US stocks and bonds pare post-CPI extremes after the Fed downplayed the impact of one report - Newsquawk Asia-Pac Market Open

• US stocks and bonds rebounded as markets pared some of the post-CPI extremes which helped the S&P 500 to just about reclaim the 5k status, while the gains were helped after the Fed appeared to downplay the impact of the hot January CPI report as Fed Chair Powell told Congress in a closed-door meeting that the inflation data was consistent with what they had been anticipating and they will be looking to the PCE report to give them more intel, while Fed's Goolsbee also stated it is still clear that inflation is coming down.
• USD mildly softened following the prior day's CPI-induced surge and after DXY failed to breach above 105.00, while PPI revisions saw little reaction and the buck also largely ignored a report of Fed Chair Powell downplaying the recent hotter-than-expected CPI data to Congress.
• Looking ahead, highlights include Japanese GDP, Australian Jobs Data, Singapore GDP, Speeches from RBA Governor Bullock and Fed's Bostic, Holiday Closure in Mainland China.

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LOOKING AHEAD

• Highlights include Japanese GDP, Australian Jobs Data, Singapore GDP, Speeches from RBA Governor Bullock and Fed's Bostic, Holiday Closure in Mainland China.
• Click here for the Newsquawk Week Ahead.

US TRADE

• US stocks and bonds rebounded as markets pared some of the post-CPI extremes which helped the S&P 500 to just about reclaim the 5k status, while the gains were helped after the Fed appeared to downplay the impact of the hot January CPI report as Fed Chair Powell told Congress in a closed-door meeting that the inflation data was consistent with what they had been anticipating and they will be looking to the PCE report to give them more intel, while Fed's Goolsbee also stated it is still clear that inflation is coming down.
• SPX +0.96% at 5,000, NDX +1.18% at 17,807, DJIA +0.40% at 38,424, RUT +2.44% at 2,012.
• Click here for a detailed summary.

NOTABLE HEADLINES

• Fed Chair Powell told Congress after the CPI report that the inflation data was "consistent with what they had been anticipating" and the Fed will look to the upcoming PCE report to give them more intel, according to Politico citing Rep. Stephen Lynch.
• Fed's Waller (voter) said one lesson from 2020 is that forward guidance should be more flexible and perhaps should also signal a possible path of the policy rate.
• Fed's Goolsbee (non-voter) said even if inflation comes in a bit higher over the next few months, it is still consistent with the Fed's path back to the target and he does not support waiting until inflation is already at 2.0% on a 12-month basis before cutting rates. Goolsbee added that rate cuts should be tied to confidence in being on a path towards the target and that CPI data was puzzling which is something he is watching but also stated it is totally clear that inflation is coming down when looking at annualised figures.
• US Treasury Secretary Yellen, addressing the market reaction to CPI, said it is a tremendous mistake to focus on minor fluctuations and inflation overall is coming back down to normal levels. Yellen also said they know there's more work to do, but good jobs are being created all over the US.
• WSJ’s Timiraos noted “Forecasters who translate the CPI into the PCE are currently tracking January core PCE to rise 0.3%, which would lower the 12-month rate to 2.7%", while he added that these figures are preliminary and could change after the PPI is released on Friday.
• US President Biden's 2025 defence budget proposes an 18% cut in the number of F-35 jets (LMT) the Pentagon buys in which the order would be a USD 1.6bln drop in spending on jets, according to Reuters sources.

DATA RECAP

• US December PPI was revised to -0.2% (prev. -0.1%)
• US December Core PPI was unrevised at -0.1%.

FX

• USD mildly softened following the prior day's CPI-induced surge and after DXY failed to breach above 105.00, while PPI revisions saw little reaction and the buck also largely ignored a report of Fed Chair Powell downplaying the recent hotter-than-expected CPI data to Congress.
• EUR edged marginal gains amid the softer dollar and with support around the 1.0700 level, while the data showed EU Flash Q4 GDP matched estimates but Employment and Industrial Production topped forecasts.
• GBP was pressured and retreated to a sub-1.2600 level after softer-than-expected UK CPI data.
• JPY eked slight gains owing to the dollar moves and softer US yields, although price action was limited and USD/JPY remained above 150.00 despite the recent jawboning by Japanese officials.

FIXED INCOME

• Treasuries bull-steepened in a gradual post-CPI recovery with corporate supply weighing out the curve.

