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MNI US OPEN - Proximity to ECB Peak in Focus


Figure 1: Implied Terminal ECB Rate Points to 50bps of Hikes Beyond May


MNI ECB PREVIEW: MAY 2023 - Stepping Down, but Not Done Yet

The ECB is set to hike its key policy rates by 25bp on May 4, with latest inflation and banking sector data diminishing the case for 50bp. Given the uncertain outlook, the ECB is unlikely to provide explicit forward guidance at this juncture, though will likely nod to further tightening being likely in the baseline scenario. There is potential for a TLTRO "bridge" operation to be announced Thursday; more surprising - but possible - would be a decision on APP runoff beyond June.

NORGES BANK (MNI): Norges Bank Hikes 25bps; Next Move Likely June

The Norges Bank delivered its widely anticipated 25 basis point hike Thursday, adding that the next move would most likely be a further hike in June, warning that the policy rate path may be higher than it previously anticipated if krone weakness persists. The Monetary Policy and Financial Stability Committee's latest hike lifted the policy rate to 3.25% from 3.0%. In its previous forecast round, the committee showed the policy rate reaching 3.5% by the summer and peaking a touch above that. The committee warned, however, that the policy rate may have to rise further still.

CORPORATE (BBG): PacWest Says in Talks With Potential Partners After Share Plunge

PacWest Bancorp said core deposits have increased since March and confirmed it’s in talks with several potential investors, seeking to calm markets after a 60% stock rout that made it the new focal point of concern over the health of US regional lenders. "The bank has not experienced out-of-the-ordinary deposit flows following the sale of First Republic Bank and other news,” PacWest said in a statement dated Wednesday. “Our cash and available liquidity remains solid and exceeded our uninsured deposits.”

FED (BBG): Biden Picks Fed’s Jefferson for Vice Chair, Kugler for Governor

President Joe Biden has picked Federal Reserve Governor Philip Jefferson for a promotion to vice chair and will nominate economist Adriana Kugler to an open board slot, according to people familiar with the matter. The selections could be announced as soon as Friday, two of the people said, speaking on condition of anonymity to discuss private talks. A White House spokesperson declined to comment.

US (BBG): Auto Union Holds Off on Endorsing Biden, Fearing Job Losses

The powerful United Auto Workers union won’t yet endorse President Joe Biden for re-election, citing concerns that the administration’s stance on electric vehicles could end up sacrificing jobs. In a memo to union members Tuesday, UAW President Shawn Fain stated that the union won’t endorse Biden for now, while also making clear it would never support former President Donald Trump.

US (WaPo): White House Will Meet With Tech CEOs About AI Risks

The White House is hosting its first AI meeting with the CEOs of Google, Microsoft, Anthropic and OpenAI, as the Biden administration unveils a plan to promote responsible AI development as Washington wrestles with the burgeoning technology. The White House is convening the executives after President Biden warned that companies have a responsibility to make sure artificial intelligence products are safe before they're released.

ECB (BBG): Repaying ECB’s Cheap Pandemic Loans Risks Funding Market Stress

Banks say the European Central Bank may need a new funding program to help lenders make large repayments on pandemic-era loans without roiling the region’s money markets. The ECB is set to call in around €500 billion ($550 billion) in cheap loans made to prop up the economy during the pandemic, in the biggest such redemption. Around a third of these — originally doled out at sub-zero rates — are held by Italian banks, which Societe Generale SA strategists think don’t have sufficient excess reserves to meet the repayments.

EU/RUSSIA (BBG): EU Aims to Target Nations Through Which Russia Evades Sanctions

The European Union is discussing a new sanctions mechanism to target third countries it believes aren’t doing enough to prevent Russia from evading sanctions, particularly those that can’t explain spikes in trade of key goods or technologies, according to people familiar with the matter. The primary aim of the tool would be to deter countries from helping Russia and crack down on trade channels that Moscow may be exploiting, the people said. If that doesn’t work, the bloc would have the option as a second step of imposing targeted restrictions on key goods.

RUSSIA/UKRAINE (The Times): Russia Bombards Ukraine After Kremlin ‘Drone Attack’

Russia launched a new wave of explosive drones and missiles against targets in Ukraine last night after accusing Kyiv of an attack on the Kremlin. Ukrainian air defences said they shot down 18 of 24 kamikaze drones that Russia launched in a pre-dawn attack on the capital. Explosions were also reported in Zaporizhzhia and Odesa in the south.

CHINA (MNI): China Local Gov'ts Face Risks from Bank Recapitalisations

Regionally-owned small- and mid-sized Chinese banks have filled capital gaps with a jump in local government bond issuance, but a squeeze on net-interest margins and vested shortages in operations of the local banks could make repayment of the debt harder, putting pressure on provincial finances as calls grow for industry consolidation to reduce risk, policy advisors and economists said.

