MNI US OPEN - UK in Technical Recession After Q4 GDP Slowdown

NEWS

US (BBG): Trump Eyes NATO Makeover, Hurried Peace in Ukraine If Wins

Donald Trump is considering scaled-back commitments to some NATO members and a push for Ukraine to negotiate an end to the war with Russia if he returns to power next year, according to people familiar with the matter. Among possible moves in a second term, Trump allies have discussed essentially a two-tiered NATO alliance, where Article 5 — which requires common defense of any member under attack — would apply only to nations that hit defense-spending goals, according to the people, who asked not to be identified and cautioned no policy decisions have been finalized.

US/RUSSIA (BBG): Russia Mulls Nuclear Weapon in Space, US Intelligence Finds

US intelligence shows that Russia is discussing the possibility of basing a nuclear weapon in space, according to people familiar with the matter, a finding that emerged after a top House Republican publicly warned of an unspecified national-security threat. The threat cited by US intelligence is not yet an active one, and Russia has not deployed a nuclear weapon into space, according to the people, who spoke on condition of anonymity. While the conclusions are significant and US officials are taking the matter seriously, there’s no immediate cause for public alarm, said the people.

US/RUSSIA (BBG): Putin Says ‘Predictable’ Biden Better for Russia Than Trump

Vladimir Putin praised Joe Biden as a more reliable alternative for Russia than Donald Trump, making his first public comments on the American presidential election. “He’s a more experienced person, he’s predictable, he’s an old-style politician,” the Russian president said of Biden in a state television interview when asked which of the two leading candidates would be better for Russia, according to video released by the Kremlin.

US (BBG): Citi’s Chronert Says Buy Any Stock Selloff Ahead of Fed Pivot

A hotter-than-expected US inflation print this week hasn’t dimmed the outlook for equities, and any selloff is a buying opportunity ahead of a Federal Reserve pivot, according to Citigroup strategists. The team led by Scott Chronert maintains its year-end target for the S&P 500 at 5,100 points — implying gains of ~2% from current levels. Volatility on the path to a Fed pivot, deceleration in inflation and macro read-through is to be expected, they write in a note dated Feb. 14. Fed rate hikes to date have not had a material influence on index level 2023 earnings trends, the strategists say.

EU (MNI): Brussels Sees Sharper Fall in 2024 Inflation

The EU Commission forecasts a sharper fall in inflation and a slower rebound in economic activity across the euro zone in its latest Winter Forecast, published Thursday. Brussels said headline HICP consumer price inflation would decelerate to 2.7% in 2024 and to 2.2% in 2025 in euro area, compared with a forecast of 3.2% and 2.2% respectively in its autumn 2023 forecast. Lower energy prices and stalling economic activity are the key drivers of the easing in inflation pressures. The Commission also downgraded its forecast for 2024 euro zone growth to 0.8% from 1.2% in the autumn forecast and to 1.5% from 1.6% in 2025.

ECB (BBG): ECB May Keep Bond Portfolio After Framework Review, Lagarde Says

The European Central Bank will probably keep relying on bond holdings under a future policy framework that officials are due to finalize in the coming months, President Christine Lagarde said. “As the volume of liquidity declines over the course of time, we will arrive at the stage where we will have to decide how much liquidity is needed, what interest rate will be used as the anchor interest rate and what mechanism we use in order to steer the interest rate,” she told lawmakers in the European Parliament.

ECB (BBG): ECB’s De Cos Says ‘There Is Some Time Left’ for Rate Cuts

There’s no rush for the European Central Bank to lower borrowing costs, according to Governing Council member Pablo Hernandez de Cos. “The confidence that inflation will continue to slow and converge to the 2% target is what makes us in the Government Council think that the next movement in interest rates will be a cut,” the Spanish central bank chief said in Madrid on Thursday. “We are not being explicit about when it will occur, I think there is still some time left for that.”

UK (MNI): Gov't Faces Damaging By-Elections as Technical Recession Declared

Two parliamentary by-elections take place today. While these sort of elections would not usually garner market focus, the fact that it is an election year and the votes come on the day that ONS figures show the UK has entered a technical recession gives the by-elections some added interest. The constituencies of Kingswood and Wellingborough were both held by Conservative members of parliament, with Kingswood MP Chris Skidmore resigning in opposition to legislation to offer new oil and gas drilling licences in the North Sea, while Wellingborough MP Peter Bone was removed by a recall petition having been suspended from the House of Commons due to inappropriate conduct.

SECURITY (BBG): Germany Says Turkey and Greece to Join Missile-Defense Plan

Turkey and Greece will formally join a German-led missile-defense project Thursday, taking the number of members of the so-called European Sky Shield Initiative to 21, according to German Defense Minister Boris Pistorius. “This is a considerable number in such a short time,” Pistorius told reporters before a meeting with his NATO counterparts in Brussels. The push to bolster Europe’s air defenses by the government in Berlin was first announced by German Chancellor Olaf Scholz in a speech in Prague in August 2022.

