MNI EUROPEAN OPEN: China Activity Data Highlights Divergent Trends
EXECUTIVE SUMMARY
- BOSTIC REPEATS FED RATE CUT AT END OF YEAR LIKELY - MNI BRIEF
- FED’S MESTER - RISING INFLATION RISKS TO DELAY CUT TIMING - MNI
- ECB’s SCHNABEL SAYS JULY CUT DOESN’T LOOK WARRANTED: NIKKEI
- BOJ WANTS STABLE FX MARKET TO CUT JGB BUYING - MNI POLICY
- CHINA APRIL SALES HIT OVER ONE-YR LOW ON WEAK DEMAND - MNI EM BRIEF
- MAY LPR TO REMAIN STEADY AS MARKET RATES FALL - MNI PBOC WATCH
- BUDGET TO ADD INFLATIONARY PRESSURE, STAY RBA’S HAND - MNI
Fig. 1: China Industrial Production & Retail Sales Trends Diverging
Source: MNI - Market News/Bloomberg
UK
FISCAL (BBG): Chancellor of the Exchequer Jeremy Hunt will pledge to reduce UK taxes after a looming UK general election if his governing Conservatives come out on top, in a speech Friday in which he’ll also reiterate an ambition to eliminate the country’s national insurance payroll tax.
EUROPE
ECB (NIKKEI): European Central Bank Executive Board member Isabel Schnabel warned against back-to-back interest-rate cuts in June and July. “Based on current data, a rate cut in July does not seem warranted,” she told Nikkei newspaper in comments published Friday. “We should look very carefully at the data because there is a risk of easing prematurely.”
RUSSIA/UKRAINE (BBG): Russia’s weeklong offensive in northeastern Ukraine is setting alarm bells ringing in Kyiv as President Volodymyr Zelenskiy and his generals rush to shore up their defenses. Zelenskiy has canceled foreign travel plans for the next few days and on Thursday met with his key commanders in Kharkiv, the border city that’s become the focus of Moscow’s attacks.
U.S.
FED (MNI BRIEF): Federal Reserve Bank of Atlanta President Raphael Bostic said Thursday he is comfortable keeping interest rates steady, reiterating he doesn’t think it will be appropriate to lower borrowing costs until toward the end of the year.
FED (MNI): Rising risks to the inflation outlook mean it will take longer for Federal Reserve officials to gain the confidence they need to begin reducing interest rates, Cleveland Fed President Loretta Mester said Thursday.
FED (MNI INTERVIEW): U.S. inflation appears to be resuming its downward trend following a bumpy start to the year, which should allow Federal Reserve officials to begin cutting interest rates in the fall, former Richmond Fed economist Peter Ireland told MNI.
US/ISRAEL (RTRS): The Republican-led U.S. House of Representatives passed a bill on Thursday that would force President Joe Biden to send weapons to Israel, seeking to rebuke the Democrat for delaying bomb shipments as he urges Israel to do more to protect civilians during its war with Hamas.
OTHER
GLOBAL (BBG): The International Monetary Fund criticized the Biden administration’s decision to aggressively raise tariffs on some Chinese goods, underscoring its warning that tensions between the world’s top two economies risk hurting global trade and growth.
JAPAN (MNI POLICY): The Bank of Japan is concerned the market could interpret any reduction to its Japanese government bond buying programme as an attempt to curb yen weakness and a sign of earlier-than-expected rate hikes, and will hold off plans to shrink its purchases until stability returns to the foreign-exchange market, MNI understands.
JAPAN (BBG): The Bank of Japan may raise its benchmark interest rate as many as three more times this year, with the next move potentially coming as early as June given how much room there is to adjust its “excessively” easy settings, according to a former BOJ chief economist.
AUSTRALIA (MNI): Measures to support households within Australia’s 2024-25 federal budget could lower headline inflation in the short term but also sustain underlying inflation and delay Reserve Bank of Australia rate cuts into next year, former staff have told MNI.
NORTH KOREA (DONGA ILBO): North Korea is conducting an operation to install landmines in the northern part of the 248km military demarcation line between South Korea, DongA Ilbo newspaper says, citing unidentified government sources.
BRAZIL (MNI POLICY): The Central Bank of Brazil's decision to slow the pace of interest rate cuts appears to have sent a confusing signal to investors about how soon policymakers intend to stop reducing borrowing costs, raising concerns about how to better communicate policymakers' future intentions, MNI understands.
