Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
EXECUTIVE SUMMARY
- BIDEN, MCCARTHY HOPEFUL ON DEBT CEILING DEAL - RTRS
- FED’s BOSTIC SAYS ‘HARD PART’ STILL AHEAD IF INFLATION STUBBORN - BBG
- SOLID JAPAN CAPEX CONFIRMED BY Q1 GDP - GOVT AIDE - MNI
- BoJ WARY OF US CREDIT RISK TO REGIONAL BANKS - MNI
- INVESTORS SYSTEMATICALLY UNDERESTIMATING RBA - MNI
Fig. 1: USD/CNH and 1 Month Risk Reversal Both Trending Higher
Source: MNI - Market News/Bloomberg
U.K.
ELECTRICITY: Unite, Labour’s biggest financial backer, will urge Sir Keir Starmer this week to reconsider the case for nationalising the entire UK energy sector after years of what the trade union calls “profiteering” and “greedflation” by companies. (FT)
GEOPOLITICS: Liz Truss will call on the West to bolster support for Taiwan in the face of Chinese aggression during a visit to the self-governing island, the first by a former British prime minister in almost three decades. (BBG)
ECONOMY: The number of Britons struggling to meet bills and credit repayments has risen by 40% in a year, according to the financial regulator. (BBG)
PROPERTY: The UK government plans to shake up the relationship between landlords and tenants with the introduction to Parliament of its Renters’ Reform Bill. (BBG)
PENSIONS: HSBC has abandoned plans to capture a slice of the UK’s pension market after an extensive review (BBG)
BREXIT: SocGen is asking bondholders in subordinated debt it issued under English law to add bail-in values to the notes in a move to align with EU regulations after Brexit. (BBG)
EUROPE:
BANKING: UBS Group AG (UBSG.S) expects a financial hit of about $17 billion from the takeover of Credit Suisse Group AG (CSGN.S), the bank said in a presentation early on Wednesday as it prepares to complete the rescue of its struggling Swiss rival. (RTRS)
FRANCE: French President Macron secured a EUR10bn deal as ProLogium picks Dunkirk for battery plant (BBG)
U.S.
DEBT: Democratic President Joe Biden and top congressional Republican Kevin McCarthy edged closer to a deal to avoid a looming U.S. debt default Tuesday, as the threat of an economic nightmare prompted Biden to cut short an Asia trip this week. (RTRS)
DEBT: President Joe Biden and congressional leaders said they were optimistic a bipartisan deal to raise the debt ceiling could be possible within days even as House Speaker Kevin McCarthy warned the two sides remained far apart after a meeting Tuesday at the White House. (BBG)
FED: Federal Reserve Bank of Atlanta President Raphael Bostic and his Chicago counterpart Austan Goolsbee voiced optimism they could achieve a soft landing for the US economy, but Bostic warned officials will face a stern test if it turns out they are wrong. (BBG)
UKRAINE: The White House is not currently planning to ask Congress for additional Ukraine funding before the end of the fiscal year, CNN reports, citing a White House spokesperson. (BBG)
OTHER
JAPAN: Corporate demand for capital investment has not weakened as capex rebounded sharply in Q1 from a bigger fall in the fourth quarter, a senior official at the Cabinet Office said Wednesday. (MNI)
JAPAN: Japan's Prime Minister Fumio Kishida plans to meet on Thursday with top executives from global semiconductor companies including TSMC to seek active investment in Japan, said two people involved in planning the meeting. (RTRS)
RBA: Markets and macroeconomists are consistently underplaying the potential for higher Australian interest rates, creating a disconnect with what the Reserve Bank of Australia sees as its consistent communication of its determination to achieve its inflation target, MNI understands. (MNI)
