MNI US OPEN - Potential for Political Instability Should PM Sanchez Resign

NEWS

US/CHINA (BBG): Blinken Raises US Concerns on Unfair Trade Practices in China

Secretary of State Antony Blinken raised concerns over unfair trade practices in the world’s No. 2 economy as he began talks in China, with the threat of US sanctions on Beijing for its support of Russia looming over his visit. “We have an obligation for our people — indeed an obligation to the world — to manage the relationship between our two countries responsibly,” he told Shanghai Party Secretary Chen Jining on Thursday morning, after attending a basketball game the night before.

SPAIN (MNI): Potential for Political Instability Should PM Sanchez Resign

The shock announcement late on 24 April that PM Pedro Sanchez is considering his position as President of the Government risks engendering notable political uncertainty within the already-fragile Spanish political landscape. A court has opened a corruption investigation into Sanchez's wife, with the PM stating that he will announce to the Spanish public on Monday 29 April whether he will remain in office or resign. Sanchez and his wife, Begoña Gómez, deny any wrongdoing. Sanchez has served as PM since June 2018, and has managed to hold on to power despite significant policial uncertainty and perceived electoral setbacks. He currently leads a minority gov't that includes separatist parties and holds a razor-thin majority in the Congress of Deputies.

ECB (BBG): ECB Shouldn’t Cut Back-to-Back at Start - Muller

European Central Bank Governing Council member Madis Muller said he’s not in favor of lowering borrowing costs for a second straight meeting following an expected first cut in June. Especially as monetary easing starts, “we certainly don’t have to lower rates at every subsequent meeting,” the Estonian official said in remarks published Thursday. “It’s natural to move at a moderate pace with careful steps.”

FRANCE (BBG): France Wants Share Buyback Tax in 2025 Budget Bill, Figaro Says

The French government wants to include a measure to tax companies’ share buybacks in the budget bill for 2025, Le Figaro reports, without saying how it got the information. The tax would apply to buybacks from 2024, the newspaper says. Rate of this tax could be 1% or more, Figaro says, citing a person it does not name. Economy ministry expects several hundred million euros from the measure, the person adds.

MNI BOJ PREVIEW - ARPIL 2024: ‘Wait and See’ Approach, Alert to Messaging

At this week’s meeting, we expect the BoJ to maintain its target range for the uncollateralized overnight call rate at 0-0.1%. This aligns with the BoJ's consistent messaging since the March rate hike, which emphasised a data-dependent, "wait and see" approach. A consecutive rate hike at this juncture would likely convey a conflicting signal. Looking ahead, we anticipate the BoJ to follow a modest, gradual hiking trajectory. A growing number of economists foresee the possibility of another rate hike in October, with July also emerging as a potential earlier timeframe. Factors such as the prospect of a weaker yen are cited as potential accelerators for this timeline.

BOJ (MNI): BOJ Stays on Sidelines as Yen Weakens

The break of the yen through 155 to the dollar is insufficient to prompt any immediate rate hike by the Bank of Japan, though it continues to monitor exchange rate depreciation for an inflationary boost which could prompt monetary tightening by as early as its June meeting, MNI understands. While the Bank expects a lower yen to prompt an inflation rebound by the northern summer, potentially justifying an increase in its overnight rate from its current range of zero percent to 0.1% to a range with an upper limit of 0.25%, it is aware that it cannot be seen to act based on foreign exchange considerations alone, lest it prompt more speculation.

CHINA (MNI): China Opposes Accusations of Overcapacity - MofCom

MNI (Beijing) Western countries' accusations of China overcapacity are unreasonable and Beijing hopes the relevant countries can objectively consider the needs of the global new energy market, He Yadong, spokesperson for the Ministry of Commerce said Thursday. 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 have told MNI.

