MNI US OPEN - BoE Vote Split in Focus
EXECUTIVE SUMMARY:
- MNI BOE PREVIEW - ANOTHER STEP ON THE PATH TO CUTS
- BIDEN WARNS HE’D DELAY MORE WEAPONS IF ISRAEL ATTACKS RAFAH
- UEDA SAYS ABRUPT WEAK YEN MOVES ARE NEGATIVE FOR JAPAN’S ECONOMY
- BCB COPOM CUT SELIC RATE 25BP; FOUR DOVISH DISSENTS
Figure 1: BoE pricing comfortably off extremes into BoE, greater market risk probably on dovish side
Source: MNI/ Bloomberg
NEWS
MNI BOE PREVIEW - MAY 2024: Another Step on the Path to Cuts
There will be three factors that markets will pay attention to at the MPC’s May decision: the vote, the guidance and the forecasts. The MNI Markets team’s base case is for another 8-1 vote with Dhingra the sole dissenter. However, we see around a 25% probability that Ramsden joins her in voting for an immediate cut at the May meeting. We look at potential changes to the Bank's forward guidance. We expect CPI forecasts of 1.9-2.0% in 2 years and around 1.7% in 3 years. Any deviations to this could prompt market moves. Markets are pricing almost no risk of an immediate policy change at this meeting, with Bank Rate expected to remain at 5.25% and QT already on a pre-set pace until after the September MPC meeting.
US/ISRAEL (BBG): Biden Warns He’d Delay More Weapons If Israel Attacks Rafah
US President Joe Biden said he would halt additional shipments of offensive weapons to Israel if the country launched a ground invasion of Rafah, decrying the potential loss of civilian life as “just wrong.” “We’re going to continue to make sure Israel is secure in terms of Iron Dome and their ability to respond to attacks that came out of the Middle East recently,” Biden said in an interview Wednesday with CNN, referring to air-defense weaponry. “But it’s, it’s just wrong. We’re not going to – we’re not going to supply the weapons and artillery shells.”
US (BBG): House Democrats Quash Ouster of Partisan Foe Speaker Johnson
House Democrats joined with Republicans to block a hardliner attempt to overthrow Speaker Mike Johnson, a rare cross-party alliance formed to reward the GOP leader for help securing $61 billion in aid for Ukraine. Yet the speaker’s reliance on opponents to maintain his leadership position leaves Johnson’s political strength in doubt. Democratic leaders haven’t committed to indefinitely supporting him and hardliners can force a new ouster vote at any time. Eleven Republicans opposed the procedural maneuver Johnson allies used to block a vote on removing him as speaker.
ISRAEL (BBG): Israel Must Continue War, Despite Biden Opposition: Minister
Israel must continue the war in Gaza, despite the Biden administration’s pushback and the suspension of arms shipments, Finance Minister Bezalel Smotrich says. War must continue until Hamas is totally eliminated and the hostages released; this means conquering Rafah completely and “the sooner the better.” “We simply have no choice as this war is an existential one and anything other than complete victory will put the existence of the Jewish state in danger.”
BOJ (BBG): Ueda Says Abrupt Weak Yen Moves Are Negative for Japan’s Economy
Bank of Japan Governor Kazuo Ueda reiterates his view that an abrupt and one-sided depreciation of the yen is undesirable and negative for Japan’s economy. The rapid moves raise uncertainties by, for instance, making it hard for companies to make business plans, Ueda says in response to questions in parliament. Will closely monitor the recent weak yen while conducting BOJ’s policy. Policy response might be needed if foreign exchange rates affect inflation trend.
BOJ (MNI): Price Upside Risk, Faster Normalisation - BOJ
Bank of Japan board members noted the upside risk to prices and the potential for faster monetary policy normalisation driven by the weaker yen at the April 25-26 meeting, the summary of opinions showed on Thursday. One member said underlying inflation could continue to deviate upward from the baseline scenario against the backdrop of a weaker yen increasing the pace of policy normalisation. “In order to adjust the degree of monetary accommodation in a way that does not exert stress on the economy, it will be necessary for the Bank to raise the policy interest rate in a timely and appropriate manner as the likelihood of realizing the outlook for economic activity and prices rises,” another member said.
