MNI US OPEN - Hawkish ECB Speak Firms Pricing of Further Hikes

NEWS

ECB (BBG): Don’t Assume ECB Will End Rate Hikes in July, Kazaks Warns

Investors shouldn’t count on the European Central Bank’s unprecedented bout of interest-rate increases ending in July, as the majority of economists currently predicts, according to Governing Council member Martins Kazaks. “I don’t think it is that clear yet,” the hawkish Latvian official told Bloomberg on Monday by phone. “We still have quite some ground to cover and further rate increases will be necessary to tame inflation. ”Looking further ahead, he described market bets for borrowing costs to be cut in the spring of next year as “significantly premature.”

ECB (BBG): ECB’s Kazimir Sees Plenty of Ground Left to Cover on Rates

Slowing the pace of interest-rate hikes in May allows the European Central Bank to move gradually higher for longer, according to Governing Council member Peter Kazimir. “The battle against inflation is far from won,” Kazimir said in a statement on the the Slovak central bank’s website. Kazimir says ECB will have to keep raising rates for longer than he had anticipated

ECB (BBG): ECB’s Herodotou Sees Significant Persistent Inflation Effects

European Central Bank Governing Council member Constantinos Herodotou said the negative effects of prolonged and persistent inflation are significant. “In both Cyprus and the euro area, inflationary pressures have remained high for a very long time,” the Cypriot central bank chief said Tuesday in a speech

EUROZONE (MNI): EC Spring Forecast to Confirm Resilient EZ Economy

The European Commission's spring economic forecasts are likely to be little changed compared with the previous set released on February 13, a senior EU official said today. Recent data had confirmed the resilience of the eurozone economy, but hadn't revealed much new. The February round of forecasts estimated growth in the euro zone this year at 0.9% and 1.5% in 2024. The official noted that growth in Q1 was slightly stronger, pointing to a further pick-up in the pace in Q2.

US (BBG): Biden, McCarthy to Meet Over Debt Drama as Markets Grow Anxious

President Joe Biden will sit down with House Speaker Kevin McCarthy for their first meeting in three months as the two face pressure for a debt-ceiling deal before an unprecedented default wreaks damage on the US economy. They will be joined at the 4 p.m. meeting in the Oval Office on Tuesday by House Democratic Leader Hakeem Jeffries, Senate Majority Leader Chuck Schumer and Senate Republican Leader Mitch McConnell — but the ultimate responsibility to resolve the months-long standoff will ultimately fall on the president and speaker.

US (BBG): McConnell Predicts Congress Will Keep Funding Ukraine’s Defense

Senate Republican leader Mitch McConnell predicted US funding to support Ukraine’s military will continue to flow despite growing calls from isolationist members of his own party to reduce or end aid to Kyiv. “I do think that we have enough support within Congress to sustain this for a good deal longer,” McConnell said. “All the leadership in the House and Senate in my party is very much in favor of defeating the Russians.”

US (BBG): GOP Senator Cassidy Pushing to End Biden Student Debt Relief

A Republican senator accused President Joe Biden of “mortgaging our country’s financial health” by extending a pause in student loan payments while he pursues a plan to cancel some of the loan debt, though he acknowledged his measure to block the proposal does not have the votes. “I need people to understand he has contributed to the exhaustion, the acceleration of the exhaustion of our ability to borrow,” Bill Cassidy of Louisiana said in a round-table interview with Bloomberg reporters and editors in New York on Monday.

US (BBG): Powell Faces Lowest Public Confidence in Fed Boss on Record

Public confidence in Jerome Powell’s leadership of the Federal Reserve has dropped precipitously, according to a new survey, and is now at or below his predecessors’ as the central bank wages its war against inflation.A Gallup poll released Tuesday shows 36% of US adults say they have a “great deal” or a “fair amount” of confidence that the Federal Reserve chairman would do or recommend the right thing for the economy.

G7 (BBG): G7 to Discuss Stronger Financial System, Japan’s Suzuki Says

Group of Seven countries will discuss how to further strengthen the global financial system when their finance chiefs meet this week, according to the host nation. Japanese Finance Minister Shunichi Suzuki suggested Tuesday that the expansion of social networking services and Internet banking partly influenced the recent bank failures in the US.

CHINA (MNI): China Faces H2 Headwinds As Consumption Weakens

The Chinese economy faces potential headwinds in H2 2023 as a consumption rebound stalls and weak demand drags down manufacturing, while legacy, pre-pandemic structural challenges persist, economists and advisors told MNI. Recent leading indicators show manufacturing recovery on shaky ground, as production recovers faster than demand following the country’s reopening, leading to excess supply. Softer demand has also weighed on employment, said Wang Zhe, chief economist at Caixin Insight Group which compiles the monthly Caixin Purchasing Manger’s Index (PMI).

