MNI US OPEN - ECB Set to Make a Step Closer to Neutral

EXECUTIVE SUMMARY

• MNI ECB PREVIEW - AN 'EASY' STEP NEARER NEUTRAL
• MICROSOFT, META TALK UP THEIR BIG AI AMBITIONS AND SPENDING PLANS
• EU DEBATES RETURN TO RUSSIAN GAS AS PART OF UKRAINE PEACE DEAL
• BOJ WILL HIKE IF ECONOMY, PRICES ON TRACK - HIMINO

Figure 1: Eurozone flash GDP a tenth below expectations in Q4

Source: Eurostat/BBG/MNI

NEWS

MNI FED REVIEW - JANUARY 2025: Slightly Hawkish Hold

The FOMC's January meeting delivered a slightly hawkish hold, tipping the balance away from a March rate cut but not really suggesting that the Committee's assessment of the monetary policy path had changed since the December meeting. The Statement brought a hawkish market reaction upon release with its apparent signalling of greater concern over the path of inflation, but Chair Powell - in one of his more neutral press conferences - played down that interpretation, saying it was "not meant to send a signal".

MNI ECB PREVIEW - JANUARY 2025: An 'Easy' Step Nearer Neutral

The ECB is fully expected to cut its three key rates by 25bp on Thursday, taking its deposit rate to 2.75%. It’s a step closer to neutral rates, which President Lagarde sees in the 1.75-2.25% range, something that should make this decision relatively straightforward. More in-depth discussions around neutral should start to take more prominence but we expect greater focus on that to come with the next meeting in March and its fresh quarterly forecasts.

US (MNI): White House Rescinds Spending Freeze Memo, First Major Setback for Trump

The White House Office of Management and Budget yesterday rescinded a memorandum calling on federal government agencies to freeze spending while a review was carried out to ensure compliance with President Donald Trump's executive orders. The episode is the first major setback for the second Trump administration, demonstrating the limits of White House authority over spending. The primary takeaway is that Trump will have to lean on Congress, if he is to enact meaningful and durable change to federal spending.

US/CHINA (MNI EXCLUSIVE): Chinese Firms to Raise U.S. Prices if 10% Tariff Imposed

Chinese policy advisors look ahead to the impact of U.S. tariffs - On MNI Policy MainWire now, for more details please contact sales@marketnews.com

US/CORPORATE (WSJ): Microsoft, Meta Talk Up Their Big AI Ambitions and Spending Plans

Meta Platforms unveiled plans to make artificial intelligence more personalized this year, and Microsoft predicted “exponentially more demand” for AI products. The tech giants on Wednesday talked up their AI strategies and said they are sticking with ambitious investments in the technology despite the investor panic this week over the rise of DeepSeek. That Chinese company’s claim that it built an advanced AI model with far less money and fewer advanced chips than big-name U.S. competitors has caused many to question the wisdom of pouring oceans of cash into developing cutting-edge AI systems.

EU/RUSSIA (FT): EU Debates Return to Russian Gas as Part of Ukraine Peace Deal

European officials are debating whether Russian pipeline gas sales to the EU should be restarted as part of a potential settlement to end the war against Ukraine, according to people familiar with discussions. Advocates of buying Russian gas argue it would bring down high energy prices in Europe, encourage Moscow to the negotiating table, and give both sides a reason to implement and maintain a ceasefire.

FRANCE (MNI): Joint Committee Meets to Seek Agreement on Budget

Seven senators and seven deputies are meeting at the Palais Bourbon to reach an agreement between the Senate and National Assembly on the text of a state budget. The joint committee will discuss the 60 articles and hundreds of provisions in the budget document passed by the Senate last week. The committee will seek a resolution that allows for the presentation of a budget draft to the plenary of the National Assembly next Monday (3 Feb). 

