MNI US OPEN - Villeroy Talks Down ECB Terminal Rate View

NEWS

ECB (MNI): "ECB Not Obliged to Hike at Every Meeting Before September" – ECB’s Villeroy

In an Interview with "Les Echos", Villeroy commented that the ECB is not obliged to hike at every meeting before September. "The central bank could therefore be more moderate in the pace of its future tightening… We will in no way be forced to raise rates at every board meeting between now and September," the governor warned.

RUSSIA/CHINA (MNI): Putin to Meet China’s Wang Yi Today

Reports that Putin will meet China's State Councillor Wang Yi today crossing wires. Foreign Minister Sergei Lavrov will also meet with Wang Yi, who is expected to propose a fresh peace deal. European officials familiar with the plan said it is expected to include calls for a cease-fire and for a halt to arms deliveries to Ukraine, Bloomberg reported.

GLOBAL (MNI): Keep Tightening, Beware of Spillovers: IMF Chief to G20

Central bankers must keep tightening monetary policy with inflation remaining a dominant problem, IMF chief Kristalina Georgieva said Wednesday, as she signaled concern about damage to developing nations from a strong U.S. dollar and trade protectionism during the shift to greener technology.

NATO (MNI): Stoltenberg to Meet w/Biden & CEE Leaders @ 1445CET

NATO Secretary General Jens Stoltenberg will hold a meeting with US President Joe Biden in Warsaw, Poland at 1445CET (0845ET/1345GMT) today to round off the US leader's trip to the coalface of the war in eastern Europe. The leaders of the 'Bucharest Nine' (Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania and Slovakia) will also be in attendance.

CHINA (MNI): China Must Invest for Long Term Growth - Huang

China should prioritise investment in infrastructure and next generation industries to drive the structural reform needed to deliver long-term growth and productivity gains at a time when the property market is dragging on growth, former People’s Bank of China adviser Huang Yiping told MNI.

NEW ZEALAND (MNI): More Hikes Coming, 25bps An Option for April

Reserve Bank of New Zealand Governor Adrian Orr hinted at the possibility of another downshift in the pace of tightening at the April meeting after hiking rates 50bps on Wednesday and acknowledging monetary policy was now contractionary.

INDONESIA (BBG): Bank Indonesia’s Warjiyo Nominated for Second Term as Governor

Bank Indonesia Governor Perry Warjiyo has been nominated for another five-year term in a move that should solidify monetary policy continuity in Southeast Asia’s largest economy. His reappointment is rare in Bank Indonesia’s history as most governors serve only a single term.

DATA

GERMAN DATA (MNI): Jan National CPI a 0.6pp Uptick on Dec Following Revisions

• GERMANY JAN CPI +8.7% Y/Y (= FLSH)
• GERMANY DEC CPI +8.1% Y/Y (VS +8.6% BEFORE REVISION)
• GERMANY DEC CPI +8.8% Y/Y (VS +10.0 BEFORE REVISION)

German national CPI (not HICP) rose +8.7% y/y in January, confirming the flash estimate. This was a 0.6pp acceleration on December, following re-basing revisions. "Following a slowdown at the end of last year, the inflation rate thus remains at a high level", says Ruth Brand, President of the Federal Statistical Office.

GERMAN DATA (MNI): IFO Adds to Outlook Sentiment Boost

• GERMANY FEB IFO BUSINESS CLIMATE 91.1 (FCST 91.2); JAN 90.1r
• GERMANY FEB IFO CURRENT COND 93.9 (FCST 95.0); JAN 94.1
• GERMANY FEB IFO EXPECTATIONS 88.5 (FCST 88.4); JAN 86.4

The German IFO survey saw modest improvements in February. The indexes were up one point on the business climate index and up 2.1 points in expectations, largely in line with consensus expectations. Overall, optimistic outlooks are driving improvements. The IFO current assessment was weaker than anticipated, edging down by 0.2 points, highlighting that the economy continues to face significant headwinds.

MNI CHINA LIQUIDITY INDEX: China Liquidity Eases Sharply

China’s interbank liquidity relaxed sharply in February, producing the second-easiest conditions in seven months, as the PBOC moved to support economic recovery and deal with higher-than-expected demand for loans, the latest MNI Liquidity Conditions Index showed.

The liquidity index eased to 35.7 points in February from the previous 65.3, showing a clear loosening of conditions for local traders after the lunar new year. Only in December, when it touched 32.9, has the index been lower since July.

AUSTRALIA DATA (MNI): Wages Surprise to Downside, Consistent with Inflation Target

The Wages Price Index (WPI) surprised to the downside rising 0.8% q/q to be up 3.3% y/y from 3.2% in Q3. The quarterly increase was also less than Q3's upwardly revised 1.1% q/q, which had been impacted by the 5.2% national minimum wage rise in July, but in line with Q2's 0.8% rise. The data show that while wage rises are continuing they were not accelerating at the end of last year, which will be good news for the RBA but likely to drive more rhetoric and policies from the government to boost wage growth.

