US stocks declined as some of dovish rate cut bets unwound - Newsquawk Asia-Pac Market Open

• US stocks were pressured amid the unwinding of central bank rate cut pricing following a slew of hawkish economic data including a hot UK CPI report and large beats in US Retail Sales, while there was a further ECB pushback against imminent cuts.
• USD initially rallied and printed an intraday high of 103.69 as Fed rate cuts pricing unwound following the US Retail Sales printed stronger than expected on all metrics, while Industrial Production, Import Prices and the NAHB Housing Index also topped forecasts, although the dollar then gradually pared most of its gains.
• Looking ahead, highlights include Japanese Machinery Orders, Australian Jobs Data, Supply from Japan.

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LOOKING AHEAD

• Highlights include Japanese Machinery Orders, Australian Jobs Data, Supply from Japan.
• Click here for the Newsquawk Week Ahead.

US TRADE

• US stocks were pressured amid the unwinding of central bank rate cut pricing following a slew of hawkish economic data including a hot UK CPI report and large beats in US Retail Sales, while there was a further ECB pushback against imminent cuts.
• SPX -0.56% at 4,739, NDX -0.56% at 16,736, DJI -0.25% at 37,267, RUT -0.73% at 1,913.
• Click here for a detailed summary.

NOTABLE HEADLINES

• Fed's Beige Book January stated a majority reported little change in activity since the November report, while lower rates were cited as a source of optimism and signs of a cooling labour market were also cited. Furthermore, wage growth is expected to fall further and there are mixed inflation expectations.
• Fed's Bowman (voter) said a proposal to hike bank capital requirements needs substantive changes to address known deficiencies and she is cautiously optimistic policymakers can strike a reasonable compromise on bank capital rule writing.
• US Senate Majority Leader Schumer said if both sides continue to work in good faith, the Senate could pass the Continuing Resolution by Thursday, according to Punchbowl's Sherman.

DATA RECAP

• US Industrial Production MM (Dec) 0.1% vs Exp. 0.0% (Prev. 0.2%, Rev. 0.0%)
• US Capacity Utilization SA (Dec) 78.6% vs. Exp. 78.7% (Prev. 78.8%, Rev. 78.6%)
• US Retail Sales MM (Dec) 0.6% vs. Exp. 0.4% (Prev. 0.3%)
• US Retail Control (Dec) 0.8% vs. Exp. 0.2% (Prev. 0.4%, Rev. 0.5%)
• US Export Prices MM (Dec) -0.9% vs. Exp. -0.6% (Prev. -0.9%)
• US Import Prices MM (Dec) 0.0% vs exp. -0.5% (prev. -0.4%, rev. -0.5%)
• US Retail Inventories Ex-Auto Rev. (Nov) -0.9% (Prev. -0.8%)
• US Business Inventories MM (Nov) -0.1% vs. Exp. -0.1% (Prev. -0.1%)
• US NAHB Housing Market Index (Jan) 44.0 vs. Exp. 39.0 (Prev. 37.0)

FX

• USD initially rallied and printed an intraday high of 103.69 as Fed rate cuts pricing unwound following the US Retail Sales printed stronger than expected on all metrics, while Industrial Production, Import Prices and NAHB Housing Index also topped forecasts, although the dollar then gradually pared most of its gains.
• EUR was pressured in early trade amid dollar strength and hawkish rhetoric from ECB officials.
• GBP strengthened to just shy of the 1.2700 handle against the buck after hot CPI data spurred a hawkish shift with markets pricing just 100bps of easing this year vs. 123bps of cuts priced in pre-data.
• JPY notably weakened and USD/JPY climbed back above 148.00 following the firmer-than-expected US data which resulted in a further widening of yield differentials.
• SNB's Jordan said conditions are currently adequate and that CHF is now appreciating in real terms which pushes inflation down, while he added that CHF is stronger and needs to be taken into account.

FIXED INCOME

• Treasuries bear-flattened after hawkish ECB speak and hot UK CPI was followed by hot US Retail Sales.

