MNI US OPEN - UK Exits Technical Recession Following Strong Q1 Growth

NEWS

US/CHINA (BBG): Biden Set to Impose Tariffs on China EVs, Strategic Sectors

President Joe Biden’s administration is poised to unveil a sweeping decision on China tariffs as soon as next week, one that’s expected to target key strategic sectors while rejecting the across-the-board hikes sought by Donald Trump, people familiar with the matter said. The decision is the culmination of a review of so-called Section 301 tariffs first put into place under Trump starting in 2018. The new tariffs will focus on industries including electric vehicles, batteries and solar cells, with existing levies largely being maintained. An announcement is scheduled for Tuesday, two of the people said.

US/ISRAEL (NYT): White House Aide Warns Israel Against ‘Smashing Into Rafah’

A White House spokesman warned on Thursday that Israel “smashing into Rafah” would not eradicate Hamas as he urged the country to find alternatives to the long-threatened assault on a city where more than a million Palestinians are sheltering. John F. Kirby, a White House national security spokesman, said President Biden shares Israel’s goal of eradicating the terrorist group that attacked Israel on Oct. 7. “An enduring defeat of Hamas certainly remains the Israeli goal, and we share that goal with them,” Mr. Kirby said. “Smashing into Rafah, in his view, will not advance that objective, will not get to that sustainable and enduring defeat of Hamas.”

US/ISRAEL (MNI): Blinken to Report On Gaza Conduct as GOP Criticises Withholding Arms

Overnight, Axios reported that US Secretary of State Antony Blinken could, as soon as today, submit a report to Congress on Israel's conduct in Gaza. While the report is set to prove critical of the IDF's operations and tactics, it is seen as unlikely to conclude that Israel has broken the terms of agreement for its use of US weapons in its offensive.

ISRAEL (BBG): Netanyahu Vows Israel Will Fight Alone Even Without US Help

Israeli Prime Minister Benjamin Netanyahu struck a defiant tone against President Joe Biden after the US withheld a shipment of bombs as a warning to its top Middle East ally not to invade the southern Gaza city of Rafah. In a first, punchy clip on the social media site X, Netanyahu said: “If we have to stand alone, we will stand alone” and “fight tooth and nail.”

CHINA (MNI): Chinese Cities to Ease Housing Restrictions Significantly

MNI (Beijing) Major cities will significantly relax homebuying restrictions to help reduce housing inventory in line with Beijing’s latest policy directive, advisors and analysts told MNI, adding that local authorities could absorb developers’ unsold stock into social-housing programmes. Local governments will likely undertake an unprecedented wave of policy relaxation in May, said Yan Yuejin, director at the E-house China Research and Development Institution. Upper tier-two city Hangzhou’s move to fully lift all home purchase restrictions on Thursday will encourage more aggressive and comprehensive easing by other cities, and boost market sentiment to help destocking, Yan added.

CHINA (MNI): China Slowdown Tops Concerns of European Firms

MNI (Beijing) European firms have increased pessimism over China's economic conditions, a business confidence report from the European Chamber of Commerce said on Friday. A total of 55% of members ranked the country's economy woes as a top-three concern, up 19 pp y/y, the report showed. Introducing the paper, Jens Eskelund, president of the chamber said the report results were "lower than expected," despite 45% of members saying market access had increased, up 9 pp y/y. "Firms previously on the fence are now adjusting business plans to suit lower expectations," Eskelund added.

HONG KONG (BBG): HK Court Sides With Creditors in Closely Watched Keepwell Case

A Hong Kong court has ruled in favor of creditors in cases involving a controversial credit protection mechanism popular among China’s borrowers, reviving the hopes of investors trying to claw back funds on defaulted bonds. Peking University Founder Group Corp., the former commercial arm of the elite Chinese school, breached so-called keepwell provisions on its units’ dollar bonds, the Hong Kong Court of Appeal ruled Friday. With the ruling, the Chinese conglomerate now becomes liable to the offshore units — now controlled by their liquidators working for creditors — in the sum of about $1.7 billion, according to the written ruling released in a Hong Kong judiciary website.

