MNI ASIA OPEN: Trump Found Liable Of Sexual Assault

NEWS

CHINA (MNI): China Faces H2 Headwinds As Consumption Weakens
The Chinese economy faces potential headwinds in H2 2023 as a consumption rebound stalls and weak demand drags down manufacturing, while legacy, pre-pandemic structural challenges persist, economists and advisors told MNI. Recent leading indicators show manufacturing recovery on shaky ground, as production recovers faster than demand following the country’s reopening, leading to excess supply. Softer demand has also weighed on employment, said Wang Zhe, chief economist at Caixin Insight Group which compiles the monthly Caixin Purchasing Manger’s Index (PMI).

North America

US TREASURIES (BBG): Treasury Cuts Bill Sizes, Plans New CMB Sales Amid Debt-Cap Woes
The US Treasury Department cut sale sizes for its shortest-term benchmark bills while also announcing plans for three new cash management bills as it seeks to manage the government’s borrowing needs amid increasing concern about the statutory debt limit. The department cut the size of four- and eight-week auctions, continuing a process of reducing sale sizes for these kinds of securities in the wake of a warning from Treasury Secretary Janet Yellen that the US government could run into debt-ceiling limitations as soon as the start of next month.

US DEBT LIMIT (BBG): McConnell Says Biden Must Negotiate With McCarthy on Spending
Senate Republican leader Mitch McConnell says prior debt-limit deals have been tied to spending agreements, and this time should be no different. McConnell, in opening floor comments, says a debt-limit deal between President Biden and House Speaker Kevin McCarthy would pass the Senate. There must be a bipartisan deal on spending, McConnell says. McConnell attending 4pm meeting at White House on debt limit with McCarthy.

FED (MNI): Williams Confident Fed On Path To Restore Price Stability
Federal Reserve Bank of New York President John Williams Tuesday suggested the FOMC has raised interest rates enough to return inflation to target in a couple years, softening language from prior speeches that the Fed still had to tighten to attain a sufficiently restrictive stance.

FED (MNI): Fed's Williams Sees No Reason To Cut Rate This Year
The Federal Reserve is unlikely to bring interest rates down this year if inflation comes in as expected, New York Fed President John Williams said Tuesday. "I do not see in my baseline forecast any reason to cut interest rates this year," he said in Q&A at the Economic Club of New York. Credit tightening means "we don't need as high interest rates," he said, but "I don't necessarily see it completely knocking the economy down."

US EQUITIES (BBG): PacWest Leads Rebound as Regional Bank Stocks Bounce
PacWest Bancorp shifted from being the worst performer on Tuesday in the KBW Regional Banking Index to being the best, as the beaten-down bank stock swung with volatility continuing to grip the shares and the sector. PacWest rises 7.2% as of 2:51 p.m. New York time, erasing earlier declines of as much as 10%. The bounce puts the stock on pace to gain for a third day, extending an advance that included a record rally of 82% on Friday. Western Alliance Bancorp erased a dip to trade higher by as much as 4.7%, and the KBW Regional Banking Index pared declines to swing between narrow gains and losses.

US EQUITIES (BBG): BofA Says Client Buyback Rush Drives $2.2 Billion Into US Stocks
Bank of America Corp.’s corporate clients snapped up shares of their own companies at a frenzied pace last week while other investor groups dumped US stocks, quantitative strategists at the firm led by Jill Carey Hall said in a note Tuesday. Bank sees third-straight week of net inflows at $2.2 billion, but chiefly via buybacks, while institutional, hedge fund and retail clients sold shares.

US POLITICS (BBG): Trump Found Liable for Sex Abuse, Must Pay $5 Million to Carroll
A New York jury found Donald Trump liable for sexually assaulting and defaming writer E. Jean Carroll, ordering the former president to pay her $5 million in damages. The panel of six men and three women returned the verdict on Tuesday in Manhattan federal court after deliberating for less than three hours. Carroll had accused Trump of raping her in the dressing room of a Fifth Avenue department store in the 1990s and then defaming her by calling her a liar when she wrote about it. He was found liable for sexual abuse rather than rape.

OIL (BBG): US Updates Outlook on Timing to Refill Emergency Oil Reserve
The Biden administration said it plans to begin purchasing oil to replenish the nation’s emergency reserve after completing maintenance work later this year, giving an updated outlook on timing for the refill. Oil traders have been closely watching for any indication of when the administration would begin its purchases, which could further strain an already tight market.