CHINA (BBG): China to Implement Issuance of Ultra-Long Special Bonds: Xinhua

China will implement an array of pro-growth measures, including the issuing of ultra-long special treasury bonds, the official Xinhua News Agency reports, citing Li Hui, an official with the National Development and Reform Commission. China will continue to promote a new round of large-scale equipment renewals and trade-ins of consumer goods

MNI CBRT PREVIEW - ARPIL 2024: A Hawkish Hold

The Central Bank of Turkey is widely expected to keep the one-week repo rate on hold at 50%, having likely concluded its tightening cycle following an above consensus 500bp rate hike in March. Nevertheless, given that the lira’s path of depreciation has largely been uninterrupted and that headline inflation still running close to 70%, central bank communication is likely to tilt hawkish once again.

CORPORATE (BBG): BHP Targets Anglo in Bid Valuing Miner at $39 Billion

BHP Group Ltd. proposed a takeover of Anglo American Plc that values the smaller miner at £31.1 billion ($38.9 billion), in a deal that would create the world’s top copper producer while sparking the industry’s biggest shakeup in over a decade. The No. 1 mining company proposed an all-share deal in which Anglo would first spin off controlling stakes in South African platinum and iron ore companies to its shareholders before being acquired by BHP. The total per-share value of the non-binding proposal is about £25.08, BHP said, a 14% premium to Anglo’s closing share price on Wednesday.

COMMODITIES (BBG): Iron Ore Rises to Seven-Week High on China, Lower Exports

Iron ore extended its climb to the highest level in seven weeks on signs of economic recovery in top consumer China and a drop in export flows from Australian producers. Futures in Singapore rose almost 2%, before paring gains. Analysts in a Bloomberg survey upgraded their growth forecasts for China, even amid the ongoing property crisis. Prices of steel reinforcement bar — a key product used in construction — show signs of bottoming out.

DATA

FRANCE DATA (MNI): France Manufacturing Sentiment Reverses Year-to-Date Gains

• FRANCE APR MANUF SENTIMENT AT 100

France Manufacturing Sentiment came in below consensus at 100 (vs 103 consensus, 103 revised prior from 102), returning to its long term average (since the series began in 1976). Whilst it is in line with long term average, it remains slightly below the pre-covid (2014-19) average of 103.7. In particular from the subcomponents, 'Total order books' reversed last month's gains printing -18.9 from -13 in March, in the prior six months it was lower only once at -19.2 in January. This takes it below the long term average of -17.5.

FOREX: JPY Weakness Pervades, Implied Vols Ratchet Higher Pre-BoJ

• JPY weakness is once again the market focus, as USD/JPY's incline continues apace to print a new cycle high of 155.74 in early European / late Asia-Pac trade. Markets continue to test the resolve of the Japanese authorities, as several 'lines in the sand' at Y150.00 and Y155.00 go by with little sign of intervention. The BoJ are expected to discuss the weakening currency at their policy meeting - on which MNI understands that the USD/JPY at current levels is insufficient to prompt any immediate rate hike from the BoJ.
• Overnight JPY options vols are pricing a sizeable swing across the BoJ decision on Friday, with markets pricing options at their most sensitive level of the year so far. We wrote last week that the next phase higher for USD/JPY could be harder to come by, with extremely short positioning and an overbought technical condition making gains more difficult from here – however a placid attitude from the BoJ toward the currency could unlock fresh USD/JPY longs.
• GBP trades more favourably, with AUD and NZD also firmer. While equity futures have rolled off the weekly highs, the strength posted off the April lows continues to underpin risk appetite, despite still high US yields and tighter Fed policy pricing.
• Focus for the duration of the session turns to Q1 advanced US GDP data and the latest core PCE price index release. March trade balance, pending home sales and the latest weekly jobless claims are also set to cross. Central bank appearances include ECB's Lagarde, Nagel (on climate change) and Panetta.

BONDS: Stabilising After Yesterday’s Sell Off

Bonds have ticked away from yesterday’s lows, with the 2.60% 10-Year yield level holding. Still, Bund futures are little changed on the day.

