MNI EUROPEAN MARKETS ANALYSIS: Hawkish RBA Bets Added After CPI Beat, Risk Aversion Abates

BOND SUMMARY: Core FI Come Under Pressure, Domestic Inflation Data Add Pressure To ACGBs

Participants steered clear of safe haven assets following Tuesday's risk rout, with core FI losing shine as a result. Australian CPI data provided the main risk event of the Asia-Pac session, with ACGBs taking a hit as domestic inflation figures smashed expectations.

• A brief foray higher allowed T-Notes to show above yesterday's best levels but proved short-lived as broader selling pressure prevailed. The contract went bid as a block but in 5-Year U.S. Tsy futures coincided with geopolitical headlines noting that a Russian ammunition depot caught fire, while China said that its navy vessels tracked a U.S. destroyer transiting the Taiwan Strait. This upswing was capped at 120-18+ and T-Notes turned their tail again amid recovery in U.S. e-mini futures. TYM2 trades +0-04 at 120-05+ as we type, with Eurodollar futures last seen 0.5-3.0 ticks higher through the reds. Cash U.S. Tsys tracked fluctuations in T-Notes, yields quickly regained poise after a brief pullback. They last sit 2.2bp-5.0bp higher, with the curve running flatter. The U.S. docket for today features flash wholesale inventories & 5-Year Tsy auction.
• JGB futures sales ground to a halt ahead of the Tokyo lunch break but resumed thereafter, with the contract last sitting at 149.34, 2 ticks above previous settlement. Cash JGB yields are narrowly mixed as we type. The sale of 2-Year JGBs saw low price match dealer estimate, with bid/cover ratio moderating to 4.34x from 5.43x at the previous auction. The space showed little to no reaction to the offering.
• Better than expected CPI figures applied pressure to ACGBs as the data stepped up pressure on the RBA to raise interest rates. Headline CPI growth reached a two-decade high & core inflation breached the RBA's target range, which prompted participants to add hawkish cash rate bets ahead of next week's monetary policy meeting. YM last trades -7.5 & XM -0.5, both are testing session lows. Bills run -17 to +1 tick through the reds. The cash curve has bear flattened as yields sit 0.2bp-9.2bp higher.

FOREX: CPI Beat Boosts Aussie, Yen Loses Its Allure

Upbeat CPI data extended a helping hand to the Aussie dollar, helping it outperform all of its G10 peers. Headline inflation accelerated to a two-decade high of +5.1% Y/Y, while the key measure of core price growth breached the RBA's target range of +2.0%-3.0% Y/Y, with both printing above consensus forecasts. The report prompted participants to add hawkish RBA bets, with markets now fully pricing a 15bp cash rate hike next Tuesday.

• The yen sold off across the board amid reduced demand for safe haven currencies, even as regional headline flow failed to offer any reassurance on familiar growth risks. Participants were preparing for Thursday's BoJ monetary policy decision and a long weekend in Japan.
• Spillover from commodity markets may have helped underpin oil-tied FX at the yen's expense. Crude futures crept higher amid the latest escalation in energy spat between Russia and two Eastern European nations.
• Spot USD/CNH lost some altitude and is on track to snap its six-day impulsive winning streak. China's President Xi called on his officials to make "all out" efforts to boost infrastructure spending.
• Flash U.S. wholesale inventories headline today's particularly thin data docket. Comments are due from ECB's Lagarde, Lane & Muller as well as BoC's Macklem.

FOREX OPTIONS: Expiries for Apr27 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0600(E1.2bln), $1.0700-10(E1.0bln), $1.0800(E1.5bln), $1.0900(E1.4bln)
• USD/JPY: Y126.75($540mln)
• GBP/USD: $1.2900(Gbp1.1bln)
• AUD/USD: $0.7450(A$1.9bln)
• NZD/USD: $0.6735(N$1.4bln), $0.6835(N$1.8bln)
• USD/CNY: Cny6.5000($700mln)

ASIA FX: Won Leads Losses, Yuan & Peso Hold Firm

Most Asia EM currencies faltered, catching up with yesterday's risk-off dynamics, but Chinese yuan and Philippine peso showed resilience.

• CNH: Spot USD/CNH slipped and is poised to snap its uninterrupted six-day winning streak. China's President Xi urged his officials to boost infrastructure spending, giving another indication of the authorities' increasingly stimulatory approach.
• KRW: South Korean won led losses in Asia EM FX space as onshore markets absorbed overnight risk-off impetus. Spot USD/KRW gapped higher at the re-open, punching through the KRW1,260.00 figure.
• IDR: The rupiah held a tight range, refusing to test yesterday's extremes. Reminder that Indonesia clarified the scope of its imminent palm oil export ban, noting that it will not affect CPO shipments.
• MYR: Spot USD/MYR crept higher, lodging a fresh two-year high. Malaysia was expected to announce relaxed Covid-19 standard operating procedures.
• PHP: Spot USD/PHP lost ground, moving further away from key resistance located at PHP52.500. President Duterte turned down his U.S. counterpart's invitation for a White House summit with other ASEAN leaders.
• THB: The baht extended its rout despite BoT's warnings on rapid FX moves and better than expected trade data from Thailand's Customs Dept, which showed that trade surplus unexpectedly widened in March on the back of a solid beat in shipments.

