MNI US OPEN - AUD Slips as RBA Ponder Pause

NEWS

MNI FED PREVIEW: MARCH 2023 - Balancing Evolving Risks

MNI expects the FOMC to hike the Funds rate by 25bp to 4.75-5.00% at the March meeting, with markets implying a 60% chance of a quarter-point raise and 40% of a pause. This will come alongside a new Dot Plot that raises the 2023 median rate expectation by 25bp to 5.4%, and tweak of the Statement's forward guidance to indicate that the terminal rate is nearing. Of the 28 analyst previews of the March FOMC decision whose previews MNI have seen, 23 expect a 25bp hike at the February FOMC. 4 see a pause, and 1 sees a cut.

MNI NORGES BANK PREVIEW: MARCH 2023 - 25bps Base Case, Further Tightening Hints Likely

Meeting their forward guidance made in January, the Norges Bank are likely to undergo another single hike in March, lifting the deposit rate to 3.00%. It’s likely that absent March’s global banking turmoil, the Bank would have more seriously considered a double hike of 50bps after Q1’s hotter-than-expected inflation, but uncertainty surrounding the state of financial stability should curtail this impulse for now. Nonetheless, the bank cannot yet eliminate the need for further tightening this cycle.

RUSSIA/CHINA (MNI): Xi Begins Second Day of Russia Visit, Invites Putin to China

Chinese leader Xi Jinping continues his visit to Russia. Today, he will hold formal meetings with President Putin and Prime Minister Mishustin. The Putin-Xi official meeting ceremony will be held in the Kremlin at 1200 GMT/1500 Moscow time, followed by talks by delegations and document signing. The pair will also give a press statement. Xi also invited Putin and Prime Minister Mishustin to visit China, Interfax reported.

US (BBG): US Studies Ways to Guarantee All Bank Deposits If Crisis Expands

US officials are studying ways they might temporarily expand Federal Deposit Insurance Corp. coverage to all deposits, a move sought by a coalition of banks arguing that it’s needed to head off a potential financial crisis. Treasury Department staff are reviewing whether federal regulators have enough emergency authority to temporarily insure deposits greater than the current $250,000 cap on most accounts without formal consent from a deeply divided Congress, according to people with knowledge of the talks.

ECB (BBG): ECB’s De Cos Won’t Validate Market Bets of 3.25% Rate Peak

European Central Bank Governing Council member Pablo Hernandez de Cos said market bets on a 3.25% peak rate can’t be confirmed. Investors have recently adjusted their expectations about how the ECB’s borrowing costs will develop and now see a terminal rate of 3.25%, he told Expansion newspaper in an interview published Tuesday.

ECB (BBG): ECB’s Holzmann Shows Less Certainty on Three More Big Rate Hikes

European Central Bank Governing Council member Robert Holzmann is less certain than previously about whether three additional big interest-rate increases will be needed, following recent turmoil in the banking system. The gyrations that culminated in UBS Group AG’s takeover of Credit Suisse Group AG have led to decreased liquidity in the financial system, which may put downward pressure on inflation, Holzmann told broadcaster ORF in an interview.

ECB (MNI): "Fog is Currently Too Thick" to Predict May Meeting Outcome - Kazaks

BBG runs comments from ECB Governing Council member Kazaks, who speaks with Latvia's TV3. Kazaks stresses that you cannot say that the ECB has reached the stage where it has stopped raising interest rates, as inflation continues to reside at very high levels. Still, the usually hawkish Kazaks is clearly cognisant of the risks surrounding the banking sector, noting that the "fog is currently too thick" when it comes to predicting the outcome of the ECB's May meeting.

FRANCE (BBG): Macron Government Dodges No-Confidence Votes Amid Popular Unrest

The French government survived two no-confidence motions late Monday to enable the immediate adoption of President Emmanuel Macron’s unpopular pension reform bill without holding a full vote in parliament.In a tighter than expected count, the first motion got 278 votes, only nine short of the 287 needed to topple Prime Minister Elisabeth Borne. The second got 94.

