MNI US OPEN - Fed's Daly Reiterates No Urgency to Cut Rates
EXECUTIVE SUMMARY:
- FED'S DALY REITERATES NO URGENCY TO CUT RATES
- ISRAEL, UKRAINE AID TO RECEIVE SEPARATE US HOUSE VOTES THIS WEEK
- BOJ CONCERN GROWS OVER YEN IMPACT ON WAGES, PRICES
- CHINA Q1 GDP STRONGER THAN EXPECTED AT 5.3%
Figure 1: UK wage growth slows, but outpace expectations
Source: ONS
NEWS
FED (MNI): Fed's Daly Reiterates No Urgency to Cut Rates
San Francisco Federal Reserve President Mary Daly reiterated Monday there is no urgency to lower interest rates, as inflation is still high and the labor market shows no signs of faltering. "The worst thing we can do right now is act urgently when urgency is unnecessary. Policy is in a good place right now," she said at a Stanford University event. "We can respond as the economy evolves. The labor market is not giving us any indication it is faltering and inflation is still above our target. We need to be confident it is on path to come down to our target before I would feel the need to react."
US (BBG): Israel, Ukraine Aid to Receive Separate US House Votes This Week
Speaker Mike Johnson plans separate US House votes this week on new aid to Israel and Ukraine, in an attempt to assemble fragile coalitions to speed weaponry to both besieged allies. The move could end a months-long Republican blockade on help for Kyiv while also responding quickly to Iran’s missile and drone attack in Israel over the weekend. “The world is watching us to see how we’ll react,” Johnson said Monday, as he announced the plan.
US/ISRAEL (Jerusalem Post): US Defense Secretary Austin speaks with Defense Minister Gallant on Iran
US Defense Secretary Lloyd Austin and Israeli Defense Minister Yoav Gallant spoke about the security situation in the Middle East during a phone call early on Tuesday, the US Defense Department announced in a statement. They discussed the aftermath of Iran's April 14 attack on Israel, which saw the US, Israel, and other nations engage in a joint defense operation. Austin also reiterated American support for Israel's defense and the strategic importance of regional stability.
US/CHINA (BBG): House Votes to Sanction China’s Purchase of Iranian Oil
The US House of Representatives overwhelmingly passed legislation Monday aimed at countering China’s purchase of Iranian crude oil as part of a package of bills being brought to the floor in response to Iran’s attack on Israel. The legislation was approved by a 383-11 vote, surpassing the requisite number needed to overcome a presidential veto. The legislation moves to the Senate where it faces an uncertain fate.
ECB (BBG): ECB’s Rehn Says Geopolitics Pose Biggest Risk to Rate Cuts
Slower inflation has opened the door for the European Central Bank to start lowering interest rates this summer, though geopolitics could still derail such plans, according to Governing Council member Olli Rehn. If updates on the inflation outlook, underlying inflation and the strength of monetary policy transmission increase confidence that inflation is converging to 2%, borrowing costs could be cut at June’s policy meeting, Rehn said Tuesday in Helsinki. But such a step also hinges on the situations in Ukraine and the the Middle East not deteriorating.
ECB (BBG): Makhlouf Says June ECB Cut Possible If Inflation Trend Persists
The European Central Bank should be able to cut interest rates at its next meeting if the trend in inflation persists, Governing Council member Gabriel Makhlouf told the Irish Daily Mail. “Our next meeting is in June and if everything continues to move in the direction that it appears to be moving I think we’ll be in a much better position in June, I’m hoping that we’re going to be much more confident about the data to feel that actually we can make a move in June,” he was cited as saying.
BOE (BBG): Lombardelli Says Central Banks Had ‘Large Errors’ in Forecast
Clare Lombardelli, named to become a Bank of England deputy governor starting July 1, said there were “large errors” of forecasting from central banks around the world during the pandemic. “Central banks around the world, particularly in advanced economies, have really had to deal with a number of shocks that have been very large and quite unusual in nature over the last few years.” “We’ve seen very large errors across across all advanced economy central banks and actually the Bank of England’s forecasts are sort of in line with that.”