BOJ (MNI): BOJ Will Hike if Economy, Prices on Track - Himino

The Bank of Japan will continue to raise the 0.5% policy interest rate to adjust the degree of easy policy if the economy and prices move in line with the bank’s forecast, Deputy Governor Ryozo Himino said on Thursday. “We will make efforts to manage monetary policy in an appropriate manner," Himino said at a forum in Tokyo, without providing details on timing. Market players expect the BOJ to hike every six months, following last week's 25 basis points move higher, the first increase since July 2024 and the highest level since October 2008.

DATA

EUROZONE DATA (MNI): EZ Flash GDP a Tenth Below Expectations in Q4

• EUROZONE Q4 PRELIM FLASH GDP +0.9% Y/Y
• EUROZONE Q4 FLASH GDP +0% Q/Q

Eurozone preliminary flash estimate of GDP for Q4 printed a tenth below expectations with 0.0% Q/Q (cons 0.1%, ECB Dec f'cast 0.2%) following solid growth of 0.4% Q/Q in Q3 - making it the weakest quarter of 2024. It was also a tenth below consensus in Y/Y terms at 0.9% Y/Y (vs 1.0% consensus, 0.9% prior). This weaker than expected reading follows Germany, France and Italy (three of
the four main eurozone members) flash GDP readings printing softer than expected, offsetting the firmer than expected Spanish GDP.

EUROZONE DATA (MNI): Unemployment Rate Edges Up to 6.3% After a Revised New Low

The Eurozone unemployment rate for December printed in-line with consensus at 6.3% (SA), although it followed a downward revised 6.2% in November for a fresh series low. Within the details, the youth unemployment rate (for those under 25 years old) eased a tenth to 14.8% to return to the rate seen in September after some modest downward revisions. It remains above lows of ~14% in early 2023 in contrast to the overall unemployment rate close to those latest lows.

GERMANY DATA (MNI): Net Exports Weigh on Q4 GDP

• GERMANY Q4 FLASH GDP -0.2% Q/Q, -0.2%Y/Y

German Q4 flash GDP underperformed consensus estimates at -0.2% Q/Q (vs -0.1% cons, 0.1% prior). GDP also contracted 0.2% on an annual basis (vs 0.0% cons, -0.3% prior). Few details are provided in the flash release, but Destatis notes that "while household and government final consumption expenditure increased, according to the provisional results available, exports were significantly lower than in the previous quarter". "After a year marked by economic and structural challenges, the German economy thus ended 2024 in negative territory".

GERMANY DATA (MNI): IFO Employment Barometer Rises on Services But Remains Weak

The IFO employment indicator came in at 93.4 points in January in its first rise after 7 consecutive declines (December 92.4). The increase was driven by the services sector rising above the neutral threshold again, while employment prospects in the manufacturing sector declined further and are not far off pandemic lows any more. On the trade sector, which saw some bottoming out recently, IFO comments "fewer staff are needed due to weak consumer spending." Employment has stabilized in Q4 in Germany according to the monthly releases following a clear decline in Q3 (see lower chart which displays quarterly data).

FRANCE DATA (MNI): Flash Q4 GDP Tenth Lower Than Expected, Following Q3 Olympic Boost

• FRANCE Q4 FLASH GDP -0.1% Q/Q, +0.7% Y/Y

France Q4 Flash GDP was a tenth lower than expected at -0.1% Q/Q (vs 0.0% consensus, 0.4% in Q3) - the lowest quarterly reading since Q1-2023. On an annual basis, it was also a tenth below expectations at 0.7% Y/Y (vs 0.8% consensus, 1.2% prior). The press release notes the weakness was "partly due to the backlash from the Paris Olympic and Paralympic Games which supported growth in the third quarter".

FRANCE DEC CONSUMER SPENDING +0.7% M/M, +0.9% Y/Y (MNI)
FRANCE DEC CONSUMER MANUF SPENDING +0.4% M/M, +0.6% Y/Y (MNI)

ITALY DATA (MNI): Flash GDP Disappoints in Q4

Italy flash Q4 GDP was a tenth weaker than expected at 0.0% Q/Q (vs 0.1% consensus, 0.0% prior), and 0.5% Y/Y (vs 0.6% consensus, 0.5% in Q3). At an industry level, there was a "decrease of value added in both agriculture, forestry and fishing and in services, whereas the contribution of industry is positive."

