MNI US OPEN - Israel, Iran Both Play Down Significance of Retaliatory Strike

NEWS

ISRAEL/IRAN (MNI): Iran and Israel Play Down Significance of Israel Strike

Israel and Iran have played down the significance of an overnight Israeli strike on a military facility near the Iranian city of Isfahan. It is unclear the extent of the damage, but the attack, whilst hitting targets within Iran, appears to fallen short of the worst-case scenario of a major strike of Iranian nuclear or energy infrastructure. NYT reports: "State television in Iran said military and nuclear facilities in Isfahan were safe and broadcast footage of the city looking calm in the spring light. One newsreader there described the attack as “not a big deal.” The attack appears to have fulfilled a key strategic deterrent objective for Israel by demonstrating Israel can strike targets within Iran, but restraining from a major escalation.

X post from @nournews_ir, translated from Persian to English by Google: "The unsuccessful attempt of the Israeli regime to subversively use a few tiny birds and the war of perception for the achievement of Tarashi continued the spiral of the regime's failure with three events."

US/ISRAEL (WSJ): Biden Weighs More Than $1 Billion in New Arms for Israel

The Biden administration is considering more than $1 billion dollars in new weapons deals for Israel including tank ammunition, military vehicles and mortar rounds, U.S. officials said, at a time of heightened scrutiny of the use of American-made weapons in the war in Gaza.The proposed weapons transfers -- which would be in addition to those in a military aid deal currently before the Congress -- would be among the largest to Israel since it invaded Gaza in response to Hamas's attack that killed 1,200 people, mostly civilians, on Oct. 7.

OIL (BBG): Oil Erases Advance After Iranian Media Downplays Israel’s Attack

Oil wiped out an earlier sharp jump as Iranian media appeared to downplay the impact of Israeli strikes that followed last weekend’s unprecedented bombardment by Tehran. Brent crude traded little changed near $87 a barrel after soaring more than 4% above $90 on renewed concerns over the potential for a wider conflict that could endanger oil supplies. Israel launched a strike on Iran, according to two US officials, but the Islamic Republic’s semi-official Tasnim news agency denied the reports, and said the Isfahan nuclear facility was safe.

FED (MNI): Bostic Says Rate Cut Likely at End of Year

Atlanta Fed President Raphael Bostic said Thursday he’s comfortable keeping interest rates steady, reiterating it will not be appropriate to lower borrowing costs until toward the end of the year. "I don't think it will be appropriate to drop rates soon because if we drop rates there is a possibility that there's excess energy in the economy that puts upward pressure on prices and moves us even further from our target," he said at a University of Miami event. "I am willing to be patient. I am not in a hurry to get inflation to 2% as long as its moving there, while we are seeing job growth and output growth."

FED (MNI): Kashkari Says Fed Could Wait Until 2025 to Lower Rates

Minneapolis Federal Reserve President Neel Kashkari on Thursday said the central bank will need to be patient and wait until convinced inflation is falling to target, potentially waiting until 2025 to lower rates. "Ultimately, we know what we need to do. We need to get inflation back down to 2%," he said in an interview with Fox News. "Once we get closer to it, we will be in a position to start dialing back some of our interest rate increases."

ECB (BBG): ECB’s Kazaks Says It’s Too Soon to Declare Inflation Victory

It’s still too early to declare that euro-area inflation has been vanquished, even if the European Central Bank is on track to deliver a first interest-rate cut in June, Governing Council member Martins Kazaks said. The risk of stickier-than-expected price growth — something the US is experiencing at the moment — “is part of the game,” the Latvian central-bank chief said in an interview in Washington, where he’s attending the International Monetary Fund and World Bank spring meetings. “That’s the reason I’m not saying we’ve turned the corner,” Kazaks said. “One has to remain cautious, because it would be very tricky to start hiking rates in the middle of the cycle.”

EU (MNI): Watered-Down EU Deal Points to Resistance to Draghi Plan

A heavily watered-down statement on the European Union’s push for Capital Markets Union agreed by the bloc’s leaders Thursday is an early indication that the transformative agenda for boosting competitiveness set out by former Italian premiers Enrico Letta and Mario Draghi this week will face tough opposition, with smaller countries angered by what they see as attempts to ram through ambitious reforms.

