MNI US OPEN: USD on an Early Tear

NEWS

ECB (BBG): ECB’s Schnabel Sees Risk Markets Underestimate Inflation

One of the European Central Bank’s most senior officials said that investors risk underestimating the persistence of inflation, and the response needed to bring it under control. “We are still far away from claiming victory,” Executive Board member Isabel Schnabel said in an interview with Bloomberg, citing the strength of underlying price pressures and faster wage increases.

GERMANY (MNI): Berlin Squares Off with Brussels Over Fiscal Pact Reform

German objections to European Commission proposals for reform of EU fiscal rules centre on a proposed Debt Sustainability Analysis which would determine tailor-made debt reduction programmes for high-debt nations such as Italy and which Berlin argues is non-transparent and would allow Brussels too much leeway for cutting deals, European officials told MNI.

RBA (MNI): RBA's Lowe Says Rate Cuts In 2024 Are 'Plausible'

Reserve Bank of Australia Governor Philip Lowe said it was "plausible" that rates could be cut in 2024 but that would require signs that inflation was on track to return to target, he told a House of Representatives economics committee on Friday.

US/CHINA (BBG): Unidentified Balloon Prompts Chinese City to Clear the Skies

A balloon of unknown origin spotted flying over a northern Chinese city prompted the local airport to redirect flights Thursday, highlighting growing concern in both the US and China about unidentified objects in their airspace. Shijiazhuang, the capital of Hebei province, had to redirect multiple flights bound for its Zhengding International Airport around noon time, local media Red Star News reported.

JAPAN (MNI): BOJ To Launch CBDC Pilot Program in April

The Bank of Japan said on Friday it will launch a pilot program of a central bank digital currency in April. The BOJ said it will complete the Proof of Concepts (PoCs), through which it has been confirming the technical feasibility of the basic functions of a CBDC. “In the pilot program, the BOJ will develop a system for experiments, in which a central system, intermediary network systems, intermediary systems, and endpoint devices are configured in an integrated manner,” the BOJ said.

UKRAINE (MNI): Talks on Extending Black Sea Grain Deal Begin Next Week – Minister

The Ukrainian Deputy Infrastructure Minister Yuriy Vaskov has stated that talks on extending the Black Sea Grain Initiative will begin next week. The UN-Turkey brokered initiative sees Ukrainian and Russian grain exported from Black Sea ports with guarantees that they will not be attacked by the other side.

CHINA (MNI): China’s LPR Seen Steady on Economic Recovery

China’s loan prime rate is expected to remain unchanged this month as credit continues to expand amid a robust economic rebound, though the key reference rates could be lowered if the recovery falters, economists and advisers said. The loan prime rate (LPR) for the 1-year and over-5-year tenors are expected to be maintained at 3.65% and 4.3%, respectively, on Monday, as the quotes provided by a panel of banks will be unchanged and the People’s Bank of China kept the rate steady on its medium-term lending facility on February 15.

CHINA (MNI): Fiscal Revenue Outlook "Uncertain" - Finance Minister

The fiscal revenue outlook for 2023 remains "uncertain" as the foundation for economic recovery is not yet solid, according to Finance Minister Liu Kun. In a recent article in state media, Liu said he expected revenue to increase moderately in 2023 despite the uncertainty, owing to an increase in economic activity and due to 2022 being a low base year, according to a report by Shanghai Securities News.

DATA

UK DATA (MNI): January Discounts See Modest Retail Uptick

• UK JAN RETAIL SALES EX-FUEL +0.4% M/M, -5.3% Y/Y
• UK JAN RETAIL SALES +0.5% M/M, -5.1% Y/Y

UK retail sales improved slightly in January, expanding by 0.5% m/m (0.4% ex fuel), largely due to non-food sales which rose +0.6% m/m, boosted by sales promotions. This follows -1.2% m/m (-1.4% m/m ex fuel) contractions in December. Lower fuel prices boosted sales at the gas pump in January, whilst food sales declined again, down -0.5% m/m as customers reduce spending due to elevated grocery costs.

FRANCE DATA (MNI): Jan Data Confirms Expiration of Energy Support Boosted CPI

• FRANCE JAN CPI +0.4% M/M, +6% Y/Y
• FRANCE JAN HICP +0.4% M/M, +7% Y/Y

French January inflation was confirmed at flash levels, up +0.4% m/m and +7.0% y/y in the harmonised data. This was only 0.1pp below the November peak. Food and energy prices drove the rebound in French inflation in January, boosted by the winding back of government energy support measures which saw fuel and regulated gas prices jump recently. Food prices accelerated by +1.7% m/m (+0.5% in Dec), whilst services slowed 0.2pp to +0.1% m/m and manufactured products fell -1.1% m/m (+0.2% in Dec) due to winter sales.

