MNI US OPEN - Eurozone PMIs Unexpectedly Strong On Aggregate

NEWS

ECB (MNI): June ECB Cut "Fait Accompli" if No Surprise - Guindos

Assuming no major surprises in coming weeks, an ECB rate cut in June is a “fait accompli”, Vice President Luis de Guindos told Le Monde in an interview published Tuesday. Asked how quickly further rate cuts could follow, de Guindos said it depended on data, the geopolitical situation and the impact on energy costs, adding policymakers will also need to wage and productivity developments. "And we will need to take into account what’s happening in the US, where inflation is higher".

UK (BBG): Sunak Faces Courts After Bruising Win on Rwanda Migrant Plan

Prime Minister Rishi Sunak vowed to overcome further challenges and press ahead with deportation flights to Rwanda after securing passage of landmark migration legislation in a battle that exposed deep rifts in his Conservative Party. The legislation declaring the African nation a safe destination for asylum-seekers cleared its final hurdle in Parliament early Tuesday, following weeks of “ping-pong” between the House of Commons and the House of Lords.

BOJ (MNI): Policy Move Eyed if Inflation Meets 2% - Ueda

Bank of Japan Governor Kazuo Ueda said on Tuesday the BOJ would tweak the degree of easy policy through adjustments to the unsecured overnight call loan rate if inflation rises to its 2% target as expected. Ueda, however, told reporters the Bank must maintain easy policy as the underlying inflation trend remains below this level. The BOJ must manage monetary policy to achieve the 2% target and the timing of policy adjustments will depend on economic and price conditions at that time, he noted, adding the Bank will inject liquidity into financial markets to maintain financial system stability should markets destabilise due to geopolitical risks.

JAPAN (BBG): Environment in Place for Intervention If Needed - Suzuki

Japanese Finance Minister Shunichi Suzuki says in parliament the environment is in place to intervene in the foreign exchange market if needed. Yen gained against the dollar after the remark.

JAPAN (BBG): Yen Depreciation Has Gone Too Far, Japan Business Chief Says

The yen’s depreciation against the dollar has been excessive given economic fundamentals, said Masakazu Tokura, the head of Japan’s biggest business lobby group known as Keidanren. The government and the Bank of Japan have intervened in the past when the yen has weakened excessively, Tokura said. An ‘appropriate decision’ will be made, Tokura said.

JAPAN (MNI): Fitch Affirms Japan at 'A'; Outlook Stable

In their affirmation of the Japanese rating, Fitch write: 'A' ratings balance the strengths of an advanced, wealthy economy with correspondingly robust governance standards and public institutions, against weak medium-term growth prospects and very high public debt. The central bank's monetary strategy and broad domestic investor base continue to support low bond yields and the government's financing capacity, despite gradual moves towards monetary policy tightening. Persistent current account surpluses, a large external asset position and the yen's reserve currency status also support the rating.

JAPAN (MNI): Japan Dai-ichi Life to Up 30-Year JGBs Above 2%

Japan’s Dai-ichi Life Insurance company will further increase its holding of yen bonds, mainly 30- and 40-year Japanese government bonds, for this fiscal year, the company’s fund manager said on Tuesday. “We expect interest rates to gradually rise (in Japan) and we would like to see 30-year JGB yield above 2%,” Kouhei Horikawa, general manager of the investment planning department at Dai-ichi Life, told reporters. The 30-year JGB yield, currently at 1.955%, is approaching 2% but the company will not buy those bonds actively now, Horikawa said.

RBA (MNI): Bonds Saying RBA Underestimating Inflation

The spread between the yield on 10-year Australian commonwealth government bonds and the current level of real interest rates implies higher future inflation and greater risk expectations will de-anchor from the central bank’s forecasts, a former Reserve Bank of Australia economist told MNI. Mariano Kulish, University of Sydney professor and a former RBA senior manager, said the current yield on 10-year ACGBs of just over 4% inferred 4% inflation over the next decade. Real rates were about zero, which means inflation has to average 4% over the next 10 years, he added.

DATA

EUROZONE DATA (MNI): Price Pressures Amid Stronger But Uneven Growth

• EUROZONE APR FLASH MANUFACTURING PMI 45.6 (FCST 46.5); MAR 46.1
• EUROZONE APR FLASH SERVICES PMI 52.9 (FCST 51.8); MAR 51.5

Eurozone flash PMIs for April came in unexpectedly strong on aggregate, with Services at 52.9 (51.8 expected, 51.5 prior) offsetting an unexpected pullback in manufacturing to 45.6 (46.5 expected, 46.1 prior). While these figures had been telegraphed in advance by similar surprises in the German and French reports released earlier, they pointed to the Eurozone economy emerging from recessionary conditions, if somewhat unevenly.

