MNI US OPEN - G7 Diplomats Meet in Japan with China on Agenda

NEWS

G7 (BBG): China Tensions High on Agenda as G-7 Diplomats Meet in Japan

Tensions over China will be high on the agenda as top diplomats from Group of Seven nations meet over the next two days in Japan, according to a senior State Department official. Geopolitical challenges in Asia are set to come into greater focus now that Japan holds the rotating G-7 presidency, the official told reporters ahead of the foreign ministers’ meeting, which comes about a month before US President Joe Biden and other leaders will head to Hiroshima for the annual leaders summit.

ECB (BBG): ECB Oversight of Lenders Faulted as Being too Focused on Capital

The European Central Bank was faulted for inefficiency and having too great a focus on capital requirements in its oversight of the region’s lenders. A group of experts appointed by the ECB to review its supervision said it needs to simplify its process for evaluating risks faced by individual banks, according to an ECB report published in Frankfurt on Monday. It was also found to be overly focused on lenders’ financial reserves.

ECB (MNI): Fast Return to 2% Inflation Difficult - Greek Cenbank Deputy

The cost in terms of jobs and financial instability of promptly returning inflation to a 2% target might be too great given ageing populations and retreating globalization, the deputy governor of the Central Bank of Greece told MNI.

ECB (MNI): Core Inflation Jump Needed for 50bps - ECB's Simkus

The European Central Bank should raise interest rates by 25 or 50bp at its May monetary policy meeting, the governor of the Central Bank of Lithuania told MNI in an interview, although he added that a larger-than-expected upwards move in core inflation would be needed to justify another half-point hike. With core inflation yet to peak, Gediminas Simkus said on the sidelines of the IMF’s Spring meeting in Washington that the case against a pause in the hiking cycle was “clear” even as headline inflation trends downwards.

ECB (MNI): ECB Peak Rate 3.5-4% Good Starting Point - ECB’s Wunsch

Recent market expectations of a peak European Central Bank deposit rate of between 3.5% and 4% look about right, but inflation could remain slightly above the 2% target for some time, Belgian National Bank Governor Pierre Wunsch told MNI, adding that a U.S. hard landing could also influence eurozone monetary policy.

US (BARRONS): Kevin McCarthy’s NYSE Remarks Expected to Focus on Debt Ceiling as Limit Approaches

House Speaker Kevin McCarthy is expected to focus on the approaching debt limit in remarks Monday morning at the New York Stock Exchange, as he seeks to appease his fractious party while averting a crisis that could devastate the U.S. economy. The California Republican and other members of his party are moving toward a framework that could raise the debt ceiling into 2024, allowing for about $2 trillion in spending, the Washington Post reported Saturday, citing people familiar with the matter.

US (WaPo): DeSantis Group Attacks Trump in Ad as 2024 Fight Intensifies

A super PAC aligned with Florida Gov. Ron DeSantis (R) released a television ad Sunday attacking Donald Trump as a liar facing legal peril and features an image of the former president, looking down as a red tie hangs loosely around his open collar, as a narrator asks, "What happened to Donald Trump?". The ad from the group Never Back Down is the clearest sign that the governor, despite recent missteps, plans to enter the Republican presidential primary and directly challenge Trump, who so far has been the clear front-runner as he makes his third run for the presidency.

CHINA (BBG): Yuan’s Calmness Allows PBOC to Tout FX Intervention Exit

China’s central bank governor said that authorities are no longer intervening heavily in the currency market — but that may just be because the yuan has been so stable of late. One-month implied volatility for the dollar-onshore yuan has nearly halved since the peak in October, making the currency one of the least volatile among 30 major exchange rates tracked by Bloomberg. That steadiness has reduced the need for officials to guide the market, giving credence to People’s Bank of China Governor Yi Gang’s remarks that authorities have largely ended regular foreign-exchange intervention.

CHINA (MNI): Price, Financial Stability Connected - PBOC's Yi Gang

Price stability and financial stability have to be considered in tandem during times of stress, People's Bank of China Governor Yi Gang said in Washington on Saturday. “In the normal situation you have to conduct monetary policy to conquer inflation, and consider financial stability secondarily. These two decisions could be separate," he said.

