MNI US OPEN - Sizeable Upside Risk to Core CPI Consensus

NEWS

MNI US CPI PREVIEW - Sizeable Upside Risk to Core CPI Consensus of 0.3

Consensus puts core CPI inflation at 0.3% M/M in April but with sizeable skew to the upside. Used cars are again seen as one of the main upside drivers after failing to follow industry source prices higher in March, but with some partially offsetting factors elsewhere. For core services, a slight re-acceleration in key rent measures is expected after last month’s surprisingly fast moderation, but non-housing price pressures are seen moderating after limited improvement in March.

MNI BOE PREVIEW: MAY 2023 - Forward Guidance Tweak?

There is a fairly solid consensus ahead of this week’s MPC meeting with analysts having capitulated in looking for a 25bp hike after the stronger-than-expected labour market and inflation data released in April. We expect a 7-2 vote with unchanged guidance, although we think there could be a tweak to the latter and we discuss this in more detail. We also summarise over 20 sell side previews.

ECB (BBG): ECB Still Has ‘More Ground to Cover,’ Lagarde Tells Nikkei

The European Central Bank’s fight with inflation isn’t over and more action is still required, according to President Christine Lagarde. While inflation is well down from its double-digit peak, the outlook could face “significant upside risks,” Lagarde told Japan’s Nikkei newspaper in an interview published Wednesday. The ECB must be particularly attentive to wage pressures, she said. “We have moved in a very deliberate and decisive way in order to fight inflation,” Lagarde said. Even so, “we still have more ground to cover.”

ECB (BBG): ECB May Be Coming to Final Stretch of Rate-Hiking, Nagel Says

The European Central Bank may be approaching the final leg of its historic cycle of interest-rate increases, according to Governing Council member Joachim Nagel. While hikes in borrowing costs aren’t over and core inflation still needs to be tamed, the Bundesbank chief said Wednesday that he’s very satisfied with the ECB’s monetary policy. “We’re coming to the home stretch in the sense that we are reaching the area in monetary policy that’s considered restrictive,” he told Deutschlandfunk radio. “I’m confident monetary policy is showing its effect.”

US (BBG): Biden, McCarthy Vow More Debt-Limit Talks as US Default Looms

President Joe Biden and congressional Republicans made little tangible progress Tuesday toward averting a first-ever US default, but pledged negotiations on spending that would open the door to a possible agreement. Congressional aides and presidential staff will begin budget discussions in the coming hours, ahead of another meeting on Friday with Biden and congressional leaders, including House Speaker Kevin McCarthy.

US (BBG): Biden Says Border ‘Going To Be Chaotic’ as Pandemic Rules Lift

President Joe Biden warned of tumultuous conditions at the US-Mexico border after pandemic-era immigration restrictions are lifted later this week.“It remains to be seen — it’s going to be chaotic for awhile,” Biden told reporters Tuesday after a meeting with congressional leaders at the White House.Thousands of migrants have gathered at the border awaiting the end of Title 42, a pandemic public health restriction that allowed the US to swiftly expel undocumented migrants from the US — even if they sought to seek asylum.

US/CHINA (BBG): US Trade Chief to Meet China Minister in Sign of Warmer Ties

US Trade Representative Katherine Tai plans to meet China’s commerce minister in Detroit later this month, people familiar with the matter said, in what would be the most senior in-person encounter between the nations since the US shot down an alleged Chinese spy balloon.The meeting between Tai and Wang Wentao would likely occur on the sidelines of a gathering of Asia-Pacific Economic Cooperation trade ministers on May 25-26, according to the people, who asked not to be identified citing information that isn’t yet public.

CHINA (BBG): China Names Li Yunze Top Financial Regulator in Surprise Move

China picked a little-known local government official as the nation’s top regulator overseeing the $61 trillion financial sector, in a surprise move after President Xi Jinping unveiled the biggest overhaul of the nation’s bureaucracy in decades. Li Yunze, a former banker, was named party secretary of the newly formed national financial supervision and management bureau that regulates thousands of banks, insurers and trust firms, according to an announcement Wednesday.

CHINA (MNI): China Seen Boosting Swap Connect As CNY Bond Demand Grows

Chinese authorities have set low initial quotas for the nascent Swap Connect platform, which launches May 15, but expect to raise trading limits once northbound appetite for yuan-denominated bonds increases, bond traders and lawyers with knowledge of the scheme told MNI. Swap Connect, which gives offshore investors access to China’s USD5 trillion interest-rate swaps market, will initially have a CNY20 billion ($2.89 billion) daily trading limit.

JAPAN (MNI): Not Time to Discuss Easy Policy Exit - BOJ's Ueda

Bank of Japan Governor Kazuo Ueda told the Japanese parliament Wednesday now is not the time to discuss easy policy exit strategies, such as Bank's exchange-traded funds buying programme, as it will take time to achieve the Bank's 2% price target. Ueda, however, told lawmakers the BOJ will discuss the exit strategy at monetary policy-setting meetings if needed and communicate this with the market.

