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MNI US OPEN - US House Passes Bill on Ukraine Aid, Russia Escalates Nuclear Rhetoric

EXECUTIVE SUMMARY:

Figure 1: CAD net short grows sharply after unemployment rate ticked to highest in two years

NEWS

POLITICAL RISK (MNI): US Bill Targeting World's Major Tensions Passes House

There was no further escalation of tensions in the Middle East over the weekend after an alleged Israeli attack on Iran's third largest city Isfahan, where drones/missiles are manufactured. In terms of the other major conflict, the US House passed the foreign aid bill to provide help to Ukraine. Markets viewed the strike as a warning shot from Israel and were relieved as prices normalised but they remain wary. The US foreign aid bill finally passed through the House on the weekend and is expected to pass the senate this week. It included $61bn of military help for Ukraine. Nato also approved air defence support for the besieged nation. The bill also included $17.3bn of military support for Israel and $9.1bn of humanitarian aid for Gaza.

SECURITY (MNI): Lavrov Escalates Nuclear Rhetoric Following US Movement on New Ukraine Aid

Wires carrying comments from Russian Foreign Minister Sergei Lavrov appearing to escalate nuclear rhetoric. The comments come after the United States House of Representatives approved a USD$60bln package of aid to Ukraine, and ahead of a trip to China from US Secretary of State Antony Blinken where he is expected to warn of the consequences of Beijing's continued, "support for Russia's defense industrial base." Lavrov: "US and NATO are obsessed with the idea of inflicting 'strategic defeat' on Russia... West is teetering dangerously on the brink of a direct military clash between nuclear powers."

NYSE (FT): NYSE Polls Market Participants on Round-The-Clock Trading

The New York Stock Exchange is polling market participants on the merits of trading stocks around the clock, the Financial Times reports, without saying where it got the information. NYSE’s survey asked respondents whether they thought round-the-clock trading should take place at weekends as well as through a five-day week. Also asked how investors should be protected from price swings and how respondents would staff any overnight session.

ECB (BBG): ECB’s Villeroy Says Oil Uncertainty Won’t Stop June Rate Cut

The European Central Bank won’t be swayed from a first interest-rate cut in June by oil price uncertainty, Governing Council member Francois Villeroy de Galhau said. According to the Bank of France governor, even if conflict in the Middle East did push up oil costs, policymakers would have to first analyze if such a shock fueled underlying prices and inflation expectations. That means there’s no “mechanical” reaction, he said in an interview with Les Echos published Sunday. Asked if uncertainty could delay the start of monetary easing, he said “no — unless there is a surprise, we must not wait too much.”

SNB (MNI): SNB Ups Minimum Reserve Requirements

The Swiss National Bank is raising the minimum reserve requirement for domestic banks to 4% from 2.5%, an emailed statement on Monday said. Liabilities arising from cancellable customer deposits will now be included in full in the calculation of the minimum reserve requirement, as is the case with other relevant liabilities, the statement added. The SNB said the adjustments will ensure that the implementation of monetary policy remains effective and efficient. Since sight deposits which are held by banks to meet minimum reserve requirements are not remunerated, the interest costs for the SNB will be reduced, the statement added.

EU (BBG): EU Is Set to Impose Iran Sanctions for Missile Attacks on Israel

European Union foreign and defense ministers are poised to reach a political agreement on Monday to impose new sanctions on Iran over its attack on Israel. The restrictive measures further expand the sanctions that the EU already imposed on Tehran for supplying Russia with drones to also include missiles and drones that Iran has provided its proxies in the Middle East. The sanctions may not be formally adopted until later in the week to allow for the technical work to be completed.

EU (BBG): Sewing Sees Trading Edge for US, UK Banks From Basel Rules Delay

Banks in the European Union will be at a disadvantage to competitors in the US and UK if those jurisdictions take longer to implement stricter global rules for their trading businesses, according to Deutsche Bank AG Chief Executive Officer Christian Sewing. “That delay gives banks there a significant competitive advantage in the capital markets business,” Sewing said in his capacity as president of the Association of German Banks. “That’s why we need a solution that takes account of how the individual banks are affected. The EU Commission must urgently react.”

