MNI US OPEN - Labour Day Thins Liquidity Pre-FOMC

NEWS

MNI FED PREVIEW - MAY 2024: Disinflation Delayed, Not Yet Denied

Persistently high inflation readings to start the year have shaken the FOMC’s confidence in initiating rate cuts, but the April 30-May 1 meeting is too soon for them to reconsider their easing bias. Though Chair Powell could confirm that a June cut is a doubtful prospect unless major surprises emerge, he is likely to affirm that the FOMC currently sees a higher-for-longer policy as appropriate and sufficient to quell inflation. In other words, rate hikes are not at all the Committee’s base case – though the degree to which Powell plays down this possibility will be key to the market’s takeaway from the meeting.

US (BBG): Senate Passes Russian Uranium Import Ban, Sending to Biden

The Senate voted Tuesday evening to approve legislation banning the import of enriched uranium from Russia, sending the measure to the White House which has said it supports efforts to block the Kremlin’s shipments of the reactor fuel. The Prohibiting Russian Uranium Imports Act, approved by unanimous consent, would bar US imports 90 days after enactment while allowing temporary waivers until January 2028. Biden must sign the bill before it becomes law.

US (Axios): Yellen to Use Speech to Deliver Clear Warning About Economic Dangers on American Institutions

Treasury Secretary Janet Yellen will use a speech to the McCain Institute in Arizona on Friday to deliver a clear warning about the economic dangers presented by Jan. 6-style attacks on American institutions. The president is dispatching Yellen to a swing state to draw a link between a healthy democracy and a strong economy.

UK (BBG): UK House Prices Fall Again After Mortgage Rates Creep Higher

UK house prices fell at the sharpest pace in eight months after the cost of mortgages crept higher, one of the country’s biggest lenders said. Nationwide Building Society estimated the average price of a house fell 0.4% in April after an 0.2% decline the month before. Economists had expected a 0.1% monthly increase. The result followed a scaling back of bets on Bank of England interest rate cuts this year, which pushed up the cost of home loans in markets. That’s strained the ability of people to afford to buy a property, with prices remaining near records despite recent declines.

UK (MNI): Poor Local Elections for Conservatives Could Spark Leadership Challenge

Local elections take place in England and Wales on 2 May, with 107 local councils, 37 police and crime commissionerships, all seats in the London Assembly, and 10 directly-elected mayoralties up for election. While the outcome of the elections will not have any direct market-moving impact, a set of very poor results for PM Rishi Sunak's centre-right Conservatives could spur a leadership challenge that could further destabilise the UK gov't ahead of the general election expected in the autumn.

GERMANY (MNI): No Great German Growth Leap - Gov't Advisor

Policy decisions needed for a “great leap forward” in German growth are unlikely in the current parliament, even if proposed tax changes worth billions of euros are passed in the coming weeks, a leading advisor to Finance Minister Christian Lindner told MNI. Lars Feld, a personal economic adviser to Free Democrat Party leader Lindner, said in an interview that Germany needs major labour market and environment deregulation, along with a radical improvement of its energy infrastructure, to spur a meaningful boost in output.

CHINA (MNI): Weak Yen Boosts A-shares, Solid Fundamentals Needed

MNI (Beijing) The weak yen has driven offshore capital into the A-share market, however, further support will require authorities to strengthen economic fundamentals and provide greater easing measures alongside the already revealed policies to encourage dividends and attract long-term funds, advisors and analysts told MNI. Dong Zhongyun, chief economist at AVIC Securities attributed the month-end A-share rally to capital seeking safe-haven assets flowing out of Japan amid yen depreciation. Improvement of China’s fundamentals will decide whether investors hold, he added.

JAPAN (MNI): Japan Q1 GDP to Fall 0.4% Q/Q; Annualised -1.6%

Japan's economy over Q1 is expected to have shrunk by 0.4% q/q, or 1.6% annualised, the first contraction in two quarters in the wake of weaker private consumption, capital investment and net exports, private economists predicted. GDP grew 0.1% q/q, or an annualised 0.4%, in Q4 2023. Economists predicted private consumption, which accounts for about 60% of the GDP, has fallen 0.2% q/q following Q4's -0.3%. The Cabinet Office will release preliminary Q1 GDP data at 0850 JST on Thursday, May 16 (2350 GMT on Wednesday, May 15).