CHINA (MNI): More RRR Cuts Seen To Keep Liquidity Ample

China's reference lending rates is expected to be held steady over coming months, but the People’s Bank of China will provide ample liquidity to allay any concerns about spillover effects from the banking turmoil triggered by the collapse of Silicon Valley Bank and sale of Credit Suisse, economists and analysts said. The loan prime rate (LPR), based on the rate on the PBOC’s medium-term lending facility (MLF) and quotes submitted by 18 banks, remained at 3.65% for the one-year maturity and 4.3% for over-five-year maturity on Monday, according to the PBOC’s website.

AUSTRALIA (MNI): RBA Minutes Point to April Pause

The Reserve Bank of Australia will consider a pause at its April meeting, according to minutes of its March meeting released on Tuesday. "Members agreed to reconsider the case for a pause at the following meeting, recognising that pausing would allow additional time to reassess the outlook for the economy. At what point it will be appropriate to pause will be determined by the data and the Board’s assessment of the outlook," the minutes said.

SOUTH KOREA/JAPAN (MNI): S. Korea, Japan Restore Military Intelligence-Sharing Pact

South Korea's Foreign Ministry said that Seoul has fully restored its military intelligence-sharing pact with Tokyo in the wake of the recent summit with President Yoon Suk-yeol and Prime Minister Fumio Kishida, Yonhap News Agency reports. South Korea reportedly communicated its decision to restore the 2016 General Security of Military Information Agreement (GSOMIA) via diplomatic channels, noting that it will help strengthen security cooperation with Japan and the U.S.

THAILAND (BBG): Thailand to Hold Vote on May 14 as Opposition Leads in Survey

Thailand will hold a general election on May 14, with a pre-poll survey showing opposition parties holding a clear lead over military-backed establishment parties in the outgoing government led by Prime Minister Prayuth Chan-Ocha.Candidates should register to contest the 400 constituency seats to the House of Representatives between April 3 and 7, the Election Commission said Tuesday. Political parties will need to nominate their candidates for the 100 party-list seats between April 4 and 7, it said in a statement.

DATA

UK FEB PSNCR GBP-0.23 BN (MNI)
UK FEB PSNB GBP+15.86 BN (MNI)
UK FEB CGNCR GBP6.73 BN (MNI)
UK FEB PSNB-X GBP+16.68 BN (MNI)

PBOC Yuan Parity Higher At 6.8763 Tuesday; -7.67% Y/Y (MNI)
PBOC Net Injects CNY153 Billion via OMOs Tuesday (MNI)
PBOC INJECTS CNY182 BILLION VIA 7-DAY REVERSE REPOS TUES (MNI)

SOUTH KOREA (MNI): Export Growth Remains Weak on Tech & China Headwinds

Recent trends were mostly maintained in terms of South Korean first 20-days trade data for March. Export growth was -17.4% y/y, while imports were -5.7% y/y. This is a down step in import growth (the prior read was 9.3%y/y for the first 20-days of Feb), but the trade deficit persisted at $6.323bn. Looking at the detail showed average daily exports were -23.1% y/y, so still quite depressed as well. Chip exports remain a weak point, -44.7% y/y. This is consistent with what officials have said in terms of external headwinds persisting in the first half. They are more optimistic around better export trends in the second half of the year.

FOREX: AUD Slips as RBA Could Ponder Rate Pause

• AUD and NZD make up the poorest performers in G10 following the RBA minutes release overnight, which raised the prospect of a pause to the rate hike cycle. The RBA minutes showed the board took uncertainty surrounding the economic outlook into consideration, and could keep rates unchanged at upcoming meetings in order to judge the impact of the tightening cycle so far.
• AUD/USD has fully reversed the Monday move higher and is partially retracing last week's upside. This keeps the pair off a test of the key resistance layered just above at the 200- and 100-dmas of $0.6763 and $0.6783 respectively.
• JPY is similarly weak, with markets taking profits on the sharp rally in the currency across the unfolding of the banking crisis over the past fortnight. Europe's bank sector is seen higher early Tuesday, helping buoy underlying sentiment to keep haven FX under pressure.
• The USD, EUR trade more favourably headed through to NY hours, with the single currency slightly outperforming. This puts EUR/USD through the Monday high and within range of congestion resistance layered between 1.0749-60.
• The German ZEW survey takes focus going forward, with the current situation component expected to improve only marginally from the February -45.1 read. Canadian CPI and US existing home sales are also on the docket. The central bank speaker slate is typically light for a pre-FOMC decision session, although appearances from ECB's Lagarde & Villeroy at the BIS could draw some attention at 1230GMT.

