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MNI EUROPEAN OPEN: Narrow Ranges In Asia Ahead of US CPI


EXECUTIVE SUMMARY

Fig. 1: DXY Index

Source: MNI - Market News/Bloomberg

U.K.

JOBS: UK companies are increasingly relying on short-term workers amid hiring freezes and economic uncertainty (BBG)

RENTAL REFORMS: The UK government has delayed the release of its eagerly awaited Renters Reform Bill (BBG)

FREIGHT: The government has approved the use of longer lorries on British roads, saying it will make businesses more efficient and cut emissions. (BBC)

EUROPE:

ECB: The ECB must do more to bring inflation back to the 2% target even as it waits to see the full effect of its date that has been taken to date. (BBG)

U.S.

FED: The Federal Reserve is unlikely to bring interest rates down this year if inflation comes in as expected (MNI)

DEBT CEILING: President Biden and congressional Republicans made little tangible progress on Tuesday towards averting a first-ever US default (BBG)

DEBT CEILING: President Joe Biden and top lawmakers agreed on Tuesday to further talks aimed at breaking a deadlock over raising the $31.4 trillion U.S. debt limit, with just three weeks before the country may be forced into an unprecedented default. (RTRS)

DEBT CEILING: Wall Street executives who have advised the U.S. Treasury's debt operations for the past 25 years warned on Tuesday they are "deeply concerned" about the debt limit impasse that has markets worried about a U.S. default on payment obligations. (RTRS)

DEBT CEILING: Some of Wall Streets most experienced traders warned of “unthinkable” long-term implications from a US default and argued the debt limit may need to be permanently repealed (BBG)

EQUITIES: Airbnb share tumbled after the firm gave a cautious forecast for revenue in the second quarter (BBG)

TARIFFS: Spanish Prime Minister Sanchex will ask President Biden to scrap Trump-era duties on his country's olives. (BBG)

BUY BACKS: Corporate America’ buybacks are raging on, defying fears that a potential US economic recession could hamper the outlook for profits (BBG)

OTHER

BOJ: The Bank of Japan will act against an extreme deprecation of the yen, evident in the recent adjustment of the banks forward guidance. (MNI)

BOJ: The Bank of Japan will aust monetary policy, including yield curve control, by the end of 2023 at the earliest. (MNI)

G7: Finance Ministers and central bank governors from the worlds wealthiest countries gather in Japan this week with a growing list of urgent issues to discuss (BBG)

AUSTRALIA: The Labor government is taking a path of fiscal restraint as it tries to strengthen its economic credibility and buttress the RBAs efforts to rein in elevated inflation (BBG)

AUSTRALIA: Australia's Labor government said on Wednesday the billions in cost-of-living relief unveiled in the federal budget for families and businesses will not worsen inflationary pressures and put more pressure on the central bank to lift rates further. (RTRS)

SOUTH KOREA: South Korea's current account balance in March ended a two-month run of deficit to post a surplus, but suffered its biggest quarterly deficit in more than 14 years during the January-March period, data showed on Wednesday (RTRS)

UKRAINE: The US announced a $1.2 billion package to bolster Ukraines air defenses and supply ammunition as President Putin reinforced his war aims at a parade marking Russias World War II Victory Day. (BBG)

OIL: Oil prices slipped in early trade on Wednesday after industry data showed a surprise build in U.S. crude stocks. (RTRS)

OIL: Pakistan has placed an order for a single cargo of Russian oil but is keen for a long term deal to buy the crude in Chinese currency (BBG)

CHINA

VEHCILES: Authorities have granted a six-month extension on the sale of light vehicles that do not comply with the new National VI B emission standards law, which bans the sale of non-compliant vehicles from July 1, according to the Ministry of Ecology and Environment. (MNI)

SME: China’s SME firms face insufficient demand and declining profits, according to the China Association of Small and Medium Enterprises. (MNI)

POLICY SUPPORT: China needs to maintain proactive fiscal policy and prudent monetary policy to ensure the economic recovery consolidation (MNI)

JOBS: Jobs in IT, software and information technology were China’s highest paid last year (BBG)

JOBS: Chinese university students who are about to graduate are showing increasing preference for stable jobs mostly in state owned enterprises (BBG)

BELT AND ROAD: Italy has signalled it intends to pull out of the Belt and Road initiative before the end of the year (BBG)

POWER RISKS: Asia’s ht weather is expected to hit China this summer threatening a new round of power shortages that last year disrupted global supply chains (BBG)

CHINA MARKETS

PBOC NET INJECTS CNY2BN VIA OMOs TUESDAY

The People's Bank of China (PBOC) conducted CNY2 billion via 7-day reverse repos on Wednesday, with the rates unchanged at 2.00%. The operation has led to a net injection of CNY2 billion as no reverse repos matures today, according to Wind Information.

