MNI US OPEN - BoE's Sticky Inflation Problem

NEWS

CORPORATE (MNI): US Earnings Calendar (S&P 500) – W/C Apr 17th

Earnings highlights due Wednesday: Abbott Labs, Elevance Health, IBM, Morgan Stanley, Tesla and US Bancorp

US (BBG): House GOP Plans to Vote Next Week on Debt Ceiling, Spending Cuts

House Republicans are planning to vote next week on a bill that would raise the US debt ceiling and enact deep cuts to US spending, with conservatives demanding additional changes and President Joe Biden and other Democratic leaders refusing to offer concessions in exchange. “We have an outline of a plan, and there is still input coming in,” Rules Committee Chairman Tom Cole of Oklahoma said Tuesday. “I am confident we will pass it.”

US/BRAZIL (BBG): Top Biden Aide Speaks to Brazilian Official After Lula Scolds US

US National Security Advisor Jake Sullivan spoke to his Brazilian counterpart on Tuesday after that country’s president, Luiz Inácio Lula da Silva, accused America of “encouraging war” while on a visit to China. Sullivan and Celso Amorim “discussed a number of bilateral and global issues, including Russia’s war against Ukraine” and “continued cooperation to combat climate change and protect the environment,” according to a White House account of their conversation.

CHINA (MNI): China H2 Steel Demand Seen Stronger on Property Activity

Surprising weakness in Chinese steel prices, which comes amid questions about the strength of domestic demand amid a broader economic upswing, should give way to renewed vigor in the second half as construction activity picks up and the property market recovers, industry sources told MNI.

CHINA (MNI): Pork Price to Rebound Later In 2023 - NDRC

Pork prices will rise towards year end as demand recovers and supply remains sufficient, according to a National Development and Reform Commission (NDRC) spokesperson on Wednesday. Central planners had taken note of the low prices in Q1, but a recent study of pork prices, showed supply to be reasonable and the risk of further price drops low. Authorities will take active steps to promote prices that operate within a reasonable range, such as managing central reserves.

UKRAINE (BBG): Ukraine Grain-Deal Coordinator Says Ship Inspections Resume

Ship inspections for crop cargoes through Ukraine’s Black Sea safe-passage corridor resumed Wednesday after a two-day halt, according to the body which oversees the checks. The disruption this week had sparked fresh uncertainty about future supplies from the key agriculture exporter. Kyiv has blamed the obstruction on Russia.

ISRAEL (MNI): Netanyahu Slides in Preferred PM Polling amid Protests, Security Threats

The Israeli political environment shows little sign of returning to a stable position in the short-to-medium term with mass protests against proposed judicial reforms continuing in major cities. This atmosphere of instability is exacerbated by security threats in the form of individual terrorist attacks on Israelis in the West Bank and rocket strikes from Hamas from Lebanese and Syrian territory. All of this has combined to send PM Benjamin Netanyahu's personal approval plummeting, as shown in the latest preferred PM opinion polling.

INDIA (BBG): India Passes China as World’s Most Populous Nation, UN Says

India has overtaken China as the world’s most populous nation, according to United Nations data released Wednesday. India’s population surpassed 1.4286 billion, slightly higher than China’s 1.4257 billion people, according to mid-2023 estimates by the UN’s World Population dashboard. China’s numbers do not include Hong Kong and Macau, Special Administrative Regions of China, and Taiwan, the data showed.

DATA

UK DATA (MNI): BOE Rate Hike in Focus on Upside Inflation Surprise

• UK MAR CPI +0.8% M/M, +10.1% Y/Y
• UK MAR CORE CPI +0.9% M/M, +6.2% Y/Y
• UK MAR RPI +0.7% M/M, +13.5% Y/Y
• UK MAR OUTPUT PPI +0.1% M/M, +8.7% Y/Y
• UK MAR INPUT PPI +0.2% M/M, +7.6% Y/Y

The Bank of England was given further evidence of the sticky prices across the UK economy, with inflation again above its own expectations in March, despite falling to 10.1% year-on-year from 10.4%, data released by the Office for National Statistics on Wednesday showed. “Inflation eased slightly in March, but remains at a high level. The main drivers of the decline were motor fuel prices and heating oil costs, both of which fell after sharp rises at the same time last year," ONS Chief Economist Grant Fitzner said.

