One day after the S&P had its worst day since Dec 15, failing to hold the 200dma, US equity futures entered Thursday extending recent losses with a third straight session in the red as renewed recession fears and the start of the earnings season weighed on risk appetite, sparking a risk-off tone that spread across global markets, from Japanese shares to oil contracts, sent bond yields lower and hit commodities. Pre-market Mega Caps and Metals/Miners were the biggest laggards. The dollar was flat, the VIX jumped above 21, and 10Y yields reversed earlier losses. The macro focus for today includes housing data, Philly Fed, and 3x Fedspeakers. Plus, there is a 10Y TIPS auction and NFLX kicks off MegaCap Tech earnings.

Contracts on the S&P 500 edged down 0.8% as of 7:30 a.m. ET and contracts for the Nasdaq 100 lost 0.7%.Stoxx 600 gauge halted a six-day rally. Most Treasuries erased gains, and the euro advanced, as hawkish remarks by ECB Governing Council member Klaas Knot reaffirmed the central bank's aggressive stance.

In pre-market trading, Discover Financial Services tumbled 6.4% as the company reported higher-than-forecast charges for the fourth quarter. Roblox Corp. slumped after the global gaming platform’s stock was downgraded to underweight from equalweight at Morgan Stanley, which expects slower bookings growth in the second half of the year. Freeport McMoRan also fell as copper resumed its losses. Philip Morris rose 1.2% after Jefferies upgraded the stock to buy, citing the outlook for reduced-risk products in the tobacco industry. Here are other notable premarket movers:

• Alcoa shares slide 6.5% in US premarket trading after the aluminum and bauxite producer’s adjusted Ebitda for the fourth quarter fell short of analyst expectations, stoking worries that lower prices for aluminum and higher material and production costs were taking their toll.
• CureVac gains 10% as UBS upgrades the stock to buy and more than doubles its price target, calling the Jan. 6 announcement on messenger RNA vaccines for flu and Covid-19 a “major de-risking” event.
• Keep an eye on Chegg Inc. as KeyBanc Capital Markets analyst Jason Celino raised the recommendation to overweight from sector weight, citing Ebitda margin upside over the next 12 months.
• Watch Alpine Immune Sciences after it was initiated with an overweight rating at Morgan Stanley, which said the biotech’s ALPN-303 treatment for autoimmune diseases is “underappreciated” and has broad potential.
• Oppenheimer says it expects the US housing market to get worse before it gets better but that the backdrop is not as bad for homebuilder stocks as investors may expect. It initiates PulteGroup (PHM US) and Toll Brothers (TOL US) at outperform, Tri Pointe (TPH US) and DR Horton (DHI US) at perform.

The S&P 500 had gained more than 4% in the first two weeks of the year on bets of easing inflation and as China reopens from Covid restrictions, a near-record short squeeze - which is now reversing - also helped. But this rally is now beginning to fizzle as data releases signal a decisive slowdown in the rest of the world. Reports from the US showed declines in consumer demand and business investment, boosting the probability of a recession in the world’s largest economy. That, however, didn’t deter Federal Reserve officials from reaffirming the need for tighter monetary policy.

St. Louis Fed President James Bullard said policy was not yet in restrictive territory and projected a forecast rate of up to 5.5% by the end of the year in the Fed’s dot plot projections. is “almost” in restrictive territory but not quite. Cleveland Fed President Loretta Mester said the Fed needs “keep going” and Philadelphia Fed chief Patrick Harker repeated his view of lifting interest rates in quarter-point increments “going forward.”

“This weakness in equity markets will continue a bit longer in this first quarter of the year as the market reprices what the Fed will do,” Sailesh Jha, the chief economist and head of market research for RHB Banking Group, said in an interview with Bloomberg Television.

“We think it remains possible that the rally is a ‘head fake,’ and that economic data will ultimately disappoint,” said UBS Global Wealth Management strategists, including Mark Haefele. “It remains too early to assume that the inflation threat has fully passed.”

