MNI US OPEN - USD Wanes, Regional CBs Tilt Hawkish

NEWS

MNI BOE PREVIEW - MARCH 2023: Services Inflation Strong; MNI Looks for 25bp from BOE

The MNI Markets team look for a 25bps hike from the BOE on the UK CPI release. This data gives the hawks on the MPC ammunition to push for a 25bp hike. The MNI Markets team looks for a 25bp hike from the BOE on the back of this data.

SNB (MNI): SNB Raises Rates by 50bps, Alongside Expectations

Statement highlights:

• It cannot be ruled out that additional rises in the SNB policy rate will be necessary.
• SNB also remains willing to be active in the foreign exchange market.
• The measures announced at the weekend by the federal government, FINMA and the SNB have put a halt to the crisis.
• Inflation forecasts notched higher: the new forecast is higher through to mid-2025 than in December

All-in-all, the SNB decision generally inline with forecast - CHF rallying slightly as markets close the gap on only partial pricing of 50bps rate hike - market already expected further tightening beyond today's hike, and SNB confirming there is a strong likelihood of such a move.

NORGES BANK (MNI): Banks Raises Rates by 25bps, Makes Hawkish Tweaks to Path Projections

Norges Bank raises rates by 25bps to 3.00%, as expected. The policy statement also adds that the policy rate will be raised further in May. The uptick to the rate path projections slightly ahead of expectations and leaning somewhat hawkish (peak rate in 3.60% by year-end). Also worth noting that May was namechecked as next likely hike - this is not an MPR meeting (next is June) so doesn't meet the assumption the bank would proceed with 25bps steps each quarter.

US (MNI): Powell Nods to Fed Pause but Keeps Options Open

Federal Reserve Chair Jerome Powell deftly balanced raising interest rates despite strains in the banking sector while sticking to a hawkish enough message that keeps open the possibility of additional monetary tightening if inflation proves stubborn, former Fed Board senior researcher Daniel Sichel told MNI.

US (BBG): Yellen Says US Not Considering ‘Blanket’ Bank Deposit Insurance

Treasury Secretary Janet Yellen said regulators aren’t looking to provide “blanket” deposit insurance to stabilize the US banking system without working with lawmakers, and that the heads of recently failed American lender should be held accountable. “I have not considered or discussed anything having to do with blanket insurance or guarantees of deposits,” Yellen said Wednesday during a hearing before a Senate subcommittee, answering a question about whether the protections for all US deposits would require congressional approval.

ECB (BBG): ECB’s Muller Sees More Hiking, But Bulk of Moves ‘Behind Us’

The European Central Bank will probably need to raise borrowing costs more, though the bulk of tightening is already done, according to Governing Council member Madis Muller. “Looking at how quickly and sharply the interest-rate increases have taken place in less than a year, I dare say the bigger part of this is behind us and now it is a time for adapting and coping,” Muller told Raadio 2 in an interview Thursday. “We need to get inflation under control, need to keep working until we have confidence that the back bone of inflation is broken.”

ECB (MNI): EU Fears Italy ESM Delays Threaten Bank Resolution Review

Concern is building among European officials that Italy’s continuing reluctance to ratify changes to the treaty governing the European Stability Mechanism is blocking efforts to review the bloc’s arrangements for dealing with bank failures.

FRANCE (MNI): Day Of Protest & Strike Action To Hit Industry As Macron Attends EUCO

A major day of strike action and protest is underway in France in opposition to the government's pension reform plans, and its method of implementing the controversial measures. Small demonstrations have taken place in Paris over the past week since the announcement that the gov't would use Article 49.3 of the Constitution to push through the reforms without a vote, but today's action is set to be much more widespread. Railway workers, teachers, refuse collectors, and oil refinery workers are among those set to strike today.

