MNI US OPEN - Unexpected Uptick in UK Inflation

NEWS

GLOBAL (MNI): WEF Schedule Filled w/High-Profile Political Speakers Today

The schedule for the World Economic Forum's annual meeting in Davos on 17 Jan is filled with high-profile political speakers amid a period of notable geopolitical tensions worldwide. Click the link above to view a full timetable. A rundown of major political speakers across the event can be found in the PDF here.

US (BBG): US Spending Bill to Avert Shutdown Clears First Senate Hurdle

A temporary spending bill to prevent a partial US government shutdown on Saturday passed its first procedural test in the Senate on Tuesday, a sign that the legislation is on track to be approved in time to meet the deadline. The Senate voted 68 to 13 to advance the measure toward the end of a snowy day in Washington with many lawmakers absent. The short-term spending measure would fund some US agencies — set to run out of money after Jan. 19 — through March 1 and others through March 8.

US (NYT): US Strikes Houthi Targets in Yemen for a Third Time

The American strikes destroyed four missiles that posed a threat to ships in the Red Sea, the Pentagon said. They came on the third day in a row the Houthis have defiantly fired at passing ships. The United States carried out a new military strike against Houthi ballistic missiles in Yemen on Tuesday, the U.S. military said, but the latest salvo against the Iran-backed group left the White House grappling with how to stop a battle-hardened foe from disrupting shipping lanes critical for global trade.

US (MNI): 'Greater Premium Than Ever on US Partnership' - Blinken

US Secretary of State Anthony Blinken in conversation with Thomas Friedman at the WEF in Davos. Blinken says that he "acknowledges the potential for regionalisation in the Middle East. The challenge lies in effectively realizing this opportunity." Says that he is hearing from virtually every Middle Eastern nation that they want the US 'at the table' in dealing with issues in the region, adding that there is a 'greater premium than ever on a US partnership'. On the situation in the Palestinian territories, says that "A Palestinian state needs a gov't structure that gives people what they want and works with Israel to be effective."

UKRAINE (MNI): Blinken Downplays Prospect of Ceasefire Any Time Soon

Speaking at the WEF in Davos, US Secretary of State Anthony Blinken, asked on the prospect of ceasefire talks in Ukraine any time soon, says that "I don't see it any time soon". Says that "there has to be a willingness by Russia to engage in good faith based on the principles challenged by its aggression, i.e. the independence and territorial integrity of Ukraine". Adds that "Putin has already failed in what he set out to do in Ukraine"

US (BBG): DeSantis Tries to Shrug Off Trump Win as New Hampshire Nears

Ron DeSantis tried to put Donald Trump’s commanding Iowa caucus victory in perspective as he battles to remain in the Republican presidential race, a week before the crucial New Hampshire primary. The Florida governor told a CNN town hall in Henniker, New Hampshire, on Tuesday night that the former president was “one of the most famous people that’s ever been involved in American politics. And there’s obviously a lot of Republicans that appreciated his policies.”

ECB (MNI): 'Cautious' Policy Easing Likely in 2024 - Lagarde

The European Central Bank’s president Christine Lagarde is confident that the ECB will be in a position to cut rates by the summer, but remains catious on her overall view on policy easing. In an interview with Bloomberg TV, Lagarde accepted that rates were now likley at peak, but said it was too soon to declare victory over inflation and was preferable to wait before a first rate cut as the cost of cutting interest rates only to have to hike again would be too high.

ECB (BBG): ECB Must See Wage Turnaround Before Cuts, Knot Tells CNBC

The European Central Bank will need to see a turnaround in wages before it can start to lower interest rates, according to Governing Council member Klaas Knot. The Dutch official added on CNBC television that market bets on an easing of monetary policy make it less likely it will happen. “Markets are getting ahead of themselves, it’s pretty clear, and the problem for us is that in the end that might become self-defeating,” Knot said Wednesday.

ECB (BBG): Villeroy Says Premature to Know When in 2024 ECB Will Cut Rates

European Central Bank policymaker Francois Villeroy de Galhau said it’s premature to say when in 2024 the institution will start to cut rates as the decision will be guided by data. “Barring surprises, this year will be the year of cutting interest rates, and therefore there is the question of when,” Villeroy told the French Senate Finance Committee on Wednesday. “This question is premature because we’re not guided by a calendar but by data.”

