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RBA Dated OIS Shift Lower After 25bp Hike


Surprise 25bp Hike But Inflation Too High

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Fig. 1: USD/CNH vs. USD/CNH 3-Month ATM Implied Volatility

Source: MNI - Market News/Bloomberg


BREXIT: The attorney-general has approved the scrapping of large parts of the Northern Ireland Brexit deal amid mounting cabinet divisions over the plan, The Times has been told. Suella Braverman has advised that legislation to override the Northern Ireland protocol would be legal because the EU’s implementation of it is “disproportionate and unreasonable”. In evidence accompanying her findings, Braverman says that the EU is undermining the Good Friday agreement by creating a trade barrier in the Irish Sea and fuelling civil unrest. Her submission argues that the agreement has “primordial significance” and is more important than the protocol. “There’s mountains of evidence that there’s a trade barrier down the middle of our country,” said a government source. “Suella has argued that trade is being diverted.” Her submission also details “societal unrest” and cites hoax bomb attacks, including one targeting Simon Coveney, the Irish foreign minister. “There are increasing signs of violence in Northern Ireland,” the source said. “That can’t be allowed to carry on.” (The Times)

BREXIT: Prime Minister Boris Johnson will spend the next few days considering whether the UK will introduce legislation to override its post-Brexit settlement with the EU, a move that risks sparking a trade war. With Britain and its largest trading partner edging toward a diplomatic crisis, there’s now expected to be a brief period of calm as Johnson mulls his next move over the weekend. A spokeswoman for Johnson downplayed reports that he is due to give a speech on Northern Ireland next week, saying he would likely focus on the impasse in the Northern Ireland executive and legacy issues rather than the Brexit deal. (BBG)

BREXIT: The EU has vowed to retaliate if the UK rips up a post-Brexit trade deal for Northern Ireland after London’s threat of unilateral action triggered alarm in Brussels and Washington. In a two-page document sent to member states on Wednesday and seen by the Financial Times, the European Commission said “renegotiation of the protocol” was “not an option”, adding that it would respond to any unilateral UK move “using the legal and political tools” at its disposal. (FT)

FISCAL: Chancellor Rishi Sunak is preparing to announce in the summer a major new support package for UK households struggling with soaring energy bills, as he seeks to head off criticism he is not doing enough to tackle the cost of living crisis. Sunak’s colleagues said he is looking to make the announcement in August, around the same time as the regulator Ofgem unveils a new UK energy price cap, which could increase to as much as an average £2,900 a year per household. The revised price cap would take effect in October, but Sunak is under huge pressure to bring forward an announcement on what he intends to do to reassure households that state help will be on hand when energy bills go up. (FT)

FISCAL: Tax cuts could now be announced before the summer recess, Sky News understands. Ministers have been forced to rethink plans after grim forecasts from the Bank of England suggested the economy was now at risk of recession. Inflation is also likely to be higher than expected just six to eight weeks ago, putting pressure on the government to act sooner than planned. Sky News understands minsters are now likely to have enough information to make decisions before the summer recess at the end of July. This could include more help with energy bills and might include tax cuts although no decisions have been made. (Sky)

ECONOMY: Concern about the cost of living has hit a record high as UK households continue to "bear the brunt". A new survey says confidence in household finances over the short term, hit an all-time low in April, dropping by six points on the previous month and a "massive" 57 points compared with April last year to 56.7. The 12-month outlook also hit a new low, inching downwards from 49.1 to 48.3. The study from YouGov and the Centre for Economics and Business Research (CEBR) found that overall consumer confidence has fallen one point since March but 7.6 points since this time last year. Other metrics such as house value, job security, and business activity remain stable, the survey suggests. The new statistics come ahead of the release of new UK GDP figures which are expected to put growth at 1% for the first quarter of this year, down from 1.3 for quarter 4 last year. (Sky)

BOE: Three former members of the Bank of England’s Monetary Policy Committee have warned of the increasing risk that the UK economy will fall into recession as a result of the institution’s efforts to contain inflation. BoE governor Andrew Bailey has recently spoken of being on a “narrow path” towards achieving price stability by raising rates without generating negative growth. (FT)


ECB: European Central Bank policy makers are increasingly embracing a scenario of taking interest rates above zero before the end of the year, according to officials familiar with the matter. With Governing Council members already converging around a hike of a quarter point in July, at least two further moves of that size before January are becoming a plausible outcome for officials from across the decision-making spectrum, said the people, who asked not to be identified discussing private deliberations. That would suggest ECB policy makers are starting to align with the views of money markets, which currently show investors betting on three increases in the deposit rate from the current -0.5% before the year is out. No decision has been taken on future monetary moves. A spokesman for the ECB declined to comment on its the path of interest rates. (BBG)

FISCAL: A top European official has backed a multi-trillion-euro "Marshall"-style plan to rebuild Ukraine, pledging the firepower of the EU's lending arm for what he said must be a global rescue effort. Werner Hoyer, president of the European Investment Bank (EIB), said Europe must not be left alone to foot the vast bill from Russia's invasion of Ukraine that he predicted could run into the trillions. Addressing the need for a similar programme for Ukraine, Hoyer told Reuters the cost of rebuilding the country had been discussed at recent meetings at the United Nations, the International Monetary Fund and World Bank in Washington. "What will it cost to rebuild, reconstruct Ukraine? Figures were flying around the room ... but one thing is quite clear to me: We are not talking about millions but trillions" said Hoyer, a former German foreign office minister under Chancellor Helmut Kohl following the fall of the Berlin Wall. (RTRS)