UK DATA (MNI): Services PMI Surprises to the Upside, But Services Price Rises Stall

• UK APR FLASH MANUFACTURING PMI 48.7 (FCST 50.4); MAR 50.3
• UK APR FLASH SERVICES PMI 54.9 (FCST 53.0); MAR 53.1

Similar to the surprises seen in the French, German and Eurozone flash PMIs, the UK sees an upside surprise to the composite (54.0, exp 52.6, prior 52.8) and services PMIs (54.9, 53.0 exp, 53.1 prior) and a downward surprise to manufacturing (48.7, 50.4 exp, 50.3 prior). The labour market was mixed but there were cost pressures related to the introduction of the national living wage. Importantly, however, services output prices moderated - which will be of great importance to the decision for the MPC to deliver the first cut.

UK MAR PSNB-X GBP+11.94 BN (MNI)
UK MAR CGNCR GBP28.28 BN (MNI)
UK MAR PSNB GBP+11.02 BN (MNI)
UK MAR PSNCR GBP20.74 BN (MNI)

GERMANY DATA (MNI): Services Surprises to Upside, But Less Services Prices Not as Concerning as France

• GERMANY APR FLASH MANUFACTURING PMI 42.2 (FCST 42.7); MAR 41.9
• GERMANY APR FLASH SERVICES PMI 53.3 (FCST 50.5); MAR 50.1

Similar to France, the composite output index was at a multi month high of 50.5 (48.8 expected, 47.7 prior, 10-month high for Germany), driven by an increase in demand for services (with the services PMI at 53.3, also a 10-month high). However, manufacturing also saw a small disappointment, rising to 42.2 from 41.9 (42.7 expected) with the " the sharpest drop in factory new orders for five months." However, on the prices side the picture doesn't appear as concerning as in France with services prices merely rising at their series long-run average.

FRANCE DATA (MNI): Positive Services Demand, But Sticky Prices; Manufacturing Disappoints

• FRANCE APR FLASH MANUFACTURING PMI 44.9 (FCST 46.8); MAR 46.2
• FRANCE APR FLASH SERVICES PMI 50.5 (FCST 48.8); MAR 48.3

The French composite output PMI was higher than expected - almost back to 50 (at 49.9, the highest in 11 months). This was all driven by the services side, with the services index also at an 11-month high and back above 50 at 50.5. The press release points to higher demand being the primary driver here. There is less positivity on the prices side, however, with services prices still looking sticky. Manufacturing looked disappointing across the board, falling to a 3-month low of 44.9. "Higher demand was reported as a reason for growth, anecdotal evidence showed. Indeed, the ‘flash’ survey results pointed to a marginal improvement in sales performances across the service sector, thereby ending an 11-month sequence of decline."

JAPAN DATA (MNI): Japan March Trimmed Mean Rises 2.2% vs. 2.3% - BOJ

Japan’s trimmed mean measure of underlying inflation rose 2.2% in March, slowing from 2.3% in February, showing the pace of cost pass-through continues to slow, data released by the Bank of Japan showed on Tuesday. The trimmed mean followed data released Friday which showed Japan's annual core consumer inflation rate rose 2.6% y/y in March, down from February’s 2.8%, the 24th straight month above the BOJ's 2% target. Tuesday’s data showed the mode, the inflation rate with the highest density in the distribution, stood at 1.9% in March, down from 2.0% in February and the first time below the target in 14 months.

AUSTRALIA DATA (MNI): PMI Points to Stronger H1 Growth

The pickup in private sector activity seen in Q1 was sustained into Q2 according to the Judo Bank preliminary PMIs for April. The composite PMI rose to 53.6 from 53.3, highest since April 2022, with the rise driven by a pickup in manufacturing to close to neutral at 49.9 from 47.3, but it is the strength of services that is driving overall activity growth. The services PMI remained positive but eased marginally to 54.2 from 54.4.

FOREX: Solid EU, UK PMIs Flag Services Inflation as Stubborn Issue

• A flattering set of PMI numbers from the UK, France and Germany this morning has raised further questions over the sustainability of a downtick in services inflation - and thereby the requirement for a sustained pace of rate cuts from the ECB starting as soon as June.
• The subsequent EUR rally put EUR/USD through yesterday's highs to touch 1.0695 before fading, with markets clearly taking the view that S/T stubborn price pressures will still give way to easing across H2. GBP saw very similar price action, helping markets steer clear of any test of the pullback low printed yesterday at the 1.2300 handle.
• The USD Index is flat-to-higher, shrugging off early PMI-induced weakness. Options markets have shown evidence of renewed demand for USD upside early Tuesday, evident in solid demand for EUR/USD, GBP/USD put structures.
• Focus ahead turns to advance US April PMI figures and the new home sales release. The central bank speaker slate revolves around BoE's Pill and ECB's Nagel. The Fed remain inside their pre-decision media blackout period.