  • The operation aims to keep banking system liquidity reasonable and ample, the PBOC said on its website.
  • The 7-day weighted average interbank repo rate for depository institutions (DR007) rose to 2.0000% at 09:37 am local time from the close of 1.8174% on Tuesday.
  • The CFETS-NEX money-market sentiment index closed at 49 on Tuesday, compared with the close of 50 on Monday.

PBOC SETS YUAN CENTRAL PARITY RATE AT 6.6299 WED VS 6.9255 TUES

The People's Bank of China (PBOC) set the dollar-yuan central parity rate higher at 6.9299 on Wednesday, compared with 6.9255set on Tuesday.

OVERNIGHT DATA

SOUTH KOREA APR UNEMPLOYMENT RATE 2.6%; PRIOR 2.7%

SOUTH KOREA MAR BoP CURRENT ACCOUNT BALANCE $267.9mn; PRIOR -$518.4mn

SOUTH KOREA MAR BoP GOODS BALANCE -$1125.1mn; PRIOR -$1,295.7mn

JAPAN MAR, P LEADING INDEX CI 97.5; PRIOR 98.2

JAPAN MAR, P COINCIDENT INDEX 98.7; PRIOR 98.7

MARKETS

US TSYS: Narrow Ranges Ahead Of US CPI

TYM3 deals at 115-06+, +0-00+, with a 0-03+ range observed on volume of ~42k.

  • Cash tsys sit 1bp cheaper to 1bp richer across the major benchmarks, the curve has twist flattened pivoting on 7s.
  • Tsys were marginally richer in early dealing as Asia-Pac participants have continued the move seen in the NY session post the latest 3 Year auction.
  • There was little follow through on the move and no meaningful macro news flow crossed. Tsys ticked away from session highs.
  • The latest talks on the US debt ceiling did not produce any movement. House Leader McCarthy said congressional leaders will meet with President Biden again on Friday.
  • There is a thin docket in Asia-Pac today. Further out the highlight today is Apr CPI print, the MNI preview is here. We also have the latest 10-Year supply.

JGBs: Futures Hold Uptick, Tight Range, Awaits US CPI

JGB futures sit slightly firmer in Tokyo’s afternoon session, +7 compared to settlement levels.

  • Without meaningful domestic drivers, local participants have been on headline watch ahead of US CPI later today.
  • BoJ Governor Ueda, in today’s appearance in Parliament, said it was premature to talk about specifics on what to do with holdings of ETFs since it would take more time to achieve the stable and sustainable 2% price target.
  • The preliminary Leading Indicator for March came in slightly lower than expected at 97.5, while the Coincident Indicator was in line with expectations at 98.7.
  • JBM3 is currently trading at 148.53, which is within the range of 147.92 (the upper limit of April's trading range) and 149.53 (the high point of March 22). This range has continued throughout May so far.
  • Cash JGBs are richer across the curve, except in the 1-year zone which is 0.6bp cheaper. Yields are 0.2-0.9bp lower with the cash curve flatter. The benchmark 10-year yield is 0.6bp lower at 0.42%, below the BoJ's YCC limit of 0.50%.
  • Swap rates are 0.5-0.8bp lower across the curve with the 10-year zone outperforming. Swap spreads tighter out to the 10-year zone and wider beyond.
  • The local calendar sees the release of Trade Balance (Mar) and MoF’s Investment Flows (May 5) data along with 30-year JGB supply.

AUSSIE BONDS: Holding Weaker, Awaits US CPI

ACGBs are holding weaker (YM -3.0 & XM -1.0), but off session lows after trading in a relatively tight range in the Sydney session. There have been few local headlines outside those related to the Federal Budget.

  • The Australian Budget presented improved fiscal metrics than in October, thanks to favourable developments in commodity prices, inflation, and the labour market. A small surplus for FY23 is expected with smaller projected deficits in the out years.
  • Treasurer Chalmers claimed on Budget night that the government’s policies would reduce inflation by 0.75% for 2023-24. Economist Richardson estimates that each A$6bn the government puts into the economy equates to another 25bp rate hike. The budget has added a net A$12bn over the coming year (The Australian).
  • Cash ACGBs are flat to 1bp cheaper with the 3/10 curve 1bp flatter and the AU-US 10-year yield differential -2bp at -6bp.
  • Swap rates are flat to 1bp higher with EFPs 1bp tighter.
  • Bills pricing is flat to -1.
  • RBA dated OIS pricing is 1bp softer to 2bp firmer across meetings.
  • The local calendar is light tomorrow with May MI Inflation Expectations as the highlight.
  • Until then, all eyes will be on the US CPI for April later today.

NZGBS: At Bests, Outperforms $-Bloc

NZGBs ended the session on a high note, with the 2-year and 10-year benchmarks gaining 3bp and 2bp, respectively. Without meaningful domestic drivers, the local market followed the modest strengthening in US tsys in Asia-Pac trade. However, NZGBs performed better, with the NZ/US 10-year yield differential tightening by 3bp to +64bp.