NEW ZEALAND (MNI): RBNZ's Conway Says Welcome Signs Demand Is Slowing

Reserve Bank of New Zealand chief economist Paul Conway said there were pleasing signs demand was slowing and 450bp of tightening was having the desired contractionary effect in a speech on Thursday. "On balance, our measures of neutral interest rates - the interest rate that is neither stimulatory nor contractionary - indicate the OCR is now comfortably above neutral and having the desired contractionary effect. Consistent with this, and as discussed in detail in the February Monetary Policy Statement, there are welcome signs demand in the economy is slowing," he said.

HONG KONG (MNI): HKMA Lifts Base Rate After Fed Hike

Hong Kong’s base interest rate was increased 25bp to 5.25% on Thursday, according to the Hong Kong Monetary Authority (HKMA). The second hike this year follows the Federal Reserve's decision to lift U.S. interest rates by the same amount. The HKMA mirrors U.S. monetary policy moves to maintain its Linked Exchange Rate System that pegs the Hong Kong dollar to the U.S. dollar.

TAIWAN (BBG): Taiwan’s Central Bank Unexpectedly Hikes Rate After Fed’s Move

Taiwan’s central bank unexpectedly raised its key interest rate on Thursday, with Governor Yang Chin-long taking a cautious stance on inflation in his first policy decision since renewing his term in office. The benchmark rate was increased by 12.5 basis points to 1.875%, the central bank said in a statement. Of the 24 economists surveyed by Bloomberg, 19 had expected the rate to stay unchanged at 1.75%.

UKRAINE (NYT): Zelensky Makes Morale-Boosting Trip to Bakhmut

Ukraine’s president, Volodymyr Zelensky, made a rare and defiant trip near the front line on Wednesday, personally thanking soldiers who have been fighting in the devastated eastern city of Bakhmut, which has become a potent symbol of Ukrainian resistance. The trip to the Bakhmut area came on a day when air- and seaborne drones attacked the Russian-occupied peninsula of Crimea and a Russian missile ripped into a nine-story apartment complex in Zaporizhzhia, in the south, killing at least one person and injuring more than 30 others.

FOREX: Waning USD, Hawkish Norges Bank Tilt USD/NOK to Fifth Lower Low

• The greenback trades softer following the Wednesday Fed decision, helping pressure the USD Index to a new pullback low at 101.915 as the FOMC statement indicating the Fed are not far off the peak of their tightening cycle. The USD weakness has favoured high beta and growth proxy currencies so far Thursday, putting NOK and AUD to the top of the G10 pile.
• The Swiss National Bank pressed ahead with plans to tighten policy despite local turmoil in the domestic banking sector. This reinforces the SNB's view that liquidity provision and enhanced access to USD liquidity will allow the bank to continue their medium-term focus on inflation, raising the risk for further tightening going forward.
• In Norway, the Norges Bank raised rates by 25bps to 3.00%, as expected, however the accompanying Policy Report erred hawkishly, with the peak rate notched higher this year (3.60% by year-end). Also worth noting that May was namechecked as next likely hike - this is not an MPR meeting (next is June) so doesn't meet the assumption the bank would proceed with 25bps steps each quarter. As such, the Norges Bank outlined a more hawkish approach to policy across 2023, helping EUR/NOK briefly print a new daily low at 11.2551.
• Looking ahead, the BoE decision is expected to see a 25bps hike to 4.25%, with a focus on the vote split among the MPC.

