US inflation: 25bp in the balance for February
OVERNIGHT NEWS
# JPY gains 0.5%, 10y JGB yield climbs to 0.514% on Yomiuri report that the BoJ will look at the side effects of ultra-loose policy at next week’s policy meeting. Governor Kuroda speaks at BOJ branch managers meeting this morning.
# Day ahead: US CPI – SG forecast core +0.4% m/m, consensus 0.3%. Initial jobless claims, Fed speakers Harker, Bullard and Barkin. ECB economic bulletin and consumer expectations survey, India CPI. US, Italy and Spain benchmark auctions.
# China CPI edges up to 1.8% yoy in December from 1.6% in November as expected, food prices accelerated to 4.8% from 3.7%. PPI deflation moderated to -0.7% yoy from -1.3% but less than forecast of -0.1%.
# Nikkei flat, EUR 10y IRS unchanged at 2.78%, Brent crude -0.1% at $82.6/b, Gold +0.5% at $1,885/oz.
US core CPI – bullish EUR/USD and S&P including in October when inflation surpassed consensus.
COP – COP was the top performer in the Latam region. USDCLP continued the downward trend over the last couple sessions and arrived at levels before the holiday season. The pair broke through key dollar support level of 4,750. Brent rallied 3.1% as China demand outlook offset the potential for a large build in US crude stockpiles. On the data front, Colombia December Consumer Confidence Index printed at -22.3 (BBG Surv. -26.4, prior -24.8). Our trader Santiago Calvache has seen some inflow interests from Corps and Real Money names in cash.The Asia Open has been published early from London. Normal coverage resumes Thursday.
Wednesday’s trading session was typical in many ways as we waited for US CPI – lacking momentum and meaningful catalysts. European rates were in focus – Bunds rallied by 10bps though larger gains were seen in BTPs and gilts. A positioning squeeze was the likely factor, though snippets of dovish ECB rhetoric added to the move. European FI was likely the stronger factor of higher USTs instead of dovish Fed’s Collins, who supported slower pace of hikes and 25bps for February, if data supports. Elsewhere, EURCHF broke above the 200dMA while stronger commodities paved the way for Latam FX outperformance.
Ahead on Thursday, China PPI and CPI data for December print – we see stability in prices though upsides could invigorate bullish sentiment. Otherwise, markets continue to be range-bound ahead of high event-risk: US CPI prints Thursday at 13:30 GMT. Until then, JPY and AUD watch for trade data.