CHINA
ACTIVITY (MNI EM BRIEF): China's consumption unexpectedly slowed to an over one year low despite the Qingming Festival in April, but industrial output grew, data released by the National Bureau of Statistics on Friday showed. Industrial production rose 6.7% y/y in April, accelerating from March's 4.5% growth and outperforming the expected 5.4%. Industrial output grew 6.3% from January to April.
POLICY (MNI PBOC WATCH): China’s reference lending rate is likely to remain unchanged in May as the central bank aims to steady the policy environment following the fall in market rates and as it pursues its mission to curb idle funds inside the financial system.
YIELDS (FINANCIAL NEWS): The reasonable range of the yield of China’s long treasury bonds is likely to be 2.5-3% from the perspective of “the normal operation of the market in recent years,” PBOC-backed newspaper Financial News says in a front-page report, citing analysts.
HOUSE PRICES (RTRS): China's new home prices fell at the fastest monthly pace in over nine years in April, keeping pressure on authorities as intensified efforts to prop up the ailing property sector show few signs of paying off.
HOUSING (SECURITIES DAILY): China is expected to issue more policies to support local governments’ purchase of unsold homes for use as affordable housing, Securities Daily reported, citing Yan Yuejin, research director at E-house China R&D Institute.
CHINA MARKETS
PBOC Conducts CNY2 Bln Via OMO Fri; Liquidity Unchanged
The People's Bank of China (PBOC) conducted CNY2 billion via 7-day reverse repo on Friday, with the rates unchanged at 1.80%. The operation has led to no change to the liquidity after offsetting the CNY2 billion maturity today, according to Wind Information.
- The seven-day weighted average interbank repo rate for depository institutions (DR007) rose to 1.8057% at 09:43 am local time from the close of 1.8009% on Thursday.
- The CFETS-NEX money-market sentiment index, measuring interbank money-market liquidity, closed at 49 on Thursday, compared with the close of 42 on Wednesday. A higher reading points to tighter liquidity condition, with 50 representing an equilibrium.
The People's Bank of China (PBOC) set the dollar-yuan central parity rate higher at 7.1045 on Friday, compared with 7.1020 set on Thursday. The fixing was estimated at 7.2215 by Bloomberg survey today.
MARKET DATA
NEW ZEALAND Q1 PPI INPUT Q/Q 0.7%; PRIOR 0.9%
NEW ZEALAND Q1 PPI OUTPUT Q/Q 0.9%; PRIOR 0.7%
CHINA APRIL NEW HOME PRICES M/M -0.58%; PRIOR -0.34%
CHINA APRIL USED HOME PRICES M/M -0.94%; PRIOR -0.53%
CHINA APRIL INDUSTRIAL PRODUCTION 6.7%; MEDIAN 5.5%; PRIOR 4.5%
CHINA APRIL RETAIL SALES Y/Y 2.3%; MEDIAN 3.7%; PRIOR 3.1%
CHINA APRIL FIXED ASSET EX RURAL YTD Y/Y 4.2%; MEDIAN 4.6%; PRIOR 4.5%
CHINA APRIL PROPERTY INVESTMENT YTD Y/Y -9.8%; MEDIAN -9.6%; PRIOR -9.5%
CHINA APRIL RESIDENTIAL PROPERTY SALES YTD Y/Y -31.1%; PRIOR -30.7%
CHINA APRIL SURVEYED JOBLESS RATE 5.0%; MEDIAN 5.2%; PRIOR 5.2%
SOUTH KOREA APRIL UNEMPLOYMENT RATE 2.8%; MEDIAN 2.8%; PRIOR 2.8%
MARKETS
US TSYS: Tsys Futures Edge Higher, SFRZ4 Volumes Spike, Leading Index To Come
- Treasury futures traded in a very narrow range today, volumes were slightly higher than normal although well done on yesterday, front-end performed slightly better with the 2Y up (+ 00.75) at 101-25.125 while the 10Y contract is up (+ 01) at 109-16+.
- The treasury curve has bull-steepened today, yields are flat to 2.5bps lower, the 2Y yield -2.2bps at 4.774%, 10Y -0.6bps to 4.369%, while the 2y10y +1.586 at -40.660
- There were multiple Block trades in SFRZ4 options earlier for total size of 52k at 95.135 to 95.145.