CHINA (MNI): PBOC Seeks Level Playing Field on Currency Use - PBOC's Yi Gang

China is seeking a "level playing field" for use of the renminbi in international trade, PBOC governor Yi Gang said in Washington on Saturday, with households and enterprises free to use other currencies if desired, although he noted that larger investors may prefer to reduce their FX exposure by trading in yuan.

CHINA/RUSSIA (MNI): Putin Meets China’s Defense Minister, Praises Military Ties

President Vladimir Putin praised ties between the Russian and Chinese militaries, underscoring Moscow and Beijing’s strategic relationship as he met with China’s defense minister on Sunday. Putin highlighted the exchange of intelligence and joint maneuvers in the Far East and Europe during talks with Li Shangfu, the Interfax news service reported.

RUSSIA (BBG): Putin Critic Jailed for 25 Years in Harshest Anti-War Ruling Yet

Russia sentenced a prominent critic of President Vladimir Putin to 25 years in prison in the harshest sentence yet handed down to an opposition activist. Vladimir Kara-Murza, 41, a persistent campaigner against Putin’s rule who has condemned Russia’s war in Ukraine, was found guilty by a Moscow court of treason and other charges for criticizing the invasion, Russian news services reported.

JAPAN (MNI): Risk of Higher Yen Interest Rates on BOJ Radar

The Bank of Japan may likely emphasise the need for Japanese financial institutions to manage higher yen interest-rate risk on portfolios when it publishes the Financial System Report Friday, as the chance of policy tweaks increases under the new Governor Kazuo Ueda, MNI Understands.

AUSTRALIA (MNI): Over-Optimistic RBA to Be Forced to Hike More - Ex Staffers

The Reserve Bank of Australia will be forced to hike rates to 4% or higher and then hold them for a substantial period to reduce inflation to target, despite its insistence on seeing evidence of excessive wage growth before further tightening and Governor Philip Lowe’s caution over financial stability risks, former senior RBA officials told MNI.

MNI BANK INDONESIA PREVIEW: APRIL 2023 - BI on Hold, Cuts Some Way Off

Bank Indonesia (BI) is highly likely to keep rates at 5.75% for the third consecutive month when it announces its decision on 18 April. This expectation is unanimous amongst the 29 forecasters surveyed by Bloomberg. With the currency appreciating and core inflation returning to the mid-point of the ±3% target band in March plus the tone of the March statement, there isn’t a driver for BI to do anything else.

DATA

ITALY MAR FINAL HICP +8.1% Y/Y (FLASH +8.2%); FEB +9.8% Y/Y (MNI)

NEW ZEALAND DATA (MNI): New Zealand Food Prices Rise 12.1% y/y

New Zealand food prices rose 12.1% y/y in March 2023, with grocery costs increasing 14% and fresh produce climbing 22%. The annual average change increased from February’s 12%, while m/m actual prices rose 0.8% in March, down from February’s 1.5% rise, according to Stats NZ. The Reserve Bank of New Zealand will monitor food prices as it aims to lower inflation back to its 1-3% target. Stats NZ’s most recent CPI read in December 2022 showed inflation steady at 7.2%, down form June’s 7.3% peak.

FOREX: GBP/USD Fades Through Overnight Lows to Extend Corrective Pullback

• Currency markets are off to a relatively sedate start to the week, with most pairs and crosses respecting the recent ranges amid light newsflow and market signal.
• GBP/USD faded through overnight lows ahead of the NY crossover, to touch 1.2374 and extend the corrective pullback posted Friday. 1.2345 marks the next major support which, if broken, opens the 1.0% lower 10-dma envelope at 1.2318 - a level crossing ~1.8% below recent highs. The technical indicator has held prices since mid-March - so a show below could mark a more protracted correction in the short-term.
• The greenback is very modestly higher, with the USD Index now north of 101.75 and narrowing in on 101.9904, the 23.6% retracement of the mid-March - April downleg.
• CAD is following the greenback higher, putting GBP/CAD lower for a third consecutive session. The cross is nearing support at 1.6519, the 50-dma last broken in early February.
• Attention turns to upcoming US empire manufacturing for April, with speeches from ECB's Lagarde and BoE's Cunliffe also on the docket. The US earnings schedule remains a focus, with big banks and a number of large tech firms set for release this week.