RBNZ (MNI): OCR At 5.5% Before Pause - Ex-RBNZ Deputy Gov

The Reserve Bank of New Zealand will likely pause further rate hikes after it lifts the Official Cash Rate 25bp to 5.5% at the upcoming May 24 meeting, according to Grant Spencer, adjunct professor at the Victoria University of Wellington and former deputy governor at the RBNZ. Spencer told MNI the Reserve will likely move the OCR to 5.5% then wait and monitor the flow through effects before moving further if needed.

RBNZ (MNI): RBNZ Faces Post-Election Shakeup - Ex-Staffers

The makeup of the Reserve Bank of New Zealand’s Monetary Policy Committee and its dual mandate would face change if October’s general election leads to a change of government with the opposition National Party signalling desire for reform, former RBNZ staff and industry insiders told MNI. Dissatisfaction with the RBNZ – particularly focused on its performance during the pandemic – has grown among economists, business and sections of the public aimed at the Reserve’s structure and the makeup of its Monetary Policy Committee.

ASIA (MNI): Yoon-Kishida Summit Unlikely to Result In Joint Declaration - Yonhap

Yonhap News Agency reports that South Korean President Yoon Suk-yeol and Japanese Prime Minister Fumio Kishida are unlikely to adopt a joint declaration at the end of their upcoming summit, even as they will be holding the customary joint press conference. Officials told the news agency that the "two leaders are expected to discuss national security, high-tech industries and other issues of common concern." Kishida will touch down in Seoul on Sunday for a two-day trip, the first bilateral visit by a Japanese leader since October 2011.


EUROZONE DATA (MNI): PPI Cools to Two-Year Low in March

  • EUROZONE MAR PPI -1.6% M/M (FCST -1.7%); FEB -0.4%r M/M
  • EUROZONE MAR PPI +5.9% Y/Y (FCST +5.8%); FEB +13.3%r Y/Y

Eurozone factory-gate inflation was in line with consensus expectations in March, slowing a substantial 7.4pp to +5.9% y/y. This is the softest rate in two years, and extends the decline from the record high of +43.4% y/y in August. PPI fell -1.6% m/m in March, having declined for four of the previous five months. Falling energy prices drove the bulk of the March deceleration. Excluding energy, PPI rose a marginal +0.2% m/m, whilst still cooling 2.2pp to +8.0% y/y as intermediate, capital and consumer goods annualised inflation rates slowed. The +0.9% m/m increase in nondurables prices implies that food goods inflation remains acute.


UK APR M4 MONEY SUPPLY -0.6% M/M, +0.4% Y/Y

SPAIN DATA (MNI): PMI Flags Acceleration in Services Inflation

  • SPAIN APR SERVICES PMI 57.9 (FCST 59.9); MAR 59.4

Spanish services posted another strong month in the April PMI data, albeit cooling slightly from March. The services PMI softened by 1.5 points to 57.9, but implies six months of robust expansionary activity. Yesterday's Spanish manufacturing PMI weakened to 49.0, dipping back into contractionary territory as demand conditions weaken. This is in line with the current theme across Europe of a manufacturing-services industry divergence, whereby services continues to experience a tailwind of reopening effects that show little indication of subsiding.


FOREX: EUR Fading, Magnitude of ECB Hike in Focus

  • The single currency is softer ahead of the open, with EUR/USD erasing the entirety of the Asia-Pac session strength to settle back below pre-Fed rate decision levels. The Fed decision provided only brief volatility in the greenback, with normal service resuming headed through to the second half of the week.
  • The Norwegian central bank raised rates by 25bps, alongside expectations, with the bank also name-checking June as the next most likely hike. There were few surprises in the bank statement, with the board once again stating their focus on the weaker-than-expected currency and its spillover effects for inflation. NOK reversed initial post-decision weakness to re-align NOK with the modest bounce in the oil price. NOK is among the strongest currencies in G10 ahead of NY.
  • CHF is softer, helping USD/CHF bounce off the cycle low printed overnight at 0.8820. For the bouce to persist, markets need to re-take 0.8995 - the Tuesday high - for any progres toward the 50-dma of 0.9126.
  • Focus turns to the upcoming ECB rate decision, at which the bank are seen raising rates by 25bps, although a not insignificant minority see the possibility of a 50bps step today. Lagarde's subsequent press conference will also be carefully watched for signals on how close to the peak rate the ECB have now become.

BONDS: Pullback From Overnight Highs with ECB And US Banks in Focus

Treasuries have pulled back from overnight highs with bear flattening in the curve, with European curves slightly steeper in early Thursday trade. In focus are today's ECB decision and US bank concerns.

  • The mostly as-expected Fed meeting yesterday has faded in importance compared with sharp weakness in US banks overnight including PacWest, whose bullish impact on Tsys was exacerbated by an oil price fall.
  • The highlight of the session is the ECB decision (MNI Preview here).
  • A slight chance of a 50bp ECB hike remains priced (15%) vs the expected 25bp raise; terminal pricing is flat on the day at 3.72% (depo).
  • Attention will be paid to any signals from Lagarde on how much further tightening is currently foreseen, as well as possible decisions on TLTRO bridge loans and, less likely today, a speed-up of APP portfolio reduction.
  • Periphery EGB spreads are flat/slightly wider (BTPs/Bunds up 2bp).
  • US jobless claims will bear some attention ahead of Friday's payrolls.

