US stocks and bonds gained after soft employment data, while Powell reiterated message at Testimony to Congress - Newsquawk Asia-Pac Market Open

• US stocks were firmer and bonds also gained after soft employment data releases although the major indices closed off their highs with some chunky selling seen in the NY afternoon. Focus was also on Fed Chair Powell's testimony in Congress where he gave the familiar rhetoric and expressed caution on cutting rates too early, but still thinks rates will likely be cut this year and that they are at the peak rate.
• USD was pressured in which the DXY hit a low of 103.19 before rebounding marginally as there was plenty for markets to digest including Fed Chair Powell's Testimony which was largely a reiteration of his prior message and continued to signal cautiousness on rushing into rate cuts. Furthermore, the data releases were weaker-than-expected as JOLTS fell by more than expected and the quits rate also eased, while ADP Employment rose less than expected heading into Friday's Non-Farm Payrolls report.
• Looking ahead, highlights include Japanese Labour Earnings, Australian & Chinese Trade Data, Supply from Japan.

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LOOKING AHEAD

• Highlights include Japanese Labour Earnings, Australian & Chinese Trade Data, Supply from Japan.
• Click here for the Newsquawk Week Ahead.

US TRADE

• US stocks were firmer and bonds also gained after soft employment data releases although the major indices closed off their highs with some chunky selling seen in the NY afternoon. Focus was also on Fed Chair Powell's testimony in Congress where he gave the familiar rhetoric and expressed caution on cutting rates too early, but still thinks rates will likely be cut this year and that they are at the peak rate.
• SPX +0.51% at 5,105, NDX +0.67% at 18,018, DJI +0.20% at 38,661, RUT +0.70% at 2,068.
• Click here for a detailed summary.

NOTABLE HEADLINES

• Fed Chair Powell said in his prepared testimony to the House Financial Services Committee that the Fed does not expect it will be appropriate to reduce the policy rate until there is greater confidence inflation is moving sustainably toward 2%. Powell added that it will likely be appropriate to begin dialling back policy restraint at some point this year and that the policy rate is likely at its peak for this cycle.
• Fed Chair Powell said rate cuts will depend on the path of the economy and data will determine when cuts commence, while he has some confidence in inflation and wants to have more, as well as suggested seeing a little more data so they can become confident. Furthermore, Powell said if the economy evolves as the Fed hopes, rates will need to come down significantly over the coming years and the Fed is not looking for inflation to go all the way down to 2%, but it does need to see more evidence which means some good inflation readings.
• Fed's Daly (voter) said policy is in a good place and there is more work to do although she is encouraged that they have been able to bring inflation down with the labour market solid and they are on the path to bringing inflation down as gently as they can. Daly added the Fed is facing a calibration exercise on policy and holding on too long with rates could create an unforced error and hurt the economy, while she is waiting and watching the economy to finetune decision-making.
• Fed Beige Book stated economic activity increased slightly, on balance, since early January as eight districts reported slight to modest growth in activity, while three others reported no change and one district noted a slight softening.
• US regulators are expected to significantly lower the capital burden imposed by the Basel III endgame proposal, according to Reuters sources. Furthermore, Fed Chair Powell is said to be seeking "significant" changes to the proposal although officials are yet to decide whether to re-propose the draft rule.
• NYCB (NYCB) raised more than USD 1bln in equity in which investors included Liberty Strategic Capital, Hudson Bay Capital and Reverence Capital Partners, according to Bloomberg sources.
• Nikki Haley suspended her presidential campaign, as previously touted.

DATA RECAP

• US ADP National Employment (Feb) 140.0k vs. Exp. 150.0k (Prev. 107.0k, Rev. 111k)
• US JOLTS Job Openings (Jan) 8.863M vs. Exp. 8.9M (Prev. 9.026M, Rev. 8.889M)
• US Wholesale Sales MM (Jan) -1.7% vs. Exp. 0.5% (Prev. 0.7%, Rev. 0.3%)
• US Wholesale Inventories MM (Jan) -0.3% vs. Exp. -0.1% (Prev. -0.1%)

FX

• USD was pressured in which the DXY hit a low of 103.19 before rebounding marginally as there was plenty for markets to digest including Fed Chair Powell's Testimony which was largely a reiteration of his prior message and continued to signal cautiousness on rushing into rate cuts. Furthermore, the data releases were weaker-than-expected as JOLTS fell by more than expected and the quits rate also eased, while ADP Employment rose less than expected heading into Friday's Non-Farm Payrolls report.
• EUR benefitted from the softer greenback and briefly climbed above the 1.0900 handle.
• GBP was firmer but upside capped as the UK Budget announcement ultimately had little sway on the pound in which the Chancellor reduced national insurance by 2p as widely touted.
• JPY strengthened with USD/JPY retreating beneath the 150.00 level amid softer US yields and following a hawkish-leaning BoJ source report that noted some attendees of the BoJ March meeting are likely to say that lifting negative rates is reasonable.
• BoC kept its rate unchanged at 5.00%, as expected, while BoC Governor Macklem said it is still too early to consider lowering the policy interest rate and with inflation still close to 3% and underlying inflationary pressures persisting, the assessment of the Governing Council is that they need to give higher rates more time to do their work. Macklem also said they cannot put the timing of rate cuts on a calendar and will not be lowering rates at the pace the BoC raised them.

FIXED INCOME

• Treasuries rallied in the aftermath of the softer-than-expected ADP and JOLTS data releases

COMMODITIES

• Oil prices were higher as they benefitted from the weaker dollar and bullish inventory data.
• US EIA Weekly Crude Stocks 1.4M vs. Exp. 3.0M (Prev. 4.2M).
• Saudi Aramco and UAE's ADNOC are said to be in talks to invest in a US LNG project, stepping up competition with oil majors and regional rival Qatar, according to Reuters sources.