BONDS: Gilts Higher; Other Core FI Little Moved

• Other than gilts which are generally higher on the day, core fixed income has been rather directionless this morning. EGBs moved lower earlier but have since recovered somewhat while gilts are above Friday's close.
• Looking ahead its a big data week for the UK (labour market, CPI, retail sales) while we will receive the flash PMI data across the UK, Eurozone and US.
• Today will see BOE's Cunliffe and ECB's Lagarde speak. The accounts of the March ECB meeting are due to be released on Thursday.
• TY1 futures are down -0-1 today at 114-26+ with 10y UST yields up 0.8bp at 3.524% and 2y yields up 1.7bp at 4.119%.
• Bund futures are down -0.26 today at 134.13 with 10y Bund yields up 1.1bp at 2.447% and Schatz yields up 0.4bp at 2.869%.
• Gilt futures are up 0.01 today at 102.22 with 10y yields down -1.8bp at 3.644% and 2y yields down -3.2bp at 3.568%.

EQUITIES: Eurostoxx Futures Trading at Recent Highs, Targeting 4381.50 - Jan 5 2022 High

Eurostoxx 50 futures remain in an uptrend and price is trading at its recent highs. The continued appreciation strengthens the bullish significance of the recent break of 4268.00, the Mar 6 high and a former key resistance. Sights are on 4381.50, the Jan 5 2022 high. Moving average studies are in a bull-mode set-up, highlighting a broader uptrend. Initial firm support lies at 4221.13, the 20-day EMA. The current trend condition in S&P E-minis remains bullish. Price has recently breached 4119.50, Mar 6 high, reinforcing a positive theme. The move higher also resulted in a break of 4148.48, 76.4% of the Feb 2 - Mar 13 downleg. This signals scope for an extension to 4205.50, the Feb 16 high ahead of 4244.00, the Feb 2 high and a key medium-term resistance. Firm support lies at 4065.03, the 50-day EMA.

• Japan's NIKKEI closed higher by 21.31 pts or +0.07% at 28514.78 and the TOPIX ended 8.25 pts higher or +0.41% at 2026.97.
• Elsewhere, in China the SHANGHAI closed higher by 47.457 pts or +1.42% at 3385.61 and the HANG SENG ended 343.64 pts higher or +1.68% at 20782.45.
• Across Europe, Germany's DAX trades higher by 40.8 pts or +0.26% at 15846.09, FTSE 100 higher by 42.33 pts or +0.54% at 7913.92, CAC 40 up 15.05 pts or +0.2% at 7536.18 and Euro Stoxx 50 down 4.54 pts or -0.1% at 4387.31.
• Dow Jones mini up 31 pts or +0.09% at 34067, S&P 500 mini up 6.5 pts or +0.16% at 4170, NASDAQ mini up 17.75 pts or +0.13% at 13199.5.

COMMODITIES: WTI Futures Respect Recent Range, but Remain in Bull Cycle

WTI futures remain in a bull cycle. Last week’s gains resulted in a break of resistance at $81.81, the Apr 4 high. This confirms a resumption of the current uptrend and note that an important resistance at $83.04, the Jan 23 high, has also been breached. The focus is on $85.01, the Nov 14 high. On the downside, key short-term support is seen at $79.00, the Apr 3 low and the gap high on the daily chart. Trend conditions in Gold remain bullish. Last Thursday’s break of resistance at $2032.1, Apr 5 high, confirmed a resumption of the current uptrend. The move higher maintains the positive price sequence of higher highs and higher lows and sights are set on the next key resistance at $2070.4, the Mar 8 2022 high. This is just ahead of the all-time high of $2075.5. Key short-term support has been defined at $1981.7, the Apr 10 low.

• WTI Crude down $0.25 or -0.3% at $82.28
• Natural Gas up $0.04 or +1.94% at $2.155
• Gold spot up $4.81 or +0.24% at $2009.28
• Copper down $0.75 or -0.18% at $409.7
• Silver up $0.13 or +0.5% at $25.4826
• Platinum down $2.91 or -0.28% at $1045.75