MNI US OPEN - UK Services CPI Slashes Chances of BoE June Cut

NEWS

FED (MNI): Fed’s Collins, Mester-Inflation Drop To Take Longer
It will take more time than previously believed for inflation to return to the Federal Reserve’s 2% target, Boston Fed President Susan Collins and Cleveland Fed President Loretta Mester said Tuesday.

U.S./CHINA (BBG): China Hints at 25% Levy on US, EU Cars as Probe Deadline Looms
China could unleash tariffs as high as 25% on imported cars with large engines, according to one lobby group, as trade tensions ramp up between the world’s No. 2 economy and the US and European Union.

UK (MNI): UK April Wage Settlements Edge Higher - Brightmine
UK wage settlements edged higher in the three months to April, but came in lower than corresponding deals a year ago, a Brightmine survey showed.

MNI RBNZ WATCH: MPC Cites Risk Tolerance For Restrictive OCR
The Reserve Bank of New Zealand’s limited risk tolerance for further upward inflation surprises drove adjustments to its forecasts, which saw a 10-basis-point increase to its end-of-year Official Cash Rate assumption to 5.7%, Governor Adrian Orr told a press conference Wednesday.

JAPAN (Nikkei): Japan top currency diplomat calls for stepping up structural reforms
Japan needs to take action to make its economy more internationally competitive, Masato Kanda, the country's chief currency diplomat, told Nikkei, urging reform to tackle structural issues.

JAPAN EQUITIES (Nikkei): Uncertainties over forex intervention slow foreigners' Japan stock buys
Foreign investors have reduced their buying of Japanese stocks, seeing the government's apparent effort to shore up the yen as an additional source of market uncertainty.

BOK (MNI): MNI BoK Preview - May 2024: On Hold, Easing Timeline Likely Delayed
None of the economists surveyed by Bloomberg see a change at tomorrow’s BoK policy meeting. This is also our firm bias, which would leave the policy rate at 3.50%, which is where it has been since January last year. Barring any major policy surprises, the focus is likely to rest on the BOK outlook, particularly as the market assesses risks around cuts in the second half of this year.

CHINA (MNI): China Calls For Talk With EU On EV Tariffs - MOFA
Beijing wants dialogue with the EU to resolve trade issues over increased protectionism, Wang Wenbin, spokesperson for the Ministry of Foreign Affairs, told reporters on Thursday. When asked for comment on the EU's possible move to formally impose tariffs on Chinese electric vehicles, Wang said protectionism would not solve the trading bloc's issues.

CHINA (SCMP): China’s property stimulus bazooka fuels instant rebound in sentiment
Sentiment in China’s property market is improving, with homebuyers in some of the biggest cities rushing to sales offices to scout for deals, days after Beijing rolled out the strongest stimulus measures yet to rescue the troubled sector.

CHINA (BBG): China Banks Rush to Offer Loans for State Buying of Unsold Homes
China’s mega banks are urging branch managers to lend to state-owned companies that buy unsold homes, offering a quick show of support for the government’s housing rescue package unveiled last week.

CHINA (MNI): Several Chinese Cities Lower Mortgage Rates For First-Time Buyers (CSJ)
Several cities including Wuhan and Hefei have lowered housing mortgage rates to 3.25-3.45% for first-time buyers following the People’s Bank of China’s move to scrap the lower limit of the rates last week, China Securities Journal reported.

GEOPOLITICS (RTRS): US-Saudi defense deal with civil nuclear component nears completion, official says
The U.S. and Saudi Arabia have reached a "near final set of arrangements" for a defense pact that includes a civil nuclear component but obstacles remain for a broader regional deal that would normalize relations between Israel and Riyadh, a senior U.S. official said on Tuesday.

SOUTH AFRICA (FT): South Africa blackout crisis is ‘fixed’, says Eskom
The crisis at South Africa’s state-owned utility Eskom that has led to crippling electricity blackouts for most of the past decade has been “fixed”, according to the company’s chair.

UK: Services CPI reduces our subjective probability of June cut from 50% to 25%

• It looks as though "restaurants and cafes" have been a notable driver here. There was no slowdown in the 12-month CPI rate (remaining at 6.2%Y/Y while "accommodation services" increased from 6.0%Y/Y to 7.1%Y/Y - contributing +0.03ppt to headline CPI.
• "Cultural services" increased from +5.4%Y/Y to +8.3%Y/Y contributing +0.07ppt to headline CPI.
• There was also a 6.5%M/M increase in airfares (which led to a +2.3%Y/Y rate and contributed +0.03ppt to headline CPI).
• We did get the expected tick down in "communication" which rose 3.4%Y/Y (7.3%Y/Y last month) and contributed -0.08ppt to headline CPI.
• There was also a -0.12ppt contribution to headline Y/Y CPI from "recreation and culture."
• In terms of the other categories, food was higher than the BOE's forecast at 2.8%Y/Y (BOE 2.529%), electricity and gas looked broadly in line, as did NEIG at first glance.
• Overall, there are some potential one-off factors in this surprise - possibly from air fares, restaurants and hotels - part of that could be down to Easter effects. But even with those, this would have been a decent positive surprise to both consensus and the BOE's services CPI forecasts.
• We think that based on this data it reduces our subjective expectation of a June first cut from around 50% to around 25%.