European stocks are lower and on course to snap a six-day winning streak - the longest streak of gains since November 2021 - as evidence mounts of a slowdown in global growth. The Stoxx 600 is down 1.1% with miners, energy and consumer products leading declines. European Central Bank President Christine Lagarde said on Thursday that inflation remains far too elevated, vowing that policymakers won’t let up in their efforts to return price growth to the target. Here are the biggest European movers:

• Belimo shares rise as much as 6.3% after FY22 sales beat consensus and the company’s own expectations, according to Baader, which expects another good year for the Swiss firm
• Auto Trader shares rise as much as 3.4% after Goldman Sachs raised its recommendation to buy from neutral, citing appealing valuations and recovering auto sales revenue
• Meltwater shares rise as much as 33%, to NOK17.65, after Altor and Marlin said they intend to offer NOK18 per share for the application software company
• Deliveroo shares jump as much as 8.6% after the food delivery firm says its adj. Ebitda was almost breakeven in 1H, previously guided to be between 2H 2023 and 1H 2024
• Hypoport rises as much as 9.7% on Thursday after Hauck & Aufhaeuser double upgrades to buy from sell and lifts price target by almost 180% on “game changing” messages in its 4Q report
• Virbac shares jumped as much as 6.7% after the French health-care services provider reported positive fourth-quarter sales and outlook after the market close on Wednesday
• Allfunds shares fall as much as 7.5% as HSBC cuts its rating on the wealth platform to hold from buy, saying 2023 is likely to remain challenging
• Orsted shares drop as much as 4.1% after Oddo downgraded the Danish utility to neutral from outperform, citing a fairly uninspiring outlook and no margin for error in the last quarter
• Boohoo shares drop as much as 8%, the most since Dec. 14, after the online clothing retailer said in a trading update that it would see a year-on-year decline in revenue
• Metso Outotec shares slip as much as 3.1%, the most since Dec. 7, as Pareto cuts the mining and industrial equipment group to hold from buy after a strong recent performance

Earlier in the session, Asian stocks fell as Japanese shares gave back the gains made after the central bank left policy settings unchanged Wednesday, while Chinese tech giants retreated on worries about insider selling. The MSCI Asia Pacific Index dropped as much as 0.9% on Thursday, poised to snap a two-day rally. Japanese equities were the biggest drags to the regional benchmark as weak economic data from the US raised concerns over a slowdown and as the yen strengthened. The Topix Index fell 1% to 1,915.62 as of the 3 p.m. market close in Tokyo, while the Nikkei 225 declined 1.4% to 26,405.23. Toyota Motor contributed most to the Topix’s loss, decreasing 2.4%. Out of 2,161 stocks in the index, 596 rose and 1,436 fell, while 129 were unchanged. “In the end, it all comes down to the big question of how the US economy is doing,” said Ryuta Otsuka, a strategist at Tokyo Securities. “The US earnings season has just started and we will watch the overall movement of US stocks.” A gauge of Chinese technology stocks fell more than 1% after Kuaishou Technology’s co-founder sold some of his stake, fueling concerns that corporate insiders may be cashing out after the sector’s recent rally.

“In general, the market is concerned about the perception of an insider opportunistically selling after a recent rally. This concern is compounded when someone significant like a co-founder is selling,” said Justin Tang, head of Asian research at United First Partners. The soft US retail sales in December also added to concerns about economic growth, countering optimism that the Federal Reserve may start to ease its monetary tightening. That might create headwinds for Asian equities after their outperformance over US and European peers in the past few months. “Tempering optimism with cautionis not just prudent, but arguably necessary,” said Vishnu Varathan, Asia head of economics and strategy at Mizuho Bank Ltd. “Further tightening into 2023 will necessarily build on tail risks of a hard landing that accompanies a tightening cycle as pronounced as this one.”