- MNI BRIEF: Bostic Repeats Fed Rate Cut At End of Year Likely - (See link)
- Rate cut projections gradually receded from Wed's post-data highs. At the moment: June 2024 at -10% w/ cumulative rate cut -2.5bp at 5.313%, July'24 at -22% vs. -28% earlier w/ cumulative at -8bp (-9.5bp earlier) at 5.258%, Sep'24 cumulative -21.6bp (-23.6bp earlier), Nov'24 cumulative -30.3bp (-33.8bp earlier), Dec'24 -45.4bp (-49.5bp earlier).
- Looking Ahead: Leading Index. Fed Speak: Waller, Kashkari, Daly, Kugler
JGBS: Underperformance Against US Tsys Continues, BoJ Held Bond Buying Steady
JGB futures sit off session highs. JBM4 was around 144.09, -.18 in latest dealings. Earlier we got to 144.19 as the BoJ bond buying ops were unchanged, with some market concern we could have seen another reduction (as was the case for Monday's session). The US Tsy futures trend in the 10yr has been very steady today.
- More broadly we sit within recent ranges for JGB futures, albeit slightly towards the bottom end of ranges for the past month.
- US-JP yield differentials sit comfortably off April highs. The 10yr spread around +343bps, the 2yr spread around +444bps. Focus will remain on the BoJ outlook and the potential for curbing of bond purchases.
- On this point, the latest from our Tokyo policy team notes: "The Bank of Japan is concerned the market could interpret any reduction to its Japanese government bond buying programme as an attempt to curb yen weakness and a sign of earlier-than-expected rate hikes, and will hold off plans to shrink its purchases until stability returns to the foreign-exchange market, MNI understands." (see this link for more details).
- For cash JGB yields, we sit higher in yield terms, the 10yr pushing back up to around 0.94%, while the 20-40yr tenors have seen +2bps gains today. The 10yr swap rate holds above 0.99%.
- Next week focus is likely to largely rest on Friday's national CPI print.
AUSSIE BONDS: ACGBs Cheaper, Curve Steepens
ACGBs (YM -1.0 & XM -2.0) are cheaper today, we trade near best levels for the session. It has been a relatively quiet session for global rates, focus has been in Japan where the BoJ refrained from cutting bond purchases. The past week has seen yields move 5-11bps lower, with the 5 & 30yr tenors seeing the largest moves, looking ahead to next week it will be a relatively quiet one with Westpac Consumer Conf on Tuesday, a 30yr auction Wednesday and a 5yr auction on Friday.
- Cross-asset moves: Risk assets are lower today, regional equities seeing profit taking although have ended the week higher with the MSIC Asia Pacific up about 2%, US equities futures are trading unchanged, in the FX space the yen is the worst perfoming following AUD, NOK & NZD with the BBDXY up 0.13%, Iron Ore is up 0.26% at $117.15/ton
- US Tsys curve bull-steepened with the 2y10y +1.392 at -40.855, yields were flat to 2.5bps lower
- The ACGB curve is slightly steeper today and has pivoted at the 10y with the 2y10y +1.30 at 29.100, yields are flat to 2.5bps higher, while the AU-US 10-year yield differential is 1.5bps lower at -16.5bps
- Swap rates are 1bp lower
- The bills strip is flat to 1bps higher
- RBA-dated OIS implied rate is little changed today into year-end with 17bps of easing into the year-end to a terminal rate of 4.18%
- Looking ahead, we have Westpac Consumer Conf on Tuesday.
NZGBS: Cheaper, Curve Bear-Flattened, RBNZ On Wednesday
NZGBs are 1-3bps cheaper, curve has bear-flattened largely mirroring moves made by US Tsys. The past week have seen yields move 12-17bps lower, the long-end saw the most support with the 20 & 30yr 16bps richer, the moves were driven largely from US Tsys as the market priced two 25bps cuts in by year-end, looking ahead to next week focus locally will be on the RBNZ who meet on Wednesday
- US treasury futures have traded in tight ranges today, with volume slightly higher than normal although well down on Thursday volumes. Front-end futres are outperforming with the 2Y up (+ 00.75) at 101-25.125 while the 10Y contract is up (+ 01) at 109-16+. Earlier there was a large amount of Block SFRZ4 option buys for a total size of 52k.
- The NZGB curve is has bear-flattened today, yields are 1-3bps higher with the 2Y +3bps at 4.669% and the 10Y is +2.6bps at 4.586%.
