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Thursday, March 23, 2023


Futures Slide With All Eyes On PCE Inflation

US index futures reversed Thursday’s rebound, and dropped as investors braced for data that may show accelerating inflation in the world’s largest economy. European stocks erased an earlier gain, while Asian equities fell on a quiet day for global markets. Contracts on the S&P 500 slipped 0.6% while those on the Nasdaq 100 fell 0.7% by 7:45a.m. ET. Friday sees the release of the personal consumption expenditures index, the Fed’s preferred price gauge, which is expected to show acceleration amid robust income and spending growth. The dollar rose amid concern over disappointing earnings and geopolitical tensions, and as the Yen tumbled after the confirmation hearing of Ueda’s proved to be far less hawkish than some expected.

In premarket trading, Beyond Meat jumped after its fourth-quarter net revenue topped analyst expectations, Boeing slipped after the planemaker paused deliveries of its 787 Dreamliner due to a documentation issue although analysts said they expect this to be a short-term issue, noting that it was due to non-compliance with paperwork. Warner Bros Discovery shares fell 5% in premarket trading on Friday after the parent of TNT, CNN and other TV networks reported quarterly sales that came in below analysts’ estimates. While the advertising market remains challenging, the worst of the merger integration period is behind them, analysts say.

Warner Bros Discovery fell after reporting quarterly sales that missed analysts’ estimates. Alibaba and NetEase lead a decline in US-listed Chinese stocks, with both internet companies’ results failing to offer a fresh boost as the rally spurred by China’s reopening wears off. Here are the other notable premarket movers:

  • Block rose as much as 8.2% in premarket trading on Friday after the digital payments company formerly known as Square reported fourth-quarter profit that beat estimates. Analysts noted that the company’s pledge to better manage its operating cost growth will be welcomed by investors.
  • Farfetch shares gain 8% in US premarket trading after the specialty online retailer reported fourth-quarter revenue that beat expectations. Analysts were broadly positive on the reiterated guidance for 2023, noting that partnerships with Ferragamo, Reebok and Neiman Marcus offered tailwinds for the financial year.
  • Opendoor Technologies fell 5% in premarket trading on Friday after KeyBanc Capital Markets said the data-driven home-flipper faces limits on how fast it can buy and sell homes.
  • Floor & Decor gained 5% in extended trading after reporting adjusted earnings per share for the fourth quarter that topped the average analyst estimate. The flooring retailer’s annual forecasts for sales and profit trailed analysts’ expectations.
  • Nektar Therapeutics plummeted 29% in extended trading after saying the Phase 2 study of rezpegaldesleukin in patients with active systemic lupus erythematosus did not meet the primary endpoint.

After hot prints on consumer and producer prices, a high reading in today’s PCE report could weigh on markets. The S&P 500 is headed for a third week of declines, with traders taming their optimism about the outlook for the economy as Fed officials promise further rate hikes to subdue soaring inflation.

“In the context of an inflation shock, a global energy crisis and the fastest rate-hike cycle in history, we have to assume that with a time lag there will be an economic consequence,” Sonja Laud, chief investment officer at Legal & General Investment Management, said on Bloomberg Television.

But central banks’ determination to take rates for higher for longer is not their only worry: decelerating growth, sluggish corporate performance, geopolitical tensions from Russia to North Korea, and centralization of power in China all complicate the investment landscape.

“Investors worry that this unexpected strength in the US economy, coupled with a steady reopening of the Chinese economy, will fuel further inflation which would lead the Fed to pursue a more aggressive tightening cycle,” said Geir Lode, the head of global equities at Federated Hermes. “Looking ahead, we see mixed signals: leading economic indicators continue to point to a recession, but lagging economic indicators show no signs of weakness, yet.”