GERMANY JAN PPI -1.0% M/M; DEC -0.4% M/M (MNI)
GERMANY JAN PPI+17.8% Y/Y; DEC +21.6% Y/Y (MNI)

SWEDEN JAN UNEMPLOYMENT 7.6% (MNI)

RATINGS: A Mix of Stable & Negative Outlooks Up For Review Today

Sovereign credit rating reviews of note scheduled for after hours on Friday include:

• Fitch on Finland (current rating: AA+; Outlook Stable) & Slovakia (current rating: A; Outlook Negative)
• Moody’s on Switzerland (current rating: Aaa; Outlook Stable)
• S&P on Estonia (current rating: AA-; Outlook Negative) & Poland (current rating: A-; Outlook Stable)
• DBRs Morningstar On Spain (current rating: A, Stable Trend)

FOREX: Dollar on an Early Run, Nears YTD Highs

• The greenback is on a tear early Friday, rallying against all others in G10. The move is seen as a continuation of late greenback strength Thursday, which followed comments from both Fed's Bullard and Mester raising the possibility of a return to 50bps rate hike steps from the FOMC to contain inflation. The comments have prompted some upside in March Fed rate pricing, with markets now assigning a small likelihood of a larger-than-25bps rate hike.
• The rate re-pricing is working against both bond and equity futures markets, which sit lower and are extending the week's weakness well into Friday trade. US 10y yields are through the early January highs, and a further 10bps rally would put rates at the psychological 4.00% handle.
• EUR is gaining in tandem, with NZD, AUD and NOK among the hardest hit ahead of the NY crossover. USD/NOK is narrowing the gap with resistance and the bull trigger at 10.4335, a break above which would put rates at the best level since mid-November last year.
• US Import/Export price indices are the data highlight Friday, with Canadian industrial product prices also on the docket. This should keep focus on the speaker slate, with ECB's Villeroy and Fed's Barkin & Bowman on the docket.

BONDS: US And German Curves Bear Flatten on Hawkish Fed/ECB Repricing

Global yields continue to rise on upward central bank hike repricing Friday, with hawkish commentary yesterday out of the FOMC (Mester and Bullard seen eyeing 50bp hikes) and ECB's Schnabel this morning warning that markets are underestimating inflation.

• Peak rate expectations hit new cycle highs (Fed > 5.30%, ECB ~3.73%) this morning, putting further pressure on the US and German short end/curve bellies, and periphery EGBs.
• In contrast to Bund and Tsy bear flattening, the UK curve is bear steepening, with berter-than-expected UK retail sales data merely clawing back some of the drop in BoE hike pricing since the mid-week UK CPI figure.
• A fairly light calendar ahead. ECB's Villeroy speaks later in the European morning. Fed's Barkin and Bowman make appearances, having already heard from them this week, while US Import Prices and Leading Index are decidedly 2nd tier data.

• Mar 10-Yr US Tsy futures (TY) down 14.5/32 at 111-14 (L: 111-08.5 / H: 111-24)
• Mar Bund futures (RX) down 50 ticks at 134.04 (L: 133.67 / H: 134.5)
• Mar Gilt futures (G) down 56 ticks at 102.24 (L: 101.86 / H: 102.34)
• Italy / German 10-Yr spread 2.9bps wider at 188.4bps

EQUITIES: E-Mini S&P Trades Softer Following Thursday Pullback

EUROSTOXX 50 futures were tilted higher through the Thursday open, before fading slightly into the close. This puts prices just below first resistance at 4303.20, the 2.382 proj of the Sep 29 - Oct 4 rise from Dec 20 low, but still above 4265.00, the Feb 3 high. Note that the trend is overbought. A pullback would represent a healthy correction. Key support lies at 4097.00, the Jan 19 low. Initial support is at 4167.50, the 20-day EMA. The S&P E-Minis trend condition is bullish and the latest pullback is considered corrective. The contract has pierced initial support at 4069.52, the 20-day EMA. Firmer support lies at the 50-day EMA, at 4006.63. A clear break of this average would signal scope for a deeper pullback and potentially highlight a reversal. Key resistance and the bull trigger intersect at 4208.50, the Feb 2 high. A breach would resume the uptrend.

• Japan's NIKKEI closed lower by 183.31 pts or -0.66% at 27513.13 and the TOPIX ended 9.16 pts lower or -0.46% at 1991.93.
• Elsewhere, in China the SHANGHAI closed lower by 25.006 pts or -0.77% at 3224.024 and the HANG SENG ended 267.86 pts lower or -1.28% at 20719.81.
• Across Europe, Germany's DAX trades lower by 139.65 pts or -0.9% at 15350.06, FTSE 100 lower by 27.15 pts or -0.34% at 7973.81, CAC 40 down 60.42 pts or -0.82% at 7287.97 and Euro Stoxx 50 down 41.21 pts or -0.96% at 4245.15.
• Dow Jones mini down 115 pts or -0.34% at 33577, S&P 500 mini down 21 pts or -0.51% at 4072.75, NASDAQ mini down 84 pts or -0.67% at 12374.25.

COMMODITIES: Gold Prints 1819.02 YTD Low

WTI futures showed above the Friday high ahead of the Monday close, marking an extension of the recovery from $72.25, the Feb 6 low. The rally has confirmed a break of the 50-day EMA, at $78.34, strengthening the current bull cycle. Prices have faded slightly since, however the medium-term view remains unchanged. Key resistance remains at $82.66, the Jan 18 high. On the downside, initial firm support has been defined at $76.52, the Feb 9 low. Trend conditions in Gold are bearish for now, and the yellow metal remains in a corrective cycle. This follows the strong sell-off on Feb 2 / 3 as well as the break of support at the 50-day EMA early Wednesday. A clear break here would strengthen a bearish case and suggest scope for a deeper pullback - towards $1825.2, the Jan 5 low. On the upside, key resistance and the bull trigger is at $1959.7, the Feb 2 high.

• WTI Crude down $1.22 or -1.55% at $76.98
• Natural Gas down $0.03 or -1.26% at $2.336
• Gold spot down $11.42 or -0.62% at $1820.26
• Copper down $5.75 or -1.4% at $406.8
• Silver down $0.31 or -1.43% at $21.2116
• Platinum up $0.15 or +0.02% at $917.49