ECB (BBG): ECB’s Vasle Calls Spring Rate-Cut Bets ‘Absolutely Premature’

European Central Bank Governing Council member Bostjan Vasle said investors betting on reductions in borrowing costs as soon as the spring are getting ahead of themselves — joining other policymakers in pushing back against aggressive pricing. “My expectations are different than those in the market,” Vasle told a Euromoney conference in Vienna. “For me, personally, it’s absolutely premature to expect the first cuts at the beginning of the second quarter.”

UK (The Times): Rishi Sunak Hit by Resignations and Biggest Rebellion Yet Over Rwanda Bill

Rishi Sunak has suffered the biggest revolt of his 15 months as prime minister when 60 right-wing Conservative MPs rebelled against his Rwanda plan and two deputy party chairmen resigned. Lee Anderson and Brendan Clarke-Smith, both red wall MPs, quit after backing amendments that aimed to toughen up the Safety of Rwanda Bill. In a joint letter to the prime minister they suggested that the legislation would not work in its present form.

ITALY (BBG): Bank of Italy’s Panetta Sees Growth Under 1% in 2024: Radiocor

Bank of Italy’s Governor Fabio Panetta says the central bank estimates Italy’s growth to be under 1% this year, news agency Radiocor reports. Panetta also says inflation in Italy is “under control.”

CHINA (MNI): LPR to Hold, Market Cut Expectations Persist

MNI (Beijing) China’s reference lending rate will likely remain unchanged in January following the central bank’s decision to keep its key policy rate steady and the fall of lenders’ interest margin to record lows, economists told MNI. The loan prime rate (LPR), based on the rate of the People’s Bank of China’s medium-term lending facility (MLF) and quotes submitted by 18 banks, is expected to remain steady at 3.45% for the one-year maturity and 4.2% for the over five-year tenor on Monday.

CHINA (MNI): China CPI to "Increase Moderately" in 2024 - NBS

MNI (Beijing) China will see a "moderate increase" in consumer prices during 2024, as the structural and temporary conditions causing negative CPI lessen, Kang Yi, commissioner at the National Bureau of Statistics said at a press conference on Wednesday. Kang noted China's upcoming Spring Festival would increase food prices and the government would provide policy support to boost domestic demand.

BOJ (MNI): BOJ Concerned Savings May Drive Weaker Consumption

Bank of Japan officials are concerned higher savings rates among households could negatively impact Japan's consumption recovery, as negative real wage growth continues and demand weakens, MNI understands. Weaker private consumption will lower corporate profits and make it harder for businesses to raise prices and wages, which will weaken the second force of inflationary pressure should private consumption lose momentum, BOJ officials warn.

S. KOREA (BBG): South Korea’s Yoon Calls for Bold Tax Changes to Boost Stocks

South Korea’s president and a top regulatory official have outlined policy changes they’re eyeing to bolster the country’s stock market. Poor protection of minority shareholders and heavy taxes, such as levies on inheritance that can reach as high as 60% for holders of listed firms, are two main causes behind Korea’s market discount, President Yoon Suk Yeol said. And the country’s top financial regulator said officials are seeking ways to boost the prices of stocks trading below book value.

BI (BBG): Indonesia Keeps Key Rate Steady Ahead of Next Month’s Election

Bank Indonesia maintained its benchmark interest rate for a third straight month as policymakers remain watchful of the rupiah and inflation ahead of the presidential vote next month. The central bank kept the BI-Rate steady at 6% on Wednesday, as expected by all 28 economists surveyed by Bloomberg. It follows earlier signals from policymakers that any rate cuts will be unlikely in the first half of this year, with the rupiah vulnerable to sell-offs in case of any uncertainty around the Federal Reserve’s easing path.

