MNI US OPEN - Soft French CPI Spurs Bond Rally

NEWS

US (MNI): US: House of Representatives Reconvenes at 1200ET as Speaker Saga Continues

After three failed attempts to elect a Speaker on 3 January, the House of Representatives is set to reconvene at 1200ET (1700GMT/1800CET) in order to continue the voting process. For the first time in exactly 100 years, the voting process was forced to go to a second (and indeed third) ballot, all of which proved insufficient to see Rep. Kevin McCarthy (R-CA) come away with the Speaker's gavel.

UK (MNI): PM Sunak to Deliver First Major Policy Speech of 2023 This Afternoon

Prime Minister Rishi Sunak is set to deliver his first major policy speech of 2023 early this afternoon as the UK continues to deal with widespread industrial action, high inflationary pressures, and elevated energy prices, as many other European nations are.

CHINA/AUSTRALIA (BBG): China Discussing Easing of Ban on Australia Coal Imports

Chinese bureaucrats are discussing plans to resume some imports of Australian coal after a more than two-year ban as relations between the nations improve. China, previously a major consumer of coal from Australia — among the world’s top shippers — implemented an unofficial ban in late 2020 as hostilities between Canberra and Beijing escalated over issues including a call for an independent probe into the origins of the coronavirus.

AUSTRALIA (MNI): RBA Sees Savings, Jobs Cushioning Mortgage Stress

The Reserve Bank of Australia calculates accumulated savings, a tight jobs market and spending cuts will make higher interest rates manageable for most homeowners, as AUD400 billion of fixed rate mortgages mature in 2023 and home prices are set to add to eight straight months of declines, MNI understands.

JAPAN (MNI): Kishida to Review Accord with New BOJ Governor - Press

Prime Minister Fumio Kishida said that the government must talk with the next Bank of Japan governor about whether to rework the joint accord setting a 2% inflation target, the Nikkei reported on Wednesday. "We'll build a relationship of trust with the new governor and confirm how we will work together," Kishida said.

DATA

EUROZONE FINAL DEC SERVICES PMI 49.8 (FLSH 49.1) NOV 48.5 (MNI)
GERMANY FINAL DEC SERVICES PMI 49.2 (FLSH 49.0); NOV 46.1 (MNI)
ITALY DEC SERVICES PMI 49.9 (FCST 49.5); NOV 49.5 (MNI)
SPAIN DEC SERVICES PMI 51.6 (FCST 50.7); NOV 51.2 (MNI)
FRANCE FINAL DEC SERVICES PMI 49.5 (FLSH 48.1); NOV 49.3 (MNI)

FRANCE DATA (MNI): Downside Dec Inflation Surprise on Energy & Services

• FRANCE DEC HICP -0.1% M/M (FCST +0.4%); NOV +0.4% M/M
• FRANCE DEC HICP +6.7% Y/Y (FCST +7.3%); NOV +7.1% Y/Y
• FRANCE JAN CPI -0.1% M/M, +5.9% Y/Y
• FRANCE DEC CONSUMER CONFIDENCE 82 (FCST 84); NOV 83

French flash inflation data saw a significant December downside surprise, extending the trend of softer-than-expected data after Spanish and German CPI prints. Energy prices and, to a lesser extent, service prices accounted for the bulk of the decline in headline CPI. Food price inflation is seen as holding pace, whilst manufactured good prices accelerated on the year and decelerate on the month.

SWITZERLAND DATA (MNI): Dec CPI Downside Surprise Masks Higher Core

• SWITZERLAND DEC CPI -0.2% M/M (FCST -0.1%); NOV 0.0% M/M
• SWITZERLAND DEC CPI +2.8% Y/Y (FCST +3.0%); NOV +3.0% Y/Y

Prices fell on the month across heating oil and fuel, along with some food and medicine costs. Service prices continued to accelerate. This adds to promising news for the SNB as Switzerland edges further away from the 29-year high of +3.5% y/y in August.

However, core inflation ticked up another 0.1pp to +2.0%, with core prices up +0.1% m/m. As such, the SNB is likely to continue its hiking cycle into 2023. After slowing to a 50bp hike in December, taking the Policy Rate to 1.00%, with further rate hikes likely required to ensure price stability.

UK DEC M4 MONEY SUPPLY -1.6% M/M, +2.5% Y/Y (MNI)
UK BOE DEC MORTGAGE APPROVALS 46,075 (MNI)
UK JAN BRC SHOP PRICES +0.3% M/M, +7.3% Y/Y (MNI)

HONG KONG (MNI): HK Retail Recovery Loses Momentum in November

MNI (Beijing) - Retail sales in Hong Kong decreased 4.2% y/y in November, ending two months of positive growth recorded in September and October, according to the Census and Statistics Department (C&SD) on Wednesday. November saw declines in the purchase of jewellery (down 8.3%) and valuable gifts (down 19.3%), department store products, which fell 16.4%. Declines were partially offset by increases in electrical goods and vehicle parts of 3.1% and 24.8% respectively.

