MNI US OPEN - ECB Tracker Shows Wage Acceleration a One-Off

NEWS

ECB (BBG): ECB’s Schnabel Sees Modest Revival in Euro-Zone Economy
European Central Bank Executive Board member Isabel Schnabel said growth momentum in the euro zone has gathered some pace recently, adding to optimism that the economy has left the worst of its crisis behind.

ECB (BBG): ECB’s Guindos Says Quarter-Point June Cut Is ‘Prudent Approach’
European Central Bank Vice President Luis de Guindos said a quarter-point interest-rate cut next month looks reasonable, according to an interview with Oberösterreichische Nachrichten.

EUROZONE DATA (MNI): Negotiated Wages Accelerate In Q1 Following German One-off Payments
The ECB's negotiated wages indicator rose by 4.69% Y/Y, up from 4.45% in Q4. An acceleration had been expected by some analysts following yesterday's German March negotiated wages data (which were 11.7% Y/Y vs 5.9% in Feb). Prior to the German data, general consensus was for a modest deceleration to around 4.3% Y/Y. However, we note that the German data was inflated by one-off payments but still showed underlying strength.

UK (MNI): Farage Confirms He Will Not Stand Providing Some Boost To Conservatives
Veteran eurosceptic politician Nigel Farage has confirmed that he will not stand in the upcoming general election for the right-wing populist Reform UK. In a letter to Reform's leader Richard Tice, Farage said that "I will do my bit to help in the campaign, but it is not the right time for me to go any further than that. "Instead, Farage outlined his focus on promoting the Trump campaign in the US presidential election.

US (CNBC): JPMorgan CEO Jamie Dimon says U.S. could see a ‘hard landing,’ stagflation will be ‘worst outcome’
JPMorgan Chase’s chairman and CEO Jamie Dimon says the U.S. economy could see a “hard landing.” When asked by CNBC’s Sri Jegarajah about the prospect of a hard landing, Dimon replied: “Could we actually see one? Of course, how could anyone who reads history say there’s no chance?”

RBNZ (MNI): RBNZ Review - May 2024: High For Even Longer
The 0.2pp overshoot of the RBNZ’s Q1 CPI forecast seems to have driven a hawkish shift. Rates may now need to stay restrictive for “longer than anticipated” for the MPC to be confident that inflation will return sustainably to target but it won’t have to be at the mid-point for a rate cut.

US EQUITIES (RTRS): Nvidia forecasts quarterly revenue above estimates, unveils stock split
Nvidia forecast quarterly revenue above estimates on Wednesday and announced a stock split, lifting its shares to record-high territory and impressing investors who have tripled the chipmaker's market value in the past year on AI optimism.

GLOBAL TRADE (FT): China asks carmakers to use up to 25% local chips by 2025
China is urging the country’s top carmakers to source up to a quarter of their chips locally by 2025 as the world’s biggest automotive market looks to build a semiconductor supply chain amid escalating tensions with the US.

RBNZ (BBG): Orr Says RBNZ Would Only Hike to Curb Inflation Expectations
New Zealand central bank Governor Adrian Orr downplayed the chances of another interest rate hike, saying the bank would only tighten policy further if it felt it needed to contain inflation expectations.

CHINA (BBG): China State Media Warns on Speculative Trading in Special Bonds
China’s state media urged investors to refrain from engaging in speculative trades in the latest special sovereign bond, as an illiquid part of the market saw a retail buying scramble Wednesday.

CHINA (BBG): China Allows Yuan to Drop as Outflows, Dollar Test PBOC’s Grip
China signaled its permission for the yuan to weaken against the dollar, as a jump in capital outflows and a resilient greenback pressured the central bank into loosening its grip.

TAIWAN (RTRS): China launches 'punishment' war games around Taiwan
A furious China launched "punishment" drills around Taiwan on Thursday in what it said was a response to "separatist acts", sending up heavily armed warplanes and staging mock attacks as state media denounced newly inaugurated President Lai Ching-te.

BOK (MNI): Board Maintains Restrictive Stance, Cuts Delayed
Bank of Korea Governor Rhee Chang-yong Thursday maintained his cautious view on the outlook for inflation, stressing increased uncertainty on the timing of a rate cut, following the board's unanimous decision to hold the Base Rate at 3.5%.

OIL (BBG): Russia Pledges to Make Up for Crude Overproduction in April
Russia exceeded its crude production commitment for April and will soon present OPEC and its allies with a plan to make up for the extra output, the country’s Energy Ministry said Thursday.

