MNI US OPEN - Nagel Says Chances of Pre-Summer Break ECB Cut Are Rising

NEWS

ECB (MNI): Chances of ECB Cut Before Summer Break Rising - Nagel

The probability the European Central Bank cuts interest rates before the summer break “is increasing”, with the June meeting having a higher probability than April’s, Bundesbank Governor Joachim Nagel told an MNI Webcast event on Friday. However, he added that he sees no “kind of automatism” or clear sequence once the ECB start cutting rates and that it will continue with its data-dependent approach. The easing cycle should run at a smooth rhythm during this year and 2025.

US (BBG): BofA Says US Stocks Suffer Big Outflows in Runup to Fed Meeting

US stocks saw hefty outflows in the runup to the Federal Reserve’s policy meeting that took the S&P 500 Index to fresh all-time highs.US equity funds suffered redemptions of about $22 billion in the week through Wednesday — the biggest since December 2022, according to a note from Bank of America Corp., citing EPFR Global data. That’s alongside a 1.2% advance in the S&P 500 over that period, with the rally building steam following signals that the Fed was on course for three rate cuts this year.

US (BBG): Biden Set to Award Billions to Decarbonize US Heavy Industries

The Biden administration is poised to award as much as $6.3 billion in dozens of grants to help hard-to-decarbonize industries cut emissions, according to people familiar with the matter. Details on the projects that have received funding are expected to be announced as soon as Monday, said the people, who asked not to be named as the information hasn’t been made public yet. The grants will be spread across sectors such as cement, glass, chemicals, metals, and pulp and paper, they said.

BOE (BBG): BOE’s Bailey Says Rate Cuts ‘In Play’ at Future Meetings: FT

Bank of England says rate cuts were “in play” at future meetings amid signs that tighter monetary policy has lowered the risk of a wage-price spiral, governor Andrew Bailey told the Financial Times in an interview. Declined to say when or by how much interest rates might be cut this year. Says he didn’t need to see inflation drop to BOE’s target of 2% before cutting rates, but that “you need to see you are on the way”

EUROPE/UKRAINE (BBG): Europe Considers Leveraging Frozen Russian Assets for Ukraine

Some European leaders are warming up to the idea to use financial engineering to boost the profits from the immobilized Russian sovereign assets to generate a much higher level of funding for Ukraine. Belgian Prime Minister Alexander De Croo announced a proposal on Thursday to issue bonds backed by the profits generated by the frozen assets. We could “use the proceeds to pay the interest on some kind of perpetual bonds,” De Croo told reporters after a meeting with his counterparts in Brussels. “Then you can actually leverage that much on a wider level.”

CHINA (MNI): PBOC Easing More Likely in H2 After Potential Fed Cut

MNI (Beijing) Potential U.S. Federal Reserve rate cuts later this year, or even a further hold, will give the People’s Bank of China greater ability to ease in the second half, while the Bank of Japan’s recent policy change will have little immediate impact, policy advisors and officials told MNI. The PBOC has typically eased tactfully due to the yuan’s weakness against the U.S. dollar, a former PBOC official told MNI, noting any Fed cut or hold in H2 will generate benign conditions and aid the central bank's various tasks, such as boosting domestic credit demand, channelling liquidity through the economy, preventing risks and cultivating new growth drivers.

JAPAN (BBG): Japan Labor Union Group Updates Wage Hike Tally to 5.25% Gain

Japan’s largest labor union federation says with the results of more negotiations available its affiliated unions secured 5.25% gains in this year’s wage talks as of March 21.The Japanese Trade Union Confederation, known as Rengo, releases a report on the second results of this year’s spring wage negotiations on Friday in Tokyo. Rengo announced last week that 771 unions won a 5.28% total pay hike, according to its initial tally.

JAPAN (MNI): Japan Govt Keeps Econ View, Ups Capex

Japan’s government left its economic assessment for the second straight month, but upgraded its view on capital investment due to the upward revision within the second preliminary GDP data, the Cabinet Office said on Friday. The Japanese economy is recovering at a moderate pace, although it recently appears to be pausing, the government repeated, while business fixed investment “shows movements of picking up,” the first upward revision since October 2022.The previous view was that capex “appears to be pausing for picking up.”