JAPAN (BBG): Japan Is at Last Stage of Beating Deflation, Official Says

A senior Japan Cabinet Office official said the nation is at the final corner before declaring victory over deflation, a comment that suggests the government is largely aligned with the Bank of Japan. The government is at the stage of discerning whether there remains any risk of returning to deflation, the official told reporters ahead of the release of economic growth figures Thursday that showed a surprise slip into recession.

OIL (BBG): Oil Demand Growth Slows While non-OPEC+ Supply Climbs, IEA Says

Global oil demand growth is losing steam while supplies outside OPEC+ continue to swell, potentially leaving markets in surplus all year, the International Energy Agency said. Growth in world consumption slowed by about 35% in the fourth quarter of last year compared with the preceding three months amid a deceleration in China, the IEA said in its monthly report. In 2024 as a whole, the agency continues to see global demand increasing by 1.2 million barrels a day — just half the rate of last year.

DATA

UK DATA (MNI): UK In 'Technical Recesssion' After Q4 GDP Slowdown

• UK Q4 GDP -0.3% Q/Q, -0.2% Y/Y
• UK DEC GDP -0.1% M/M, -0.3% 3MM, -0.3% 3M Y/Y
• UK DEC IND PROD +0.5% M/M, +0.6% Y/Y
• UK DEC MANUF OUTPUT +0.8% M/M, +2.3% Y/Y
• UK DEC SERVICES INDEX -0.1% M/M, -0.2% 3MM
• UK DEC TRADE BALANCE GBP -2.6BN

Despite the quarterly GDP print coming in softer-than-expected, the December print only fell -0.1% M/M. The weakness was due to downward revisions of -0.1ppt in November (from +0.3% M/M to +0.2% M/M) and of -0.2ppt in October (from -0.3% M/M to -0.5% M/M). On a quarterly basis, net trade was the biggest downward contributor with household consumption and government consumption both -0.1% Q/Q, Gross fixed capital formation posted another strong quarter, rising 1.4% Q/Q. As we noted ahead of the release - we don't think that these data will do anything to change any votes in the upcoming March MPC meeting.

SPAIN JAN HICP -0.2% M/M, +3.5% Y/Y (MNI)

JAPAN DATA (MNI): Japan Q4 GDP Posts Second Straight Contraction

• JAPAN Q4 REAL GDP -0.4% ANNUALIZED; MNI MEDIAN +1.4%
• JAPAN Q4 REAL GDP -0.1% Q/Q; MNI MEDIAN +0.3%
• JAPAN Q3 REAL GDP REVISED TO -0.8% Q/Q; TO -3.3% ANNUALIZED

Japan's economy contracted 0.1% q/q, or 0.4% annualised, over Q4 2023, the second straight quarterly decline, due to weak private consumption and capital investment, preliminary GDP data released by the Cabinet Office showed Thursday. The fall follows a revised Q3 GDP decline of 0.8%, or -3.3% annualised. The Q4 growth was weaker than the MNI median forecast of a 0.3% q/q rise, or 1.4% annualised.

AUSTRALIA DATA (MNI): Aussie Unemployment Rises to 4.1%

• AUSTRALIA JAN UNEMPLOYMENT RATE +4.1%
• AUSTRALIA JAN LABOR PARTICIPATION RATE +66.8%
• AUSTRALIA JAN EMPLOYED PERSONS CHANGE 0.5K
• AUSTRALIA JAN F-T EMPLOYED PERSONS CHANGE 11.1K

Australian unemployment in January rose to 4.1% m/m from December’s 3.9%, higher than the 4.0% expectation, while employment grew by 500, lower than the 25,000 market estimate, data from the Australian Bureau of Statistics showed. Bjorn Jarvis, ABS head of labour statistics, noted January coincided with a higher-than-usual number of people who were not employed but who said they will be starting or returning to work in the future. “This may be an indication of a changing seasonal dynamic within the labour market, around when people start working after the summer holiday period,” he said.

FOREX: GBP the Poorest Performer for a Second Session

• For a second consecutive session, GBP is the poorest performer in G10 as GDP came in softer than expectations, confirming that the UK has entered a technical recession. GBP/USD has re-entered the bottom half of the '24 range, trading either side of the 200-dma at 1.2565. The bear trigger sits just below at 1.2519/00, a break below which open further losses. This turns attention to Friday's retail sales release and June meeting BoE pricing, for which 17bps of rate cuts are currently priced.
• GBP/JPY price action over the past two days has seen the cross reverse off 190.08 - the near ten-year high posted this week. The two-day move puts prices within range of 187.31 as the next support, and a sentiment shift for the BoE and renewed JPY intervention concerns could accelerate any pullback.
• Bucking the recent trend, CHF is a touch firmer, helping USD/CHF edge off the recovery high posted this week at 0.8886. The pair has dipped back below the 200-dma level, with next support seen into 0.8789 and 0.8807.
• The US retail sales release takes focus going forward, alongside weekly jobless claims data as well as import/export price indices. ECB's Lane and Nagel are set to speak as well as BoE's Greene and Mann later in the session. Fed's Waller follows, speaking on the reserve status of the US dollar.

