MNI US MARKETS ANALYSIS - BoE Hike Raises Little Market Interest

US TSYS: Consolidating Post-CPI Rally Ahead Of BOE, US PPI and Fedspeak

• Cash Tsys has consolidated yesterday’s two step rally after both CPI and the 10Y auction despite the small tail, awaiting potential spillover from the upcoming BoE decision plus US PPI inflation and Fedspeak.
• Fed Funds implied rates have ticked higher off yesterday's close but still just about fully price three consecutive 25bp cuts for Sep/Nov/Dec.
• 2YY +0.0bp at 3.910%, 5YY -1.0bp at 3.374%, 10YY –0.9bp at 3.421% and 30YY -2.1bp at 3.776%.
• TYM3 trades unchanged at 115-29 close to highs of 115-31+ on subdued volumes of 225k. A push above earlier highs could open resistance at 116-12 (May 5 high) whilst support is seen at 115-01+ (May 9 low) closely followed by the 50-day EMA of 114-28.
• Data: PPI inflation (0830ET), weekly jobless claims (0830ET)
• Fedspeak: Kashkari moderated discussion (0845ET), Gov Waller on financial stability/climate change (1015ET)
• Note/bond issuance: US Tsy $21B 30Y Bond auction (912810TR9) – 1300ET
• Bill issuance: US Tsy $35B 4W, $35B 8W bill auctions – 1130ET

BOE Instant Answers May 2023

'Instant Answers' from the BOE May 11 meet

1. Was the Bank Rate raised, and if so by how much? Yes, by 25bp to 4.5%
2. Number of members voting for a rate cut: Zero
3. Number of members voting for unchanged rate: Two, Dhingra and Tenreyro
4. Number of members voting for a 25bp hike: Seven
5. Number of members voting for a 50bp or larger hike: Zero
   NB: On questions 2-5 we will name the dissenters (and the magnitude of dissent)
6. Did the MPC again say “if there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required”? Yes, this was repeated word-for-word.
7. Did the MPC say "Any future increases in Bank Rate are likely to be at a gradual pace and to a limited extent"? No.
8. Did the MPC say the bank rate is now likely close to / at its peak? No.
9. UK CPI rate in two years' time at market rates (mode) (previous Q2+0.76%) 1.1%
10. UK CPI rate in two years' time on constant rates (mode) (previous Q2+0.62%) 0.71%
11. UK CPI rate in three years' time at market rates (mode) 1.2%
12. UK CPI rate in three years' time on constant rates (mode) 0.88%
13. What is the Bank's forecast for QQ Y/Y Q2 2024 GDP? 0.89%
14. What is the Bank's forecast for QQ Y/Y Q2 2025 GDP? 0.74%

First reactions is broadly in line on the headlines: 7-2 vote as expected, Guidance unchanged as expected, CPI revised up at 2/3 years but still well under target - as expected. There had been more positioned for a dovish move here - so the fact that we didn't get that is helping fuel gilts and SONIA lower with GBP higher.

NORWAY: Revised Budget Seen Bolstering Norges' Need for Hikes

• The expansive nature of this morning's budget revision is seen bolstering the need for further hikes from the Norges Bank in the coming months - particularly the larger non-oil budget deficit. The deficit has been revised higher to 3.0% of pension fund capital - greater than the Norges Bank assumption of 2.8%, and therefore should add upside pressure to rate path projections going forward.
• The March MPR saw rates peaking at 3.60% in Q4, but broad NOK weakness and stubborn core CPI could tilt this closer to 4.00% at June's forecasting round. Most sell-side analysts see today's budget release bolstering the case for more hikes: e.g. DNB affirm their forecast for 4% peak in Sept.
• The specific implications for NB FX selling/buying remain to be seen, but the larger deficit should equate to a slower pace of CB NOK sales on behalf of the government - cementing the market assumption for FX purchases to slow (and possibly reverse) in the coming months.
• EUR/NOK holds just above 11.4556 support (50-dma), but a break below would open further corrective activity toward 11.3582 and below. Any NOK rally would have to run further to meet the Norges Bank's FX expectations from March: The Q2 I-44 FX rate average so far is 121.46, over 1.5% off the 119.50 assumption.