EGBS: Off UK CPI-Inspired Lows

Core/semi-core EGBs are off post-UK CPI lows, but the recovery will have been limited by today’s sovereign supply calendar.

• UK CPI surprised to the upside on core and headline measures, and the subsequent hawkish repricing in UK assets fed through to EGBs.
• Bunds are -35 ticks at 130.55, off intraday lows of 130.49.
• A breach of the key short-term support at 130.24 would be a bearish development from a technical perspective.  
• The >1% pullback in oil prices will have factored into the move away from session lows.
• Today’s sovereign supply calendar features conventional auctions from Germany and Greece, alongside EUR denominated syndications from Austria (15-year RAGB), France (20-year OATei) and Portugal (30-year PGB). MNI estimates a total size of between E9.5-13.5bln for those three transactions.
• 10-year peripheral spreads to Bunds are a touch wider this morning, with European equities trading weaker.
• The remainder of today’s regional calendar is light, with focus on tomorrow’s May flash PMIs and Q1 ECB negotiated wages data.

FOREX: GBP, NZD On Top as Gap For Policy Easing Narrows

• GBP surged on the back of the hotter-than-expected UK inflation print, with the services CPI component of particular interest, and seen limiting the Bank of England's ability to cut rates as soon as June. Markets now price fewer than 2 full 25bps rate cuts across 2024, helping underpin GBP's outperformance into the NY crossover.
• GBP/USD rallied sharply on release to touch a new daily high of 1.2761. While the move has faded somewhat, the continued heaviness with which EUR/GBP is trading shows that it's a USD recovery - rather than any reversal of interpretation in the UK inflation reading.
• NZD is outpacing broader G10 on the more hawkish-than-expected RBNZ decision, at which the bank kept rates unchanged but signalled that policy would be kept much tighter, for much longer, and could even resume raising interest rates until inflation and inflation expectations are curtailed. Forecasted cuts are now seen well into 2025, communications that have sent AUD/NZD to new one month lows. The cross tested support at 1.0857 before rebounding.
• The Fed minutes and existing home sales data take focus ahead. The moderation in inflation in April clearly came as a relief to several FOMC participants, most of whom saw the data as encouraging after a hot Q1 – but still needed more evidence before cutting rates. In the minutes, any discussion of the burden of proof for cuts will therefore be closely scrutinized.

EQUITIES: Uptrend in US Equities Remains Intact

The uptrend in S&P E-Minis remains intact and the contract is holding on to its latest gains. Recent gains have resulted in a break of a key resistance at 5333.50, Apr 1 high. This confirms a resumption of the primary uptrend and signals scope for a climb to 5372.73. A bullish theme in Eurostoxx 50 futures remains intact and the latest pullback appears to be a correction. Last week’s gains resulted in a break of key resistance at 5079.00, the Apr 2 high, to confirm a resumption of the uptrend. This opens 5127.70 next, a Fibonacci projection.

• Japan's NIKKEI closed lower by 329.83 pts or -0.85% at 38617.1 and the TOPIX ended 22.36 pts lower or -0.81% at 2737.36.
• Elsewhere, in China the SHANGHAI closed higher by 0.574 pts or +0.02% at 3158.54 and the HANG SENG ended 25.02 pts lower or -0.13% at 19195.6.
• Across Europe, Germany's DAX trades lower by 61.4 pts or -0.33% at 18666.07, FTSE 100 lower by 27.03 pts or -0.32% at 8391.4, CAC 40 down 51.63 pts or -0.63% at 8089.66 and Euro Stoxx 50 down 17.47 pts or -0.35% at 5029.1.
• Dow Jones mini down 32 pts or -0.08% at 39968, S&P 500 mini down 4.5 pts or -0.08% at 5339.75, NASDAQ mini down 4 pts or -0.02% at 18790.25.

COMMODITIES: Bearish WTI Theme Remains Intact

Gold is unchanged. The medium-term trend structure remains bullish. Monday’s initial gains resulted in a print above resistance at $2431.5, the Apr 12 high and bull trigger. The break confirms a resumption of the primary uptrend and paves the way for a climb towards 2452.5 next. A bearish theme in WTI futures remains intact and short-term gains are considered corrective. Price has recently traded below the 50-day EMA, strengthening a bearish set-up that highlights potential for a deeper correction.

• WTI Crude down $0.79 or -1% at $77.69
• Natural Gas down $0.03 or -1.27% at $2.631
• Gold spot down $4.22 or -0.17% at $2416.26
• Copper down $7.45 or -1.46% at $503.65
• Silver down $0.23 or -0.7% at $31.7705
• Platinum down $0.98 or -0.09% at $1053.75