Australian stocks gained: the S&P/ASX 200 index rose 0.6% to close at 7,435.30, swinging from an earlier loss, after employment unexpectedly fell last month while the jobless rate remained unchanged, sending the currency and bond yields lower as traders pared bets on a February interest-rate increase. The benchmark closed the highest since April 22, boosted by strength in mining shares and banks.  In New Zealand, the S&P/NZX 50 index fell 0.3% to 11,885.64. Earlier, the nation’s Prime Minister Jacinda Ardern announced she is stepping down in a shock resignation ahead of a general election later this year

India stocks declined as earnings of makers of consumer staples and durables continue to signal slowing consumption, while elevated costs weaken sentiment. The S&P BSE Sensex fell 0.3% to 60,858.43 in Mumbai, while the NSE Nifty 50 Index eased by a similar measure. For the week, the gauges have ease risen nearly 1%, mainly helped by software exporters, as most of reported strong profit growth for the latest quarter.  Asian Paints fell 2.7% as India’s biggest paint producer reported December-quarter earnings that trailed analysts’ estimates, with the company saying that extended monsoon impacted its volumes, sapping sales. Reliance Industries will release numbers on Friday. Fourteen of the 20 sector sub-gauges compiled by BSE Ltd. declined, led by utilities, while oil & gas index was the top gainer, helped by advances in state-run oil marketers that benefit from easing crude prices

In FX, the BBG Dollar Index was little changed and the greenback traded mixed against its Group-of-10 peers, while the yen is the best performer among the G-10s, rising 0.4% versus the greenback; the euro adds 0.3% after ECB’s Knot said he expects multiple 50bps hikes. His comments also pushed German 10-year bonds into negative territory while the US and UK equivalents hold on to small gains.

• The euro rose to a day-high and the region’s front-end yields extended a rise after ECB Governor Christine Lagarde reaffirmed ambitions to get inflation back to target. ECB Governing Council member Klaas Knot earlier said there’ll be more than one half-point increase in interest rates, with the inflation situation still “not satisfactory”. Money markets rapidly added further tightening bets
• The pound pared Wednesday’s rally. House prices in the UK slid for a third consecutive month in December according to a survey by the Royal Institution of Chartered Surveyors, which adds to concerns that the nation’s housing market is likely to tumble this year. The gilt curve twist-flattened
• Norway’s krone pared losses after the central bank kept its policy unchanged, as forecast by the majority of economists in a Bloomberg survey. It signaled a likely quarter- point increase in borrowing costs in March is still needed to bring inflation under control
• The Aussie and Kiwi were the worst G-10 performers. The Aussie dropped nearly 1% to a one-week low of 0.6875, after data showed employers cut jobs in December, when economists expected a job gain of 25,000. Australia’s bonds extended opening gains and traders dialed back expectations of a February rate hike
• The yen strengthened as US yields dropped. Japan’s bonds were mixed. An auction of new 20-year debt received strong demand
• Foreign selling of Japan’s bonds accelerated in the past week as the yield on the benchmark 10- year government bond rose and the Japanese yen strengthened

In rates, Treasuries initially advanced across the curve, but later gave up the gains. As of 8:00am ET, Treasuries from belly to long-end are slightly cheaper on the day after erasing gains. Slide was led by bunds following hawkish remarks by European Central Bank Governing Council member Klaas Knot. Asia-session gains tracked a rally in Australian bonds sparked by weak employment data. US front-end yields are little changed with longer maturities cheaper by 1bp-2bp, steepening 2s10s spread by ~2bp; 10-year around 3.39% lags German counterpart by ~3bp. Treasury auctions Thursday include $17b 10-year TIPS sale at 1pm New York time. The dollar issuance slate includes two deals so far; Wednesday volumes were light given many corporate issuers are in self- imposed quiet periods before reporting earnings.

In commodities, oil fell for a second day as traders had to contend with US recession worries as well as another build in inventories. West Texas Intermediate dropped below $79 a barrel after declining almost 1% on Wednesday. IEA's head Birol says he does not see tightness in (the oil) market currently but have to be aware of uncertainties, via Reuters; may see tighter markets in 2023, more than some others may think. If China's economy rebounds this year as expected, will see stronger demand that will pressure the market. Russian oil exports seem more resilient than initially thought but will fall further in Q1 and beyond. Spot gold rises roughly $6 to trade near $1,910/oz. Copper fell 1.4% in London trading

Bitcoin is little changed overall with numerous speakers ahead including ECB's Knot explicitly on crypto, currently holding within USD 20.6k-20.8k parameters.