JAPAN (BBG): Japan Should Target 120 Range for Yen, Business Leader Says

Japan’s government and central bank should start targeting an exchange rate of 120-130 per dollar as the yen is currently far too weak for struggling small businesses, according to a national business group leader. “Small and medium-sized companies are already in a very tough spot with the yen sticking around 150 to the dollar,” Ken Kobayashi, chairman of the Japan Chamber of Commerce and Industry, said in an interview Thursday.

JAPAN (MNI): Ex-BOJ's Yamamoto Urges Swift Asset Reductions

The Bank of Japan must swiftly enact a programme to reduce the balance of its Japanese government bond holdings to help guide the market and avoid destabilisation should more rapid rate hikes prove necessary, a former BOJ executive director told MNI. Balance sheet normalisation that brings its scale back to a level slightly above the required reserves, including the balance of banknote issuance, could take at least nine years and would entail the BOJ lowering bond holding by JPY440 trillion from about JPY600 trillion, noted Kenzo Yamamoto, now the representative for KY Initiative.

BANXICO (MNI): No Hint of More Easing After Standing Pat

Mexico's central bank decided unanimously to maintain its overnight interbank interest rate at 11% Thursday after a 25 basis points cut in March, a decision in line with market expectations that provided little hint of a possible resumption of easing. Banxico said in its statement that the board might discuss "adjustments" in the next meetings depending on the inflationary environment. "The Board will thoroughly monitor inflationary pressures as well as all factors that have an incidence on the foreseen path for inflation and its expectations. Looking ahead, it will assess the inflationary environment to discuss reference rate adjustments," the statement said.

DATA

UK DATA (MNI): UK Economy Exits 'Recession' With Strong Q1 Growth

• UK Q1 GDP +0.6% Q/Q, +0.2% Y/Y
• UK MAR GDP +0.4% M/M, +0.6% 3MM, +0.2% 3M Y/Y
• UK MAR IND PROD +0.2% M/M, +0.5% Y/Y
• UK MAR MANUF OUTPUT +0.3% M/M, +2.3% Y/Y
• UK MAR TRADE BALANCE GBP -1.1BN

The UK economy recovered strongly in Q1, exiting the technical recession seen in the last months of 2023. The economy grew by 0.6% q/q, outpacing both Bank of England and wider City expectations and by 0.2% compared to the same quarter a year ago, the Office for National Statistics said Friday. “There was broad-based strength across the service industries with retail, public transport and haulage, and health all performing well. Car manufacturers also had a good quarter. These were only a little offset by another weak quarter for construction, " ONS Director of Economic Statistics Liz McKeown said. The service sector rose 0.5% m/m, far ahead of expectations of no growth and was a big driver of the overall pick-up in the economy.

ITALY DATA (MNI): IP Notably Weak in March, Little Respite Ahead Per Surveys

• ITALY MAR INDUSTRIAL PRODUCTION -0.5% M/M ; -3.5% WDA Y/Y

Italian March industrial production printed notably below consensus at -0.5% M/M SA (vs 0.3% cons, a downwardly revised 0.0% prior). On an WDA annual basis, IP was -3.5% Y/Y (vs a downwardly revised -3.3% prior). The weakness remains consistent with survey evidence. The manufacturing PMI has been contractionary for 12 of the last 13 months (save for a 50.4 reading in March '24) while the EC and ISTAT industrial confidence readings also remain below neutral with little indication of recovering conditions. Recent trends in IP suggest that industry was not a major contributor to the stronger-than-expected flash Q1 GDP estimate of 0.3% Q/Q.

NORWAY DATA (MNI): April Inflation Provides Support to Norges Bank's Hawkish Tilt

• NORWAY APR CPI +0.8% M/M, +3.6% Y/Y
• NORWAY APR CORE CPI +0.9% M/M, +4.4% Y/Y

Norwegian April inflation exceeded consensus expectations, with CPI-ATE at 4.4%Y/Y (vs 4.2% cons, 4.5% prior) and 0.9% M/M NSA (vs 0.8% cons, 0.2% prior).Headline CPI was 3.6% Y/Y (vs 3.5% cons, 3.9% prior). The readings remain below the Norges Bank's March MPR projections, but the CPI-ATE forecast error falls to 0.1pp from 0.2pp. The Bank had projected CPI-ATE at 4.5% Y/Y and CPI at 3.9% in April. Food prices rose 3.3% M/M, which appears to be a driver of the firmer than expected print, with analysts citing uncertainty over whether food prices would rebound after beginning the year on a weak note.

