at $1.701
• Gold spot up $0.29 or +0.01% at $2158.63
• Copper up $3.75 or +0.95% at $396.8
• Silver up $0.07 or +0.29% at $24.2125
• Platinum up $7.55 or +0.82% at $932.8