COMMODITIES

• Oil prices declined following a much larger than expected build in EIA headline crude inventories and despite the continued geopolitical angst.
• US EIA Weekly Crude Stocks 12.0M vs. Exp. 2.0M (Prev. 5.5M)
• Iraq agreed with some OPEC members on new additional voluntary cuts starting January 2024 and it is committed to voluntary cuts agreed to in the last OPEC+ meeting, according to an Iraqi cabinet statement. Furthermore, Iraq’s Oil Minister said they will revise and correct increases in crude production if found in the coming four months to abide by the OPEC+ agreement.

GEOPOLITICAL

• Israeli PM Netanyahu said there is no new proposal from Hamas in Cairo on a hostage deal and only a change in its position will allow progress. Netanyahu also said they will fight until complete victory which includes a strong operation in Rafah after allowing civilians to leave the combat zone.
• Israeli PM Netanyahu refused to approve the visit of an Israeli delegation to Cairo tomorrow to complete negotiations, according to Sky News Arabia.
• Israeli Chief of Staff said if a war breaks out in the north, the army will use all of its tools and capabilities, according to Al Arabiya.
• Israeli Minister of National Security called on PM Netanyahu to hold an urgent meeting and said the shelling from Lebanon is not sporadic strikes but an actual war, according to Al Jazeera.
• Israeli army announced it began a series of strikes on Lebanon, according to Sky News Arabia.
• US is investigating several Israeli airstrikes in Gaza that killed dozens of civilians and Israel’s possible use of white phosphorus in Lebanon as part of a probe by the State Department, according to WSJ citing officials.
• US officials told Iran that Washington would attack Iranian sites if there was an escalation and President Biden put striking targets inside Iran among the options in the event of escalation, according to Al Arabiya citing sources.
• US House intelligence committee chair warned of a 'serious national security threat' and called on President Biden to declassify all information related to this threat. It was later reported that House Speaker Johnson said there is no need for public alarm on the security threat and a Pentagon official said the national security threat is related to space. Furthermore, sources cited by ABC said the warning of an unidentified 'national security threat' is about Russia wanting a nuke in space.
• Russia’s Kremlin refuted a Reuters report that Russian President Putin suggested a Ukraine ceasefire. It was separately reported that Russian Foreign Minister Lavrov said Russia remains open to a political-diplomatic settlement with Ukraine, taking into account its interests, according to Sky News Arabia.

EU/UK

NOTABLE HEADLINES

• BoE Governor Bailey said the latest inflation data shows more downward pressure than the BoE expected and is good news, while overall inflation data leaves the BoE broadly where it is expected to be and the data does not really change the view from the February meeting. Bailey also said he is quite sceptical about forward guidance and trying to guide market expectations, while he added that forward guidance tends to overstay its welcome.
• ECB's de Guindos said incoming data continues to signal weakness in the near term and some forward-looking survey indicators point to a pick-up in growth further ahead, while the deflationary process is continuing and it will take some more time before the ECB has the necessary information. ECB's de Guindos also said wage pressures remain high and they do not yet have sufficient data to confirm they will start to ease.
• ECB's Makhlouf said he is confident about reaching the 2.0% inflation goal and is open-minded on the rate path.
• ECB's Nagel said inflation is going in the right direction but it is not there yet, while Nagel also said there's a lot to do for the German economy which may have contracted in Q1.
• ECB's Vujcic said the ECB seems to be getting the inflation fight right.
• German Economy Minister said Germany’s economic recovery may be delayed further by strikes, geopolitics and weak foreign demand, while inflation-dampening factors in Germany are likely to persist over the rest of the year.
• German government expects GDP to grow by 1% in 2025 (prev. forecast 1.5% in October) and sees inflation at 2.8% in 2024 and 1.9% in 2025, according to Reuters via government sources.

DATA RECAP

• UK CPI YY (Jan) 4.0% vs. Exp. 4.2% (Prev. 4.0%)
• UK Core CPI YY (Jan) 5.1% vs. Exp. 5.2% (Prev. 5.1%)
• EU Employment Flash QQ (Q4) 0.3% vs. Exp. 0.2% (Prev. 0.2%)
• EU Employment Flash YY (Q4) 1.3% vs. Exp. 1.1% (Prev. 1.3%)
• EU GDP Flash Estimate QQ (Q4) 0.0% vs. Exp. 0.0% (Prev. 0.0%)
• EU GDP Flash Estimate YY (Q4) 0.1% vs. Exp. 0.1% (Prev. 0.1%)
• EU Industrial Production MM (Dec) 2.6% vs. Exp. -0.2% (Prev. -0.3%, Rev. 0.4%)
• EU Industrial Production YY (Dec) 1.2% vs. Exp. -4.1% (Prev. -6.8%, Rev. -5.4%)