MNI ASIA OPEN: Unlikely Next Rate Move A Hike - Powell

NEWS

US (MNI): Fed Holds Rates, Cites Lack of Inflation Progress
The Federal Reserve kept interest rates on hold for a sixth meeting in a row Wednesday and noted a lack of improvement in recent inflation numbers, suggesting policymakers are in no rush to begin lowering interest rates. Officials also unveiled plans to reduce the pace of balance sheet reduction starting in June, lowering the cap on Treasuries allowed to run off the portfolio to USD25 billion a month but maintaining the pace of agency mortgage-backed securities at a maximum of USD35 billion.

US (MNI): Fed's Powell-Unlikely Next Rate Move Is a Hike
The Federal Reserve's next policy move is unlikely to be an interest rate increase, although the central bank is prepared to keep interest rates at current 23-year highs for as long as it takes to gain greater confidence inflation is heading sustainably back to 2%, Fed Chair Jerome Powell told reporters Wednesday.

US (MNI): Comparison of Powell's Opening Statement - May vs March
See link for a comparison of Federal Reserve Chair Jerome Powell's opening statement at his press conference after the May FOMC meeting with the March statement.

US (MNI): Rough Transcript of Powell's May 1 Press Conference
See link for a rough transcript of Federal Reserve Chair Jerome Powell's press conference on May 1.

US (MNI): May Treasury Refunding - Coupon Sizes To Stay Steady; Buybacks Begin
No surprises in coupon sizes in U.S. Treasury's May refunding announcement and Treasury said it will handle deviations via bills and/or CMBs. "Based on current projected borrowing needs, Treasury does not anticipate needing to increase nominal coupon or FRN auction sizes for at least the next several quarters."

• Incremental increases to TIPS auction sizes to maintain a stable share of TIPS as a percentage of total marketable debt outstanding.
• Buyback program is launched with a tentative schedule and first operation May 29.

US (MNI): ISM Chief Sees Bumpy US Manufacturing Growth
U.S. manufacturing remains on pace for weak expansion this year even after the Institute for Supply Management's index fell back into contractionary territory in April, survey chair Timothy Fiore told MNI Wednesday.

US (MNI): US Labor Market Data Heating Up Again - ADP
Friday's U.S. jobs report is likely to corroborate ADP employment data showing hiring and pay growth is heating up again this year after slowing in the second half of last year, ADP chief economist Nela Richardson said Wednesday after the payroll service provider reported private employers added a stronger-than-expected 192,000 jobs in April and upward revisions to previous months.

MNI Norges Bank Preview - May 2024: Little Reason to Pivot
The Norges Bank are unanimously expected to leave the policy rate on hold at 4.50% once again. Following the hawkish-leaning March decision, recent developments provide little reason for the Norges Bank to deviate from its current guidance. As such, we expect the statement to continue guiding for rates to be held at current levels for “some time ahead”. Although Governor Wolden Bache noted at the March press conference that September was the most likely meeting for rates to be cut, we don’t expect this to be explicitly included in the policy statement.

MNI Eurozone Inflation Insight - April 2024: June Cut Still On Cards In Spite of Momentum Uptick
The Eurozone April flash inflation round saw services inflation finally fall below 4.0% Y/Y (where it had been stuck at for the 5 months prior). However, the 3.7% Y/Y services print was actually higher than many analysts had forecasted coming into the release. Our review of April's preliminary Eurozone inflation data includes breakdowns and analysis of the national inflation prints, and some sell-side reactions.

MNI Commodity Weekly: Mexican Fuel Ambitions a Blow for US Refiners

• Mexican Fuel Ambitions a Blow for US Refiners: Pemex refineries in Mexico are ramping up runs in search of fuel independence, both reducing crude supply for export markets as well as limiting oil product import needs. Numerous setbacks, however, highlight the difficulty in achieving the goal – especially for Dos Bocas.
• Oil Markets are under downside pressure from the possibility of higher US interest rates for longer and amid hopes of an Israel-Hamas ceasefire. Weak near-term demand is weighing on oil product markets as the European diesel market looks oversupplied.

