MNI US OPEN: Surprise OPEC+ Production Cut the Key Driver

NEWS

OIL (BBG): Oil Surges 8% After OPEC+ Blindsides Market With Production Cut

Oil surged at the week’s open after OPEC+ unexpectedly announced crude output cuts that threaten to tighten the market, delivering a fresh inflationary jolt to the world economy and irking the White House. West Texas Intermediate soared as much as 8%, the biggest intraday move in more than a year, and traded at $79.38 a barrel at 7:27 a.m. in London, while in wider markets the dollar advanced along with Treasury yields.

OIL (MNI): OPEC+ Production Cuts Further Strains US/Saudi Relations

The surprise Opec+ production cuts further strains US relations with Saudi – a move which US officials have called unadvisable. "We don’t think cuts are advisable at this moment given market uncertainty - and we’ve made that clear," a spokesperson for the National Security Council said. The cuts of an additional 1.16 million barrels per day plus 500,000 bpd from Russia till year end have pushed crude prices by over 5% today and stoke fears of further inflationary pressures for central banks thought to be coming to the end of their rate hikes.

ECB (BBG): ECB’s Panetta Says Pay More Attention to Price Impact of Profits

European Central Bank Executive Board member Fabio Panetta said company profit margins might be having a bigger impact on inflation than is generally acknowledged, according to an interview with the New York Times. “There’s a lot of discussion on wage growth,” Panetta told the newspaper this week, according to a post on the ECB’s website. “But we are probably paying insufficient attention to the other component of income — that is, profits.”

ECB (BBG): ECB’s Guindos Says Underlying Inflation Dynamics to Stay Strong

European Central Bank Vice President Luis de Guindos said underlying price pressures will stay elevated even as headline inflation slows. “We believe that headline inflation is likely to decline considerably this year, while underlying inflation dynamics will remain strong,” he said in a speech at the Ambrosetti workshop in Cernobbio, Italy, on Saturday.

JAPAN (MNI): BOJ Eyes Orders Amid Tighter Global Conditions

Bank of Japan officials are concerned high levels of order backlogs for automobiles and capital goods are not sustainable and may present risks, as overseas economic conditions tighten, MNI understands. The officials are also more focused on the outlook for industrial production than private consumption, which remains resilient. Overseas markets typically have a greater impact on the country's production and exports during times of heightened financial volatility.

JAPAN (MNI): BOJ Confident of Non-Maker Wage Hikes

Bank of Japan (BOJ) officials expect wage hikes at non-manufacturers, following the central bank's March Tankan results, MNI understands. Non-manufacturing wages have typically lagged the manufacturing sector. BOJ officials note non-manufacturing wage hikes are necessary to strengthen the foundation for a positive price- and wage- hike cycle.

MNI RBA PREVIEW - APRIL 2023: Pause, Q1 CPI To Determine May

The April 4 RBA meeting is going to be particularly close but it is likely rates will be kept at 3.6% as the Board watches and waits for more information on domestic and global developments. But economists are split and many expect another 25bp hike. However, given that rates are now in restrictive territory, the Board has the luxury to pause in April and reassess at the May meeting.

AUSTRALIA (MNI): Labor Moves Ahead in the Polls, Probability of Early Election Rises

On Saturday, the liberal seat of Aston in outer Melbourne was won by the Labor party for the first time since 1990 after the Liberals faced a 6.4% swing against them. This brought the number of Labor held seats in the federal parliament to 78. While this was just a by-election, it is likely to have political ramifications.

CORPORATE (BBG): Swiss Prosecutor to Probe Credit Suisse Deal, 30% Job Cuts Seen

Switzerland’s top prosecutor opened a probe into the takeover of Credit Suisse Group AG by UBS Group AG, while a Swiss newspaper SonntagsZeitung reported that the fusion may result in up to 30% of the workforce being cut. As many as 11,000 employees will be laid off in Switzerland, and another 25,000 worldwide, the newspaper said, citing an unidentified senior manager at UBS.

