MNI EUROPEAN OPEN: Equities Slump Amid Rising US Yields, Middle East Tension

US TSYS: Tsys Futures Steady, Fed's Daly Says No Urgency To Cut

• Treasury futures have been relatively stable on Tuesday, as Asian Equities and FX sell off during the session. There have also been a few block steepener trades going through. The 10Y contract trades at 107-30+ (+ 02) from NY closing level, after earlier making a high of 108-04 and we still comfortably hold above initial support at 107-16+ (2.50 proj of Dec 27 - Jan 19 - Feb 1 price swing), while to the upside resistance holds at 108.25+ (Apr 12 high).
• Cash Treasuries have done very little today with yields flat to 1bps higher the 2Y yield +0.5 at 4.925%, 10Y +0.8bp to 4.610%, while the 2y10y is unchanged at -31.975
• Across the local markets curves are following UST and bear steepening with ACGBs yields 2-6bps higher, NZGBs are 5-8bps higher, while in the EM space INDON 10Y rose to highest levels since November at 6.82%
• Projected rate cut pricing recedes: May 2024 at -4.7% w/ cumulative -1.2bp at 5.317%; June 2024 at -19.8% vs. -22.6% (compares to -55.1% pre-CPI) w/ cumulative rate cut -6.1bp at 5.286%. July'24 cumulative at -14.4bp vs -16.9bp earlier, Sep'24 cumulative -25.9bp vs. -28.8bp.
• (MNI) MNI BRIEF: Fed's Daly Reiterates No Urgency To Cut Rates (See link)
• Looking ahead: Building Permits, IP/Cap-U, and Fed Speak with Chairman Powell moderating a Q&A session with BoC head Macklem.

JGBS: Slightly Cheaper, Trade balance Data Tomorrow Alongside BoJ Rinban Operations

JGB futures are holding weaker but sitting in the top half of today’s range, -15 compared to the settlement levels.

• There hasn’t been much in the way of domestic drivers to flag. An Enhanced-Liquidity Auction of 5-15.5-year JGBs is due later.
• The BoJ is concerned the soft yen could weaken the wage-price relationship (See MNI Policy MainWire)
• (Bloomberg) -- Japan’s finance minister stopped short of issuing his strongest warning on possible market intervention in comments that fueled renewed yen weakness after the currency slumped to a fresh 34-year low overnight. (See link)
• Cash US tsys are ~1bp cheaper in today's Asia-Pac session after yesterday's sell-off. Fed Chair Powell, Vice Chair Philip Jefferson and Richmond Fed President Thomas Barkin are scheduled to speak later today.
• Cash JGBs are slightly cheaper across benchmarks. The benchmark 10-year yield is 0.6bps higher at 0.870% after setting a fresh YTD high of 0.884% earlier today.
• The swaps curve has twist-steepened, with rates 3bps lower to 1bp higher. Swap spreads are tighter across maturities.
• Tomorrow, the local calendar sees Trade Balance data alongside BoJ Rinban operations covering 1- to 25-year JGBs.

AUSSIE BONDS: Cheaper, Narrow Ranges, Local Calendar Light Until Jobs Data On Thursday

ACGBs (YM -5.0 & XM -6.0) are holding cheaper as trading remains confined within relatively narrow ranges during today's Sydney session. Given the light local economic calendar until Thursday's release of the March Employment Report, market participants have been closely monitoring movements in US tsy yields for guidance.

• Cash US tsys are dealing ~1bp cheaper in today’s Asia-Pac session after yesterday’s bear-steepening.
• Fed Chair Powell, Vice Chair Philip Jefferson and Richmond Fed President Thomas Barkin are scheduled to speak later today.
• (AFR) The Australian dollar hit a five-month low on Tuesday after more upbeat US economic data cast further doubt on whether the Federal Reserve can embark on interest rate cuts any time soon. (See link)
• Cash ACGBs are 4-6bps cheaper, with the AU-US 10-year yield differential +2bps at -29bps.
• Swap rates are 3-6bps higher, with the 3s10s curve steeper.
• The bills strip has bear-steepened, with pricing -1 to -5.
• RBA-dated OIS pricing is 3-4bps firmer for early 2025 meetings. A cumulative 18bps of easing is priced by year-end.
• Tomorrow, the local calendar sees the Westpac Leading Index, ahead of the Employment Report for March on Thursday.
• Tomorrow, the AOFM plans to sell A$800mn of 3% Nov-33 bond.

NZGBS: Closed Cheaper & Near The Session’s Worst Levels, Q1 CPI Tomorrow

NZGBs closed 5-8bps cheaper and close to the session’s worst levels ahead of tomorrow’s Q1 CPI. Consensus expects headline CPI to rise 0.6% q/q after 0.5% in Q4 to be up 4.0% y/y down from 4.7% helped by base effects (Q1 2023 rose 1.2% q/q). Non-tradeable inflation is expected to remain elevated at 1.3% q/q though up from 1.1%, while tradeables should again fall by 0.2% q/q.

