MNI US OPEN - Further Moderation Eyed in US Payrolls

NEWS

MNI PAYROLLS PREVIEW: MAY 2023 - Eyeing Continued Moderation

Bloomberg consensus looks for further moderation in payrolls growth in April with 180k for its softest since Dec’20, with less clear-cut potential impacts from weather and seasonal adjustment this month. JOLTS data saw a second month of lower-than-expected job openings but ADP employment was almost twice as strong as expected in April at +296k and has rarely overshoot payrolls over the past year. Aside from the strength and breadth of payrolls, we watch the usual details including the u/e rate (survey hints sizeable hawkish skew) and AHE growth (smaller hawkish skew).

MNI FED REVIEW: MAY 2023 - High Bar To Further Hikes

Barring unexpected developments this summer, the Fed’s tightening cycle looks like it has concluded at a terminal rate of 5.00-5.25% following the 25bp hike at the May FOMC meeting. Based on Chair Powell's comments at the May press conference and the change in Statement language, the FOMC appears to be clinging to the last vestiges of its tightening bias going forward. But any intention to hike rates further is half-hearted at most, and the market and the vast majority of analysts anticipate no further tightening.

MNI NORGES BANK REVIEW: MAY 2023 - NOK Dictating Play

Norges Bank provided few surprises in carrying out a well-telegraphed 25bps hike to 3.25%, and signalled further tightening to come in June. This played into the policy path projections laid out in March, which priced a strong chance of 3.75% rates by year-end. Nonetheless, NOK weakness continues to run beyond their forecast, in a move the governor described as “difficult to explain”. This poses upside risks to the rate path and increases the likelihood of a 4.00% peak rate.

CORPORATE (BBG): Apple’s iPhone Bounces Back, Helping Sales Top Estimates

Sales of Apple Inc.’s iPhone rebounded last quarter, helping the world’s most valuable company top earnings estimates and weather an industrywide downturn that has battered much of its product lineup. Overall revenue amounted to $94.8 billion in the fiscal second quarter, Apple said Thursday, exceeding the $92.6 billion analysts predicted. Though the sales fell 2.5% in the period, the company had warned investors to expect a drop of roughly twice that.

CORPORATE (BBG): PacWest Leads Regional Bank Stock Rebound After Bruising Rout

PacWest Bancorp led a rebound across US regional banking stocks following a bruising week of losses, amid escalating worries over the health of the industry following the recent collapse of several lenders. PacWest’s shares gained as much as 26% in US premarket trading on Friday, while peers Western Alliance Bancorp and First Horizon Corp. rose 15% and 5.4%, joining in a broader rally across US stocks futures ahead of jobs data due later in the day.

ECB (MNI): SPF Inflation Outlook Lower In '23, Up In '25 - ECB

The eurozone headline inflation outlook for 2023 has been cut in the Q2 professional forecasters compared to the Q1 release, although the expectations for core inflation were revised up, the ECB's latest survey published Friday shows. Headline inflation expectations for 2023, 2024 and 2025 now stand at 5.6%, 2.6% and 2.2% respectively, while longer-term inflation expectations (which relate to 2027) remain unchanged at 2.1%. The 2025 outlook was up from 2.1% in the February report.

ECB (BBG): ECB’s Latest Interest-Rate Hike Won’t Be Its Last, Simkus Says

This week’s interest-rate increase by the European Central Bank won’t be its last as the fight with inflation isn’t over, according to Governing Council member Gediminas Simkus.Gains in underlying prices, excluding food and energy costs, are a concern and it’s unclear where they’ll peak, the Lithuanian central bank chief told a briefing in Vilnius.

ECB (BBG): ECB’s Muller Says Latest Interest-Rate Hike Won’t Be the Last

Euro-area inflation is still far above the European Central Bank’s 2% target, indicating that Thursday’s quarter-point increase in interest rates won’t be the last, according to Governing Council member Madis Muller.“In light of what we know now, this means that yesterday’s rate hike decision will not be the last,” Muller said in a blog post.

ECB (BBG): ECB’s Further Steps Will Depend on Economic Data, Vasle Says

The next moves by the European Central Bank following Thursday’s interest-rate increase will depend on economic data, according to Governing Council member Bostjan Vasle. “As before, further steps will depend on the current situation at the time, especially on economic and financial data, the movement of core inflation and the effectiveness of our measures,” the Slovenian central bank chief said Friday in a press release.

ECB (BBG): Villeroy Favored Quarter-Point ECB Rate Hike Over Half Point

Bank of France Governor Francois Villeroy de Galhau said he backs the European Central Bank’s current approach of smaller interest-rate increases over the half-point step some of his colleagues would have preferred. “I had favored that we decide more limited hikes from now on and that’s what we did yesterday,” he said in an interview with Radio Classique on Friday.