European equity indexes faded earlier gains, with outperformance in the construction, utility and energy sectors while chemicals and travel lagged. The Stoxx 600 was down 0.1% after gaining 0.3%, but the DAX falls 0.6% after data showed the German economy contracted more than previously thought in the fourth quarter.  BASF shares slide as much as 6% after the global chemicals giant halted share buybacks and gave an outlook that analysts deemed as muted. Here are the biggest European movers:

  • Saint-Gobain shares rise as much as 6.3%, the most since March 2022 with analysts saying the French building materials group’s results and margin guidance should provide some confidence
  • Embracer gains as much as 4.1% after the video-game maker said it plans to collaborate with New Line Cinema and Warner Bros. Pictures on feature films based on The Lord of the Rings
  • Jupiter Fund Management shares jump as much as 15%, the most since March 2020 after the UK investment manager’s results provided a rare batch of good news
  • Endesa gains 1.9% after the Spanish utility increased its 2022 dividend and reported full- year net income that beat the average analyst estimate
  • Elekta shares surge as much as 11% after the Swedish medical technology firm reported third-quarter earnings that strongly beat expectations
  • Accor shares jump as much as 4.5%, reaching the highest since May 5, after Stifel upgrades the French hospitality company to hold from sell, seeing a more attractive risk/reward
  • Sopra Steria shares rise as much as 4.7%, hitting levels unseen since 2018, in a second day of gains after the French IT services company reported profit for the full year that beat estimates
  • IAG falls as much as 4.1% after the parent of British Airways gave an outlook that failed to cheer investors after the stock’s 33% jump ahead of earnings
  • Valeo shares fell as much as 6.6% after the manufacturer of car parts published a free cash flow guidance which fell below analysts’ expectations

Earlier in the session, Asia’s stock benchmark dropped, heading for a fourth-straight weekly loss, as disappointing tech results dragged down China’s equity market and investors remained vigilant before the release of key US economic data.  The MSCI Asia Pacific Index slipped as much as 0.7%, reversing earlier gains. Stocks in Hong Kong continued to drop after entering a technical correction Thursday; a gauge of Chinese technology stocks listed in Hong Kong tumbled 3.3%. NetEase Inc. slumped after a profit miss, while Alibaba Group Holding Ltd. fell as analysts remained cautious about its sales growth prospect. Meanwhile, Chinese President Xi Jinping was set to bring decision-making of the financial system further under his control with the revival of a powerful committee.

“A lot of the momentum in China has come in so it’s important to be discerning and look for the quality stocks that are more reasonably valued,” Julie Ho, an Asia ex-Japan equities portfolio manager at JPMorgan Asset Management, told Bloomberg Television.  Japanese stocks advanced as Bank of Japan Governor nominee Kazuo Ueda said current policy easing was appropriate. He spoke at a parliamentary hearing in the approval process for his appointment. South Korean stocks slid as foreign investors turned net sellers for the first week this year amid concerns over the impact of tighter global monetary policy on the nation’s tech-heavy equity market. Malaysian stocks pared losses ahead of the annual budget presentation. Traders in Asia are awaiting US inflation numbers due today, after mixed data Thursday muddied the outlook for Federal Reserve policy. Gains in Asian stocks have stalled this month amid renewed worries of US policy tightening and a lack of positive catalysts for heavyweight Chinese shares. The MSCI Asia gauge is down almost 2% this week.

Japanese stocks rose as Bank of Japan governor nominee Kazuo Ueda backed continued easing in his confirmation hearing in parliament. Ueda said it will still take time to hit the central bank’s target for stable 2% inflation, adding that continuing with stimulus is appropriate for now. “Comments by Ueda came as no surprise — since he didn’t signal policy would change abruptly, the market is relieved,” said Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank Ltd. “Ueda is taking taking a very cautious stance, which is very positive for the stock market.” The Topix rose 0.7% to close at 1,988.40, while the Nikkei advanced 1.3% to 27,453.48. Banks dropped while real estate stocks rose. Tokyo Electron contributed the most to the Topix gain, gaining 7.1%. Out of 2,161 stocks in the index, 1,571 rose and 507 fell, while 83 were unchanged.

Australia’s S&P/ASX 200 index rose 0.3% to close at 7,307.00, as all sectors aside from mining advanced.  Banks and industrials boosted the benchmark most. Still, the benchmark caped its third straight weekly loss, dropping 0.5%.  In New Zealand, the S&P/NZX 50 index rose 0.2% to 11,905.

Key stock gauges in India posted their biggest weekly drop in eight months as investors continue to avoid riskier assets globally on the prospect of higher interest rates. Most stocks related to the Adani Group declined on Friday as the monthlong selloff in the conglomerate’s shares neared $150 billion. Selling in shares of the ports-to-power conglomerate has continued despite its efforts to reassure investors about its strategy and debt reduction plans. The S&P BSE Sensex fell 2.5% for the week, its biggest retreat since June 19, while the NSE Nifty 50 Index declined 2.7%. On Friday, the benchmark Sensex fell 0.2% to 59,463.93 in Mumbai, while the Nifty declined 0.3%.