AUSTRALIA: President Joe Biden has scrapped planned stops in Australia and Papua New Guinea following his trip to Japan for the Group of Seven meeting to return for continuing negotiations with Republicans over raising the US debt ceiling. (BBG)
AUSTRALIA: Australian Prime Minister Anthony Albanese said on Wednesday a Quad summit would not go ahead in Sydney next week without U.S. President Joe Biden, who postponed his trip to Australia due to debt ceiling negotiations in Washington. (RTRS)
TAIWAN: Taiwan's main opposition Kuomintang (KMT) party will pick New Taipei City mayor Hou Yu-ih to be its presidential candidate in the election next year, a senior party source told Reuters on Wednesday, with China tensions set to top the election agenda. (RTRS)
CHINA
ECONOMY: China’s economy likely grew between 4.5-5% in April, according to analysts interviewed by 21st Century Herald. Analysts said the industrial sector recovered slower than the service industry and that Tuesday’s data release showed growth lower than potential output. Authorities must do more to boost demand, they said. Credit was used in the past to boost demand in previous economic cycles which led to higher debt, however, fiscal policy should be more active to boost consumption. (MNI)
EMPLOYMENT: Beijing should prioritise expanding employment to achieve economic development and social stability, according to Zhang Yiqun, vice chairman of the Performance Management Special Committee of the Chinese Society of Fiscal Finance. Speaking with Securities Daily, Zhang said policies are needed to address the industrial recovery and export sector which had added to labour market pressure. Recent unemployed graduates were the most urgent concern, he said. SMEs and entrepreneurs need support to aid their recovery which will drive employment opportunities. (MNI)
INFLATION: Major pork producers will remain financially strained in Q2 as prices stay low, and demand slowly recovers, according to Yicai. The news agency said many companies plan to issue convertible bonds and cut costs to survive the difficult time. In Q1, major firms in the sector lost CNY6.7 billion in net profit, as prices averaged around USD14 per kg, below the break even point of between USD15-18 depending on producer. (MNI)
HOUSING: China’s home price growth slowed in April, underscoring the challenges the market is facing following a brief recovery. New-home prices in 70 cities, excluding state-subsidized housing, rose 0.32% last month from March, when they grew 0.44%, National Bureau of Statistics figures showed Wednesday. Price gains slowed to just 0.01% in the secondary market, after climbing 0.26% a month earlier. (BBG)
ELECTRICITY: Several provinces are building more electricity generating plants and grids and racing to secure fuel supplies as a summer power crunch looms following a recent surge in demand, China Securities Journal reports Wednesday. (BBG)
CREDIT: Rapid increases in China’s money supply may have reached a peak, as the central bank’s prudent monetary policy balances out social financing demand with lagging economic growth, the China Securities Journal reports, citing analysts. (BBG)
CHINA MARKETS
PBOC Injects CNY2 Billion Via OMOs Wednesday
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 an unchanged liquidity after offsetting the maturity of CNY2 billion reverse repo 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 1.8386% at 10:35 am local time from the close of 1.7943% on Tuesday.
- The CFETS-NEX money-market sentiment index closed at 45 on Tuesday, compared with the close of 47 on Monday.
PBOC SETS YUAN CENTRAL PARITY RATE AT 6.9748 WED VS 6.9506 TUES
The People's Bank of China (PBOC) set the dollar-yuan central parity rate higher at 6.9748 on Wednesday, compared with 6.9506 set on Tuesday.