Figure 2: Contributors to the Annual UK CPI Rate

EUROZONE DATA (MNI): HICP Confirmed at +6.9%, Services Driving Core HICP Uptick

• EUROZONE MAR FINAL HICP +0.9% M/M (=FLASH); FEB +_% M/M
• EUROZONE MAR FINAL HICP +6.9% Y/Y (=FLASH); FEB +8.5% Y/Y
• EUROZONE MAR FINAL CORE HICP +1.3%r M/M (FLASH +1.2%); +5.7% Y/Y (=FLASH); FEB+5.6% Y/Y

Eurozone HICP was confirmed at flash estimate levels of +0.9% m/m and +6.9% y/y in March (vs +8.5% y/y in February), with core HICP confirmed at a euro-era high of +5.7% y/y. Core HICP was revised up 0.1pp to rise +1.3% m/m. Energy inflation cooled considerably (-0.9% y/y after +13.7% y/y in Feb), accounting for the bulk of downwards pressure to headline inflation in March. Non-energy industrial goods also eased, slowing by 0.2pp to +6.6% y/y.

EUROZONE DATA (MNI): Robust February Construction Despite PMIs Signalling Contraction

• EUROZONE FEB CONSTRUCTION OUTPUT +2.3% M/M; JAN +3.8%r M/M
• EUROZONE FEB CONSTRUCTION OUTPUT +2.3% Y/Y; JAN +0.5%r Y/Y

Eurozone February construction data posted another robust month of growth, with construction output expanding by +2.3% m/m and +2.3% y/y.* France and Germany construction expanded by +1.5% m/m and +1.6% m/m, whilst a jump in Austrian output to +13.3% m/m likely skewed the aggregate print towards the upside. Looking forward, the March construction PMI recorded a sharp deceleration in new orders and activity, led by falling output in Germany. Despite PMI data having recently been substantially weaker than the hard data, the eurozone construction PMI indicates a softer end to Q1 is likely to materialise in the March data.

FOREX: GBP Boosted by BoE's Sticky Inflation Issue

• GBP trades to the top-end in G10, rising against all others on an above-expected March inflation release. While headline inflation slowed from the February print, Y/Y CPI remaining in double digits and core CPI holding above forecast poses further problems for the Bank of England, prompting a number of sell-side analysts to add 25bps to their MPC hike cycle.
• GBP/USD's post-data rally put the pair at 1.2472 before fading slightly, keeping the Friday high of 1.2546 out of reach for now as the bull trigger.
• USD/JPY traded through the overnight highs alongside the European open to trade just below the Y135.00 handle. A modest wave of USD strength accompanied a return higher for US Tsy yields, as the 10y touched 3.62% - a new April high - alongside tighter implied Fed pricing.
• The ECB speaking slate is busy Wednesday, with appearances from Lane, Knot, de Cos and Schnabel all on the docket. Markets remain split between a 25 and 50bps hike at the ECB's next meeting - with final March CPI data doing little to sway markets in either direction (inline with prelim at 6.9%).
• The Fed Beige Book release rounds off central bank comms, scheduled at 1900BST/1400ET. Earnings remain a focus, with Wednesday highlights including US Bancorp, Morgan Stanley, Tesla and IBM.