FED: U.S. April inflation at 8.3% remained "hot" but does not yet require the Federal Reserve to switch to three-quarter point rate increases, St. Louis Fed President James Bullard said on Wednesday. The Fed's current plan for half point increases is "a good benchmark for now," Bullard said on Yahoo Finance. Large increases are "not my base case ... I think we have a good plan in place," Bullard said. (RTRS)

FED: Federal Reserve Bank of Atlanta President Raphael Bostic said he is open to raising interest rates to restrict economic growth if inflation, which accelerated more than forecast in April, persists at elevated levels. “We are going to get our policy rate certainly to a neutral space where we are no longer providing accommodation,” Bostic told the World Affairs Council of Jacksonville, Florida, Wednesday. “If inflation stays at high levels or levels that are too high -- by too high, it’s really not moving back towards our 2% target -- then I am going to be supporting moving more.” (BBG)

FED: The US Senate confirmed economist Philip Jefferson as a Federal Reserve governor on Wednesday evening, adding a third nominee of President Joe Biden to the central bank’s board. The vote was 91 to 7. During his confirmation hearing, Jefferson’s experience and commitment to follow the Fed’s limited mandates had earned Republican plaudits, while Democrats have praised his research on poverty and the diversity he’ll add to the board. He was the only Biden Fed nominee to win unanimous backing from the Banking Committee. (BBG)

FED: Lorie Logan, who manages the Federal Reserve Bank of New York’s massive holdings of securities and cash, will be the new president and chief executive of the Federal Reserve Bank of Dallas. Ms. Logan, a 49-year-old executive vice president at the New York Fed, will take over the slot vacated by Robert Kaplan in September. He retired from the Dallas Fed amid questions about trading in financial markets during his tenure at the bank. (WSJ)

INFLATION: U.S. President Joe Biden on Wednesday blamed Russia's war on Ukraine for the latest spike in global food prices and visited a family farm in Illinois where he pledged to support the nation's farmers as they seek to fill the supply shortage. (RTRS)

FISCAL: The U.S. government posted a $308 billion surplus in April - a record for any month - as receipts nearly doubled from a year earlier amid a strong economic recovery from the COVID-19 pandemic, the Treasury Department said on Wednesday. The April surplus compared to a $226 billion deficit for April 2021, when receipts were reduced by a one-month delay in the annual tax filing deadline. The previous record monthly surplus was $214 billion in April 2018. April has traditionally been marked by budget surpluses due to the traditional April 15 tax filing deadline, but deficits for that month were recorded in 2009, 2010 and 2011 after the financial crisis, and in 2020 and 2021 due to the pandemic, a Treasury official told reporters. (RTRS)


GLOBAL TRADE: The U.S. and European Union plan to keep addressing supply-chain and other disruptions as they project a unified front against Russia when high-level officials meet starting Sunday to discuss cooperation on trade and technology issues in Paris. “The Trade and Technology Council intends to develop common approaches and explore shared solutions toward improving supply-chain resiliency, fostering predictability and diversification of trade,” the two sides plan to say, according to a recent draft of a joint statement seen by Bloomberg. Both sides want to collaborate further by creating a system to notify each other of shortages of semiconductors, as well as coordinating subsidies to chip producers to guard against a subsidy race spurred by separate US and EU acts to boost semiconductor research and production. The draft states a desire by both sides to cooperate more in areas like purchases of environmental goods, as well as carbon footprinting, green public procurement, and electric vehicle charging infrastructure. (BBG)

U.S./CHINA: U.S. Commerce Secretary Gina Raimondo on Wednesday said she had no discretion to influence her department's investigation into tariff-dodging by Chinese solar panel producers but said the industry's worst fears were unlikely to materialize. The trade action is being considered by department officials under a strict process that considers very specific criteria prescribed by law, Raimondo said. She added, however, that the department was unlikely to impose tariffs of 200% as many in the solar development industry have worried could happen. Raimondo committed to moving "as fast as possible" to complete the probe, which could last until August. "If we can do better than August, we certainly will," she said. (RTRS)

U.S./CHINA: The Biden administration has drafted an executive order that would give the Department of Justice vast powers to stop foreign adversaries like China from accessing Americans' personal data, according to a person familiar with the matter and excerpts seen by Reuters. The proposal, which is being reviewed by government agencies, would also direct the Department of Health and Human Services (HHS) to prevent federal funding from supporting the transfer of US health data to foreign adversaries, according to the excerpts. (RTRS)

GEOPOLITICS: Finland is expected to announce on Thursday its intention to join NATO with Sweden likely to follow soon after, diplomats and officials said, as Russia's invasion of Ukraine reshapes European security and the Atlantic military alliance. NATO allies expect Finland and Sweden to be granted membership quickly, five diplomats and officials told Reuters, paving the way for increased troop presence in the Nordic region during the one-year ratification period. (RTRS)

GEOPOLITICS: British Prime Minister Boris Johnson on Wednesday said he had agreed new deals with Sweden and Finland to bolster European security, pledging to support both countries' armed forces should they come under attack. Johnson signed the new declarations, described by Britain as "a step-change in defence and security cooperation", during visits to both Sweden and Finland on Wednesday. "What it says is that in the event of a disaster, or in the event of an attack on either of us, then we will come to each other's assistance, including with military assistance," Johnson said at a news conference in Helsinki. (RTRS)