POLAND/NATO (The Guardian): Poland Ready to Host Nuclear Arms

Poland is ready to host nuclear arms if Nato decides to deploy the weapons in the face of Russia reinforcing its armaments in Belarus and Kaliningrad, the country’s president, Andrzej Duda, said in an interview published on Monday.

CHINA (MNI): China’s April Loan Prime Rate Unchanged

MNI (Beijing) China's Loan Prime Rate remained unchanged on Monday according to a People's Bank of China statement, in line with market expectation following the central bank’s decision to hold its policy rate steady as U.S. dollar strength weighs on the yuan and solid Q1 GDP growth reduces the need for monetary easing in the short term. The one-year LPR, based on the PBOC’s Medium-term Lending Facility rate and quotes submitted by 20 banks, was left at 3.45% and the five-year plus maturity was held at 3.95%.

CHINA (MNI): LPR Steady as PBOC Warns of Overly Low Rates

MNI (Beijing) China's Loan Prime Rate will likely remain stable over the coming months following the central bank’s warning that excessively low interest rates could negatively impact competition, production capacity control and reduce inventory in some sectors. The Loan Prime Rate, based on the rate on the People’s Bank of China’s medium-term lending facility (MLF) and quotes submitted by 20 banks, remained at 3.45% for the one-year maturity and 3.95% for over-five-year tenor on Monday. The pause was in line with expectations, following the Bank’s decision to hold its one-year MLF rate steady last week at 2.5%.

BOJ (MNI): Board to Consider Hold, Higher CPI View

The Bank of Japan board will likely hold steady when it delivers its next policy decision, but note increased risk of stronger inflation rates driven by a more robust wage-price virtuous cycle due to better-than-expected wage hikes at major firms. BOJ officials are still monitoring the impact on economic activity and prices alongside development of underlying inflation, following the board's decision to end negative rates and scrap yield curve control at March's meeting.

BOJ (MNI): BOJ Sees Risk of Earlier Inflation Rebound

Bank of Japan officials believe the weak yen will drive an inflation rebound over the northern summer, sooner than bank economist expectations of an autumn bottom, which could drive the Board to consider raising its policy rate preemptively to keep ahead of the curve, MNI understands. BOJ officials would prefer gradual rate increases over rapid hikes, which would considerably worsen economic activity. The Bank estimates underlying inflation at about 1.7%, below its 2% price target, but the weak yen could boost that to 2% via the pass-through to imported goods.

JAPAN (BBG): Japan’s Kishida Struggles in Polls Ahead of Special Elections

A high-profile trip to meet Joe Biden in Washington failed to provide a substantial poll boost for Japanese Prime Minister Fumio Kishida, fueling doubts over whether his ruling party can eke out a special election victory that could be key to his longevity as leader. Despite a largely positive response to his summit this month with Biden, three surveys conducted over the weekend showed approval for Kishida’s cabinet was still well below the 30% threshold often seen as marking the danger zone for a Japanese premier.

AUSTRALIA (MNI): Polls Pointing to Minority Government After 2025 Election

The latest Newspoll from The Australian shows that the two-party preferred split of voter support was steady at 51:49 in favour of the incumbent Labor government but less than it received in the May 2022 election and in a vote would likely result in a minority Labor government. The unchanged divide was despite 56% support for PM Albanese's interventionist Made in Australia proposal. The next election is due by May 2025.

NEW ZEALAND (MNI): NZ Inflation Falling, Rate Cut Eyed - Ex RBNZ

Headline and core New Zealand inflation are heading in the right direction, despite printing slightly above the central bank’s most latest forecasts, and should reach the 2% mid-point target over the next 12-18 months, potentially allowing a slight reduction of the 5.5% Official Cash Rate, a former Reserve Bank of New Zealand economist has told MNI. Michael Reddell, independent economic commentator and former special adviser, economics, at the Reserve, said the RBNZ will begin questioning its restrictive stance by about August should inflation continue to fall. "I think [the RBNZ] would want to see at least another quarter of data," he added.