CHINA/HUNGARY (BBG): Xi to Ink Hungary Deals, Touts Nation as Model for China-EU Ties
President Xi Jinping is set to announce a range of new investments in Budapest as he touts Prime Minister Viktor Orban’s Hungary as a model for what the European Union’s relationship could look like with the world’s second-largest economy. Xi was received by President Tamas Sulyok on Thursday as he kicked off the final leg of his trip to Europe in five years, following stops in France and Serbia. During a meeting with Prime Minister Viktor Orban he’s expected to announce more than a dozen deals covering rail, road and energy projects.
CHINA (BBG): China Homebuyer Easing Gains Momentum as Big Cities Scrap Curbs
China’s efforts to revive homebuyer demand gathered steam on Thursday when two major cities scrapped all their remaining curbs on residential property purchases, a move that more local governments are expected to follow. Developer stocks surged after Hangzhou, the capital of eastern Zhejiang province, said it will remove eight-year-old restrictions on residential property purchases and no longer review the qualifications of homebuyers. Xi’an, the capital of Shaanxi province, announced similar steps hours later.
CHINA (BBG): China Mulls Dividend Tax Waiver on HK Stocks Bought Via Connect
China is considering a proposal to exempt individual investors from paying dividend taxes on Hong Kong stocks bought via Stock Connect, according to people with knowledge of the matter. Regulators including China Securities Regulatory Commission and the State Taxation Administration are reviewing a plan submitted by Hong Kong to waive the 20% tax on dividends from Hong Kong stocks bought via the link that connects to Shanghai and Shenzhen, the people said, asking not to be named discussing private information.
CHINA (BBG): Country Garden Misses Bond Payment, Says Guarantor Would Step In
Chinese developer Country Garden Holdings Co. said it cannot meet initial deadlines for interest payments on two local bonds and that a state guarantor would step in — marking the first test of a key government program to shore up builder debt. The company’s onshore unit cannot make the coupon payments on its 3.95% note and its 3.8% bond by an initial deadline of May 9, according to filings. Both securities are guaranteed by China Bond Insurance Co., a state-owned firm at the heart of a program introduced by authorities in 2022 to help private-sector developers avoid liquidity crunches.
BRAZIL (MNI): BCB Copom Cut Selic Rate 25bp; Four Dovish Dissents
The Central Bank of Brazil reduced its official Selic rate by 25bps to 10.50% Wednesday in a split decision that saw four deputies dissent in favor of the 50bp cut indicated by the prior meeting's guidance. "The Committee unanimously judges that the uncertain global scenario and the domestic scenario, marked by resilient economic activity and deanchored expectations, require greater caution," said the statement. Markets largely anticipated the shift toward a smaller reduction despite March guidance for another half point cut after BCB governor Roberto Campos Neto said last month the board was "not afraid to do what's needed" if economic trends change.
MALAYSIA (BBG): Malaysia Holds Key Rate Amid Low Inflation, Ringgit Measures
Malaysia kept its benchmark interest rate unchanged on Thursday, saving its policy ammunition for later amid looming risks to inflation and ongoing measures to defend the ringgit. Bank Negara Malaysia left the overnight policy rate at the post-pandemic high of 3%, as expected by all 24 economists in a Bloomberg survey. The central bank last adjusted borrowing costs a year ago, when it raised the benchmark by 25 basis points. A strengthening economy, low inflation and a currency that’s outperformed most peers in Southeast Asia this year support BNM’s decision to stand pat, even after Indonesia’s surprising rate hike last month.
MNI NBP PREVIEW - MAY 2024: Another Hawkish Hold
The upcoming monetary policy meeting is set to be a placeholder, with the National Bank of Poland (NBP) widely expected to sit on its hands at least until the publication of the next inflation projection in July. Although CPI growth remains within the central bank’s tolerance band, it is past its local trough and will accelerate into 2H2024. Meanwhile, familiar risks and uncertainties repeatedly flagged by various MPC members continue to linger, limiting room for any imminent interest-rate adjustments. That being said, better-than-expected inflation outturns for 1Q2024 and a more gradual phase-out of energy subsidies tentatively proposed by the government leave the prospect of a cut by the year-end on the table.