GEOPOLITICS: Japan's Prime Minister Fumio Kishida said on Thursday that Japan and the European Union had agreed to further their cooperation with respect to Russia, as the conflict in Ukraine continues and sanctions on Russia tighten. In a joint news conference held in Tokyo, European Commission President Ursula von der Leyen, European Council President Charles Michel, and Kishida said they would condemn Russia and continue discussions on how to maximise the various partnerships currently in place, including in energy. (RTRS)

JAPAN: The Japanese government is considering exempting certain inbound travelers from the COVID-19 test now required at ports of entry, starting as early as June, Nikkei has learned. (Nikkei)

BOJ: The Bank of Japan board indicated its lack of appetite for changing policy to help address a slide in the yen to a two-decade low during discussions at a meeting last month, according to a summary of opinions from the gathering. “It is not appropriate that the bank change its policy with the aim of controlling foreign exchange rates,” one board member said, according to the summary released Thursday. About 10% of economists surveyed before the meeting had expected the central bank to at least tone down the easing-bias in its guidance on policy. (BBG)

AUSTRALIA: Strong pay rewards could feed into inflation and push up the cost of living even further, Australian Prime Minister Scott Morrison said, signaling wages would remain low under his government as flaring inflation becomes a key issue ahead of an election this month. Morrison said he welcomed pay rises for all workers but pointed to small businesses who are “doing it incredibly tough. They are the ones who employ people. And we want to make sure they can keep employing people.” (BBG)

NORTH KOREA: The United States called out China and Russia on Wednesday (May 11) for opposing further United Nations action on North Korea, warning that the Security Council "cannot stay silent any longer" as Pyongyang prepares for a seventh nuclear test. US Ambassador to the United Nations Linda Thomas-Greenfield, referred to "two council members" whom she said argued that restraint by the council would encourage North Korea "to stop escalating and instead come to the negotiating table." "Clearly, silence and restraint have not worked," Thomas-Greenfield told a council meeting convened by the United States on North Korea's latest ballistic missile launches. "It is time to stop providing tacit permission and to start taking action." (RTRS)

NORTH KOREA: North Korean leader Kim Jong Un ordered all cities to be put under lockdown after the state for the first time Thursday said it has Covid-19 in its borders.“A serious situation has been created due to the introduction of a stealth omicron mutant virus into our precincts,” its official Korean Central News Agency said. At a party meeting Thursday attended by Kim, authorities elevated the country’s national quarantine measures to “maximum emergency,” it added. Kim ordered “all cities and counties across the country to thoroughly lockdown their areas,” so as to “completely block the transmission of malicious virus,” according to KCNA. (BBG)

NEW ZEALAND: New Zealand Finance Minister Grant Robertson said there is always a risk of a hard landing for the economy but pushed back against concerns about a 2023 recession. Treasury forecasts prepared for the May 19 budget show “that the New Zealand economy is well positioned” and that the budget will “return to surplus in 2024-25,” he told reporters Thursday in Wellington. “So I think that indicates we are still in a strong position.” He declined to be specific about the Treasury’s growth forecasts. House prices are falling and consumer confidence has slumped as the Reserve Bank raises interest rates aggressively to combat surging inflation. Bank of New Zealand economists yesterday said the chances of the economy moving into recession next year “are rising by the day.” Robertson said New Zealand is entering a challenging period with record-low unemployment and low government debt, and the government remains confident in the economic outlook. (BBG)

HONG KONG: The Hong Kong dollar fell to the weak end of its trading band for the first time in three years as the US interest-rate increase this month undermined the appeal of the city’s assets, prompting the local monetary authority to buy the currency for the first time since 2019. The currency declined to 7.85 per US dollar, hitting the weak end of its allowed trading range for the first time since May 2019. Selling of the local dollar has intensified in recent months as a hawkish Federal Reserve boosted the greenback, while pandemic restrictions in the former British colony have damped its growth outlook. In response, the Hong Kong Monetary Authority bought some HK$1.586 billion to defend the peg system, which confines the currency to a band of 7.75 to 7.85 versus the greenback. (BBG)

ASIA: The White House is considering placing an empty chair at this week’s ASEAN meetings in Washington to protest on behalf of the exiled Myanmar government, a senior administration official said Wednesday. The US believes initial steps taken by ASEAN following the 2021 military takeover have stalled and hopes to use this week’s summit to discuss new measures to pressure the junta, the official said. The US invited a nonpolitical representative of Myanmar to the summit but the country declined that option, White House spokeswoman Karine Jean-Pierre said earlier Wednesday.