BONDS: Markets Digest Yesterday's Fed Decision, BOE Decision Due

• Following yesterday's post-Fed move higher in USTs we have seen European govvies cash move higher this morning on the open, but we have generally drifted a little lower in the European morning session. Indeed, TY1 and Bund futures are both off their overnight highs and gilt futures have also moved notably lower since the open.
• So far this morning we have seen the SNB and Norges Bank push through their expected hikes of 50bp and 25bp respectively and the market is now focused on the Bank of England's decision which is due at 12:00GMT / 8:00ET. The MNI Markets team expects a 25bp hike following yesterday's stronger-than-expected inflation print (with the reversal of the January downside surprise to services inflation the tipping point in our view for the three centrist members). Markets are pricing in around 23bp for today's meeting, up from 14bp prior to the inflation print. We continue to expect 2-3 MPC members to vote for unchanged rates (Cunliffe potentially joining the doves). Note there is no MPR or press conference today.
• TY1 futures are up 0-6 today at 115-09 with 10y UST yields up 3.4bp at 3.471% and 2y yields up 1.6bp at 3.955%.
• Bund futures are up 0.79 today at 136.20 with 10y Bund yields down -5.7bp at 2.268% and Schatz yields down -7.7bp at 2.618%.
• Gilt futures are up 0.25 today at 104.11 with 10y yields down -0.8bp at 3.439% and 2y yields down -5.3bp at 3.424%.

EQUITIES: Eurostoxx Futures Pare Most Post-Fed Losses

The recent strong recovery in Eurostoxx 50 futures from Monday’s low of 4057.00 has resulted in a breach of both the 20- and 50-day EMAs. A continuation higher would signal scope for 4184.50, a Fibonacci retracement. Key resistance and the bull trigger is at 4268.00, the Mar 6 high. On the downside, a reversal lower and a breach of 3914.00 would resume the recent downtrend. Initial support lies at 4069.00, the Mar 21 low. S&P E-Minis reversed sharply lower Wednesday. It is too early to tell whether the pullback marks the start of a bearish cycle. However, the move lower means that price has - so far - failed to hold above pivot resistance around the 50-day EMA. The average intersects at 4023.28 and a clear break is required to strengthen bullish conditions. Watch support at 3966.25, yesterday’s low - a break would be bearish. Key S/T resistance is at 4073.75.

• Japan's NIKKEI closed lower by 47 pts or -0.17% at 27419.61 and the TOPIX ended 5.61 pts lower or -0.29% at 1957.32.
• Elsewhere, in China the SHANGHAI closed higher by 20.901 pts or +0.64% at 3286.649 and the HANG SENG ended 458.21 pts higher or +2.34% at 20049.64.
• Across Europe, Germany's DAX trades lower by 32.04 pts or -0.21% at 15183.83, FTSE 100 lower by 42.98 pts or -0.57% at 7523.55, CAC 40 down 4.97 pts or -0.07% at 7126.39 and Euro Stoxx 50 up 3.01 pts or +0.07% at 4198.83.
• Dow Jones mini up 121 pts or +0.38% at 32377, S&P 500 mini up 23.75 pts or +0.6% at 3994, NASDAQ mini up 122.25 pts or +0.96% at 12829.5.

COMMODITIES: Trend Conditions in Gold Remain Bullish, Targets $2000 Handle

WTI futures remain in a downtrend and this week’s recovery appears to be a correction. Note that the latest move higher is allowing a recent oversold condition to unwind. Firm resistance is seen at $73.16, the 20-day EMA. Last week’s extension lower confirmed a resumption of the broader downtrend and has paved the way for a move towards $62.43, the Dec 2 2021 low. The bear trigger is $64.36, Monday’s low. Trend conditions in Gold remain bullish and the recent short-term pullback is considered corrective. The breach on Mar 17 of former resistance at $1959.7, Feb 2 high, confirmed a resumption of the bull trend that started late September 2022. The test above $2000.0 opens $2034.0 next, a Fibonacci projection. $1918.3 is seen as a firm support. It is the Mar 17 low and a break would signal scope for a deeper pullback.

• WTI Crude down $0.45 or -0.63% at $70.48
• Natural Gas up $0.05 or +2.21% at $2.222
• Gold spot up $6.28 or +0.32% at $1975.44
• Copper up $2.85 or +0.7% at $407.45
• Silver down $0.13 or -0.55% at $22.8475
• Platinum up $4.23 or +0.43% at $990.26