DATA

EZ MAR FINAL MANUF PMI 47.3 (FLASH 47.1, FEB 48.5) (MNI)

UK MAR FINA MANUF PMI 47.9 (FLASH 48.0, FEB 49.3) (MNI)

GERMANY MAR FINAL MANUF PMI 44.7 (FLASH 44.4, FEB 46.3) (MNI)

FRANCE MAR FINAL MANUF PMI 47.3 (FLASH 47.7, FEB 47.4) (MNI)

ITALY MARCH MANUF PMI 51.1 VS FEB 52.0 (EST 51.0) (MNI)

SPAIN MARCH MANUF PMI 51.3 VS 50.7 (EST 50.0) (MNI)

SWITZERLAND DATA (MNI): Inflation Cools in March, Core Eases

• SWISS MAR CPI +0.2% M/M (FCST +0.4%); FEB +0.7% M/M
• SWISS MAR CPI +2.9% Y/Y (FCST +3.2%); FEB +3.4% Y/Y
• SWISS MAR CORE CPI +0.2% M/M, +2.2% Y/Y (FCST +2.5%); FEB +2.4% Y/Y

Swiss headline inflation was softer than expectations in March, increasing by a modest +0.2% m/m (vs +0.4% expected) and cooling by 0.5pp to +2.9% y/y; three tenths lower than consensus. Services prices were steady in March, whilst goods cooled by 0.9pp to +4.5% y/y assisted by cooling energy prices. Core inflation eased by a substantial 0.3pp to +2.2% y/y in March, against expectations of a 0.1pp uptick.

JAPAN DATA (MNI): Sentiment Drops; Solid Capex: BOJ Tankan

• BOJ MAR TANKAN LARGE MFG INDEX +1; DEC +7; MEDIAN +4
• BOJ MAR TANKAN SMALL MFG INDEX -6; DEC -2; MEDIAN -6
• BIG FIRM FY23 CAPEX PLANS +3.2%; MEDIAN +3.4%
• SMALL FIRM FY23 CAPEX PLANS +1.4%; MEDIAN -11.3%

The slowing global economy and increasing commodity prices drove Japanese benchmark business sentiment lower over the previous quarter – the fifth consecutive quarterly fall, according to the Bank of Japan's (BOJ) March Tankan business sentiment survey. But sentiment among major non-manufacturers, mainly face-to-face services, improved for the fourth straight quarter as economic activity – such as inbound tourism – resumed.

JAPAN DATA (MNI): Business Inflation Expectations Rise: BOJ Tankan

Short- and medium-term inflation expectations at Japanese firms rose in the three months to March 2023, endorsing the Bank of Japan's (BOJ) view that inflation expectations have risen and firms expect to raise retail prices, according to the central bank's March Tankan survey.

AUSTRALIA DATA (MNI): Home Lending Decline Eases, Approvals Signal Worsening Shortages

• AUSTRALIA FEB DWELLING APPROVALS -31.1% Y/Y
• AUSTRALIA FEB DWELLING APPROVALS +4% M/M

Today's housing-related data for February and March is not what would be expected after over 300bp of tightening. Not only did CoreLogic report a 0.6% m/m rise in March home prices, but consistent with this home loan values fell at their lowest rate since May 2022 and previous months were revised up. Building approvals were less than expected but January was revised up. They are notoriously volatile due to the apartment component.

FOREX: USD Paring Overnight Gains

• The Dollar has pared some of its overnight gains, during the early European session.
• The Greenback was in the Green overnight, following the OPEC news that they would cut output.
• The USD is now more mixed against G10, down 0.66% with the NOK, given the Oil bid.
• The Yen sits at the other end of the spectrum, and is down 0.43% at the time of typing.
• European mfg PMIs were mostly close to inline and had no impact in FX.
• The EUR found a bid against the USD, GBP, CNH, CHF, but is overall mixed.
• Next resistance in EURGBP is at 0.8829 High Mar 30.
• Looking ahead, sees US Final mfg PMIs, so more focus on the US ISM mfg this afternoon.
• Speakers, include, ECB Simkus, Vujcic, and Fed Cook.