INDIA (BBG): India Repeats Voting at Some Manipur Locations Hit by Violence

India’s election agency is re-holding polls at 11 locations in the conflict-hit Manipur state on Monday after reports of gunfire and destruction of electoral machines during voting last week. The chief electoral officer of Manipur voided polls at the 11 stations, according to a statement Saturday, without giving any reasons. Voting will take place on Monday from 7 a.m. to 5 p.m., it said. Local media reported incidents of shooting and the destruction of electronic voting machines in some areas on April 19, when the northeastern state went to the polls in India’s first phase of elections.

RATINGS: Greek Outlook Moved to Positive at S&P on Friday

Sovereign rating reviews of note from after hours on Friday include:

  • Moody's affirmed Lithuania at A2; outlook stable
  • S&P affirmed Greece at BBB-; Outlook revised to Positive from Stable
  • Morningstar DBRS confirmed Lithuania at A (high), Stable Trend
  • Scope Ratings downgraded Estonia to A+; Outlook revised to Stable from Negative

FOREX: Markets Flatline as Geopolitical Risk Fades

  • Antipodean currencies are modestly higher, with AUD and NZD modestly firmer against broader G10. Resultingly, AUD/USD has firmed just above last week's lows, however there are few technical signs of a firmer bounce at current levels. Last week's 0.6363 print marks multi-month lows in the pair, and renewed weakness opens mid-November lows at 0.6339 and below.
  • The USD Index is flat but holds the bulk of the early April rally. With the Fed inside the pre-meeting media blackout, focus remains on recent highs of 106.517, a break above which puts prices at the best levels since November.
  • CHF trades among the poorest in G10. Friday's CFTC update showed markets built the CHF net short to its largest level since 2019 as the SNB easing cycle contrasts further with the persistent pushback in ECB/BoE/Fed cycle expectations.
  • Focus for the duration of the Monday session rests on the US Chicago Fed National Activity Index as well as Eurozone consumer confidence. The central bank speaker slate sees ECB's Villeroy and Lagarde on the docket, with Fed speakers notably absent as the FOMC enter their pre-meeting media blackout period.

BONDS: Fresh Cycle Highs for Bund Yields, Gilts Outperform Major Peers

{EU}{GB} BONDS: Recoveries in core global FI markets are sold into, with a lack of weekend escalation in the Israel-Iran situation and U.S. fiscal support for Ukraine dominating most macro conversations. That keeps bearish technical backdrops intact.

  • Bund yields register a fresh cycle peak above 2.53%, with the curve bear steepening as benchmark yields move 1.5-3.5bp higher on the day.
  • The periphery remains tighter vs. Bunds, although a move away from best levels in equity markets limited that move. See here for further colour.
  • Gil futures are mid-range, +10 or so.
  • The UK curve sees some light twist steepening, yields 0.5bp lower to 2.0bp higher.
  • Friday’s dovish comments from BoE Deputy Governor Ramsden continue to dominate UK discussions.
  • STIRs once again fully discount an August cut from the BoE.
  • Gilts tighten a little across the curve vs. U.S. and German peers as a result.
  • We have also flagged increased press speculation re: pre-election fiscal easing, although this hasn’t been a market mover as of yet.
  • ECB speak from Lagarde headlines today’s macro calendar, with the Fed now in its pre-meeting blackout period.
  • Participants also remain on the lookout for European syndications (an EU announcement is expected as soon as today, with plenty of other potential deals also noted).

EQUITIES: Bearish Corrective Cycle in Eurostoxx 50 Futures Remains in Play

Eurostoxx 50 futures traded to a fresh cycle low Friday, before recovering. A bearish corrective cycle remains in play and the move down this month has allowed an overbought trend condition to unwind. The contract has traded through 4859.20, the 50-day EMA and a key pivot price point. A clear break of this average would signal scope for a deeper retracement and opens 4711.00, the Feb 19 low. Initial firm resistance is 4926.90, the 20-day EMA. The short-term trend condition in S&P E-Minis is unchanged and remains bearish. Friday’s extension reinforces current short-term conditions. The contract has cleared support at the 50-day EMA, signalling scope for a continuation lower near-term. Sights are on 4907.57 next, a Fibonacci retracement. Firm resistance is seen at 5164.38, the 20-day EMA. A clear break of the average would signal a possible reversal.