BOJ (MNI): BOJ Concern Grows Over Yen Impact on Wages, Prices
Bank of Japan officials are watching the impact of the soft yen on household living costs and consumption and whether it weakens the relationship between wages and inflation, making it harder for corporate retailers to raise prices, MNI understands. Officials expect the so called secondary force to strengthen on the back of the economic recovery, offsetting the waning impact of higher import prices – the first force. However, the weak yen will increase food and energy prices, which could negatively impact consumption, stall the economic recovery and impede longer-term price rises, putting the BOJ's sustainable 2% price target achievement in jeopardy.
JAPAN (BBG): Yen Traders Say ‘160 Is Next’ as Japan Walks Tightrope on FX
A tumbling yen is spurring traders to game plan how much further Japan’s beleaguered currency can fall even with the specter of intervention looming. JPMorgan Chase & Co.’s private banking unit and Bank of America Corp. see 160 as the next potential milestone for the currency that’s already sunk to a 34-year low against the dollar. T. Rowe Price is mulling the risk of the yen dropping to around 170 — a level last seen in the 1980s.
CHINA (BBG): Xi Says China Exports Relieved Global Inflation in Scholz Talks
Chinese leader Xi Jinping told his German counterpart that a surge in Chinese clean-technology exports have helped the world tackle inflation, as he pushed back against European and US pressure to rein in the country’s powerhouse industries. “China’s export of electric vehicles, lithium batteries and solar products have enriched supplies to the global market and eased inflationary pressure, as well as made a great contribution for global efforts to tackle climate change and green transition,” Xi told Chancellor Olaf Scholz, according to Chinese state television.
CHINA (BBG): China Loosens Grip on Yuan by Weakening Fix Amid Dollar Strength
China unexpectedly weakened its yuan defense as pressure from a resurgent dollar and poor sentiment pushed it toward a policy red line. The People’s Bank of China broke out of a holding pattern and set a weaker daily reference rate for the managed currency, implying some flexibility for it to depreciate alongside regional peers amid broad strength in the dollar. The offshore yuan slid as much as 0.3% to lowest since November in reactions to the so-called fixing.
GLOBAL (MNI): Shipping Risks Persist, Rates Rose Last Week
Shipping rates rose last week with both the Baltic dry and FBX global container indices rising to their highest since April 1. Iran's seizure of an Israeli cargo vessel in the Strait of Hormuz on the weekend plus an increase intensions in the Middle East are likely to support shipping rates. While unlikely, the closure of the Strait remains a risk. The decline in shipping rates from the extremes of 2021 has been an important driver of lower global inflation. While shipping costs are not looking materially inflationary at this stage, they are also not going to provide further help in returning inflation to target.
INDONESIA (BBG): Bank Indonesia Intervenes as Rupiah Weakens Beyond 16,000
Bank Indonesia stepped in to support the rupiah after the currency weakened past 16,000 per dollar for the first time in four years. The central bank said it intervened mainly in the spot and domestic non-deliverable forwards markets, adding that the rupiah’s weakness was mainly driven by risk-off sentiment and dollar gains. The rupiah fell as much as 2.1% to 16,190 per dollar, the weakest level since April 2020, as local markets reopened Tuesday after being shut since April 8 for the Eid al-Fitr holiday.
SINGAPORE (MNI): Little Change to Cabinet w/ New PM, Main Overhaul Post-Election
Singapore's state-owned CNA reporting that according to Deputy PM Lawrence Wong, there will not be a significant Cabinet overhaul when he takes over from long-serving PM Lee Hsein Loong on 15 May. Instead, Lee will serve as a senior minister in a marginally-reshuffled cabinet that will be announced a few days before the handover of power. Instead, the main shift from the 3G to 4G (third to fourth generation) of ministers will take place after the next general election, which must take place by November 2025 at the latest.