Latest levels:

  • Jun US 10Y futures (TY) up 9.5/32 at 116-6.5 (L: 116-05 / H: 116-25.5)
  • Jun Bund futures (RX) down 17 ticks at 136.13 (L: 135.95 / H: 136.66)
  • Jun Gilt futures (G) down 28 ticks at 101.46 (L: 101.43 / H: 101.93)
  • Italy / German 10-Yr spread 2.2bps wider at 189.3bps

EQUITIES: Global Equities Mixed Post-Fed

A key short-term support in Eurostoxx 50 futures at 4285.10 has been breached this week - the 20-day EMA. The recent move down is considered corrective for now. A continuation lower would signal scope for a deeper corrective pullback towards 4219.00, the 50-day EMA. On the upside, a break of 4363.00, the Apr 21 high and bull trigger, would confirm a resumption of the uptrend. S&P E-minis have traded to a low of 4075.50 today. The contract has found support and this leaves price above a key short-term level at 4068.75, the Apr 26 low. A break of this level would signal scope for a deeper short-term pullback. From a trend perspective, the condition remains bullish - moving average studies are in a bull-mode position. Clearance of 4206.25, Tuesday’s high, would confirm a resumption of the trend.

  • In China the SHANGHAI closed higher by 27.184 pts or +0.82% at 3350.459 and the HANG SENG ended 249.57 pts higher or +1.27% at 19948.73.
  • Across Europe, Germany's DAX trades lower by 54.03 pts or -0.34% at 15784.05, FTSE 100 lower by 38.72 pts or -0.5% at 7754.54, CAC 40 down 33.2 pts or -0.45% at 7384.89 and Euro Stoxx 50 down 20.14 pts or -0.47% at 4297.54.
  • Dow Jones mini down 18 pts or -0.05% at 33490, S&P 500 mini down 2.25 pts or -0.05% at 4107.25, NASDAQ mini up 32.5 pts or +0.25% at 13136.25.

COMMODITIES: WTI Futures Posts Only Modest Rebound from Intraday Lows

WTI futures remain bearish and have traded in a volatile manner today - the contract has recovered from its intraday low of $63.64. The print below $64.58, the Mar 20 low and a key support, reinforces a bearish theme. A clear break of this level would confirm a resumption of the broader downtrend. The short-term trend condition is oversold and gains would be considered corrective. Initial resistance is at $71.79, yesterday’s high. Gold traded higher Wednesday to cancel any short-term bearish threat. Instead, the yellow metal traded through resistance at $2048.7, the Apr 13 high and confirmed a resumption of the broader uptrend. This maintains the bullish price sequence of higher highs and higher lows and moving average studies remain in a bull-mode set-up. The focus is on $2070.4, the Mar 8 ahead of the all-time high at $2075.5. Key support is 1969.3, the Apr 19 low.

  • WTI Crude up $0.77 or +1.12% at $69.23
  • Natural Gas up $0.01 or +0.32% at $2.171
  • Gold spot down $4.46 or -0.22% at $2034.83
  • Copper up $2.7 or +0.7% at $387.8
  • Silver down $0.05 or -0.18% at $25.5508
  • Platinum down $7.61 or -0.72% at $1047.56

04/05/20231215/1415***EUECB Deposit Rate
04/05/20231215/1415***EUECB Main Refi Rate
04/05/20231215/1415***EUECB Marginal Lending Rate
04/05/20231230/0830**USJobless Claims
04/05/20231230/0830**USWASDE Weekly Import/Export
04/05/20231230/0830**CAInternational Merchandise Trade (Trade Balance)
04/05/20231230/0830**USTrade Balance
04/05/20231230/0830**USPreliminary Non-Farm Productivity
04/05/20231245/1445EUECB Post-Meeting Press Conference
04/05/20231400/1000*CAIvey PMI
04/05/20231430/1030**USNatural Gas Stocks
04/05/20231530/1130**USUS Bill 04 Week Treasury Auction Result
04/05/20231530/1130*USUS Bill 08 Week Treasury Auction Result
04/05/20231650/1250CABOC Governor speech/press conference.
05/05/20230145/0945**CNIHS Markit Final China Services PMI
05/05/20230600/0800**DETrade Balance
05/05/20230600/0800**DEManufacturing Orders
05/05/20230645/0845*FRIndustrial Production
05/05/20230700/0900**ESIndustrial Production
05/05/20230730/0930**EUIHS Markit Final Eurozone Construction PMI
05/05/20230800/1000*ITRetail Sales
05/05/20230800/1000EUECB Elderson Speech at European University Institute
05/05/20230830/0930**UKIHS Markit/CIPS Construction PMI
05/05/20230900/1100**EURetail Sales
05/05/20231230/0830***CALabour Force Survey
05/05/20231230/0830***USEmployment Report
05/05/20231700/1300USSt. Louis Fed's James Bullard
05/05/20231700/1300USFed Governor Lisa Cook
05/05/20231900/1500*USConsumer Credit

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