IRAN/PAKISTAN (The Times): Iran Missile Attack: Pakistan Warns of ‘Serious Consequences’

Iran has launched unprecedented missile and drone attacks in Pakistan, targeting bases of the Baluchi militant group Jaish al-Adl, according to state media in Tehran. The strikes came after Iranian missiles hit sites in Syria and Iraq on Monday night, raising the potential for an increase in tensions in the region. Two children were reported to have been killed in the attack, according to Pakistan, with a foreign office spokesman in the country saying that the strikes were “completely unacceptable” and there would be “serious consequences”.

OIL (BBG): OPEC Chief Says Oil Demand Will Defy Predictions of a Peak

OPEC’s top official said forecasts that oil demand is heading toward a peak will prove just as misguided as earlier predictions that supply was reaching its zenith. “Ultimately, peak oil supply has never come to pass, and predictions of peak oil demand are following a similar trend,” Secretary-General Haitham Al Ghais said in a statement on the group’s website. “Peak oil demand is not showing up in any reliable and robust short- and medium-term forecasts.”

NATGAS (BBG): European Gas Prices Extend Declines as Supply Worries Dissipate

European natural gas prices fell for a third consecutive day, underscoring growing confidence that the region is well supplied for the last few months of winter. Benchmark Dutch futures dropped as much as 2.5% on Wednesday to trade near €29 per megawatt-hour. That’s the lowest since early August, but still much higher than historical levels before the energy crisis.

IRON (BBG): Iron Ore Resumes Declines on Slump in Chinese Steel Output

Iron ore fell for an eighth session in 10, with data showing China’s steel output slumped last month the latest sign that demand is declining. Crude steel output in December sank 15% year-on-year and annual production remained unchanged from 2022. Chinese home prices, meanwhile, fell the most in almost nine years in December, increasing pessimism toward the property sector, a major source of steel demand.

COPPER (BBG): Copper Extends Losses as China’s Economic Data Underwhelms

Copper fell for the fourth time in five sessions, extending losses in the new year, as the latest economic data from top consumer China underwhelmed investors. Home prices in the country fell the most since 2015 in December as a downturn deepened in the property sector, a pillar of commodities demand. The property sector was a source of persistent weakness in an otherwise buoyant year for Chinese copper demand in 2023.

DATA

UK DATA (MNI): UK Inflation in Unexpected December Uptick

• UK DEC CPI +0.4% M/M, +4% Y/Y
• UK DEC CORE CPI +0.6% M/M, +5.1% Y/Y
• UK DEC OUTPUT PPI -0.6% M/M, +0.1% Y/Y
• UK DEC INPUT PPI -1.2% M/M, -2.8% Y/Y
• UK DEC RPI +0.5% M/M, +5.2% Y/Y

UK inflation edged higher in December, the first uptick in annual price gains since February 2022, the Office for National Statistics said Wednesday, as CPI rose 4.0% y/y, above the 3.9% recorded in November and outpacing analyst expectations for a deceleration to 3.8%. Core inflation was unchanged on November at 5.1%. Both measures remain largely in line with the Bank of England's latest forecasts for year-end, although of course still well above the MPC's 2% target.

EUROZONE DATA (MNI): EZ Final Inflation Confirms Flash, December Inflation Rise with Services Gain

EZ Final HICP confirms flash; December inflation rises with Services and Unprocessed food contribution gains from November to December, confirming flash estimates at +2.9% Y/Y (vs +2.4% Y/Y prior) and +0.2% M/M (vs -0.6% M/M prior). Whilst Core inflation Y/Y printed in line with flash at +3.4% Y/Y (vs +3.6% Y/Y prior), on a monthly basis it was slightly higher than expected at +0.5% M/M (vs +0.4% M/M flash). At a country level: Malta and Portugal saw flash Y/Y HICP estimates revised up by +0.1ppt, while Finland's flash was revised down by -0.3ppts.

CHINA DATA (MNI): China Q4 GDP Grows 5.2%, 2023 GDP Beyond Target

• CHINA Q4 2023 REAL GDP +5.2% Y/Y VS MEDIAN +5.2% Y/Y: NBS
• CHINA Q4 2023 REAL GDP +1.0% Q/Q VS MEDIAN +0.9% Q/Q: NBS
• CHINA 2023 REAL GDP +5.2% Y/Y VS MEDIAN +5.2% Y/Y: NBS

MNI (Beijing) The Chinese economy grew by 5.2% y/y in Q4, in line with market expectations, bringing 2023 GDP to 5.2%, which ensures Beijing will meet its annual growth target of “around 5%", data released by the National Bureau of Statistics on Wednesday showed. Industrial production rose 6.8% y/y in December to mark the fastest expansion since June 2021 (8.3%), up from November's 6.6% and beating the 6.6% forecast.