BONDS: Concerns Over the Banking Sector Recede, Pushing Core FI Lower

• EGBs have led core fixed income lower this morning as concerns about the banking sector have receded somewhat (bank equities are higher this morning too). The biggest moves have been seen in Schatz with yields up over 13bp on the day.
• Looking ahead we will receive German ZEW data at 10:00GMT / 6:00ET while Canadian inflation will also be watched later today. However, markets are already looking ahead to tomorrow's Fed meeting (and to a lesser extent the BOE meeting on Thursday).
• TY1 futures are down -0-12+ today at 114-22+ with 10y UST yields up 3.5bp at 3.523% and 2y yields up 6.8bp at 4.047%.
• Bund futures are down -1.08 today at 136.89 with 10y Bund yields up 8.7bp at 2.207% and Schatz yields up 13.1bp at 2.475%.
• Gilt futures are down -0.51 today at 104.92 with 10y yields up 4.5bp at 3.350% and 2y yields up 3.1bp at 3.238%.

EQUITIES: Eurostoxx Future Outlook Bearish Despite Recovery From Yesterday's Low

The Eurostoxx 50 futures outlook remains bearish despite yesterday's rebound from the session low - short-term gains are considered corrective. The recent break of the 4000.00 handle signals scope for weakness towards 3865.00, the Jan 4 low and further out towards the 3800.00 handle. Initial resistance is seen at 4123.00, the 20-day EMA. Key resistance has been defined at 4268.00, the Mar 6 high. The trend condition in S&P E-Minis remains bearish despite the latest recovery - a correction. Price has recently cleared a key support at 3960.75, the Mar 2 low, to confirm a resumption of the bear cycle that started Feb 2. The move lower signals scope for an extension towards 3822.00 next, the Dec 22 low. Initial firm resistance is seen at 4025.01, the 50-day EMA. A break of this average would alter the picture.

• In China the SHANGHAI closed higher by 20.74 pts or +0.64% at 3255.65 and the HANG SENG ended 258.05 pts higher or +1.36% at 19258.76.
• Across Europe, Germany's DAX trades higher by 199.7 pts or +1.34% at 15131.92, FTSE 100 higher by 89.43 pts or +1.21% at 7492.9, CAC 40 up 101.77 pts or +1.45% at 7114.55 and Euro Stoxx 50 up 63.31 pts or +1.54% at 4182.7.
• Dow Jones mini up 77 pts or +0.24% at 32532, S&P 500 mini up 11.75 pts or +0.3% at 3994.5, NASDAQ mini up 30.5 pts or +0.24% at 12717.75.

COMMODITIES: Gold Trades Softer Following Reversal From Monday High

WTI futures remains vulnerable and the contract traded to a fresh low Monday before finding some support. Last week’s sell-off resulted in the break of key support at $71.10, the Dec 9 low. The breach confirms a resumption of the medium-term downtrend. Note too that price has also cleared the psychological $70.00 handle. Attention is on $62.43, the Dec 2 2021 low. Initial resistance is at $69.83, Friday’s high. A strong rally in Gold Friday saw the yellow metal trade to fresh YTD high of $1989.4. This confirms a resumption of the uptrend that has been in place since late September 2022. Monday’s gains resulted in a print above the psychological $2000 handle and this further strengthens current bullish conditions. It opens $2034.0 next, a Fibonacci projection. On the downside, Friday’s low of $1918.3 marks firm support.

• WTI Crude up $0.55 or +0.81% at $68.19
• Natural Gas up $0.03 or +1.35% at $2.255
• Gold spot down $12.69 or -0.64% at $1965.59
• Copper up $4.7 or +1.19% at $400.15
• Silver down $0.16 or -0.7% at $22.3817
• Platinum down $6.33 or -0.64% at $986.74