Emerging Markets (MNI): CEE Recovery, Risks Remain - WIIW Economists
The economies of the Czech Republic, Hungary and Poland will continue to see a gradual recovery in the coming quarters, but they remain fragile due to a combination of sluggish German growth, fiscal challenges, rising geopolitical risk and inflation uncertainty, a leading regional economist told MNI.

GERMANY (MNI): No Great German Growth Leap - Gov't Advisor
Policy decisions needed for a “great leap forward” in German growth are unlikely in the current parliament, even if proposed tax changes worth billions of euros are passed in the coming weeks, a leading advisor to Finance Minister Christian Lindner told MNI.

JAPAN (MNI): Weak Yen Boosts A-shares, Solid Fundamentals Needed
MNI (Beijing) - The weak yen has driven offshore capital into the A-share market, however, further support will require authorities to strengthen economic fundamentals and provide greater easing measures alongside the already revealed policies to encourage dividends and attract long-term funds, advisors and analysts told MNI.

DATA

US DATA: ISM Prices Paid Jump On Commodities But New Orders Slip

• The ISM manufacturing index missed in April, falling to 49.2 (cons 50.0) after 50.3 in March.
• Prices paid provided the main hawkish aspect, jumping 5.1pts to 60.9 (cons 55.4) after a 3.3pt increase in March. The press release notes the outright share seeing increases was its highest since Jun’22 (78.7%) with mention of commodity price increases.
• A dovish angle was provided by new orders falling to 49.1 (cons 51.0) from 51.4, its lowest since Dec.
• With inventories unchanged, the new orders less inventories metric (a useful forward-looking indicator) fell for the third month running to its lowest since May’23 – see chart.
• On prices paid, note that yesterday’s MNI Chicago PMI increased 6.7pts to 69.3 for its highest since Aug’23. A special question noted that over 40% of respondents said their ability to pass on input cost changes had increased over the past three months.

• Job Openings: 8.488m (cons 8.68m) in March after an upward revised 8.813m (initially 8.756m) in Feb.
• It sees the ratio to unemployed drop to 1.32 from an unrevised 1.36, technically a new recent low as it pokes through October’s 1.35.
• It’s the lowest since Aug’21 and compares with the 1.19 averaged in 2019 and 1.00 through 2017-18.
• Quit rates: 2.11% after an upward revised 2.23 (initially 2.21). That’s getting notably low now and compares to 2019 av 2.33 and 2017-18 av 2.20.
• Similar story for private quits rate: 2.33% after 2.47% in Feb. Compares with 2.59 average in 2019 and 2.45 through 2017-18.

US DATA: ADP Employment Sees A Small Beat With Larger Upward Revisions

• ADP employment was stronger than expected in April, rising 192k (cons 183k) after an upward revised 208k (initially 184k) in March and 176k (initially 155k) in February.
• It leaves private job growth in April at a similar pace to that of the 190k consensus for private payrolls.
• Those upward revisions lift the 3-month average to 165k to March although that’s still below the 212k seen for private payrolls prior to Friday’s revisions.
• From the press release: "Hiring was broad-based in April. Only the information sector — telecommunications, media, and information technology — showed weakness, posting job losses and the smallest pace of pay gains since August 2021."

US DATA: ADP Job Changer Pay Growth Still Elevated Despite Cooling

• Y/Y pay gains for job-stayers were “little changed” in April at 5%.
• Pay growth for job-changers fell from 10.1% in March to 9.3% Y/Y, “but remains higher than it was at the beginning of the year."

