MNI ASIA OPEN: Fed Likely Needs Lower Demand Growth

US

FED INTERVIEW (MNI): Fed Will Cut Rates More Sparingly In '24-Weber: The Federal Reserve still has scope to lower interest rates this year even with some recent signs it will take longer than expected to cool inflation, Michael Weber, an academic consultant at the Cleveland Fed and the ECB, told MNI.

• While recent disappointments in core inflation data will likely push loosening by the FOMC beyond June, there is also evidence the labor market has slowed, the associate professor at University of Chicago's Booth business school said.
• “Wage growth has come down quite substantially, and if it keeps coming down this would be the best sign to me as a prediction of future core inflation," he said. "Based on that I would say we are definitely still on track for an interest-rate cut this year,” Weber said. "It will certainly be pushed back and it will also maybe not be three, but maybe only one in fact.”

FED (MNI): Collins Says Fed Likely Needs Lower Growth In Demand: Boston Fed President Susan Collins said Wednesday stronger-than-anticipated inflation and economic activity suggest achieving the Federal Reserve’s dual mandate goals may take longer than previously thought, and will likely require lower growth in demand.

• "I’m committed to bringing inflation sustainably back to our 2% target," she said in her prepared remarks at MIT. "I remain optimistic that this can be accomplished in a reasonable amount of time and with a labor market that remains healthy."
• "But there is significant uncertainty around that outlook, and the recent data lead me to believe this will take more time than previously thought," she said, adding there is no pre-set path for policy. "It requires decisions based on a methodical, holistic assessment of wide-ranging information."

FED POLICY (MNI): Stubborn Wage Growth Too High For Fed's Comfort: U.S. wage growth trends have further cemented the Federal Reserve’s desire to remain patient before considering interest rate cuts, with gains in pay having stabilized above levels consistent with price stability for nearly a year now.

• While policymakers see robust wage growth as a reflection of workers trying to catch up with an inflationary spurt that peaked in 2022 rather than as a fundamental driver of inflation, persistent increases above 4% as gauged by a variety of measures are still well above a 3.5% ballpark the central bank views as in line with its 2% inflation goal. That’s a sign overall price pressures are likely not coming down quickly enough.
• As Chair Jerome Powell stressed at this month’s post-FOMC press conference, while high wages are a welcome development, the Fed will strive to avoid the high inflation which would eat up the gains.

NEWS

INTERVIEW (MNI): Fed, ECB Cloud Riksbank Easing Outlook- Thedeen: Volatile U.S. rate expectations and the difficulty of anticipating European Central Bank policy beyond an expected cut in June make it more difficult for the Riksbank to be sure it will go ahead with the two rate cuts it says it expects to make in the second half of the year, the Swedish central bank's head told MNI following its first cut at the May meeting.

UK (MNI): Labour Still Favourites For Majority In Spite Of Hung Parl't Speculation: The main opposition centre-left Labour party remains in a strong position to win an overall majority at the next general election.

BOJ (BBG): Ueda Ramps Up Yen Warnings While Traders Keep Selling: "Bank of Japan Governor Kazuo Ueda fired a salvo of warning shots to financial markets about a potential policy move as he beefed up his language on the weak yen while traders continued to sell it."

RUSSIA (MNI): For Min Spox-French Troops In Ukraine Would 'Become Targets For Russia': Wires carrying comments from Russian Foreign Ministry spox Maria Zakharova. In response to French President Emmanuel Macron's recent comments regarding never ruling out the prospect of NATO 'boots on the ground' in Ukraine, Zakharova states that 'If French troops appear in Ukraine they will become targets for Russian troops'.

ISRAEL (MNI): CIA's Burns To Meet w/Netanyahu Following Cairo Ceasefire Talks: Reuters is reporting that CIA Director William Burns will travel to Israel later today for talks with PM Benjamin Netanyahu following the conclusion of the latest round of ceasefire talks in Cairo.

ISRAEL (MNI): KAN-US Official: Concerns On Rafah Op Not Yet Fully Addressed: Israel's KAN reportingcomments from an unnamed senior US official regarding Israel's nascent ground operation in the city of Rafah, and reports that Washington has paused the transfer of sizeable ordnance to Israel due to the lack of a comprehensive plan to avoid mass civilian casualties.

US (BBG): Rents Set to Be Last Domino to Fall in Global Inflation Battle: Surging rents across many developed
economies are proving to be a stubborn hurdle for central banks as they struggle to nail down inflation once and for all this tightening cycle.

