MNI US OPEN - Ebb and Flow of Risk Sentiment Dictates Early Price Action

NEWS

CORPORATE (BBG): Credit Suisse, UBS Among Banks in DOJ Russia-Sanctions Probe

Credit Suisse Group AG and UBS Group AG are among banks under scrutiny in a US Justice Department probe into whether financial professionals helped Russian oligarchs evade sanctions, according to people familiar with the matter. The Swiss banks were included in a recent wave of subpoenas sent out by the US government, the people said. The information requests were sent before the crisis that engulfed Credit Suisse and resulted in UBS’s proposed takeover of its rival.

CORPORATE (BBG): Asia Bank AT1s Also Have Swiss Wipeout Clause, Report Says

Asia-Pacific banks’ additional Tier 1 bonds contain the same clause used by the Swiss to write down the debt of Credit Suisse Group AG, roiling the global market. A report by research firm CreditSights said the existing terms and conditions of regional lenders’ AT1 notes “permit the regulators to impose losses on these instruments, similar to what FINMA imposed on the AT1s of Credit Suisse.” Still, Pramod Shenoi, co-head of Asia Pacific research, expects officials in the region only to invoke the clause if a lender lacks capital.

MNI Fed Review - Mar 2023: Hiking Bias, But The End Is Nigh

The FOMC delivered a dovish 25bp hike at the March meeting as it weighed stubbornly strong inflation dynamics against headwinds from the banking sector. The change in the Statement’s forward rate guidance and the unchanged 2023 Dot Plot rate median provide a clear baseline case for one further 25bp hike in May to a terminal 5.00-5.25% rate. Policy has decisively shifted to a meeting-by-meeting basis, with financial sector uncertainty raising the bar to further rate increases.

UK (BBG): BOE Governor Says Rates Will Rise Again If UK Inflation Persists

Bank of England Governor Andrew Bailey said UK interest rates will have to go up again if prices keep rising in the economy. After pushing through another quarter-point increase in the benchmark lending rate to 4.25% on Thursday, Bailey on Friday made a plea to companies and people setting prices to take note of the outlook for a sharp fall in inflation starting this summer. “If all prices try to beat inflation we will get higher inflation,” Bailey told BBC radio in an interview broadcast Friday.

US (BBG): Biden, Cabinet to Tout New Investments with Three-Week Blitz

President Joe Biden, Vice President Kamala Harris and cabinet officers are planning a three-week blitz across the country to promote his economic agenda, starting with a visit to Wolfspeed Inc., a North Carolina chipmaker. The tour of more than 20 states will highlight the influence of legislation signed into law during the president’s first two years in office, including the Inflation Reduction Act, the Chips and Science Act and the bipartisan infrastructure law.

EUROPEAN COUNCIL (MNI): Second Day Of Summit To Focus On Banking Sector Concerns

EU member state leaders are meeting for the second day of the European Council summit today, with discussions set to focus on encouraging confidence in the EU banking sector following market turbulence in the wake of the collapse of SVB and Signature Bank in the US and the UBS takeover of Credit Suisse in Switzerland.

ECB (MNI): Hike Rates, Shrink Balance Sheet, Buba Head Urges

The ECB should continue to raise interest rates while increasing the speed of its balance sheet reduction from July, Bundesbank chief Joachim Nagel said Friday, with tight labour markets, strong wage growth this year and in the “coming years,” and demographic decline in the labour supply likely to aggravate price pressures.

CHINA (MNI): China's RRR Limits Tested by US Worries, Liquidity Needs

The People’s Bank of China needs to carefully weigh additional cuts to the reserve requirement ratio to ensure Chinese lenders have adequate buffers against any possible liquidity risk, sharpening regulators’ focus on banks’ liquidity management and investments, policy advisers and economists said.

INDIA (MNI): Parliament Disqualifies Main Opposition INC Leader After Court Conviction

Wires reporting that the lower house of the Indian Parliament, the Lok Sabha, has suspended the membership of main opposition Indian National Congress (INC) leader Rahul Gandhi following his conviction and two-year prison sentence for defamation. Gandhi was convicted following a speech delivered in the run up to the 2019 general election in which listed a number of "thieves" with the surname Modi, before finishing on (Prime Minister) Narendra Modi.

DATA

EUROZONE MAR FLASH MANUF PMI 47.1 (FCST 49.0); FEB 48.5 (MNI)

GERMAN DATA (MNI): Service Price Inflation Remains "Stubbornly High"

• GERMANY MAR FLASH SERVICES PMI 53.9 (FCST 51.0); FEB

Services growth was stronger than expected (while manufacturing disappointed) but the press release notes that service price inflation remained "stubbornly high". Key part from the release re prices: "Output price inflation meanwhile remained elevated due to stubbornly high pressures in the service sector. It did however ease to a near two-year low amid an increased drag from manufacturing, where the decline in input prices deepened and supplier delivery times shortened at an unprecedented rate."

