MNI EUROPEAN OPEN: USD/JPY Rebound Continues Despite Fresh Verbal Rhetoric
EXECUTIVE SUMMARY
- KASHKARI - FED LIKELY ON HOLD FOR ‘EXTENDED PERIOD’ - MNI BRIEF
- US PAUSED WEAPONS SHIPMENT TO ISRAEL OVER RAFAH INVASION CONCERN - BBG
- US REVOKES SOME EXPORT LICENSES FOR FIRMS SUPPLYING CHINA’S HUAWEI - RTRS
- CHINA EXPORTS TO GROW IN 2024 - ADVISOR - MNI INTERVIEW
Fig. 1: USD BBDXY Index Versus US 10yr Nominal Tsy Yield
Source: MNI - Market News/Bloomberg
U.K.
BOE (MNI POLICY): Bank of England Deputy Governor for Markets and Banking Dave Ramsden has shown a knack for anticipating moves by a majority on the Monetary Policy Committee and his tilt towards easing in an April speech could be a harbinger of a cut ahead if other Bank insiders follow his lead.
EUROPE
EU (MNI): Ursula von der Leyen is on course to beat off likely rivals including Mario Draghi to win a second term as European Commission president following June 4-6 elections to the European Parliament, but would adjust her emphasis on climate change and legislative activity to suit the new intake of MEPs, officials following the campaigns told MNI.
SWEDEN (BBG): Swedish home prices rose for a third month as buyers expect some relief from lower borrowing costs.
TURKEY (BBG): Turkish officials have been holding talks in recent weeks about easing restrictions on offshore currency swaps, according to people with knowledge of the conversations, a move that would meet a key demand from foreign investors interested in entering the market.
U.S.
POLITICS (RTRS): Donald Trump's trial in Florida on charges of illegally keeping classified documents after leaving office has been indefinitely postponed, a judge decided on Tuesday, greatly reducing the odds he will face a jury in either of the two federal criminal cases against him before the Nov. 5 U.S. election.
FED (MNI): The Federal Reserve's most likely scenario is to keep interest rates on hold for a while, Minneapolis President Neel Kashkari said Tuesday, adding he could switch his dot plot forecast from two rate cuts this year to one or none.
US/CHINA (RTRS): The U.S. on Tuesday said it revoked some licenses that allow companies to ship goods, such as chips, to sanctioned Chinese telecommunications equipment maker Huawei Technologies.
US/CHINA (BBC): TikTok has filed a lawsuit aiming to block a US law that would ban the video app in the country unless it is sold by its Chinese parent company. In the filing, the social media company called the act an "extraordinary intrusion on free speech rights" of the company and its 170 million American users.
US/ISRAEL (BBG): 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.
OTHER
JAPAN (BBG): Bank of Japan Governor Kazuo Ueda fired a clear warning shot to financial markets about a potential policy move as he beefed up his language on the weak yen a day after meeting with Prime Minister Fumio Kishida.
CHINA
TRADE (MNI INTERVIEW): 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.
POLICY (CSJ): China may lower the RRR for banks this quarter to provide medium-term liquidity and support the economy, China Securities Journal reports, citing analysts.
ECONOMY (CFLP): China’s Logistic Industry Prosperity Index reached 52.4% in April, up 0.9pp from March, according to the China Federation of Logistics and Purchasing (CFLP). Firms noted an improvement in market foundations, with sub-indices of business volume, new order and equipment utilisation all showing upward trends, according to He Hui, chief economist at the CFLP.
HOUSING (SECURITIES TIMES): The latest property easing in the southern Chinese city of Shenzhen is largely seen as a moderate step to stimulate the local housing market and is not powerful enough to boost market confidence, Securities Times reports, citing analysts.
PROPERTY (21st CENTURY BUSINESS HERALD): China’s property sector showed 40% less average daily sales of new housing square meters during this year's May holiday compared with last year, according to China Index Academy. Major cities Shenzhen, Shanghai and Guangzhou saw buyers’ average daily transaction area of new housing square meters decrease by 32%, 62% and 65% respectively.
EQUITIES (SHANGHAI SECURITIES NEWS): Some Chinese brokerages plan to hand out cash dividends more frequently to attract investors, Shanghai Securities News reports.
CHINA MARKETS
The People's Bank of China (PBOC) conducted CNY2 billion via 7-day reverse repo Wednesday, with the rates unchanged at 1.80%. The operation has led to a net injection of CNY2 billion as no repos matures today, according to Wind Information.
- The seven-day weighted average interbank repo rate for depository institutions (DR007) rose to 1.8623% at 09:34 am local time from the close of 1.8458% on Tuesday.