OVERNIGHT DATA
JAPAN Q1 GDP ANNUALIZED SA Q/Q 1.6%; MEDIAN 0.8%; PRIOR -0.1%
JAPAN Q1 GDP SA Q/Q 0.4%; MEDIAN 0.2%; PRIOR 0.0%
JAPAN Q1 GDP NOMINAL SA Q/Q 1.7%; MEDIAN 1.3%; PRIOR 1.1%
JAPAN Q1 GDP DEFLATOR Y/Y 2.0%; MEDIAN 2.1%; PRIOR 1.2%
JAPAN MAR F INDUSTRIAL PRODUCTION M/M 1.1%; PRIOR 0.8%
JAPAN MAR F INDUSTRIAL PRODUCTION Y/Y -0.6%; PRIOR -0.7%
JAPAN CAPACITY UTILIZATION M/M 0.8%; PRIOR 3.9%
AU Q1 WAGE PRICE INDEX Q/Q 0.8%; MEDIAN 0.9%; PRIOR 0.8%
AU Q1 WAGE PRICE INDEX Y/Y 3.7%; MEDIAN 3.6%; PRIOR 3.4%
CHINA APR NEW HOME PRICES M/M 0.32%; PRIOR 0.44%
MARKETS
US TSYS: Marginally Firmer In Asia
TYM3 deals at 115-01+, +0-04, a touch off the top of the observed 0-06 range on volume of ~62k
- Cash tsys sit 1-2bps richer across the major benchmarks, some light bull steepening is apparent.
- Tsys firmed after Asia participants digested this morning's Fedspeak, Goolsbee and Bostic think that the Fed should pause at its June 14 meeting to allow time to assess the impact of previous tightening but also the effect of higher banking funding costs on the economy.
- Spillover from a rally in JGBs, after a strong 20 Year auction, added a layer of support.
- Tsys held marginally richer for the remainder of the session with little follow through on moves dealing in narrow ranges.
- President Biden has cut short his scheduled trip to Asia this week as discussions over the US debt ceiling remain ongoing. Biden noted that the latest round of talk was productive.
- In Europe today we have the final print of Eurozone CPI, further out US Housing Starts crosses. We also have the latest 20-Year supply.
JGBS: Futures Stronger After 20-Year JGB Auction Shows Solid Demand
JGB futures are stronger in Tokyo afternoon trade, +27 versus settlement levels, reversing overnight weakness despite much stronger than expected Q1 GDP data.
- 20-year supply sees smooth digestion as the cover ratio shifts to the highest level in a year. Japanese investors, particularly domestic life insurers and pension funds, appear to be showing a trend of allocating capital to the super-long end of the JGB curve in response to elevated FX-hedging costs in the new fiscal year. The strong demand observed at the recent 30-year auction further supports this observation.
- At 149.12, JBM3 sits close to its highest level for May. Nonetheless, it remains positioned within a range of 147.92 (the upper limit of April's trading range) and 149.53 (the high point of March 22).
- Cash JGBs, beyond the 1-year zone, increase their richening in afternoon trading with yields 1.0-4.7bp lower and the yield curve flatter. The benchmark 10-year yield is 3.0bp lower at 0.367%. The 20-year yield is 4.0bp lower post-auction, sitting -4.7bp on the day at 0.966%.
- Swap rates are lower with the curve flatter and swap spreads generally wider for except the 4-7-year zone.
- The local calendar sees the release of April Trade and weekly International Security Flow data ahead of April National CPI data on Friday.
- Tomorrow also sees BoJ Rinban operations covering 1-10-year and 25-Year+ JGBs along with an auction of Y3.5tn 12-month bills.
AUSSIE BONDS: Cheaper, Slightly Stronger After WPI, Jobs Data Tomorrow
ACGBs sit cheaper (YM -4.0 & XM -1.5) but 1-3bp stronger after the data drop despite the Q1 Wage price Index printing close to analyst expectations. While the annual rate of 3.7% is at the highest level in over 10 years, it is still consistent with the inflation target. Worryingly for the RBA, however, the share of jobs receiving wage rises of between 4-6% rose to the highest level since 2009, according to the ABS.
- The latest round of ACGB Jun-35 supply saw smooth digestion with an increased cover ratio (3.6643x versus 2.2687x at the April 5 auction.
- Cash ACGBs are 1-3bp cheaper with the AU-US 10-year yield differential -4bp at -10bp.
- Swap rates are 1-3bp higher with the 3s10s curve flatter and EFPs unchanged.