SPAIN JAN FLASH HICP -0.1% M/M, +2.9% Y/Y (MNI)
SPAIN JAN FLASH CORE CPI +2.4% Y/Y (MNI)

UK NOV M4 MONEY SUPPLY +0.1% M/M, +2.5% Y/Y (MNI)
UK BOE NOV MORTGAGE APPROVALS 66,526 (MNI)
UK BOE NOV SECURED LENDING GBP3.57 BLN (MNI)
UK BOE NOV CONSUMER CREDIT GBP1.04 BLN (MNI)

SWITZERLAND DATA (MNI): January KOF Rebounds on Stronger Supply Side

• SWISS KOF JAN ECONOMIC BAROMETER 101.6

The Swiss KOF Economic Barometer rebounded in January, to 101.5, above consensus of 100.2 and following December's unexpectedly low 99.6 (upwardly revised from 99.5). "The majority of the production-side indicator bundles show positive developments", while demand-side indicators are under pressure, KOF adds.

SWEDEN DATA (MNI): Strong Retail Sales in December, Some Questions on Seasonal Adjustment

• SWEDEN DEC RETAIL SALES +5.6% Y/Y

Only three analysts had submitted forecasts for Swedish December retail sales (excluding fuel), but the 2.9% M/M SA print is still notable relative to the 0.4% consensus (and -0.2% prior). This was the highest sequential monthly reading since December 2019. EURSEK fell 50 pips on release but is since back to pre-decision levels. On a 3m/3m basis, sales ex motor vehicles grew 2.2% (vs 1.3% prior). This mirrors strong increases in retail sentiment in recent months, and bodes well for private consumption's development in Q4. The Riksbank project a consumer-led economic recovery in 2025.

SWEDEN DATA (MNI): Consumer Confidence Rises, But Forward Looking Details Still Soft

The Swedish January Economic Tendency Indicator ticked up to 97.7 (vs 97.5 prior). The increase was driven by a rise in consumer confidence (99.1 vs 96.7 prior) alongside services (100.0 vs 98.9 prior) and construction (101.5 vs 100.2 prior) sentiment. Retail sentiment fell a touch but remains elevated at 109.5 (vs 110.9 prior - see our earlier retail sales bullet for more), while manufacturing sentiment was 94.8 vs 96.5 prior.

NORWAY DATA (MNI): NFC Credit Growth Eased Notably in December

Norwegian December credit growth eased to 3.3% Y/Y, from 3.6% prior. Credit growth fell across key groups, with household growth back down to 3.7% Y/Y (vs 3.9% in November, 3.7% in October), non-financial corporation (NFCs) growth down to 1.3% Y/Y (vs 2.0% prior) and municipal government growth at 7.2% Y/Y (vs 7.6% prior).

FOREX: USD/JPY Slippage Exposes January Low

• JPY is favoured across G10 for a second session, helping press USD/JPY seemingly sustainably back below the 50-dma. The moves follow a speech from the BoJ's deputy governor Himino, who stressed that real rates in Japan remain in negative territory despite a recent rate hike - meaning the BoJ has scope to continue to tighten policy should its economic outlook unfold inline with expectations.
• JPY price action raises the focus on key support below - crossing at 153.72 to coincide with the DeepSeek-inspired sell-off in US equities this week. This level also marks the 50% retracement for the upleg in the pair posted off December low - meaning a break below will open the next leg toward 152.55.
• The EUR trades poorly on the back of a soft string of economic data. Both French and German GDP updates were soft relative to expectations, helping EUR/GBP slip to a new multi-week low at 0.8360, opening 0.8348 in the process.
• NZD/USD trade this week has kept the pair inside it's primary downtrend, with the near-term outlook worsening on the failed break of the 0.5707 50-dma on January 24th. Renewed weakness here isolates downside targets at 0.5633 and - ultimately - the bear trigger and pullback low of 0.5542.
• Focus for the session ahead turns to the ECB rate decision, at which markets expect another sequential 25bps cut. The tone of Lagarde's press conference will be carefully watched, particularly to gauge any contrast with Powell's policy comments yesterday - at which the Fed adopted an effective wait-and-see approach on rates for this year.