COMMODITIES

• Oil prices were ultimately little changed after reversing the initial losses from Europe and Asia.
• US Energy Inventory Data (bbls): Crude +0.5mln (exp. -0.3mln), Gasoline +4.9mln (exp. +2.2mln), Distillates +5.2mln (exp. +0.9mln), Cushing -2.0mln.
• OPEC MOMR for January noted 2024 world oil demand forecast was maintained at 2.2mln BPD, while 2025 world oil demand growth is seen at 1.8mln BPD.
• IEA's Birol said the oil market will be in a comfortable state in 2024, barring major geopolitical surprises, while Red Sea disruptions have had a limited oil price effect as output is not impacted.
• Saudi Aramco CEO said Red Sea attacks are manageable in the short-term but may create a tanker shortage and weigh on the market if it lasts longer.

GEOPOLITICAL

• US Department of Defense official told Sky News Arabia that "Houthis in Yemen have prepared plans to target US bases in the Arab region".
• US official confirmed that the US is designating Yemen's Houthis as specially designated terrorists, while the US remains committed to resolving the conflict in Yemen and supports efforts by Saudi, Oman and others to reach a durable ceasefire.
• Yemen's Houthis spokesman said the US designation will not affect its position and attacks on ships heading to Israel will continue.
• Yemeni Foreign Minister said the capabilities of the Yemeni Coast Guard must be supported to confront Houthi threats and the Houthi group must change its behaviour and follow a peaceful approach.
• UKMTO received a report of an incident 60 nautical miles southeast of Yemen's Aden in which a vessel was hit and a fire occurred but had since been extinguished.
• Iranian Foreign Minister said they are witnessing an expansion of the conflict in the Middle East, according to Al Jazeera.
• Iran’s Defence Minister said Iran is engaged in talks with Russia over concluding an MoU on respect for national sovereignty, territorial integrity and regional interests, according to journalist Aslani via X.
• Russia's Defence Ministry said Russia carried out a high-precision strike on the temporary deployment of foreign fighters in Kharkiv.
• Taiwan's Defence Ministry said they detected 18 Chinese air force planes around Taiwan on Wednesday and the aircraft were undertaking joint combat readiness patrols with Chinese warships.
• Philippines is to ramp up US military ties amid an "aggressive China", according to Bloomberg.

ASIA-PAC

NOTABLE HEADLINES

• China drafted guidelines on formatting standards for the AI sector and is to establish over 50 national/industry-wide standards by 2026.
• US Secretary of State Blinken said they are dealing very directly and clearly with China on businesses and despite differences, there are places to cooperate more.
• Former BoJ official Maeda said the BoJ could end NIRP in April but will likely move slowly in any additional normalisation steps, according to Reuters.

EU/UK

NOTABLE HEADLINES

• ECB President Lagarde said inflation is not where the ECB wants it to be and is confident the ECB will get inflation to the 2% target, while they will stay restrictive for as long as necessary. Furthermore, she said it is likely that the ECB will cut rates by the summer.
• ECB’s Knot said markets are getting ahead of themselves on rate cuts and a lot must go well to hit the 2% inflation in 2025, while he added that a rate path priced by markets can be self-defeating and that a rate hike in the first half is rather unlikely, according to CNBC.
• ECB's Nagel said the German outlook for 2024 appears to be a little better and the ECB has achieved a lot on inflation but added that core inflation remains rather sticky. Nagel also stated rate cuts will come sooner or later and should wait for incoming data before deciding on rates, according to Bloomberg.
• ECB's Panetta said disinflation is happening which is strong and will continue, while he added risks are emerging for raw material costs. Furthermore, he said that monetary conditions should adjust and is awaiting data first to confirm the disinflation outlook.
• ECB's Simkus said the probability of a rate cut is to rise markedly after April and in any case, the first cut is likely with a "high probability" before the summer break. Simkus added the probability of a cut won't turn significant until June and there will be no cut in March unless there is a huge surprise, while April is only slightly likelier.
• ECB's Vasle said his rate expectations are significantly different to the market and it is absolutely premature to expect rate cuts at the start of Q2.
• ECB's Villeroy said the job of monetary policy is not finished yet and it is premature to say when the ECB will reduce rates this year.

DATA RECAP

• UK CPI YY (Dec) 4.0% vs. Exp. 3.8% (Prev. 3.9%)
• UK Core CPI YY (Dec) 5.1% vs. Exp. 4.9% (Prev. 5.1%)
• EU HICP Final MM (Dec) 0.2% vs. Exp. 0.2% (Prev. -0.6%)
• EU HICP Final YY (Dec) 2.9% vs. Exp. 2.9% (Prev. 2.9%)