CANADA: The Trans Mountain pipeline expansion project has secured up to C$10 billion ($7.7 billion) in private-sector financing, but it comes with a loan guarantee provided by the Canadian government. Those disclosures were posted on the website of Export Development Canada, a trade-promotion agency that administers the flow of money on the government’s behalf. They also showed the government put forward C$1.75 billion in “working capital support” to Trans Mountain Pipeline LP, the entity building an expansion that will more than double the capacity of the oil pipeline between Alberta and British Columbia. (BBG)

CANADA: The leading candidate to challenge Justin Trudeau in Canada’s next election said he would fire the governor of the country’s central bank if he was elected prime minister. Pierre Poilievre, a 42-year-old firebrand seeking the leadership of the the main opposition Conservative Party, has had the Bank of Canada’s governor in his cross-hairs for the past two years. “I would replace him with a new governor who would reinstate our low-inflation mandate, protect the purchasing power of our dollar, and honor the working people who earned those dollars,” Poilievre said during a leadership debate Wednesday night in Edmonton, Alberta, to much applause from the audience. (BBG)

TURKEY: The Biden administration has informally reached out to the U.S. Congress to seek approval for a proposed sale of missiles and equipment upgrades to NATO ally Turkey, sources familiar with the matter said on Wednesday. The weapons package was an existing request by Ankara, and includes AIM-120 medium-range air-to-air and sidewinder missiles, as well as hardware and software updates for F-16 fighter jets, sources said. (RTRS)

BRAZIL: Brazil’s Ministry of Mines and Energy will request the start of studies on the legal proposals necessary for the oil company’s privatization process, said the new minister, Adolfo Sachsida, in his first statement in office. Ministry will also ask the Economy Ministry to include Pré-Sal Petróleo SA in the National Privatization Plan, Sachsida added. (BBG)

BRAZIL: Subsidies are the only way to relieve fuel cost pressures hitting consumers in Brazil because state-run Petroleo Brasileiro SA must continue to follow international prices, according to one of the board members of the national oil giant. Marcelo Gasparino, who represents the company’s minority holders at the oil giant, says the government should create a subsidy specific to road haulers, urban mass transit services, plus taxis and ride-share drivers. (BBG)

RUSSIA: The United States does not believe that Russian President Vladimir Putin wants to militarily take on the NATO alliance, U.S. Defense Secretary Lloyd Austin said on Wednesday, as Moscow struggles to achieve its goals in Ukraine three months into its invasion. "As you look at Putin's calculus, my view - and I'm sure the chairman has his own view - but my view is that Russia doesn't want to take on the NATO alliance," Austin said during a congressional hearing. (RTRS)

RUSSIA: U.S. Ambassador to Russia John Sullivan met with Russian officials on Wednesday to discuss a narrow range of issues in the bilateral relationship, State Department spokesman Ned Price said. "Ambassador Sullivan is discussing issues in the bilateral relationship with his Russian counterparts. These tend to be quite narrow. In many cases, these tend to be centered on the functioning of our embassy," Price told a daily news briefing. (RTRS)

RUSSIA: Russia's economy will begin stabilising in its "new equilibrium" closer to the end of this year after beginning to go through a structural transformation in the second and third quarters, the central bank said in a report on Wednesday. "Although monetary policy conditions have changed significantly, price stability remains the unconditional priority of the Bank of Russia's monetary policy," the bank said. It said the rouble would stay floating and was assuming that the country's fiscal rule would remain unchanged. (RTRS)

RUSSIA: Russian inflation eased for a second week as sanctions and uncertainty over the war in Ukraine weigh on consumer demand. Price growth was just 0.12% in the seven days ended May 6, a level not seen since early January, the Federal Statistics Service said Wednesday. The reading was 0.21% in the previous week. Prices for cabbage, cucumbers as well as eggs declined in the latest period, the agency reported. (BBG)

EQUITIES: Saudi Aramco overtook Apple Inc. as the world’s most valuable company, stoked by a surge in oil prices that is buoying the crude producer while adding to an inflation surge throttling demand for technology stocks. Aramco traded near its highest level on record on Wednesday, with a market capitalization of about $2.43 trillion, surpassing that of Apple for the first time since 2020. The iPhone maker fell 5.2% to close at $146.50 per share, giving it a valuation of $2.37 trillion. (BBG)

ENERGY: Italian Prime Minister Mario Draghi said European companies will be able to pay for gas in rubles without breaching sanctions, apparently dismissing European Union guidance to the contrary. “There is no official pronouncement of what it means to breach sanctions,” Draghi said during a press conference on Wednesday. “Nobody has ever said anything about whether ruble payment breach sanctions.” “As a matter of fact, most of the gas importers have already opened their account in rubles with Gazprom,” he added. (BBG)

ENERGY: Moscow has imposed sanctions on the owner of the Polish part of the Yamal pipeline that carries Russian gas to Europe, as well as the former German unit of the Russian gas producer Gazprom, whose subsidiaries service Europe's gas consumption. The implications for gas supplies to Europe, which buys more than a third of its gas from Russia, were not immediately clear. However, a decree by President Vladimir Putin on May 3 stipulated that no Russian entity would be allowed to make deals with those on the sanctions list, or even fulfil its obligations under existing deals. (RTRS)

ENERGY: Germany is examining an announcement from Russia that it is imposing sanctions on parts of Gazprom Germania, a spokesperson for the Economy Ministry said on Wednesday, adding that it has no details. "The German government and Federal Network Agency, as trustees of Gazprom Germania, are already in the process of taking the necessary precautions and preparing for various scenarios," the spokesperson said in a statement. (RTRS)

ENERGY: Ukraine’s energy giant Naftogaz Ukrainy said a return to normal gas transit to Europe depends entirely on Russia’s Gazprom PJSC. Shipments through one of two key border points where natural gas destined for Europe enters Ukraine stopped on Wednesday after the gas grid lost control over critical infrastructure in Russia-occupied territory. Flows could reach normal levels if Gazprom accepted Ukraine’s offer to reroute gas through a second point, said Naftogaz Chief Executive Officer Yuriy Vitrenko. (BBG)