JAPAN (MNI): BOJ March Tankan to Show Weaker Sentiment, Solid Capex

The Bank of Japan's March Tankan survey due April 1 will show a temporary worsening of major business sentiment over the quarter, but small- and major-firm capital investment plans are expected to remain solid, economists told MNI. Economists expect the diffusion index (DI) –calculated by subtracting the percentage of companies reporting deteriorating business conditions from those reporting an improvement – for major manufacturers to fall to +10 in March from +13 in December. A positive figure indicates the majority of firms see better conditions ahead.

RBA (BBG): RBA Says Banks Are Strong, Households Resilient to Higher Rates

Australian banks are “well prepared” to handle an expected increase in loan losses in the period ahead as elevated inflation and high borrowing costs squeeze household incomes, crimping their ability to meet their obligations. So far, nearly all borrowers have continued to service their debts on schedule even as most mortgagors have experienced an increase in minimum scheduled payments of 30-60% since May 2022, when the current interest rate tightening campaign began, the Reserve Bank said in its semi-annual Financial Stability Review released in Sydney on Friday.

NEW ZEALAND (MNI): High NZ Immigration to Pressure Rates

High New Zealand immigration levels have continued into 2024 and will add further demand pressure, keeping inflation elevated, and making monetary-policy easing a tougher sell, a former treasury official has told MNI. Peter Wilson, principal economist at the New Zealand Institute of Economic Research (NZIER) and a former Treasury director, noted post-Covid pent up, high immigration levels are likely not temporary, which will raise important policy questions. He agreed with recent comments from Treasury and the Reserve Bank of New Zealand suggesting rates would remain higher for longer.

INDIA/RUSSIA (BBG): India Stops Taking Russian Oil Delivered on Sovcomflot Tankers

All of India’s refiners are now refusing to take Russian crude carried on PJSC Sovcomflot tankers due to US sanctions, further complicating the trade that has flourished since the invasion of Ukraine two years ago. Private and state-run processors including the biggest — Indian Oil Corp. — have stopped taking cargoes if they’re on Sovcomflot tankers, said people familiar with the matter. Refiners are scrutinizing the ownership of each ship to make sure they’re not affiliated with the company, or other sanctioned groups, they added, asking not to be named because the information is private.

CORPORATE (BBG): Tesla Trims Output of Cars in China Amid Slower EV Sales Growth

Tesla Inc. has reduced electric car production at its plant in China, according to people familiar with the matter, amid sluggish growth in new-energy vehicle sales and intense competition in the world’s biggest automobile market. The US automaker earlier this month instructed employees at its Shanghai facility to lower production of both the Model Y sport utility vehicle and Model 3 sedan — the two types it makes in China — by working five days a week instead of the usual 6 1/2 days, the people said, asking not to be identified because they’re not authorized to speak publicly.

DATA

UK DATA (MNI): Retail Sales Data to Have Little Impact on the MPC or Markets

• UK FEB RETAIL SALES +0% M/M, -0.4% Y/Y
• UK FEB RETAIL SALES EX-FUEL +0.2% M/M, -0.5% Y/Y

The ONS notes that there was sales growth in "clothing and department stores grew because of new collections but falls in food stores and fuel retailers offset this growth. Meanwhile online sales increased, particularly for clothing retailers, as wet weather affected footfall." The ONS also notes that on a 3m/3m, basis (which smooths out the Dec/Jan volatility), sales volumes fell by -0.4% in the 3-months to February versus -1.0% in the 3-months to March. The bigger picture is that retail sales are broadly flat over the past 3m/3m period - and GDP growth for Q1 is expected by both the BOE and market to also be close to flat.

UK DATA (MNI): UK Consumers Upbeat on Personal Finances - GfK

• UK MAR GFK CONSUMER CONFIDENCE INDEX -21

UK consumers are increasingly upbeat about their own financial positions, even as overall confidence levels remain unchanged, the head of a leading survey told MNI. Although GfK’s overall consumer confidence stalled at -21 in March, the improved Personal Finance measure for the next 12 months rose 2 points. “This is encouraging because it’s the first positive and the highest score since December 2021 for consumer’s personal situation,” Joe Staton Client Strategy director at GfK said in an interview.

