MNI US OPEN - EZ HICP Edges Higher in April Flash

NEWS

MNI FED PREVIEW: APRIL 2023 - Moving Meeting-To-Meeting

A 25bp hike in May could mark the end of the Fed’s hiking cycle. With rates above 5%, and sticky inflation fears offset by the tightening effect of banking sector woes, the FOMC is likely to move to a meeting-by-meeting policy beyond May, while retaining a bias toward further policy firming.

MNI FED PREVIEW: APRIL 2023 – Analyst Views

Of the 26 analyst previews of the May FOMC decision whose previews MNI have seen, there is basically unanimous expectation of the Fed delivering a 25bp hike. For most analysts, May’s hike is seen as the last of the cycle. Many expect cuts to begin by year-end. Opinion is split on forward guidance in the May statement, with only a few who don’t see any changes from March’s edition.

ECB (MNI): ECB Lending Survey Shows "Substantial" Tightening

Eurozone banks reported a "further substantial net tightening in credit standards" for loans to firms and for house purchases in Q1 2023, the ECB's latest Bank Lending Survey showed on Tuesday. According to the Q1 survey conducted between March 22 and April 6, demand for loans decreased strongly, driven by rising interest rates, lower fixed investment and weakening housing markets. The ongoing reduction in central bank balance sheet linked to TLTRO repayments and the end of full APP reinvestments contributed to weakening lending dynamics, the ECB said.

US (NYT): US Could Run Out of Cash by June 1, Yellen Warns

Treasury Secretary Janet L. Yellen said on Monday that the United States could run out of money to pay its bills by June 1 if Congress does not raise or suspend the debt limit, putting pressure on President Biden and lawmakers to reach a swift agreement to avoid defaulting on the nation’s debt.

US (WaPo): Biden Seeks Debt Ceiling Talks, as U.S. Faces Possible June 1 Default

President Biden invited House Speaker Kevin McCarthy (R-Calif.) and other congressional leaders to the White House next week to discuss the debt ceiling, as Washington scrambled Monday to respond to news that the government could default on its obligations as soon as June 1.

US (NYT): First Republic Bank Is Seized by Regulators and Sold to JPMorgan Chase

As part of the deal, 84 First Republic branches in eight states reopened as JPMorgan branches on Monday. Regulators seized control of First Republic Bank and sold it to JPMorgan Chase on Monday, a dramatic move aimed at curbing a two-month banking crisis that has rattled the financial system. First Republic is the second-largest U.S. bank by assets to collapse after Washington Mutual, which failed during the financial crisis of 2008 and was also acquired by JPMorgan.

US (BBG): McCarthy Pledges Continued Support for Ukraine

The speaker, who warned last year that there would be no “blank check” for Ukraine, told a Russian reporter he would continue support to Kyiv against Russia’s invasion. Kevin McCarthy, the California Republican who became House speaker in January, made a public promise on Monday to continue supporting Ukraine’s war effort, walking back previous suggestions that the new House majority might curtail U.S. military and financial investments in Kyiv’s effort to beat back Russia’s invasion.

UK (MNI): UK Foreign Secretary Expects to Meet Chinese VP Later This Week

UK Foreign Secretary James Cleverly has stated that he expects to meet Chinese Vice President Han Zheng later this week, the first meeting between senior UK and Chinese officials since Cleverly met with Chinese then-Foreign Minister Wang Yi on the sidelines UN General Assembly in September 2022. Han is in London over the weekend attending the coronation of King Charles III.

RBA (MNI): RBA Shifts Hawkish, Targets Sticky Services

The Reserve Bank of Australia raised its cash rate lift by 25 basis points to 3.85%, stressing that it aimed to return inflation to its 2-3% target in a "reasonable timeframe" and strengthening language on future hikes. RBA Governor Philip Lowe said in the accompanying statement that “further tightening may be needed”, removing “will” from its April text, and signalling acceptance that a more aggressive policy stance will be needed to quell inflation.

RUSSIA (BBG): Russia Seen Buying Yuan Soon as Sanctions, Oil-Cap Hit Eases

Russia is likely to resume buying foreign currency for its reserves as soon as this month as rising oil earnings stabilize public finances despite US and European efforts to squeeze Kremlin income. With energy revenues now close to exceeding their target level, purchases are possible already in May, according to Bloomberg Economics, which estimates initial volumes could amount to the equivalent of around $200 million in yuan per month. The Chinese currency is the main asset Russia can still use to conduct transactions for its $154 billion wealth fund because of sanctions.