JAPAN (MNI): BOJ Policy Tweak by Year End Possible - Momma

The Bank of Japan will adjust monetary policy, including yield curve control, by the end of 2023 at the earliest, or the beginning of 2024 if various conditions are satisfied, a former BOJ chief economist told MNI. “A big point for policy tweak is spring wage negotiation in 2024,” said Kazuo Momma, who was also the BOJ’s executive director in charge of monetary policy and is now executive economist at Mizuho Research and Technologies. He added the BOJ could judge wage increases next year before the spring wage negotiation.

JAPAN (MNI): BOJ Stands Ready to Fight Yen Fall - Momma

The Bank of Japan will act against an extreme deprecation of the yen, evident in the recent adjustment of the Bank's forward guidance by Governor Kazuo Ueda, a former BOJ chief economist told MNI. The new guidance is easy to understand and well-balanced, according to Kazuo Momma. “The reference of ‘while nimbly responding to developments in economic activity and prices as well as financial conditions’ includes regret that the BOJ experienced last year,” Momma said. The weak yen last year illustrated the side-effects of YCC and the BOJ had learned a severe lesson, he explained.

AUSTRALIA (MNI): Government Claims Its Policies Will Reduce Inflation

Treasurer Chalmers claimed on Budget night that the government's policies would reduce inflation by 0.75pp for 2023-24. This will all come from the energy side with household energy relief being paid directly to companies to reduce bills and the coal and gas price cap passed late last year. Economist Richardson estimates that each $6bn the government puts into the economy is another 25bprate hike. The budget has a net $12bn over the next year. (The Australian)

AUSTRALIA (MNI): Policy Measures Have Net Positive Economic Effect

Treasury's updated economic forecasts were published with the fiscal outlook yesterday. They show the first budget surplus in 15 years but with both growth and the fiscal position deteriorating while inflation returns to target in2024-25. There is the risk that the measures announced will add to inflation and the pressure for the RBA to hike.

DATA

GERMAN DATA (MNI): Core CPI Remains Elevated at +5.8% in April

• GERMANY FINAL APR CPI +0.4% M/M; +7.2% Y/Y; MAR +7.4% Y/Y
• GERMANY FINAL APR HICP +0.6% M/M; +7.6% Y/Y; MAR +7.8% Y/Y

Flash estimates were confirmed in the final German April CPI data, with HICP rising +0.6% m/m and having eased 0.2pp to +7.6% y/y. This implies a second consecutive month of slowing annualised HICP, which is now 4.0pp below the October peak of +11.6% y/y. Food prices were the strongest driver of inflation in April, up +17.2% y/y, albeit slowing from +22.3% y/y in March. Energy prices rose +6.8% y/y, re-accelerating from +3.5% y/y due to base-effects in March originating from the onset of the Ukraine-Russia war. Government energy price caps have contributed significantly to lower energy inflation over recent months.

NORWAY DATA (MNI): Food Inflation Uptick Sees CPI Remain Elevated in April

• NORWAY APR CPI +1.1% M/M (FCST +0.7%); MAR +0.8% M/M
• NORWAY APR CPI +6.4% Y/Y (FCST +6.1%); MAR +6.5% Y/Y
• NORWAY APR UNDERLYING CPI +6.3% Y/Y (FCST +6.1%); MAR +6.2% Y/Y

Norwegian inflation surprised to the upside in April, inching down 0.1pp to +6.4% y/y, against consensus looking for stronger decrease to +6.1% y/y. Underlying (ex. energy and tax-adjusted) CPI saw a surprise re-acceleration by 0.1pp to +6.3% y/y. The key driver of the stronger April underlying inflation print were higher food prices (up 1.9pp at +10.5% y/y). Further strengthening of inflation pressures were noted across goods (up 0.2pp at +2.5% y/y), recreation and culture (up 0.7pp at +8.2% y/y), communications (up 0.8pp at +6.4% y/y), furnishings/household (up 1.2pp at +10.9%).

ITALY MAR IP -0.6% M/M, -3.2% Y/Y (MNI)

FOREX: NOK on Top as CPI Tips Balance to Further Hikes

• EUR/NOK just off the day's low of 11.5486, finding support at the Monday/Tuesday low. NOK is among the strongest in G10 today following stubbornly high CPI-ATE (6.3% vs. Exp. 6.1%) - which should keep a tightening bias at the Norges Bank. 11.4471 marks the 50-dma for EUR/NOK, with support seen into the mid-April low of 11.3582.
• AUD and SEK sit toward the bottom-end of the G10 table, but ranges are more muted ahead of the inflation release later today. The equity backdrop has not been risk-supportive, with the e-mini S&P trading on the backfoot through the European open.
• The USD Index is modestly higher for a third consecutive session, but remains in a holding pattern below the early May highs of 102.404.
• US CPI takes focus going forward, with markets expecting core CPI to keep pace M/M at 0.4%, while Y/Y slows to 5.5%. The data will be watched carefully for any confirmation that the Fed will pause on rate hikes going forward, with markets still assigning a solid chance of sizeable Fed rate cuts before year-end.

