MNI US OPEN - Blinken Set to Urge China to Sever Ties With Kremlin

NEWS

US/CHINA (WaPo): Blinken Will Urge China to Stop Sending Military Supplies to Russia

Amid growing U.S. worries that Russia's war on Ukraine is being made possible by Chinese support for Moscow's defense industry, Secretary of State Antony Blinken was set to arrive in China on Wednesday on a three-day mission to push leaders to cut ties with the Kremlin. The conversations in Shanghai and Beijing will be aimed at managing an increasingly thorny and contentious relationship, with ongoing disputes about China's role in the war in Ukraine, Beijing's broad claims over the South China Sea and U.S. efforts to reduce dependence on China's technology manufacturing sector.

US (BBG): US Senate Passes Ukraine Aid, Arms Shipments to Resume in Days

The Senate passed a long-delayed $95 billion emergency aid package for Ukraine and other besieged US allies, clearing the way for resumed arms shipments to Kyiv within days. The Defense Department is prepared to swiftly move artillery shells and air defense munitions as part of an initial $1 billion tranche of new aid, US officials said. President Joe Biden is expected to quickly sign the assistance package and the US can tap supplies already in Europe to expedite the help.

SECURITY (BBG): North Korea, Iran Hold Talks as Concern Grows Over Military Ties

North Korea sent its highest-level delegation to Iran in about five years as the US raised concerns that arms sales from Pyongyang and Tehran have helped fuel conflicts in the Middle East and Russia’s war in Ukraine. In a rare public report of the trip, the official Korean Central News Agency said in a one-sentence dispatch the North Korean delegation led by External Economic Relations Minister Yun Jong Ho left Pyongyang for Tehran on Tuesday. Yun had traveled to Russia earlier in April and has featured prominently in state media as a key player in trade between Pyongyang and Moscow.

ECB (BBG): ECB’s First Rate Cut Doesn’t Have to Kick Off Series, Nagel Says

The European Central Bank can’t commit to what will happen after a likely first reduction in borrowing costs in June, according to Governing Council member Joachim Nagel. If data until the next meeting in six weeks increase confidence in reaching the 2% goal, “I would be in favor of a rate cut in June,” the Bundesbank president said Wednesday. “However, such a step would not necessarily be followed by a series of rate cuts. ”Nagel is among the more cautious officials supporting the beginning of monetary-policy easing in June, but calling for prudence when it comes to following moves.

UK (MNI): Sunak Unveils Major Defence Spending Plans on Germany Visit

UK Prime Minister Rishi Sunak has outlined plans for a major increase in gov't spending on defence that would have a significant impact on the UK defence sector as well as the gov'ts fiscal outlook. Sunak pledged that by 2030, 2.5% of the UK's national income would go on defence spending, which would allow a major increase in production of ammo to restock increasingly-barren reserves, as well as develop new military tech. Speaking in Poland on 23 Apr, Sunak announced an additional GBP75bn in military spending that would take the UK's total to GBP87/annum by the end of the decade.

FRANCE (BBG): France Faces Credit Ratings Test as Debt Pile Continues to Mount

A trio of upcoming rating assessments is set to test France’s bond markets by turning the spotlight on the country’s worsening debt picture. A blow could arrive as soon as Friday, when Moody’s Ratings and Fitch Ratings review the nation’s credit score. The market sees a high chance the agencies will lower the outlook to negative. An actual downgrade could come next month, with S&P Global Ratings set to resolve a warning it has had in place for 18 months. Concerns have been mounting over France’s finances ever since the government last week forecasted a bigger fiscal gap in the coming years.

CHINA (BBG): PBOC Steps Up Rhetoric Over Long-End Government Bond Rally

The People’s Bank of China ramped up its verbal pushback against the rally in long-term government bonds, warning of a reversal and hinting that a mismatch between market prices and the economic outlook will be corrected, sending bonds lower.The central bank is optimistic about China’s long-run growth prospects, and yields “will be within a reasonable range that matches the economic outlook,” the PBOC-backed Financial News reported on Tuesday, citing an interview with an unidentified official in charge of a relevant department at the policymaker. That’s the case despite a temporary deviation between the two that’s been driven by supply and demand, the report added.