- Bills are cheaper with pricing -1 to -4 but off worst levels.
- RBA dated OIS softens 2-3bp after the data but remains flat to 5bp firmer on the day across meetings with Apr’24 leading.
- The local calendar is slated to release the April Employment Report tomorrow with elevated job vacancies and strong immigration levels likely to deliver a robust employment outcome.
- Until then, the global calendar releases Euro Area CPI (Apr) and US Housing Starts (Apr) and Building Permits (Apr).
NZGBS: Closed Weaker, ANZ Lifts Expected Terminal OCR
NZGBs closed 8-9bp weaker, near session cheaps for the second consecutive day, as the market digested the prospect of a worse-than-expected debt profile in tomorrow’s Budget 2023 and another sell-side bank ups its terminal OCR expectation.
- ANZ announced a change to its monetary policy outlook with the RBNZ now expected to raise the OCR to a terminal rate of 5.75%. A 25bp hike to 5.50% is expected next Wednesday but they attach a 20% chance of a 50bp hike. This follows the release of Westpac’s updated call of a 6.0% OCR peak earlier in the week.
- Swap rates 1-8bp higher with the 2s10s curve 7bp flatter and the implied long-end swap spread significantly tighter.
- RBNZ dated OIS RBNZ dated OIS is 2-12bp firmer with meetings beyond August leading. 26bp of tightening is priced for the upcoming May 24 meeting with terminal OCR expectations at 5.69% versus 5.60% at yesterday’s close and 5.51% at the end of last week. A cumulative 43bp of easing is priced off the terminal rate by Feb’24.
- Tomorrow sees the release of Budget 2023. The government has signalled that Budget 2023 will focus on alleviating cost-of-living pressures, fast-tracking recovery from Cyclone Gabrielle, and maintaining public services, but not much else.
FOREX: Kiwi Firms In Asia
Kiwi has firmed on Wednesday as ANZ have updated their forecast for the RBNZ terminal rate, the bank now sees the OCR rising to 5.75%.
- NZD/USD prints at $0.6245/50, the pair is ~0.2% firmer today. NZD/USD sits on its 20-Day EMA ($0.6244), bulls look to clear this level with their focus on the 200-Day EMA at $0.6263 as the next upside target.
- AUD firmed off session lows, as US equity futures briefly extended gains, erasing losses of as much as 0.2% to sit unchanged from yesterday's closing levels. The Q1 WPI was close to analysts’ expectations rising 0.8% q/q and 3.7% y/y (Q4 0.8% and 3.4%). Resistance comes in at $0.6712 (50-Day EMA) and support is at $0.6636 (low from May 12).
- Yen is a touch softer, however narrow ranges have been observed thus far today. Q1 GDP printed firmer than expected at 1.6% Y/Y, a print of 0.8% Y/Y had been expected.
- Elsewhere in G-10 EUR and GBP are little changed, both currencies have been trading in narrow ranges with little follow through in Asia.
- Cross asset wise; E-minis are ~0.2% firmer and BBDXY is unchanged from yesterday's closing levels. US Treasury Yields are 1-2bps lower across the curve.
- In Europe today we have the final print of Eurozone CPI, further out US Housing Starts crosses.
EQUITIES: Japan, South Korea & Taiwan Outperform, China/HK Stocks Down Ahead Of Key Earnings
Regional equity trends are once again mixed. China and HK shares track lower, but Japan markets are still outperforming, while South Korea and Taiwan bourses have also rallied today. It has been mixed in South East Asia. US futures are modestly higher, Eminis last around 4131, ~+0.20% higher. Nasdaq futures doing slightly better at +0.25%. Some optimism a debt deal can be reached aiding sentiment at the margins.
- The HSI is down 0.55% at this stage, the index backing away from the 20000 level for now. Carry over from weaker China data yesterday, which has prompted some sell-side analysts to cut their 2023 growth outlooks, has weighed. Market participants will also be watching earnings results from Tencent, which could come later today and Alibaba, which will be out tomorrow.