Looking to the day ahead now, and central bank speakers include ECB President Lagarde, the ECB’s Knot, Fed Vice Chair Brainard, and the Fed’s Collins and Williams. In addition, the ECB will be publishing the account of their December meeting. Otherwise, US data releases include the weekly initial jobless claims, December’s housing starts and building permits, along with the Philadelphia Fed’s business outlook survey for January. Finally, earnings releases include Procter & Gamble and Netflix.

Market Snapshot

• S&P 500 futures down 0.4% to 3,930.00
• STOXX Europe 600 down 0.7% to 454.23
• MXAP down 0.5% to 166.17
• MXAPJ down 0.3% to 544.50
• Nikkei down 1.4% to 26,405.23
• Topix down 1.0% to 1,915.62
• Hang Seng Index down 0.1% to 21,650.98
• Shanghai Composite up 0.5% to 3,240.28
• Sensex down 0.3% to 60,889.40
• Australia S&P/ASX 200 up 0.6% to 7,435.31
• Kospi up 0.5% to 2,380.34
• German 10Y yield little changed at 2.03%
• Euro up 0.3% to $1.0821
• Brent Futures down 0.8% to $84.30/bbl
• Brent Futures down 0.8% to $84.30/bbl
• Gold spot up 0.4% to $1,911.05
• U.S. Dollar Index down 0.18% to 102.17

Top Overnight News from Bloomberg

• UBS Asset Management and Schroders Plc are sticking with bets Japanese government bond yields will rise on the expectation the BOJ will eventually stop capping the 10-year benchmark at 0.5%, even after it kept the so-called curve control policy unchanged Wednesday. Torica Capital Pty also expects the central bank to fall in line and shift toward the global trend of raising rates
• The best start to a year for bond returns is helping fuel an unprecedented debt-sale bonanza by governments and companies around the world of more than half a trillion dollars
• Strikes coordinated by French unions aim to bring much of the country to a standstill on Thursday in a protest against government plans to revamp the pension system and a test of president Emmanuel Macron’s ability to resist street pressure
• Foreign funds sold a record amount of Chinese bonds in 2022 mainly due to the nation’s wide yield gap with the US. Analysts are now weighing the outlook for the nation’s debt amid a potential Federal Reserve pivot and a reopening-led jump in yuan bond yields

A more detailed look at global markets courtesy of Newsquawk

APAC stocks were mixed with most major indices rangebound following the negative lead from Wall St, where risk sentiment deteriorated after a slew of disappointing US data and hawkish Fed rhetoric. ASX 200 climbed above 7,400 with the index led by miners after an increase in BHP’s quarterly iron ore output although gains were capped by disappointing jobs data and losses in the energy sector amid a pullback in oil prices and with Santos pressured due to a reduction in its FY output guidance. Nikkei 225 underperformed after markets mostly faded the BoJ-rally with many viewing the central bank’s decision to refrain from policy adjustments as a fleeting effort to delay the inevitable. Hang Seng and Shanghai Comp swung between gains and losses with price action cautious as the upside in the property sector counterbalanced the notable weakness in the large tech names.

Top Asian News

• Chinese President Xi expressed concern about the spread of COVID-19 to rural areas as China heads towards the Lunar New Year, according to FT.
• Hong Kong Chief Executive Lee said the government will scrap the quarantine order for people infected with COVID-19 from January 30th, according to Reuters.
• New Zealand PM Ardern announced to step down on February 7th and the Labour party is to vote on a new leader on January 22nd which Deputy PM Robertson will not stand in. Furthermore, PM Arden said she no longer has enough in the tank to do the job justice and that the general election will be held on October 14th.
• China is preparing for a new trading link with Hong Kong for foreigners to hedge bonds; PBoC shared draft riles for the Swap Connect to Chinese financial institutions last month, according to Bloomberg citing sources.