US (BBG): Top Biden Advisor Sullivan Will Go to Saudi Arabia This Weekend

President Joe Biden’s national security advisor, Jake Sullivan, said he would travel to Saudi Arabia this weekend, in a new sign of the administration’s determination to smooth over rocky ties with the kingdom. And Secretary of State Antony Blinken plans to visit in June for a meeting of the Global Coalition to Defeat ISIS, the Islamic State terrorist group, according to people familiar with the matter.

UK (BBG): Rishi Sunak’s Tories Suffer Big Losses Early in UK Elections

UK Prime Minister Rishi Sunak appeared on track for a bruising first election result, as his Conservative Party lost scores of local council seats in areas it would need to hold next year to keep power.The Tories lost more than 200 seats among the first 1,600 results announced Friday, a rate that could put the party on track for even the worst-case scenarios discussed before the voting began across England.

JAPAN (BBG): Magnitude 6.5 Quake Hits Japan West Coast; No Tsunami Threat

A powerful 6.5-magnitude earthquake struck Ishikawa Prefecture on Japan’s west coast, the Japan Meteorological Agency said Friday. Three buildings collapsed in the coastal city of Suzu on the tip of the Noto Peninsula, and one man fell from a ladder and has no vital signs, according to the country’s disaster management agency.

JAPAN (MNI): Unclear if PM Kishida Will Travel to South Korea Following Earthquake

Japan's Chief Cabinet Secretary Hirokazu Matsuno, when asked by reporters whether today's earthquake would impact PM Fumio Kishida's planned visit to South Korea on 7 May, said that the gov't 'will take appropriate actions as necessary'. At 1442JST (0142ET, 0642BST) a magnitude 6.3 earthquake struck the Ishikawa prefecture in the central region of the island of Honshu.

RBA (MNI): RBA Lays Out Potential Future Inflation Triggers

Inflation could persist if productivity remains weak, firms expand margins as costs ease, higher prices push wages higher than expected, or rents rise faster than anticipated, according to the Reserve Bank of Australia’s Statement on Monetary policy released Friday.

DATA

EUROZONE DATA (MNI): Retail Sales Post Contractionary End to Q1

• EUROZONE MAR RETAIL SALES -1.2% M/M (FCST -0.2%); FEB -0.2% M/M
• EUROZONE MAR RETAIL SALES -3.8% Y/Y (FCST -3.3%); FEB -2.4% Y/Y

Eurozone retail sales contracted in March by -1.2% m/m, outpacing the more mild -0.2% m/m contraction expected by consensus. Sales in March were down -3.8% y/y. Food sales drove the decline at -1.4% m/m, as high food inflation saw consumers cut back spending. Non-food retail weakened by -1.1% m/m, implying overall spending sentiment was weak. Only fuel sales rose (+1.6% m/m), likely boosted by holiday driving.

EUROZONE ARP CONSTRUCTION PMI 45.2; MAR 45.0 (MNI)

GERMAN DATA (MNI): Factory Orders Slump in March on Misc. Vehicles

• GERMANY MAR FACTORY ORDERS -10.7% M/M (FCST -2.3%); FEB +4.5%r M/M
• GERMANY MAR FACTORY ORDERS -11.0% Y/Y (FCST -31%); FEB -6.0%r Y/Y

German manufacturing orders saw a marked drop in the March data, falling -10.7% m/m and -11.0% y/y. A much milder -2.3% m/m contraction had been anticipated by consensus. This is the strongest decline since records began in April 2020. Excluding large-scale orders, factory orders fell -7.7% m/m. Miscellaneous vehicles drove the decline, falling -47.4% m/m, after the February boost which likely reflected army vehicle production.

FRANCE DATA (MNI): Industrial Production Flat in Q1

• FRANCE MAR IND PROD -1.1% M/M (FCST -0.4%); FEB +1.4% M/M
• FRANCE MAR IND PROD -0.1% Y/Y (FCST 1.1%); FEB +0.9% Y/Y

French industrial production contracted by -1.1% m/m in March, slightly worse than the -0.4% m/m dip expected by consensus. Refining noted the largest decline, falling -45.6% m/m largely due to strike action. Production declined across capital goods (-0.9%) and slightly in agro-food (-0.2%), whilst transport was marginally expansive (+0.2% m/m) due to continued automotive growth, boosted by easing supply chain pressures.

SWISS APR CPI +0% M/M, +2.6% Y/Y (MNI)

SWISS APR UNEMPLOYMENT -2.4% M/M, -13.3% Y/Y (MNI)

RATINGS: Friday’s Ratings Slate

Potential rating reviews of note scheduled for after hours on Friday include:

• Fitch on the European Financial Stability Facility (current rating: AAA; Outlook Stable), the European Stability Mechanism (current rating: AA), Slovenia (current rating: A; Outlook Stable) & Switzerland (current rating: AAA; Outlook Stable)
• Moody’s on Norway (current rating: Aaa; Outlook Stable)
• DBRS Morningstar on Ireland (current rating: AA (low), Stable Trend)