EGBS: Firmer But Off Highs as Lagarde Strikes Cautious Tone

Core/semi-core EGBs sit firmer this morning, but an early rally lost steam as ECB President Lagarde cast a cautious tone at an ECON hearing.

• Lagarde warned that the ECB would avoid making a "hasty decision" on rates, noting that more evidence was still required to be confident inflation was heading back to target. This wait-and-see rhetoric echoes that of Bundesbank's Nagel and Bank of Spain's de Cos, who spoke yesterday evening and this morning respectively.
• Bunds are +41 ticks at 133.98, after reaching a high of 134.18 earlier. The 20-day EMA at 134.27 is the first resistance.
• Supply from Spain and France will have also pressured the EGB space in the background, while this morning's data were not really market movers (Spain Jan inflation confirmed flash, UK activity data was weaker than expected).
• The German and French cash curves have lightly bull flattened, while periphery spreads to Bunds are tighter as Estoxx futures push above Tuesday's high. The 10-year BTP/Bund spread is 1.6bps tighter at 150.0 at typing, still just above January's narrowest levels.
• The remainder of today's docket sees appearances from Chief Economist Lane at an online seminar on "Monetary Policy and Banks' Business Strategies" (1200GMT/1300CET), while the Bundesbank's Nagel also speaks. US data (in particular jobless claims and retail sales) will also be of cross-market interest.

GILTS: Off Best Levels

Gilt futures only managed a shallow showing above the previously identified resistance at the 20-day EMA, before retracing from best levels alongside Bunds.

• The contract last shows +28, just off lows after bears closed the opening gap higher (contract printed at 98.08 at yesterday’s close).
• Cash gilt yields are flat to 1.5bp lower on the day, with the belly outperforming.
• SONIA futures are flat to 3.0bp firmer through the blues, pulling back from best levels alongside gilts.
• ~76bp of cuts are now priced through the December ’24 MPC on the BoE-dated OIS strip (5-6bp off dovish session extremes).
• The pressure probably comes from a combination of the idea that Q4 UK GDP data doesn’t meaningfully alter the monetary policy narrative, continued focus on a Labour-led government (and the linkages to looser fiscal policy) and some modest cross-market feedthrough from some of the less dovish elements of ECB President Lagarde’s latest address.

EQUITIES: Eurostoxx 50 Futures Return Back Toward Its Recent Cycle Highs

Eurostoxx 50 futures remain in an uptrend and the move lower Tuesday is considered corrective. The contract traded higher Monday delivering another fresh cycle high, confirming an extension of the current uptrend. This reinforces bullish conditions and the importance of the recent break of resistance at 4634.00, the Dec 14 high. Sights are on 4788.10, a Fibonacci projection. Initial firm support lies at 4663.90, the 20-day EMA. The trend condition in S&P E-Minis is unchanged and remains bullish. The pullback from Monday’s 5066.50 high is considered corrective and support to watch lies at 4947.87, 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. For bulls, the trigger for a resumption of gains is 5066.50, the Feb 12 high.

• Japan's NIKKEI closed higher by 454.62 pts or +1.21% at 38157.94 and the TOPIX ended 7.26 pts higher or +0.28% at 2591.85.
• Across Europe, Germany's DAX trades higher by 112.82 pts or +0.67% at 17057.5, FTSE 100 higher by 11.45 pts or +0.15% at 7579.97, CAC 40 up 68.09 pts or +0.89% at 7745.39 and Euro Stoxx 50 up 33.33 pts or +0.71% at 4742.43.
• Dow Jones mini up 72 pts or +0.19% at 38566, S&P 500 mini up 6 pts or +0.12% at 5024.25, NASDAQ mini up 3 pts or +0.02% at 17885.5.

COMMODITIES: Gold Continues to Trade Below Key Short-Term Support at $2001.9

Recent gains in WTI futures, since Feb 5, appears to be a correction - for now. Key short-term resistance has been defined at $79.29, the Jan 29 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 has traded lower this week and in the process, the move has 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 $0.17 or -0.22% at $76.5
• Natural Gas up $0.03 or +1.68% at $1.635
• Gold spot up $4.25 or +0.21% at $1996.37
• Copper up $1.6 or +0.43% at $371.65
• Silver up $0.19 or +0.83% at $22.5595
• Platinum up $9.58 or +1.07% at $902.1