MNI US OPEN - China Considers Wading Further Into Housing Market

NEWS:

FED (MNI): Schmid Says Fed Should Have Left QT At Faster Pace
Kansas City Fed President Jeffrey Schmid on Tuesday said he would have preferred the central bank had not announced plans to begin slowing the speed of its balance sheet drawdown." I didn't really think we should have slowed the runoff when there's about USD3 to USD3.5 trillion dollars of reserves in the system today. I think there was room to continue to runoff like we were doing it," Schmid said in Q&A at an event in Omaha. "I think there's a lean a little bit to more abundant reserves in the system."

ECB (BBG): ECB Is Very Likely to Start Cutting Rates in June, Villeroy Says
The European Central Bank is very likely to start cutting interest rates at its next policy meeting in June, Bank of France Governor Francois Villeroy de Galhau said. Barring surprise shocks, the ECB remains committed to bringing inflation to its 2% goal by next year from 2.4% currently, he said in an interview on RTL radio on Wednesday.

EU (MNI): Commission Sees Inflation Closer to ECB Target
Euro area inflation is seen just above the ECB's 2% target by the end of 2025, the European Commission's latest round of forecasts suggests. According to the EC's Spring Forecast, headline inflation will average 2.5% in 2024 and 2.1% in 2025 - both lower than the Autumn forecasts of 3.2% and 2.2% respectively. The ECB's inflation target is 2% over the medium term and its own latest projection -- with an update expected in a few weeks -- is for inflation to be at target in mid-2025 and at 1.9% by end-2026.

RIKSBANK (MNI): Riksbank Board United In Seeing More Rate Cuts
The Riksbank Executive Board united in backing the 0.25 percentage point rate cut to 3.75% in May, supporting the bank's projection that the policy rate can probably be cut two more times in 2024 although they all argued that krona weakness, in part linked to dollar strength due to higher US rate paths, posed a risk to the central projection of declining domestic inflation and easier monetary policy, the minutes revealed.

US/UKRAINE (BBG): US Considers Sending Ukraine Another Patriot Missile Battery
The Biden administration is working to send an additional Patriot air-defense battery to Ukraine, people familiar with the matter said, as the US and its allies scramble to meet the country’s demand for more weapons to repel an intensified Russian assault.

EUROPE/RUSSIA (BBG): Russia Accused of Using German Anti-War Protests for Propaganda
Russian military intelligence has worked to exploit fringe peace demonstrations in Germany as part of a broader operation aiming to influence public opinion in the country and undermine support for Ukraine, according to European government officials familiar with the matter and documents seen by Bloomberg News.

NETHERLANDS (BBG): Dutch Election Winner Wilders Is Close to Sealing Coalition Deal
Dutch election winner Geert Wilders is poised to clinch a coalition agreement for a right-wing government as soon as today, with the name of the country’s next prime minister expected to be part of an announcement later on Wednesday. “I think it will turn out well, I don’t see anything going wrong anymore,” Wilders said in the early hours on Wednesday after another round of talks concluded. Wilders and the three right-wing parties he’s negotiating with to form the next government resumed discussions at 10 a.m. local time.

US/ISRAEL (BBG): Biden Administration Advances $1 Billion Arms Sale to Israel
The notification of the deal to Congress even as the president holds up the delivery of other weapons shows the fine line the administration is trying to walk with its longtime ally. The Biden administration has told Congress that it intends to move forward with a plan for the United States to sell more than $1 billion in new weapons to Israel, according to three congressional aides familiar with the deal.

CHINA (BBG): China Considers Buying Unsold Homes to Aid Property Market
China is considering a proposal to have local governments across the country buy millions of unsold homes, people familiar with the matter said, in what would be one of its most ambitious attempts yet to salvage the beleaguered property market. The State Council is seeking feedback from several provinces and government entities on the preliminary plan, said the people, asking not to be identified discussing a private matter. While China has already experimented with several pilot programs to clear excess housing inventory with the help of state funding, the latest plan would be much larger in scale.