US TSYS: Pushing A Little Lower Late Into The Session

• Treasuries have seen a modest sell-off today and are currently only slightly lower than levels seen as US desks started filtering in this morning, having reversed a bid seen after surprisingly soft wholesale trade sales (-1.3% M/M in Mar vs cons +0.8%).
• Today’s 10Y auction tailed by 1bp although it was digested relatively well, helped by internals keeping to recent ranges, including lowest dealer and highest indirect takes since Feb.
• Cash yields sit 1-4bps higher on the day, bear steepening with 2s10s at -34.7bps (+2.2bp) but keeping within yesterday’s range.
• TYM4 has tilted back to joint lows of 108-25+, around similar levels to yesterday’s overnight lows, with volumes approaching 1.3m having tailed off throughout the session after an above average overnight.
• Support is seen at 108-15+ (20-day EMA). Nevertheless, channel resistance remains exposed after yesterday’s 109-09 tested notable resistance levels at 109-06+ (channel top from the Feb 1 high) and 109-08+ (50-day EMA) in a renewed look at 109-09+ (snap reaction after payrolls on May 3).
• Tomorrow sees focus on weekly jobless claims data, 30Y supply (after April saw the first tail since November) and then SF Fed’s Daly (’24 voter), plus any spillover from the BoE decision.

OVERNIGHT DATA

US DATA (MNI) A Small Rise In Mortgage Applications After First Rate Decline In Five Weeks: MBA composite mortgage applications increased a seasonally adjusted 2.6% last week after two declines averaging 2.5%.

• Refis (+4.5% after a two-weekly av of -4.5%) has seen an exaggerated pattern to that of purchase applications (+1.8% after an average of -1.3%).
• The boost in applications came as the 30Y conforming mortgage rate fell 11bps to 7.18%, its first decline after four weekly increases worth a cumulative 38bps.

US 10Y FUTURE TECHS: (M4) Channel Resistance Remains Exposed

• RES 4: 110-06 High Apr 4
• RES 3: 109-22+ 38.2% retracement of the Feb 1 - Apr 25 bear leg
• RES 2: 109-09+ High May 3
• RES 1: 109-06+/08+ Channel top from Feb 1 high / 50-day EMA
• PRICE: 108.28 @ 1230 ET May 8
• SUP 1: 108-15+ 20-day EMA
• SUP 2: 107-04 Low Apr 25
• SUP 3: 106-27 2.764 proj of Dec 27 - Jan 19 - Feb 1 price swing
• SUP 4: 106-09 Base of a bear channel drawn from the Feb 1 low

Treasuries maintain a firmer tone and are holding on to the bulk of their recent gains. The contract has recently breached the 20-day EMA and has tested resistance at 109-08+, the 50-day EMA. Price is also approaching a channel top drawn from the Feb 1 high, at 109-06+ too. Clearance of these two resistance points would strengthen a bullish condition. Initial support lies at 108-15+, the 20-day EMA.

SOFR FIXES AND PRIOR SESSION REFERENCE RATES

SOFR Benchmark Settlements:

• 1M +0.00099 to 5.32086 (-0.00155/wk)
• 3M +0.00235 to 5.32557 (-0.00198/wk)
• 6M +0.00612 to 5.29350 (-0.01343/wk)
• 12M +0.00395 to 5.14913 (+0.05959/wk)

• Secured Overnight Financing Rate (SOFR): 5.31% (+0.00), volume: $1.864T
• Broad General Collateral Rate (BGCR): 5.30% (+0.00), volume: $714B
• Tri-Party General Collateral Rate (TGCR): 5.30% (+0.00), volume: $703B
• (rate, volume levels reflect prior session)

• Daily Effective Fed Funds Rate: 5.33% (+0.00), volume: $78B
• Daily Overnight Bank Funding Rate: 5.32% (+0.00), volume: $258B

FED: RRP Extends Recent Increases

• RRP usage increased $18bn to $493bn today for its fourth consecutive daily increase, further away from the mid-April low of $327bn.
• The number of counterparties increased by 1 to 74.
• Both the $ uptake and number of counterparties are at their highest since April month-end ($534bn and 76).

PIPELINE: $2.25B Eni 2Pt Launched, More to Come

• Date $MM Issuer (Priced *, Launch #)
• 5/8 $2.25B #Eni $1B 10Y +110, $1.25B 30Y +140
• 5/8 $1B *NatWest PerpNC10 8.125%
• 5/8 $1B #Atlassian $500M 5Y +85, $500M 10Y +110
• 5/8 $700M #CNO Fncl 10Y +200
• 5/8 $Benchmark Westpac 2Y +60a, 2Y SOFR, 5Y +85a, 5Y SOFR
• 5/8 $Benchmark Hasbro 10Y +180a
• 5/8 $Benchmark UBS Group 6NC5 +140a
• 5/8 $Benchmark Ventas Realty 10Y +155a
• 5/8 $Benchmark PNC Financial 6NC5 +120a
• 5/8 $Benchmark Avalon Holdings +5Y +170a
• 5/8 $Benchmark Centerpoint Energy 5Y +115a
• 5/8 $Benchmark HSBC 4NC3 +120a, 8NC7 +150a
• 5/8 $Benchmark Reinsurance Group +10Y +135
• 5/8 $Benchmark IBRD (World Bank) 4Y SOFR+30
• 5/8 $Benchmark Islamic Development Bank 5Y Sukuk SOFR+55a

EGBs-GILTS CASH CLOSE: UK Curve Lightly Bear Steepens Pre-BoE

Bunds underperformed Gilts Wednesday, with the latter little changed on the day, with attention already turning to the Bank of England decision Thursday.