CHINA (BBG): China Tells Brokers to Limit Exposure to ‘Snowball’ Derivatives

China is moving to curb “snowball” derivatives after brokers hiked returns to near-record levels to attract investors to the risky products following a stock-market selloff, according to people familiar with the matter. Officials this week told some of the biggest brokerages to suspend any increase in their net exposure to over-the-counter derivatives involving domestic A shares, including snowball products which are based on options contracts, said the people. While the restrictions are temporary, the regulators didn’t indicate when they may be lifted or eased, the people said, asking not to be identified as the communications are private.

CHINA (MNI): Hainan to Trial China’s Opening Up Reforms

MNI (Beijing) Beijing will use Hainan as a test bed for economic reform, such as capital account liberalisation, which will help the province reach its 8% GDP growth target this year, before evaluating whether the policies should be rolled out nationwide, a Hainan official told MNI. Cross border capital flow controls will no longer apply to foreign and domestic firms transacting offshore via Hainan, while transfers with the mainland will need to comply with a quota, said Huang Cui, deputy director-general of Hainan International Economic Development Bureau – a statutory body of Hainan Free Trade Port – and chief representative at its Beijing office.

MNI BOJ PREVIEW - ARPIL 2024: ‘Wait and See’ Approach, Alert to Messaging

At this week’s meeting, we expect the BoJ to maintain its target range for the uncollateralized overnight call rate at 0-0.1%. This aligns with the BoJ's consistent messaging since the March rate hike, which emphasised a data-dependent, "wait and see" approach. A consecutive rate hike at this juncture would likely convey a conflicting signal. Looking ahead, we anticipate the BoJ to follow a modest, gradual hiking trajectory. A growing number of economists foresee the possibility of another rate hike in October, with July also emerging as a potential earlier timeframe. Factors such as the prospect of a weaker yen are cited as potential accelerators for this timeline.

JAPAN (BBG): Japan ‘Very Close’ to Intervention, Former Forex Chief Says

Japan is on the brink of currency intervention if the yen weakens any further, according to one of the country’s former top currency officials. “Amid no change in US and Japan interest rates, the yen has depreciated against the dollar quite rapidly,” said Mitsuhiro Furusawa, former vice minister of finance for international affairs, in an interview with Bloomberg on Tuesday. “Should this trend continue, intervention will come,” Furusawa said, adding that “we are very close.”

JAPAN (MNI): Japan Sumitomo Life Eyes 30-Year JGBs Above 2%

Japan's Sumitomo Life Insurance company plans to buy several hundreds of billion yen 30-year Japanese government bonds and hedged foreign-denominated currency floating interest rate assets this fiscal year, the company’s chief fund manager said on Wednesday. “The current 30-year JGB yield (around 1.95% vs. liability cost around 1.8%) is [an] attractive level but we will not buy those bonds actively now as there is a room for the yield to rise further,” Mitsuo Masuda, general manager of the investment planning department at Sumitomo Life, told reporters.

MNI CBRT PREVIEW - ARPIL 2024: A Hawkish Hold

The Central Bank of Turkey is widely expected to keep the one-week repo rate on hold at 50%, having likely concluded its tightening cycle following an above consensus 500bp rate hike in March. Nevertheless, given that the lira’s path of depreciation has largely been uninterrupted and that headline inflation still running close to 70%, central bank communication is likely to tilt hawkish once again.

DATA

UK DATA (MNI): UK Pay Deals Slow to Around 5% in H1 - Brightmine

• UK JAN-MAR MEDIAN PAY AWARDS +4.8% :XpertHR/Brightmine

UK pay increases are settling at around 5% in the first three months of 2024 and look set to continue at about that pace throughout the first half of the year, the head of a leading survey of wage negotiations told MNI. Deals for the three months to March came in at 4.8%, after an upwardly-revised 5.0% in February, and down from levels around 6% late in 2023, said Sheila Attwood of Brightmine, formerly known as XpertHR. “Although there has been a noticeable drop in the level of pay awards when compared to the peak of 6% recorded last year, there are now signs of stability starting to emerge," Attwood said in an interview.