CHINA (MNI): April LPR Likely to Hold Steady as Yuan Weakens

MNI (Beijing) China’s reference lending rate will likely remain unchanged in April following the central bank’s decision to hold its policy rate steady as U.S. dollar strength weighs on the yuan and solid Q1 GDP growth reduces the need for monetary easing in the short term. The Loan Prime Rate, based on the People’s Bank of China’s medium-term lending facility (MLF) rate and quotes submitted by 20 banks, will likely hold at 3.45% for the one-year maturity and 3.95% for the over five-year tenor on Monday.

CHINA (MNI): China Trade-ins to Boost Consumption - MOFCOM's

MNI (Beijing) China’s Ministry of Commerce large-scale consumer goods trade-in programme alongside related fiscal and credit support will generate over CNY1 trillion of domestic demand by boosting automobile and household goods consumption, consolidating economic recovery, a high-ranking official told MNI. MOFCOM will also facilitate the "old-for-new" programme for household appliances and support house renovations and adaptations for the elderly, Xu Xingfeng, director-general of the department of market operation and consumption promotion at the Ministry, said in an interview.

CHINA (MNI): China Overcapacity Rejected, Cooperation Likely - Advisors

MNI (Beijing) China will push back against making any major concessions in response to Western accusations of “overcapacity” in electric-vehicle and green sectors, instead relying on offers of deeper cooperation, which some – such as the EU – may be more open to, advisors told MNI. Some Chinese economists have rejected the overcapacity claims, noting demand for renewable-energy technologies and electric vehicles will soon outstrip supply.

BOJ (MNI): BOJ Aims to Cut JGB Bond Buying Level in July

The Bank of Japan is toying with how it can lower the scale of its Japanese government bond-buying programme without injecting volatility into the rates market or sharply raising long-term yields and could potentially lower the largely ambiguous JPY6 trillion monthly level found within its March board communications to JPY5 trillion at the July 30-31 meeting, MNI understands. The BOJ, however, will not actively lower the scale of its programme which is dictated by market developments, such as tight JGB conditions or low bid-to-cover ratios.

ISRAEL (BBG): S&P Joins Moody’s in Downgrading Israel on Geopolitical Risk

Israel was downgraded by S&P Global Ratings, which joined Moody’s Investors Service in lowering the nation’s sovereign credit score as geopolitical risks in the Middle East escalated. S&P cut the rating by one notch to A+, the fifth highest level and on par with Bermuda and China. The outlook remains negative, and the rating will be reviewed again on May 10, S&P said in a statement.

DATA

​UK DATA (MNI): UK Retail Sales Softer Than Expected M/M

• UK MAR RETAIL SALES +0% M/M, +0.8% Y/Y
• UK MAR RETAIL SALES EX-FUEL -0.3% M/M, +0.4% Y/Y

UK retail sales is estimated to contribute +0.09ppt to Q1 GDP after it rose 1.9% Q/Q (although this was largely driven by soft sales around the Christmas period rather than a large increase in sales this quarter). Looking at the details of the monthly release, the biggest downside contributor was department store sales (down 3.8% M/M) with "non-store retailing" down 1.5% M/M and food stores sales down 0.7% M/M. The ONS notes that "retailers suggesting that increased prices were affecting consumer spending habits."

GERMANY DATA (MNI): Stall in Deflationary Trends in Multiple PPI Categories

• GERMANY FEB PRODUCER PRICES -2.9% Y/Y

German Producer Prices for March came in higher than expectations at -2.9% Y/Y (vs -3.3% cons; -4.1% prior) and +0.2% M/M (vs +0.1% cons; -0.4% prior). Looking at the individual categories, energy saw the most prominent change in its yearly rate against February as base effects continue to taper off (-7.0% Y/Y vs -10.1% prior). Elsewhere, developments were mixed. In multiple categories, a stall of previous deflationary trends could be observed, as investment goods and consumer goods came in at the same yearly rate as in February (+2.8% and +0.4% Y/Y). In non-durable goods, price growth accelerated for the first time since October 2022 at +0.3% Y/Y (vs +0.2% prior).

SPAIN DATA (MNI): INE Business Confidence Data Supports Upward Revisions in Q1 GDP Forecasts

INE's quarterly Business Confidence index rose 1.5% Q/Q and 2.6% Y/Y to 136.0 points in Q2. The print was driven mostly by positive expectations for the upcoming quarter, though on balance respondents reported favourable developments in Q1 as well. The optimism is consistent with recent survey evidence (e.g. expansionary PMIs) and is indicative of positive sequential GDP growth in Q1 '24. Analysts recently revised up Q1 Spanish GDP forecasts to 0.35% Q/Q, from 0.3% in the prior consensus survey (the flash estimate of Q1 GDP is released on April 30).