BONDS: Higher Oil Prices the Main Driver of the Day

• Bear flattening has been the story of core FI markets this morning with the rise in the oil price on the back of the surprise OPEC+ cut in output announced over the weekend the main driver of markets this morning. Although some of the early flattening has been moderated as 10-year yields have started to catch up with the moves seen in the short-end.
• 2-year UST, Schatz and gilt yields have all moved between 6-7bp higher on the day while 10-year UST and Bund yields have moved slightly less and 10-year gilt yields are up 4.9bp on the day.
• This morning's final PMI data was broadly in line with the flash so saw little market reaction while the highlight of today's session will be the ISM manufacturing data (including the prices paid and employment components) which is due at 15:00BST / 10:00ET.
• TY1 futures are down -0-9 today at 114-20+ with 10y UST yields up 6.6bp at 3.536% and 2y yields up 7.0bp at 4.097%.
• Bund futures are down -0.54 today at 135.30 with 10y Bund yields up 6.1bp at 2.350% and Schatz yields up 6.8bp at 2.741%.
• Gilt futures are down -0.16 today at 103.19 with 10y yields up 4.9bp at 3.535% and 2y yields up 6.1bp at 3.489%.

EQUTIES: Equity Futures Hold On to Recent Gains

Eurostoxx 50 futures traded higher last week and the contract is holding on to its latest gains. The contract has pierced resistance at 4268.00, the Mar 6 high and a key resistance. A clear break of this hurdle would strengthen bullish conditions and open 4300.00 next. Moving average studies are in a bull-mode set-up and this highlights a broader uptrend. Initial firm support lies at 4146.30, the 20-day EMA. S&P E-minis ended last week on a bullish note and the contract is trading at its recent highs. Price has breached resistance at 4119.50, reinforcing the bullish conditions. The move higher exposes 4148.48, a Fibonacci retracement. Clearance of this level would signal scope for an extension towards 4205.50, the Feb 16 high ahead of 4244.00, the Feb 2 high and a key medium-term resistance. Firm support lies at 4027.87, the 50-day EMA.

• Japan's NIKKEI closed higher by 146.67 pts or +0.52% at 28188.15 and the TOPIX ended 14.18 pts higher or +0.71% at 2017.68.
• Elsewhere, in China the SHANGHAI closed higher by 23.536 pts or +0.72% at 3296.396 and the HANG SENG ended 37.34 pts lower or -0.18% at 20360.51.
• Across Europe, Germany's DAX trades higher by 0.53 pts or +0% at 15627.96, FTSE 100 higher by 46.91 pts or +0.61% at 7673.69, CAC 40 up 16.97 pts or +0.23% at 7338.49 and Euro Stoxx 50 up 0.33 pts or +0.01% at 4315.28.
• Dow Jones mini up 59 pts or +0.18% at 33524, S&P 500 mini down 8 pts or -0.19% at 4130.25, NASDAQ mini down 77.5 pts or -0.58% at 13225.5.

COMMODITIES: WTI Futures Pierce $81.04 Resistance Level Following OPEC+ Cut

WTI futures remain in a bull cycle and today’s gap higher at the open, strengthens this current condition. The contract has touched a high of $81.69, just above resistance at $81.04, the Mar 7 high. A clear break of $81.04 would signal scope for a continuation higher and open $83.04, the Jan 23 high. Key support is seen at $75.72, the Mar 31 high and the gap low on the daily chart. Trend conditions in Gold remain bullish and the recent short-term pullback is considered corrective. Note that price action since Mar 20 appears to be a pennant - a continuation pattern. This reinforces bullish conditions and signals scope for an extension higher near-term. The recent test above $2000.0 opens $2034.0 next, a Fibonacci projection. $1918.3 marks a firm support, the Mar 17 low - a break would signal scope for a deeper pullback.

• WTI Crude up $4.05 or +5.35% at $79.83
• Natural Gas down $0.15 or -6.86% at $2.065
• Gold spot down $9.29 or -0.47% at $1959.06
• Copper down $3.45 or -0.84% at $406.35
• Silver down $0.34 or -1.43% at $23.7453
• Platinum down $6.12 or -0.61% at $988.42