- The CFETS-NEX money-market sentiment index, measuring interbank money-market liquidity, closed at 50 on Tuesday, compared with the close of 35 on Monday. A higher reading points to tighter liquidity condition, with 50 representing an equilibrium.
The People's Bank of China (PBOC) set the dollar-yuan central parity rate higher at 7.1016 on Wednesday, compared with 7.1002 set on Tuesday. The fixing was estimated at 7.2159 by Bloomberg survey today.
MARKETS
US TSYS: Treasury Futures Erase Earlier Gains, Fed Speak Ahead
- Treasury futures initially opened the session stronger with the 10Y contract making highs of 109-03, we have pared gains and now trade down (- 02+) at 108-30, earlier a few block sells of the 10y contracted traded at 108-30/30+.
- Cash Treasury curve is slightly steeper today with the 2Y yield +0.4bp at 4.834%, 10Y +1.4bp to 4.471%, the 2y10y is +0.819 at -36.731.
- MNI - MN FED Kashkari: Fed Likely On Hold For 'Extended Period' - (See link)
- Projected rate cut pricing scaled back from midmorning levels: June 2024 at -10.0% w/ cumulative rate cut -2.5bp at 5.302%, July'24 at -24% w/ cumulative at -8.5bp at 5.243%, Sep'24 cumulative -20.1bp, Nov'24 cumulative -30.3bp, Dec'24 cumulative currently -43.9bp.
- Looking Ahead: MBA Mortgage Applications, Wholesale Trade/Inventories, and more Fed Speak. US Treasury auctions $42B 10Y notes as well.
JGBS: Softer Tone Amid Lower US Tsys, Ueda Remarks
The bias in JGB futures has mostly been to the downside in Wednesday trade to date. We were last near 144.61, -.07. Session lows rest at 144.57, which is a touch above lows from early trade on Tuesday. Session highs came not long after the open at 144.86.
- A softer tone to US Tsy futures has likely weighed on the JGB backdrop. Fed speak around an extended pause has been a factor on the Tsy backdrop.
- JGBs also may have seen some light pressure on comments made by BoJ Governor Ueda around risks from a weaker yen and its potential impact on domestic policy. Still, such comments haven't aided the yen much today.
- We had the 10yr debt sale, with a slightly lower debt to cover ratio compared to the previous auction. Just under ¥2trln was sold.
- In terms of cash JGB yields, we sit back at 0.87% for the 10yr, unchanged for the session. The 20-40yr parts of the curve are still lower in yield terms by 1-2bps. The 10yr swap rate is a touch higher, last near 0.945%.
- Tomorrow, we have March labor cash earnings data on tap.
AUSSIE BONDS: ACGBs Mixed, Curve Flattens, Strong Demand At 5Y Auction
ACGBs (YM -2.0 & XM +2.5) are mixed today, curves have flattened as investors looks to position post the RBA on Tuesday. Earlier we have the 5yr auction, bid coverage ratio was 4.125 from 3.3375 prior, otherwise it has been a slow day, data was light with the next release not until Monday when NAB business surveys are out.
- US equity futures are little changed in Asia trading, while local markets led by Japan edge lower, poor outlook by Nintendo and Toyota reported operating income miss.
- US Tsys curve is slightly steeper today, yields are flat to 1.5bps higher. Earlier there was some block selling of 10Y futures contracts at 108-30/30+.
- The cash ACGB curve is flatter today with the front-end weaker, yields are 1.5bps higher to 3bps lower, the AU-US 10-year yield differential is now -18bps up from -22bps earlier today
- Swap rates are flat to 1bp lower
- The bills strip is mixed, 1bp higher to 1bp lower.
- RBA-dated OIS is little changed today, with the market pricing 4.5bps of easing to a terminal rate of 4.30%
- Looking ahead: Tomorrow we have 63 & 126-day bill auction, with the next data print the Nab Business Surveys on Monday
NZGBS: NZGBS Richer, Curve Flattens, Bonds Auction Thursday
NZGBs are flat to 5bps richer, with the curve bull-flattening, although the 30yr has lagged the move somewhat. It has been a very subdued day in the region, with no major data releases. Local rates markets have largely been digesting and positioning on the back on the RBA less hawkish than expected tone late Tuesday
- the US Tsys curve is slightly steeper today, yields are flat to 1.5bps higher. Earlier there was some block selling of 10Y futures contracts at 108-30/30+.
- The NZGB curve has bull-flattened, the 2Y is +0.8bps at 4.728% while the 10Y is -5.2bps at 4.652%, while the 30yr has lagged the move trading just 3.8bps lower.
- Swap rates are 1-4bps higher
- RBNZ dated OIS has pushed out expected cuts slightly with pricing now 2bps softer at the November meeting with a cumulative 40bps of easing is priced by year-end.
