MNI US OPEN - BOJ Accounts Imply Second Round of Intervention

NEWS

US/MIDDLE EAST (BBG): US and Saudis Near Defense Pact Meant to Reshape Middle East

The US and Saudi Arabia are nearing a historic pact that would offer the kingdom security guarantees and lay out a possible pathway to diplomatic ties with Israel, if its government brings the war in Gaza to an end, people familiar with the matter said. The agreement faces plenty of obstacles but would amount to a new version of a framework that was scuttled when Hamas militants attacked Israel on Oct. 7, triggering the conflict in Gaza. Negotiations between Washington and Riyadh have sped up recently, and many officials are optimistic that they could reach a deal within weeks, according to the people, who asked not to be identified discussing private deliberations.

US (BBG): Biden Calls Ally Japan ‘Xenophobic’ Along With China, Russia

US President Joe Biden included ally Japan along with rivals China and Russia in a list of countries he called “xenophobic” in a speech at a campaign fundraising event in Washington. Biden reiterated remarks he made last month linking China’s economic woes to its unwillingness to accept immigration. “You know, one of the reasons our economy is growing is because of you and many others. Why? Because we welcome immigrants,” Biden told Asian American and Pacific Islander donors Wednesday. “The reason - think about it - why is China stalling so bad economically? Why is Japan having trouble? Why is Russia, why is anyone? Because they’re xenophobic, they don’t want immigrants.”

JAPAN (MNI): 2024 JPY Intervention So Far Matches 2022 Action 

Bank of Japan's daily accounts data strongly suggests another phase of intervention took place after-market yesterday, with the daily update suggesting intervention of around Y3.5trl - a slightly smaller quantity relative to Monday's Y5.5trl. Comparing the two waves of intervention so far - this week's JPY buying roughly equivalent to the three confirmed phases in late 2022:

• May 1: Y3.5trl
• Apr 30: Y5.5trl

2024 phase total (so far): Y9.0trl

• Oct 2022 (2/2): Y0.729trl
• Oct 2022 (1/2): Y5.62trl
• Sep 2022: Y2.84trl

2022 phase total: Y9.2trl

JAPAN (BBG): Japan’s Kanda Says No Comment on Yen Intervention: Nikkei

Japan’s top currency official Masato Kanda declines to comment on whether intervention was behind the sudden movement in dollar/yen rates overnight, Nikkei reports. Speaking to reporters in Tbilisi, Georgia, Kanda says excessive fluctuations have a major impact on the Japanese economy. Kanda says he’s ready to respond as necessary on a 24-hour basis even while he is overseas.

JAPAN (BBG): Yen Bears Push Back on Japan’s Suspected Intervention Again

Another suspected intervention by Japanese authorities to support the yen, this time in late New York trading, ran into resistance from traders keen to keep selling the currency. The yen weakened as much as 1.1% against the dollar to 156.28 in Asia trading, inching closer to levels before the possible intervention. Traders speculated Japan stepped in the currency market after the yen surged 3% within minutes from a level of around 157.58 per dollar to as strong as 153.04 in the final stretch of the US trading session.

BOJ (MNI): Upside Risks to Prices Tolerable - BOJ Minutes

Upside risk to prices is concerning despite its small risk, some Bank of Japan board members noted at the March 18-19 meeting which saw the end of the Bank's negative rate and yield curve control, the minutes showed Thursday. One member noted the BOJ will handle upside risk to prices through the new flexible policy framework. “Some members pointed out that prices could rise more than expected, mainly due to discontinuous changes in expectations of economic entities, although this was not a significant risk at this point,” the minutes showed.

MNI NORGES BANK PREVIEW - MAY 2024: Little Reason to Pivot

The Norges Bank are unanimously expected to leave the policy rate on hold at 4.50% once again. Following the hawkish-leaning March decision, recent developments provide little reason for the Norges Bank to deviate from its current guidance. As such, we expect the statement to continue guiding for rates to be held at current levels for “some time ahead”. Although Governor Wolden Bache noted at the March press conference that September was the most likely meeting for rates to be cut, we don’t expect this to be explicitly included in the policy statement.

GLOBAL (MNI): Gradual Fed and ECB Rate Cuts Seen from Q3 by OECD

The Federal Reserve and ECB will cut interest rates in the third quarter of 2024 according to the OECD's new forecast Thursday and the pace will be slow given the need to curb stubborn inflation. Global economic growth will remain around a substandard 3% this year and next, the Paris-based group said. Most major economies will see inflation return to their targets by the end of next year, up from about one-third now, though there are upside risks from geopolitical conflicts and services costs, the report said.