FRANCE DATA (MNI): Strong Growth But Softening Price Pressures

• FRANCE MAR FLASH MANUF PMI 47.7 (FCST 48.0); FEB 47.4
• FRANCE MAR FLASH SERVICES PMI 55.5 (FCST 52.5); FEB 53.1

Activity growth looking strong in the French PMI (purely in services, with manufacturing slightly missing expectations). There also appears to be less price pressures and less passthrough to prices charged too. The ECB will probably be more focused on the fall in price pressures here rather than the upside to activity.

SPAIN Q4 FINAL GDP +0.2% Q/Q (MNI)
SPAIN Q4 FINAL GDP +2.6% Y/Y (MNI)

UK DATA (MNI): Robust February Retail Sales Again Boosted by Discounts

• UK FEB RETAIL SALES +1.2% M/M, -3.5% Y/Y
• UK FEB RETAIL SALES EX-FUEL +1.5% M/M, -3.3% Y/Y

Retail sales jumped +1.2% m/m in February, against expectations of a weak +0.2% m/m uptick. This was the strongest M/M growth since Oct '22 and back around pre-pandemic February 2020 levels. Following the upwardly revised +0.9 m/m rise recorded in January, an ONS spokesperson confirmed that any March reading above -1.7% m/m would imply a positive contribution to Q1 GDP. Non-food sales jumped +2.4% y/y, underpinned by strong discount store and second-hand/auction house sales.

UK DATA (MNI): Consumer Confidence Edges Up, Remains Bleak

• UK MAR CONSUMER CONFIDENCE -36 (= FCST); FEB -38

UK consumer confidence edged up by two points to -36 in March (in line with expectations) after the solid seven-point improvement in February. Despite recent improvements, all sub-indices remain severely depressed. This implies that spending will remain pressured in the near term against the current economic backdrop of persistently high inflation and high interest rates.

UK DATA (MNI): Price Pressures Easing, Employment Unchanged While Output Increasing

• UK MAR FLASH MANUF PMI 48.0 (FCST 49.7); FEB 49.3
• UK MAR FLASH SERVICES PMI 52.8 (FCST 53.0); FEB 53.5

Largely in line with expectations, and the components show nothing surprising here: input price inflation at a 2-year low, price charged raised at the slowest rate since August 2021 although "many businesses suggested that squeezed margins, ongoing wage inflation and uncertainty about energy costs had limited their ability to discount prices." Employment levels are broadly unchanged "although job creation hit a three-month low in the service economy, while manufacturers cut their staffing numbers at a faster pace than in February."

JAPAN DATA (MNI): Japan's Feb Core CPI Rises 3.1% Vs 4.2% In Jan

• JAPAN FEB CORE CPI +3.1% Y/Y; JAN +4.2%
• JAPAN FEB CORE-CORE CPI +3.5% Y/Y; JAN +3.2%

The year-on-year rise of Japan's annual core consumer inflation rate, as Bank of Japan officials expected, slowed to 3.1% y/y in February from January’s 4.2% due to government subsidies to lower utility charges, data released by the Ministry of Internal, Affairs and Communications showed Friday. The BOJ expects the year-on-year rise in core CPI to fall below 2% toward the middle of fiscal 2023, but some board members see stronger-than-expected core CPI moves.

RATINGS: Friday’s Rating Slate

Sovereign rating reviews of note slated for after hours on Friday include:

• Fitch on Malta (current rating: A+; Outlook Stable)
• Moody’s on Estonia (current rating: A1; Outlook Stable) & Poland (current rating: A2; Outlook Stable)
• S&P on Germany (current rating: AAA; Outlook Stable)
• DBRS Morningstar on Finland (current rating: AA (high), Stable Trend) & France (current rating: AA (high), Stable Trend)

FOREX: Data Plays Second Fiddle to Ebb and Flow of Risk Sentiment

• Data releases and speakers have played second fiddle the ebb and flow of risk sentiment early Friday, with a sour open for European equities helping dictate proceedings. A gap lower at the cash equity open was triggered by weakness across the European banking sector, with the likes of Credit Suisse and UBS hit particularly hard after a report that the US Dept of Justice could be investigating the banks for evidence that they aided Russian oligarchs in skirting Western sanctions.
• As a result, concerns about the stability of one of Europe's largest banking sectors have worsened, leading to underperformance across risk proxies and high Beta FX.
• Souring risk sentiment has led to outperformance of the USD and JPY, helping put the USD index higher for a second session and within range of the 50-dma pivot of 103.4421.
• PMI data from across the Eurozone saw mixed results, with composite indices beating expectations thanks to a healthier services sector, although manufacturing continues to weigh on overall sentiment.
• Focus for Friday trade turns to prelim February durable goods data and the prelim March PMIs for the US. Markets also see the first post-FOMC decision Fed speakers, with Bullard due to speak from St. Louis. ECB's Centeno, Nagel and BoE's Mann also make appearances.