- Earlier, the GDT Price Index increased significantly from 0.1% to 1.8%, signaling a positive trend in the dairy market. While whole milk power average prices rose to $3,350 a ton, with the index rising 2.4%.
- Looking Ahead: Today the local calendar is empty with, NZ to Sell 7yr, 10yr 20yr bonds on Thursday and BusinessNZ Manufacturing PMI on Friday
FOREX: USD Rebound Continues, Yen & AUD Underperform NZD
USD sentiment has continued to recovery in the first part of Wednesday trade. The BBDXY USD index sits up a further 0.20% to 1256.85. This is still well below earlier May highs, but comfortably above post NFP lows from Friday near 1245. US Tsy futures have ticked lower, while regional equities are mostly weaker, which has aided the USD at the margins
- AUD and JPY have been the main sources of weakness against the USD, although all G10 currencies are tracking lower at this stage. NOK and SEK are also down by around 0.3%.
- USD/JPY has rallied back above 155.00, continuing to unwind last week's losses. We were last near 155.15 (around 0.30% weaker in yen terms). Earlier highs were at 155.27, lows at 154.55.
- We had fresh verbal FX rhetoric from FinMin Suzuki. They were in line with what has been said previously, although some sell-side analysts question the ability for continued Japan FX intervention given recent comments from US Treasury Secretary Yellen that FX such episodes such be rare.
- We also heard from BoJ Governor Ueda, who spoke about FX risks and how this can impact monetary policy, depending on the type of moves. Still, Ueda stated monetary policy can't control FX and a policy shift would be guided by risks of inflation over shooting the current projections.
- These comments didn't alter the yen trend.
- AUD/USD has been weighed down by further yield underperformance post yesterday's RBA outcome. AU-US spreads continue to fall. The currency was last at 0.6575/80, off a little over 0.3%.
- NZD has outperformed the A$ move but is still down against the USD, last near 0.5995. AUD/NZD is down 0.18% to 1.0972. Initial support is 1.0960 (20-day EMA), while a break back above 1.1000 would be needed to test resistance is 1.1031 (May 7 high).
- Later the Fed’s Jefferson, Collins and Cook speak. March German IP is released and little else.
ASIA EQUITIES: China & Hong Kong Equities Mixed, Property Slumps,
Hong Kong and China equities are mixed today, with Hong Kong markets again outperforming mainland stocks with the HSI has outperforming the CSI300 by 7.64% over the past month. China has announced they may support Telsa self-driving taxi trails, which have help local self driving technology shares, while sporting good manufacturing stocks also jumped after a report that the government will look at policies to promote the upgrade of sports equipment in the country.
- Hong Kong equities are mixed today the HSTech Index is up 0.25% after falling over 2% on Tuesday, the index is still in bull market territory after climbing 22% from recent lows. The Mainland Property Index is down just over 3% today, and is now trading back below the 200-day EMA, while the wider the HSI is down 0.10%. China onshore markets are outperforming today with the CSI300 down 0.85% although we still hold above the important 200-day EMA, while small-cap indices the CSI1000 and CSI2000 are both down about 1.20%, and the ChiNext down 1%
- China Northbound saw a -2.12b yuan outflow on Tuesday. Equity flow momentum however remains strong in the short-term with the 5-day average at 6.38b, well above the 20-day average at 0.745b and the 100-day average at 0.75b yuan.
- In the property space, China Vanke has put a commercial project in Shenzhen up for sale, with bidding starting at approximately 2.24 billion yuan. This move is part of Vanke's strategy to divest from non-core investments due to significant industry changes, despite expressing optimism about Shenzhen's development. Earlier this week Shenzhen relaxed home buying rules, however some analysts believe these measures in may not significantly bolster market confidence. These policies aim to reduce housing inventories in non-core areas but are perceived as less aggressive compared to measures implemented by other cities. Market expectations included stronger actions such as relaxed tax treatments and eased homebuying restrictions in Shenzhen's core areas, which were not realized.
- Analysts suggest that China might lower the Reserve Requirement Ratio (RRR) for banks this quarter to inject medium-term liquidity and bolster the economy. With anticipated increases in government and policy bank debt issuance in the second and third quarters, such a move could help mitigate potential liquidity shocks.
- Looking forward, the calendar is light on Today with China Trade Balance due out tomorrow.
ASIA PAC EQUITIES: Asian Equities Mixed, Nintendo Reports Weak Outlook
Asian markets are lower in early morning trading on Wednesday, Japanese equities are underperforming in the region after Nintendo reported weak outlook and while investors await results from Toyota later today. In the currency space, local FX is weaker vs the USD with KRW the worst performer, followed by the JPY, weaker local currency could support export names, however there has been little signs of that this morning. There is little on the calendar today in the region, markets will be focused on corporate earnings and any hints from Fed speakers later tonight.