In FX, the Dollar Index is up 0.1%, advancing for the third time in four days. The Australian dollar and Japanese yen are the weakest among the G-10’s.

  • Sweden’s krona was the only currency to advance against the dollar Friday and this week, as hawkish commentary from the central bank added to bets on further policy tightening.
  • The euro steadied below $1.06 and the bund curve twist-flattened very modestly. A surprisingly weak final reading of German GDP prompted traders to trim bets for ECB interest- rate rises in the coming months.
  • The pound was steady but was also among the best-performing major currencies this week after data showed UK household confidence rebounded by the most in almost two years. Gilts eased in early trade before Tenreyro, the BOE’s most dovish policy maker, speaks later in the day.
  • The yen fell and the volatility skew kept shifting lower after BOJ Governor nominee Kazuo Ueda warned against any magical solution to produce stable inflation and normalize policy as he largely stuck to the existing central bank script in the first parliamentary hearing to approve his appointment

In rates, treasuries are under pressure as US trading day begins, with yields inside Thursday’s rally ranges but near YTD highs reached this week. Yields are higher by 2bp-4bp, 10-year by 3bp at 3.91%; the 10-year yield is ~10bp higher on week and ~40bp higher over past five weeks. Thursday’s ranges included YTD highs for 5- and 10-year. The market is headed for its fifth straight weekly loss, having all but erased January’s gains amid hawkish repricing of Fed policy outlook. UK and German 10-year yields are little changed.

Fed swaps nearly fully price in a third 25bp rate increase in June, following expected moves in March and May. Next week brings a large quarterly month-end index rebalancing with the potential to drive buying, and Treasury coupon auctions resume March 7.

In commodities, oil extended Thursday’s advance amid strength in commodity currencies and optimism over China’s reopening. Crude futures advance with WTI rising 1.2% to trade near $76.30. Spot gold is little changed around $1,822.

Bitcoin was on pace for its second monthly advance, breaking with stocks and other riskier assets

Looking at the day ahead now, there’s a heavy data calendar in the US with personal income and spending data, along with the Federal Reserve’s preferred inflation measure, coming at 8:30 a.m. Later, there are reports on new home sales and sentiment as well as a number of Fed comments, including from Loretta Mester and James Bullard.

Market Snapshot

  • S&P 500 futures down 0.3% to 4,008.25
  • MXAP down 0.7% to 159.42
  • MXAPJ down 1.2% to 516.92
  • Nikkei up 1.3% to 27,453.48
  • Topix up 0.7% to 1,988.40
  • Hang Seng Index down 1.7% to 20,010.04
  • Shanghai Composite down 0.6% to 3,267.16
  • Sensex down 0.3% to 59,449.83
  • Australia S&P/ASX 200 up 0.3% to 7,307.03
  • Kospi down 0.6% to 2,423.61
  • STOXX Europe 600 up 0.3% to 463.97
  • German 10Y yield little changed at 2.47%
  • Euro little changed at $1.0588
  • Brent Futures up 0.9% to $82.91/bbl
  • Gold spot up 0.0% to $1,822.40
  • U.S. Dollar Index up 0.11% to 104.71