BONDS: Post-Auction Bounce In Gilts & Softer Equities Promote Stabilisation

U.S. Tsys recovered from session cheaps alongside the downtick in wider equity markets, although the early twist flattening impulse holds. TY futures operate in a contained 0-06 range. Early London flow was dominated by selling of downside exposure and purchasing of upside exposure in FV options, while Asia saw a block seller of FV futures (-1.8K). Participants remain focused on the monthly CPI release that will cross in NY hours.

• EGBs have bounced from session lows on the back of the weakness in equities and bid in Gilts, making fresh session highs in the process. Wire headlines noting that ECB President Lagarde “gave no indication of a September interest rate hike, which has become a topic of discussion” in an interview with the Nikkei seemed to help the move further. The Bund curve has bull steepened (benchmarks flat to 2bp richer). 10-Year peripherals are a little wider vs. Bunds once again, with BTPs and Greek paper widening the most (10-Year BTP/Bund spread is shy of recent wides, lodged yesterday).
• Smooth passage of Jan-33 Gilt supply saw the early (partly delta hedging-related) underperformance in Gilts unwind as the space moved to richest levels of the session, dealing ~1bp richer across the curve. Futures had looked below 100.00 and 10-Year yields got within a couple of bp of YtD highs. Cross-market moves will garner most of the attention with participants now zeroed in on tomorrow’s BoE decision (where a 25bp hike is over 90% priced).

Current levels:

- TY1 futures are up 0-1+ today at 115-07+ with 10y UST yields down -1.5bp at 3.506% and 2y yields up 2.5bp at 4.049%.

- Bund futures are up 0.03 today at 135.43 with 10y Bund yields down -1.6bp at 2.331% and Schatz yields down -1.9bp at 2.606%.

- Gilt futures are unch today at 100.33 with 10y yields down -1.8bp at 3.833% and 2y yields down -0.9bp at 3.839%.

EQUITIES: E-Mini S&Ps Dip Ahead of US CPI, Remain Above 50-Day EMA

Eurostoxx 50 futures are holding on to the bulk of its most recent gains and price remains above support at 4231.60, the 50-day EMA. The recent move down is considered corrective and the broader uptrend remains intact. A continuation higher would signal scope for a test of 4363.00, the Apr 21 high and bull trigger. Clearance of this level would confirm a resumption of the uptrend. A clear break of the 50-day EMA is required to signal a top. S&P E-minis remain above the 50-day EMA, which intersects at 4103.05. A continuation higher would refocus attention on key resistance and the bull trigger at 4206.25, the May 1 high. A breach of this level would confirm a resumption of the bull trend that started Mar 13. Key support has been defined at 4062.25, the May 4 low. A move through this support would be bearish.

• Japan's NIKKEI closed lower by 120.64 pts or -0.41% at 29122.18 and the TOPIX ended 11.64 pts lower or -0.55% at 2085.91.
• Elsewhere, in China the SHANGHAI closed lower by 38.52 pts or -1.15% at 3319.151 and the HANG SENG ended 105.38 pts lower or -0.53% at 19762.2.
• Across Europe, Germany's DAX trades lower by 42.77 pts or -0.27% at 15911.12, FTSE 100 lower by 12.06 pts or -0.16% at 7751.96, CAC 40 down 16.84 pts or -0.23% at 7380.33 and Euro Stoxx 50 down 11.66 pts or -0.27% at 4311.43.
• Dow Jones mini down 47 pts or -0.14% at 33588, S&P 500 mini down 6 pts or -0.15% at 4127.75, NASDAQ mini down 30.5 pts or -0.23% at 13234.

COMMODITIES: Gold Remains in Uptrend Following Friday Move Lower

WTI futures remain bearish despite the strong recovery from $63.64, the May 4. The trend condition was oversold last week and the recovery is allowing this to unwind. Initial resistance is at $73.93, the Apr 28 low ahead of $76.92, the Apr 28 high. On the downside, the recent print below $64.58, the Mar 20 low and a key support, reinforces a bearish theme. A clear break of it would confirm a resumption of the broader downtrend. Gold remains in an uptrend despite last Friday’s move lower. The yellow metal has breached resistance at $2048.7, the Apr 13 high to confirm a resumption of the broader bull cycle. This maintains the bullish price sequence of higher highs and higher lows and moving average studies are in a bull-mode set-up. The focus is on $2070.4, the Mar 8 high ahead of the all-time high at $2075.5. Key support is 1969.3, the Apr 19 low.

• WTI Crude down $1.04 or -1.41% at $72.65
• Natural Gas down $0.03 or -1.1% at $2.247
• Gold spot down $7.3 or -0.36% at $2026.73
• Copper down $4.45 or -1.14% at $385.7
• Silver down $0.06 or -0.24% at $25.5357
• Platinum down $4.49 or -0.4% at $1104.46