MNI US OPEN - German Inflation Looking Softer Than Expected

NEWS

ECB (BBG): ECB and BOE Should Tread Carefully With Rate Hikes, IMF Says

Europe’s central banks should be wary of potential dangers ranging from more financial stress to a divergence in bond yields as they stay the course with further interest-rate hikes, according to the International Monetary Fund. Inflation risks put the onus on officials to keep tightening, the Washington-based lender said in a report on Friday.

EU (MNI): Fiscal Rules Plan Just One Landing Zone - Gentiloni

The European Commission’s proposal for reform of the EU’s fiscal rules is “one possible landing zone” but other compromises could emerge, EU Economy Commissioner Paulo Gentiloni said Friday. Gentiloni said that the EC would contribute to other possible compromises in the weeks and months ahead, but defended the latest proposal, which he said was “balanced” and noted that it had been criticised by both Germany and the frugal states on the one hand and southern countries on the other.

EU (MNI): German Fin Min-Commission Debt Rule Proposals Just First Step

Wires carrying comments from German Finance Minister Christian Lindner speaking at a Eurogroup meeting of eurozone finance ministers in Stockholm, followed by a wider informal meeting of EU finance/economy ministers and central bank governors. Lindner: 'Germany is playing a constructive role in reviews of European Commission proposals on debt rules...We need EU rules that bring sustainable debt reduction'.

BOJ (MNI): BOJ Holds, Tweaks Guidance, to Review Past Policy

The Bank of Japan board on Friday decided to keep monetary policy unchanged, choosing to focus attention on downside risk to the economy amid heightened global uncertainty, while shifting its easing bias towards a neutral stance. However, the BOJ board tweaked the forward guidance for the policy rates as the government downgraded its clarification of Covid-19 to Class 2, the same level of seasonal flu, from Class 5.

BOJ (MNI): BOJ Wary of Premature Tightening During Review - Ueda

The Bank of Japan will take a meeting-by-meeting approach to any potential tightening before the conclusion of its just-announced review of monetary policy, Governor Kazuo Ueda said on Friday, but he added that it will take time to achieve its 2% inflation target even though underlying price trends are likely to strengthen toward the end of a projection period.

BOJ (MNI): BOJ Vigilant Focuses on Production, Weaker Economy

Bank of Japan officials will focus on weak industrial production in Q2 as exports come under pressure due to the slowing global economy and shortage of semiconductors, despite supply chain issues easing. The BOJ in March lowered its assessment on industrial production and exports amid weak data, noting they were more or less flat.

BOJ (MNI): Ueda Stresses Caution Ahead Of Policy Review

The Bank of Japan will conduct a review of its monetary policy which could take up to 1-1/2 years, but while it could alter policy before its conclusion, it will be very wary of the impact of premature tightening on prices, Governor Kazuo Ueda said on Friday after the conclusion of its policy meeting.

CHINA (MNI): China Boosts Demand Via Positive Policy: Politburo

China will continue to boost domestic demand via accommodative fiscal and monetary policies and government investment will play a leading role to support the economic recovery, according to a statement on the latest Politburo meeting issued by Xinhua News Agency on Friday.

CHINA/JAPAN (BBG): China Envoy Warns Japan on Taiwan, Sees Spying in Astellas Case

China’s ambassador warned Japan that Taiwan was a red line not to be crossed, and said the detention of an employee of Japanese drugmaker Astellas Pharma Inc. was related to a spying incident that damaged Beijing’s sovereignty.“Foreign forces are colluding with Taiwan independence forces,” and conducting repeated provocations, Wu Jianghao told reporters in Tokyo on Friday, saying their ultimate goal was to split Taiwan from China. Whipping up a division in China would “lead the Japanese people into a fire,” he added.

RBA (MNI): Jobs Caution, Inflation Set Up Rates Coin Flip

The Reserve Bank of Australia's decision to raise or pause the cash rate at the May 2 board meeting will be a coin flip, with the Bank wary of triggering labour market pain as it tackles inflation persistently well over the 2-3% target. A further pause – the RBA snapped a chain of 10 consecutive increases at its April 4 meeting, leaving rates at 3.6% – would play into the Bank’s aspiration of keeping unemployment between 4-4.5% while still returning inflation to target by 2025.

RBNZ (MNI): RBNZ Focuses on Labour, Dovish Shift Likely - Ex-staffers

Weak employment figures next week would prompt the Reserve Bank of New Zealand to consider a pause or else signal an approaching peak in its monetary tightening after its May 24 meeting, amid fears a recession may already be underway as the lagged effect of previous hikes hits mortgage borrowers, former staffers told MNI.

