MNI US OPEN - Debt Ceiling Talks to Resume This Week

NEWS

US (BBG): Biden and McCarthy to Resume Debt Ceiling Talks on Tuesday

President Joe Biden, House Speaker Kevin McCarthy and other congressional leaders are planning to meet Tuesday to discuss budget negotiations to avoid a default. Biden told reporters Sunday in Delaware that he expects to meet McCarthy on Tuesday, just a day before leaving for a Group of Seven summit in Japan. A person familiar with discussions confirmed that the meeting is expected then but cautioned that plans could change.

ECB (MNI): Policy Already In Restrictive Territory - ECB Report

The ECB's monetary policy stance has already shifted from highly accommodative into restrictive territory and the Governing Council's moves since December 2021 can be expected to exert substantial downward pressure on real activity and inflation over the period 2022-25, a model-based assessment to be published in the central bank's monthly bulletin will show. However, the latest Economic Bulletin says the transmission of policy tightening to the economy "involves considerable lags, with the impact expected to peak in 2023 and 2024".

ECB (BBG): ECB’s Visco Says Caution, Data-Dependency Needed on Rates

The European Central Bank needs to stick carefully to a data-dependent approach in weighing when and how much to raise interest rates, Governing Council member Ignazio Visco said. “We have agreed as a governing council to stick to the data as it becomes available,” Visco said in an interview after the Group of Seven finance chiefs meeting in Niigata, Japan. “It is in nobody’s interest to speculate over scenarios that could be evaluated differently over time as the situation changes.”

ECB (BBG): ECB Tightening Path Is in ‘Home Stretch,’ Guindos Tells Sole

The European Central Bank is in the final leg of its historic cycle of interest-rate increases, according to Vice President Luis de Guindos.“We have now entered the home stretch of our monetary policy tightening path,” Guindos told Il Sole 24 Ore. “And that’s why we are returning to normality, to 25 basis-point steps.”

TURKEY (MNI): Second Round Run-Off Likely as Neither Candidate Reaches 50% Threshold

With above 99% of ballot box votes counted, results show neither incumbent President Recep Tayyip Erdogan or leader of the opposition alliance Kemal Kilicdaroglu with more than the required 50 percent of the vote to secure presidency. If the results hold and no candidate wins more than half of the total ballots, a second round vote will ensue on May 28. Turkey’s benchmark BIST 100 index dropped 6.4% at the open, the most since the February earthquakes, though trading has since resumed.

The People's Alliance of nationalist parties that includes Erdogan's Justice and Development Party (AKP) looks to have secured a majority in the Grand National Assembly. Andoulou Agency reports the AKP as winning 266 seats with the far-right Nationalist Movement Party (MHP) on 50 seats, giving the alliance at least 316 of the 600 seats in the GNA.

THAILAND (BBG): Thai Opposition Chief Seeks Mandate After Strong Vote Result

Thailand’s two biggest pro-democracy parties agreed on Monday to join in a coalition that would give them a clear majority in the lower house after a stronger-than-forecast showing in Sunday’s elections.The liberal Move Forward party claimed a mandate to lead after topping the polls, with party chief Pita Limjaroenrat taking to Twitter early Monday morning to say he would be a prime minister for all. He told reporters that he’s extended invitations to five parties to form the next government.

US/JAPAN (BBG): Biden to Meet With Japan’s Kishida Thursday in Hiroshima

US President Joe Biden will participate in a bilateral meeting with Japanese Prime Minister Fumio Kishida after arriving in Hiroshima, Japan on Thursday, according to a statement from White House.

JAPAN (MNI): BOJ to Upgrade CPI Outlook, But No Tweak Imminent

The Bank of Japan is set to revise up its 2023 core-core inflation estimate, increasing the likelihood of what it would regard as a healthy wage-price spiral into next year, but the outlook for subsequent years is still not sufficiently inflationary for the Bank to consider tweaks to monetary policy any time soon, MNI understands. The Bank’s median core-core inflation forecast will be raised from April’s 2.5%, as service prices in particular pick up in response to wage hikes.

G7/RUSSIA (RTRS): G7 Leaders to Target Russian Energy, Trade in New Sanctions Steps

Leaders of the Group of Seven (G7) nations plan to tighten sanctions on Russia at their summit in Japan this week, with steps aimed at energy and exports aiding Moscow's war effort, said officials with direct knowledge of the discussions. New measures announced by the leaders during the May 19-21 meetings will target sanctions evasion involving third countries, and seek to undermine Russia's future energy production and curb trade that supports Russia's military, the people said.

RUSSIA/CHINA (BBG): Russian Premier, Sanctioned Tycoons to Visit China Trade Event

Russian Prime Minister Mikhail Mishustin will lead a government delegation to China next week to attend a business forum along with sanctioned tycoons as Moscow leans on Beijing to help it withstand economic pressure over the Kremlin’s war in Ukraine. Mishustin and Deputy Prime Minister Alexander Novak, who’s responsible for energy, will attend the Russia-China Business Forum in Shanghai on May 23, according to people with knowledge of the plans, who asked to remain anonymous as the preparations are confidential.