• In February, the RBNZ projected a 0.4% q/q rise in Q1 CPI with the annual rate easing to 3.8% y/y. This is at the lower end of consensus expectations, which are between 0.4% and 0.8% q/q and 3.7% and 4.2% y/y.
• (Bloomberg) -- Weak business confidence is helping to ease inflation pressures, the Treasury Dept says in its Fortnightly Economic Update published Tuesday. (See link)
• (Bloomberg) Labor Productivity fell 0.9% in the year ended March 2023, the largest fall since 2009, which followed a rise of 1 per cent in the year ended March 2022, according to the statistics department Stats NZ. (See link)
• Swap rates closed 5-8bps higher, with the 2s10s curve steeper and implied swap spreads wider.
• RBNZ dated OIS pricing is little changed. A cumulative 38bps of easing is priced by year-end.

FOREX: Dollar Higher, A$ & NZD Hit Fresh YTD Lows Amid Regional Equity Weakness

The BBDXY remains on the front foot, up a further 0.20% in the first part of Tuesday trade. Thie index last near 1264.3, is eyeing highs near 1266, levels last seen in mid Nov last week.

• Sharp falls in regional equities have likely aided USD sentiment. A number of key regional markets have fallen more than 2%. Higher US yields has weighed particularly on tech related sentiment. Cash tsy yields are a touch higher for US benchmarks, despite the risk averse tone emanating from equities.
• The USD/CNY fix also moved back above 7.1000, which kicked off a fresh round of USD gains, although USD/CNH has stabilized.
• China Q1 GDP was better than expected, but March activity figures point to loss momentum towards the end of the quarter, with IP and retail sales both notably sub expectations. Property related indicators also continued to show sharp double digit falls for the most part.
• AUD and NZD sit slightly above earlier fresh YTD lows, but both remain weaker by around 0.40%. AUD/USD got to 0.6408, but sits higher at 0.6415/20 in latest dealings. Regional equity risk aversion is weighing. A clean break sub 0.6400 opens up 0.6339, November 10 low.
• NZD/USD remains in a downward trend trading well below the 20, 50, 100 & 200-day EMA with the pair is trading back below 0.5900 at 0.5878 making new YTD lows and now looking to test 0.5864 (Nov 11 lows).
• The yen has outperformed, last near 154.30 in USD/JPY terms. We have had the familiar run of FX rhetoric/jaw boning, while the weaker equity backdrop has likely aided yen at the margins.
• Looking ahead, the Fed’s Powell (1815 BST), Jefferson, Williams, Barkin and Collins appear, as well as BoE’s Bailey and BoC’s Macklem. There are also US March housing starts/permits, IP & April NY Fed services, UK labour market and Canadian March CPI data. The IMF is due to publish the April World Economic Outlook.

ASIA EQUITIES: China & HK Equities Lower, Mixed China Data, Small-Caps Plunge

Hong Kong and China equity markets are lower today, China Mainland equities are faring better than Hong Kong. It has been a busy morning for China economic data, with GDP coming in at 5.3% vs 4.8% expected, retail sales missed estimates coming in at 3.1% vs 4.8% expected, Industrial Production also missed coming in at 4.5% vs 6.0% and Property developer names fell as home prices continued to fall in March, adding pressure on authorities to step up efforts to support the embattled real estate market. While earlier China's small cap index the CSI2000 tumbled over 6% after the regulators pledged to be tougher on de-listing companies, while the CSI1000 was down 3% verses the large-cap CSI300 down just 0.60% at their worst, the difference in performance could also be linked to buying by the National team, who focus on large-cap indices.

• Hong Kong equities are lower today and continue to underperform China Mainland equities, the HSTech Index is now down 2.34% and has broken below the 3,400 level it had been trading above since early March. The Mainland Property Index is faring slightly better, down only 1.62% at 1,152 although just holding above an important support zone of 1,150, the index did break below here earlier this morning however has been able to get back above with a break and close below here opening up a move to all time lows of 1,075 made in January, the HSI is off 1.64%. In China, markets are digesting economic data, large cap indices are performing better than smaller-caps with the CSI300 down 0.43%, while the CSI1000 is down 2.33% and the CSI2000 down 2.20%.
• China Northbound saw 8.1b of inflows on Friday, with the 5-day average at -0.06billion, while the 20-day average sits at 0.43billion yuan.
• In the property space, Times China faces a winding-up petition filed by Hang Seng Bank for financial obligations totaling $173.2 million and HK$731.4 million, with the first hearing set for July 3. Despite this, Times China asserts that the petition doesn't signify the company's winding up and plans to oppose it while working with creditors on a restructuring plan. China Vanke plans to use a $18 billion asset package as collateral to secure new bank loans amid concerns about its ability to avoid default. The company discussed this strategy with analysts at an investor event, aiming to alleviate worries following a recent market downturn. Despite the company's efforts, details about the asset package or potential sales remain undisclosed, and Vanke's response caused a slight uptick in its shares and bond prices.
• (Bloomberg) PwC Denies Allegations in Anonymous Letter on Evergrande Work (see link)
  
• (Bloomberg) China Tells Iran Cooperation to Last Despite Attack on Israel - (see link)
• (MNI) MNI BRIEF: China Q1 GDP Stronger Than Expected At 5.3% - (see link)
• Looking ahead, after a busy day of economic data, there will little else until the 1 & 5-yr LPR on Monday, Hong Kong has Unemployment data due on Thursday.