JAPAN DATA (MNI): Japan March Core CPI Rises 2.6% vs. Feb's 2.8%

• JAPAN MARCH CORE CPI +2.6% Y/Y; FEB +2.8%
• JAPAN MARCH CORE-CORE CPI +2.9% Y/Y; FEB +3.2%
• JAPAN MARCH SERVICES PRICES +2.1% Y/Y; FEB +2.2%

The year-on-year rise of Japan's annual core consumer inflation rate decelerated to 2.6% in March from February’s 2.8%, showing the pass-through of cost increases is weakening, data released by the Ministry of Internal Affairs and Communications showed on Friday. However, March’s index remained above the Bank of Japan’s 2% target for the 24th consecutive month. The underlying inflation rate measured by the core-core CPI (excluding fresh food and energy) rose 2.9% y/y in March, slowing from February’s 3.2%, its seventh straight deceleration.

JAPAN DATA (MNI): Japan Corp Loan Demand Rises - BOJ Survey

Japanese corporate demand for bank financing over the last three months driven by increased sales and capital investment, and the worsening of fund-raising, senior loan officer opinion survey on bank lending practices released by the Bank of Japan showed on Friday. The index for corporate fund demand – calculated by subtracting the number of banks reporting a decline in lending from the number of those reporting an increase – rose to +4 in April from +1 in January.

RATINGS: S&P to Review Greece & Italy After Hours

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

• Moody’s on Lithuania (current rating: A2; Outlook Stable)
• S&P on Greece (current rating: BBB-; Outlook Stable), Italy (current rating: BBB; Outlook Stable), the Netherlands (current rating: AAA; Outlook Stable) and the United Kingdom (current rating: AA; Outlook Stable)
• Morningstar DBRS on Lithuania (current rating: A (high), Stable Trend)
• Scope Ratings on Estonia (current rating: AA-; Outlook Negative) & Switzerland (current rating: AAA; Outlook Stable)

FOREX: Volatility Spike Fades as Israel Strike Seen as Limited in Nature

• Markets underwent a significant volatility spike overnight on Friday, as news that Israel had launched missile strikes on Iran underpinned concerns of renewed geopolitical risk in the Middle-East. Risk sold off sharply, putting the USD on the front foot, equities lower and the JPY markedly higher. Emerging markets currencies came under particular pressure, with the MXN among the most exposed to stop-loss selling to send the USD/MXN pair briefly higher by 6.7%.
• The market impact didn't stick, with the missile strike appearing limited in nature and closer to a warning shot rather than a declaration of protracted hostilities. As such, markets bottomed out to put USD/JPY ~80 pips above the overnight low and the greenback comfortably below the overnight highs.
• Headed into the NY crossover, markets are more sanguine. CHF is the firmest currency in G10, prompting another multi-month high in CHF/JPY. We wrote yesterday that this week's constructive price action in the cross turns focus to recent highs at 170.81. Japanese intervention risks naturally remain a concern for fresh longs, however the still historically low levels of realised vol in JPY could calm these concerns (one-week realised vols remain ~3 points below the rolling 12m average).
• There are no notable data releases set for Friday, keeping focus on the central bank speaker slate. BoE's Ramsden makes an appearance for the first time in 2024, while Fed's Goolsbee, ECB's Nagel and BoE's Mann follow.

US TSYS: Geopolitical Risk Premium Unwinds as Odds of Iranian Response to Israel Fade

Tsys sit comfortably off their Asia-Pac highs, as the bulk of the initial geopolitical risk premium that was priced in following the Israeli counter offensive against Iran unwinds.

• Looking ahead, the lack of meaningful damage to Iranian assets seemingly results in little Iranian desire for an immediate response despite their pre-attack warnings, avoiding a worst-case scenario. Furthermore, Iranian nuclear installations were not damaged. That combination explains the price action.
• Still, local press outlets in Israel have since run reports pointing to capabilities of launching more meaningful attacks on Iran.
• TYM4 trades at 108-02+ (107-24+ to 108-22+ range), with volume running at roughly 4x the norm for this time of day (~945K) lots.
• Initial technical levels of 108-25+ and 107-13+ are untouched.
• Cash Tsy yields are 2-5bp lower, with 10s leading the rally.
• STIRs also ease back from dovish Asia extremes alongside Tsys, leaving ~40bp of ’24 cuts priced into FOMC-dated OIS, little changed on the day.
• Comments from Fed’s Goolsbee are due later, although we will be on the lookout for impromptu Fedspeak ahead of the pre-FOMC blackout period, which goes into effect this weekend.

