MNI US OPEN - Tensions Mount as US Pause Weapons Shipment to Israel

NEWS

US/ISRAEL (BBG): US Paused Weapons Shipment to Israel Over Rafah Invasion Concern

The US paused a shipment of bombs to Israel over worries about Israel nearing a decision to launch a wide-ranging military offensive on the southern Gaza city of Rafah, which President Joe Biden opposes, according to a senior administration official. The delivery was supposed to contain 3,500 bombs, split roughly evenly between 2,000-pound (907-kilogram) and 500-pound explosives, the official, who was granted anonymity to discuss a sensitive matter, said.

US/CHINA (BBG): US Revokes Intel, Qualcomm Licenses to Sell Chips to Huawei

The US has revoked licenses allowing Huawei Technologies Co. to buy semiconductors from Qualcomm Inc. and Intel Corp., according to people familiar with the matter, further tightening export restrictions against the Chinese telecom equipment maker. Withdrawal of the licenses affects US sales of chips for use in Huawei phones and laptops, according to the people, who discussed the move on condition of anonymity. House Foreign Affairs Committee Chairman Michael McCaul confirmed the administration’s decision in an interview Tuesday. He said the move is key to preventing China from developing advanced AI.

US (NYT): Judge Postpones Start of Trump Documents Trial Without New Date

Judge Aileen Cannon had previously made clear that the trial would not start as scheduled this month but she declined to set a new timetable, saying many pretrial issues still have to be resolved. The federal judge overseeing former President Donald J. Trump’s classified documents case formally scrapped her own May 20 start date for the trial on Tuesday but declined to set a new one, saying there was much more work to be done before a jury could hear the charges. The decision by Judge Aileen M. Cannon to delay the start of the trial was more or less a foregone conclusion given the number of legal issues that remain unresolved less than two weeks from the date she had originally set.

US (BBG): US to Triple Chipmaking Capacity by 2032, Industry Group Says

US chip production is poised to explode in coming years, helping ease a risky dependency on East Asia, according to a projection by the Semiconductor Industry Association. Semiconductor manufacturing capacity in the country will triple by 2032, an SIA-commissioned study by the Boston Consulting Group found. That will take the US share of the industry to 14%, up from 10% currently, according to the report, which was released Wednesday.

ISRAEL (BBG): Israel Edges Into Rafah With Tension High Over Stalled Talks

Israel’s move to take control of the Rafah crossing into Egypt has sparked sharp debate about its end goal: Is this the start of a long-threatened invasion of the southern Gaza city, or an attempt to pressure Hamas to ease conditions for a cease-fire and the release of hostages? The answer is both, according to Israeli officials close to Prime Minister Benjamin Netanyahu and the military, who spoke about internal deliberations on condition of anonymity.

ISRAEL (MNI): CIA's Burns to Meet w/Netanyahu Following Cairo Ceasefire Talks

Reuters is reporting that CIA Director William Burns will travel to Israel later today for talks with PM Benjamin Netanyahu following the conclusion of the latest round of ceasefire talks in Cairo. According to two Egyptian sources, "all five delegations participating in ceasefire talks on Tuesday - Hamas, Israel, the U.S., Egypt and Qatar - reacted positively to the resumption of negotiations, and meetings were expected to continue on Wednesday morning...." A potential impediment to a ceasefire deal remains the nascent Israeli ground assault on the southern Gaza city of Rafah. On 7 May, Israeli forces seized control of the Gaza side of the border crossing with Egypt, an act - combined with aerial bombardment - seen as a precursor to a potential wider IDF operation.

RIKSBANK (MNI): Riksbank Cuts 25bps, Sees Two More in H2

The Riksbank delivered an expected 25 bps rate cut, taking the policy rate to 3.75%, saying if things unfolded as expected it anticipated two more rate cuts in the second half of the year. In its March forecast the Swedish central bank's rate projection showed a rate cut in either May or June and its new guidance makes clear that having delivered the May cut that it will stay on hold In June and is likely to proceed with gradual cuts after that. The board cited the weaker-than-expected inflation outturns, with inflation in March on the target CPIF coming in at 2.2 per cent and with core at 2.9 per cent, in support of the rate cut.