ASIA PAC EQUITIES: Equities Head Lower As US Retail Sales Beat, Asian Currencies Lower

Regional Asian equities are lower today and have slid the most in eight months with the MSCI Asia Pacific Index down more than 2% as the uncertainty around what Israel will do remains, while US retail sales data rose last month by more than forecast, suggesting the Fed may not rush to lower rates which pushed up Treasury yields and boosted the dollar while local Asian currencies trade near their cycle lows, elsewhere Volatility has picked up with the premium for one-month put options to protect against a pullback in US equities hitting 19.23 the highest since October 2023

• Japanese stocks fell after strong US economic data rekindled concerns that the Federal Reserve will delay its interest rate cuts, damping investors’ demand for riskier assets. Investors also continue to monitor tensions in the Middle East. The yen remains under pressure, after surging to a new 34-year low against the USD overnight. The increasing risk that authorities in Tokyo may intervene in the market to stem the drop still lingers, after Japan’s finance minister warned that he’s ready to take all available measures in the foreign exchange market if needed. The Topix is down 2.21% while the Nikkei fares slightly worse down 2.26%
• South Korea’s Kospi has dropped over 2% and is now the worst performing market in the region today, with tech and EV battery sectors leading losses after strong US retail sales data and higher US Treasury yields. Earlier SK import prices fell 0.7% in March from a year ago, while export prices increased 2.6%. The KRW continues to fall and is now approaching 1,400 won which is also weighing on the local stock market. Foreign funds sell 348b won worth of Kospi equities in early trading, local funds also sell while retail investors buy, the Kospi is down 2.38%
• Taiwan equities are following regional markets lower today, there is very little local market news or data out for Taiwan, the market will largely be dictated by China data, global yields and global semiconductor prices. The Taiex is current down 2.86%
• Australian equities follow global markets lower with the ASX200 now down 1.80% as banks and mining stocks contribute the most to the mover lower, elsewhere the AUD continues to fall after mixed China data hurts futures growth, with the currency now down 0.28% at 0.6424 the lowest levels since Nov 2023.
• Elsewhere in SEA, New Zealand Equities are down 1.00%, Singapore equities are down 1.30%, Malaysian equities are 0.37% lower. Philippines equities are under some real pressure, the PSEi is now down 8.72% from recent highs made early April, after breaking support levels last week, the index is down another 1.70% today and has erased all yearly gains, Indonesia has returned from a 10-day break with yields surging, currency has plummeted and equities are down about 2%.

OIL: Crude Climbs Higher On Tense Middle East

Crude has started today stronger rising around 0.5%, in response to Israel’s decision to retaliate to Iran’s attack and the latter’s threat to respond “within seconds”. Markets remain wary with a third of oil output coming from the region. Prices are off their highs made earlier in the day as China’s March data was mixed. Brent is up 0.5% to $90.58/bbl but rose to a high of $90.84 earlier. WTI is 0.6% higher at $85.91 after rising to $86.18. The USD index is 0.2% higher.

• Israel’s war cabinet said that an attack of that magnitude can’t go unanswered with defence minister Gallant expressing that “Israel won’t accept an equation in which Iran responds with a direct attack every time Israel strikes targets in Syria”.
• China’s March oil refining rose 1.3% y/y to a 5-month high as product stocks were rebuilt following the Lunar NY holiday. Processing should decline over April/May though for seasonal maintenance but low margins may exacerbate this.
• Geopolitics are currently driving oil prices but supply/demand fundamentals are always nearby. Demand in the US is expected to pick up to increase gasoline supplies for the driving season. Later today US inventory data from the API are released.
• Later the Fed’s Powell (1815 BST), Jefferson, Williams, Barkin and Collins appear, as well as BoE’s Bailey and BoC’s Macklem. There are also US March housing starts/permits, IP & April NY Fed services, UK labour market and Canadian March CPI data. The IMF is due to publish the April World Economic Outlook.

GOLD: Hovering Just Below Record High

Gold is 0.3% higher in the Asia-Pac session as geopolitical tensions in the middle east continued to drive safe haven demand. Bullion closed 1.7% higher at $2383.34 on Monday, just shy of its all-time high of $2431.50.

• According to MNI’s technicals team, the trend condition in gold remains bullish. The next objective is $2452.5, a Fibonacci projection. Initial firm support is at $2264.8, the 20-day EMA.
• (Bloomberg) Citigroup Inc. raised its 2024 gold estimate to $2,350 an ounce and made a “massive 40% upward revision” to its 2025 forecast to $2,875, it said in a note. That came after Goldman Sachs Group Inc. said Friday the metal was in an “unshakable bull market,” raising its year-end prediction to $2,700.
• Meanwhile, silver outperformed on Monday, rising by 3.1% to $28.7/oz. This brought the gold/silver ratio down further, to its lowest level since early December.