Top Overnight News from Bloomberg

  • China told the United Nations on Thursday that one year into the Ukraine war “brutal facts offer an ample proof that sending weapons will not bring peace,” just days after the United States and NATO warned Beijing against giving Russia military support. RTRS
  • Japan’s Jan CPI rose M/M, although not by as much as feared – the ex-food number was +4.2% (vs. +4% in Dec and below the St’s +4.3% forecast) while ex-food/energy came in at +3.2% (vs. +3% in Dec and below the St’s +3.3% forecast). BBG  
  • BOJ governor nominee Kazuo Ueda said it was “appropriate” to continue easing and called Kuroda’s policies “unavoidable” while the joint statement w/the government didn’t require revision, but suggested YCC had negative side effects and warned normalization could occur once the 2% inflation target was in sight. Nikkei
  • China’s property market: in another sign the downturn is easing/ending, China Garden Holdings, one of the country’s largest developers, plans to buy land in local gov’t auctions for the first time in more than a year. WSJ
  • Chinese President Xi Jinping is set to bring decision-making of the financial system further under his control with the likely revival of a powerful committee to coordinate financial policy and the possible appointment of a key ally in a top position at the central bank. BBG
  • China’s overnight repurchase rate, a gauge of interbank funding costs, fell more than 80 basis points from Tuesday when it approached the highest level since 2021. That’s because the PBOC’s string of short-term cash injections that started last week, which included its biggest single-day boost on record, replenished the financial system with liquidity. BBG
  • The Adani Group will hold a fixed-income investor roadshow in Asia next week as the embattled Indian conglomerate seeks to repair the damage caused by a shock short-seller report. BBG
  • Credit Suisse cut payouts on a $3.5 billion real estate fund, as clients sought to pull their cash after rising interest rates hurt valuations. The fund’s net asset value is expected to drop as much as 10%. BBG
  • Inflation measured by the Fed’s favored gauges probably stayed robust last month, upending optimism that the peak has been passed. The headline PCE deflator probably rose 0.5% month on month, with the annual rate staying at 5%. More worrying, both core and supercore gauges may have accelerated too. The sources of the pickup – income and spending growth — probably remained healthy last month. BBG
  • Amazon founder Jeff Bezos hired an investment firm to evaluate a possible bid for the Washington Commanders, according to two people familiar with the situation. Wa Po
  • The DOJ wants to block Adobe’s $20 billion purchase of startup Figma, people familiar said. An antitrust lawsuit may be filed next month. The deal also faces antitrust reviews in the EU and UK. Adobe shares fell postmarket. BBG
  • A sharp rotation toward cyclical stocks has aided mutual fund performance this year. In contrast with 3Q, mutual funds rotated sharply toward cyclical stocks in 4Q, suggesting optimism around the economic outlook. Autos, Tech Hardware, and Banks were among the most added to industries. At a sector level, funds are overweight Financials, Industrials, Materials, and Consumer Discretionary. Mutual fund and ETF fund flow data have also flipped in favor of cyclical sectors in recent weeks. In contrast to increased cyclical exposure, mutual fund exposure to growth stocks is higher than at any point since 3Q14. (GIR)
  • The market is no longer fighting the Fed’s higher-for-longer narrative as it used to. After back in January pricing in more than a half percentage point of easing by year-end, money markets now see around 18 basis points of cuts by December. BBG
  • The ECB may need to deliver significant interest-rate increases also in the second quarter, according to Bundesbank President Joachim Nagel. BBG
  • Europe should be closer to agreeing on a new set of fiscal rules in March, according to Economy Commissioner Paolo Gentiloni who expects diverging views on debt flexibility to be resolved shortly. BBG

A more detailed look at global markets courtesy of Newsquawk

APAC stocks traded mostly rangebound after the choppy but positive performance on Wall St where markets spent most of the session recovering from the initial data-induced selling. ASX 200 was positive with the index led by outperformance in tech although gains are limited amid another batch of earnings releases and continued weakness in the mining industry. Nikkei 225 outperformed as the focus centred on comments from BoJ Governor nominee Ueda at the lower house confirmation hearing in which he noted that current monetary policy is appropriate and that Japan still needs more time for inflation to sustainably hit the 2% target. Hang Seng and Shanghai Comp. were lower after a substantial liquidity drain by the PBoC and as the US looks to include Chinese companies in a fresh round of Russian sanctions, while Hong Kong underperformed amid heavy losses in tech owing to weaker earnings from NetEase.

Top Asian News

  • BoJ Governor nominee Ueda said current monetary policy is appropriate and that Japan still needs more time for inflation to sustainably hit the 2% target, while he added it is appropriate to continue monetary easing from now on. Ueda stated that if trend inflation improves significantly, the BoJ needs to move toward monetary policy normalisation but if it does not improve, the BoJ must consider ways to maintain YCC while being mindful of market distortions. He also stated that the BoJ won’t conduct bond-selling operations and if it were to normalise policy, it would likely do so by raising interest paid to reserves parked with the central bank. Furthermore, he said must think about what to do with ETF holdings if the BoJ were to exit easy policy but now is not the time to do so and said the BoJ will stop massive bond buying if the 2% target is met.
  • BoJ Deputy Governor nominee Uchida said uncertainty regarding Japan’s economy is very high and BoJ must support Japan’s economy by maintaining ultra-easy policy, while he added it is wrong to tweak monetary policy just to address side effects and the right approach is to come up with ways to mitigate side-effects and effectively maintain current policy.
  • BoJ Deputy Governor nominee Himino said it is important to conduct economic policy flexibly and that current monetary policy is appropriate, while he added that they must aim for structural rises in wages. Furthermore, Himino said uncertainty over the global economy is very large and that they need to continue monetary easing for now.