• Benchmark German yields are 0.5-1.5bp lower across the curve.
• A bearish technical backdrop remains intact, with support seen at yesterday’s low in Bund futures (130.03) and that 2.60% 10-Year yield level presenting the initial target for bears.
• There hasn’t been much in the way of meaningful headline flow to go off, with already delivered ECB-speak providing familiar soundbites.
• Broader cross-market conditions have been a little more supportive of carry plays, with the USD lower and credit a little tighter, fading some of yesterday’s moves. Equities have also edged away from worst levels after earnings from large U.S. tech names applied pressure after the NY cash close yesterday.
• This leaves most peripheral paper little changed to a touch tighter, allowing SPGBs to look through increased political risk.
• Click for deeper Spanish colour from our political risk team.
• Gilts also recover from yesterday’s lows. Futures last +15, with benchmark yields ~2bp lower across the curve. Yesterday’s lows present the initial bearish targets.
• There is only lower tier Eurozone data due today, with no EGB issuance tabled. That will leave focus on the remaining ECB-speak (don’t expect a change in tone there), U.S. data and Tsy supply.

EQUITIES: Latest Recovery in E-Mini S&P Appears Technically Corrective

Eurostoxx 50 futures have traded higher this week, extending the recovery from 4762.00, Apr 19 low. The contract has breached the 20-day EMA and resistance at 4990.00, Apr 15 high. This highlights a potentially stronger reversal and signals the end of the correction between Apr 2 - 19. A continuation higher would expose the bull trigger at 5079.00, Apr 2 high. Key support lies at 4762.00. Initial support to watch is 4868.30, the 50-day EMA. The short-term trend condition in S&P E-Minis remains bearish and the latest recovery appears - for now - to be a correction. Last week’s bearish extension reinforced current short-term conditions. The contract has recently cleared the 50-day EMA, signalling scope for a continuation lower. Sights are on 4907.57 next, a Fibonacci retracement. Firm resistance is 5144.86, the 20-day EMA. A clear break of the average would signal a possible reversal.

• Japan's NIKKEI closed lower by 831.6 pts or -2.16% at 37628.48 and the TOPIX ended 47.2 pts lower or -1.74% at 2663.53.
• Elsewhere, in China the SHANGHAI closed higher by 8.078 pts or +0.27% at 3052.9 and the HANG SENG ended 83.27 pts higher or +0.48% at 17284.54.
• Across Europe, Germany's DAX trades lower by 96.86 pts or -0.54% at 18005.6, FTSE 100 higher by 51.74 pts or +0.64% at 8092.78, CAC 40 down 29.24 pts or -0.36% at 8061.46 and Euro Stoxx 50 down 18.76 pts or -0.38% at 4971.45.
• Dow Jones mini down 105 pts or -0.27% at 38580, S&P 500 mini down 27 pts or -0.53% at 5081.25, NASDAQ mini down 164.5 pts or -0.93% at 17502.75.

COMMODITIES: WTI Futures Remain Above Key Short-Term Support at $80.93

WTI futures have recovered from their recent lows and price remains above key short-term support at $80.93, the 50-day EMA. The recent move lower highlights a corrective phase and a clear break of the 50-day average would signal scope for a deeper retracement towards $76.07, the Mar 11 low. On the upside, key resistance and the bull trigger has been defined at $86.97, the Apr 12 high. A break would resume the uptrend. Gold is trading closer to its recent lows. The precious metal has pierced the 20-day EMA and this signals the start of a possible corrective cycle. A continuation lower would signal scope for an extension towards $2225.1, the 50-day EMA. Note that a short-term bear cycle would allow a significant overbought trend condition to unwind. Key resistance and the bull trigger has been defined at $2431.5, the recent Apr 12 high.

• WTI Crude up $0.39 or +0.47% at $83.2
• Natural Gas down $0.02 or -1.39% at $1.626
• Gold spot up $10.22 or +0.44% at $2327.07
• Copper up $7.45 or +1.66% at $455.95
• Silver up $0.26 or +0.95% at $27.4395
• Platinum up $5.27 or +0.58% at $910.6