BONDS: Bank Equity Pullback Driving Bull Steepening

Yields have headed sharply lower in early European trade after a fairly quiet overnight session despite stronger-than-expected composite flash PMIs.

• Markets are in decidedly risk-off mode, focusing on large drops in key European bank stocks such as UBS and Deutsche Bank ahead of the weekend.
• Data's largely being brushed aside in importance (if anything, taking a more dovish tilt from the weak Eurozone manufacturing vs services PMIs; UK retail sales were strong but PMIs disappointed).
• The German and UK curves are leading the bull steepening, with the US following suit. The German 2Y yield is down 22bp, UK's 18bp, US's 16bp.
• Periphery EGB spreads are widening in early trade as risk assets are under pressure. In addition to the drop in financial stocks, equity losses look recession-led (energy and materials also underperforming).
• Durable Goods and PMI are the US data highlights going into the weekend.

Latest levels:

• Jun 10-Yr futures (TY) up 23.5/32 at 116-23 (L: 115-21.5 / H: 116-24.5)
• Jun Bund futures (RX) up 169 ticks at 138.73 (L: 137.35 / H: 138.74)
• Jun Gilt futures (G) up 142 ticks at 106.39 (L: 105.46 / H: 106.4)
• Italy / German 10-Yr spread 4.7bps wider at 191.8bps

EQUITIES: European Banks Drive Dip in Equities at Cash Open

Eurostoxx 50 futures are holding on to recent highs. The recovery from Monday’s 4057.00 low has resulted in a breach of both the 20- and 50-day EMAs. A continuation higher would signal scope for 4184.50, a Fibonacci retracement. Key resistance and the bull trigger is at 4268.00, the Mar 6 high. On the downside, a reversal lower and a breach of 3914.00 would resume the recent downtrend. Initial support lies at 4069.00, the Mar 21 low. S&P E-Minis reversed sharply lower Wednesday. It is too early to tell whether the pullback marks the start of a bearish cycle. However, the move lower means that price has - so far - failed to hold above pivot resistance around the 50-day EMA. The average intersects at 4021.50 and a clear break is required to strengthen bullish conditions. Watch support at 3966.25, Wednesday’s low - a break would be bearish. Key S/T resistance is 4073.75.

• Japan's NIKKEI closed lower by 34.36 pts or -0.13% at 27385.25 and the TOPIX ended 2 pts lower or -0.1% at 1955.32.
• Elsewhere, in China the SHANGHAI closed lower by 20.995 pts or -0.64% at 3265.654 and the HANG SENG ended 133.96 pts lower or -0.67% at 19915.68.
• Across Europe, Germany's DAX trades lower by 177.27 pts or -1.17% at 15030.67, FTSE 100 lower by 91.96 pts or -1.23% at 7406.35, CAC 40 down 80.2 pts or -1.12% at 7058.14 and Euro Stoxx 50 down 51.72 pts or -1.23% at 4154.97.
• Dow Jones mini down 90 pts or -0.28% at 32218, S&P 500 mini down 5.5 pts or -0.14% at 3970.75, NASDAQ mini up 8.5 pts or +0.07% at 12857.

COMMODITIES: Recent Pullback in Gold Considered Corrective, Trend Conditions Still Bullish

WTI futures remain in a downtrend and this week’s recovery appears to be a correction. Note that the latest move higher is allowing a recent oversold condition to unwind. Firm resistance is seen at $72.85 the 20-day EMA. Recent weakness confirmed a resumption of the broader downtrend and has paved the way for a move towards $62.43, the Dec 2 2021 low. The bear trigger is $64.36, the Mar 20 low. Trend conditions in Gold remain bullish and the recent short-term pullback is considered corrective. The breach on Mar 17 of former resistance at $1959.7, Feb 2 high, confirmed a resumption of the bull trend that started late September 2022. The test above $2000.0 opens $2034.0 next, a Fibonacci projection. $1918.3 is seen as a firm support. It is the Mar 17 low and a break would signal scope for a deeper pullback.

• WTI Crude down $0.81 or -1.16% at $69.02
• Natural Gas up $0.03 or +1.16% at $2.184
• Gold spot down $4.31 or -0.22% at $1988.74
• Copper down $1.65 or -0.4% at $410.45
• Silver up $0.02 or +0.08% at $23.1246
• Platinum down $6.7 or -0.68% at $982.74