- Japanese equities are lower today, dragged down by weaker tech stocks as the rally in the US seems to have lost steam. Nintendo's share tumbled after the company warned of a sharp fall in profit and expects operating income to fall a bigger-than-expected 24% to ¥400 billion ($2.6 billion) on a 19% revenue decline in the year to March 2025. The JPY is down 0.32% to 155.15 after BoJ Gov Ueda said he doesn't see yen moves as having a big impact on trend inflation at the moment, while Suzuki again warned about excessive FX moves. The Nikkei and Topix are both down about 1.20%.
- South Korean equities are little changed on Wednesday, HD Hyundai Marine jumped as much as 45% after largest Korean IPO since 2022. There has been little else in the way of headlines in the region while data remains light for the next week The Kospi is currently up 0.10%
- Taiwan equities are slightly lower today after headline CPI inched down to 2.0% y/y in April from 2.1% prior. The print fell back within the central bank's target range of 0-2%. The outcome was meaningfully below Bloomberg consensus of 2.2%. Looking ahead, later we have Trade Balance data while the Taiex currently trades down 30%.
- Australian equities are little changed today after the RBA kept rates on hold yesterday. The market was expected a slightly move hawkish tone from the bank, which saw the yields curve bull-flatten. The ASX200 has held onto recently gains and eyes a break of 7,800.
- Elsewhere in SEA, New Zealand equities are down 0.10%, Singapore equities down 0.75%, Philippines equities down 0.67% while Malaysian equities trade 0.13% higher and Indonesian equities are 0.15%.
OIL: Crude Lower Again, US EIA Stock Data Out Later
Oil prices are lower again today as API measured US crude stocks rose and hopes of a Gaza ceasefire deal remain. Also the US dollar is stronger (BBDXY +0.2%). WTI has found support at $78 and is down 0.4% to $78.06/bbl, close to the intraday low of $78.01. Brent is down 0.4% to $82.79 after a low of $82.74.
- Bloomberg reported that US crude inventories rose 500k barrels last week according to people familiar with API data. Gasoline rose 1.5mn and distillate 1.7mn. The official EIA data is out later today.
- There are number of indicators pointing to easier conditions in the oil market. Not only has there been a US stock build but also refining margins and prompt spreads have narrowed. But supply remains in focus with tightened sanctions on Iran and Venezuela and a likely extension of OPEC+ output cuts into H2 2024 to be decided at its June 1 meeting.
- China has allowed 14mn tonnes of diesel, gasoline and jet fuel to be exported as domestic fuel demand wanes with the growth in EV use.
- Later the Fed’s Jefferson, Collins and Cook speak. March German IP is released and little else.
GOLD: Remains Within Recent Ranges, But Outperforming Firmer USD Backdrop
Gold is up from earlier lows, last near $2318.5. We got close to $2307 in the first part of trade amid a broadly firmer USD backdrop and as US Tsy futures moved away from session highs. THis was sub intra-session lows from Tuesday. However, support emerged and we have recovered, even as the USD has held near session highs.
- We remain within ranges in terms Tuesday US trade (gold lost 0.42% for Tuesday). At this stage we are +0.20% higher in the first part of Wednesday trade, outperforming USD gains/firmer US yield backdrop.
- This leaves us close to the 20-day EMA, which is around current spot levels.
- China FX reserves fell in April, while gold accumulation slowed. The PBoC purchased 60k troy ounces in April, down from 160k in March and 390k in Feb per BBG.
- Central bank demand is seen as a key driver of gold's run higher, so such trends will be watched as progress into H2 this year.
UP TODAY (TIMES GMT/LOCAL)
Date | GMT/Local | Impact | Flag | Country | Event |
08/05/2024 | 0600/0800 | ** | DE | Industrial Production | |
08/05/2024 | 0700/0900 | ** | ES | Industrial Production | |
08/05/2024 | 0730/0930 | *** | SE | Riksbank Interest Rate Decison | |
08/05/2024 | 0800/1000 | * | IT | Retail Sales | |
08/05/2024 | 1100/0700 | ** | US | MBA Weekly Applications Index | |
08/05/2024 | 1400/1000 | ** | US | Wholesale Trade | |
08/05/2024 | 1430/1030 | ** | US | DOE Weekly Crude Oil Stocks | |
08/05/2024 | 1500/1100 | US | Fed Vice Chair Philip Jefferson | ||
08/05/2024 | 1545/1145 | US | Boston Fed's Susan Collins | ||
08/05/2024 | 1700/1300 | ** | US | US Note 10 Year Treasury Auction Result | |
08/05/2024 | 1730/1330 | US | Fed Governor Lisa Cook | ||
08/05/2024 | 1935/1535 | US | New York Fed's Roberto Perli |