GLOBAL (BBG): Maersk Sees Improved Prospects for Global Container Trade

A.P. Moller-Maersk A/S, a bellwether for global trade, said a strong start to the year has improved the outlook for container trade demand worldwide. Global container trade will probably expand 2.5% to 4.5% this year with expectations now landing closer to the upper side of the range, Copenhagen-based Maersk said on Thursday, repeating its forecast range given in February. Maersk is making plans to extend the current rerouting south of the Cape of Good Hope potentially for the rest of the year to avoid the Red Sea, it said.

INDIA/RUSSIA (BBG): India Top Refiner Resumes Trade on Russian Sovcomflot Ships

Indian Oil Corp. resumed buying Russian crude oil delivered on a tanker owned by Sovcomflot PJSC this week, paving the way for a restoration of oil flows between Russia and India, after tightened US penalties had disrupted shipments. Suezmax tanker Vladimir Tikhonov discharged around 1 million barrels of Russian flagship Urals crude at Paradip port, where Indian Oil has a refinery, on Thursday, according to Bloomberg ship-tracking data. That’s the first tanker belonging to the Russian state tanker giant to deliver crude after another smaller vessel, SCF Baltica, offloaded fuel oil last week off Sikka, in the state of Gujarat.

DATA

EUROZONE DATA (MNI): PMIs Suggest Limited Pricing Power Amongst Manufacturing Firms

• EUROZONE APR FINAL MANUFACTURING PMI 45.7 (FLASH 45.6); MAR 46.1

The Eurozone-wide manufacturing PMI was 45.7 (vs 45.6 flash, 46.1 prior). One interesting theme across the reports of the four main Eurozone economies was that input cost increases were not necessarily passed through into output charges, with competition limiting pricing power. While base effects may stall the disinflation in non-energy industrial goods HICP in the months ahead, anecdotal evidence from the PMIs suggests pricing power is low, which should contain any notable pick-up in NEIG inflation going forward. Additionally, the competitive pressures imply a compression of company profit margins, which should be reflected in the unit profits component of the GDP deflator - in line with the ECB's central scenario from the March macroeconomic projections.

GERMANY APR FINAL MANUFACTURING PMI 42.5 (FLASH 42.2); MAR 41.9 (MNI)
FRANCE APR FINAL MANUFACTURING PMI 45.3 (FLASH 44.9); MAR 46.2 (MNI)

ITALY DATA (MNI): Unexpected Underperformance in April Manufacturing PMI

• ITALY APR FINAL MANUFACTURING PMI 47.3 ; MAR 50.4

The Italian April manufacturing PMI printed below expectations at 47.3 (vs 50.4 cons, 50.4 prior), in sharp contrast to Spain's expansionary print. This was a surprise to the downside, after the Eurozone flash PMI suggested manufacturing output ex-France and Germany was expected to be broadly stable. Bunds rose around 20 ticks on release. The press release notes that new orders and output declined in April, while firms exhibited cost cutting with lower input buying and attempts to run down stocks.

SPAIN DATA (MNI): Competition Limits Inflationary Pressures in Spain Manufacturing PMI

• SPAIN APR MANUFACTURING PMI 52.2; MAR 51.4

The Spanish April manufacturing PMI exceeded expectations at 52.2 (vs 51.4 cons, 51.4 prior). Last week's flash Eurozone PMI suggested that manufacturing output ex-France and Germany was expected to be broadly stable, suggesting Spain's print is a surprise to the upside. The details of the PMI suggest an improvement in production and employment, while price pressures were limited by increased competition amongst firms.

SWITZERLAND DATA (MNI): Inflation Higher on Imported Products

• SWISS APR CPI +0.3% M/M, +1.4% Y/Y
• SWISS MAR RETAIL SALES -0.4% M/M, -0.1% Y/Y

Swiss CPI inflation printed higher than expected at 1.4% Y/Y in April (vs 1.1% cons; 1.0% prior), and 0.3% M/M (vs 0.1% cons; 0.0% prior). Core CPI came in also higher at 1.2% Y/Y (vs 0.9% cons; 1.0% prior). We had flagged upside risks to core in our preview yesterday. For the Y/Y headline rate, this marks the first increase after three consecutive declines. Re. the categories in focus, predominantly imported inflation realized its expected uptick, at -0.4% Y/Y vs -1.3% Y/Y in March.