CHINA/CANADA (WaPo): China And Canada Expel Each Other’s Diplomats Over Interference Claims

Beijing on Tuesday ordered a Canadian diplomat to leave China, in a swift retaliatory move after Ottawa expelled a Chinese diplomat who allegedly had targeted a Canadian lawmaker. The moves threaten to further inflame ties between Ottawa and Beijing, which were locked in a diplomatic dispute for three years over the arrest of Huawei executive Meng Wanzhou.

RIKSBANK (MNI): Riksbank Minutes Show Door Open to Faster Hikes

Although Riksbank guidance points to slower, smaller rate hikes ahead some members still believed larger and faster hikes may prove necessary if high inflation persisted, the minutes of the April meeting show. The board hiked the policy rate by 0.5 percentage points to 3.5%, while stating that another hike of only 25bps was likely in June or September. But the minutes showed some concerns that this slower tightening pace may not prove realistic.

GERMANY (MNI): German Economy Not Out Of The Woods - GCEE's Grimm

A spike in energy prices going into the winter risks pushing the German economy closer to recession, a senior government adviser said on Tuesday, underlining the fact that a greater effort to diversify supply is still required. Veronika Grimm, a member of the German Council of Economic Experts, said Germany had managed to avoid the worst effects of rising energy prices following Russia's invasion of Ukraine thanks to a mild winter, policy reaction and reduced demand for natural gas as a result of the China lockdown.

JAPAN (MNI): BOJ Will Take Action Despite Policy Review - Ueda

Bank of Japan Governor Kazuo Ueda said on Tuesday that the BOJ's monetary policy will depend on economic factors and not hinge on the Bank's internal review of its past actions.The BOJ has not designed the review with specific policy in mind and future policy will be determined by policy-setting meetings, Ueda told lawmakers. When asked about foreign exchange, Ueda said rates should reflect stable economic fundamentals without elaborating on specific levels.

RUSSIA (BBG): Putin Vows Victory in Ukraine at Parade Amid Tight Security

President Vladimir Putin vowed to pursue his invasion of Ukraine, accusing the Kremlin’s enemies of seeking to dismember Russia as his forces rained missiles on Kyiv. “A real war has once again been unleashed against our Motherland,” Putin said Tuesday in a brief speech on Red Square at the start of the annual military parade to celebrate the Soviet victory in World War II.

DATA

CHINA DATA (MNI): China Exports Eased; Imports Dip Further On Prices

• CHINA APR TRADE SURPLUS +$90.21 BLN; MAR +$88.19 BLN
• CHINA APR EXPORTS +8.5% Y/Y; MAR +14.8% Y/Y
• CHINA APR IMPORTS % -7.9Y/Y; MAR -1.4% Y/Y

China's exports eased from April's eight-month high, while imports dipped further on falling commodity prices, data released by China Customs on Tuesday showed. Exports increased by 8.5% y/y in April, slowing down from the previous 14.8% y/y growth and slightly weaker than the market consensus calling for a 9.0% y/y increase. Machinery and labor-intensive products drove the gain. Exports in the first four months of 2023 totaled USD1.12 trillion, or 2.5% over the same period last year.

JAPAN DATA (MNI): Japan Mar Wages Rise; Real Pay Stays Negative

Inflation-adjusted real wages, a barometer of households' purchasing power, fell by 2.9% y/y in March following a 2.9% fall in February due to higher inflation, data released by the Ministry of Internal Affairs and Communications on Tuesday showed. Bank of Japan officials expect considerable wage increases this year to ease the impact of high prices and contribute to supporting private consumption.

AUSTRALIA DATA (MNI): Australian Retail Sales Slide Over March Quarter

Australian retail sales volumes fell 0.6 per cent in the March quarter, which follows a 0.3% decline over Q4 2022, according to figures released today by the Australian Bureau of Statistics. The ABS noted mounting cost-of-living pressures continued to weigh on household spending. “Outside of the COVID-19 pandemic period, this is the largest fall in retail sales volumes since the September quarter 2009,” said Ben Dorber, head of retail statistics at the ABS.

UK BRC APR BY VALUE SHOP SALES LFL +5.2% YY, TOTAL +5.1% YY (MNI)

FOREX: USD, JPY Make Modest Gains Ahead of NY

• The greenback sits furtively higher ahead of the Tuesday crossover, although recent ranges have largely been respected headed into US hours. Inching higher of the dollar puts EUR/USD within range of the Friday lows at 1.0967. Any weakness through here would shift downside focus to the 50-dma, sitting just below at 1.0855.
• Equity futures are lower across the board, although the pullback has been relatively contained so far. The softer equity backdrop is working in favour of the JPY, which is modestly firmer against all others in G10.
• AUD, NZD are toward the bottom-end of the pile amid relatively thin trade overnight.
• More broadly, markets are treading water ahead of the US CPI release due Wednesday, ahead of which overnight implied USD vols are on the front foot: EUR/USD overnight vols have cleared 12 points - roughly matching the levels seen ahead of the March CPI release back on April 12th.
• Focus Tuesday is solely on the speaker slate, as ECB's Vasle, Vujcic, Villeroy and Schnabel are all set to speak. Fed's Jefferson and Williams are also on the docket.