OIL: Having already deployed emergency oil stockpiles, and resurrected a decades-long proposal for anti-trust legislation, importing nations are now dusting off another familiar counter-measure: a buyers’ cartel. Italian Prime Minister Mario Draghi said on Tuesday that he discussed the possibility with US President Joe Biden, which would use its bargaining power to secure higher production -- in the process presumably alleviate the inflationary pain being inflicted by triple-digit crude prices. “The idea is to create a cartel of buyers and to convince, the favorite way, to increase production,” Draghi told reporters in Washington. (BBG)

OIL: The OPEC nations that have stepped up to replace Russian oil flows to Europe aren’t the giants of the Middle East. Instead, some of the group’s minor players are helping to fill the gap. Within the cartel, West African producers are showing the biggest uptick in shipments to European ports, where refiners are snubbing Russian supplies following the invasion of Ukraine. Average shipments of West African crude to Europe reached 1.23 million barrels a day in March and April, up by 40% from the same period last year and the highest level since February 2020, according to tanker-tracking data compiled by Bloomberg. That jump comes despite Nigeria and Angola, the region’s main producers, struggling to increase production as they wrestle with diminished capacity, reduced investment and operational outages. With output under strain, the increase in sales to Europe has come at the expense of a 20% drop in the region’s traffic to Asia. (BBG)

OIL: Europe is set to receive three shipments of U.S. Strategic Reserve crude so far as the region debates how to cut its reliance on Russian crude in the wake of Putin’s war with Ukraine. (BBG)

OIL: Iraq pumped 4.43 million barrels per day (bpd) of oil in April, up by 282,000 bpd from March, according to data from state-owned marketer SOMO seen by Reuters on Wednesday. According to the production figures, Iraq’s April output was 16,000 bpd above its OPEC+ quota for that month. The last time Iraq produced above its OPEC+ production quota was in November 2021, its government figures show. (RTRS)

OIL: Oil companies worldwide have been trying to increase production, but are struggling to balance increases without undercutting shareholder returns, Occidental Petroleum Chief Executive Officer Vicki Hollub said on Wednesday. Energy companies are under pressure to increase output and stem the tide of inflation and fuel shortages. Executives have faced criticism for not quickly responding to calls for more. Oil prices hit a 14-year high in March and have helped push U.S. inflation to double-digit levels. “It is almost value destruction if you try to accelerate anything now,” Hollub said during a conference call to discuss the company’s first quarter results. (RTRS)

OIL: The Dept. of the Interior has decided not to move forward with the Cook Inlet OCS oil and gas lease sale 258 due to a “lack of industry interest in the leasing area,” according to a department statement. It won’t move forward with lease sales 259 and 261 in the Gulf of Mexico region either because of delays due to factors including conflicting court rulings that impacted work on the proposed sales. (BBG)


PBOC: China’s central bank has worked to guide loan interest rates lower from an already low level, Chen Yulu, deputy governor of the PBOC, said Thursday at a press briefing in Beijing. Policymakers will step up support for weak links in the economy, Chen said, when asked about the challenges that the virus outbreaks are posing. Chen reiterated the PBOC would plan new policy tools. (BBG)

PBOC: The benchmark Loan Prime Rate is expected to fall by five basis points in May, as banks' borrowing costs were guided down after the deposit interest rate reform, the Securities Daily reported citing analysts. Recently, large banks are encouraged to lower their high-level provision ratios, which also helps to drive down their debt costs, the newspaper said citing analysts. The 25 bps cut to banks' reserve requirement ratios in April also helped, the newspaper added. The LPR quotation is set to be released on May 20. (MNI)

POLICY: China is eyeing new incremental policies to prop up growth and will take steps when necessary, a senior official of China’s Communist Party said on Thursday, as the economy feels the pinch of Covid-19 outbreaks. China aims to implement existing policies in the first half of the year, Han Wenxiu, deputy head of the party’s office for financial and economic affairs, said at a press conference in Beijing. (RTRS)

POLICY: China's fiscal and monetary policies should prioritize stabilising employment using tax rebates, deferred payments of social security contributions and a reduction of financing costs, reported citing the State Council's executive meeting late on Wednesday. The policy intensity should be no less than that in 2020 to prevent unemployment risks, the newspaper said, citing Zhang Chenggang, professor at Capital University of Economics and Business. There is a record 10.76 million people coming into the job market this year. Small and medium-sized enterprises, which make the largest contribution to employment, are under stress from the pandemic, the newspaper said, citing Yao Kai, professor at Fudan University. (MNI)

POLICY: China’s top political advisory body plans to host a forum next week with some of the nation’s largest private-sector firms including Baidu Inc., an event that will be closely scrutinized by investors debating whether Beijing will dial back its clampdown on the technology industry. The Chinese People’s Political Consultative Conference aims to host the symposium next week with attendees including officials from government agencies such as the Cyberspace Administration of China and business executives including Baidu founder Robin Li, people familiar with the matter said. Vice Premier Liu He, President Xi Jinping’s top economic aide, may also attend, said the people, asking not to be identified discussing a private matter. (BBG)

FISCAL: China still has fiscal policy space and tools to offset increased economic downward pressure, and it is unlikely to issue special treasury bonds in the rest of the year, Securities Times reported citing analysts. Choosing to issue such bonds will instead disrupt market expectations and feed through fiscal debt risks, the newspaper said citing Wu Chaoming, vice president of Chasing Institute. Though the budget deficit-to-GDP ratio was set as 2.8% earlier this year, the actual fiscal strength is sufficient and equivalent to a deficit ratio of 3.8% when taking into account profit turnover by SOEs, and the excess balance of last year, the newspaper said citing Zhang Yu, chief analyst of Huachuang Securities. (MNI)