SWEDEN DATA (MNI): Manufacturing PMI Sees 3rd Consecutive Rise; Bankruptcies Up 68%

The Swedish manufacturing PMI rose for the third consecutive month in April, to 51.4 (vs an upwardly revised 50.4 prior). There was no consensus for the print. This is consistent with the increase in the manufacturing component of April's Economic Tendency Indicator, which rose into expansionary territory at 100.5 (vs 98.6 prior). Looking at the sub-components, new orders rose to 54.6 (vs 51.5 prior) while employment rose to 49.1 (vs 46.8 prior). Production remained in expansionary territory at 52.2 (vs 54.9 prior).

JAPAN DATA (MNI): Japan Confidence Falls First Time in Seven Months

The Japanese consumer confident index in April posted its first drop in seven months to 38.3 from March's 39.5, as all components worsened, data released by the Cabinet Office on Thursday showed. The latest consumer confidence survey was conducted from April 6-22 after the Bank of Japan ended the negative interest rate and yield curve control in March. The result does not align with the BOJ's more optimistic view following an analysis of household survey microdata which showed a high percentage of households expect their income to increase.

AUSTRALIA DATA (MNI): Trade Surplus Narrows Sharply in Q1

• AUSTRALIA MAR TRADE BALANCE A$+5024

Australia's merchandise trade surplus unexpectedly narrowed to $5.02bn in March from the downwardly-revised $6.59bn due to weak export growth while import growth remained strong. Q1 saw a $2.57bn deterioration in the surplus from the Q4 average with exports down 0.9% q/q but imports up 6%. Trade data are nominal and Q1 saw a 2.1% q/q drop in export prices as commodity prices weakened.

AUSTRALIA DATA (MNI): Building Approvals Show Dwelling Investment Still Weak

• AUSTRALIA MAR BUILDING APPROVALS +1.9% M/M, -2.2% Y/Y
• AUSTRALIA MAR DWELLING APPROVALS -2.2% Y/Y
• AUSTRALIA MAR DWELLING APPROVALS +1.9% M/M

Total building approvals rose a lower-than-expected 1.9% m/m in March to be down 2.2% y/y after falling an upwardly revised 0.9% and 5.3% respectively. Private approvals were in line with Bloomberg consensus, it was the public sector that drove the weaker total. With Q1 approvals down 9% q/q while working age population grew 179k 3m/3m in March, we are likely to continue to see pressure on rents and house prices. Dwelling investment is also likely to remain a weak part of GDP.

FOREX: USD/JPY Well Off Lows Despite Confirmation of Heavy Official Sales After the Close

• Despite the Fed decision late yesterday, market focus reverted swiftly to the JPY as USD/JPY's slide to 153.04 after the close was confirmed as likely intervention via the BoJ's daily accounts data released this morning. With USD/JPY sales estimated at Y9trl so far this week, the BoJ are generally matching the strategies laid out in 2022's intervention phases, leaving markets on watch during phases of low liquidity.
• USD/JPY has recovered off lows, and has re-taken the Y155.00 mark ahead of the US crossover. Nonetheless, yesterday's highs at just under Y158.00 are still some way off.
• The CHF is the firmest performer so far, reversing a small part of recent weakness as data this morning confirmed the stickiness of CPI, which came in well ahead of expectations (1.4% vs. Exp. 1.1% Y/Y). As a result, USD/CHF has reversed further below 0.92 and is lining up a test of next support at the 0.9088 level.
• NOK trades poorly despite a positive showing from oil markets. EUR/NOK remains in reach of the cycle high printed yesterday at 11.8733, and a break above here opens the highest levels for the cross since November last year.
• Focus for the duration of the Thursday session turns to weekly jobless claims data from the US, trade balance from the US and Canada as well as final durable goods orders for March. ECB's Lane is set to speak, but not until after the US markets close. There are no scheduled Fed speakers following yesterday's rate decision.

EGBS: Off Highs Following Upward Manufacturing PMI Revisions

Core/semi-core EGBs are off intraday highs following mixed signals in the April manufacturing PMIs.

