MNI US OPEN - BoE in Focus for Potential Tweak to Guidance

NEWS

MNI BOE PREVIEW: MAY 2023 - Forward Guidance Tweak?

There is a fairly solid consensus ahead of this week’s MPC meeting with analysts having capitulated in looking for a 25bp hike after the stronger-than-expected labour market and inflation data released in April. We expect a 7-2 vote with unchanged guidance, although we think there could be a tweak to the latter and we discuss this in more detail. We also summarise over 20 sell side previews.

UK (MNI): NIESR Sees UK Inflation, Bank Rate High-for-Longer

Stubborn core inflation will push headline inflation higher and force the Bank of England to keep its policy rate higher-for-longer, following an expected 25 basis points hike Thursday, the National Institute of Economic and Social Research predicted. NIESR expects inflation to only get back to around its 2.0% in two-and-a-half year with Bank Rate, currently at 4.25% likely to peak at 4.75% but to then stay around there and fall back only very gradually, hitting 3.25% in 2027.

UK (The Times): Bonfire of EU Laws Scaled Back to Fury of Brexiteers

Ministers are to scrap only a fraction of the nearly 4,000 EU laws still in effect in the UK in a dramatic scaling back of Rishi Sunak’s bonfire of Brussels rules and regulations. In a significant U-turn on his Tory leadership election pledge, the government would no longer “sunset” all EU laws by the end of the year, Kemi Badenoch, the business and trade secretary, announced. Instead ministers intend to publish a list of about 550 laws that will be revoked by December, allowing about 3,000 to remain indefinitely.

ECB (BBG): ECB’s Nagel Says Nothing Off the Table for September Meeting

European Central Bank Governing Council member Joachim Nagel refused to exclude that interest-rate increases may persist beyond the summer. Asked in a Bloomberg Television interview whether borrowing costs may still be rising in September, the Bundesbank president said “there’s nothing off the table.” “Inflation is still very sticky,” Nagel said Thursday in Niigata, Japan, where he’s attending the meeting of Group of Seven finance chiefs. He described price gains as “a very stubborn phenomenon.”

US (The Times): Donald Trump Calls on His Party to Get Ready for Debt Default

Donald Trump urged Republicans to force America into an unprecedented default if President Biden did not make huge spending cuts, during a wide-ranging town hall when he doubled down on hardline positions in a pitch for the party’s 2024 nomination.

US/CHINA (BBG): Biden Presses for China Contact Despite Risk of Losing Clout

The Biden administration is trying to make it hard for China to say no to engagement by seeking a flurry of meetings and phone calls, a strategy aimed at easing tensions and painting President Xi Jinping as recalcitrant if he refuses. The approach, described by people familiar with the matter who asked not to be identified, has involved proposals of meetings and calls from the lowest level all the way up to a possible conversation between Xi and President Joe Biden, something that has been stalled for months now.

G7/CHINA (BBG): China Targeted in New G7 Push Against ‘Economic Coercion’

Group of Seven nations aim to send a signal to China this month by announcing a joint effort to counter “economic coercion,” even as they struggle to agree on more than a broad statement of intent. While member states want to better coordinate their responses to China’s economic practices, signing off on tangible measures is proving more complicated, according to people familiar with the discussions. Officials are still wrangling over how tough to be in their messaging to China, particularly on specific tools that could be deployed against it.

CHINA (MNI): Commerce Min-China 'Resolutely Objects' US Restrictions On Chip Sector

The Chinese Commerce Ministry has criticised the US for its actions in discouraging the development of the Chinese semiconductor sector, with spox Shu Jueting stating that China 'Will resolutely object if the US restricts its firms from investing in Chinese semiconductor industry.' Added that 'such behaviours will affect companies' normal operation and damage the international economic and trade order.'

JAPAN (MNI): Board Member Sees Continued High CPI - BOJ Opinions

A Bank of Japan board member voiced concern over the possibility of continued high inflation but noted the need to continue patiently with easy policy at the April 27-28 meeting, according to the summary of opinions released Thursday. The summary showed most board members felt the possibility of continued high inflation warranted attention, however, a rate consistently below 2% was considered more important in the medium term.

UKRAINE (BBC): Zelensky Says Ukraine Needs More Time for Counter-Offensive

Ukraine's President Volodymyr Zelensky has said his country needs more time to launch a much-anticipated counter-offensive against Russian forces, as its military awaits the delivery of promised military aid. Speaking at his headquarters in Kyiv, President Zelensky described combat brigades, some of which were trained by Nato countries, as being "ready" but said the army still needed "some things", including armoured vehicles that were "arriving in batches."

ISRAEL (WaPo): Israel Strikes in Gaza for Third Day, Killing Militant Commander

Israel attacked new targets in the Gaza Strip Thursday as Islamist militants continued to launch rockets into Israeli territory, extending into a third day a violent flare-up that has killed more than two dozen Palestinians and heightening the risk of wider conflict. Israeli aircraft struck the upper floor of an apartment building in the south of the enclave, killing three members of Palestinian Islamic Jihad, including one, Ali Hassan Ghali, that the group identified as the head of its rocket program. The other two were his brother and nephew, according to Palestinian media.