CHINA DEC INDUSTRIAL OUTPUT +6.8% Y/Y VS MEDIAN +6.6% Y/Y (MNI)
CHINA DEC UNEMPLOYMENT RATE +5.1% VS NOV +5.0% (MNI)
CHINA DEC RETAIL SALES +7.4% Y/Y VS MEDIAN +8.0% Y/Y (MNI)

JAPAN DATA (MNI): Household 5-Yr Inflation Stays at 5% - BOJ

Bank of Japan's closely-watched five-year household median inflation forecast for Q4 2023 stood unchanged at 5%, despite the number of households that expect price rises falling to 76.5% from 80.7%, the BOJ's quarterly consumer survey released Wednesday showed. The one-year household median inflation view stood at 8%, down from 10% in Q3, the first drop since September 2020, indicating inflation expectations may have peaked.

FOREX: GBP on Top on Hot CPI, AUD Downtrend Resumes

• GBP is seeing support across European hours on the back of the higher-than-expected CPI print – which unexpectedly ticked up to 4.0% from 3.9% - above all submitted analyst expectations. Perhaps more notably, both the core CPI print and services inflation metric were ahead of forecast, forcing markets to partially unwind some of the rate cut pricing bedded in since the beginning of the year.
• Resultingly, the market pricing of May rate cut has faded. Having been fully priced at the beginning of the week, just 17bps is now priced for that meeting. GBP/USD has bounced off weekly lows of 1.2597, to narrow in on 1.2700. A recovery above 1.2727 would reverse the entirety of the Tuesday sell-off.
• President Lagarde declined to comment directly on ECB rate cut pricing in an early appearance, however hinted heavily toward policy easing in the Summer. The comments were broadly infitting with GC speeches earlier this week, but EUR/USD remains in a downtrend key support at the Jan 5 low was breached, opening the 50% retracement of the Oct-Dec ’24 rally at 1.0793.
• Antipodean currencies are underperforming as the risk backdrop remains fragile. AUD and NZD hold among the session’s poorest performers, extending the AUD/USD losing streak and resuming the downtrend through support at the 200-dma of 0.6583 – which broke across the opening hours of the Wednesday session.
• The World Economic Forum in Davos continues, with appearances from several political leaders scheduled, including the French President and the Iranian foreign minister. Pre-media blackout appearances from ECB’s Vujcic, Knot and Lagarde are due as well as Fed’s Barr, Bowman and Williams.

EGBS: Remain Lower Following Strong UK CPI and ECB Pushback

Core/semi-core EGBs have have moved off lows set in early trade, though still sit lower on the day.

• Initial hawkish impulses came from a higher-than-expected UK CPI readings, alongside further ECB policymaker pushback on current rate cut pricing.
• In an interview this morning ECB's Lagarde said it is likely that the Bank will cut rates by the summer, although she warned that "too optimistic" markets (re: cuts) hinder the return of inflation to its 2% goal
• The ECB's pre-meeting blackout period begins tomorrow, with a wide range of policymakers across the hawk/dove spectrum having pushed back on current pricing already this week.
• Bunds are 17 ticks lower at 134.79, after bouncing off the Dec 8 low and key support of 134.37 earlier.
• The German and French curves have twist flattened, pivoting at 10Y tenors. In the former's case, rate cut repricing at the short-end factored more heavily than the 30Y supply in the run-up to the bidding deadline.
• Periphery spreads to Bunds show either side of unchanged on the day.
• December final HICP confirmed flash estimates, with little else on the local data docket today. There remains a raft of ECB-speak from Davos scheduled, alongside US retail sales data this afternoon.

GILTS: Off CPI-Induced Lows

Gilt futures have started to pare losses, aided by feedthrough from the hold of technical support levels in both TY & Bund futures, with a downtick in crude oil prices also aiding the stabilisation.