DATA

MNI: UK MAY FLASH SERVICES PMI 52.9 (FCST 54.7); APR 55.0
MNI: UK MAY FLASH MANUFACTURING PMI 51.3 (FCST 49.5); APR 49.1

MNI: EUROZONE MAY FLASH SERVICES PMI 53.3(FCST 53.6); APR 53.3
MNI: EUROZONE MAY FLASH MANUFACTURING PMI 47.4 (FCST 46.1); APR

MNI: GERMANY MAY FLASH SERVICES PMI 53.9 (FCST 53.5); APR 53.2
MNI: GERMANY MAY FLASH MANUFACTURING PMI 45.4 (FCST 43.5); APR

MNI: FRANCE MAY FLASH SERVICES PMI 49.4 (FCST 51.7); APR 51.3
MNI: FRANCE MAY FLASH MANUFACTURING PMI 46.7 (FCST 45.9); APR

BONDS: Recovery From Lows As Markets Digest PMIs & European Wage Data

EGBs and Gilts have moved off intraday lows as markets digest flash PMI data and Q1 Eurozone negotiated wages.

• UK PMI data allowed gilts to recover from session lows after European equivalents applied some pressure.
• The UK (and to a lesser extent, Eurozone) services PMI was softer than expected, while snippets on services pricing were mildly dovish.
• ECB Q1 negotiated wages rose to 4.7% Y/Y from 4.5% prior. See our earlier post for more colour on that front.
• Bunds are -9 at 130.36, unable to sustain a breach of the May 14 low at 130.24.
• German & French curves see some modest twist flattening on the day.
• ~E48bln of OAT redemptions and coupons are available for reinvestment as of today.
• 10-year periphery spreads to Bunds are biased tighter.
• ECB-dated OIS contracts are off hawkish extremes, last showing 62bps of cuts through year end.
• Gilt futures are +10 at 97.09 last, recovering from lows of 96.58. Yesterday’s low was breached before the PMI-driven recovery.
• Gilt yields out to 30s moved through yesterday’s highs pre-rally, last sitting ~1bp lower on the day across the curve.
• Similarly, the unwind of BoE rate cut premium extended further before a move back to pricing ~36bp of ’24 cuts.
• The European & UK calendars are limited for the remainder of today, moving attention to this afternoon’s US data.

FOREX: EUR/GBP Decline Slows as UK PMI Underwhelms

• European PMI data has dictated play across Europe, with the services sector edging below expectations while manufacturing was firmer, but off a lower base. UK PMI numbers were a particular point of weakness, and helped slow the recent decline in EUR/GBP, which broke through support after UK CPI data yesterday.
• The leaves GBP among the poorest performers in G10, while JPY trades similarly weak. Asset price volatility has hit new lows, with S&P500 implied vols hitting new multi-year lows today helping markets lean further on carry trades and weigh on funding currencies. The JPY trade-weighted index touched a new post-intervention low as a result, narrowing the gap with the April low to ~1.5%.
• The USD Index has faded off the 50-dma resistance of 104.973, which remains key resistance for the bounce off May lows. The Fed minutes out late yesterday underpinned a minor rally in the greenback, but momentum has not been sustained into the Thursday US open.
• Focus for the session ahead turns to the weekly jobless claims data and preliminary US PMI. Central bank speak is led by BoE's Pill and ECB's Villeroy. Fed's Bostic makes an appearance, but is not expected to speak in depth on monetary policy.

EQUITIES: Recent Eurostoxx50 Pullback Appears Corrective

• Japan's NIKKEI closed higher by 486.12 pts or +1.26% at 39103.22 and the TOPIX ended 17.39 pts higher or +0.64% at 2754.75.
• Elsewhere, in China the SHANGHAI closed lower by 42.153 pts or -1.33% at 3116.387 and the HANG SENG ended 326.84 pts lower or -1.7% at 18868.76.
• Across Europe, Germany's DAX trades higher by 41.05 pts or +0.22% at 18715.76, FTSE 100 lower by 15.55 pts or -0.19% at 8357.69, CAC 40 up 21.5 pts or +0.27% at 8114.07 and Euro Stoxx 50 up 24.4 pts or +0.49% at 5049.63.
• Dow Jones mini down 5 pts or -0.01% at 39786, S&P 500 mini up 25.75 pts or +0.48% at 5354, NASDAQ mini up 156.25 pts or +0.83% at 18943.25.

COMMODITIES: Gold Fades Off Recent High

Gold has pulled back from its recent high. The medium-term trend structure remains bullish and short-term weakness is considered corrective. Monday’s initial gains resulted in a print above resistance at $2431.5, the Apr 12 high and bull trigger. WTI futures have pulled back from their most recent highs. A bearish theme remains intact. Price has recently traded below the 50-day EMA, strengthening a bearish set-up that highlights potential for a deeper correction.

• WTI Crude down $0.07 or -0.09% at $77.5
• Natural Gas down $0.05 or -1.72% at $2.793
• Gold spot down $23.08 or -0.97% at $2355.8
• Copper down $7.85 or -1.62% at $477.15
• Silver down $0.48 or -1.56% at $30.3085
• Platinum down $11.34 or -1.09% at $1028.61