TURKEY (BBG): Turkish Central Bank Raises Inflation Outlook That Shapes Policy
Turkey’s central bank raised its year-end inflation forecast, a surprise move that underscores the challenge it faces in slowing price growth from its current level of almost 70%.Speaking at a quarterly presentation in Ankara on Thursday, Governor Fatih Karahan said the central bank now projects inflation ending 2024 at 38%, from a previous forecast of 36%, and left next year’s estimate at 14%. Officials see their forecasts as targets meant to shape policy while doing “whatever it takes” to smother inflation.
DATA
UK DATA (MNI): KPMG-REC Report on Jobs: Labour Market Continues to Soften but at Slower Pace
The KPMG-REC Report on Jobs showed that the labour market continues to soften, albeit at a slower pace than in March. Both permanent and temporary placements remained below the breakeven 50 level. The press release notes that permanent placements have now fallen in each month since October 2022, but that the index was at its highest level since June 2023. Temporary placements remained below 50, too, but were at their highest level since January. The availability of staff saw a more significant increase, however, with the report noting higher redundancies led to the highest reading for 5 months.
CHINA DATA (MNI): China April Exports Improve; Imports Surge
- CHINA APR TRADE SURPLUS +$72.35 BLN VS MAR +$58.55 BLN
- CHINA APR EXPORTS +1.5% Y/Y VS MEDIAN +1.3% Y/Y
- CHINA APR IMPORTS +8.4% Y/Y VS MEDIAN +4.7% Y/Y
MNI (Beijing) China's exports rose 1.5% y/y in April, beating the market consensus of a 1.3% y/y rise and far ahead of the 7.5% y/y decline seen in March, data released by Customs on Thursday showed, with the increase driven mainly by recovering external demand. Imports increased 8.4% y/y during the month, outpacing market consensus for a 4.7% y/y pick up, much improved from last month's 1.9% y/y drop. The trade surplus over the first four months of 2024 was USD255.7 billion, with April contributing USD72.4 billion.
JAPAN DATA (MNI): BOJ Consumption Index Falls
The Bank of Japan's Consumption Activity Index posted its second quarterly drop in the January-March period, falling 0.5% q/q, following Q4's 1.1% drop, BOJ data showed today. The index fell 0.3% m/m in March, its first drop in two months following February's 1.5% rise. The BOJ's Consumption Activity Index is designed to forecast revised private consumption, not act as a preliminary estimate. Private economists expect private consumption to fall 0.2% q/q in Q1 in GDP data due out May 19.
CORPORATE (BBG): Spain Says It Has Last Word to Approve BBVA Offer for Sabadell
Spain’s government is opposed to an offer made by Banco Bilbao Vizcaya Argentaria SA to buy smaller rival Banco de Sabadell SA, and has the last word to approve any deal, a top official said. The government is opposed to the “form and substance” of BBVA’s offer to acquire Sabadell, Economy Minister Carlos Cuerpo said in an interview with state television broadcaster TVE Thursday. The deal could be bad for competition and add uncertainty and volatility to the country’s financial sector, Cuerpo said. BBVA earlier on Thursday announced a hostile all-share offer to acquire Sabadell, under the same terms as a previous offer which was rejected by Sabadell’s board.
FOREX: GBP in Focus, With EUR/GBP Eyeing Key Levels
- GBP is in focus ahead of the BoE decision, with overnight vols bid across all GBP crosses. EUR/GBP vols north of 9 points tilts markets to price the biggest swing since the February BoE decision and the last MPR. The Bank are expected to hold the Bank Rate, but opinions are divided over the potential vote split and whether another MPC member - most likely Ramsden - will join Dhingra in voting for a rate cut at this meeting.
- For a third consecutive session, the USD index is firmer, putting the 106.00 handle in sight and following the gyrations of the US yield curve, as the 2yr yield continues to creep higher and off pullback lows posted at 4.7077% last week.
- JPY is the weakest in G10 as rate differentials squeeze the currency - the trade weighted JPY is again narrowing the gap with pre-intervention lows, which should keep pressure on the Japanese authorities to monitor the currency and verbally warn of fresh action should markets become disorderly once more.
- Outside of the BoE decision, weekly jobless and continuing claims data cross, as well as speeches from ECB's Vujcic, Cipollone & de Guindos, BoE's Bailey & Pill and Fed's Daly.