SWEDEN DATA (MNI): March Activity Data Sheds Little Light on Weak Q1 Flash GDP Estimate

Overall, the March activity data sheds little light on what drove the weak Q1 flash GDP release. Household consumption and private sector production both rose on a M/M and Y/Y basis in March. This comes after the March monthly GDP indicator printed at -0.3% M/M and -1.1% Y/Y, which helped pull the flash Q1 GDP estimate down to -0.1% Q/Q and -1.1% Y/Y - below consensus expectations and the Riksbank's forecasts. The monthly GDP indicators and flash quarterly estimates are often revised - the latter sometimes heavily - so it is hard to read too much into the data at this stage. However, the activity data could suggest scope for an upward revision to the quarterly estimate.

JAPAN MARCH HOUSEHOLD SPENDING -1.2% Y/Y; FEB -0.5% (MNI)

RATINGS: Israeli Updates Headline After Hours

Potential sovereign rating reviews of note scheduled for after hours on Friday include:

• Fitch on Poland (current rating: A-; Outlook Stable)
• Moody’s on Croatia (current rating: Baa2; Outlook Positive) & Israel (current rating: A2; Outlook Negative)
• S&P on Israel (current rating: A+; Outlook Negative) & Poland (current rating: A-; Outlook Stable)
• Morningstar DBRS on Luxembourg (current rating: AAA, Stable Trend) & Poland (current rating: A, Stable Trend)
• Scope Ratings on Cyprus (current rating: BBB+; Outlook Stable)

FOREX: NOK/SEK Through to New Highs as Norwegian CPI Proves Sticky

• Early Friday trade has been largely consolidative across G10 FX, as the USD Index trades flat and holds the entirety of the late Thursday losses. Antipodean currencies are faring less effectively, with AUD and NZD softer as they moderate a small part of the Thursday rally.
• Meanwhile, NOK/SEK has cleared the April high, helped by the higher inflation reading in Norway this morning. April CPI came in at 0.8% M/M vs. Exp. 0.6%, with the Norges Bank's favoured inflation measure CPI-ATE slowing by just 0.1ppts to 4.4% vs. Exp. 4.2%.
• GBP has been a currency in focus following Thursday's BoE decision. EUR/GBP has mean-reverted to the 200-dma of 0.8605, but markets remain in a short-term bullish condition and clearly sensitive to further BoE re-pricing. A handful of sell-side analysts have brought forward their call for a first BoE rate cut to June, for which a 25bps rate cut step remains only partially priced.
• The Canadian jobs report is the data highlight Friday, with markets expecting Canada to gain 20k jobs over April, but also see a 0.1ppts tick higher in the unemployment rate to 6.2%. Central bank speak due today includes ECB's Elderson, BoE's Pill & Dhingra and Fed's Bowman, Logan, Kashkari, Goolsbee and Barr.

EGBS: Peripherals Outperform as Stoxx600 Reaches New Highs

Core/semi-core EGBs are firmer today, with peripherals outperforming as European equities perform strongly.

• Bunds are currently +24 ticks at 131.26. The gains in Bund over the last two days appear to be a correction, with the trend outlook remaining bearish. Bulls would need to push through the 50-day EMA at 131.85 to challenge the current bearish outlook.
• Italian 3/7/15+ year BTP supply provided the main focus this morning, and will have likely limited rallies in the run-up to the bidding deadline.
• Softer than expected Italian industrial production data prompted a brief uptick in BTP futures on release, but gains have since been pared.
• The German and French cash curves have lightly bull flattened.
• 10-year periphery spreads to Bunds trade tighter, with the Stoxx600 index reaching new record highs.
• The ECB April meeting accounts are due at 1230BST, but aren’t usually a market mover. This leaves focus on today’s US data and speakers.

