MNI ASIA OPEN - Risk Sees Support as China Eases Lockdown Rules

NEWS:

FED (MNI): Fed’s Waller Wants 50BP Hikes For ‘Several’ Meetings
The Federal Reserve should keep raising interest rates by half percentage points at its next several meetings, and keep considering increases of such a magnitude until inflation has moved closer to the Fed's 2% goal, Fed Governor Christopher Waller said Monday.

US (MNI): US: President Biden's Net Approval Rating Nears Record Low
According to the latest data from the Real Clear Politics' presidential approval tracker, President Joe Biden's approval rating is now touching a near record low of -14.4%. The tracker shows that Biden's approval hit net -14.6 on February 9 during the tail end of the Omicron COVID-19 surge.* Since then, Biden's approval strengthened on the back of a positive performance on Ukraine however ballooning inflation and energy prices have weighed heavily since.

CHINA (BBG): China reported the fewest new Covid-19 cases in almost three months, with the easing of outbreaks in Beijing and Shanghai emboldening authorities to relax some of the strictest virus controls of the pandemic and move to stimulate the country’s faltering economy. In Beijing, infections dropped to 12 on Sunday, from 21 on Saturday. Curbs on movement in several districts started to be loosened yesterday after officials said the outbreak was under control. The decline has eased concern that Beijing could have been headed for a lockdown when it was reporting several dozen cases a day earlier in the outbreak despite increasingly strict restrictions.

GERMANY (MNI): Losing Russia Gas To Sap German Competitiveness
German industry faces losing ground to European competitors with more plentiful supplies of renewable energy and as it loses access to cheap Russian gas, a former government adviser on energy policy who is one of the country's leading economists told MNI.

NEW ZEALAND (MNI): RBNZ Interest Rate Path "Uncertain"-Official
A senior Reserve Bank of New Zealand official has said there continues to be "uncertainty" around the central bank's forecast track for interest rates, which the RBNZ believes are set to peak at 3.9% at the end of 2023.

NEW ZEALAND/US (MNI) New Zealand PM Ardern To Meet President Biden At White House Tomorrow
US President Joe Biden will welcome New Zealand Prime Minister Jacinda Ardern to the White House for the first visit of a leader from New Zealand since 2014. According to the White House: 'The two Leaders will discuss strengthening cooperation to support the Pacific Islands region, and our work together on a range of issues, including the Indo-Pacific Economic Framework, addressing the climate crisis, and countering terrorism and radicalization to violence both off and online.'

FOREX: Bolstered Risk Sentiment Weighs On Greenback, CNH Surges

• US Dollar sentiment is on a downward trajectory to start the week, with weakness across the board on Monday. Dollar indices have shed around 0.35%, with the DXY crossing below the 50-day moving average for the first time since Feb 23rd. Currency moves largely fizzled out after the WMR fix with US Memorial Day holiday sapping volatility across markets.
• The catalyst for the sell-off appears to be continued risk-on flows, with global equity benchmarks improving on Friday’s advance.
• Bolstered risk sentiment stems from China Covid/stimulus news where Shanghai will scrap unreasonable restrictions to accelerate the resumption of work and production and promote consumption and investment after a two-month lockdown to curb the spread of Covid-19.
• This explains why we have seen outperformance by CNH relative to high beta G10 FX moves. USD/CNH saw a sharp drop through 6.6900, and is now seen 0.75% below Friday’s closing levels at 6.67 as of writing.
• Broad optimism also lent support to the likes of AUD, NZD and CAD who all saw particular gains against the JPY and CHF, underperforming across G10 currencies as expected.
• EURUSD continues to edge higher, gaining close to a half percent, narrowing the gap with the 1.08 mark and the bear channel top seen at 1.0822, which remains the nearest objective for the current bull cycle playing out.
• In emerging markets, USDTRY (+0.99%) continues to trend higher, with Monday prices holding just below the May highs of 16.4668. The pair maintains a bullish tone following recent gains and last week’s break of the 16.00 handle.
• Japanese activity data will precede Chinese PMIs during Tuesday’s APAC session. Eurozone inflation data headlines the European docket. Elsewhere, Canadian GDP, US consumer confidence and the MNI Chicago Business Barometer™ are other data points of note.

CANADA: Rise In Front Yields Limited Ahead Of BoC

• Front end GoCs have slowly built on the move higher in yields at open, to sit +5bps on the day at 2.60%.
• It comes as China eases some Covid restrictions, whilst lagging European yields with German inflation coming in much stronger than expected.
• There have been broadly consistent moves in BAX futures, where implied yields have increased as much as 7bps in the early 2023 contracts.
• It lags a 10bp increase in Eurodollars yields in a light US session as Fed Governor Waller floated the idea of 50bp hikes at ‘several’ meetings as opposed to the next ‘couple’ meetings.
• Data: GDP tomorrow provides the final data steer before the BOC decision on Wed, with almost unanimous consensus for a 50bp hike (1 of 29 analysts on Bloomberg sees a 25bp hike instead).

EQUITIES: US Post Close Round-Up

• SPX eminis strengthened further today, grinding out another +0.5% gain, most of which came in early trade on China easing Covid restrictions before a more mixed shortened US session for Memorial Day, with cash equities closed.
• It followed a circa 7% surge last week and has fared well today considering the solid re-pricing of Fed hikes, returning to 190bps to year-end off a Friday low of 177bps.
• The nudge higher today leaves ESM2 at 4177.5, nearing key short-term resistance at the 50-day EMA of 4191.98, clearance of which would strengthen bullish conditions.

COMMODITIES: Broad Support From China Easing Restrictions

• Most commodities have been fuelled by risk-on sentiment today, spurred by Shanghai saying it will lift Covid restrictions on businesses and both Shanghai and Beijing re-opening some public transportation.
• Crude oil is no exception, up nearly 2% on light trading volumes with US Memorial Day.
• Traders await a breakthrough on the EU embargo of Russian oil at the EU Summit, with Hungary’s Orban still holding out, although the President of the EU Council, Michel, has stated that sanctions progress has been possible this afternoon.
• WTI is +1.8% at $117.11, having cleared resistance at $116.43 (Mar 7 high and trend high) which next opens the psychological $120.00.
• Brent closed +1.9% at $121.67, clearing resistance at $121.13 (76.4% retracement of Mar 7 -15 downleg) and opened $123.44 (Mar 8 high).
• Specific China-related commodities that have fared well on the day include iron ore (+4.9%), nickel (+4.0%) and copper (+1.1%).
• Gold meanwhile sits little changed on the day, +0.05% at $1854.0, having unwound earlier gains as the strength in German inflation raises the prospect of faster rate hikes, boosting safe haven yields in the process. Resistance remains $1869.7 (May 24 high) with support at $1807.5 (May 18 low).