GERMAN DATA (MNI): Broad-Based IFO Strength Another Sign of Economic Stabilisation

• GERMANY APR IFO BUSINESS CLIMATE INDEX 89.4

Germany's IFO Business Climate index remained in contractionary territory in April but rose for the third consecutive month to 89.4, higher than consensus (88.8) and March's value (87.9, revised from 87.8), and the highest since May 2023. The data broadly mirrors April's flash PMIs, with the uptick driven by the services and construction sectors. Both the current assessment (88.9 vs 88.7 cons; 88.1 prior) and expectations (89.9 vs 88.9 cons; 87.5 prior) readings came in above analyst median estimates.

ITALY ISTAT APR CONSUMER CONF INDEX 95.2 VS MAR 96.5 (MNI)

SWEDEN MAR UNEMPLOYMENT 9.2% (MNI)

MNI CHINA LIQUIDITY INDEX: Liquidity Most Ample in 22 Months

• MNI APR CHINA LIQUIDITY CONDITION INDEX 26.2 VS MAR 33.3
• MNI CLI APR CURRENT ECON CONDITION INDEX 57.1 VS MAR 54.8

MNI (Beijing) China’s interbank market liquidity reached a 22-month-high in April, leading the PBOC to net-drain for the second consecutive month, the latest MNI Liquidity Conditions Index showed. Interest rates on one-year AAA negotiable certificates of deposit (NCDs), a measure of short-term interbank lending costs, fell to 2.00% on April 22, below the PBOC’s MLF rate of 3.45%, indicating abundant liquidity. The MNI China Liquidity Condition Index read 26.2 in April, down from last months’ 33.3, with 52.4% of traders reporting looser conditions. A lower Index reading implies more liquidity.

AUSTRALIA DATA (MNI): Aussie CPI Higher Than Expected at 3.6% Y/Y

• AUSTRALIA MONTHLY MAR CPI 0.4% MM, 3.5% YY
• AUSTRALIA Q1 CPI +0.9% Q/Q
• AUSTRALIA Q1 TRIMMED CPI +1% Q/Q

Australian CPI rose 3.6% y/y over Q1, down from Q4 2023’s 4.1%, and 10 basis points higher than the market’s expectation, according to the Australian Bureau of Statistics. The Reserve Bank of Australia wants to see inflation at 3.3% by Q2. The monthly CPI indicator, released alongside the quarterly result, also increased 3.5% over March, up from 3.4% in February. Trimmed mean rose 4.0%, compared to Q4's 4.2%, while non-tradable prices grew 5.0%, down from 5.4% in the December quarter. Tradable prices were lower at 0.9%, compared to a rise of 1.5% over Q4.

FOREX: AUD on Top as CPI Limits RBA

• AUD is outperforming, rising against all others in G10 on the back of the hotter-than-expected CPI release overnight. Quarterly CPI rose 1.0% vs. Exp. 0.8% and strength in trimmed mean metrics gives the RBA less room to consider a first rate cut of the cycle later in 2024. Support for AUD has put AUD/USD within range of clustered resistance at the 200- and 50-dmas (0.6529 and 0.6534 respectively).
• Scandi currencies are on the softer side, responding to a sharp uptick in the Swedish unemployment rate metrics - the March SA unemployment rate surprisingly rose 8.6% from a revised 8.1% - the highest since mid-2021. EUR/SEK is higher in return, rising for the first session in five.
• The USD Index is middling-to-higher, recovering a small part of the PMI-induced losses posted during the Tuesday session, aiding both EUR/USD and GBP/USD off the overnight highs.
• USD/JPY printed a new cycle best in early Europe/late Asia, keeping market focus on the tolerance of the Japanese authorities toward protracted currency weakness. Nikkei reported late yesterday that the BoJ board will discuss JPY performance at this week's meeting, leaving markets to maintain a moderate downside skew for USD/JPY in near-term options pricing.
• Focus for the session ahead turns to prelim March durable goods orders data on top of Canadian retail sales and the BoC minutes release. The speaker slate is considerably quieter relative to a busier beginning of the week, with no major appearances set from the ECB or BoE. The Fed remain inside their pre-decision media blackout period.