BONDS: Under Pressure on Global Spill Over as Oil Recovery Extends
An extension of the recovery in crude oil will be adding to the pressure derived from U.S. Tsys and JGBs, leaving EGBs and gilts lower on the day.
- EUR5y5y inflation swaps tick away from yesterday’s multi-week lows.
- Bund futures -45 at 130.91, with German yields 2-5bp higher as the curve steepens.
- The weakness in core global FI, modest widening in EUR credit indices and a downtick in EUR equities sees some peripheral spread widening.
- The 10-Year BTP/Bund spread moves back above 135bp after failing to sustain a move below 130bp in recent sessions.
- Signs of a moderation in demand for the latest BTP Valore offering has weighed on BTPs in recent days.
- Ascension Day will be limiting EGB liquidity.
- Gilts have also softened ahead of the latest BoE decision.
- Futures are -39 at 97.56, but bears have failed to force a move below Tuesday’s low.
- The recent recovery in the contract poses a bit of a threat to the overarching bearish technical theme, although the April 12 high (98.23) was never challenged. Initial support comes in at the 20-day EMA (97.07).
- Cash gilt yields are 2-4bp higher as the curve steepens a little.
- We have highlighted our BoE preview on several occasions this morning, along with our belief that a dovish BoE outcome probably presents the greatest risk to market pricing.
- 54bp of BoE cuts are priced through year end, with 24bp of cuts priced through the August MPC.
EQUITIES: E-Mini S&P Remains Close to This Week's Highs
Eurostoxx 50 futures maintain a firmer tone and the contract has traded higher this week. Recent gains have resulted in a breach of the 20-day EMA, and resistance at 4990.00, Apr 15 high, highlighting a stronger reversal. Wednesday’s break of 5006.00, the Apr 4 high, reinforces the current bullish condition. Sights are on the bull trigger at 5079.00, Apr 2 high. Key support is 4762.00, the Apr 19 low. Initial support to watch is 4890.80, the 50-day EMA. S&P E-Minis have traded higher this week, extending the current bull cycle. Price has moved through resistance at the 20-day EMA - a bullish development. This highlights scope for a continuation higher that would expose the key resistance and bull trigger at 5333.50, the Apr 1 high. Initial resistance is 5246.18, a Fibonacci retracement. Initial firm support lies at 5036.25, the May 2 low.
- Japan's NIKKEI closed lower by 128.39 pts or -0.34% at 38073.98 and the TOPIX ended 7.03 pts higher or +0.26% at 2713.46.
- Elsewhere, in China the SHANGHAI closed higher by 25.84 pts or +0.83% at 3154.32 and the HANG SENG ended 223.95 pts higher or +1.22% at 18537.81.
- Across Europe, Germany's DAX trades higher by 36.45 pts or +0.2% at 18534.83, FTSE 100 higher by 7.04 pts or +0.08% at 8361.23, CAC 40 down 14.98 pts or -0.18% at 8116.43 and Euro Stoxx 50 down 21.15 pts or -0.42% at 5017.02.
- Dow Jones mini down 70 pts or -0.18% at 39125, S&P 500 mini down 12.5 pts or -0.24% at 5200.25, NASDAQ mini down 61.25 pts or -0.34% at 18124.75.
COMMODITIES: WTI Futures Moderately Recover from Wednesday's Lows
A bearish theme in WTI futures remains intact and the contract traded to a fresh short-term cycle low yesterday. Gains are considered corrective. Price has recently breached the 50-day EMA, strengthening a short-term bearish theme that highlights potential for a deeper correction. Scope is seen for a move to $76.07, Mar 11 low. Key resistance and the bull trigger is at $86.97, the Apr 12 high. Initial firm resistance is at $84.46, the Apr 26 high. Gold is unchanged and remains in consolidation mode. A bearish short-term condition is intact. The precious metal has recently traded through the 20-day EMA highlighting a corrective cycle. A continuation lower would signal scope for an extension towards $2255.0, the 50-day EMA. Note that a short-term bear cycle has allowed a significant overbought condition to unwind. Key resistance and the bull trigger is at $2431.5, the recent Apr 12 high.