GERMANY MAR IFO BUSINESS CLIMATE INDEX 87.8 (MNI)

JAPAN DATA (MNI): Japan Feb Core CPI Rises 2.8% vs. Jan 2.0%

• JAPAN FEB CORE CPI +2.8% Y/Y; JAN +2.0%
• JAPAN FEB CORE-CORE CPI +3.2% Y/Y; JAN +3.5%
• JAPAN FEB SERVICES PRICES +2.2% Y/Y; JAN +2.2%

The year-on-year rise of Japan's annual core consumer inflation rate accelerated to 2.8% in February from January's 2.0%, 10 basis points lower than expected, data released by the Ministry of Internal Affairs and Communications showed Friday. The print remained above the Bank of Japan’s 2% target for the 23rd consecutive month. The underlying inflation rate measured by core-core CPI (excluding fresh food and energy) rose 3.2% in February, slowing from January's 3.5% for the sixth straight deceleration.

RATINGS: Friday's Potential Sovereign Updates

Potential sovereign rating reviews scheduled for after hours on Friday include:

• Fitch on Portugal (current rating: A-; Outlook Stable) & the United Kingdom (current rating: AA-; Outlook Negative)
• Moody’s on Poland (current rating: A2; Outlook Stable)
• S&P on Germany (current rating: AAA; Outlook Stable)
• DBRS Morningstar on Cyprus (current rating: BBB (high), Stable Trend), Finland (current rating: AA (high), Stable Trend), France (current rating: AA (high), Stable Trend), Ireland (current rating: AA (low), Stable Trend) & Norway (current rating: AAA, Stable Trend)
• Scope Ratings on Japan (current rating: A; Outlook Negative), Norway (current rating: AAA, Stable Trend) & Spain (current rating: A-; Outlook Stable)

FOREX: JPY on Front Foot in Corrective Bounce, But USD/JPY Bias Remains Higher

• The JPY trades on the front foot early Friday, in a corrective bounce for the currency that's weakened since the first BoJ rate hike for decades earlier this week. Markets remain in close proximity to levels at which the Japanese authorities intervened in recent years, but recent evidence of an underlying long USD/JPY bias continues to argue for a further grind higher in the pair. Today's USD strength evident in EUR/USD, GBP/USD weakness adds to this argument.
• The real test for USD/JPY remains higher: longer-term resistance is next up - A multi-year bull channel, drawn from the September 2012 low, clearly shows the importance of resistance at the 152.50 area. Channel top was tested in Oct‘22 and in October last year.
• The USD Index is firmer, clearing the 104.00 handle early Friday and narrowing in on the February highs. Prices are on the cusp of forming a golden cross formation (50-dma moving above 200-dma) for the first time since September last year - signaling near-term momentum is pointed higher.
• Focus ahead rests on the central bank speaker slate - ECB's Centeno and Lane are set to make appearances. MNI held an event with Nagel earlier today, at which he stuck to the rhetoric of a higher probability of a June rate cut at the ECB. Fed's Barr and Bostic are also set to make appearances. Powell is set to deliver opening remarks at a Fed Listens event.

US TSYS: Modest Asia Rally Consolidates

The Asia-Pac rally in Tsys consolidates.

• Bullish inputs from gilts on the back of dovish BoE speak and bearish inputs from a firmer-than-expected German ZEW survey noted in early London hours.
• TYM4 comfortably within yesterday’s range, last +0-06+ at 110-19 (110-12+ to 19+ range). Volume running at a relatively average ~205K.
• Cash Tsy yields are 2.5-3.5bp lower across the curve.
• FOMC-dated OIS shows ~82bp of ’24 cuts, ~20bp of cuts priced through June.
• A reminder that the inflation components/rhetoric in yesterday’s S&P Global PMI and Philly Fed surveys helped Fed pricing off yesterday’s dovish extremes.
• Fedspeak from Powell, Jefferson, Bowman, Barr & Bostic will be eyed ahead of the weekend.

EGBS: Core/Semi-Core Firmer; Peripherals Underperform

Bunds trade near intra-day highs, on track for a fourth consecutive day of gains amid a week of dovish central bank developments.

• Morning tailwinds have come from BoE Governor Bailey, who noted to the FT that rate cuts are "in play" at future meetings.
• Slightly stronger than expected UK retail sales data added some pressure this morning, but the move quickly reversed.
• The German IFO survey for March also came in above expectations, but the reaction in Bunds was limited.
• Bunds are +32 at 132.58. Initial firm resistance to watch is at 132.98, the 50-day EMA. A clear break of this average would be a bullish development.
• A reminder that Bundesbank President Nagel is currently speaking at an MNI Webcast, where early comments are in line with his recent stance (r.e. rate cuts possible before the summer break if warranted by the data).
• We also hear from ECB-hawk Holzmann at 1000GMT and the dovish Centeno at 1100GMT.
• Peripherals underperform, with 10-year spreads to Bunds wider across the board. The 10-year BTP/Bund spread is +2.5bps at 129.4, after reaching a high of almost 132bps earlier. BTP Short Term issuance is due at 1000GMT.