ASIA (MNI): ASEAN+3: US, Euro Banking Sector Turmoil Has Had Limited Spillover

Following a meeting of finance ministers and central bank governors in Incheon, South Korea, the ASEAN+3 group (formed by the ASEAN nations, China, Japan, and South Korea) have released a joint statement. States: "Tighter financial conditions, supply disruptions, commodity prices pose downside risks to outlook for regional economy. [...] While recent banking sector turmoil in US and Europe has had limited direct spillovers for the region, the meeting reiterates the need to remain vigilant."

DATA

EUROZONE DATA (MNI): HICP Edges Up in April Flash

• EUROZONE APR FLASH HICP +0.7% M/M (=FCST); MAR +0.9% M/M
• EUROZONE APR FLASH HICP +7.0% Y/Y (FCST +6.9%); MAR +6.9% Y/Y
• EUROZONE APR FLASH CORE HICP +1.0% M/M, +5.6% Y/Y (= FCST); MAR +5.7% Y/Y

Eurozone inflation edged up by 0.1pp to +7.0% y/y in the April flash data, against consensus expectations of holding steady at +6.9% y/y. Energy base-effects will have largely pushed the print up after having dropped significantly in March.* Prices continued to accelerate on a short-term basis, increasing +0.7% m/m.* Core HICP edged down by 0.1pp to +5.6% y/y in April, slowing from the euro-era high recorded in March.

GERMANY FINAL APR MANUF. PMI 44.5 (FLASH 44.0); MAR 44.7 (MNI)
FRANCE FINAL APR MANUF. PMI 45.6 (FLASH 45.5); MAR 47.3 (MNI)
SPAIN APR MANUF. PMI 49.0 (FCST 50.0); MAR 51.3 (MNI)
ITALY APR MANUF. PMI 46.8 (FCST 49.5); MAR 51.1 (MNI)
ITALY APR FLASH HICP +1% M/M, +8.8% Y/Y (MNI)

GERMANY DATA (MNI): Retail Sales Contract in March

• GERMANY MAR RETAIL SALES -2.4% M/M; -8.6% Y/Y

German retail sales contracted in March, falling -2.4% m/m against consensus expectations of at +0.3% m/m uptick. Compared to March 2022, retail sales dived -8.6% y/y, and remain -1.3% below pre-pandemic March 2019 levels. Food sales fell -1.1% m/m and saw a record Y/Y contraction at -10.3% y/y as food price inflation (+22.3% y/y in March) saw households cut spending. Non-food sales also fell -2.3% m/m.

SPAIN DATA (MNI): Manufacturing PMI Dips into Contraction

• SPAIN APR MANUF. PMI 49.0 (FCST 50.0); MAR 51.3

Spanish manufacturing dipped back into contractionary territory in the April PMI on the back of a fresh decline in new orders. Weak demand conditions have seen new orders fall in 10 of the 11 previous months. With current production levels likely to be propped up by backlogs of work, the underlying health of the industry remains weak. Nonetheless, Spanish firms remained optimistic in regards to the next 12 months.

UK APR BRC SHOP PRICES +0.2% M/M, +8.8% Y/Y (MNI)

FOREX: AUD On Top as RBA Act Again

• AUD performs solidly headed through to NY hours following the surprising rate hike from the RBA overnight. The bank raised its cash rate by 25 basis points to 3.85%, stressing that it aimed to return inflation to its 2-3% target in a "reasonable timeframe" and strengthening language on future hikes. RBA Governor Lowe said in the accompanying statement that “further tightening may be needed”. At typing, AUD/USD is narrowing in on the 200-dma at 0.6734 - a break above here would target the mid-April highs of 0.6806.
• The market response to Eurozone CPI was more muted - the headline topped forecast by 0.1ppts, but core was inline with expectations. As such, there was little movement in implied ECB rate hike pricing for this week's meeting - with ~29bps priced in.
• CHF is the poorest performer alongside GBP, while AUD and SEK outperform most others. The USD Index is off the lows, sitting slightly higher pre-NY.
• Focus ahead turns to JOLTS job openings data, final durable goods data for March as well as a speech from RBA's Lowe at 1220BST.