BONDS: Lower as Global Matters & Issuance Weigh

Late Tuesday weakness in Tsys and Australian CPI data provided some pre-London weakness. Focus on EGB & gilt supply then added further pressure.

• Slightly firmer-than-expected German IFO data also factored in, although all three major metrics remain comfortably below 100.
• Bund futures haven’t tested Monday’s low, last ~40 ticks lower. German cash yields are 3-4bp higher today. 10s are under the most pressure ahead of the impending Bund auction results.
• Peripheral EGBs are a little wider vs. Bunds. See here for more on that.
• Gilt futures are through initial support (99.45), leaving bearish focus on the cycle low (96.01). Contract last -40.
• Cash gilt yields are 4-6bp higher on the day, bear flattening.
• Modest hawkish adjustments have been seen in STIR pricing covering both the BoE & ECB, although familiar ranges remain intact.
• ECB-dated OIS shows ~75bp of cuts through ’24, while BoE contracts show ~50bp of cuts over the same horizon.
• Comments from ECB’s Nagel (hawk) didn’t really move the needle. He will seemingly support the consensus view of a June cut if the data allows, but was not willing to commit to a pre-prescribed cutting cycle beyond there and is sceptical re: the inflation trajectory.

EQUITIES: Eurostoxx 50 Futures Extend Recovery From Friday's Low

Eurostoxx 50 futures traded higher Tuesday, extending the recovery from 4762.00, the Apr 19 low. The contract has cleared the 20-day EMA and breached resistance at 4990.00, the Apr 15 high. This highlights a stronger reversal and signals the end of the correction between Apr 2 - 19. A continuation higher would expose the bull trigger at 5079.00, the Apr 2 high. Key support lies at 4762.00. The short-term trend condition in S&P E-Minis remains bearish and the latest recovery appears - for now - to be a correction. Last Friday’s bearish extension reinforced current short-term conditions. The contract has recently cleared 50-day EMA, signalling scope for a continuation lower. Sights are on 4907.57 next, a Fibonacci retracement. Firm resistance is 5153.25, the 20-day EMA. A clear break of the average would signal a possible reversal.

• Japan's NIKKEI closed higher by 907.92 pts or +2.42% at 38460.08 and the TOPIX ended 44.5 pts higher or +1.67% at 2710.73.
• Elsewhere, in China the SHANGHAI closed higher by 22.844 pts or +0.76% at 3044.822 and the HANG SENG ended 372.34 pts higher or +2.21% at 17201.27.
• Across Europe, Germany's DAX trades higher by 62.91 pts or +0.35% at 18202.46, FTSE 100 higher by 38.25 pts or +0.48% at 8083.32, CAC 40 up 13.32 pts or +0.16% at 8119.34 and Euro Stoxx 50 up 18.62 pts or +0.37% at 5027.35.
• Dow Jones mini up 9 pts or +0.02% at 38737, S&P 500 mini up 9.5 pts or +0.19% at 5116.5, NASDAQ mini up 101.75 pts or +0.58% at 17709.75.

COMMODITIES: WTI Futures Recover From Recent Lows, Remain Above Key Short-Term Support

WTI futures have recovered from their recent lows and price remains above key short-term support at $80.85, the 50-day EMA. The recent move lower highlights a corrective phase and a break of the 50-day average would signal a stronger bearish theme and open $76.07, the Mar 11 low. On the upside, key resistance and the bull trigger has been defined at $86.97, the Apr 12 high. A break would resume the uptrend. Gold is trading closer to its recent lows. The precious metal has traded below the 20-day EMA and this signals the start of a possible corrective cycle. A continuation lower would signal scope for an extension towards $2221.5, the 50-day EMA. Note that a short-term bear cycle would allow a significant overbought trend condition to unwind. Key resistance and the bull trigger has been defined at $2431.5, the recent Apr 12 high.

• WTI Crude down $0.31 or -0.37% at $83.04
• Natural Gas down $0 or -0.17% at $1.808
• Gold spot down $5.58 or -0.24% at $2317.1
• Copper up $3.1 or +0.7% at $449.2
• Silver down $0.1 or -0.37% at $27.2077
• Platinum up $6.15 or +0.67% at $918.65