European bourses are contained/slightly firmer, Euro Stoxx 50 +0.1%, with fresh drivers limited as the focus is on geopolitics and upcoming US data. Sectors are predominantly in the green, with Construction names bolstered post-Saint Gobain while Basic Resources lag slightly given recent commodity action. Stateside, futures are softer but with the ES still above 4k, the NQ -0.7% is the laggard following some recent pressure in the fixed income complex.

Top European News

  • Former UK PM Johnson has refused to support PM Sunak’s Brexit deal, which poses a major blow to Downing Street’s hopes of avoiding a Eurosceptic Conservative rebellion, according to The Telegraph.
  • ECB’s Nagel says the latest data shows core inflation is still too high, stopping tightening soon would be a cardinal sin. Cannot exclude more and significant hikes beyond March. Cannot rule out that headline inflation has plateaued, too speculative to say.


  • The DXY remains firmer on the session though the upside has peaked at a 104.74 session high with Thursday’s high at 104.78 just above.
  • Action which comes to the modest detriment of peers, with the JPY lagging as nominee Ueda said the BoJ’s current policy is appropriate, with USD/JPY above 135.00 from a 134.07 base.
  • In close proximity to the JPY are the antipodeans, with the AUD affected by Yuan action and has slipped below 0.68 vs USD while the NZD remains just above 0.62, aided by RBNZ commentary.
  • EUR and GBP are the relative outperformers with catalysts light thus far and the EUR unreactive to German data or ECB’s Nagel while Sterling awaits BoE’s dove Tenreyro late-doors; holding around/above 1.06 and 1.20 respectively.
  • PBoC set USD/CNY mid-point at 6.8942 vs exp. 6.8948 (prev. 6.9028)

Fixed Income

  • Core benchmarks are little changed on the session, having seemingly faded after being unable to test Monday’s peak or Friday’s high, with some pre-PCE action perhaps factoring.
  • USTs are in-fitting directionally but are modestly negative on the session with yields elevated across the curve ahead of a busy afternoon agenda with the potential for month-end demand later also worth bearing in mind.
  • Specifically, Bunds, Gilts and USTs have peaked at 135.20, 102.67 and 111.19 respectively.


  • WTI and Brent are firmer on the session with the April contracts residing around/just above Thursday’s peaks of USD 75.99/bbl and USD 82.77/bbl respectively.
  • Both TTF and Henry Hub gas contracts are firmer thus far, following a settlement in excess of 6% for Henry Hub on Thursday.
  • Spot gold is essentially unchanged on the session as while the USD remains firmer it is yet to advance significantly from early European morning levels; circa. USD 10/oz shy of Thursday’s USD 1833/oz peak which itself is just below the 10-DMA of USD 1836/oz.


  • Ukrainian President Zelensky said the military situation in the south is quite dangerous in some places and is very difficult in the east, according to Reuters.
  • White House said the US will announce sanctions against Russian individuals and entities on Friday which will affect the banking, defence and tech sectors, while National Security Adviser Sullivan said G7 sanctions being announced on Friday will include countries that are trying to backfill products being denied to Russia.. Subsequently, US is to increase tariffs on 100 Russian metals, minerals and chemical products worth circa. USD 2.8bln; announces USD 2bn in security aid to Ukraine; announces export control measures against 90 Cos that support Russia’s defence sector..
  • China’s Foreign Ministry released a paper regarding China’s position on the political solution to the Ukraine crisis which noted respect for the sovereignty of all countries and that regional security cannot be guaranteed by strengthening or expanding military blocs, while it also called for a cease-fire (which would see Russian troops remaining in in Ukraine territory) to prevent Ukraine crisis from further aggravating or getting out of control. Furthermore, it stated that dialogue and negotiation are the only viable ways to resolve the crisis and that nuclear weapons should not be used in the Ukraine war. The proposal was quickly rebuffed by US National Security Advisor Jake Sullivan
  • EU delegation head in China said China should fulfil its responsibility to defend the UN Charter in the face of Russian aggression and that China’s position paper on Ukraine is not a peace proposal, while Ukraine’s Charge D’affaires said that they have a peace plan which they hope China supports and would like to see China do more to end the war.
  • French Finance Minister Le Maire said the G20 must condemn Russia’s aggression against Ukraine and must condemn Russia at the finance level, while he added Europe is thinking and working on new sanctions on Russia.