RUSSIA/UKRAINE (BBG): Russia Stages Deadly Aerial Assault on Ukraine, Strikes Kyiv

Russia unleashed a fresh wave of aerial attacks across Ukraine early Friday, killing at least nine people in two cities and destroying several buildings. Explosions were heard in the capital, Kyiv, marking the first assault there in more than a month. The strikes involved Tupolev Tu-95 bombers coming from Russia’s Caspian Sea region as well as drones, Ukrainian Commander-in-Chief Valeriy Zaluzhnyi said on Telegram.

UKRAINE (MNI): Def Min-Preparations For Counteroffensive Being Concluded

Wires carrying comments from Ukrainian Defence Minister Oleksiy Reznikov states that, 'preparations for a counteroffensive are being wrapped up, broadly speaking we are ready....As soon as there is God's will, the weather, and a decision by commanders, we will do it." With the matter of a Ukrainian spring counteroffensive a matter of when and not if, Russian troops have made significant fortifications along the frontlines in the Donbas and notably in the southern Kherson and Zaporizhzhia oblasts, as well as Crimea.

DATA

EUROZONE Q1 PRELIM FLASH GDP +1.3% Y/Y (MNI)
EUROZONE Q1 FLASH GDP +0.1% Q/Q (MNI)

GERMAN DATA (MNI): MNI Projects CPI Cooling to +7.21%, Evidence for Softer Core

• GERMANY NRW APR CPI +0.5% M/M; MAR +0.6% M/M (MNI)
• GERMANY BAVARIA APR CPI +0.4% M/M, +7.2% Y/Y (MNI)
• GERMANY BADEN WUERT APR CPI +0.5% M/M, +7.3% Y/Y (MNI)

We have now received state data that equates to 88.0% weighting of the national German CPI print (due at 1300 BST / 1400 CET). MNI calculations estimate that CPI rose by +0.47% m/m, and by +7.21% y/y. This is based on the published index values for available state data. This implies a 0.2pp deceleration on the annualised figure from +7.4% y/y in March, as German headline inflation distances itself further from the October/November peak of +8.8% y/y.

GERMANY Q1 GDP WDA -0.1% Y/Y (FCST +0.3%); Q4 2022 +0.9%r Y/Y (MNI)
GERMANY Q1 GDP 0.0% Q/Q (FCST +0.2%); Q4 2022 -0.5%r Q/Q (MNI)
GERMANY APR UE RATE (SA) 5.6% (= FCST); MAR 5.6% (MNI)
GERMANY APR UE NET CHANGE (SA) +24K (FCST +8K); MAR +19Kr (MNI)
GERMANY APR JOB VACANCIES (SA) -8K; MAR -10K (MNI)

FRANCE APR HICP +0.7% M/M, +6.9% Y/Y (MNI)
FRANCE APR CPI +0.6% M/M, +5.9% Y/Y (MNI)
FRANCE MAR PPI +2% M/M, +12.9% Y/Y (MNI)

SPAIN APR FLASH HICP +0.5% M/M, +3.8% Y/Y (MNI)
SPAIN APR FLASH CPI +0.6% M/M, +4.1% Y/Y (MNI)
SPAIN APR FLASH CORE CPI +6.6% Y/Y (MNI)
SPAIN Q1 FLASH GDP +0.5% Q/Q, +3.8% Y/Y (MNI)

ITALY Q1 FLASH GDP +0.5% Q/Q, +1.8% Y/Y (MNI)

SWISS MAR RETAIL SALES -0.1% M/M, -1.9% Y/Y (MNI)
SWISS KOF APR ECONOMIC BAROMETER 96.4 (MNI)

SWEDEN MAR RETAIL SALES -11.6% Y/Y (MNI)

JAPAN DATA (MNI): Japan Apr Tokyo CPI Rise 3.5% Vs. Mar 3.2%

• JAPAN APR TOKYO CORE CPI +3.5% Y/Y; MAR +3.2%

The y/y rise in the Tokyo core inflation rate unexpectedly accelerated to 3.5% in April from March's 3.2%, indicating that the nationwide April core CPI will gain momentum from March's 3.1% despite government gas and electricity subsidies that run to October, data from the Ministry of Internal Affairs and Communications showed Friday.

JAPAN MAR RETAIL SALES +7.2% Y/Y; FEB +7.3% (MNI)
JAPAN MAR RETAIL SALES +0.6% M/M; FEB +2.1% (MNI)
JAPAN MAR INDUSTRIAL OUTPUT +0.8% M/M; FEB +4.6% (MNI)
JAPAN MAR JOBLESS RATE RISES TO 2.8% VS. FEB 2.6% (MNI)

RATINGS: Friday’s Rating Slate

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

• Fitch on France (current rating: AA; Outlook Negative)
• Moody’s on Belgium (current rating: Aa3; Outlook Stable), the European Financial Stability Facility (current rating: Aaa; Outlook Stable) & the European Stability Mechanism (current rating: Aaa; Outlook Stable)
• S&P on Finland (current rating: AA+; Outlook Stable) & Sweden (current rating: AAA; Outlook Stable)
• DBRS Morningstar on Italy (current rating: BBB (high), Stable Trend)