CORONAVIRUS: Shanghai continued to find Covid-19 cases in the community Wednesday, damping prospects for an easing of a punishing lockdown that has hampered business activity and confined millions of people to their homes for more than a month. While the daily total has steadily fallen, two cases were found in the community Wednesday, CCTV reported, after none were detected on Tuesday. Shanghai officials have said that three days of zero community transmission is required before they can start to ease restrictions. It’s uncertain if the city can hit the three-day target. It managed two days with zero community spread at the end of April, only for cases to rebound. (BBG)

PROPERTY: Sunac said it didn’t pay the $29.5 million coupon on its 7.95% dollar bond maturing 2023 before Wednesday’s deadline, according to a filing to Hong Kong’s stock exchange. China’s fourth-largest developer said its ability to access new financing has remained difficult, and has been compounded recently by the country’s Covid-19 outbreak that has deepened an ongoing industry sales slump. Sunac said it’s appointed legal and financial advisers to help assess the firm’s capital structure and liquidity. (BBG)



The People's Bank of China (PBOC) injected CNY10 billion via 7-day reverse repos with the rate unchanged at 2.1% on Thursday. This keeps the liquidity unchanged after offsetting the maturity of CNY10 billion repos today, according to Wind Information.

  • The operation aims to keep liquidity reasonable and ample, the PBOC said on its website.
  • The 7-day weighted average interbank repo rate for depository institutions (DR007) rose to 2.1000% at 09:27 am local time from the close of 1.5581% on Wednesday.
  • The CFETS-NEX money-market sentiment index closed at 43 on Wednesday vs 44 on Tuesday


The People's Bank of China (PBOC) set the dollar-yuan central parity rate higher at 6.7292 on Thursday, compared with 6.7290 set on Wednesday.














SNAPSHOT: PBoC Eyes Growth Support During Testing Times

Below gives key levels of markets in the second half of the Asia-Pac session:

  • Nikkei 225 down 396.11 points at 25818.78
  • ASX 200 down 115.68 points at 6949
  • Shanghai Comp. down 7.34 points at 3051.365
  • JGB 10-Yr future up 12.0 ticks at 149.44, yield down 0.3bp at 0.245%
  • Aussie 10-Yr future up 5.5 ticks at 96.515, yield down 4.6bp at 3.459%
  • US 10-Yr future +0-02+ at 119-10+, yield down 2.58bp at 2.897%
  • WTI crude down $1.72 at $104.04, Gold down $3.05 at $1849.54
  • USD/JPY down 30 pips at Y129.67

US TSYS: Twist Flatter In Asia, Some Vol. Evident

A flurry of defensive flows were evident during early Asia-Pac trade, with TYM2 moving through Wednesday’s peak and e-minis on the backfoot after a couple of COVID infections were found outside of Shanghai’s quarantine system (resetting the clock re: the move towards a loosening of social mobility restrictions in the city), while North Korea also declared its “first” case of COVID, triggering a lockdown across all cities in the country. We also saw Chinese property developer Sunac note that it has missed interest payments on several US$ bonds (the grace period on one of the payments has now elapsed, with no payment, which could trigger cross-default on other offshore debt), with liquidity issues remaining evident in the sector.

  • Still, the space quickly moved away from richest levels as risk assets regained some poise and e-minis moved back into positive territory, although there was a lack of meaningful headline flow to trigger such a move.
  • TYM2 is now operating just below the middle of its 0-15+ Asia-Pac range, with e-minis dealing around neutral levels. The former is +0-01+ at 119-10 on volume of ~160K. Cash Tsys have twist flattened, pivoting around 3s, with 2s running ~1bp cheaper while 7s provide the firmest point across the curve, sitting 2bp richer. It would seem the twist flattening impetus witnessed after yesterday’s CPI print left its imprint on regional participants, despite the aforementioned vol.
  • Later in the session we saw one of the PBoC Vice Governors note that the Bank is making growth stabilisation a “higher priority” while also flagging the Bank’s guidance re: lower loan interest rates.
  • PPI & weekly jobless claims data are due during NY hours, in addition to 30-Year Tsy supply.

JGBS: Wider Impulse Driving The Space

There has been a lack of domestic input when it comes to today’s JGB market moves, with wider cross-asset flows at the fore.

  • The early bout of risk-off flows linked to COVID headlines covering the Chinese city of Shanghai & North Korea, and perhaps some worry linked to the Chinese property sector given Sunac’s warning re: its ability to service its immediate interest payments on debt requirements, provided some support, before the wider risk-off impulse faded.
  • JGB futures pushed through their overnight highs before fading from best levels and then turning bid again. The contract is last +12.
  • Cash JGBs are little changed to 1bp richer across the curve. 30+-Year paper cheapened in early afternoon dealing, post-supply, after outperforming during the Tokyo morning, but has since regained some poise.
  • In terms of specifics, the latest 30-Year JGB auction was soft on the pricing side, with the low price softer than wider expectations (99.40 vs. the BBG dealer median of 99.60), while the price tail widened vs. the previous round of 30-Year JGB supply. Elsewhere, the cover ratio was little changed vs. the previous round of 30-Year JGB supply, holding below the 6-auction average of 3.32x. Ongoing market vol. & the risk of fresh offshore FI-led cheapening is seemingly keeping some prospective bidders sidelined at present, even with yields hovering around multi-year highs.