European bourses are pressured across the board, Euro Stoxx 50 -1.2%, as ECB officials continue to pushback on dovish reports. Sectors are all in the red with Basic Resources and Energy names lagging given underlying commodity pricing. US futures are lower across the board, as the ES continues to move below 4k ahead of more earnings and key Fed speak, ES -0.5%.

Top European News

• ECB'S Knot says market developments of late are not entirely welcome, via CNBC; ECB won't stop after a single 50bp hike, planning to hike by 50bp multiple times. No signs of underlying inflation pressures abating; core inflation shows no signs of abating. Currently only focused on the risk of doing too-little. Will be in "tightening mode" until at least mid-year.
• ECB President Lagarde says economic news has become much more positive; may only see a small contraction in GDP in the Eurozone; 2023 will be better than feared. Will stay the course with rate hikes.
• Irish PM Varadkar has said the 25th Anniversary of the Good Friday Agreement was not an absolute deadline in law for the EU and UK to secure agreement on the Northern Ireland Protocol, according to RTE's Connelly.

FX

• DXY was seemingly capped on approach to 102.50 amid a general downturn in risk with the USD facing pressure from the Euro and Yen.
• With the JPY continuing its post-BoJ reversal and EUR/USD comfortably reclaiming 1.08+ in wake of ECB's Knot pushing back on earlier dovish reports.
• Antipodeans are the stand-out laggards with Australian labour data and the unexpected resignations of New Zealand's PM contributing; AUD/USD sub-0.69 and NZD/USD sub-0.64.
• NOK experienced modest gyrations around 10.75 against the EUR post-Norges Bank, with this perhaps just an unwinding of the minority hawkish positioning going into the announcement.
• Norges Bank holds its Key Policy Rate at 2.75% (vs. split expectation for 25bps/Unch. but bias towards unchanged), decision was unanimous; "The policy rate will most likely be raised in March”. Subsequently, Governor Bache says they have not yet made new forecasts for rate developments beyond March.
• CBRT holds its Weekly Repo Rate steady at 9.00% as expected.
• PBoC set USD/CNY mid-point at 6.7674 vs exp. 6.7680 (prev. 6.7602).

Fixed Income

• EGBs and particularly Bunds have retreated from initial peaks and have dragged Gilts and USTs lower in tandem.
• Downside that was initially sparked by ECB's Knot sticking to his hawkish lines and thereafter irrespective of well covered French and Spanish issuance.
• USTs themselves have been dragged down to unchanged levels, with attention turning to a busy docket of Fed speak, with Brainard perhaps the highlight.

Commodities

• WTI and Brent March’23 futures are softer intraday with prices meandering around USD 0.50/bbl above APAC lows of USD 78.10/bbl and USD 83.76/bbl respectively.
• US Energy Inventory Data (bbls): Crude 7.6mln (exp. -0.6mln), Gasoline 2.8mln (exp. 2.5mln), Distillate -1.8mln (exp. 0.1mln), Cushing 3.7mln.
• Qatar Energy set March-loading Al-Shaheen crude term price at a premium of USD 1.37/bbl above Dubai quotes which is the lowest in 21 months, according to Reuters citing traders.
• IEA's head Birol says he does not see tightness in (the oil) market currently but have to be aware of uncertainties, via Reuters; may see tighter markets in 2023, more than some others may think. If China's economy rebounds this year as expected, will see stronger demand that will pressure the market. Russian oil exports seem more resilient than initially thought but will fall further in Q1 and beyond.
• LME CEO says there is untapped demand for trading in Asian hours, via CNBC.
• Spot gold mirrors Dollar action but the yellow metal found some overnight support around the USD 1,900/oz mark but remains off yesterday’s 1,925.79/oz peak.
• Citi released some metal forecasts this morning and upgraded its 0-3month copper and aluminium forecasts to USD 10k/T (prev. 7.8k/T) and USD 2.7k/T (prev. 2.35k/T) respectively.