FOREX: Risk Off Drives the USD Higher

• Risk off has been the main driver for the Dollar strength, with Banks coming under considerable pressure, especially for Spanish Banks, after Spanish lawmakers pass country’s 1st-ever housing law.
• Similar pressures in Italians Banks, on the back of Italy working on levy on banks to fund family relief -source (Reuters).
• The USD is in the Green against all the majors, and leads against the Yen, after the BoJ Delivered its expected unchanged rate.
• European inflation data eased throughout Europe, but for the exception of France, which beat expectations, but overall German Regional all came below their last readings, but this was largely ignored by Equities, taking their cues from Banks stocks, and desks likely lightening some risk ahead of the long weekend.
• Risk off is putting the AUD under renewed pressure, and AUDUSD now targets 0.6565 the April low and lowest print since November.
• Looking ahead, US PCE core deflator, MNI Chic PMI, final Michigan.
• ECB Largarde is the notable Speaker.

BONDS: Inflation the Driver

• Inflation has been the focus for fixed income markets this morning. French HICP came in a bit higher than expected and initially saw Bunds move to their low of the day but Spanish HICP released 15 minutes later reversed this move and the move was exacerbated further by the release of German state CPI data. According to MNI estimates, the national German CPI (non-HICP) print is tracking 0.4%M/M (versus the 0.5%M/M Bloomberg survey), suggesting that German inflation is also softer than expected.
• Looking ahead the German national print is due at 13:00BST / 8:00ET with US PCE and personal income / spending data at 13:30BST / 8:30ET and then the MNI Chicago Business Barometer at 14:45BST / 9:45ET.
• TY1 futures are up 0-12 today at 115-03+ with 10y UST yields down -5.1bp at 3.472% and 2y yields down -4.0bp at 4.031%.
• Bund futures are up 0.84 today at 134.96 with 10y Bund yields down -8.5bp at 2.372% and Schatz yields down -8.6bp at 2.726%.
• Gilt futures are up 0.58 today at 101.35 with 10y yields down -6.8bp at 3.722% and 2y yields down -3.1bp at 3.774%.

EQUITIES: Rally in E-Mini S&Ps Thursday Erases Earlier Sell-Off

A key short-term support in Eurostoxx 50 futures at 4285.60 remains intact - for now. This is the 20-day EMA where a break is required to signal a short-term top and highlight potential for a deeper pullback - towards 4210.70, the 50-day EMA. Trend conditions remain bullish and attention is on the bull trigger at 4363.00, Apr 21 high. A break would open 4381.50, the Jan 5 2022 high (cont). S&P E-minis rallied Thursday to erase the sell-off earlier this week. A continuation higher would expose key resistance and the bull trigger at 4198.25, the Apr 18 high. Clearance of this level would confirm a resumption of the uptrend that started Mar 13. On the downside, key short-term support has been defined at 4068.75, the Apr 26 low. A move below this level would highlight a short-term bearish reversal instead.

• Japan's NIKKEI closed higher by 398.76 pts or +1.4% at 28856.44 and the TOPIX ended 24.97 pts higher or +1.23% at 2057.48.
• Elsewhere, in China the SHANGHAI closed higher by 37.39 pts or +1.14% at 3323.275 and the HANG SENG ended 54.29 pts higher or +0.27% at 19894.57.
• Across Europe, Germany's DAX trades lower by 84.63 pts or -0.54% at 15715.69, FTSE 100 lower by 38.14 pts or -0.49% at 7793.38, CAC 40 down 72.82 pts or -0.97% at 7411.12 and Euro Stoxx 50 down 44.89 pts or -1.03% at 4313.16.
• Dow Jones mini down 160 pts or -0.47% at 33769, S&P 500 mini down 18.5 pts or -0.45% at 4135.25, NASDAQ mini down 42.5 pts or -0.32% at 13189.25.

COMMODITIES: Wednesday Sell-Off Reinforces Bearish Theme in WTI Futures

The outlook in WTI futures remains bearish and Wednesday's strong sell-off reinforces the current theme. The move lower has exposed $73.98, a Fibonacci retracement point. A break would open $72.76, the Mar 30 low. On the upside, 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 condition remains bullish, however, the yellow metal has recently entered a short-term corrective cycle. Price has pierced support at $1988.1, the 20-day EMA, highlighting potential for a deeper retracement. A move lower would open $1949.9, 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 $0.69 or -0.92% at $74.03
• Natural Gas down $0.04 or -1.49% at $2.318
• Gold spot down $4.28 or -0.22% at $1983.42
• Copper down $1.4 or -0.36% at $386.65
• Silver down $0.13 or -0.54% at $24.7925
• Platinum down $15.64 or -1.44% at $1068.97