NEW ZEALAND (MNI): NZ Unemployment Rises, Wage Growth Still Elevated

New Zealand unemployment rose to 4.3% over Q1, 10 basis points higher than expected, and up from Q4’s 4%, according to Stats NZ data released Wednesday. The employment rate fell 0.6 percentage points over the quarter to 68.4%, while average ordinary time hourly earnings increased 5.2% in the year. “Although wage cost inflation eased and average hourly earnings growth started to slow this quarter, annual growth remained high for the two surveys,” said Sue Chapman, business employment insights manager at Stats NZ.

NEW ZEALAND (BBG): New Zealand a Long Way From Deciding to Join Aukus, Peters Says

New Zealand is a long way from deciding whether to join the second pillar of the Aukus security pact, Foreign Minister Winston Peters said. There is a precondition necessary before any final decision can be made — the existing Aukus partners must want New Zealand to participate, Peters said in a speech Wednesday in Wellington. If that precondition is met, New Zealand would then need to want to join, he said. “At that future point we will need to carefully weigh up the economic and security benefits and costs of any decision about whether participating in Pillar 2 is in the national interest,” he said.

SOUTH KOREA/AUSTRALIA (MNI): 2+2 Meeting Sees Step Towards AUKUS Pillar II

The Australian foreign and defence ministers met their South Korean counterparts at a '2+2' meeting in Sydney earlier today, with one of the focal topics being the possibility of South Korea becoming more closely involved in the AUKUS security alliance as a 'Pillar II' partner. AUKUS exists as a two stage programme. The first pillar is focused on providing Australia with nuclear-powered submarines, and therefore is closed to other nations. However, the second pillar is focused on technology-sharing between allies, and as such there has been talk of bringing Japan, and now potentially South Korea, into the mix.

GEORGIA (BBG): Georgia Crisis Erupts After Violent Clashes Over ‘Russian Law’

Georgia plunged into political crisis after a night of violent clashes between police and protesters over the government’s attempt to pass a controversial “foreign agents” law. President Salome Zourabichvili condemned “unwarranted, unprovoked and out of proportion use of force” by riot police who fired tear gas, pepper spray and a water cannon against crowds of people protesting outside the parliament in the capital Tbilisi. “Responsibility falls entirely on the government” for the violence against peaceful protesters, she said in a post Wednesday on X, formerly Twitter.

BITCOIN (BBG): Bitcoin Hits Two-Month Low After Worst Stretch Since FTX Crash

The prospect of higher-for-longer interest rates is weighing on crypto, underlined by deepening Bitcoin losses after the token’s worst monthly drop since the collapse of Sam Bankman-Fried’s FTX empire in November 2022. The largest digital asset slumped almost 16% in April as a mania for US spot-Bitcoin exchange-traded funds flatlined after earlier lifting the token to a record high of almost $74,000 in March. Tuesday’s debut of Bitcoin and Ether ETFs in Hong Kong also failed to provide a tailwind.

DATA

UK DATA (MNI): Small Upward Revision to UK Manufacturing PMI; Little Market Impact

• UK APR FINAL MANUFACTURING PMI 49.1 (FLASH 48.7); MAR 50.3

Little significant extra colour in the final UK PMI manufacturing press release. GBPUSD moved around 5 pips higher while gilt futures continued their move lower from the intraday peak seen around 15 minutes pre-data (but the range today is rather tight so far with much of Europe out).

FOREX: USD/CHF Edges to New YTD Highs Amid Holiday-Thinned Volumes

• CHF is the poorest performer in G10 amid a quiet and thin trading session in Europe. USD/CHF sits just below new YTD highs printed at 0.9224 today, building on the strength noted across Tuesday trade. The Wednesday high is just 20 pips shy of the bull trigger and Oct’23 high of 0.9244 and the 50% retracement for the downleg off the Dec’22 high at 0.9240.
• Labour Day market holidays across the continent keep many markets closed, and that's filtered into currency market activity. Cumulative G10 FX volumes are ~30% below average for this time of day - however liquidity and volumes should shore up slightly through the NY crossover.
• JPY is softer as markets continue to lean back against intervention-inspired gains, and the recovery off lows for AUD has helped that cross stabilise above Y102.00, and any renewed rally will likely re-spark concerns over official action to mute JPY volatility.
• Focus for the duration of the session rests on the ISM Manufacturing data for April, where markets expect a modest moderation in the prices paid component to 55.4 from 55.8, ahead of the Fed rate decision. While headline policy is expected unchanged, markets remain cognizant of the risk of a change in language surrounding the characterization of inflation - a notable hawkish risk as markets continue to price out the likelihood of Fed rate cuts across 2024.