DATA
UK DATA (MNI): UK Wage Growth Slows, But Outpace Expectations
- UK FEB AVE WEEKLY EARNINGS +5.6% YY
- UK FEB AVE WEEKLY EARNINGS EX-BONUS +6% YY
- UK DEC-FEB ILO UNEMPLOYMENT RATE 4.2%
- UK MAR CLAIMANT RATE +4%
- UK MAR FLASH PAYROLL -67,000 TO 30.3 MLN
UK wage growth slowed in the three months to February, the Office for National Statistics said Tuesday, although they are still rising marginally above expectations of City analysts and the Bank of England. Average regular earnings (ex-bonuses) rose 6.0%, with total earnings (including bonuses) up 5.6%. Real wages rose 1.9% and 1.6% respectively. Increased volatility of Labour Force Survey estimates, resulting from smaller achieved sample sizes, means that estimates of quarterly change should be treated with additional caution.
Looking in more detail at the private regular AWE numbers: there were small upward revisions to the single month numbers for both December and January. Wages still appear more sticky than consensus expects - which is something we had argued in our Labour Market Insight last month and in our Labour Market Preview. We see this as pushing back on the idea of early BOE cuts - but still see June and particularly August very much in play for the first cut (May looks even less likely than the 15% probability we had assigned it before this print).
GERMANY APR ZEW CURRENT CONDITIONS -79.2 (MNI)
GERMANY ZEW APR ECONOMIC EXPECTATIONS 42.9 (MNI)
CHINA DATA (MNI): China Q1 GDP Stronger Than Expected at 5.3%
- CHINA Q1 2024 REAL GDP +5.3% Y/Y VS MEDIAN +4.8% Y/Y
- CHINA MAR INDUSTRIAL OUTPUT +4.5% Y/Y VS MEDIAN +6.0% Y/Y
- CHINA MAR RETAIL SALES +3.1% Y/Y VS MEDIAN +4.8% Y/Y
- CHINA MAR UNEMPLOYMENT RATE +5.2% VS FEB +5.3%
MNI (Beijing) The Chinese economy grew by 5.3% y/y, or 1.6% q/q, in Q1, beating the 4.6% forecast and accelerating from 2023's 5.2% growth, data released by the National Bureau of Statistics on Tuesday showed. Industrial production rose 4.5% y/y in March, decelerating from the 7.0% growth in the first two months and underperforming the expected 5.2%. Industrial output grew 6.1% in Q1. China’s stronger-than-expected Q1 GDP of 5.3% is mainly driven by the rebound in industrial output and the improvement of the services industry, said Sheng Laiyun, deputy director of the National Bureau of Statistics at a press conference Tuesday.
FOREX: Greenback Touches Fresh Cycle Best, Bull Trend Intact
- The greenback trades well, firmer against most others in G10, with the USD Index rising to a new cycle high at 106.437 in overnight trade.
- GBP/USD has been a subject of focus following jobs markets data. While average weekly earnings data came in ahead of expectations, the unemployment rate unexpectedly surged higher, potentially flagging labour market weakness ahead - another dovish consideration for the UK MPC going forward. There's been no let-up for GBP vols following this morning's data, however, with overnights now capturing the Wednesday CPI release. Overnight implied has cleared 13 points, to double the YTD average background vol of 6.5 points. This blows out the break-even on an overnight GBP/USD straddle to ~65 pips, thereby capturing the cycle low and key support at 1.2409.
- Topside USD/CAD has also drawn attention, key element being the break of congestion at 1.3614 (high from Mar 19, 22, 25 and 29). 1.3855 is next upside target - and the more markets row back on Fed rate cut pricing for this year, trend conditions should hold in bull-mode for the pair.
- Canadian CPI data takes focus going forward, with markets expecting CPI to have picked up to 0.7% M/M, and to 2.9% Y/Y. Importantly, the trimmed mean measure is expected to stand inline with previous at 3.2%. US industrial and manufacturing production numbers are also due.
- CB speak consists of speeches from Fed's Jefferson, Williams, Barkin, Collins and Powell - who participates in a moderated Q&A session. ECB speak is headlined by Villeroy and Vujcic - but they're likely to stick to the well-worn theme of flagging the growing likelihood of a June rate cut, and justifying policy divergence with the Federal Reserve.