GEOPOLITICAL

MIDDLE EAST

• Israel’s Defence Minister said they will pursue Hamas throughout the Middle East, according to Sky News Arabia.
• Israel Broadcasting Corp. cited sources stating that Washington is pushing for an agreement on a hostage deal in the coming days, according to Al Jazeera. It was separately reported that the US State Department said it still believes that an agreement between Israel and Hamas is possible and obstacles can be overcome.
• US draft resolution called for the unification of the Gaza Strip with the West Bank under the Palestinian Authority and rejects any decisions that would reduce the area of Gaza or create buffer zones, while the draft resolution indicates that peace in the Middle East cannot be achieved without a safe environment and refers to the vision of a two-state solution, according to Sky News Arabia citing a source.
• US Democrats said a Rafah invasion likely violates President Biden's requirement that US military aid be used in accordance with international law, according to Axios sources.
• US official is expecting fatalities among the 20 crew members of a commodity ship which was on fire and drifted near Yemen after being hit by a missile.
• US is imposing sanctions on firms and vessels which facilitate commodity shipments to Iran's Quds force and Yemen’s Houthis.

OTHER

• Russian Defence Ministry said Russia scrambled an SU-30 fighter jet to escort two British fighter jets and a recon plane, while it was separately reported that the Kremlin said America is fighting against Russia, according to RIA.

ASIA-PAC

NOTABLE HEADLINES

• China's NPC and CPPCC press conference noted the NDRC said they see a stronger economic growth trend this year and they have the tools to support the growth of China’s economy, while they will take targeted and systemic steps. It was also stated that China faces a severe foreign trade situation and geopolitical tensions will affect China's foreign trade this year.
• PBoC Governor Pan said there is still room for cutting RRR and the PBoC still has sufficient room for monetary policy. Furthermore, China will maintain an appropriate increase in money supply and the Ministry of Finance will study and implement a structural tax reduction and fee-reducing policies, while China’s securities regulator said they should act resolutely if the market shows unreasonable volatility, liquidity crunch and loss of confidence.
• US reportedly urged South Korea, Germany, the Netherlands, and Japan to limit China's access to chip tech and wants to limit chip chemicals and more machinery parts to China, according to Bloomberg sources. Sources added that the US is urging the Netherlands to stop ASML from servicing and repairing sensitive chipmaking equipment that Chinese clients purchased before limits on sales of those devices were put into place.
• Some attendees at the BoJ policy meeting this month are reportedly likely to say that lifting negative interest rates is reasonable and at least one of the nine members of the BoJ committee argues that lifting negative rates is appropriate in reference to the March meeting but if there is no majority, then the policy change will not be made until April or later, according to Jiji.
• BoJ is said to have differing views among members on the timing of a rate move and officials are said to get more confidence regarding stronger wage growth, according to Bloomberg sources. There is no consensus yet on whether the central bank should move at the end of its policy meeting on March 19th or wait until April, while the BoJ will reportedly reach its policy decision after watching economic data and financial markets "until the last minute”.

EU/UK

NOTABLE HEADLINES

• UK Chancellor Hunt said from April, the high-income child benefit charge threshold will rise to GBP 60k and the government will cut National Insurance by 2ppts (as reports had suggested) at a cost of GBP 9bln, while they will continue to cut national insurance when the time is right.
• UK government will abolish the energy profits levy if market rates fall for a sustained period and will extend the energy windfall tax by one year. UK will also abolish the current tax system for non-domiciled taxpayers and will replace it with a residency based system from April 2025 with revenues raised from this to be used to cut taxes for working families, while it will lower capital gains tax on property sales from 28% to 24% and will freeze fuel duty for a further year but will raise taxes on e-cigarettes and vapes with a one-off increase in tobacco duty to be introduced.
• UK OBR forecasts 2024 GDP growth at 0.8% (exp. 0.0%, prev. 0.7%, BoE 0.25%); 2025 at 1.9% (exp. 1.3%, prev. 1.4%, BoE 0.75%); 2026 growth at 2.0% (exp. 1.7%, prev. 2.0%, BoE 1.0%). UK OBR said it expects a faster recovery in living standards from last year's record decline and the medium-term outlook remains challenging, while it forecasts GBP 9.5bln of additional borrowing from 2024/25 through 2028/29 when compared to the November forecasts.
• German Finance Minister Lindner said the policies of EU President von der Leyen are endangering competitiveness and economic prosperity, according to an interview in Handelsblatt.
• Ifo institute cut its 2024 German growth forecast to 0.2% (from 0.7% seen in January) but raised the 2025 growth forecast to 1.5% (from 1.3% seen in January).

DATA RECAP

• UK S&P Global Construction PMI (Feb) 49.7 vs. Exp. 49.0 (Prev. 48.8)
• German HCOB Construction PMI (Feb) 39.1 (Prev. 36.3)
• German Trade Balance (EUR)(Jan) 27.5B vs. Exp. 21.5B (Prev. 22.2B)
• German Exports MM (Jan) 6.3% vs. Exp. 1.5% (Prev. -4.6%)
• German Imports MM (Jan) 3.6% vs. Exp. 1.8% (Prev. -6.7%)
• EU HCOB Construction PMI (Feb) 42.9 (Prev. 41.3)
• EU Retail Sales MM (Jan) 0.1% vs. Exp. 0.1% (Prev. -1.1%, Rev. -0.6%)
• EU Retail Sales YY (Jan) -1.0% vs. Exp. -1.3% (Prev. -0.8%, Rev. -0.5%)