CHINA/HONG KONG (MNI): Swap Connect To Strengthen Hong Kong's Hub Status

The launch of Swap Connect will open China’s financial derivatives market, enhances the role of Hong Kong as a connection to the Mainland for international investors and strengthen the yuan’s global status, according to the People’s Bank of China and the Hong Kong Government.

RBA (MNI): RBA Needs to Cut NAIRU Estimate - Ex-Staffers

The Reserve Bank of Australia should lower its estimate of the unemployment rate compatible with stable inflation as the post-Covid labour market runs hot, former RBA economists told MNI. The RBA’s Non-Accelerating Inflation Rate of Unemployment (NAIRU) estimate remains unchanged from its pre-Covid 4.5%, despite a downward trajectory leading into the pandemic (see chart below), according to Blair Chapman, director at Deloitte Access Economics and a former RBA research economist and lead analyst.

CORPORATE (BBG): Ford Seen Laying Off 1,300 Workers in China, Local Media Reports

Ford Motor Co. plans to cut jobs in China, potentially by more than 1,300, as its sales decline in the world’s biggest car market, local media including Economic Daily News reported. Ford’s wholesales in China fell below half a million units for the first time in a decade in 2022, continuing a slide since 2016, when the US automaker shipped 1.27 million vehicles and had a market share of 4.6%.

MNI BOE REVIEW: May 2023 - Mean Forecasts in Focus

The 25bp hike, 7-2 vote and lack of change in guidance was in line with expectations, albeit some including us had seen a risk of a softening of the guidance. The main takeaway for us was the shift in emphasis to the mean CPI forecasts (rather than emphasis on the modal forecasts).It seems to the MNI Markets team that through this communication, the MPC has implicitly validated the market pricing that was used to produce these forecasts.

DATA

EUROZONE DATA (MNI): Industrial Production Slump Amplified by Volatile Irish Data

• EUROZONE MAR INDUST PROD -4.1% M/M (FCST -2.8%); FEB +1.5% M/M
• EUROZONE MAR INDUST PROD -1.4% Y/Y (FCST ); FEB +2.0% Y/Y

Euro area industrial production contracted more than anticipated in March, falling -4.1% m/m. This was 1.3pp worse than consensus expectations and undoing two consecutive months of m/m growth. This was the strongest m/m contraction since the onset of the pandemic in 2020, however is substantially skewed by volatility in Irish data (-26.3% m/m in March) which is exposed to large shifts in multi-national pricing. Our calculations point towards a softer contraction of approx. -1.5% m/m when excluding Irish data and reweighting the remaining country indexes.

JAPAN DATA (MNI): Japan Apr CGPI Rise Slows to 5.8% Vs. Mar 7.4%

• JAPAN APR CORP GOODS PRICE INDEX +5.8% Y/Y; MAR REV +7.4%
• JAPAN APR CORP GOODS PRICE INDEX +0.2% M/M; MAR REV +0.1%

The y/y rise in Japan's corporate goods price index slowed to 5.8% in April from March's revised 7.4%, indicating that upstream cost increases had peaked, Bank of Japan data showed Monday. The data showed that downstream pass-through of costs continued. A time lag exists between when firms transfer high costs to retail prices. BOJ officials will focus on whether the y/y consumer price index rise slows as expected amid ongoing pass-through of cost increases – particularly in the services sector.

CHINA DATA (MNI): PBOC Net Drains CNY2 Billion via OMOs Monday

The People's Bank of China (PBOC) conducted CNY2 billion via 7-day reverse repos and CNY125 billion via 1-year MLF on Monday, with the rates unchanged at 2.00% and 2.75%, respectively. The operation has led to a net drain of CNY2 billion after setting off the maturity of CNY4 billion reverse repo today, while the MLF will inject CNY25 billion into the market after offsetting the maturity of CNY100 billion MLF Tuesday, according to Wind Information.

FOREX: AUD on Top as Sell-Side Slates Further Hikes

• AUD remains the best performer in G10 headed through to the European morning, helping the currency snap a small part of the weakness noted across the second half of last week. Last week's gains resulted in a print above key resistance at 0.6806, Apr 14 high and resistance to watch this week is 0.6818, the May 10 high. A clear break of this level is required to reinstate a bullish theme.
• NAB's updated RBA view is also helping aide a bounce - they see two further rate rises to tip the rate target to 4.35% - an outcome not currently well priced across bond and STIR markets.
• The option pipeline this week most notably sees strikes clustered around the 0.67 strike - over A$1.75bln is set to roll off at that mark between now and Friday's cut, turning focus to RBA minutes due tomorrow as well as jobs data and inflation expectations stats on Thursday.
• JPY is at the bottom-end of the G10 slate, edging lower as USD/JPY extends the partial retracement of the early May weakness. The Monday high is within range of the May 5th best at 136.63. Strength through here opens the 200-dma of 137.05 for direction - after which markets have set the stage for new cycle highs above 137.77.
• Data slate is typically light for a Monday, with Empire Manufacturing numbers the highlight. Markets look for the headline to deteriorate to -4.0 from +10.8 previously. The speaker slate is busier, with Fed's Bostic (three appearances!), Goolsbee, Kashkari andf Cook all on the docket. ECB's Nagel and BoE's Pill also make appearances.