US TSYS: Post Powell Gains Pared, Closer To First Cut Fully Priced In Nov Again

• Treasuries have pared gains seen during Powell’s Q&A but hold richer both since the initial decision and on the day.
• 2Y yields lead declines on the day with -8.3bps (4.95%), with the curve switching from flattening pre-FOMC to steeper with 2s10s at -32.4bps rising more than 4bps since the decision.
• TYM4 at 107-29 sits ~8 ticks higher since the announcement although is off an earlier high of 108-06+ seen in a continuation after Powell said it was unlikely the next move would be a hike.
• It pushed through yesterday's high for above pre-ECI levels but stopped short of resistance at 108-11 (20-day EMA).
• Fed Funds implied rates sit 6.5bps lower for end-2024 since the decision. Pertinent cumulative cuts: 16bp Sep (from 13bp), 23bp Nov (from 19bp) and 35bp Dec (from 28.5bp).

FOREX: Greenback Under Pressure Despite Hawkish Fed Tweaks

• Immediate two-way price action for US treasuries in the aftermath of the May Fed statement release was echoed in currency markets. A very moderate pop higher for the greenback failed to garner any momentum and the USD index saw a swift reversal to fresh session lows.
• As Chair Powell’s press conference continued, the greenback slid in sympathy with US yields as Fed Powell emphasised the well anchored longer-term expectations and highlighted it is unlikely that the next policy move would be a hike. With the market potentially setting a high hawkish bar heading into the today’s meeting, the most recent greenback optimism faded.
• USDJPY traded as low as 157.01, 98 pips off the overnight highs and EURUSD narrowed the gap towards the week’s best levels, briefly operating back above 1.0730.
• Markets have since stabilised a touch and the USD index is roughly 0.3% lower as we approach the APAC crossover.
• With equities buoyant throughout the late US session, AUD and NZD are outperforming, both up close to 0.75% on the session.
• Initial resistance for AUDUSD has been defined at 0.6587, Monday’s high. Clearance of this level would be bullish and signal scope for a climb towards 0.6644, the Apr 9 high.
• Bank of Japan minutes highlights the APAC docket on Thursday before Swiss CPI will be in focus during the European session. Jobless claims in the US will provide a warm-up for the US employment report scheduled on Friday.

US STOCKS: A Sharp Reversal Of Powell Driven Gains

• US stock markets have seen a sharp reversal of earlier Powell Q&A-driven gains, larger relatively speaking than the paring seen in Treasuries.
• ESM4 is back at 5060.25 (-0.15%) for only ~10pts higher post-FOMC, off its high of 5126.75 in a move closer to resistance at 5132.17 (20-day EMA). The contract is seen in a bearish cycle with support at 5022.25 (Apr 25 low) after which lies the bear trigger at 4963.50 (Apr 19 low).
• As before the FOMC, gains are led by utilities (+1.2%) across a range of names and communication services (+1.0%). The press conference has done little for energy (-1.5%) with WTI still below $80 after earlier inventory data, but IT (-0.8%) pares losses although is still under pressure courtesy of semiconductors.
• In particular, Nvidia remains -2.8% vs -5% earlier, with declines attributed to concerns for the broader sector outlook after AMD’s presentation (AMD -8.6%).
• The Nasdaq 100 underperforms (-0.4%) whilst the Russell 2000 (+0.4%) and Dow Jones (+0.3%) outperform.

COMMODITIES: Crude Futures Slump Over 3% On Session

• WTI has fallen to its lowest level since early March after a larger than expected build in US crude stocks in the latest EIA data. Crude hit new intraday lows after the FOMC held rates steady and a slightly weaker dollar did little to support oil prices.
• WTI JUN 24 is down 3.26% at 79.26$/bbl. Price has breached key support at the 50-day EMA, at $81.23. A clear break of this average would strengthen a short-term bearish theme and highlight scope for a deeper correction. This would open $76.07, the Mar 11 low.
• OPEC’s crude production was steady at 26.81m b/d in April, leaving the bloc’s latest cuts incomplete, Bloomberg said.
• Precious metals have been well supported, with more optimistic price action bolstered by the post-fed reaction for US yields and the greenback. Both spot gold and silver are exhibiting gains of around 1.25% on Wednesday.
• Note that the most recent short-term bear cycle has been allowing a significant overbought condition to unwind. Key resistance and the bull trigger remains much higher, at $2431.5, the recent Apr 12 high.