US stocks and bonds slumped on hot CPI data - Newsquawk Asia-Pac Market Open

• US stocks and bonds suffered heavy losses while the dollar surged after the hot US CPI report for January triggered a large pullback in Fed easing expectations. The downside was led by the small-cap Russell 2k index where many of the constituents are in need of lower rates to refinance their debt, although losses in the NDX and SPX were also significant following their YTD rally.
• USD surged and the DXY approached just shy of the 105.00 level following a hot US CPI report which pushed back money market pricing on rate cuts with the chance of a March 25bps rate cut now at 8% vs 13.5% pre-data and just 86bps of cuts are now priced for this year vs 113bps prior to the data.
• Looking ahead, highlights include Indian WPI, Supply from Australia & Japan, Holiday in China, Taiwan & Vietnam.

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LOOKING AHEAD

• Highlights include Indian WPI, Supply from Australia & Japan, Holiday in China, Taiwan & Vietnam.
• Click here for the Newsquawk Week Ahead.

US TRADE

• US stocks and bonds suffered heavy losses while the dollar surged after the hot US CPI report for January triggered a large pullback in Fed easing expectations. The downside was led by the small-cap Russell 2k index where many of the constituents are in need of lower rates to refinance their debt, although losses in the NDX and SPX were also significant following their YTD rally.
• SPX -1.37% at 4,953, NDX -1.58% at 17,600, DJIA -1.35% at 38,272, RUT -4.00% at 1,964.
• Click here for a detailed summary.

NOTABLE HEADLINES

• US Treasury Secretary Yellen said the US economy continues to grow with a historically strong labour market despite lower inflation and January CPI shows significant progress in the fight to bring down inflation.
• White House Economic Adviser Brainard said real wages are up which is helping offset inflation gains, while she added they need to see lower prices at the grocery store and that shrinkflation continues to hurt consumers.
• WSJ's Timiraos noted after the CPI data that a March cut which was already ruled out, is even more now and officials who wanted to see signs that disinflation was broadening beyond goods got the opposite of that whereby goods deflation picked up but services prices accelerated.
• Fox's Gasparino noted that White House panic after the Hur report went somewhat hyperbolic on the real possibility that Fed Chair Powell can’t cut rates or will be cutting them into an uptick of inflation which could be worse, while he added that Wall Street CEOs told him today's inflation print could loom as among the biggest political stories of the year given the political implications.

DATA RECAP

• US CPI MM (Jan) 0.3% vs. Exp. 0.2% (Prev. 0.3%, Rev. 0.2%)
• US CPI YY (Jan) 3.1% vs. Exp. 2.9% (Prev. 3.4%)
• US Core CPI YY (Jan) 3.9% vs. Exp. 3.7% (Prev. 3.9%)
• US Core CPI 3-month annualised rate rose to 3.9% from 3.3%.
• US Core CPI 6-month annualised rate rose to 3.5% from 3.2%.
• US Cleveland Fed CPI (Jan) 0.5% (Prev. 0.4%, Rev. 0.3%)

FX

• USD surged and the DXY approached just shy of the 105.00 level following a hot US CPI report which pushed back money market pricing on rate cuts with the chance of a March 25bps rate cut now at 8% vs 13.5% pre-data and just 86bps of cuts are now priced for this year vs 113bps prior to the data.
• EUR gave way to the firmer dollar and slumped towards 1.0700 where support just about held.
• GBP reversed the earlier advances that were facilitated by firmer-than-expected UK wage metrics.
• JPY climbed back above the 150.00 level as US yields rose following the hot US CPI print.

FIXED INCOME

• Treasuries were pressured and yields ripped to new YTD highs after above-forecast CPI figures; Fed cut expectations tumble.

COMMODITIES

• Oil prices despite the firmer dollar, with hot CPI figures and geopolitical angst on the radar.
• US Energy Inventory Data (bbls): Crude +8.5mln (exp. +2.6mln), Gasoline -7.2mln (exp. -1.2mln), Distillate -4.0mln (exp. -1.6mln), Cushing +0.5mln.

GEOPOLITICAL

• Israeli Channel 12 reported that the Israeli delegation left talks without any indication of progress, although an Egyptian source told Al Arabiya that the atmosphere of the Cairo quartet meeting was positive and that negotiations will continue over the next three days.
• Negotiators in Cairo were reportedly moving forward without reaching a final agreement yet, while a Hamas source said they consider the next 24 hours of exchange and ceasefire talks crucial, according to CNN cited by Sky News Arabia.
• Israel and Hamas were reportedly making progress in ceasefire and hostage release talks, while a senior Egyptian official said mediators have achieved what he described as “relatively significant” progress in the negotiations between Israel and Hamas prior to the meeting in Cairo. Furthermore, a Western diplomat in the Egyptian capital also said a six-week deal was on the table but cautioned that more work is still needed to reach an agreement.
• Israel’s Chief of Staff said the war has changed and that it was difficult at first, while they now have turned to the offensive, according to Al Jazeera.
• Hezbollah’s chief threatened a further displacement of residents in northern Israel and said hostilities along the Lebanon-Israel border will stop when Israeli aggression on Gaza stops, according to Reuters.
• US Navy seized a smuggling boat that came out of Iran which was carrying weapons in the Arabian Sea, according to Al Arabiya.
• Iranian Revolutionary Guards warned that if the enemy hits their ships, they will hit the same number or more, according to Sky News Arabia citing Tasnim.
• Russian President Putin's suggestion of a ceasefire in Ukraine was rejected by the US, according to Reuters citing Russian sources.

ASIA-PAC

NOTABLE HEADLINES

• MSCI is removing 66 companies from its MSCI China Index and with the changes to also apply to the MSCI ALL Country World Index effective at the close on February 29th, while the companies to be removed include Gemdale, Greentown China Holdings, China Southern Airlines and Ping An Healthcare, according to Bloomberg.
• UK Foreign Minister Cameron is expected to meet Chinese Foreign Minister Wang Yi for the first time since Cameron became Foreign Minister, according to the Guardian.
• Brussels is reportedly preparing to sanction four Chinese entities which it believes are helping the Kremlin buy European dual-use goods, according to a draft of the proposal cited by Politico.

EU/UK

NOTABLE HEADLINES

• ECB's Lane said they are moving in the right direction in reducing inflation with the price trend good and the next move is a rate cut but the timing will depend on the data. Lane added it would be a risk to embark on rate cuts too early or too late and suggested the amount of interest rate cuts will depend on progress towards the price goal.
• EU Commission is seeking views from member states on where consolidation is required within financial services and could need to end the "excessive reliance" on such services from outside the bloc.
• Germany's federal government is to lower its 2024 growth forecast to 0.2%, according to a Reuters source.

DATA RECAP

• UK Employment Change (Dec) 72k (Prev. 73k)
• UK ILO Unemployment Rate (Dec) 3.8% vs. Exp. 4.0% (Prev. 3.9%)
• UK Average Weekly Earnings 3M YY (Dec) 5.8% vs. Exp. 5.6% (Prev. 6.5%, Rev. 6.7%)
• UK Average Earnings (Ex-Bonus)(Dec) 6.2% vs. Exp. 6.0% (Prev. 6.6%, Rev. 6.7%)
• EU ZEW Survey Expectations (Feb) 25.0 (Prev. 22.7)
• German ZEW Economic Sentiment (Feb) 19.9 vs. Exp. 17.5 (Prev. 15.2)
• German ZEW Current Conditions (Feb) -81.7 vs. Exp. -79.0 (Prev. -77.3)