EGBS: Futures Rally on Weak Q4 Flash GDP Data

Major EGB futures have rallied following weak flash Q4 GDP prints in France, Germany and Italy this morning. Eurozone-wide GDP growth was 0.0% Q/Q, below consensus estimates of 0.1% and the ECB’s projection of 0.2%. Today’s regional data deluge comes ahead of the ECB decision at 1315GMT/1415CET, where a 25bp cut is unanimously expected and fully priced in OIS markets.

• Bund futures are +46 ticks at 131.80, The 20-day EMA at 131.97 continues to cap upside, clearance of which is required to strengthen a bullish theme.
• German cash yields are 4.5 to 6.0bps lower across the curve, with the belly outperforming. Year-end ECB cut pricing has deepened to 94.5bps (vs 90bps at yesterday’s close).
• 10-year peripheral spreads to Bunds have widened up to 0.5bps despite European equity strength and dovish ECB repricing. Today’s Italian supply was digested smoothly, but will have contained rallies in the run-up to the 1000GMT bidding deadline.
• With no changes in key guidance expected at the ECB decision, we expect commentary around US policy spillovers to set the tone for the press conference.

GILTS: Underpinned by Offshore Drivers, Tender Sees Strong Demand

Gilts remained underpinned, with the post-Fed recovery in core global FI markets and softer-than-expected European GDP data driving this morning’s rally.

• Futures +26 at 92.47 vs. highs of 92.50.
• The technical setup in futures remains unchanged, with the contract experiencing a short-term bullish correction within a longer run bearish trend.
• Initial support and resistance at 91.52/92.68.
• Yields 3.5-5.0bp lower, 10s lead the bid.
• 2s10s and 5s30s curve steepening looks to have halted for now.
• Fresh dovish repricing in the short end and or fresh issuance/fiscal risks are probably required to generate a meaningful extension of the steepening trend.
• Strong demand at the GBP1.5bln tender offer of the 0.125% Jan-26 gilt, cover topped 5.00x and the tailed narrowed vs. the prior sale, with demand evident despite the ongoing richness of the line (the line still looks overvalued even when accounting for its low coupon).
• GBP STIR pricing is relatively sticky around ~70bp of cuts through year-end.
• SONIA futures flat to +3.0.
• We have suggested that the market-implied rate cut profile still seems flat, despite some near-term hawkish risks.
• Little of note on the UK data calendar for the remainder of the week, which will leave much of the focus on cross-market cues and macro events.

EQUITIES: E-Mini S&P Trading Back at Last Week's Highs

A bull cycle in the Eurostoxx 50 futures contract remains intact and the move down from the Jan 24 high, appears to have been a correction. A deeper retracement would allow an overbought trend condition to unwind. Moving average studies are in a bull-mode set-up highlighting a dominant uptrend. The first important support to watch is 5121.39, the 20-day EMA. A resumption of the uptrend would open 5298.50, a Fibonacci projection. The S&P E-Minis contract is trading above Monday’s low. Key short-term support to watch lies at 5961.75, the Jan 16 low (pierced). For now, the recent sharp pullback appears corrective, however, a clear breach of 5961.75 would strengthen a bearish threat and signal scope for a deeper retracement, towards 5943.94, a Fibonacci retracement. Key resistance is 6178.75, the Dec 6 high.

• Japan's NIKKEI closed higher by 99.19 pts or +0.25% at 39513.97 and the TOPIX ended 6.34 pts higher or +0.23% at 2781.93.
• Across Europe, Germany's DAX trades higher by 51.49 pts or +0.24% at 21694.7, FTSE 100 higher by 15.04 pts or +0.18% at 8572.52, CAC 40 up 33.5 pts or +0.43% at 7908.1 and Euro Stoxx 50 up 27.84 pts or +0.53% at 5260.41.
• Dow Jones mini up 159 pts or +0.35% at 45059, S&P 500 mini up 23.75 pts or +0.39% at 6093, NASDAQ mini up 125 pts or +0.58% at 21653.