US Event Calendar

  • 08:30: Jan. Personal Income, est. 1.0%, prior 0.2%
    • Personal Spending, est. 1.4%, prior -0.2%
    • Real Personal Spending, est. 1.1%, prior -0.3%
    • PCE Deflator MoM, est. 0.5%, prior 0.1%
    • PCE Deflator YoY, est. 5.0%, prior 5.0%
    • PCE Core Deflator MoM, est. 0.4%, prior 0.3%
    • PCE Core Deflator YoY, est. 4.3%, prior 4.4%
  • 10:00: Jan. New Home Sales MoM, est. 0.7%, prior 2.3%
    • Jan. New Home Sales, est. 620,000, prior 616,000
  • 10:00: Feb. U. of Mich. Sentiment, est. 66.4, prior 66.4
    • Feb. U. of Mich. Current Conditions, est. 72.7, prior 72.6
    • Feb. U. of Mich. Expectations, est. 62.5, prior 62.3
    • Feb. U. of Mich. 1 Yr Inflation, est. 4.2%, prior 4.2%
    • Feb. U. of Mich. 5-10 Yr Inflation, est. 2.9%, prior 2.9%
  • 11:00: Feb. Kansas City Fed Services Activ, prior -11

Fed speakers

  • 10:15: Fed’s Jefferson, Mester discuss paper on managing disinflation
  • 10:15: Fed’s Mester Speaks on Panel at New York Conference
  • 11:30: Fed’s Bullard Discusses Inflation
  • 13:30: Fed’s Collins gives recorded remarks at US Monetary Policy For
  • 13:30: Fed’s Waller discusses inflation

DB’s Jim Reid concludes the overnight wrap

It’s a sobering double anniversary today as it marks 1 year to the day that Russia invaded Ukraine and 3 years to the day that we saw the first big covid related sell-off after Italian cases spiked over the prior weekend. The world has been forever changed by those events with the full implications likely to reverberate for many years to come.

Indeed the aftershocks are still being felt every day in markets (good and bad). This has continued this week, with intraday volatility remaining high. Risk assets whipsawed yesterday, with the S&P 500 up nearly +1.0% in early trading before selling off -1.5% in the late US morning following further upward revisions to inflation data in the US and Europe. However that marked the high in yields for the day and a fixed income rally back lifted tech stocks, and in the end the S&P broke a 4-day losing streak to close up +0.53% with the NASDAQ at +0.72% ahead of today’s important PCE print.

There was some speculation that a portion of the post US midday rally was due to delta hedging effects as the S&P 500 traded through the 4000 level, with 0DTE (zero days to expiry) options being partially blamed. There is increasingly higher trading volumes of options on their expiry days than in the past. These options may have been listed at any point but trading activity has increased in options that are set to expire on the day recently. The uptick in interest of these contracts seems to be able to move markets considerably in both directions.

The rally also came as the terminal fed funds rate fell -2.0bps off its cycle highs to finish at 5.347 and US yields continued to fall lower after trading above 3.97% on an intraday basis for the first time since November. They then reversed course to end the day -3.9bps lower at 3.877%. And it was a similar story in Europe, with yields on 10yr bunds (-4.2bps), OATs (-4.5bps) and BTPs (-7.8bps) all moving lower.

Back to equities and Nvidia (+14.02%) was the strongest performer in the entire S&P 500 following their revenue forecast the previous day that beat estimates. On the back of Nvidia’s results, Semiconductors (+5.13%) were the best performing S&P industry followed by cyclicals such as Transports (+1.46%) and Energy (+1.27%). In the meantime, European equities managed to post a small gain for the day, with the STOXX 600 up +0.06%.

In terms of the various data releases yesterday, the first was in the Euro Area, where the core inflation print for January was revised up to +5.3% (vs. +5.2% previously). That’s a new record since the Euro Area’s formation back in 1999, and offers further support for the ECB’s hawks as they look to take rates higher. Indeed, it also leans into our economists’ new ECB call from earlier in the week (link here), where they now see the terminal deposit rate going up to 3.75% at the June meeting.