FOREX: EUR Slips as Villeroy Talks Down ECB Terminal Rate View

• EUR is slightly softer headed through to US hours, with EUR/USD extending the recent (modest) downtrend. EUR/USD printed a low of 1.0631 on the back of an interview with ECB's Villeroy in Les Echos, in which he stated that markets had been excessively volatile over the view on the ECB's terminal rate over the past few sessions, and that the ECB is not obliged to hike rates at every meeting between now and September.
• AUD trades poorly headed through to the NY crossover on the back of a lower than forecast wage price index release overnight. Wages grew at a slower-than-expected 0.8% vs. forecast 1.0% for Q4 - although still a faster clip relative to the recent running average. In contrast, NZD gained overnight on the RBNZ 50bps rate hike, with the bank also making clear that further tightening is a likelihood at the coming policy meetings. AUD/NZD sits well below the 200-dma, with 1.0929 support next up.
• Elsewhere, SEK is adding to recent gains as Riksbank governor Thedeen spoke this morning, flagging further concern over the unacceptably high level of underlying inflation. Nonetheless, Thedeen pushed back on Ohlsson's recent suggestion that an unscheduled Riksbank decision is a possibility at this stage, leaving the April meeting the next expected meeting for policy tightening.
• The Fed minutes take focus going forward, with markets looking to gauge the board's sensitivity to stepping up the pace of rate hikes should inflation issues persist over the medium-term. Fed's Williams is set to discuss inflation in a speech after the US close.

BONDS: Gilt Underperformance Continues

Gilts continue to underperform in a bear flattening move, with the German curve bear steepening in early European trade. Cash Treasuries have modestly twist steepened, with futures testing Tuesday's low (110-30+) ahead of Fed minutes later.

• Gilt futures have weakened fairly steadily since the open, continuing the bearish move following Tuesday's strong PMIs.
• Bunds remain on the backfoot, with cash 10 yields testing the 2023 high of 2.5744% - benefiting only briefly from a downward revision in Italian final PMI and pushback from ECB's Villeroy on terminal hike pricing. In-line German IFO had little impact.
• Villeroy's remarks benefited periphery EGBs briefly, but the move retraced. ECB peak pricing has remained a little softer (down 4bp on the session).
• Most of the event risk is done for the day with a light day for US data ahead. Main focus on Fed communications: primarily the Feb FOMC meeting minutes (our note here), with NY Fed's Williams appearing later.
• Supply is highlighted by $43B 5Y Note auction (there's also $22B 2Y FRN).

Latest levels:

• Mar 10-Yr US futures (TY) down 2.5/32 at 110-31.5 (L: 110-30.5 / H: 111-08.5)
• Mar Bund futures (RX) down 21 ticks at 133.74 (L: 133.7 / H: 134.23)
• Mar Gilt futures (G) down 59 ticks at 101.12 (L: 101.1 / H: 101.86)
• Italy / German 10-Yr spread 2.2bps wider at 195.9bps

EQUITIES: E-Mini S&P Shows Below 4000.00 Handle Following Tuesday Slip

Dip buyers emerged in EUROSTOXX 50 futures Tuesday, with prices rapidly bouncing off the 4215.00 lows. Nonetheless, prices remain 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. Slippage Tuesday put the S&P E-Minis lower through the London close, with weakness extending into the Wednesday European open. This puts prices below first support at the 50-day EMA at 4031.50 and tilts the near-term view lower. 3901.75 marks next support, the Jan 19 low.

• Japan's NIKKEI closed lower by 368.78 pts or -1.34% at 27104.32 and the TOPIX ended 22.21 pts lower or -1.11% at 1975.25.
• Elsewhere, in China the SHANGHAI closed lower by 15.376 pts or -0.47% at 3291.148 and the HANG SENG ended 105.65 pts lower or -0.51% at 20423.84.
• Across Europe, Germany's DAX trades lower by 137.82 pts or -0.9% at 15274.67, FTSE 100 lower by 87.49 pts or -1.1% at 7898.65, CAC 40 down 71.04 pts or -0.97% at 7247.66 and Euro Stoxx 50 down 41.66 pts or -0.98% at 4215.42.
• Dow Jones mini down 19 pts or -0.06% at 33158, S&P 500 mini down 2 pts or -0.05% at 4004.75, NASDAQ mini down 10.5 pts or -0.09% at 12089.25.

COMMODITIES: WTI Futures Dip Lower to Friday Lows

WTI futures drifted into the Friday close, returning the outlook to neutral for now. Prices now sit back below the 50-day EMA, at $78.34, 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 $72.25, the Feb 6 low for the continuation contract. Trend conditions in Gold are bearish for now, despite the late recovery into the Friday close. 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. Vol band support (the 2.0% 10-dma envelope), successfully contained prices Friday, keeping the focus on the level this week.

• WTI Crude down $1.15 or -1.51% at $75.56
• Natural Gas down $0.08 or -3.76% at $2.007
• Gold spot down $0.49 or -0.03% at $1834.55
• Copper down $6.45 or -1.53% at $413.8
• Silver down $0.03 or -0.13% at $21.7739
• Platinum up $0.49 or +0.05% at $945.15