GILTS: Stabilising After Bearish Pressure Seen in Wake of Auction

A relatively wide tail in the latest 10-Year gilt auction weighs on the space.

• Futures touched fresh session lows in the wake of the auction, building on the pre-auction concession, before stabilising.
• The contract last prints -25 at 95.53 (95.44-74 range).
• Initial support at the 25 April low (95.36) is nearing.
• A breach there would expose round number support (95.00).
• Cash gilt yields are 2.5-3.5bp higher across the curve, bear flattening.
• 2s printed the highest yield level seen since the late Feb benchmark roll.
• 10+-Year benchmark yields are all a touch below their respective April highs, while 5s had a look through their April peak.
• Spill over weakness from U.S. Tsys was seen at the open.
• GBP STIRs are off hawkish session extremes, ’26 SONIA futures probe cycle lows.
• BoE-dated OIS shows ~38bp of ’24 cuts, with a little over 90% odds of a 25bp cut priced through the end of the Sep MPC.
• Final UK manufacturing PMI data was marked higher but remained below the breakeven 50.0 level.
• Nationwide house price data was softer than expected but isn’t a meaningful market mover.
• Focus now moves to the U.S. data releases and FOMC decision.

EQUITIES: E-Mini S&P Trading Close to Weekly Lows

Eurostoxx 50 futures are holding on to their recent gains from 4762.00, the Apr 19 low. The contract has breached the 20-day EMA and resistance at 4990.00, the Apr 15 high. This continues to highlight a potentially stronger reversal and the end of the correction between Apr 2 - 19. An extension higher would expose the bull trigger at 5079.00, the Apr 2 high. Key support lies at 4762.00. Initial support to watch is 4877.40, the 50-day EMA. The S/T trend condition in S&P E-Minis remains bearish and the latest recovery appears to have been a correction. The contract has recently traded through the 50-day EMA, signalling scope for a continuation lower. A resumption of the bear leg would open 4907.57, a Fibonacci retracement. Firm resistance at 5132.17, the 20-day EMA, has been pierced, a clear break would signal a reversal and expose key resistance at 5333.50, Apr 1 high.

• Japan's NIKKEI closed lower by 131.61 pts or -0.34% at 38274.05 and the TOPIX ended 13.77 pts lower or -0.5% at 2729.4.
• Dow Jones mini down 43 pts or -0.11% at 37950, S&P 500 mini down 15 pts or -0.3% at 5052, NASDAQ mini down 101.25 pts or -0.58% at 17469.75.

COMMODITIES: WTI Futures Below Support at 50-Day EMA at $81.23

WTI futures traded lower yesterday. The contract is testing support at the 50-day EMA, at $81.23. A clear break of this average would strengthen a short-term bearish theme and highlight scope for a deeper correction. This would open $76.07, the Mar 11 low. Key resistance and the bull trigger has been defined at $86.97, the Apr 12 high. Initial resistance is at $84.46, the Apr 26 high. Gold traded lower Tuesday and breached initial support at $2291.6, the Apr 23 low. The precious metal has breached the 20-day EMA and this highlights a corrective cycle. A continuation lower would signal scope for an extension towards $2239.5, the 50-day EMA. Note that a short-term bear cycle would allow a significant overbought condition to unwind. Key resistance and the bull trigger is at $2431.5, the recent Apr 12 high.

• WTI Crude down $1.04 or -1.27% at $80.92
• Natural Gas down $0.05 or -2.61% at $1.939
• Gold spot down $1.46 or -0.06% at $2284.82
• Copper down $3.2 or -0.7% at $453.45
• Silver up $0.08 or +0.29% at $26.377
• Platinum down $0.97 or -0.1% at $936.95