BONDS: EGBs and Gilts Off Lows After ECB BLS

• EGBs and gilts opened lower this morning, catching up with some of the moves seen in Treasuries yesterday. However all core fixed income has moved above the levels seen on the European open following the ECB's Bank Lending Survey. Markets are pricing just over 28bp for this week's ECB meeting, slightly above Friday's closing level but below the almost 30bp seen earlier this morning.
• This morning also saw the release of Eurozone inflation, with core CPI in line with expectations at 5.6%Y/Y (down from 5.7% last month) and headline CPI picking up marginally from 6.9% to 7.0%Y/Y, marginally above expectations. Italian HICP in contrast, was much higher than expected.
• Looking ahead we have both JOLTS and factory orders data from the US as well as the final print of durable goods due for release. These come ahead of tomorrow's FOMC policy decision and Thursday's ECB decision.
• TY1 futures are up 0-10+ today at 114-26+ with 10y UST yields down -4.5bp at 3.525% and 2y yields down -3.0bp at 4.114%.
• Bund futures are down -0.50 today at 135.06 with 10y Bund yields up 5.0bp at 2.360% and Schatz yields up 7.0bp at 2.745%.
• Gilt futures are down -0.48 today at 100.98 with 10y yields up 4.9bp at 3.764% and 2y yields up 4.3bp at 3.811%.

EQUITIES: E-Mini S&Ps Remain Close to April Highs

A key short-term support in Eurostoxx 50 futures at 4288.90 has been pierced - the 20-day EMA. The recent move lower is considered corrective - for now - and a clear break of the average is required to highlight scope for a deeper correction. This would open 4214.90, the 50-day EMA. On the upside, a break of 4363.00, the Apr 21 high and bull trigger, would confirm a resumption of the uptrend. S&P E-minis rallied late last week to erase the sell-off earlier in the week and cancel a bearish threat. The contract traded higher Monday, piercing resistance at 4198.25, the Apr 18 high. Clearance of this level would confirm a resumption of the uptrend that started Mar 13 and open 4244.00, the Feb 2 high. On the downside, key short-term support has been defined at 4068.75, the Apr 26 low. A break would be bearish.

• Japan's NIKKEI closed higher by 34.77 pts or +0.12% at 29157.95 and the TOPIX ended 2.53 pts lower or -0.12% at 2075.53.
• Across Europe, Germany's DAX trades lower by 44.86 pts or -0.28% at 15879.28, FTSE 100 lower by 0.48 pts or -0.01% at 7870.18, CAC 40 down 28.39 pts or -0.38% at 7464.03 and Euro Stoxx 50 down 14.67 pts or -0.34% at 4345.03.
• Dow Jones mini down 50 pts or -0.15% at 34103, S&P 500 mini down 5.25 pts or -0.13% at 4180.5, NASDAQ mini up 1.5 pts or +0.01% at 13307.75.

COMMODITIES: Gold Fully Reverses Monday's Sharp Spike

The outlook in WTI futures remains bearish and last Wednesday's strong sell-off reinforces the current theme. $73.98 was pierced late last week, the 50.0% retracement of the Mar 20 - Apr 12 rally. A clear break of this level would open $72.76, the Mar 30 low. A key short-term resistance has been defined at $79.18, the Apr 24 high where a breach is required to ease bearish pressure. This would also highlight a potential reversal. Gold remains in consolidation mode. The broader trend theme remains bullish, however, the yellow metal has recently entered a short-term corrective cycle. Price has pierced support at $1987.8, the 20-day EMA, highlighting potential for a deeper retracement. A move lower would open $1952.6, the 50-day EMA. Key short-term resistance has been defined at $2048.7, the Apr 5 high. A break would confirm a resumption of the uptrend.

• WTI Crude down $0.19 or -0.25% at $75.45
• Natural Gas up $0.01 or +0.43% at $2.332
• Gold spot down $1.41 or -0.07% at $1980.97
• Copper down $0.4 or -0.1% at $393
• Silver down $0.27 or -1.09% at $24.7165
• Platinum down $2.31 or -0.22% at $1053.4