  • Japan's NIKKEI closed higher by 370.26 pts or +1% at 37438.61 and the TOPIX ended 36.14 pts higher or +1.38% at 2662.46.
  • Elsewhere, in China the SHANGHAI closed lower by 20.666 pts or -0.67% at 3044.595 and the HANG SENG ended 287.55 pts higher or +1.77% at 16511.69.
  • Across Europe, Germany's DAX trades higher by 50.56 pts or +0.29% at 17786.38, FTSE 100 higher by 82.31 pts or +1.04% at 7977.68, CAC 40 down 7.85 pts or -0.1% at 8014.56 and Euro Stoxx 50 down 0.89 pts or -0.02% at 4917.2.
  • Dow Jones mini up 127 pts or +0.33% at 38332, S&P 500 mini up 17.75 pts or +0.35% at 5020.75, NASDAQ mini up 78.25 pts or +0.46% at 17259.75.

COMMODITIES: Trend Condition in Gold Unchanged and Bullish

A bull theme in WTI futures remains intact, however, last week’s move lower highlights the start of a short-term bearish corrective cycle. The contract has traded through the 20-day EMA and this signals scope for an extension towards the 50-day EMA, at $80.70. A clear break of the 50-day EMA would signal a stronger bearish theme. On the upside, key resistance and the bull trigger has been defined at $86.97, the Apr 12 high. The trend condition in Gold is unchanged and the outlook remains bullish with price continuing to trade closer to its recent highs. The latest rally maintains the price sequence of higher highs and higher lows and note that moving average studies are in a bull-mode condition, reflecting positive market sentiment. The next objective is $2452.5, a Fibonacci projection. Initial firm support is at $2310.2, the 20-day EMA.

  • WTI Crude down $1 or -1.2% at $82.14
  • Natural Gas down $0.02 or -1.37% at $1.728
  • Gold spot down $31.21 or -1.3% at $2360.7
  • Copper down $0.3 or -0.07% at $452.15
  • Silver down $0.85 or -2.97% at $27.839
  • Platinum down $9.54 or -1.02% at $926.6

DateGMT/LocalImpactFlagCountryEvent
22/04/20241230/0830*CAIndustrial Product and Raw Material Price Index
22/04/20241400/1600**EUConsumer Confidence Indicator (p)
22/04/20241430/1030CABOC market participants survey
22/04/20241530/1730EUECB's Lagarde Lecture at Yale
22/04/20241530/1130*USUS Treasury Auction Result for 13 Week Bill
22/04/20241530/1130*USUS Treasury Auction Result for 26 Week Bill
23/04/20242300/0900***AUJudo Bank Flash Australia PMI
23/04/20240030/0930**JPJibun Bank Flash Japan PMI
23/04/20240600/0700***UKPublic Sector Finances
23/04/20240715/0915**FRS&P Global Services PMI (p)
23/04/20240715/0915**FRS&P Global Manufacturing PMI (p)
23/04/20240730/0930**DES&P Global Services PMI (p)
23/04/20240730/0930**DES&P Global Manufacturing PMI (p)
23/04/20240800/1000**EUS&P Global Services PMI (p)
23/04/20240800/1000**EUS&P Global Manufacturing PMI (p)
23/04/20240800/1000**EUS&P Global Composite PMI (p)
23/04/20240800/0900UKBOE's Haskel Panelist at Econometric Seminar
23/04/20240830/0930***UKS&P Global Manufacturing PMI flash
23/04/20240830/0930***UKS&P Global Services PMI flash
23/04/20240830/0930***UKS&P Global Composite PMI flash
23/04/20241115/1215UKBOE's Pill Speech at University of Chicago
23/04/20241230/0830**USPhiladelphia Fed Nonmanufacturing Index
23/04/20241255/0855**USRedbook Retail Sales Index
23/04/20241345/0945***USIHS Markit Manufacturing Index (flash)
23/04/20241345/0945***USS&P Global Services Index (flash)
23/04/20241400/1000***USNew Home Sales
23/04/20241400/1000**USRichmond Fed Survey
23/04/20241530/1130*USUS Treasury Auction Result for Cash Management Bill
23/04/20241700/1300*USUS Treasury Auction Result for 2 Year Note

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