EQUITIES: Mixed As Chinese Stocks Rebound; U.S. Tech Earnings Haunt Asian Session

Asia-Pac equity indices are mixed at writing, finding little support from Wall St.’s strongly negative lead. Tech stocks across the region struggled, with pessimistic spillover from the tech-heavy NASDAQ’s (-4.0%) dismal showing during Tuesday’s NY session evident.

• The CSI300 sits 1.1% higher at typing, outperforming regional peers by a relatively wide margin. Consumer staples names lead gains, with large-cap Kweichow Moutai (+4.0%) contributing the most to gains in the index after reporting a 24% Y/Y increase in net profit. Broader risk appetite also received a lift from Chinese President Xi Jinping announcing late on Tuesday that the government would go “all out” to boost infrastructure investment and spending in key identified industries, while sentiment benefitted from reports showing fresh daily COVID cases in Shanghai declining for a fourth consecutive day to three-week lows.
• The Hang Seng Index trades a little above neutral levels at typing, reversing earlier losses after opening lower with outperformance in the Hang Seng Tech Index helping to neutralise drag from the index’s property and utilities sub-indices.
• The Australian ASX200 trades 0.7% lower, led under on drag from technology stocks. The S&P/ASX All Technology Index is 1.7% worse off at typing, with large-cap Block Inc leading losses. Commodity-related names provided some counter to the bearish pressure as some commodity benchmarks have rallied, with notable outperformance in energy equities.
• Looking ahead, Meta’s earnings call later today (2100 GMT) possibly bears watching, following the observed market reaction to recent earnings reported by Netflix, Alphabet, and Microsoft.
• U.S. e-mini equity index futures sit 0.3% to 0.7% better off at typing, operating at their respective session highs after rising off of six-week lows made late on Tuesday.

GOLD: Under Pressure In Asia; One-Month Low Remains In Sight

Gold trades ~$7/oz lower to print $1,898/oz at typing, operating a touch above Tuesday’s lows as nominal U.S. Tsy yields have rebounded in Asia-Pac dealing, while the USD (DXY) remains bid near two-year highs.

• To recap, the precious metal closed ~$8/oz higher on Tuesday to extend a move off of Monday’s one-month lows, aided by a broad downtick in U.S. real yields.
• Steadily rising tensions (and hints of rhetoric re: nuclear war) surrounding the Russia-Ukraine conflict continues to lend support to bullion, with the week-to-date seeing escalations in the scale and breadth of western arms supplies to Ukraine, as well as the EU’s progress towards energy sanctions.
• Looking to energy issues within Europe, Russia is set to cut natural gas supplies to Poland and Bulgaria on Wednesday, with some debate noted re: the ability of the latter to cope with the halt in Russian gas imports. Elsewhere, German Economy Minister Habeck has highlighted the possibility of replacing Russian crude “in days”, noting that the country has come “very, very close” to such a goal.
• From a technical perspective, the pullback from recent highs at $1,998.4/oz (Apr 18 high) continues to represent a bearish threat. Gold continues to hold key support at $1,890.2/oz (Mar 29 low and bear trigger) for now, and a break below that would open up further support at $1,878.4/oz (Feb 24 low).

OIL: WTI Back Above $100 As Ruble Row Unfolds; Shanghai Cases Fall

WTI and Brent are ~$0.20 firmer at typing, operating a little below their respective best levels for the week. Both benchmarks have extended gains made on Tuesday (after closing ~$3 higher in that session), with the move higher facilitated by possible signs of easing in Shanghai’s ongoing COVID outbreak.

• To elaborate, total fresh COVID cases in Shanghai for Tuesday came in at ~13.5K, declining for a fourth consecutive day to hit three-week lows. Speculation over the easing of lockdowns in the city has also risen following observed software updates on the ubiquitous Alipay payment app allowing for the display of COVID-relevant movement permits. Participants are however keeping an eye on fresh cases in Beijing (likely over lockdown risks), with authorities reporting 34 cases for Tuesday, a roughly similar rate to Monday’s figures.
• Elsewhere, major crude benchmarks caught a bid on Tuesday after Russia announced that natural gas supplies to Poland and Bulgaria would be cut after they had refused to make payment in rubles. The EU also continues to make well-documented progress towards a ban on Russian crude,
• Looking to the U.S., the latest round of API inventory reports crossed late on Tuesday, pointing to a larger than expected build in crude stockpiles that largely negated last week’s decline. An increase was reported in distillate and Cushing hub stocks as well, while there was a drawdown in gasoline inventories.
• Up next, U.S. DOE inventory data crosses at GMT1430 on Wednesday, with WSJ median estimates calling for a build in crude and gasoline stocks, with a drawdown in distillate stockpiles.