JGBS AUCTION: Japanese MOF sells Y723.4bn 30-Year JGBs:

Japanese MOF sells Y723.4bn 30-Year JGBs:

  • Average Yield 1.015% (prev. 0.989%)
  • Average Price 99.64 (prev. 100.25)
  • High Yield: 1.026% (prev. 0.993%)
  • Low Price 99.40 (prev. 100.15)
  • % Allotted At High Yield: 97.1524% (prev. 13.0925%)
  • Bid/Cover: 3.079x (prev. 3.049x)

AUSSIE BONDS: A Touch Firmer & Flatter, Back From Extremes

Aussie bonds continue to trade to the beat of the wider macro drum, with a lack of idiosyncratic drivers evident once again on Thursday.

  • In his latest pre-election address, Australian PM Morrison noted that sizeable pay growth may fan the inflationary flames further, despite various unions and business bodies calling for such a move in recent days (Morrison’s ruling coalition still trails Labor in the polls ahead of the May 21 election).
  • The previously outlined COVID case-related headlines surrounding China, and to a lesser extent, North Korea, in addition to the Sunac bond payment worries, allowed futures to move to best levels of the session during the Sydney morning, before the move pared back a little as wider risk appetite recovered a little.
  • A very modest moderation in domestic consumer inflation expectations (to a still lofty +5.0% in Y/Y trimmed mean terms) had no impact on the space.
  • YM is dealing +4.0, with XM +5.5, which much of the overnight/early Sydney flattening unwound.
  • 10+-Year cash ACGB trade has seen a fairly parallel 5.5-6.5bp of richening.
  • A$1.0bn of ACGB May-32 supply, the release of the weekly AOFM issuance slate and panel participation by RBA Deputy Governor Bullock at the Regulators 2022 (FINSIA) headline the local docket on Friday.

EQUITIES: Lower Post-CPI; Australian Tech Gets Crushed

Most Asia-Pac equity indices are lower at typing, tracking a negative lead from Wall St. High-beta stocks across the region broadly sold off following Wednesday’s above-expectations U.S. CPI reading, with the latter largely confirming recent hawkish Fed tightening expectations, sending that basket of rate-sensitive stocks lower in Asian hours.

  • The Hang Seng Index sits 1.1% worse off at typing, with debate re: capital outflow doing the rounds after the HKMA stepped in to intervene in the HKD for the first time since 2019. The Hang Seng Tech Index struggled, dealing 1.5% softer at typing on losses in Tencent, Alibaba, Baidu. A note that major internet platform companies broadly pared losses mid-way through the morning session, following a report that Chinese officials are due to meet with business executives from the country’s largest private-sector companies next week, with Chinese Vice Premier Liu He reportedly scheduled for attendance as well (BBG sources).
  • The CSI300 has risen from a 0.7% lower open to sit just below neutral levels at writing, heading into the mid-session break. Remarks from senior PBOC and government officials earlier in the session emphasising supportive policy for “weak links” in the economy (from the PBOC) and “incremental policies” to support growth (from the government), lent a bid to equities, balancing against broader weakness amongst real estate stocks.
  • The ASX200 sits 1.6% softer, with the S&P/SPX All Technology Index dragging overall sentiment lower, shedding 5.9% at typing. The bulk of the losses are attributed to Block Inc (-15.6%) and Xero Limited (-11.3%), with the latter tumbling after reporting full-year results for FY22. Block Inc on the other hand, likely tracked a broader decline in the cryptocurrency space due to the spectacular implosion of the stablecoin UST (third largest by market cap), with large-cap crypto token LUNA diving to ~$0.35 at typing (started the week at ~$64).
  • U.S. e-mini equity index futures are 0.1% to 0.3% firmer apiece, albeit operating just above their respective cycle lows made earlier in the session.

OIL: Lower In Asia; Shanghai Resets Lockdown Counter

WTI and Brent deal ~$1.30 weaker apiece, extending a pullback from Wednesday’s best levels at writing.

  • Virtually no discernible progress has been made re: overcoming Hungarian opposition to EU sanctions on Russian energy, with Budapest on Wednesday notably demanding “hundreds of millions of dollars” to replace Russian crude - a move that senior European diplomats have reportedly voiced opposition to, despite a European Commission (EC) plan to do so. Looking ahead, the EC is due to schedule a video conference between European Leaders and Hungarian leader Viktor Orban.
  • Looking to China, elevated hope for an end to lockdowns in Shanghai took a hit earlier in the session after two cases were reported “in the community” for Wednesday, keeping in mind that officials have stated that three days of zero community spread is required for there to be an easing in restrictions. Zooming out, COVID cases in the city and nationwide remain relatively low however, coming in below 2K for another day.
  • The latest round of U.S. EIA crude inventory data crossed on Wednesday, with a large surprise build in U.S. crude stockpiles observed, adding to the increase observed last week as well. On the other hand, there was a drawdown in gasoline, distillate, and Cushing hub stocks, with distillate inventories noted to have previously hit 14-year lows in last week’s data release.
  • The ongoing drawdown in U.S. distillate stockpiles comes as analysts have flagged the start of the “driving season” in the U.S., set to begin in end-May.
  • Up later today, the International Energy Agency is due to release their monthly Oil Market Report at 0900 BST.