BONDS: Weakness in EGBs & Gilts, Tsys Outperform

TY futures respect their early range as ECB speak and a downtick in equities impact price action. Cash Tsys sit 1-2bp richer. FOMC-dated OIS pricing continues to indicate that the tightening cycle is complete, with just over 70bp of cuts priced by year-end.

• EGBs also moved off session cheaps although inflation worry within the hawkish wing of the ECB’s governing council capped the bid and allowed ECB-dated OIS to firm incrementally, with fresh pressure kicking in during recent trade. Peripheral 10s are wider on the ECB speak, with BTPs and Greek paper widening the most.
• Post-long weekend catch up biased Gilt futures lower, before the weakness in broader equity markets supported. Subsequent weakness in EGBs has applied fresh pressure, with Gilt futures breaking below Friday’s post-NFP low. Cash Gilts are 4-5bp cheaper across the curve. Terminal BoE pricing hovers in the familiar 4.90-5.00% window, with a 25bp hike more than 90% priced for this week’s gathering.
• Comments from Fed’s Jefferson & Williams, along with continued ECB speak, present the highlights during the remainder of the session. Elsewhere, there will be one eye on the Russian Victory Day holiday, although Putin’s early comments didn’t provide much for markets to trade off.

Latest levels:

- TY1 futures are up 0-5 today at 115-10+ with 10y UST yields down -1.2bp at 3.498% and 2y yields down -1.6bp at 3.987%.

- Bund futures are down -0.08 today at 135.46 with 10y Bund yields up 1.0bp at 2.327% and Schatz yields up 0.9bp at 2.615%.

- Gilt futures are down -0.43 today at 100.50 with 10y yields up 4.2bp at 3.819% and 2y yields up 4.4bp at 3.819%.

EQUITIES: European, US Equity Futures Pullback Contained So Far

Eurostoxx 50 futures is holding on to its most recent gains and remains above support at 4228.60, the 50-day EMA. The recent move down is considered corrective and the broader uptrend remains intact. A continuation higher would signal scope for a test of 4363.00, the Apr 21 high and bull trigger. Clearance of this level would confirm a resumption of the uptrend. A clear break of the 50-day EMA is required to signal a top. S&P E-minis reversed course last Friday and prices have climbed back above the 50-day EMA, which intersects at 4101.79. A continuation higher would refocus attention on key resistance and the bull trigger at 4206.25, the May 1 high. A breach of this level would confirm a resumption of the bull trend that started Mar 13. Key support has been defined at 4062.25, the May 4 low. A break through this support would be bearish.

• Japan's NIKKEI closed higher by 292.94 pts or +1.01% at 29242.82 and the TOPIX ended 26.34 pts higher or +1.27% at 2097.55.
• Elsewhere, in China the SHANGHAI closed lower by 37.333 pts or -1.1% at 3357.671 and the HANG SENG ended 429.45 pts lower or -2.12% at 19867.58.
• Across Europe, Germany's DAX trades lower by 38.86 pts or -0.24% at 15926.64, FTSE 100 lower by 19.53 pts or -0.25% at 7762.41, CAC 40 down 53.85 pts or -0.72% at 7396.58 and Euro Stoxx 50 down 28.17 pts or -0.65% at 4325.14.
• Dow Jones mini down 113 pts or -0.34% at 33583, S&P 500 mini down 14.5 pts or -0.35% at 4139.25, NASDAQ mini down 54.5 pts or -0.41% at 13299.5.

COMMODITIES: WTI Futures Remain Technically Bearish Despite Recovery Since Thursday

WTI futures remain bearish despite the strong recovery from last Thursday’s intraday low of $63.64. The trend condition was oversold last week and the recovery is allowing this to unwind. Initial resistance is at $73.93, the Apr 28 low ahead of $76.92, the Apr 28 high. On the downside, last week’s print below $64.58, the Mar 20 low and a key support, reinforces a bearish theme. A clear break of it would confirm a resumption of the broader downtrend. Despite Friday’s move lower, Gold remains in an uptrend. The yellow metal has breached resistance at $2048.7, the Apr 13 high to confirm a resumption of the broader bull cycle. This maintains the bullish price sequence of higher highs and higher lows and moving average studies are in a bull-mode set-up. The focus is on $2070.4, the Mar 8 high ahead of the all-time high at $2075.5. Key support is 1969.3, the Apr 19 low.

• WTI Crude down $0.53 or -0.72% at $72.63
• Natural Gas down $0.02 or -0.89% at $2.212
• Gold spot up $5.17 or +0.26% at $2026.52
• Copper down $2.05 or -0.52% at $390.75
• Silver down $0.06 or -0.24% at $25.4741
• Platinum up $0.57 or +0.05% at $1074.52