MNI BOE PREVIEW - MAY 2024: Another Step on the Path to Cuts

There will be three factors that markets will pay attention to at the MPC’s May decision: the vote, the guidance and the forecasts. The MNI Markets team’s base case is for another 8-1 vote with Dhingra the sole dissenter. However, we see around a 25% probability that Ramsden joins her in voting for an immediate cut at the May meeting. We look at potential changes to the Bank's forward guidance. We expect CPI forecasts of 1.9-2.0% in 2 years and around 1.7% in 3 years. Any deviations to this could prompt market moves. Markets are pricing almost no risk of an immediate policy change at this meeting, with Bank Rate expected to remain at 5.25% and QT already on a pre-set pace until after the September MPC meeting.

UK (MNI): Labour Still Favourites for Majority in Spite of Hung Parl't Speculation

The main opposition centre-left Labour party remains in a strong position to win an overall majority at the next general election. This is in spite of speculation over recent days that a hung parliament, with no party holding an overall majority, could be in the offing at the next general election. This comes largely on the back of the release of a so-called 'national estimated vote' share, based on the results of the 2 May local elections extrapolated across the entire UK. Under this estimate, Labour would receive 35% of the vote, with PM Rishi Sunak's centre-right Conservatives on 26%, the centre-left Liberal Democrats on 16%, with other parties on a total of 22%. Converted into a seat projection for the House of Commons, it has Labour as the largest party on 294 seats, short of the 326 required for an overall majority.

BOJ (MNI): ​BOJ Eyes Policy to Counter Yen Moves - Ueda

Bank of Japan Governor Kazuo Ueda said on Wednesday the BOJ may handle forex volatility with monetary policy, depending on forex movements. Ueda told lawmakers exchange rates will have a significant impact on the economy and prices and forex movements will have a larger impact on prices than previously noted. Ueda will closely monitor forex moves with regard to the conduct of monetary policy, he added, noting the impact of the weak yen on the underlying inflation trend has not been as significant so far but it could affect the underlying inflation trend in future.

SPAIN (BBG): Spain’s Central Bank May Be Led by a Woman for the First Time

Spain may be about to become the first major euro-zone economy to name a woman to lead its central bank. Montserrat Martinez, currently vice president of securities regulator CNMV, is seen as the front-runner to replace Governor Pablo Hernandez de Cos when his mandate ends in mid-June, according to people familiar with the matter. The field also includes the head of the Financial Stability Institute and a current deputy of De Cos, said the people, who asked not to be identified discussing private deliberations.

RUSSIA/FRANCE (MNI): French Troops in Ukraine Would 'Become Targets for Russia' - For Min Spox

Wires carrying comments from Russian Foreign Ministry spox Maria Zakharova. In response to French President Emmanuel Macron's recent comments regarding never ruling out the prospect of NATO 'boots on the ground' in Ukraine, Zakharova states that 'If French troops appear in Ukraine they will become targets for Russian troops'. Zakharova acknowledged the media speculation that French Foreign Legion troops could already be in Ukraine, saying 'we [have seen] more news about Frenchmen killed in Ukraine.'

CHINA (MNI): China Exports to Grow in 2024 - Advisor

MNI (Beijing) China’s trade should recover to pre-pandemic trends of single digit growth in 2024 driven by export demand for new manufactured goods, following flat results last year and despite western “overcapacity” accusations, a senior policy advisor to the National Development and Reform Commission told MNI. Exporters this year will benefit from favourable tailwinds including the continued international recovery and growth with Association for Sea East Asian Nation (ASEAN) and Belt and Road Initiative countries, said Wu Sa, deputy-director of the Economics Institute at the Academy of Macroeconomic Research, a think tank with a focus on development issues under the National Development and Reform Commission.

CHINA (BBG): China Policy Banks Pay Back PBOC at a Record Pace, Turn to Bonds

As the Chinese bond market undergoes a powerful rally, the nation’s so-called policy banks are turning away from the People’s Bank of China as a source of funding and rushing to raise debt instead. China Development Bank and its two fellow policy-oriented lenders repaid a net 343 billion yuan ($48 billion) of funds under the People’s Bank of China’s Pledged Supplemental Lending program in April. That’s the largest repayment since data began in 2015, the latest official figures showed. By contrast, bond sales by the trio of lenders hit 364.7 billion yuan last month, the highest level for the period in nearly two decades, according to GF Securities Co.