GILTS: Bull Steepening Holds

Futures just off early session highs, with dovish feedthrough from BoE Governor Bailey’s interview with the FT dominating.

• Gilt futures and cash yields stick comfortably within yesterday’s ranges.
• Futures last +26 at 99.59 (99.41-63 range.)
• Bulls will look to force a break of yesterday’s high in futures (99.91) and 100.00, which would allow them to focus on more meaningful resistance.
• Cash guilt yields are 3.5-5.0bp lower, curve bull steepens.
• 2s10s moving back towards late Feb highs, while 5s30s moves to steepest seen since early Feb.
• SONIA futures flat to +4.0.
• BoE-dated OIS shows 80.5bp of ’24 cuts.
• GBP STIR a little off dovish session extremes.
• The DMO’s FQ2 operational calendar didn’t provide much in the way of surprises.
• Lower tier UK data is due ahead of the weekend, with already released retail sales data not as soft as expected and the monthly GfK survey pointing to households having a more positive opinions re: their financial situation.
• The BoE will announce its Q2 APF sales schedule later today. Our full expectations are outlined on page 3 of this document.

EQUITIES: E-Mini S&P Targets Resistance at Top of Bull Channel at $5379.92

A bullish trend condition in Eurostoxx 50 futures remains intact and yesterday’s gains reinforce current conditions. The move higher confirms once again a resumption of the uptrend and this has also resulted in a break of the 5000.00 handle. Moving average studies remain in a bull-mode position, highlighting positive market sentiment. Sights are on 5074.7, a Fibonacci projection. Initial firm support is at 4896.30, the 20-day EMA. The trend condition in S&P E-Minis remains bullish and this week’s extension reinforces this theme. The break of 5257.25, Mar 8 high, confirms a resumption of the uptrend and maintains the price sequence of higher highs and higher lows. MA studies are in a bull-mode position reflecting positive market sentiment. Sights are on 5379.92, the top of a bull channel drawn from the Jan 17 low. Initial firm support is at 5196.99, the 20-day EMA.

• Japan's NIKKEI closed higher by 72.77 pts or +0.18% at 40888.43 and the TOPIX ended 17.01 pts higher or +0.61% at 2813.22.
• Elsewhere, in China the SHANGHAI closed lower by 29.079 pts or -0.95% at 3048.034 and the HANG SENG ended 363.63 pts lower or -2.16% at 16499.47.
• Across Europe, Germany's DAX trades higher by 10.78 pts or +0.06% at 18190.68, FTSE 100 higher by 39.43 pts or +0.5% at 7922.26, CAC 40 down 24.17 pts or -0.3% at 8155.59 and Euro Stoxx 50 down 21.79 pts or -0.43% at 5030.52.
• Dow Jones mini up 20 pts or +0.05% at 40226, S&P 500 mini up 5.5 pts or +0.1% at 5308, NASDAQ mini up 29.25 pts or +0.16% at 18590.5.

COMMODITIES: Bullish Conditions in Gold Reinforced Despite Moderate Pullback

WTI futures traded higher Tuesday and a bull theme remains intact. The latest pullback is considered corrective. Recent gains resulted in a break of $79.87, Mar 1 high. The move higher confirms a resumption of the uptrend that has been in place since mid-December last year. Sights are on $83.87 next, the Oct 20 ‘23 high. A break of this level would open $84.87, the Sep 15 ‘23 high and a key resistance. Support to watch is $79.27, the 20-day EMA. The trend condition in Gold is bullish and this week’s move higher reinforces current conditions. The initial rally Thursday delivered another all-time high and confirmed a resumption of the primary uptrend. Moving average studies remain in a bull-mode condition, reflecting positive market sentiment. This signals scope for a climb towards $2230.1, a Fibonacci projection. Key short-term trend support has been defined at $2146.2, the Mar 18 low.

• WTI Crude down $0.15 or -0.19% at $80.88
• Natural Gas down $0 or -0.12% at $1.681
• Gold spot down $15.53 or -0.71% at $2165.88
• Copper down $3.15 or -0.78% at $402.75
• Silver down $0.18 or -0.74% at $24.572
• Platinum down $1.85 or -0.2% at $906.23