FOREX: Currencies on a More Stable Footing Pre-Payrolls

• Currency markets trade on a more solid footing relative to the uncertainty seen earlier in the week, pressing the USD lower headed into the NFP release, while haven currrencies retreat. The CHF is the poorest performer across G10, closely followed by JPY. NOK makes up the other end of the table, allowing USD/NOK to extend to three consecutive sessions of losses.
• The USD Index is softer, but off the worst levels of the week. This week's price action has been USD negative more broadly, but markets have steered clear of a major test of horizontal resistance at 101.01 as well as the YTD lows at 100.79-80.
• Across equity markets, sentiment has stabilised somewhat, with headline indices buoyed by a solid set of earnings from Apple after-market Thursday. Their shares trade higher by just over 2% ahead of the open.
• Focus rests on the upcoming NFP release, at which markets expected job gains to slow to around 180k - the slowest pace of job gains since 2020. The Canadian equivalent release also crosses, with markets seeing an uptick in the jobless rate to 5.1% from 5.0% previously.

BONDS: Weaker Tone Ahead of US Payrolls

Bunds and Gilts are underperforming Treasuries in European morning trade Friday, with April's US nonfarm payrolls report the focus of the session.

• Curves are trading mixed, with modest bear steepening across cash curves as oil and equities trade with a firmer tone (helped by Apple earnings overnight).
• Notably, 10Y German yields have erased yesterday's drop, but 2Y Schatz yields remain 10bp below Thursday's opening levels with ECB terminal pricing largely sustaining Thursday's post-meeting drop.
• We've heard from a few mainly hawkish ECB voices this morning (eg Simkus and Muller), but not really impacting hike pricing.
• The Bloomberg survey median for NFP gains is 185k, with a whisper number of 181k. This will be an early test of the Fed's tentative move to the sidelines, with periphery stats like hourly earnings eyed closely.
• Later in the session we hear from Fed's Bullard (with Q&A so the jobs report is likely to come up) and Cook.

Latest levels:

• Jun US 10Y futures (TY) down 14.5/32 at 116-3.5 (L: 116-3.5 / H: 116-12)
• Jun Bund futures (RX) down 68 ticks at 136.28 (L: 136.19 / H: 136.74)
• Jun Gilt futures (G) down 56 ticks at 101.28 (L: 101.24 / H: 101.71)
• Italy / German 10-Yr spread 1.3bps tighter at 191.9bps

EQUITIES: E-Mini S&Ps Stabilises Just Above Week's Lows

A key short-term support in Eurostoxx 50 futures at 4282.60 has been breached this week - the 20-day EMA. The recent move down is considered corrective for now. A continuation lower would signal scope for a deeper pullback towards 4220.60, the 50-day EMA. On the upside, clearance of 4363.00, the Apr 21 high and bull trigger, would confirm a resumption of the uptrend. S&P E-minis traded lower Thursday. This week’s move lower has resulted in a breach of both the 20- and 50-day EMAs. Furthermore, the contract has pierced a key support at 4068.75, the Apr 26 low. This highlights a bearish threat and a continuation lower would open 4022.75, the 50.0% retracement of the Mar 13 - May 1 bull leg. Key resistance is far off at 4206.25, the May 1 high.

• In China the SHANGHAI closed lower by 15.956 pts or -0.48% at 3334.503 and the HANG SENG ended 100.58 pts higher or +0.5% at 20049.31.
• Across Europe, Germany's DAX trades higher by 120.65 pts or +0.77% at 15853.01, FTSE 100 higher by 40.67 pts or +0.53% at 7744.06, CAC 40 up 43.22 pts or +0.59% at 7383.63 and Euro Stoxx 50 up 18.69 pts or +0.44% at 4305.47.
• Dow Jones mini up 108 pts or +0.33% at 33303, S&P 500 mini up 19.25 pts or +0.47% at 4095, NASDAQ mini up 65.25 pts or +0.5% at 13108.25.

COMMODITIES: WTI Futures Remain Technically Bearish Despite Thursday's Strong Recovery

WTI futures remain bearish despite the strong recovery from Thursday’s intraday low of $63.64. The print below $64.58 yesterday, the Mar 20 low and a key support, reinforces a bearish theme. A clear break of this level would confirm a resumption of the broader downtrend. Short-term gains would be considered corrective and would allow an oversold condition to unwind. Initial resistance is at $71.79, Wednesday’s high. Gold traded higher Thursday to cancel a recent short-term bearish threat. The yellow metal has breached resistance at $2048.7, the Apr 13 high and confirmed a resumption of the broader uptrend. This maintains the bullish price sequence of higher highs and higher lows and moving average studies remain in a bull-mode set-up. The focus is on $2070.4, the Mar 8 ahead of the all-time high at $2075.5. Key support is 1969.3, the Apr 19 low.

• WTI Crude up $1.06 or +1.55% at $69.75
• Natural Gas down $0.02 or -0.81% at $2.081
• Gold spot down $10.86 or -0.53% at $2039.7
• Copper down $1.6 or -0.41% at $384.9
• Silver down $0.15 or -0.58% at $25.9055
• Platinum down $3.24 or -0.31% at $1044.8