CHINA (MNI): China Attended DEPA Negotiations - MOFCOM

MNI (Beijing) China continues to push its application to join the Digital Economy Partnership (DEPA), attending a meeting Wednesday to discuss Beijing’s application to join the digital trade bloc, according to the Ministry of Commerce. The meeting, held on Tuesday in Auckland, New Zealand, saw China exchange in-depth views with members regarding the accession and negotiation process as well as related issues.

CORPORATE/CHINA (BBG): Apple’s China iPhone Shipments Rise 12% in March After Discounts

Chinese iPhone shipments jumped about 12% in March after Apple Inc. and its retailers slashed prices, official data showed, suggesting efforts to arrest an accelerating decline in sales are yielding early results. Government data showed shipments of foreign-branded smartphones — the vast majority of which would have been Apple’s marquee device — grew to 3.75 million units in March from a year earlier. That’s an about-face from a 37% slump in the first two months of 2024, according to Bloomberg’s calculations off a monthly report by the China Academy of Information and Communications Technology.

DATA

GERMAN DATA (MNI): Industrial Recovery Stalls in March, But Cautious Optimism Remains

German industrial production exceeded expectations in March but declined regardless, printing -0.4% M/M (vs -0.7% cons; -1.7% prior). A downward revision by 0.4pp of February's initial +2.1% print meant the level of production in March was broadly in line with expectations, though. On a yearly comparison, industrial production declined 3.3% Y/Y (vs -3.6% cons; -5.3%prior, revised from -4.9%). The data is mixed overall with some categories printing stronger on the month but others declining after broader uptrends during the first months of 2024.

NORWAY DATA (MNI): Strongest Manufacturing IP Since April 2008

Norwegian industrial production saw a notable rise in March. There was no consensus for the print, but manufacturing industrial production was +5.4% M/M SA and +5.7% Y/Y WDA. This was the highest M/M manufacturing IP reading since April 2008. On a 3m/3m basis, manufacturing IP was +1.4% (vs 0.3% prior). This follows the continued expansionary signals from the manufacturing PMI, which has been above 51 for the last 3 months (most recently 52.4 in April). All major manufacturing sub-components rose in March, with consumer goods +8.1% M/M and +5.9% Y/Y, while capital goods rose 4.1% M/M and 11.5% Y/Y.

FOREX: USD/JPY Extends Bounce Off Post-Intervention Support

• USD/JPY continues to grind higher, with the pair touching a new post-intervention recovery high in the European morning, extending the bounce off the 50-dma support that crosses today at 152.17. The moves put the JPY spot trade-weighted Index at around 3% off the pre-intervention lows, but tolerance of the authorities should get tested well ahead of reaching that mark.
• With Japan having already spent already spent ~$60bln in reserves in this year's intervention phase, markets speculate on what other steps the BoJ could take to shore up the currency - with further rate hikes likely to remain part of the conversation across this week's real cash earnings data and National CPI on the 24th May.
• The USD Index is firmer, with the greenback outperforming most others. The Riksbank decision saw Sweden join Switzerland in being one of the first European countries to kick off their easing cycle. EUR/SEK was higher in response, but outsized price action was broadly contained. Material currency weakness was avoided as the bank stressed that a follow-up rate cut in June was unlikely, leaving the rate path guidance in March intact.
• Data remains few and far between Wednesday, with just March final wholesale trade sales and inventories data due. The speaker schedule is busier, as ECB's Wunsch & de Cos and Fed's Jefferson, Cook and Collins make appearances.

EGBS: A Little Weaker, Headline Flow Muted

Core and semi-core EGBs have moved back toward intraday lows.

• Headline flow has been muted, while today’s macroeconomic data (German and Spanish IP, Italian retail sales) were not market movers.
• Bunds are -30 ticks at 131.53. Bulls need to overcome firm resistance at the 50-day EMA (131.87) to turn the technical tide a little more in their favour.
• German and French cash yields are 1.5-3.0bps higher today, with 10s leading the weakness on both curves.
• 10-year peripheral spreads to Bunds are little changed to a touch wider, even as European equity futures push through April’s highs.
• The presence of today’s 10/15-year supply from Portugal may have weighed on peripherals at the margin, but ultimately passed smoothly.
• Meanwhile some desks point to the degree of recent tightening in the likes of BTPs as a headwind, although the focus on the fairly imminent (expected) ECB easing provides fundamental background support for tightener positions.
• Today’s scheduled ECB speakers include the hawkish-leaning Wunsch and the usually dovish de Cos, the latter of whom we heard from yesterday (with little deviation from the status quo, pointing to a rate cut in June, while providing little colour beyond that meeting).