EGBS: Unwind Yesterday’s Relief Rally as UK Wages Print Strong
Core/semi-core EGBs have unwound most of yesterday afternoon’s relief rally, with Bunds -18 ticks at 131.63.
- This morning’s firmer-than-expected UK wages provided the initial source of weakness, while the ongoing 30-year DSL tap from the Netherlands will be weighing at the long-end.
- A stronger-than-expected German ZEW expectations print will have also pressured the space.
- Today’s ECB speakers (Makhlouf and Rehn) have not deviated from the status quo regarding a likely ECB rate cut in June. Villeroy and Vujcic are scheduled later this afternoon.
- The German and French cash curves have bear steepened. While 10-year periphery spreads to Bunds generally little changed.
- Developments in the Middle East alongside several Fed speakers (including Chair Powell after hours) will set the tone for the rest of the session.
GILTS: Holding Lower, BoE Speak & CPI Eyed after Hot Wage Data
This mornings’ firmer-than-expected wage data keeps the pressure on gilts, with futures registering fresh lows in recent trade (96.44), moving closer to the next technical support level (96.30) in the process.
- Cash gilt yields are 2.0-3.5bp higher across the curve.
- 2s test April yield highs, while 10s register fresh year-to-date yield highs, with the latter now eying the Nov 24 high (4.323%).
- 10s closed above their 200-DMA yesterday, representing the first such close since December.
- Nov-33 I/L gilt supply was well received.
- SONIA futures are flat to 6.0 lower, just off session lows.
- BoE-dated OIS shows ~47bp of ’24 cuts vs. a little over 50bp late Monday. The first 25bp is still fully discounted come the end of the September MPC.
- Immediate focus moves to impending comments from incoming BoE Deputy Governor Lombardelli, with comments from Governor Bailey due later on Tuesday.
- Data-wise, the next release of note comes in the form of tomorrow’s CPI data, with a particular focus on services inflation and the ‘Easter impact.’ Click for our full preview of that release.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference Vs. Current Effective SONIA Rate (bp) |
May-24 | 5.183 | -1.5 |
Jun-24 | 5.111 | -8.8 |
Aug-24 | 5.000 | -19.8 |
Sep-24 | 4.926 | -27.2 |
Nov-24 | 4.813 | -38.5 |
Dec-24 | 4.730 | -46.9 |
EQUITIES: Bearish Corrective Cycle in Eurostoxx 50 Futures Still in Play
Eurostoxx 50 futures are trading lower today. A bearish corrective cycle remains in play and the move down this month is allowing an overbought trend condition to unwind. The contract is approaching support at 4856.40, the 50-day EMA and this level marks the next key pivot price point. A clear break of the EMA would signal scope for a deeper retracement. Initial resistance to watch is 4990.00, the Apr 15 high. The short-term trend condition in S&P E-Minis is unchanged and remains bearish. Yesterday’s move lower reinforces the current condition - the contract has traded through support at the 50-day EMA and this signals scope for a continuation lower near-term. Sights are on 5070.36 next, a Fibonacci retracement. Clearance of this level would open 5018.00, the Feb 21 low. Firm resistance is seen at 5221.49, the 20-day EMA.
- Japan's NIKKEI closed lower by 761.6 pts or -1.94% at 38471.2 and the TOPIX ended 56.09 pts lower or -2.04% at 2697.11.
- Elsewhere, in China the SHANGHAI closed lower by 50.31 pts or -1.65% at 3007.068 and the HANG SENG ended 351.49 pts lower or -2.12% at 16248.97.
- Across Europe, Germany's DAX trades lower by 257.67 pts or -1.43% at 17763.58, FTSE 100 lower by 119.47 pts or -1.5% at 7845.71, CAC 40 down 102.87 pts or -1.28% at 7937.06 and Euro Stoxx 50 down 66.4 pts or -1.33% at 4914.69.
- Dow Jones mini down 47 pts or -0.12% at 37952, S&P 500 mini down 4.25 pts or -0.08% at 5100.5, NASDAQ mini down 9.25 pts or -0.05% at 17871.75.