EGBs/Gilts: Marginally Steeper

• After a soft start to the European trading session, EGBs and gilts have retraced some of their early losses, although still remain lower on the day, and with curves marginally steeper.
• The morning's data saw German wholesale prices turn negative year-on-year for the first time since 2020 while Eurozone industrial production missed expectations, although this was partly skewed by Irish data.
• BTPs now trade richer across the curve, shaking off the initial spill over from weakness in wider core global FI markets, intermediates outperform. The early tightening bias vs. Bunds after Friday’s ratings affirmation from Fitch gets more traction (also triggering outright richening), with the 10-Year spread compressing further to sit ~4bp tighter on the day, operating closer to 185bp than 190bp. This comes alongside various sell-side reports playing down the likelihood of ratings action from Moody’s this coming Friday (where Italy currently holds a one-notch above junk status rating, with negative outlook).
• Looking ahead, there is little of note on the domestic calendar today (other than another MPR-related appearance from Huw Pill). The focus will start to turn to labour market data tomorrow morning (for the UK) and final CPI/GDP prints due later this week for the euro area.
  • Gilt futures are down -0.19 today at 100.74 with 10y yields up 0.9bp at 3.784% and 2y yields unch at 3.788%.
  • Bund futures are down -0.24 today at 135.96 with 10y Bund yields up 1.5bp at 2.289% and Schatz yields unch at 2.584%.
  • BTP futures are up 0.15 today at 115.23 with 10y yields down -2.5bp at 4.152% and 2y yields down -1.6bp at 3.293%.
  • OAT futures are down -0.19 today at 130.29 with 10y yields up 0.8bp at 2.862% and 2y yields up 0.7bp at 2.778%.

US TSYS: Off Cheaps, Tight Ranges & Low Volumes Prevail, Fedspeak Eyed

Price action in Bunds, with feed through from BTPs, remains at the fore for Tsys in early European trade after Asia-Pac reaction to Friday’s developments and weekend news flow (headlined by apparent incremental positives in discussions surrounding the debt ceiling and a Biden-Congressional leadership meeting re: the matter being tabled for Tuesday) biased the space a touch cheaper pre-London. That leaves the major cash Tsys running little changed to 1bp cheaper across the curve, with TYM3 operating in the middle of a tight 0-06+ range on relatively light volume.

• The latest Empire manufacturing survey and a raft of Fedspeak headline the NY docket.
• On the latter, any reaction to Friday’s UoM inflation expectations readings (headlined by the fresh multi-year high in 5- to 10-Year print) will be eyed. FOMC dated OIS price a couple of bp of tightening for next month’s meeting, followed by just over 70bp of cuts by year end.

EQUITIES: E-Mini S&Ps Recover from Friday Lows Though Remain Within Recent Ranges

Eurostoxx 50 futures remain in consolidation mode. Price is trading above support at 4239.10, the 50-day EMA. The recent move down is considered corrective and the broader uptrend is intact. A resumption of gains would signal scope for a test of 4363.00, the Apr 21 high and a 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 remain in consolidation mode and continue to trade above the 50-day EMA, which intersects at 4107.61. An extension higher would refocus attention on key resistance and the bull trigger at 4206.25, the May 1 high. A break 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 instead highlight a bearish threat.

• Japan's NIKKEI closed higher by 238.04 pts or +0.81% at 29626.34 and the TOPIX ended 18.46 pts higher or +0.88% at 2114.85.
• Elsewhere, in China the SHANGHAI closed higher by 38.375 pts or +1.17% at 3310.737 and the HANG SENG ended 343.89 pts higher or +1.75% at 19971.13.
• Across Europe, Germany's DAX trades higher by 17.3 pts or +0.11% at 15934.21, FTSE 100 higher by 18.32 pts or +0.24% at 7773.39, CAC 40 up 26.69 pts or +0.36% at 7444.17 and Euro Stoxx 50 up 6.83 pts or +0.16% at 4325.94.
• Dow Jones mini up 103 pts or +0.31% at 33444, S&P 500 mini up 14 pts or +0.34% at 4150.25, NASDAQ mini up 38 pts or +0.28% at 13427.5.

COMMODITIES: Gold Below Recent Highs But Trend Conditions Still Technically Bullish

WTI futures have pulled back from recent highs. The recent recovery that started May 4 is considered corrective and the move higher has allowed an 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 below its recent highs but trend conditions remain bullish. 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 positive price sequence of higher highs and higher lows and moving average studies remain 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 $0.18 or +0.26% at $70.1
• Natural Gas up $0.05 or +2.12% at $2.309
• Gold spot up $6.05 or +0.3% at $2016.62
• Copper up $3.75 or +1.01% at $376.5
• Silver up $0.07 or +0.29% at $24.028
• Platinum up $9.94 or +0.94% at $1061.66