MNI US OPEN - Fed in Focus, 25bps Hike Could Be Last

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.

US (BBG): US Regional Banks Come Under Pressure as Rebound Remains Elusive

Regional US banking stocks struggled to rebound Wednesday from heavy losses this week as investors assess the health of the industry following the failure of troubled lender First Republic Bank. PacWest Bancorp dropped as much as 2.9% in US premarket trading after sliding 28% to a record low in the previous session, while Western Alliance Bancorp also slipped 2.9% following Tuesday’s 15% plunge. The losses come despite US stock futures gaining slightly ahead of an expected Federal Reserve interest-rate hike later in the day.

US (BBG): Urgent US Debt-Limit Deadline Raises Chance of a Short-Term Fix

Washington’s ability to avert a catastrophic US debt default risks coming down to as few as seven days in May, underscoring the enormous threat of the partisan impasse. Between now and June 1 — the date by which the Treasury Department could run out of sufficient cash — President Joe Biden and members of the House and Senate are scheduled to be in town at the same time for the sum total of one week.

US/CHINA (NIKKEI): US to Weigh Rules for Keeping AI Safe from China, Other Competitors

U.S. policymakers will study the need for regulations to keep vital artificial intelligence technology out of the hands of America's competitors, in a possible clampdown akin to restrictions on semiconductor exports to China. The Commerce Department will talk with the business community on Wednesday and Thursday about export controls on information technology, asking about such topics as the hardware used by the Chinese military in AI development.

US/IRAN (BBG): Iran Seizes Second Oil Tanker Within a Week, US Navy Says

Iranian forces seized a second oil tanker within a week, according to a statement from the US Naval Forces Central Command. Iran’s Islamic Revolutionary Guard Corps Navy took the Panama-flagged oil tanker Niovi at around 6:20 a.m. local time while transiting the Strait of Hormuz, it said.

MNI NORGES BANK PREVIEW: MAY 2023 - Persistent NOK Weakness to Drive Further Hikes

The arguments in favour of a further 25bps this month are solid, aiding a unanimous consensus for a 25bps this month. The persistent weakness in the currency is a growing concern at the Bank and should be mentioned explicitly again in the policy statement. As a result, the Bank are seen not only raising rates at this meeting, but also flagging June as a further opportunity for tighter policy.

RUSSIA/UKRAINE (BBG): Ukraine’s Allies Seek to Close More Russia Sanctions Loopholes

The US, Europe and other key allies of Ukraine are preparing fresh penalties against Russia to try and tighten the net on President Vladimir Putin’s economy more than 14 months into his war, according to people familiar with the matter. The packages would be individually implemented but coordinated. A key goal is to close loopholes in existing penalties and tackle overall sanctions circumvention, the people said, asking not to be identified discussing sensitive matters.

AUSTRALIA (MNI): Australian Unemployment to Remain Low - Kohler

The Reserve Bank of Australia noted, while the balance between labour demand and supply had improved, unemployment will remain below pre-pandemic levels for the next two years. Speaking at the Committee for Economic Development of Australia today, Marion Kohler, head of the economic analysis department at the RBA, said the recent softness in economic activity will take time to flow through to the labour market and inflation.

MNI RBA REVIEW: MAY 2023 - Services Inflation & Wages Key to Outlook

The RBA unexpectedly hiked rates 25bp to 3.85%, bringing cumulative tightening to 375bp, after pausing in April to gather more information on economic developments. The meeting statement is little changed from April, except for the addition of some of the revised forecasts, the discussion of services price pressures and importantly the emphasis that inflation return to target in "a reasonable timeframe".

HUNGARY (BBG): Hungary Approves Judicial Changes to Tap €13 Billion in EU Funds

Hungary’s parliament passed legislation aimed at de-politicizing the courts in an effort to unlock almost half of the funds the European Union has blocked over rule of law and corruption concerns. Lawmakers overwhelmingly voted on Wednesday in favor of the bill bolstering judicial independence. It was filed by Prime Minister Viktor Orban’s government and had received the blessing of the European Commission.

DATA

EUROZONE DATA (MNI): Unemployment at Fresh Record Low

• EUROZONE MAR UNEMPLOYMENT RATE 6.5% (FCST 6.6%); FEB 6.6%

Eurozone unemployment edged down by 0.1pp to 6.5% in March, implying a new low for the bloc. This is 0.3pp below March 2022 levels and 1.1pp below pre-pandemic February 2020 levels. Today's unemployment data signals continued labour-market resilience, despite softening growth outlooks and persistently high core inflation. Low unemployment is in line with the ECB's macroeconomic projections, which see unemployment holding at around 6.6% throughout the projection horizon, assisted by ongoing labour supply shortages.

AUSTRALIA DATA (MNI): Spending Holding Up But Q1 Volumes Probably Fell

Retail sales surprised to the upside in March rising 0.4% m/m after 0.2% the previous month. Sales moderated to 5.4% y/y from 6.4% due to Covid-related base effects. Sales levels are in line with October last year and 17.9% above pre-pandemic results. The April RBA meeting statement noted continued uncertainties around the outlook for consumption.

NEW ZEALAND DATA (MNI): RBNZ to Watch Strong Mar Quarter Employment, Wages

New Zealand’s unemployment rate remained unchanged at 3.4% over the March quarter, while the labour force participation rate increased to 72% and the employment rate increased to 69%, the highest levels on record. The Reserve Bank of New Zealand will monitor the figures leading up to this month’s May 24 Official Cash Rate meeting.