Europe

ECB (BBG): ECB Must Do More to Return Inflation to 2%, Schnabel Says
The European Central Bank must do more to bring inflation back to the 2% target, even as it waits to see the full effect of the action it’s taken to date, according to Executive Board member Isabel Schnabel. Smaller interest-rate increases are appropriate following the 375 basis points of hikes enacted since last summer, Schnabel said Tuesday. Quarter-point steps will still allow borrowing costs to reach sufficiently restrictive levels, she said.

EU-RUSSIA (MNI): Circumvention Of Sanctions Main Target In Next EU Package
EU member states' permanent representatives will meet on 10 May to discuss the proposed 11th package of sanctions on Russia. The latest package is set to focus primarily on the circumvention of existing restrictions, rather than layering more sanctions on top of the existing measures. Commission President Ursula von der Leyen was in the Ukrainian capital Kyiv on 9 May (marking the observance of 'Europe Day'), with President Volodymyr Zelenskyy calling for a swift implementation of new measures.

EUROPE (MNI): EC Spring Forecast To Confirm Resilient EZ Economy
The European Commission's spring economic forecasts are likely to be little changed compared with the previous set released on February 13, a senior EU official said today. Recent data had confirmed the resilience of the eurozone economy, but hadn't revealed much new. The February round of forecasts estimated growth in the euro zone this year at 0.9% and 1.5% in 2024. The official noted that growth in Q1 was slightly stronger, pointing to a further pick-up in the pace in Q2.

GERMANY (MNI): German Economy Not Out Of The Woods - GCEE's Grimm
A spike in energy prices going into the winter risks pushing the German economy closer to recession, a senior government adviser said on Tuesday, underlining the fact that a greater effort to diversify supply is still required. Veronika Grimm, a member of the German Council of Economic Experts, said Germany had managed to avoid the worst effects of rising energy prices following Russia's invasion of Ukraine thanks to a mild winter, policy reaction and reduced demand for natural gas as a result of the China lockdown.

RIKSBANK (MNI): Riksbank Minutes Show Door Open To Faster Hikes
Although Riksbank guidance points to slower, smaller rate hikes ahead some members still believed larger and faster hikes may prove necessary if high inflation persisted, the minutes of the April meeting show. The board hiked the policy rate by 0.5 percentage points to 3.5%, while stating that another hike of only 25bps was likely in June or September. But the minutes showed some concerns that this slower tightening pace may not prove realistic.

UK (MNI): City Minister-Gov't Will Not Change BoE Inflation Target
Economic Secretary to the Treasury Andrew Griffith, the minister responsible for the UK's financial services sector, has stated in the House of Commons that the gov't is not going to change the Bank of England's inflation target.

US TSYS: 3Y Auction Demand Helps Pare Losses; Debt Limit Talks Up Next With CPI Tomorrow

• Cash Tsys have pared earlier losses for limited moves on the day, with the reversal coming shortly ahead of the 3Y auction and then ramping up on surprisingly strong demand with a large 2.8bp stop through and the highest bid-to-cover since March 2018. It sees 3s outperform on the day with yields +0.8bps at typing vs +2.7bps for 2Y, +1.2bps for 5Y and +1.9bps for the 10Y.
• Gov Jefferson (voter, and seemingly in a good position for the Vice Chair pick) offered little new to go on whilst NY Fed’s Williams broadly stuck to FOMC guidance from last week’s decision for someone typically at the more dovish end of the committee.
• TYM3 at 115-04+ trades close to lows of 115-01+ on subdued cumulative volumes of 850k, with a push lower potentially opening the 50-day EMA of 114-26.
• Fed Funds implied rates have nudged higher on the day but still see last week’s 25bp hike as the last of the cycle (+2.5bp priced for June) before 21bp cut to Sep and a cumulative 67bps to 4.41% at year-end.
• Next up sees Biden meeting with congressional leaders at 1600ET. Both the White House and McCarthy have said a short-term debt extension is not the plan (Reuters reporting McCarthy specifically referring to Sep 30) whilst McConnell says Biden must negotiate with McCarthy for a bipartisan spending deal.
• US CPI is in focus tomorrow – full preview here.