• Bunds rallied after the Italian PMI printed notably below consensus at 47.3 (vs 50.4 cons), but gains were pared after the French, German and Eurozone final releases were revised upward.
• The overall backdrop remains positive though, following yesterday’s less hawkish than expected Fed meeting.
• Bunds are +42 ticks at 130.50, though the technical trend outlook remains bearish.
• German and French cash yields are 3 to 4bps lower today.
• This morning’s LT OAT auction saw solid demand metrics across lines.
• 10-year periphery spreads to Bunds are tighter this morning, with European equity softness preventing any more notable moves to the downside.
• The remainder of today’s regional data calendar is light, leaving markets to focus on this afternoon’s US data releases.
• ECB’s Lane is scheduled to speak after hours.

GILTS: Post-Fed Rally Holds

Gilts hold most of their early Fed-driven rally, despite some noise surrounding the European PMI readings.

• Futures last +60 at 96.25, with the contract comfortably within the range witnessed during recent sessions.
• The overarching bearish technical picture remains intact for the contract, with initial resistance seen at the 29 Apr high (96.57).
• 5s outperform on the curve, with benchmark yields 3.5-6.5bp lower on the day.
• SONIA futures are just off session highs, last flat to +10.0.
• BoE-dated OIS contracts hover around dovish session extremes, showing ~43.5bp of ’24 cuts, with the first 25bp step fully priced through the end of the Sep MPC.
• Plenty of desks argue that GBP STIRs have exhibited an exaggerated beta to the recent U.S. data developments and hawkish Fed repricing.
• While we don’t disagree, further slowing of the UK CPI/wage pressures and related BoE communique is probably required to trigger greater divergence in Fed & BoE pricing.
• The UK calendar is essentially empty today, although local elections could provide the catalyst for a leadership challenge within the ruling Conservative Party if they perform poorly.

EQUITIES: Eurostoxx 50 Futures Extend Pullback from 5000 Handle

Eurostoxx 50 futures are trading above 4762.00, the Apr 19 low. The contract has recently traded through the 20-day EMA and resistance at 4990.00, the Apr 15 high. This continues to highlight a potentially stronger reversal and the end of the correction between Apr 2 - 19. An extension higher would expose the bull trigger at 5079.00, the Apr 2 high. Key support lies at 4762.00, a break would be bearish. Initial support to watch is 4878.10, the 50-day EMA. The short-term trend condition in S&P E-Minis remains bearish and recent gains appear to have been a correction. The contract has recently traded through the 50-day EMA, signalling scope for a continuation lower. A resumption of the bear leg would open 4907.57, a Fibonacci retracement. Firm resistance at 5124.01, the 20-day EMA, has been pierced, a clear break would signal a reversal and expose key resistance at 5333.50, Apr 1 high.

• Japan's NIKKEI closed lower by 37.98 pts or -0.1% at 38236.07 and the TOPIX ended 0.87 pts lower or -0.03% at 2728.53.
• Across Europe, Germany's DAX trades lower by 0.75 pts or 0% at 17931.51, FTSE 100 higher by 29.65 pts or +0.37% at 8151.01, CAC 40 down 64.28 pts or -0.81% at 7920.65 and Euro Stoxx 50 down 22.09 pts or -0.45% at 4899.13.
• Dow Jones mini up 138 pts or +0.36% at 38207, S&P 500 mini up 30 pts or +0.59% at 5076.5, NASDAQ mini up 140.5 pts or +0.81% at 17578.25.

COMMODITIES: Recent Price Action in WTI Futures Signals Scope for Deeper Correction Lower

WTI futures traded lower yesterday. Price has breached key support at the 50-day EMA, at $81.14. The clear breach of this average strengthens a short-term bearish theme and highlights scope for a deeper correction. This has opened $76.07, the Mar 11 low. Key resistance and the bull trigger has been defined at $86.97, the Apr 12 high. Initial firm resistance is at $84.46, the Apr 26 high. Gold traded lower Tuesday and breached initial support at $2291.6, the Apr 23 low. The precious metal has also traded through the 20-day EMA and this highlights a corrective cycle. A continuation lower would signal scope for an extension towards $2242.7, the 50-day EMA. Note that a short-term bear cycle is allowing significant overbought condition to unwind. Key resistance and the bull trigger is at $2431.5, the recent Apr 12 high.

• WTI Crude up $0.6 or +0.76% at $79.55
• Natural Gas up $0.04 or +2.17% at $1.974
• Gold spot down $12.52 or -0.54% at $2306.94
• Copper up $1.4 or +0.31% at $455.95
• Silver down $0.2 or -0.75% at $26.451
• Platinum up $2.38 or +0.25% at $955.25