FOREX: JPY, CHF Gain as Growth Concerns Weigh Ahead of the Fed

• Currency markets trade with a risk-off feel, putting JPY and CHF at the top of the G10 pile, while a pressured US yield curve saps the greenback. Growth concerns remain the key driver ahead of the Fed decision later today, with bank stability still a background concern. Regional names in focus during Tuesday trade are again lower, with Pacwest Bancorp and Western Alliance off as much as 9% in pre-market trade.
• Currency futures volumes showing typical pre-Fed below-average activity, as markets tread water ahead of the FOMC: EUR futures see volumes 19% below average for this time of day, JPY 29% below, GBP 16% below.
• In tandem with the softer risk outlook, WTI and Brent crude futures are plumbing new multi-month lows and dragging commodity tied currencies. AUD and NZD are weaker, putting AUD/USD back below the 50-dma of 0.6685 - although yesterday's 0.6621 low remains out of reach for now.
• USD/JPY's pullback puts the pair over 2 points off the week's high at 137.77 - opening next support at the 50-dma of 133.96.
• Outside of the FOMC decision and press conference, ADP Employment change and the April ISM Services Index will draw focus

TSYS: Early Cheapening More than Reversed, Oil Weakness at the Core Ahead of Tier 1 Event Risk

Tsys squeeze higher in the first half of the European morning, with fresh weakness in crude oil futures, which have hit a multi-week low, aiding the bid. Demand worries continue to dominate the fundamental picture re: oil, while Russian & Iranian supply matters also feed in.

• The Tsy space has more than reversed the early cheapening/bear flattening, with the major benchmarks now sitting 2.5-4bp richer as the belly builds on yesterday’s outperformance (at the margins).
• TYM3 sits 0-02 off best levels after the Apr 26 high (115-30+) capped the run higher, a breach there would expose the Apr 12 high at (116-08) as the next area of technical interest.
• Deeper pricing of FOMC rate cuts by year-end on the OIS strip (now hovering just below 70bp, which is well within the recent range) is also factoring in.
• Expect cross-market gyrations to remain at the fore before NY desks settle in for a risk-laden session, headlined by the FOMC decision.

EGB/GILT: US Events Dominate Today But Looking Ahead to ECB/BOE

• EGBs and gilts are sitting a bit shy of their highs of the day but 10-year bonds remain higher on the day and with little movement in the 2-year space we have seen curve bull flatten this morning.
• Markets already have one eye on tomorrow's ECB meeting (and gilts to next week's MPC meeting) but the main events of today are focused on the US side: ADP employment, final print of S&P US services PMI, ISM services and of course the FOMC policy decision and Powell's press conference.
• Spreads have been a bit directionless today with Portuguese and Spanish spreads widening a little but Greek and Italian spreads tightening - although in all instances we are looking at relatively small moves.
• Bund futures are up 0.14 today at 136.38 with 10y Bund yields down -1.3bp at 2.243% and Schatz yields up 1.4bp at 2.624%.
• Gilt futures are up 0.16 today at 102.14 with 10y yields down -1.4bp at 3.652% and 2y yields up 0.6bp at 3.731%.

EQUITIES: Modest Bounce Sees European and US Equity Futures Higher

A key short-term support in Eurostoxx 50 futures at 4285.90 has been breached - the 20-day EMA. The recent move down is considered corrective for now. A continuation lower would signal scope for a deeper corrective pullback towards 4216.60, 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 traded lower Tuesday and the contract breached the 20-day EMA. The move lower appears to be a correction. Trend conditions remain bullish with moving average studies still in a bull-mode set-up. The focus is on 4206.25, the May high and bull trigger. A break would confirm a resumption of the uptrend and open 4223.00, the Feb 14 high. Initial support to watch is 4098.34, the 50-day EMA.

• Across Europe, Germany's DAX trades higher by 81.31 pts or +0.52% at 15808.24, FTSE 100 higher by 17.92 pts or +0.23% at 7790.64, CAC 40 up 45.8 pts or +0.62% at 7429.12 and Euro Stoxx 50 up 24.37 pts or +0.57% at 4319.06.
• Dow Jones mini up 32 pts or +0.09% at 33803, S&P 500 mini up 5.25 pts or +0.13% at 4142, NASDAQ mini up 21 pts or +0.16% at 13204.5.

COMMODITIES: WTI Futures Slip on Recession Fears and Concern Over Future Oil Demand

WTI futures remain in a downtrend and yesterday’s sharp sell-off reinforces this theme. The contract has cleared a number of retracement levels and this signals scope for weakness towards the $70.00 handle next and $69.02, the 76.4% retracement of the Mar 20 - Apr 12 rally. On the upside a key short-term resistance has been defined at $76.92, the Apr 28 high where a break would ease bearish pressure and potentially highlight a reversal. Gold traded higher Tuesday. For now, the yellow metal remains in a short-term bearish corrective cycle. Price has recently pierced support at $1990.5, the 20-day EMA, highlighting potential for a deeper retracement. A move lower would open $1955.2, the 50-day EMA. For bulls, 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 $1.32 or -1.84% at $70.3
• Natural Gas up $0.01 or +0.23% at $2.217
• Gold spot down $1.29 or -0.06% at $2015.91
• Copper down $0.6 or -0.16% at $385.6
• Silver down $0.05 or -0.19% at $25.3304
• Platinum up $7.1 or +0.67% at $1074.44