BONDS: Pressured by PMIs, Healthy Demand at European Syndications

Core global FI markets operate a little above early Tuesday lows.

• The belly of the curve leads the sell off in Bunds, with yields there little changed to 2bp higher on the day. Bund futures initially showed above Monday’s high, before fading back into yesterday’s range.
• 10-Year EGB spreads are little changed to a touch tighter vs. Bunds.
• European and UK PMI data revealed firmer-than-expected services readings and softer-than-expected manufacturing prints, resulting in firmer-than-expected composite outcomes.
• Digging into the details, some signs of sticky services inflation pressures may complicate the ECB’s easing path beyond the widely telegraphed June cut.
• Note that ECB VP de Guindos remained non-committal beyond the idea of a June cut in early Tuesday comments.
• Gilts bear flatten, with the updated gilt remit seeing greater increases for the short- and medium-term buckets when it comes to filling the funding gap. Yields are 1-4bp higher across the curve.
• Meanwhile, the UK PMI data showed some signs of easing services inflation, albeit from a higher base level than the Eurozone.
• Comments from BoE’s Haskel haven’t impacted gilts.
• The bookbuilds for the EU & Finnish syndications show healthy demand. We remain on the lookout for further opportunistic EGB issuance via syndications.
• Looking ahead, comments from BoE’s Pill, as well as ECB’s Nagel & Panetta are due.

EQUITIES: Short-Term Trend Condition in E-Mini S&P Remains Bearish

Eurostoxx 50 futures traded to a fresh cycle low Friday, before recovering. Despite the bounce, a bearish corrective cycle remains in play and the move down this month has allowed an overbought trend condition to unwind. The contract has traded through 4860.60, the 50-day EMA. A clear break of this average would signal scope for a deeper retracement and opens 4711.00, Feb 19 low. Initial firm resistance is 4923.80, the 20-day EMA. The short-term trend condition in S&P E-Minis is unchanged and remains bearish. Friday’s extension reinforces current short-term conditions. The contract has recently cleared support at the 50-day EMA, signalling scope for a continuation lower near-term. Sights are on 4907.57 next, a Fibonacci retracement. Firm resistance is seen at 5153.25, the 20-day EMA. A clear break of the average would signal a possible reversal.

• Japan's NIKKEI closed higher by 113.55 pts or +0.3% at 37552.16 and the TOPIX ended 3.77 pts higher or +0.14% at 2666.23.
• Elsewhere, in China the SHANGHAI closed lower by 22.617 pts or -0.74% at 3021.978 and the HANG SENG ended 317.24 pts higher or +1.92% at 16828.93.
• Across Europe, Germany's DAX trades higher by 118.73 pts or +0.66% at 17980.53, FTSE 100 higher by 27.38 pts or +0.34% at 8052.73, CAC 40 up 21.87 pts or +0.27% at 8062.84 and Euro Stoxx 50 up 34.69 pts or +0.7% at 4971.68.
• Dow Jones mini up 29 pts or +0.08% at 38500, S&P 500 mini up 5 pts or +0.1% at 5053.25, NASDAQ mini up 24.5 pts or +0.14% at 17379.25.

COMMODITIES: Breach of 20-Day EMA in Gold Signals Start of Bearish Corrective Cycle

Last week’s move lower in WTI futures highlights the start of a short-term bearish corrective cycle. The contract has traded through the 20-day EMA and this has exposed key short-term support at the 50-day EMA, at $80.75. A clear break of the average would signal a stronger bearish theme and open $76.07, the Mar 11 low. On the upside, key resistance and the bull trigger has been defined at $86.97, the Apr 12 high. Gold traded lower yesterday and is softer again today. The precious metal has breached the 20-day EMA and this signals the start of a corrective cycle. A continuation would signal scope for an extension towards $2217.4, the 50-day EMA. Note that a short-term bear cycle would allow a significant overbought trend condition to unwind. Key resistance and the bull trigger has been defined at $2431.5, the recent Apr 12 high.

• WTI Crude up $0.78 or +0.95% at $82.66
• Natural Gas down $0 or -0.17% at $1.788
• Gold spot down $23.5 or -1.01% at $2303.94
• Copper down $7.55 or -1.68% at $443.25
• Silver down $0.37 or -1.35% at $26.8474
• Platinum down $10.21 or -1.11% at $912.98