• A reminder that the firmer-than-expected domestic CPI data provided the early cheapening impetus, although the readings were softer than BoE projections in the most recent MPR.
• That leaves gilt futures -60 or so around 99.30. The contract is still ~40 ticks away from closing the opening gap lower and sits a handful of ticks shy of the peak of its 56-tick session range.
• Cash gilt yields are 5-11bp higher on the day, bear flattening. 2s10s and 5s30s tick away from YtD highs in the process, while most outright benchmark yields have registered fresh YtD highs.
• SONIA futures are flat to 14.5bp lower, stabilising away from lows alongside gilts.
• BoE-dated OIS prices ~117bp of cuts through ’24 (vs. ~130bp at yesterday’s close), also unwinding from extremes seen post-CPI as gilts stabilise.
• Outside of the previously flagged political news and CPI readings, UK house price data saw the most pronounced Y/Y fall since ’11 in November.
• GBP3.75bn of 4.625% Jan-34 gilt supply is due in just under an hour.

EQUITIES: E-Mini S&P Trades Lower Again, But Above Jan 05 Lows

Eurostoxx 50 futures have traded lower this week and in the process breached support at the Jan 5 low of 4444.0. The primary trend direction is up and the recent move lower is considered corrective. However, the break below 4444.00 and 4450.70, the 50-day EMA, suggests scope for an extension of the bear cycle. This has opened 4370.00, the Nov 28 low. Initial resistance is 4536.00, the Jan 11 high. S&P E-Minis are trading lower today but - for now - continue to trade above the Jan 5 low. Key resistance and the bull trigger is unchanged at 4841.50, the Dec 28 high. A break of this level would resume the uptrend and open 4854.75, a Fibonacci projection. Support at the 20-day EMA of 4773.54 has recently been pierced. A clear break of this average would strengthen a short-term bearish threat and open the 50-day EMA, at 4684.17.

• Japan's NIKKEI closed lower by 141.43 pts or -0.4% at 35477.75 and the TOPIX ended 7.6 pts lower or -0.3% at 2496.38.
• Elsewhere, in China the SHANGHAI closed lower by 60.374 pts or -2.09% at 2833.615 and the HANG SENG ended 589.02 pts lower or -3.71% at 15276.9.
• Across Europe, Germany's DAX trades lower by 180.94 pts or -1.09% at 16389.89, FTSE 100 lower by 126.15 pts or -1.67% at 7431.8, CAC 40 down 88.19 pts or -1.19% at 7307.62 and Euro Stoxx 50 down 46.86 pts or -1.05% at 4398.17.
• Dow Jones mini down 146 pts or -0.39% at 37409, S&P 500 mini down 23.25 pts or -0.48% at 4775.5, NASDAQ mini down 107.5 pts or -0.63% at 16858.75.

COMMODITIES: Gold Trades Near Support at 50-Day EMA

Trend signals in WTI futures remain bearish and the pullback from last Friday’s high reinforces this theme. Resistance to watch is $74.36, the 50-day EMA. It has recently been pierced, a clear break would strengthen a bullish theme and expose $76.18, the Dec 26 high. Moving average studies remain in a bear-mode position, highlighting a downtrend. The trigger for a resumption of the downtrend is $67.98, Dec 13 low. Gold has pulled back from its most recent highs. Attention is on support at $2017.3, the 50-day EMA and last week’s low of $2013.4 (Jan 11). A breach of both support points would strengthen a bearish threat and expose a key level at $1973.2, the Dec 13 low. For bulls, clearance of $2088.5 would reinstate the bull cycle that started Dec 13. This would open $2097.1, 76.4% of the Dec 4 - 13 bear leg. Initial resistance is at $2062.3, the Jan 12 high.

• WTI Crude down $1.61 or -2.22% at $70.83
• Natural Gas down $0.06 or -2.21% at $2.838
• Gold spot down $6.41 or -0.32% at $2022.49
• Copper down $2.95 or -0.78% at $373.8
• Silver down $0.15 or -0.66% at $22.7777
• Platinum down $7.28 or -0.81% at $892.68