GILTS: Futures Pierce Resistance Before Fading, Fresh Multi-Week Yield Lows Seen

Gilt futures pierce initial resistance at 98.23, before stalling ahead of 98.30 and fading back to the 98.15 area.

• A fresh extension higher would put the bearish technical backdrop at greater risk, with the next resistance area seen at the 61.8% retracement of the Mar 12 - Apr 25 bear leg (98.46).
• Cash gilt yields are 2.5-4.0bp lower, with the curve flattening.
• Fresh multi-week lows are seen in all benchmark gilt yields.
• Although the initial rally was aided by some catch up to post-gilt close price action in Tsys and Bunds, gilts now outperform their German peers across the curve, with the most meaningful spread tightening coming in the front end.
• That suggests that yesterday’s MPC outcome and the potential for a swifter round of cuts than the market currently prices is filtering into cross-market plays.
• Monetary policy matters are outweighing the firmer-than-expected monthly UK GDP data seen earlier today (we played down the importance of that particular release ahead of the gilt open).
• SONIA futures also firm, last showing little changed to +4.0.
• BoE-dated OIS shows ~60bp of cuts through year end, with 13bp of easing showing through the June MPC (~52% odds of a cut at the next MPC meeting).
• BoE chief economist Pill will speak again today (12:15 London), with comments from dovish MPC dissenter Dhingra also due (12:45 London).

EQUITIES: E-Mini S&P Extends Current Bull Cycle

Eurostoxx 50 futures build on the recent firm tone and the contract has traded higher again early Friday. Recent gains have resulted in a breach of the 20-day EMA, and resistance at 4990.00, Apr 15 high, highlighting a stronger reversal. Wednesday’s break of 5006.00, the Apr 4 high, reinforces the current bullish condition. Sights are on the bull trigger at 5079.00, Apr 2 high. Key support is 4762.00, the Apr 19 low. Initial support to watch is 4890.80, the 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 - a bullish development. This highlights scope for a continuation higher that would expose the key resistance and bull trigger at 5333.50, the Apr 1 high. Initial resistance is 5246.18, a Fibonacci retracement. Initial firm support lies at 5036.25, the May 2 low.

• Japan's NIKKEI closed higher by 155.13 pts or +0.41% at 38229.11 and the TOPIX ended 14.75 pts higher or +0.54% at 2728.21.
• Elsewhere, in China the SHANGHAI closed higher by 0.227 pts or +0.01% at 3154.547 and the HANG SENG ended 425.87 pts higher or +2.3% at 18963.68.
• Across Europe, Germany's DAX trades higher by 130.13 pts or +0.7% at 18816.26, FTSE 100 higher by 47.85 pts or +0.57% at 8429.23, CAC 40 up 53.06 pts or +0.65% at 8239.56 and Euro Stoxx 50 up 32.46 pts or +0.64% at 5086.49.
• Dow Jones mini up 74 pts or +0.19% at 39609, S&P 500 mini up 12.25 pts or +0.23% at 5251.25, NASDAQ mini up 51 pts or +0.28% at 18264.75.

COMMODITIES: Gains in WTI Futures Off This Week's Lows Considered Corrective

A bearish theme in WTI futures remains intact and the contract traded to a fresh short-term cycle low this week. Gains off this mark are considered corrective for now. Price has recently breached the 50-day EMA, strengthening a short-term bearish theme that highlights potential for a deeper correction. Scope is seen for a move to $76.07, Mar 11 low. Key resistance and the bull trigger is at $86.97, the Apr 12 high. Initial firm resistance is at $84.46, the Apr 26 high. Gold has rallied well for two consecutive sessions as markets undergo a corrective bump higher. This breaks the consolidation phase and concludes the bearish short-term condition. The end of the corrective leg lower has unwound the overbought condition, and allows markets to focus on next resistance at 2431.50 - the bull trigger. Any return lower would eye $2255.0, the 50-day EMA.

• WTI Crude up $0.31 or +0.39% at $79.49
• Natural Gas up $0.02 or +0.65% at $2.313
• Gold spot up $22.4 or +0.95% at $2368.48
• Copper up $13.55 or +2.96% at $472.35
• Silver up $0.32 or +1.14% at $28.6405
• Platinum up $8.71 or +0.88% at $993.08