- Swap rates are 1-2bps lower, curve steepened
- (BBG) ANZ Sees RBNZ Holding Rate Until May 2025 on Sticky Inflation - (see link)
- RBNZ dated OIS is 2-3bps weaker over the day and is now pricing a cumulative 47bps of easing into year-end
- Looking Ahead: RBNZ on Wednesday
FOREX: USD Index Pares Weekly Loss, Yen Weaker As BoJ Maintains Bond Purchase Pace
The BBDXY USD index sits just off session highs, last near 1247.5. This is near 0.20% firmer versus end NY levels from Thursday. Still, we are comfortably tracking lower for the week, off around 0.50% at this stage. The weaker US yield backdrop has weighed, with the 10yr yield off around 13bps through this period. Focus has been on Fed easing risks in light of data outcomes, albeit with some push back from Fed officials around the progress on inflation in recent sessions.
- Today, USD/JPY is up around 0.30%, last near 155.80. This is slightly off session highs (155.93). Yen was weighed by an unchanged BoJ bond buying stance, as there was no follow up after Monday's reduced purchases for 5-10yr bonds. The pair remains above all key EMAs (the 20-day sits near 155.00).
- AUD/USD is softer, back towards 0.6660, down around 0.25%. On balance, weaker China data hasn't aided sentiment. China IP growth and retail sales showing diverging trends. Property indicators and house price data were also weak. NZD/USD is off by around 0.15%, last near 0.6110/15.
- Regional equity sentiment has been mixed today, with softer mainland China equities a likely headwind for AUD and NZD. Cross asset sentiment elsewhere has seen slightly lower front end US yields, while equity futures are near flat.
- Looking ahead, the focus turns to the final reading of Eurozone CPI and any further commentary from Fed officials.
ASIA STOCKS: HK Equities Continue Their Strong Run, China Falls On Mixed Data
Hong Kong & Chinese equities are off earlier highs and now trade mixed for the day, Industrial production beat estimates coming in at 6.7% vs 5.5%, investors focused on the poor retail sales that came in at 2.3% vs 3.7% while property investment fell to -9.8% in Apr vs -9.6% in March. Focus this week has been largely on the China property space after a proposal by the Chinese government to allow local governments to purchase unsold properties from distressed developers, we expect further updates around this policy today as government officials are set to meet with Banks to discuss the property market, Chinese markets have also been impacted this week by news that the US will be imposing further tariffs on Chinese sectors including EVs, Semiconductors and Batteries. Looking back over the week Hong Kong markets have continued their outperformance over their China Mainland peers with the HSI outperforming the CSI300 by 2.22% and 17.89% for the month.
- Hong Kong markets have had a shortened week, property names have been the major focus with the Mainland Property Index up 0.25% today, 4.63% for the week and 35% from the lows made on Apr 19th. Big tech names including Alibaba and Tencent reported this week, with mixed results the HSTech Index is up 0.65% for the day and 3.50% for the week, while the HSI is trading up 0.23% today and 2.35% for the week with the index now up almost 20% for the month we now sit well into overbought territory when looking at the 14-Day RSI and trade well above all moving averages, signally there may be a pull-back to come shortly.
- China markets have under performed HK markets ever since Chinese officials announced measures to support the HK markets by driving quality IPOs to list there and other supportive measures. The US announced further tariffs on some Chinese EVs, Semiconductors and Battery sectors during the week, the China EV Index is down 3.34% for the week. China's main large-cap Index the CSI300 is down 0.20% today, 0.82% for the week and has underperformed the HSI by almost 18% for the month, small-caps have been slightly worst this week with the CSI1000 down 1.54% while the growth focused ChiNext is 0.22% lower today and down 2.00% for the week.
- In the property space, the major news this week was around the Chinese government putting together the proposal for local governments to by unsold homes from distressed developers, while earlier on Friday China Evergrande suspended trading, although there was no reason listed but it should be noted their equity surged 73% before the halt.
- Looking over the data for the week: Saturday we have PPI slightly below consensus at -2.5% vs -2.3%, CPI beat estimates coming in at 0.3% vs 0.2%, Money Supply missed estimates at 7.2% vs 8.3%, the MLF was held unchanged at 2.5%, New Home Prices fell 0.58% m/m, while Used Homes Prices fell 0.94% m/m . Earlier today Industrial Production beat estimates at 6.7% vs 5.5%, Retail Sales missed estimates coming in at 2.3% vs 3.7% and Fixed Assets ex Rural were 4.2% vs 4.6%.