US/CHINA (BBG): China Vows ‘Resolute Measures’ After Biden’s New Tariffs
China blasted the Biden administration’s move to increase US tariffs on a wide range of Chinese imports, vowing to take its own action, without giving specifics. “China will take resolute measures to safeguard its own rights and interests,” the Ministry of Commerce said in a statement Tuesday. “The US should immediately correct its wrong actions and cancel the additional tariff measures against China.”

CHINA/RUSSIA (WaPo): China And Russia to Shore Up ‘no Limits’ Partnership With Thursday Meetup
In his first trip abroad since securing a fifth term, Russian President Vladimir Putin will travel to Beijing on Thursday to meet with Chinese leader Xi Jinping to reinforce ties with China and their joint efforts to push back against a U.S.-led global order.

CHINA (MNI): PBOC Eyes Secondary CGB Trading To Support Issuance
The People’s Bank of China is set to restart treasury trades on the secondary market after a 16-year hiatus as it prepares to support long-term Chinese government bond issuance over the next few years, however, it will aim to limit its role and maintain a small portfolio as it pushes fiscal discipline, policy advisors and economists told MNI.

INDUSTRIAL METALS (BBG): Copper Squeeze in New York Prompts Rush to Send Metal to America
Copper futures in New York rallied to a record high after a short squeeze that’s prompted a scramble to divert metal in other regions to US shores. The sudden surge — which has seen Comex futures jump by more than 7% this week — has left metal for July delivery to the New York exchange trading at a record premium over later months, and at unprecedentedly high levels compared with copper on other global commodities exchanges.

OIL (BBG): Global Oil Demand Growth Outlook Continues to Soften, IEA Says
The outlook for global oil demand growth this year continues to soften amid an economic slowdown and mild weather in Europe, the International Energy Agency said. World fuel consumption will increase by 1.1 million barrels a day this year, about 140,000 barrels less than expected a month ago, the Paris-based adviser said, trimming its projections for the second month in a row. The forecast change reflects a first-quarter demand contraction in rich countries combined with an upward revision to estimates for 2023.

DATA

AUSTRALIA (MNI): Aussie Wages Growth Lower At 4.1% Y/Y
Australia’s Wage Price Index rose 0.8% in the March quarter, 10 basis points lower than expected, and 4.1% y/y, according to seasonally adjusted data released Wednesday by the Australian Bureau of Statistics (ABS).The Reserve Bank of Australia had expected the WPI to reach 4.2% y/y by the June quarter.

FOREX: Greenback Falters as Markets Wary of CPI Surprise

• The greenback trades poorly on the day, with the USD Index lower for a third consecutive session. The 50-dma provided solid support for the index earlier in May, and this week's weakness points to another imminent test - crossing at 104.775 today.
• Pre-positioning ahead of US CPI remains key, with markets wary of an out-of-consensus print following the volatile PPI release on Tuesday. Markets expect Y/Y core inflation to slow to a new post-pandemic low of 3.6%, and the determinants of PCE will come under particular scrutiny for gauging any Fed policy response.
• NOK trades well, outperforming all others in G10 and aiding a slide below the 50-dma of 10.8053 in USD/NOK to touch a new May low. China easing rhetoric has picked up, with risk proxy currencies being the main beneficiary. Reports overnight suggested that Chinese local governments will be empowered to buy up unsold housing inventories - the latest sign that the authorities could be becoming more activist in underpinning the economy.
• ECB speak so far Wednesday has stuck to the party line - with Villeroy, Rehn and Muller unsurprisingly pointing to a June rate cut - but with less commitment to policy direction beyond that point. EUR is softer against most others, but continues to hold the bulk of the recent rally. EUR/GBP consolidates just below the 200-dma of 0.8605.
• Outside of the US inflation print, retail sales for April also cross - seen slowing across all main metrics and in particular the ex-autos category. Fed's Barr, Kashkari and Bowman are also set to speak.