FX SUMMARY: AUD Motors Toward December High as China Relations Improve

• AUD tops the table in G10 ahead of the NY crossover, with AUD/USD nearing the next resistance at the December high of $0.6893 following overnight reports that China bureaucrats could roll back the ban on coal imports from Australia after a two-year freeze in trade. If confirmed, the move would mark a significant normalisation in relations between the two countries, reflected in the currency's material break back above the 200-dma for the first time since early 2022.
• The USD backtrack follows a strong rally in the currency on Tuesday, and may reflect a settling of markets after the volatile start to the year. French inflation was a material downside surprise at 6.7% for the EU-harmonized Y/Y figure vs. Exp. 7.3%. The release saw bond yields slide lower and EUR/GBP drop back below 0.8800.
• We see the first tier one US data of the year with today's ISM Manufacturing release. Markets will eye the release for any clues ahead of Friday's payrolls, which are expected to show jobs growth of 200k this month.

BOND SUMMARY: More Soft CPI Data Pulls Core FI Higher

• Core fixed income is higher this morning, with EGBs seeing the biggest moves in 10-year space. The moves were driven by a soft French inflation print with HICP falling 0.1% M/M and the Y/Y print falling 0.4ppt to 6.7% (instead of the 0.2ppt expected increase to 7.3% Y/Y that consensus had penciled in). This followed a soft German HICP print yesterday and a slightly weak Spanish HICP print last week.
• Bund futures hit a high of 136.46 around 8:30GMT/9:30CET - around 45 minutes after the release of the French data. They have since come off their highs a little but remain over 100 ticks higher on the day and over 300 ticks higher YTD.
• Gilts have been following Bunds higher but futures remain below yesterday's highs. 2-year gilt yields, however, have moved more than 10bp on the day.
• In contrast the moves seen in Treasuries are smaller, but futures have still hit their highs of the year.
• Looking ahead we have US ISM manufacturing data, JOLTS and the FOMC Minutes due later today.
• TY1 futures are up 0-21 today at 113-09+ with 10y UST yields down -4.9bp at 3.692% and 2y yields down -2.6bp at 4.346%.
• Bund futures are up 1.03 today at 136.11 with 10y Bund yields down -8.8bp at 2.296% and Schatz yields down -6.1bp at 2.609%.
• Gilt futures are up 0.89 today at 101.37 with 10y yields down -8.1bp at 3.567% and 2y yields down -10.1bp at 3.454%.

EQUITIES: Eurostoxx Futures Trade Higher Again, Though Gains Seen as Corrective For Now

EUROSTOXX 50 futures are again trading higher, with this week’s move resulting in a break of initial resistance at 3895.00, the Dec 22 high. Gains are considered corrective - for now - however, a continuation higher would expose key resistance and the bull trigger at 4043.00, the Dec 13 high. A reversal lower and a break of support at 3753.00, Dec 20 low, would resume the recent bear leg and open 3646.50, the 50% retracement of the Sep - Dec bull cycle. S&P E-Minis trend signals remain bearish and recent gains are considered corrective. Key resistance to watch is at 3926.25, the 50-day EMA. A clear break of this hurdle is required to suggest potential for a stronger recovery and possibly a reversal. On the downside, a break lower would confirm a resumption of the downtrend with the focus on 3778.45, a Fibonacci retracement.

• Japan's NIKKEI closed lower by 377.64 pts or -1.45% at 25716.86 and the TOPIX ended 23.56 pts lower or -1.25% at 1868.15.
• Elsewhere, in China the SHANGHAI closed higher by 7.004 pts or +0.22% at 3123.516 and the HANG SENG ended 647.82 pts higher or +3.22% at 20793.11.
• Across Europe, Germany's DAX trades higher by 194.94 pts or +1.37% at 14339.91, FTSE 100 higher by 29.89 pts or +0.4% at 7568.58, CAC 40 up 93.2 pts or +1.41% at 6705.19 and Euro Stoxx 50 up 55.36 pts or +1.43% at 3928.48.
• Dow Jones mini up 101 pts or +0.3% at 33381, S&P 500 mini up 16.5 pts or +0.43% at 3863.5, NASDAQ mini up 81.75 pts or +0.75% at 11036.5.

COMMODITIES: Gold Trades at Fresh Cycle High, Targets 1872.4 3.0% 10-DMA Envelope Next

Price action since the turn of year has worked against the bullish short-term WTI futures trend conditions. Key short-term support at $76.79, the Dec 29 low, has given way - which may signal a near-term top. Recent bullish price action resulted in the contract trading above both the 20- and 50-day EMAs, and any resumption of the recovery opens key resistance at $83.27, the Dec 1 high. Trend conditions in Gold remain bullish and the yellow metal has started the year on a firm note, clearing resistance and resuming its uptrend. The break higher signals scope for gains towards $1872.4 next, the 3.0% 10-dma envelope as well as $1896.5, the 61.8% retracement of the Mar - Sep bear leg. Moving average studies are in a bull mode position, highlighting current sentiment. Initial firm support is seen at $1795.00, the 20-day EMA.

• WTI Crude down $1.4 or -1.82% at $75.74
• Natural Gas down $0.01 or -0.18% at $3.988
• Gold spot up $19.56 or +1.06% at $1860.96
• Copper up $3.5 or +0.93% at $379.95
• Silver up $0.24 or +1.01% at $24.3237
• Platinum up $5.3 or +0.49% at $1097.32