• With another fairly quiet calendar on both the European and US fronts, ECB speakers took most focus, and they were on the hawkish side (Holzmann and Wunsch reaffirming the likelihood of a June cut but not committing any further) but not more so than would have been expected, meeting with a muted reaction.
• Data (German / Spanish industrial production, Italian retail sales) was soft but had little lasting impact.
• The belly of the German curve underperformed, while the UK saw light bear steepening.
• Periphery EGB spreads were little changed, having seen some early widening fade.
• Multiple ECB speakers including Vujcic and Guindos appear Thursday, but the main event will be the BoE.
• As we detail in our preview (PDF here), while a rate hold is virtually assured and MNI Markets team’s base case is for another 8-1 vote in favour of such a decision vs cut, risks include a more dovish 7-2 vote and the degree to which the inflation forecasts are lowered.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 3bps at 2.93%, 5-Yr is up 4.3bps at 2.5%, 10-Yr is up 4.2bps at 2.462%, and 30-Yr is up 3.8bps at 2.578%.
• UK: The 2-Yr yield is down 0.1bps at 4.309%, 5-Yr is up 0.1bps at 4.022%, 10-Yr is up 1.4bps at 4.139%, and 30-Yr is up 0.8bps at 4.61%.
• Italian BTP spread down 0.6bps at 133.5bps / Spanish up 0.2bps at 78.5bps

FOREX: Japanese Yen Weakens for Third Consecutive Session

• The USD Index is close to unchanged Wednesday, however, G10 ranges remain narrow, and currency markets are awaiting the next macro cue to build momentum in either direction.
• USDJPY is once again higher on the session, registering its third consecutive day of gains. The bounce from noted support at the 50-dma support, and the key 151.95 pivot, has helped underpin the supportive price action from the tail-end of last week and the ongoing resilient single currency has helped EUR/JPY build further above its 50-dma support that contained the pullback last week. Today’s high closely matches initial resistance at 167.39, the May 2 high.
• AUDUSD is a relative underperformer, having dipped as low as 0.6558 earlier in the session. However, last week’s break of 0.6587 resistance cancels a recent bearish threat and instead highlights a resumption of the bull leg that started Apr 19. This opens 0.6668, the Mar 8 high and a key resistance, of which clearance above here would strengthen a bullish technical theme.
• GBPUSD has pulled back from its recent 1.2634 high (May 3) and is trading a touch lower on of the Bank of England decision tomorrow. Firm support has been defined at 1.2466, the May 1 low. Clearance of this level would reinstate a bearish threat, and this would signal scope for an extension towards the bear trigger at 1.2300, the Apr 22 low. For bulls, a breach of 1.2634 would reinstate the recent upleg and open 1.2667, a Fibonacci retracement.    
• The BoE decision is the highlight of Thursday’s calendar, with markets focused on the vote split, guidance and economic forecasts. In the US, jobless claims data is scheduled. It is also worth noting there are national holidays in France, Germany and Switzerland.

THURSDAY DATA CALENDAR

Date	GMT/Local	Impact	Flag	Country	Event
09/05/2024	2301/0001	*		UK	RICS House Prices
09/05/2024	2301/0001	**		UK	KPMG/REC Jobs Report
09/05/2024	1100/1200	***		UK	Bank Of England Interest Rate
09/05/2024	1100/1200	***		UK	Bank Of England Interest Rate
09/05/2024	1130/1230			UK	BoE Press Conference
09/05/2024	1215/1415			EU	ECB's De Guindos remarks at Panel Civico
09/05/2024	1215/1415			EU	ECB's Cipollone remarks at seminar on financial instrument tokenisation
09/05/2024	1230/0830	***		US	Jobless Claims
09/05/2024	1230/0830	**		US	WASDE Weekly Import/Export
09/05/2024	-	***		CN	Trade
09/05/2024	1300/1400			UK	BOE's Decision Maker Panel Data
09/05/2024	1400/1000			CA	Bank of Canada Financial System Review (and Survey)
09/05/2024	1430/1030	**		US	Natural Gas Stocks
09/05/2024	1530/1130	*		US	US Bill 08 Week Treasury Auction Result
09/05/2024	1530/1130	**		US	US Bill 04 Week Treasury Auction Result
09/05/2024	1615/1715			UK	BOE's Pill MPR Virtual Q&A
09/05/2024	1700/1300	***		US	US Treasury Auction Result for 30 Year Bond
09/05/2024	1800/1400			US	San Francisco Fed's Mary Daly
09/05/2024	1900/1500	***		MX	Mexico Interest Rate