  • Meanwhile, the NZ/AU 10-year yield differential narrowed by 1bp to +69bp, marking close to the narrowest gap since mid-March when the NZ current account deficit significantly exceeded expectations. This is noteworthy because it has occurred despite the divergent paths of NZ and Australia's external and fiscal accounts, with the latter in a more favourable position.
  • Swap rates closed 1-3bp lower with the 2s10s curve 2bp steeper.
  • RBNZ dated OIS closed little changed across meetings with 25bp of tightening for the upcoming May 24 meeting.
  • April Food Prices and REINZ House Prices are slated for tomorrow.
  • Until then, all eyes will be on the US CPI for April later today.
  • The NZ Treasury announced that they plan to sell NZ$200mn of the 0.25% 15 May 2028 bond, NZ$150mn of the 3.50% 14 April 2033 bond and NZ$50mn of the 2.75% 15 May 2051 bond tomorrow.

FOREX: USD Marginally Pressured In Asia

The greenback is marginally pressured in Asia today, however moves have a little follow through thus far as US CPI print comes into view.

  • NZD/USD is ~0.2% firmer, last printing at $0.6345/50. The pair continues to consolidate recent gains and sits at the top of today's narrow range.
  • AUD/USD sits at $0.6765/70 ~0.1% higher. Bulls look to target $0.6806 high from Apr 14 and key resistance. Support comes in at $0.6711 the 50-Day EMA.
  • Yen is little changed from yesterday's closing levels, there has been little follow through on moves with a narrow ~30 pip range observed in Asia.
  • Elsewhere in G-10 SEK is the strongest performer in the G-10 space at the margins, however liquidity is poor for the currency in Asia-Pac hours.
  • Cross asset wise, e-minis are up ~0.1% and the US Treasury Yield curve is a touch steeper. BBDXY is ~0.1% lower.
  • There is a thin docket in Europe today. Further out the highlight today is US Apr CPI print, the MNI preview is here.

OIL: Prices Down On Lower Risk Sentiment & Higher Stocks, Focus On US CPI

Oil has more than unwound yesterday’s gains falling 0.7% during APAC trading after US crude stocks rose sharply last week. WTI is trading around $73.22/bbl and Brent $76.94, both just off intraday lows of $73.10 and $76.80 respectively. The USD index is almost unchanged ahead of the US CPI data. Risk appetite has deteriorated ahead of the release too.

  • A lower than expected US inflation print could see oil rally towards this level as a Fed pause gets priced in, thus supporting the demand outlook. If it is higher than projected then it increases the chance of more hikes and thus the risk of a recession, which would be negative for crude.
  • On Tuesday the US announced that the planned sale of crude from the SPR would be cancelled and that refilling would begin later in the year. Also on the demand side, Indian diesel consumption surged in April to a record level at a time when refiners in the region were concerned about falling Asian demand.
  • The focus of the day is the US April CPI data which is forecast to rise by 0.4% m/m with headline remaining at 5% y/y and core easing 0.1pp to 5.5%. Real average weekly earnings for April and the April budget statement are also released. The official EIA US inventory data are due later.

GOLD: Bullion In Holding Pattern Ahead Of US CPI Data

Gold is treading water ahead of the US April CPI data, which is expected to give guidance on the next Fed move. It is down 0.2% to $2031.43/oz, close to the intraday low of $2030.55, after rising 0.7% on Tuesday to $2034.53 on the back of lower US yields. The USD index is 0.1% lower ahead of the data.

  • Resistance is at $2063, the May 4 high, but prices are still some way off this but a lower than expected US inflation print could see bullion rally towards this level as a Fed pause is priced in. If it is higher than projected then it increases the chance of more hikes and thus the risk of a recession, which could also be positive for gold.
  • Bullion continues to benefit from safe-haven flows driven by the US debt-ceiling impasse, which didn’t find a resolution after talks on Tuesday. See Another Debt Ceiling Meeting On Friday.
  • The focus of the day is the US April CPI data which is forecast to rise by 0.4% m/m with headline remaining at 5% y/y and core easing 0.1pp to 5.5%. Real average weekly earnings for April and the April budget statement are also released.


UP TODAY (TIMES GMT/LOCAL)

DateGMT/LocalImpactFlagCountryEvent
10/05/20230600/0800***DE HICP (f)
10/05/20230600/0800*NO CPI Norway
10/05/20230600/0800**SE Private Sector Production
10/05/20230800/1000*IT Industrial Production
10/05/20230900/1000**UK Gilt Outright Auction Result
10/05/20231100/0700**US MBA Weekly Applications Index
10/05/2023-***CN Money Supply
10/05/2023-***CN New Loans
10/05/2023-***CN Social Financing
10/05/20231230/0830*CA Building Permits
10/05/20231230/0830***US CPI
10/05/20231430/1030**US DOE Weekly Crude Oil Stocks
10/05/20231700/1300**US US Note 10 Year Treasury Auction Result
10/05/20231800/1400**US Treasury Budget

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