Just as European inflation was being revised higher, there were also positive upward revisions to the Q4 numbers from the US. For instance, the PCE inflation measure targeted by the Fed rose by an annualised +3.7% in Q4, up from +3.2% previously. So just as with the CPI revisions, this is confirming that the inflation slowdown in Q4 was much smaller than previously thought. Likewise with the core PCE print, the Q4 number was revised up to an annualised +4.3% (vs. +3.9% before). The more important release on this front is today’s US core PCE deflator with DB and consensus at +0.5% m/m compared to a +0.3% reading last month. The accompanying personal income data sees a very a strong +1.0% m/m consensus expectation, while our economists are expecting growth of +0.6% m/m vs. +0.2% previously. DB’s economists expect a +1.3% monthly increase in consumption compared to a 1.4% consensus estimate and -0.2% reading last month.

Also yesterday we received the latest US initial jobless claims data with the week ending February 18 coming in at 192k (vs. 200k expected), while continuing claims was at 1654k (vs. 1700k expected). The rolling 3-month level of continuing claims is now back to rather benign levels, which puts further pressure on the Fed as the labour market continues to look robust through various lenses.

Gilts were a bit of an underperformer yesterday, with the 10yr yield ‘only’ down -1.3bps on the day after spending nearly the entire session in positive territory. That was after comments from the BoE’s Mann, one of the biggest hawks on the MPC, who said “I believe that more tightening is needed, and caution that a pivot is not imminent”. In addition, she said that “I don’t think we are in a restrictive stance particularly”. That led investors to almost fully price in a 25bp move at the next meeting in March, which would take the Bank Rate up to 4.25% if realised.

Asian equity markets are mostly struggling this morning even with the rally back in the US. As I type, the Hang Seng (-1.41%) is the biggest underperformer, dragged lower by declines in Chinese listed tech stocks while the CSI (-1.01%), the Shanghai Composite (-0.70%) and the KOSPI (-0.55%) are also edging lower. Elsewhere, the Nikkei (+1.10%) is bucking the regional negative trend after the incoming Bank of Japan (BOJ) head Kazuo Ueda, in his statement to lawmakers, lent his support for the current monetary policy stance while indicating that inflation is likely to rise gradually. Outside of Asia, US stock futures are indicating a slightly negative bias with those on the S&P 500 (-0.11%) and NASDAQ 100 (-0.24%) edging lower. Meanwhile, yields on the 10yr USTs (-1.16bps) are slightly lower, trading at 3.87%.

Coming back to Japan, data this morning showed that the core consumer inflation excluding food hit a 41-year high of +4.2% y/y in Japan (v/s +4.3% expected), rising from a +4.0% annual gain seen in December. It was the 9th consecutive month that core consumer inflation stayed above the BOJ’s 2% target. Headline came in as expected at 4.3%. So no surprises and an on message Kazuo Ueda probably reduces the near-term risk of an imminent surprise BoJ YCC move.

In other news yesterday, Bloomberg reported that the search for the Fed’s next Vice Chair was narrowing as the Biden administration looks to replace Lael Brainard, who’s now director of the National Economic Council. According to Bloomberg, the “top tier” candidates were Harvard professor Karen Dynan and Northwestern professor Janice Eberly, with an announcement “possible in the coming weeks.” Both have previous experience in government too, with each having served as Assistant Secretary of the Treasury for Economic Policy under President Obama. However, the article also mentioned that others were in “serious contention”, including the new Chicago Fed President, Austan Goolsbee, who previously served as Chair of the Council of Economic Advisers under President Obama.

On that theme of appointments, it was separately announced that the United States would be nominating Ajay Banga to be the next President of the World Bank. Banga previously served as CEO of Mastercard for a decade. The US has usually chosen the World Bank President and is the largest shareholder of the World Bank, but in practice they require support from other countries, so it could be some months before we officially know the next president.

To the day ahead now, and data releases from the US include January numbers on personal income, personal spending for January, the core PCE deflator and new home sales. We’ll also get the University of Michigan’s final consumer sentiment index for February. Otherwise from central banks, we’ll hear from the Fed’s Jefferson, Mester, Bullard, Collins and Waller, along with the BoE’s Tenreyro.


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