- The CSI 300 is also lower, off by 0.35% at the break. This puts the index back sub its 200-day MA (3987.09, versus last index levels at 3964.2). Similar headwinds are weighing on China mainland stocks, with a weaker FX rate (USD/CNH breaking back above 7.00) likely a negative as well.
- Japan stocks are still outperforming, the Topix +0.30% higher at this stage, while the Nikkei 225 has breached the 30000 level.
- Taiex is +1.20% firmer, while the Kospi has gained 0.60%, amid some tech related outperformance from Tuesday's US session.
- The ASX 200 is down by 0.50%, while in SEA Thai stocks continue to move lower, off another 0.70% so far.
OIL: Prices Steady But Market Still Nervous
Oil prices are fairly steady during the APAC session after falling on Tuesday driven by data signalling China’s recovery is soft. They have been in a fairly narrow range with Brent currently around $75/bbl after an intraday high of $75.15. It has been unable to hold gains above $75. WTI is $70.91 after a high of $71.06, and it has been unable to hold above $71. The USD index has been trading sideways.
- The IEA revised up its global oil demand expectations in its monthly outlook driven by stronger demand from China which it adjusted up by 200kbd to 2.2mbd. Whereas in contrast, some economists have revised down China’s growth outlook after Tuesday’s disappointing data.
- Later the EIA release official US fuel inventory data. According to Bloomberg, the API reported a 3.7mn crude build. Also in the US, there is a Senate Banking hearing on strengthening Fed accountability and there is April housing data released. There is also the euro area April HICP.
GOLD: Slightly Stronger In Asia-Pac After USD & US Tsys Weighed On Tuesday
In Asia-Pacific trading, gold is $1.70 stronger (+0.1%) at 1990.87, after closing -1.4% at $1989.17.
- At market close on Tuesday, gold hovered near a two-week low as traders monitored negotiations to resolve the US debt-ceiling deadlock and analysed statements from various Federal Reserve officials regarding interest rate prospects.
- Tuesday’s drop, reaching its lowest closing price since May 1, was due to strong US retail sales figures and speculation about a resolution to the debt issue. President Joe Biden and congressional leaders expressed optimism about reaching a deal, despite House Speaker Kevin McCarthy warning of significant differences between the two sides.
- The strengthening of the USD and higher Treasury yields had a significant impact, causing gold to break below the support level at $1,999.6 (the low on May 5) that was established after the release of payroll data, thereby exposing the $1,976.3 level (50-day EMA).
UP TODAY (TIMES GMT/LOCAL)
| Date | GMT/Local | Impact | Flag | Country | Event |
| 17/05/2023 | 0900/1100 | *** |  | EU | HICP (f) |
| 17/05/2023 | 0900/1000 | ** |  | UK | Gilt Outright Auction Result |
| 17/05/2023 | 0900/1100 | | EU | ECB Elderson Panels Beyond Growth Conference | |
| 17/05/2023 | 0930/1130 | | EU | ECB Panetta Presentation on Digital Euro Kangaroo Group Event | |
| 17/05/2023 | 0950/1050 | | UK | BOE Bailey Keynote Speech at British Chambers of Commerce | |
| 17/05/2023 | 1100/0700 | ** |  | US | MBA Weekly Applications Index |
| 17/05/2023 | 1230/0830 | * |  | CA | International Canadian Transaction in Securities |
| 17/05/2023 | 1230/0830 | *** | | US | Housing Starts |
| 17/05/2023 | 1430/1030 | ** | | US | DOE Weekly Crude Oil Stocks |
| 17/05/2023 | 1515/1715 | | EU | ECB de Guindos Closes IESE Banking Meeting | |
| 17/05/2023 | 1700/1300 | ** | | US | US Treasury Auction Result for 20 Year Bond |
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.