GILTS: Recovery in Futures Stalls Ahead of Yesterday's High

The recovery in gilt futures stops shy of yesterday’s highs, leaving initial resistance intact (yesterday’s high at 98.08 protects the April 12 high at 98.23).

• The contract last prints -15 at 97.85 (range 97.75-98.06).
• Cash gilt yields are 0.5-1.5 bp higher, light bear flattening seen on the curve.
• A relatively soft 30-year green gilt auction and failure to break through yesterday’s high in futures seems to promote some weakness in recent trade.
• More broadly, BoE matters continue to dominate discussions.
• In terms of setup for the event, spill over from Fed pricing has allowed GBP STIRs to retrace from hawkish extremes in recent sessions.
• In the long end, our FI Pi publication suggests that structural positioning in futures remains flat, consolidating after much of February and March were spent in "long" territory. Last week's trade was indicative of short cover on net.
• SONIA futures are little changed to -1.5 on the day, while BoE-dated OIS shows ~53.5bp of cuts through year end.

EQUITIES: Eurostoxx 50 Futures Narrow Gap to Bull Trigger at 5079.00

Eurostoxx 50 futures are holding on to their most recent gains. The contract recently traded through the 20-day EMA and resistance at 4990.00, the Apr 15 high. This highlights a potentially stronger reversal. An extension higher would expose the bull trigger at 5079.00, the Apr 2 high. Initial resistance is at 5006.00, the Apr 29 / May 7 high. Key support lies at 4762.00, the Apr 19 low. A break would be bearish. Initial support to watch is 4885.50 50-day EMA. S&P E-Minis have traded higher this week, extending the current bull cycle. Price has moved through resistance at the 20-day EMA. This highlights a stronger short-term bullish condition and a continuation would expose the key resistance and bull trigger at 5333.50, the Apr 1 high. Initial resistance is 5246.18, a Fibonacci retracement. Firm support lies at 5036.25, the May 2 low.

• Japan's NIKKEI closed lower by 632.73 pts or -1.63% at 38202.37 and the TOPIX ended 39.79 pts lower or -1.45% at 2706.43.
• Elsewhere, in China the SHANGHAI closed lower by 19.258 pts or -0.61% at 3128.48 and the HANG SENG ended 165.51 pts lower or -0.9% at 18313.86.
• Across Europe, Germany's DAX trades higher by 98.84 pts or +0.54% at 18528.25, FTSE 100 higher by 31.57 pts or +0.38% at 8345.3, CAC 40 up 62.89 pts or +0.78% at 8138.57 and Euro Stoxx 50 up 25.24 pts or +0.5% at 5040.91.
• Dow Jones mini up 3 pts or +0.01% at 39029, S&P 500 mini up 0.25 pts or +0% at 5214, NASDAQ mini up 4.5 pts or +0.02% at 18203.5.

COMMODITIES: WTI Futures Trading Close to Cycle Lows

A bearish theme in WTI futures remains intact and the contract traded to a fresh short-term cycle low yesterday. Price has recently breached the 50-day EMA. The clear breach of this average strengthens a short-term bearish theme and highlights scope for a deeper correction. This has opened $76.07, the Mar 11 low. Key resistance and the bull trigger has been defined at $86.97, the Apr 12 high. Initial firm resistance is at $84.46, the Apr 26 high. Gold is unchanged and remains in consolidation mode. A bearish condition is intact. The precious metal has recently traded through the 20-day EMA and this highlights a corrective cycle. A continuation lower would signal scope for an extension towards $2252.8, the 50-day EMA. Note that a short-term bear cycle is allowing a significant overbought condition to unwind. Key resistance and the bull trigger is at $2431.5, the recent Apr 12 high.

• WTI Crude down $1.01 or -1.29% at $77.38
• Natural Gas up $0.01 or +0.27% at $2.213
• Gold spot down $5.35 or -0.23% at $2308.71
• Copper down $8.55 or -1.86% at $452.05
• Silver down $0.14 or -0.52% at $27.0965
• Platinum down $10 or -1.02% at $969.24