EGBS: China Reports Spur Core FI Rally Ahead Of US CPI

Core/semi-core EGBs have rallied sharply this morning, though remain below Friday’s highs at typing. Wider macro focus remains on this afternoon’s US CPI report.

• Overnight reports that “China is considering a proposal to have local governments across the country buy millions of unsold homes” have seemingly been the main catalyst, with the USD also weaker on the day.
• Bunds are +57 ticks at 131.08, with the first resistance at 131.13 (May 14 high). The 50-day EMA at 131.69 continues to represent the key short-term resistance.
• Eurozone preliminary Q1 GDP was in line with flash estimates at 0.3% Q/Q, while employment also grew 0.3% in Q1.
• Elsewhere, the EU’s latest inflation forecast was revised lower, though the Commission warned that delays to the rate cutting cycle were possible should services inflation remain sticky.
• Today’s ECB speakers (Rehn, Villeroy, Muller) have offered little new to the debate on where ECB rates will head after the June meeting.
• The German and French cash curves have bull flattened today, while 10-year periphery spreads to Bunds trade tighter.

GILTS: Off Highs, Soft Pricing At Latest Green Gilt Auction

Slightly disappointing pricing metrics at the latest Jul-33 green gilt auction helps the space away from session highs, although gilts were already off best levels.

• That leaves futures +44 at 98.05.
• Highs of 98.19 were seen ahead of the auction results, with bulls eying initial resistance at 98.29.
• Cash gilt yields are 4.5-5.5bp lower across the curve, with a modest flattening bias.
• Early May yield lows were not tested through 10s, while month-to-date lows in super-long yields held.
• Increased China stimulus hope and catch up to U.S. Tsys factored into the early rally.
• SONIA futures are off best levels alongside gilts, last printing flat to +4.0.
• BoE-dated OIS sticks to recent ranges, showing near 50/50 odds of a June rate cut and ~56.5bp of easing through year end.
• A reminder that former Fed Chair Bernanke will testify in front of the TSC later today. This comes in the wake of his review of the BoE’s forecasting methods.
• This will be worth watching but we don’t think the comments will be immediately market moving as any recommendations from the report are likely to take some time to implement.
• That should leave most of the focus on the U.S. CPI release.

EQUITIES: EuroStoxx Rally Confirms Resumption of Uptrend

• Japan's NIKKEI closed higher by 29.67 pts or +0.08% at 38385.73 and the TOPIX ended 0.07 pts lower or 0% at 2730.88.
• Across Europe, Germany's DAX trades higher by 94.15 pts or +0.5% at 18804.12, FTSE 100 higher by 33.56 pts or +0.4% at 8462.67, CAC 40 down 9.62 pts or -0.12% at 8214.77 and Euro Stoxx 50 up 6.02 pts or +0.12% at 5085.6.
• Dow Jones mini up 8 pts or +0.02% at 39686, S&P 500 mini up 4.25 pts or +0.08% at 5272.25, NASDAQ mini up 4.75 pts or +0.03% at 18415.75.

COMMODITIES: M/T Trend Structure Bullish for Gold

A bearish theme in WTI futures remains intact and the contract continues to trade closer to its recent lows. Price has recently breached the 50-day EMA, strengthening a short-term bearish set-up that highlights potential for a deeper correction. The medium-term trend structure in Gold remains bullish and this is reinforced by moving average studies that are in a bull-mode position. Near-term, a push higher would refocus attention on 2431.50, the Apr 12 high and bull trigger.

• WTI Crude up $0.47 or +0.6% at $78.5
• Natural Gas up $0.02 or +0.85% at $2.364
• Gold spot up $15.38 or +0.65% at $2373.23
• Copper up $15.2 or +3.11% at $504.45
• Silver up $0.29 or +1.01% at $28.902
• Platinum up $14.33 or +1.38% at $1051.53