EGBS: Move Away From Highs as Geopolitical Risk Premium Fades

Core/semi-core EGBs are off intraday highs as overnight geopolitical risk premium fades.

• Israel and Iran have played down the significance of an overnight Israeli strike on a military facility, which has allowed Bunds to move away from the overnight high of 132.24.
• The ECB’s Scicluna cemented himself at the dovish end of the Governing Council spectrum this morning, noting the potential for 50bps ECB cuts if inflation surprises to the downside.
• Bunds are currently +22 at 131.43, though the technical trend outlook remains bearish following this week’s move lower.
• The German and French cash curves have bull flattened today while 10-year periphery spreads to Bunds are generally little changed.
• The remainder of today’s regional calendar is light, leaving markets to focus on geopolitical risks heading into the weekend.

GILTS: A Little Firmer on the Day, But Holding Away from Highs

Gilt futures trade around mid-range, with geopolitical risk premium easing from overnight extremes as the Israeli-Iran situation continues to avoid the worst-case scenario.

• The contract last trades +10 or so around 96.85, sticking within yesterday’s range and leaving familiar technical parameters and the bearish backdrop intact.
• Cash gilt yields are ~2bp lower across the curve.
• SONIA futures are little changed on the day after the early rally faded alongside gilts.
• BoE-dated OIS shows ~43bp of ’24 cuts, sticking to familiar ranges and only a couple of bp changed vs. yesterday’s closing levels.
• Looking ahead, comments from BoE’s Ramsden & Mann headline the domestic calendar today.
• Geopolitical headline flow will continue to garner heightened interest given overnight events.

EQUITIES: Extension Lower in E-Mini S&P Confirms Short-Term Bearish Conditions

Eurostoxx 50 futures have traded to a fresh S/T cycle low today. A bearish corrective cycle remains in play and the move down this month has allowed an overbought trend condition to unwind. The contract has breached support at 4858.80, the 50-day EMA and a key pivot price point. The clear break of this average signal scope for a deeper retracement and opens 4711.00, the Feb 19 low. Initial firm resistance to watch is 4933.00, the 20-day EMA. The short-term trend condition in S&P E-Minis is unchanged and remains bearish. Today’s extension reinforces current short-term conditions. The contract has this week cleared support at the 50-day EMA, signalling scope for a continuation lower near-term. Sights are on 4907.57 next, a Fibonacci retracement. Firm resistance is seen at 5181.29, the 20-day EMA. A clear break of the average would signal a possible reversal.

• Japan's NIKKEI closed lower by 1011.35 pts or -2.66% at 37068.35 and the TOPIX ended 51.13 pts lower or -1.91% at 2626.32.
• Elsewhere, in China the SHANGHAI closed lower by 8.964 pts or -0.29% at 3065.261 and the HANG SENG ended 161.73 pts lower or -0.99% at 16224.14.
• Across Europe, Germany's DAX trades lower by 140.08 pts or -0.79% at 17697.65, FTSE 100 lower by 37.89 pts or -0.48% at 7839.26, CAC 40 down 44.75 pts or -0.56% at 7977.87 and Euro Stoxx 50 down 35.31 pts or -0.72% at 4900.98.
• Dow Jones mini down 148 pts or -0.39% at 37859, S&P 500 mini down 24.5 pts or -0.49% at 5024.75, NASDAQ mini down 130 pts or -0.74% at 17418.25.

COMMODITIES: WTI Futures Reverse Majority of Overnight Spike, Bull Theme Intact

A bull theme in WTI futures remains intact, however, this week’s move lower signals the start of a short-term bearish corrective cycle. The contract has traded through the 20-day EMA and this signals scope for an extension towards the 50-day EMA, at $80.64. A clear break of the 50-day EMA would signal a stronger bearish theme. On the upside, key resistance and the bull trigger has been defined at $86.97, the Apr 12 high. The trend condition in Gold is unchanged and the outlook remains bullish with price continuing to trade 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 $2301.6, the 20-day EMA.

• WTI Crude up $0.11 or +0.13% at $82.85
• Natural Gas down $0.01 or -0.63% at $1.747
• Gold spot up $4.31 or +0.18% at $2383.46
• Copper up $0.5 or +0.11% at $447.25
• Silver up $0.09 or +0.33% at $28.3507
• Platinum down $0.12 or -0.01% at $939.46