GOLD: Higher Post-CPI

Gold sits $5/oz better off to print $1,857/oz, operating around Wednesday’s best levels at typing. The move higher has been facilitated by a limited downtick in nominal U.S. Tsy yields, with the USD (DXY) continuing to trade a little below recently made cycle highs.

  • To recap Wednesday’s price action, U.S. inflation figures initially spurred a knee-jerk ~$20/oz decline in gold, reversing gains made earlier in the session pre-CPI. The yellow metal rapidly rebounded to close $14/oz higher amidst a retreat in U.S. real yields, erasing the bulk of Tuesday’s losses in the process. The bounce comes as the firmer-than-expected CPI print mixes with recent Fedspeak coalescing around support for back-to-back 50bp hikes for near-term FOMCs.
  • To elaborate, known hawk Bullard (St. Louis Fed Pres, voter) said after Wednesday’s CPI print that 50bp hikes were “a good benchmark for now” while re-iterating previously issued views that 75bp hikes are “not my base case”, flagging data-dependence. Atlanta Fed Pres Bostic (‘24) separately voiced support for 50bp moves “until we get to neutral” (FOMC estimate: ~2.4%), while again not ruling out a 75bp hike.
  • Elsewhere, June FOMC dated OIS now price in ~61bp of tightening for that meeting, reviving the prospect of a 75bp hike (>40% chance). A look further out points to a more muted change in expectations for the July FOMC, with dated OIS pricing in a cumulative ~106bp of tightening by that meeting, a little higher than pre-CPI levels.
  • From a technical perspective, gold remains vulnerable despite its recent move higher, with initial support seen at $1,832.1/oz (May 11 low). Immediate support is a relatively short distance away at $1,865/4/oz (May 10 high), although our technical analyst flags that a break of resistance at $1,909.8/oz (May 5 high) may be needed to confirmation a short-term reversal of the bearish trend.

FOREX: Sentiment Sours As COVID Returns To Shanghai Community, PBOC Speak Adds Pressure To Yuan

Risk sentiment soured as disappointing news re: China COVID-19 situation added to the concerns over the prospect of decisive Fed tightening. Shanghai reported two infections in the community, which quashed hopes for imminent loosening of restrictions. The authorities would only be able to ease curbs after three consecutive days of no community transmission and there were zero cases outside designated quarantine facilities on Wednesday. The official confirmation of first COVID-19 infections in North Korea helped fuel worries over the resurgence of the virus.

  • The redback got some reprieve as firm appreciation bias returned to the daily yuan fixing, but USD/CNH staged a strong rebound as the session progressed. The rate's upswing seemed driven by comments from PBOC Dep Gov Chen, who noted that the central bank has guided loan interest rates to decline. USD/CNH extended gains upon the breach of Nov 4, 2020 high of CNH6.7745 on its way to a fresh cycle high at CNH6.7890.
  • The Aussie and Kiwi dollars were hardest hit among G10 currencies, owing to the dependence of Antipodean economies on demand from China. The kiwi dollar paced losses, paying little attention to the RBNZ's Q2 Survey of Expectations, which showed a further uptick in two-year inflation expectations.
  • The yen took the lead on safe haven demand but USD/JPY failed to test yesterday's low. By contrast, regional risk barometer AUD/JPY retreated past yesterday's worst levels to a new multi-week low, consolidating under the Y90.00 mark.
  • The HKMA intervened in defence of its currency peg for the first time since 2019 after USD/HKD tested the upped end of its permitted trading band late doors Wednesday.
  • On the data front, focus turns to UK GDP (flash) & Swedish CPI as well as U.S. PPI & weekly jobless claims. Central bank speaker slate features ECB's de Cos & Makhlouf as well as Riksbank's Ingves.

FOREX OPTIONS: Expiries for May12 NY cut 1000ET (Source DTCC)

  • EUR/USD: $1.0400(E507mln), $1.0600(E1.3bln), $1.0625(E793mln), $1.0675-85(E1.1bln)
  • GBP/USD: $1.2400(Gbp690mln)
  • EUR/GBP: Gbp0.8580-00(E503mln)

UP TODAY (Times GMT/Local)

12/05/20220600/0700**UK Index of Services
12/05/20220600/0700**UK UK Monthly GDP
12/05/20220600/0700***UK Index of Production
12/05/20220600/0800***SE Inflation report
12/05/20220600/0700**UK Output in the Construction Industry
12/05/20220600/0700**UK Trade Balance
12/05/20220600/0700***UK GDP First Estimate
12/05/20221230/0830**US Jobless Claims
12/05/20221230/0830***US PPI
12/05/20221230/0830**US WASDE Weekly Import/Export
12/05/20221430/1030**US Natural Gas Stocks
12/05/20221530/1130**US US Bill 04 Week Treasury Auction Result
12/05/20221530/1130*US US Bill 08 Week Treasury Auction Result
12/05/20221535/1135CA BOC Deputy Gravelle speech on commodity shocks.
12/05/20221600/1200***US USDA Crop Estimates - WASDE
12/05/20221700/1300***US US Treasury Auction Result for 30 Year Bond
12/05/20221800/1400***MX Mexico Interest Rate
MNI London Bureau | +44 0203-865-3809 |
MNI London Bureau | +44 0203-865-3809 |

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