- Looking ahead, quiet week for Chinese data with the 1 & 5yr LPR on Sunday, while Hong Kong has the unemployment rates on Sunday and the CPI composite on Thursday
ASIA PAC STOCKS: Asian Equities On Track For Third Week Of Gains
Asian markets are mostly lower today ending a 5-day winning streak, tech stocks have been the biggest detractor in the region and weak Chinese data hasn't done much to help the market. Looking back over the week the MSCI Asia Pacific is up about 2%, as markets have been aided by optimism that the Fed will start cutting rate later this year. There hasn't been much in the way of data, other than South Korean unemployment today.
- Japan equities are mixed today, tech shares have given back some of their recent gains as investors look to book profits, while the yen is trading back above 155.50 after the BoJ left bond buying amounts unchanged, with one former BOJ chief economist suggested the central bank may raise interest rates three more times this year with the next move coming as early as June. The Topix is outperforming today up 0.32% and 0.64% for the week, while the Nikkei 225 is off 0.28% largely due to weaker tech prices, although is up 1.52% for the week.
- South Korean equities are weaker today with the likes of Samsung off over 1%, as investors look to book profits after a strong run of late. Earlier, the unemployment rate came in at 2.8% in line with estimates, while next week we have PPI, Business Survey's and the BOK rate decision. The Kospi is down 1% today and now trade unchanged for the week.
- Taiwan equities are lower today, after hitting new all-time-highs on Thursday. There has been little in the way of local markets new and no data out of the region this week, equities have benefitted from strong global tech prices, US imposing more tariffs on Chinese semiconductors and the market now pricing two US rate cuts heading into the year end. The Taiex is down 0.25% today, although still trade up 2.61% for the week.
- Australian equities are lower today, after yesterday having their best session of the year. Looking back over the week, NAB business surveys were largely ignored by the market, confidence was was unchanged from march, while conditions dropped to 7 from 9, wage price index was slightly below estimates at 4.1% vs 4.2%, while employment data was mixed, showing a growth of 38.5k jobs vs 23.7k, however 44.6k were part time jobs compare to a loss of 6.1k full time jobs, the unemployment rate ticked higher to 4.1% as the participations rate increased to 66.7% from 66.6%. The ASX200 is down 0.70% for the day although trade up 1% for the week.
- Elsewhere in SEA, New Zealand equities close the week down 0.60%, Indonesian equities are up 1.10% for the day and 3.38% for the week, Philippines equities unchanged today but up 1.71% for the week, Malaysian equities are up 0.35% today and 1% for the week and finally Indian equities are up 1.40% for the week although foreign investors have been dumping stock.
COMMODITIES: Oil & Gold Tracking Higher For The Week, Technicals More Positive For Bullion
Oil sits close to highs for this week, with the front month Brent contract near $83.50/bbl. This is +0.25% on end Thursday levels in NY, while for the week we are tracking around 0.80% higher, which would be the first weekly gain since the end of April. WTI was last near $79.30/bbl, currently up near 1.4% for the week.
- The past week has seen relatively narrow trading ranges for oil, as demand and supply factors have largely offset each other. Lower crude stockpiles in the US have been a positive, along with signs of a potential soft landing scenario for the US economy (which could bring earlier Fed cuts).
- Still broader demand concerns continue to cloud the outlook. Today's China data reinforced the uneven nature of the current economic backdrop, with consumer spending softer relative to industrial acitivty.
- In terms of levels, a bearish theme in WTI futures remains intact and scope is seen for a move to $76.07, the Mar 11 low. Initial firm resistance is at $84.46, the Apr 26 high.
- For gold, we are tracking up a further 0.70% for the week at this stage, last near $2377. The first part of Friday trading has been range bound. The broader uptrend looks positive, although we haven't been able to breach the $2400 level. A continued push higher would refocus attention on $2,431.50, the Apr 12 high and bull trigger
UP TODAY (TIMES GMT/LOCAL)
Date | GMT/Local | Impact | Flag | Country | Event |
17/05/2024 | 0720/0920 | ![]() | EU | ECB's De Guindos at Banking Sector Industry Meeting | |
17/05/2024 | 0800/0900 | ![]() | UK | BOE's Mann Speech at Economics Statistics Centre of Excellence Conference | |
17/05/2024 | 0900/1100 | *** | ![]() | EU | HICP (f) |
17/05/2024 | 1230/0830 | * | ![]() | CA | International Canadian Transaction in Securities |
17/05/2024 | 1415/1015 | ![]() | US | Fed Governor Christopher Waller | |
17/05/2024 | 1700/1300 | ** | ![]() | US | Baker Hughes Rig Count Overview - Weekly |