Indian CPI surprises on the upside in January

Indian CPI surprised on the upside in January, coming in at 6.52% y/y. This was higher than the consensus expectation for growth of 6% y/y and a rise from the 5.7% y/y recorded in December. There was upward pressure from a 16.2% y/y rise in cereals inflation, which drove up the food and beverage price sub-component to 6.2%. y/y from 4.6% y/y in December. The higher reading means that inflation has breached the Reserve Bank of India’s 2% - 6% target for the first time in 3 months and may lead the RBI to hike rates further at their April meeting. 

In its Winter Interim Forecast, the European Commission revised up its growth expectations for 2023 and 2024. The commission now expect the European Union to experience GDP growth of 0.8% in 2023, up from the 0.3% growth they had forecast in their November 2022 assessment. GDP is expected to rise by 1.6% in the EU in 2024, while inflation is expected to fall to 6.4% this year, and 2.8% next.

Japanese real GDP rose 0.2% in Q4 2022, better than the -0.2% recorded in Q3 but weaker than expectations for a 0.5% rise on the quarter. The good news was that underlying the headline figure was an improvement in domestic spending and service exports.

After days of speculation, Kazuo Ueda has formally been nominated as the next Bank of Japan Governor. He is seen as a broadly neutral choice, who is likely to pave the way for a gradual shift towards tighter monetary policy at the BoJ. Although he was recently reported as saying that “current policy is appropriate and monetary easing needs to be continued at this point”, there is speculation that there will be further tweaks to the current yield curve control policy sooner rather than later.  

Today’s Economic Events and Data

• 11:00 UK average weekly earnings Dec: 6.2% y/y
• 17:30 US CPI Jan: Forecast 0.5% m/m

Fixed Income

• US Treasuries settled mixed ahead of the release of today’s January CPI print for the US. Yields on the 2yr UST settled with an upward bias at 4.5175% while 10yr yields dropped by about 3bps to 3.7016%. A hotter than expected inflation print could see an upward move in yields pick up again and wipe out any prospect of the Fed easing policy later this year.
• European bonds closed generally unchanged with bunds at around 2.366% and gilts at 3.398%.
• There was a slightly negative bias in emerging market bonds overnight with a broad USD-index closing slightly lower. In local currency markets 10yr Turkish yields rose 6bps to 11.03% while South African 10yr yields closed unchanged at 10.986%.
• Emirates NBD is pricing a AUD benchmark 10yr with an indicative yield of 6.22%.

FX

• US Treasuries settled mixed ahead of the release of today’s January CPI print for the US. Yields on the 2yr UST settled with an upward bias at 4.5175% while 10yr yields dropped by about 3bps to 3.7016%. A hotter than expected inflation print could see an upward move in yields pick up again and wipe out any prospect of the Fed easing policy later this year.
• European bonds closed generally unchanged with bunds at around 2.366% and gilts at 3.398%.
• There was a slightly negative bias in emerging market bonds overnight with a broad USD-index closing slightly lower. In local currency markets 10yr Turkish yields rose 6bps to 11.03% while South African 10yr yields closed unchanged at 10.986%.
• Emirates NBD is pricing a AUD benchmark 10yr with an indicative yield of 6.22%.

Equities

• Asian indices were largely on the back foot as the Hang Seng dropped 0.1% and the Nikkei 0.9% as it continues to be buffeted by developments and rumours at the Bank of Japan. However, on mainland China the Shanghai Composite ended the day 0.7% higher.
• In Europe there were modest gains, bolstered by the upwards revision to Eurozone growth forecasts. The DAX and the CAC added 0.6% and 1.1% respectively. In the UK, the FTSE 100 ended up 0.8% while in the US there were fairly healthy gains with all three benchmark indices closing more than 1.0% higher. The Dow Jones and the S&P 500 both added 1.1% while the NASDAQ ended the day up 1.5%.
• Locally, the DFM ended day 0.4% higher while the ADX dropped 0.7%. Saudi Arabia’s Tadawul gained 1.0%.

Commodities

• Oil prices settled slightly higher overnight but have given up those gains in early trade today on plans from the US government to release more crude from strategic stockpiles. These sales had been planned as part of budgeting exercises from several years ago, rather than adding to the release of 180m bbl last year aimed at stopping price growth. Brent futures are trading down by 1% at USD 85.73/b while WTI is down by about 1.4% at USD 79.04/b.
• The UAE’s energy minister, Suhail al Mazrouei, said that OPEC+ didn’t need to hold an extraordinary meeting and that markets were “balanced.” The comments follow on Russia’s announcement that it would cut production by 500k b/d in March in response to sanctions that have been imposed on its exports of crude oil and refined products. The minister also noted that OPEC+ production would “go for the long-term” and would respond if there was “something that would shake the market.”