Geopolitics

• US Secretary of State Blinken tweeted that the US announced an additional USD 125mln in funding to support Ukraine’s energy and electric grid against Russian attacks designed to leave millions without power during the winter months.
• US is finalising a large package of military aid to Ukraine which officials said will likely total as much as USD 2.6bln, according to AP.

US Event Calendar

• 08:30: Jan. Continuing Claims, est. 1.66m, prior 1.63m
• 08:30: Dec. Building Permits MoM, est. 1.0%, prior -11.2%, revised -10.6%
• 08:30: Dec. Housing Starts MoM, est. -4.8%, prior -0.5%
• 08:30: Dec. Building Permits, est. 1.37m, prior 1.34m, revised 1.35m
• 08:30: Jan. Initial Jobless Claims, est. 214,000, prior 205,000
• 08:30: Jan. Philadelphia Fed Business Outl, est. -11.0, prior -13.8, revised -13.7
• 08:30: Dec. Housing Starts, est. 1.36m, prior 1.43m

Central Bank Speakers

• 09:00: Fed’s Collins Speaks at Housing Conference
• 13:15: Fed’s Brainard Discusses the Economic Outlook
• 18:35: Fed’s Williams Speaks at Event in New York

DB's Jim Reid concludes the overnight wrap

Yesterday saw the biggest risk-off move so far in 2023, with equities slumping and sovereign bonds rallying after the latest US data magnified recession concerns and raised the prospect the Fed wouldn’t be as aggressive with their rate hikes as expected. In particular, the US PPI for December surprised substantially on the downside, adding to hopes that inflation was durably on the way down. That theme was then cemented by weak reports on retail sales and industrial production, which only added to the arguments in favour of the Fed easing up over the coming weeks. In turn, that spurred a big surge for Treasuries, with the 10yr yield down -17.8bps to 3.37%, and a further -4.9bps move overnight down to 3.32%. That means it’s now more than -100bps beneath its intraday high for this cycle of 4.34% back on October 21, whilst the S&P 500 (-1.56%) saw its biggest decline in a month.

When it comes to the specifics, the PPI release for December came in at -0.5% on a monthly basis (vs. -0.1% expected), and the previous month’s growth was also revised down a tenth to +0.2%. This came as a big surprise to markets, since it was beneath every economist’s estimate on Bloomberg, and it was also the fastest decline in monthly prices since April 2020 at the height of the pandemic. Furthermore, it took the year-on-year change down to +6.2% (vs. +6.8% expected), which is its weakest level since March 2021.

Alongside the PPI reading, we also had the latest retail sales data for December, which also surprised on the downside at -1.1% (vs. -0.9% expected), along with a four-tenths downward revision to November’s reading, which now shows a -1.0% contraction as well. For industrial production it was much the same story again, with a worse-than-expected contraction at -0.7% (vs. -0.1% expected), and a downward revision to the previous month.

With that downside surprise on the PPI data and the weaker-than-expected numbers elsewhere, investors moved to price in a less aggressive pace of rate hikes over the months ahead. In particular, the terminal rate priced in for June came down by -5.4bps to 4.86%, its lowest level so far this year, with a further decline of -1.7bps overnight to 4.84%. And looking further out, the rate priced in by end-2023 came down by -9.5bps to 4.35%, which again is the lowest of the year so far, with a further -3.7bps decline overnight to 4.31%.

When it came to Fed speakers, we heard from St. Louis Fed President James Bullard yesterday, who continued with his normally hawkish tone. He said that the policy rate was not yet in what he would call restrictive territory and that “policy has to stay on the tighter side during 2023.” He also noted that he expected fed funds to finish the year between 5.25% and 5.50%, and was in open to getting there quicker by increasing rates by 50bps at the next meeting. Cleveland Fed President Loretta Mester acknowledged that pricing pressures were moving the right way across different metrics but also that rates need to get higher. Finally, the latest Fed Beige Book pointed to expectations of easing inflation, saying that “contacts across districts said they expected future price growth to moderate further in the year ahead.” The report also held key information with regards to employment saying “firms hesitated to lay off employees even as demand for their goods and services slowed and planned to reduce headcount through attrition if needed.” This tracks with the recent economic data showing declining retail sales and robust payrolls.