Time: 09:55 GMT

COMMODITIES: Gold Close to Recent Highs, Bull Cycle in Play

This week’s move down in WTI futures marks an extension of the current corrective cycle. The 20-day EMA has been breached and attention turns to support around the 50-day EMA, at $72.23. A clear break of the 50-day average would suggest scope for a deeper retracement. On the upside, a reversal higher would focus attention on $79.48, the Apr 12 ‘24 high and a key resistance. Gold continues to trade closer to its recent highs. A bull cycle is in play and the recent breach of resistance at $2726.2, the Dec 12 high, reinforces current conditions. Sights are on $2790.1, the Oct 31 all-time high. A break of this hurdle would confirm a resumption of the primary uptrend. On the downside, the first key support to watch is $2678.5, the 50-day EMA. A reversal lower and a breach of this average would reinstate a bearish threat.

• WTI Crude down $0.48 or -0.66% at $72.23
• Natural Gas up $0 or +0.06% at $3.173
• Gold spot up $15.26 or +0.55% at $2775.11
• Copper up $1.7 or +0.4% at $429.9
• Silver up $0.18 or +0.6% at $31.04
• Platinum up $9.69 or +1.02% at $959.98

Time: 09:55 GMT

Date	GMT/Local	Impact	Country	Event
30/01/2025	1315/1415	***	EU	ECB Deposit Rate
30/01/2025	1315/1415	***	EU	ECB Main Refi Rate
30/01/2025	1315/1415	***	EU	ECB Marginal Lending Rate
30/01/2025	1330/0830	*	CA	Payroll employment
30/01/2025	1330/0830	***	US	Jobless Claims
30/01/2025	1330/0830	**	US	WASDE Weekly Import/Export
30/01/2025	1330/0830	***	US	GDP
30/01/2025	1345/1445		EU	ECB Governing Council Meeting press conference
30/01/2025	1500/1000	**	US	NAR Pending Home Sales
30/01/2025	1530/1030	**	US	Natural Gas Stocks
30/01/2025	1630/1130	*	US	US Bill 08 Week Treasury Auction Result
30/01/2025	1630/1130	**	US	US Bill 04 Week Treasury Auction Result
31/01/2025	2330/0830	*	JP	Labor Force Survey
31/01/2025	2330/0830	**	JP	Tokyo CPI
31/01/2025	2350/0850	**	JP	Industrial Production
31/01/2025	2350/0850	*	JP	Retail Sales (p)
31/01/2025	0030/1130	*	AU	Producer price index q/q
31/01/2025	0700/0800	**	DE	Retail Sales
31/01/2025	0730/0830	**	CH	Retail Sales
31/01/2025	0745/0845	***	FR	HICP (p)
31/01/2025	0745/0845	**	FR	PPI
31/01/2025	0855/0955	**	DE	Unemployment
31/01/2025	0900/1000	***	DE	North Rhine Westphalia CPI
31/01/2025	0900/1000	***	DE	Bavaria CPI
31/01/2025	0900/1000	**	EU	ECB Consumer Expectations Survey
31/01/2025	1000/1100	**	IT	PPI
31/01/2025	1300/1400	***	DE	HICP (p)
31/01/2025	1330/0830	***	CA	Gross Domestic Product by Industry
31/01/2025	1330/0830	***	US	Personal Income and Consumption
31/01/2025	1330/0830	***	US	Employment Cost Index
31/01/2025	1330/0830	***	CA	Gross Domestic Product by Industry
31/01/2025	1330/0830		US	Fed Governor Michelle Bowman
31/01/2025	1445/0945	***	US	MNI Chicago PMI
31/01/2025	1600/1100		CA	Finance Dept monthly Fiscal Monitor (expected)
31/01/2025	1800/1300	**	US	Baker Hughes Rig Count Overview - Weekly