COMMODITIES: Gold Remains Close to Last Week's Cycle Highs
A bull theme in WTI futures remains intact and the latest move lower is considered corrective - for now. Recent gains reinforced current bullish conditions and confirmed a resumption of the uptrend. The contract has breached $84.87, the Sep 15 ‘23 high, paving the way for a climb towards the $90.00 handle further out. The next objective is $89.08, a Fibonacci projection. Initial firm support to watch lies at $83.86, the 20-day EMA. The trend condition in Gold remains bullish and the yellow metal is trading closer to its recent highs. The latest rally maintains the price sequence of higher highs and higher lows and note that moving average studies are in a bull-mode condition, reflecting positive market sentiment. The next objective is $2452.5, a Fibonacci projection. Initial firm support is at $2276.1, the 20-day EMA.
- WTI Crude up $0.16 or +0.19% at $85.45
- Natural Gas up $0.01 or +0.35% at $1.699
- Gold spot down $12.84 or -0.54% at $2371.83
- Copper down $4.7 or -1.07% at $432.85
- Silver down $0.54 or -1.86% at $28.3936
- Platinum down $8.08 or -0.83% at $968.06
Date | GMT/Local | Impact | Flag | Country | Event |
16/04/2024 | 1215/0815 | ** | CA | CMHC Housing Starts | |
16/04/2024 | 1230/0830 | *** | CA | CPI | |
16/04/2024 | 1230/0830 | *** | US | Housing Starts | |
16/04/2024 | 1255/0855 | ** | US | Redbook Retail Sales Index | |
16/04/2024 | 1300/0900 | US | Fed Vice Chair Philip Jefferson | ||
16/04/2024 | 1315/0915 | *** | US | Industrial Production | |
16/04/2024 | 1530/1130 | * | US | US Treasury Auction Result for Cash Management Bill | |
16/04/2024 | 1530/1130 | ** | US | US Treasury Auction Result for 52 Week Bill | |
16/04/2024 | 1630/1230 | US | New York Fed President John Williams | ||
16/04/2024 | 1700/1800 | UK | BoE's Bailey Interview On IMF Today | ||
16/04/2024 | 1700/1300 | US | Richmond Fed's Tom Barkin | ||
16/04/2024 | 1715/1315 | US | Fed Chair Jerome Powell | ||
16/04/2024 | 2000/1600 | CA | Canada federal budget | ||
17/04/2024 | 2245/1045 | *** | NZ | CPI inflation quarterly | |
17/04/2024 | 2350/0850 | ** | JP | Trade | |
17/04/2024 | 0600/0700 | *** | UK | Consumer inflation report | |
17/04/2024 | 0600/0700 | *** | UK | Producer Prices | |
17/04/2024 | 0900/1100 | *** | EU | HICP (f) | |
17/04/2024 | 0900/1000 | ** | UK | Gilt Outright Auction Result | |
17/04/2024 | 0900/1100 | EU | ECB's Cipollone in Italian Banking Meeting | ||
17/04/2024 | 1100/0700 | ** | US | MBA Weekly Applications Index | |
17/04/2024 | 1205/1305 | UK | BoE's Greene on IIF Panel | ||
17/04/2024 | 1230/0830 | * | CA | International Canadian Transaction in Securities | |
17/04/2024 | 1300/1500 | EU | ECB's Cipollone at IIF Global Outlook Forum | ||
17/04/2024 | 1430/1030 | ** | US | DOE Weekly Crude Oil Stocks | |
17/04/2024 | 1545/1745 | EU | ECB's Schnabel Speaks At IRFMP | ||
17/04/2024 | 1600/1700 | UK | BoE's Bailey In IIF Fireside Chat | ||
17/04/2024 | 1700/1300 | ** | US | US Treasury Auction Result for 20 Year Bond | |
17/04/2024 | 1800/1400 | US | Fed Beige Book | ||
17/04/2024 | 1800/1900 | UK | BoE's Haskel At Kings College London Panel | ||
17/04/2024 | 2000/1600 | ** | US | TICS | |
17/04/2024 | 2130/1730 | US | Cleveland Fed's Loretta Mester |