MNI US Inflation Insight, May'23: Softer Details But Still Very Strong Overall

EXECUTIVE SUMMARY:

• Core CPI inflation slightly stronger than expected in April, nudging up from 0.38% to 0.41% M/M, considering consensus that had just tipped from 0.3 to 0.4 on the day of the release with further entries.
• The main upside driver came from an even larger than flagged increase in used cars, accounting for 0.17pps of the change in M/M rates, although the surprise was mostly offset by softer volatile items.
• Key core service ex housing measures moderated to differing extents whilst core goods ex used cars were almost flat on the month for the softest since Feb’21.
• This underlying moderation plus an impressive normalization in dispersion measures aside, core CPI continued to grow at a fast pace in April with its fifth consecutive rounded 0.4% M/M print.
• Most analysts see the FOMC pausing in June (Citi a notable exception) but push back on cut pricing. There is still a whole round of monthly data including May CPI on day one of the two-day June 13-14 FOMC.

PLEASE FIND THE FULL REPORT HERE:

USInflationInsightMay2023.pdf

FOREX: EUR/USD Sinks to New May Low as Long-Held Support Gives Way

• EUR/USD slipped through to fresh May lows in early European hours, taking out the congestion support at 1.0941-42 on the fourth attempt. The level had previously been tested (and held) in early May, and twice more this week alone. As such, the USD is the firmest currency in G10 at the NY crossover, allowing the USD Index to narrow the gap with the early May high at 102.404.
• AUD is the laggard amid a softer base metals backdrop. Iron ore prices retraced across Asia-Pacific trade, and a miss on expectations for China aggregate financing will have added extra weight. AUD/USD through yesterday's lows of 0.6744 and has pierced the 200-dma to suggest the early May recovery in the pair may be at risk of reversing. 0.6686 marks the next key level for the pair.
• Equity futures across both Europe and the US sit higher, having erased a modest downtick at the European cash open to point to a firmer open on Thursday.
• The Bank of England rate decision crosses later Thursday, with consensus looking for a 25bps hike from the MPC, and no over-arching change to guidance on future policy. Weekly US jobless claims data and the April PPI read follow shortly afterwards.

FX OPTIONS: Expiries for May11 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0895-00(E1.4bln), $1.0925(E1.4bln), $1.0950(E882mln), $1.0985-00(E3.2bln), $1.1030-50(E1.6bln), $1.1100(E1.0bln)
• USD/JPY: Y133.00($514mln), Y134.00($810mln), Y134.65-75($571mln), Y135.00($622mln), Y136.00($1.3bln)
• USD/CNY: Cny6.9140-75($1.9bln)

EQUITIES: Eurostoxx 50 Futures Pare the Majority of This Week's Losses

• Eurostoxx 50 futures are consolidating and holding on to the bulk of its most recent gains. Price remains above support at 4233.90, the 50-day EMA. The recent move down is considered corrective and the broader uptrend remains intact. A continuation higher would signal scope for a test of 4363.00, the Apr 21 high and bull trigger. Clearance of this level would confirm a resumption of the uptrend. A clear break of the 50-day EMA is required to signal a top.
• S&P E-minis traded higher Wednesday and price remains above the 50-day EMA, which intersects at 4104.97. A continuation higher would refocus attention on key resistance and the bull trigger at 4206.25, the May 1 high. A breach of this level would confirm a resumption of the bull trend that started Mar 13. Key support has been defined at 4062.25, the May 4 low. A move through this support would be a bearish development.

COMMODITIES: WTI Futures Hold Onto Recent Gains; Recovery Considered Technically Corrective

• WTI futures are holding on to recent gains. The latest recovery is considered corrective and the move higher has allowed a recent oversold trend condition to unwind. Initial resistance is at $73.93, the Apr 28 low ahead of $76.92, the Apr 28 high. On the downside, the recent print below $64.58, the Mar 20 low and a key support, reinforces a bearish theme. A clear break of it would confirm a resumption of the broader downtrend.
• Gold remains in an uptrend. The yellow metal has recently breached resistance at $2048.7, the Apr 13 high to confirm a resumption of the broader bull cycle. This maintains the bullish price sequence of higher highs and higher lows and moving average studies are in a bull-mode set-up. The focus is on $2070.4, the Mar 8 2022 high ahead of the all-time high at $2075.5. Key support is 1969.3, the Apr 19 low.