FOREX: EURGBP Slides To Lowest Level Since December

• The greenback traded with a surer footing on Tuesday as UK markets returned from a holiday and global participants eagerly await the April US CPI figures.
• The USD index has risen around a quarter of a percent, extending Monday’s modest bounce amid weakness for major equity indices and potential profit taking dynamics ahead of the key US data. Lower equity benchmarks, although the pullback has been relatively contained so far, have weighed on the likes of AUD, NZD, placing them toward the bottom-end of the pile amid relatively thin trade.
• EURUSD weakness also extended on the move through the Friday low at 1.0967 with 1.0942 support holding the pair for the time being. Ahead of tomorrow, the more meaningful downside level of 1.0874 will be in focus.
• Single currency weakness was also notable against sterling, with EURGBP sliding to the lowest level since mid-December 2022. The cross has cleared key support at 0.8719, the Mar 15 low and the clear break of this level confirms a resumption of the bear cycle that started Feb 3 and initially opens 0.8649, a Fibonacci retracement.
  • Furthermore, RBC recommended going short cable in this week’s trade of the week, highlighting that although the BoE is widely expected to hike by 25bps and stay hawkish on Thursday, the hurdle is high to out-hawk the forward curve.
• The Norwegian Krone was one of the poorest performers in G10 on Monday, prompting USD/NOK to recover back above the 50-dma and partially reverse four consecutive sessions of losses. These moves come ahead of Wednesday’s April CPI release, with markets expecting the CPI-ATE Y/Y measure to slow to 6.1% from 6.2% prior.
• Clear focus on Wednesday will be the US inflation report, where Consensus puts core CPI inflation at 0.3% M/m in April but with sizeable risk skewed to the upside.

MNI US CPI Preview: Sizeable Upside Risk To Core CPI Consensus Of 0.3% M/M

• We have just published and e-mailed to subscribers the MNI CPI Preview for tomorrow's release.
• Please find the full report including MNI analysis and summary previews from fourteen sellside analysts here: https://marketnews.com/mni-us-cpi-preview-sizeable-upside-risk-to-core-cpi-consensus-of-0-3

MNI US Employment Insight, May'23: Moderating Jobs Growth But Historically Tight

• We have published and e-mailed to subscribers the MNI Employment Insight, including MNI analysis and summaries from fourteen sellside analysts on Friday's payrolls report.
• Find the full report here: https://marketnews.com/mni-us-employment-insight-may-23-moderating-jobs-growth-but-historically-tight

US STOCKS: A Subdued Session With Support Intact Ahead Of Debt Limit Talks, CPI Tomorrow

• Equities have seen a subdued day, with the S&P E-mini little changed in US hours after sliding overnight for -0.3% on the day (SPX -0.2%, Nasdaq -0.6%).
• At 4139.75 off a low of 4131.00, support remains intact with the key short-term level seen at 4062.25 (May 4 low).
• 10Y real yields have pushed 2bps higher but clearly don’t materially change the macro landscape, with focus firmly on upcoming debt ceiling talks and tomorrow’s CPI print.
• It’s been a more mixed day for banks. PacWest earlier headlined for being down as much as -10% within 30 minutes of the open but has since reversed that for currently +5% on the day, whilst regional banks more broadly are flat compared to the KBW index +0.5%.

COMMODITIES: Oil Buoyed By SPR Sales Cancellation Report

• Crude oil prices have reversed early declines that lasted most of the session, helped by the Biden Administration said to be canceling further SPR sales plus wildfires in Alberta shutting in more than 0.3mbpd production.
• It came along with an only partial reversal of earlier equity weakness, helping overcome USD strength ahead of debt ceiling discussion uncertainty plus US CPI landing tomorrow.
• WTI is +0.6% at $73.59, moving closer to initial resistance at $73.93 (Apr 28 low) after which lies the key short-term $76.92 (Apr 28 high).
• The day's most active strikes in the CLM3 have clearly been for downside protection with $70/bbl and $65/bbl puts.
• Brent is +0.4% at $77.33, close to resistance at yesterday’s high of $77.43 after which lies the 50-day EMA of $78.76.
• Gold is +0.7% at $2035.91, gaining later in the session with some paring of earlier USD strength and Treasury yields also unwinding earlier increases after the 3Y auction. It remains some way off resistance at $2063 (May 4 high).

DATA

MNI: US APR IBD/TIPP ECON OPTIMISM INDEX 41.6
US APR IBD/TIPP ECON OPTIMISM INDEX 6-MO FORECAST 34.6

MNI: US REDBOOK: MAY STORE SALES +1.3% V YR AGO MO

*US APRIL SMALL BUSINESS OPTIMISM INDEX AT 89; EST. 89.7 - bbg