TURKEY (MNI): Turkish Presidential Candidate Ince to Speak This Afternoon

Presidential candidate Muharrem İnce is set to hold a press conference at 1400 local time (0700ET, 1200BST/1300CET) according to wires, with speculation that he could unofficially withdraw from the race and offer his backing to main opposition candidate Kemal Kılıçdaroğlu. Opinion polls give İnce and his populist pro-EU Homeland Party around 2-5% in presidential opinion polling. Given the extremely tight race between Kılıçdaroğlu and incumbent President Recep Tayyip Erdoğan, even gaining a proportion of İnce's votes could be enough to push Kılıçdaroğlu over the 50%+1 mark and give him a first-round win.

CORPORATE (BBG): Credit Suisse CDS Surge as Hedge Funds See Potential Trigger

An illiquid corner of swaps insuring Credit Suisse Group AG debt has surged back to life as some hedge funds make the case they should be triggered. Funds including FourSixThree Capital and Diameter Capital Partners have been buying swaps insuring Credit Suisse’s subordinated bonds with the idea that the controversial writedown of the firm’s AT1 securities qualifies as a trigger for them, according to people familiar with the matter.

CORPORATE (BBG): Microsoft Freezes Salaries to Navigate Economic Uncertainty

Microsoft Corp. has decided to freeze pay for all full-time workers this year to help it navigate macroeconomic ructions, becoming the latest US tech leader to tighten its belt during a time of mounting uncertainty. Chief Executive Officer Satya Nadella explained in an internal memo the move as necessary to generate “enough yield” to invest in the major platform shift toward artificial intelligence.

DATA

EUROZONE DATA (MNI): Eurozone Consumer Price Expectations At New High - ECB

The euro area consumer outlook for inflation rose sharply in March, the latest ECB Consumer Expectations Survey showed on Thursday, with median expectations for increases in prices over the next 12 months rising to 5.0% from 4.6% in February -- the highest level recorded since the survey started in April 2020.

CHINA DATA (MNI): China April CPI Slides, PPI Dips Further

• CHINA APR CPI -0.1% M/M VS -0.3% M/M MAR

China's Consumer Price Index registered a 0.1% y/y increase in April, lower than the market consensus of 0.3% y/y growth and down from March’s 0.7% y/y, data from the National Bureau of Statistics showed on Thursday. The high-base effect, as well as sufficient supplies of fresh goods and falling fuel prices, drove the decline. Food costs increased 0.4% y/y in April, down from March's 2.4% y/y growth.

CHINA END-APR M2 +12.4% Y/Y VS MEDIAN +12.5%; MAR +12.7% Y/Y (MNI)

JAPAN DATA (MNI): Japan April Sentiment Third Straight Rise

The Japanese Government has left its previous economic assessment in place despite strong sentiment and outlook figures in April, according to the Economy Watchers survey released by the Cabinet Office Thursday. The sentiment index posted its third straight monthly rise in April to a seasonally adjusted 1.3 points to 54.6 and the outlook index for the next two-three months ahead printed its fifth consecutive increase, up 1.6 points to 55.7, supporting the Bank of Japan's view that private consumption – despite being affected by price rises – has increased moderately.

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.

BONDS: Looking Ahead to the BOE

• After an early bid seen particularly in EGBs (which led USTs and gilts higher), a "significant" shift higher in the ECB's consumer inflation expectations survey saw the moves higher largely reversed and we now see Bund and UST futures both close to flat on the day, although gilt futures remain higher on the day.
• Looking ahead we will receive US PPI and there are some Fed/ECB speakers due but the main event will be the BOE meeting.
• Markets price in more than 24bp for today's meeting with a cumulative peak of 65bp seen by the September meeting. In terms of expectations for today a 25bp hike with unchanged guidance, a 7-2 vote split (2 dovish dissenters), unchanged guidance and a small upward revision to the 2/3-year CPI forecasts are generally expected. We set out expectations on the risks and potential gilt moves earlier.
• TY1 futures are down -0-1+ today at 115-27+ with 10y UST yields down -0.3bp at 3.430% and 2y yields up 1.1bp at 3.923%.
• Bund futures are unch today at 135.96 with 10y Bund yields up 0.1bp at 2.287% and Schatz yields up 0.9bp at 2.576%.
• Gilt futures are up 0.09 today at 100.81 with 10y yields down -1.2bp at 3.784% and 2y yields down -1.9bp at 3.794%.

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.

• Japan's NIKKEI closed higher by 4.54 pts or +0.02% at 29126.72 and the TOPIX ended 2.82 pts lower or -0.14% at 2083.09.
• Elsewhere, in China the SHANGHAI closed lower by 9.6 pts or -0.29% at 3309.551 and the HANG SENG ended 18.41 pts lower or -0.09% at 19743.79.
• Across Europe, Germany's DAX trades higher by 12.41 pts or +0.08% at 15907.57, FTSE 100 higher by 16.14 pts or +0.21% at 7757.47, CAC 40 up 44.45 pts or +0.6% at 7405.55 and Euro Stoxx 50 up 18.48 pts or +0.43% at 4325.09.
• Dow Jones mini up 39 pts or +0.12% at 33643, S&P 500 mini up 12 pts or +0.29% at 4164.25, NASDAQ mini up 39.25 pts or +0.29% at 13450.25.

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.

• WTI Crude up $0.79 or +1.09% at $73.36
• Natural Gas down $0.01 or -0.37% at $2.181
• Gold spot down $6.09 or -0.3% at $2023.49
• Copper down $6.1 or -1.59% at $377.9
• Silver down $0.47 or -1.85% at $24.9243
• Platinum down $17.96 or -1.61% at $1101.07