BONDS: Gilts Bear Flatten Following UK Inflation Data

• The upside surprise to UK inflation (including core inflation) this morning has been the driving force for markets so far today. Gilts have been the underperformers with the curve bear flattening as markets fully price a 25bp May hike (from 22.5bp yesterday) and two further 25bp hikes by the Autumn (cumulative 77bp priced by September up from 61bp yesterday and 52bp Monday). This has pushed 2-year gilt yields over 20bp higher since Monday's close and 10-year gilt yields around 15bp higher.
• UST and Bund curves have also bear flattened with more being priced in for the Fed and ECB on the back of the UK inflation data too.
• Looking ahead we have some ECB speakers due today (Lane, Knot, de Cos, Schnabel) and we will receive the Fed's Beige Book.
• TY1 futures are down -0-12+ today at 114-03 with 10y UST yields up 4.1bp at 3.619% and 2y yields up 6.7bp at 4.267%.
• Bund futures are down -0.53 today at 133.43 with 10y Bund yields up 3.3bp at 2.507% and Schatz yields up 5.0bp at 2.947%.
• Gilt futures are down -1.03 today at 100.19 with 10y yields up 7.9bp at 3.822% and 2y yields up 12.0bp at 3.793%.

EQUITIES: Tuesday Price Action Reinforces Bullish E-Mini S&P Conditions; Sights on 4205.50

Earnings highlights due Wednesday: Abbott Labs, Elevance Health, IBM, Morgan Stanley, Tesla and US Bancorp

Full schedule including timings, EPS and revenue expectations here: https://roar-assets-auto.rbl.ms/files/52491/MNIUSE...

Eurostoxx 50 futures remain in an uptrend. Recent gains have reinforced the bullish significance of the break of 4268.00, the Mar 6 high and a former key resistance. The break confirmed a resumption of the trend and maintains the bullish price sequence of higher highs and higher lows. Sights are on 4381.50, the Jan 5 2022 high. Initial firm support lies at 4240.60, the 20-day EMA. The trend outlook in S&P E-minis remains bullish and Tuesday’s gains reinforce current conditions. The contract traded to a fresh cycle high yesterday and is approaching the 4200.00 handle. Sights are on 4205.50, the Feb 16 high ahead of 4244.00, the Feb 2 high and a key medium-term resistance. Firm support lies at 4073.75, the 50-day EMA. Initial support to watch lies at 4113.07, the 20-day EMA.

• Japan's NIKKEI closed lower by 52.07 pts or -0.18% at 28606.76 and the TOPIX ended 0.51 pts lower or -0.03% at 2040.38.
• Elsewhere, in China the SHANGHAI closed lower by 23.203 pts or -0.68% at 3370.128 and the HANG SENG ended 282.84 pts lower or -1.37% at 20368.59.
• Across Europe, Germany's DAX trades lower by 33.99 pts or -0.21% at 15847.63, FTSE 100 lower by 18.74 pts or -0.24% at 7890.83, CAC 40 down 1.07 pts or -0.01% at 7531.86 and Euro Stoxx 50 down 11.02 pts or -0.25% at 4382.61.
• Dow Jones mini down 95 pts or -0.28% at 34028, S&P 500 mini down 14.75 pts or -0.35% at 4165.25, NASDAQ mini down 69 pts or -0.52% at 13123.25.

COMMODITIES: Trend Conditions in Gold Remain Bullish Despite Recent Pullback; Support Lies at 20-Day EMA

WTI futures remain in a bull cycle despite the latest pullback. Last week’s gains resulted in a break of resistance at $81.81, the Apr 4 high. This confirmed a resumption of the current uptrend. Note that an important resistance at $83.04, the Jan 23 high, has also been breached. The focus is on $85.01, the Nov 14 high. On the downside, key short-term support is seen at $79.00, the Apr 3 low and the gap high on the daily chart. Trend conditions in Gold remain bullish and the latest pullback is considered corrective. Support to watch is $1984.5, the 20-day EMA. It has been pierced - a clear break would suggest scope for a deeper retracement and expose $1949.7, Apr 3 low. On the upside, the short-term bull trigger has been defined at $2048.7, Apr 13 high. A break would resume the uptrend and open $2070.4, Mar 8 2022 high. This is just ahead of the all-time high of $2075.5.

• WTI Crude down $0.8 or -0.99% at $80.08
• Natural Gas up $0.01 or +0.55% at $2.379
• Gold spot down $15.82 or -0.79% at $1989.92
• Copper down $4.95 or -1.21% at $404.35
• Silver down $0.34 or -1.34% at $24.8624
• Platinum down $16.02 or -1.48% at $1067.07