The prospect of a less aggressive Fed led to a further rally in Treasuries, and as mentioned at the top 10yr yields came down -17.8bps to 3.37%. The moves were driven by lower real yields, with the 10yr real yield down by -13.6bps on the day to 1.24%. And the effects were evident elsewhere, with the dollar index (-0.03%) spending much of yesterday at its lowest level since May before recovering to finish with only a modest decline. Likewise, the Bloomberg index of US financial conditions eased to its most accommodative level since last February during European trading yesterday, before falling back as the risk-off sentiment took hold.

Although Treasuries were rallying, the risk-off tone meant that US equities were much less resilient, with the S&P falling back -1.56% as recession concerns mounted. That was echoed across the other major indices, with the NASDAQ (-1.24%) and the Dow Jones (-1.81%) falling back as well. However in Europe, the recent equity outperformance relative to the US continued, with the STOXX 600 (+0.23%) advancing for a 6th consecutive session. Looking forward, US futures are pointing to further losses ahead, with contracts on the S&P 500 (-0.13%) and NASDAQ 100 (-0.06%) edging lower.

Staying on Europe, there was a significant bond rally there too, with yields on 10yr bunds (-7.2bps), OATs (-9.3bps) and BTPs (-13.4bps) all moving lower after the US data releases. In fact at the intraday lows, the German 10yr bund yield was back beneath 2%, and we also saw the spread of Italian 10yr yields over bunds close at its tightest level since April, at just 174bps. In the meantime, we heard from some ECB speakers, with France’s Villeroy saying that President Lagarde’s guidance about hiking by 50bps for “a period of time” were still valid, even as he also said that “it’s much too early to speculate about what we will do in March”. That follows a Bloomberg article the previous day suggesting that the ECB might downshift their hikes to 25bps at the March meeting, following another 50bp move in February. Elsewhere, Finland’s Rehn said that “significant interest rate hikes in the near-term monetary policy meetings are justified in order to keep inflation expectations under control”.

One underperformer relative to the rest of Europe were UK gilts, where the 10yr yield only came down -1.0bps on the day. That followed the release of the UK CPI data for December, which showed an expected decline in CPI to +10.5%, but core inflation remained at +6.3%, which was a tenth stronger than expected. As a result, investors put increasing weight on the prospects of another 50bp hike at the February meeting, with overnight index swaps pricing a 46.1bps hike by the close yesterday, which is the highest so far in 2023.

This morning in Asia, equity markets have put in a mixed performance. In Japan the Nikkei (-1.46%) has slumped amidst a fresh appreciation in the Yen this morning, but other indices including the KOSPI (+0.29%), the CSI 300 (+0.17%) and the Shanghai Composite (+0.11%) have all advanced.

Meanwhile in energy markets, oil prices have moved lower overnight following their moves higher over recent days, with Brent crude (-1.24%) at $83.93/bbl and WTI (-1.48%) at $78.30/bbl as weak US economic data raised concerns over the demand outlook.

Finally in New Zealand, Prime Minister Ardern announced that she would step down by next month, having been in office since 2017. The New Zealand Labour Party will hold an election for a new leader, which comes ahead of a general election later in the year.

To the day ahead now, and central bank speakers include ECB President Lagarde, the ECB’s Knot, Fed Vice Chair Brainard, and the Fed’s Collins and Williams. In addition, the ECB will be publishing the account of their December meeting. Otherwise, US data releases include the weekly initial jobless claims, December’s housing starts and building permits, along with the Philadelphia Fed’s business outlook survey for January. Finally, earnings releases include Procter & Gamble and Netflix.