- WTI Crude up $0.67 or +0.85% at $79.69
- Natural Gas up $0 or +0.05% at $2.189
- Gold spot up $3.14 or +0.14% at $2311.95
- Copper down $1.65 or -0.36% at $452.45
- Silver up $0.32 or +1.19% at $27.6537
- Platinum up $7.75 or +0.79% at $984.18
Date | GMT/Local | Impact | Flag | Country | Event |
09/05/2024 | 1100/1200 | *** | UK | Bank Of England Interest Rate | |
09/05/2024 | 1130/1230 | UK | BoE Press Conference | ||
09/05/2024 | 1215/1415 | EU | ECB's De Guindos remarks at Panel Civico | ||
09/05/2024 | 1215/1415 | EU | ECB's Cipollone remarks at seminar on financial instrument tokenisation | ||
09/05/2024 | 1230/0830 | *** | US | Jobless Claims | |
09/05/2024 | 1230/0830 | ** | US | WASDE Weekly Import/Export | |
09/05/2024 | - | *** | CN | Trade | |
09/05/2024 | 1300/1400 | UK | BOE's Decision Maker Panel Data | ||
09/05/2024 | 1400/1000 | CA | Bank of Canada Financial System Review (and Survey) | ||
09/05/2024 | 1430/1030 | ** | US | Natural Gas Stocks | |
09/05/2024 | 1530/1130 | * | US | US Bill 08 Week Treasury Auction Result | |
09/05/2024 | 1530/1130 | ** | US | US Bill 04 Week Treasury Auction Result | |
09/05/2024 | 1615/1715 | UK | BOE's Pill MPR Virtual Q&A | ||
09/05/2024 | 1700/1300 | *** | US | US Treasury Auction Result for 30 Year Bond | |
09/05/2024 | 1800/1400 | US | San Francisco Fed's Mary Daly | ||
09/05/2024 | 1900/1500 | *** | MX | Mexico Interest Rate | |
10/05/2024 | 0500/1400 | JP | Economy Watchers Survey | ||
10/05/2024 | 0600/0700 | ** | UK | UK Monthly GDP | |
10/05/2024 | 0600/0700 | ** | UK | Trade Balance | |
10/05/2024 | 0600/0700 | *** | UK | GDP First Estimate | |
10/05/2024 | 0600/0700 | ** | UK | Index of Services | |
10/05/2024 | 0600/0700 | *** | UK | Index of Production | |
10/05/2024 | 0600/0700 | ** | UK | Output in the Construction Industry | |
10/05/2024 | 0600/0800 | ** | SE | Private Sector Production m/m | |
10/05/2024 | 0600/0800 | *** | NO | CPI Norway | |
10/05/2024 | 0700/0900 | EU | ECB's Cipollone presentation on digital euro | ||
10/05/2024 | 0800/1000 | * | IT | Industrial Production | |
10/05/2024 | 0845/1045 | EU | ECB's Elderson in roundtable at ASVIS/ECCO | ||
10/05/2024 | 1115/1215 | UK | BOE's Pill at National MPC Agency Briefing | ||
10/05/2024 | 1145/1245 | UK | BOE's Dhingra remarks at KCL Econdat Conference | ||
10/05/2024 | - | *** | CN | Money Supply | |
10/05/2024 | - | *** | CN | New Loans | |
10/05/2024 | - | *** | CN | Social Financing | |
10/05/2024 | 1230/0830 | *** | CA | Labour Force Survey | |
10/05/2024 | 1300/0900 | US | Fed Governor Michelle Bowman | ||
10/05/2024 | 1400/1000 | ** | US | U. Mich. Survey of Consumers | |
10/05/2024 | 1400/1000 | US | Dallas Fed's Lorie Logan | ||
10/05/2024 | 1400/1000 | US | Minneapolis Fed's Neel Kashkari | ||
10/05/2024 | 1600/1200 | *** | US | USDA Crop Estimates - WASDE | |
10/05/2024 | 1645/1245 | US | Chicago Fed's Austan Goolsbee | ||
10/05/2024 | 1700/1300 | ** | US | Baker Hughes Rig Count Overview - Weekly | |
10/05/2024 | 1730/1330 | US | Fed Vice Chair Michael Barr | ||
10/05/2024 | 1800/1400 | ** | US | Treasury Budget |