MNI EUROPEAN OPEN: Saudi Determined To Support Oil Prices, Yen Weakens
EXECUTIVE SUMMARY
- GOOLSBEE CRITICIZES FED'S DOT PLOT FOR LACKING CONTEXT - MNI
- 'WORK TO DO' AFTER LOCAL ELECTION LOSSES - RISHI SUNAK - BBC
- FED TO CUT ONCE AT MOST THIS YEAR- GHAMAMI - MNI
- ISRAEL BEGUN TO EVACUATE CITIZENS IN RAFAH - BBG
- AUSTRALIA’S HOUSING RENT HITS RECORD HIGH IN HEADACHE FOR RBA - BBG
- SAUDI ARABIA HIKES OIL SELLING PRICES FOR ALL GRADES TO ASIA - BBG
Fig. 1: WTI oil prices US$/bbl
Source: MNI - Market News/Refinitiv
U.K.
UKRAINE (BBC): UK Foreign Secretary Lord Cameron has said it is up to Ukraine to decide how to use British weapons and insisted it has the right to strike targets on Russian territory. During a visit to Kyiv, he said the UK would provide £3bn ($3.75bn) per year for as long as necessary.
POLITICS (BBC): Rishi Sunak has dismissed calls to change course after poor local election results, arguing he can make "progress" with voters before a general election. Speaking for the first time since the full scale of Tory losses was revealed, the prime minister called losing 470 councillors "bitterly disappointing".
SCOTLAND (BBC): SNP leadership front-runner John Swinney is expected to succeed Humza Yousaf unopposed after a potential challenger withdrew his bid at the 11th hour.
EUROPE
CHINA (FRANCE24): Xi is to hold a day of talks in Paris on Monday -- also including EU Commission chief Ursula von der Leyen -- followed by a state banquet hosted by Macron at the Elysee. Tuesday will see Macron take Xi to the Pyrenees mountains to an area he used to visit as a boy for a day of less public and more intimate talks.
UKRAINE (FRANCE24): Zelensky's name appeared on Saturday on the Russian interior ministry's "wanted" list, an online database of alleged criminals sought by the Russian authorities. Ukraine's foreign ministry said the decision demonstrated "the desperation of the Russian state machine and propaganda, which are at a loss for what else to invent to garner attention".
HUNGARY (AP): Some 10,000 people gathered in Debrecen, Hungary’s second-largest city, in support of Péter Magyar, a political newcomer who in less than three months has shot to prominence on pledges to bring an end to problems like official corruption and a declining quality of life in the Central European country. There are European and local elections held in June.
U.S.
FED (MNI): Chicago Fed President Austan Goolsbee criticized the FOMC's quarterly dot plot projections in a speech Friday, saying that detaching members' interest-rate forecasts from their views of underlying economic conditions fails to paint a complete picture and can become "mostly just speculation."
FED (MNI INTERVIEW): The Federal Reserve has room to cut interest rates just once later this year at most with inflation staying elevated and a higher neutral rate making monetary policy less restrictive, SEC economist and former Fed board researcher Samim Ghamami told MNI.
FED (MNI): Federal Reserve Governor Michelle Bowman said Friday she still supports raising interest rates should data indicate progress on inflation has stalled or is insufficient to bring inflation down to 2% in a timely way.
SERVICES (MNI INTERVIEW): U.S. services shrank in April for the first time since 2022 but the sector should continue to grow on average over the remainder of this year, Institute for Supply Management services chair Anthony Nieves told MNI Friday.
GEOPOLITICS (BBG): US National Security Advisor Jake Sullivan insisted the Biden administration will enter into a defense pact with Saudi Arabia only if the kingdom normalizes relations with Israel, the Financial Times reported.
OTHER
ISRAEL (BBG): Israel’s military has begun moving civilians out of Rafah, according to the country’s main broadcaster, a possible prelude to a long-expected attack on the city in Gaza. The Israel Defense Forces are “evacuating the civilian population,” Kan News
reported on Monday morning, adding that troops are operating in eastern parts of the city.
ISRAEL (BBG): Israel closed the Kerem Shalom humanitarian crossing into Gaza on Sunday after a rocket barrage was fired by Hamas, as weekend talks on a potential truce broke up inconclusively.
ISRAEL (BBC): Israel's government has moved to shut down the operations of the Al Jazeera television network in the country, branding it a mouthpiece for Hamas. Prime Minister Benjamin Netanyahu said the cabinet agreed to the closure while the war in Gaza is ongoing.
OIL (BBG): Saudi Arabia raised the price of its flagship crude to Asia for a third consecutive month, as the kingdom tries to tighten the oil market to prevent a global surplus. State-owned Saudi Aramco raised the June official selling price of Arab Light crude for customers in Asia by 90 cents to $2.90 a barrel above the regional Oman-Dubai benchmark, according to a price list seen by Bloomberg.
RBA (AFR/BBG): Former Reserve Bank of Australia governor Philip Lowe has joined former governor Glenn Stevens in warning the fight against inflation “isn’t done” and any upside surprises would “mean the case for increasing interest rates would mount”.
AUSTRALIA (BBG): Australia’s housing rental value hit a fresh record in April with some cities seeing renewed growth momentum, a troubling sign for the Reserve Bank that’s likely to leave borrowing costs at a 12-year high this week to stave off price pressures. Median dwelling rent was A$627 ($413) per week nationwide, as of April, up 8.5% from a year ago, data from property consultancy CoreLogic Inc. showed.
AUSTRALIA (BBG): Australia plans to wipe out about A$3 billion ($2 billion) from student loans, cutting the debt of more than three million people, as the country continues to grapple with inflation and cost-of-living pressures.
NZ (BBG): The Reserve Bank of New Zealand has limited scope to cut interest rates this year and shouldn’t ease policy until it’s sure inflation will return to target, according to the Organisation for Economic Cooperation and Development.
PHILIPPINES (BBG):Bangko Sentral ng Pilipinas says Philippine economic growth will likely slow in 2H on tighter financial conditions, although the momentum remains firm and a hard landing appears unlikely.
INDONESIA (BBG): Indonesia President Joko Widodo asks ministers to manage the state budget carefully amid rising global oil prices, he says in speech on Monday.
INDONESIA (DJ/BBG): Indonesia's economy maintained a steady pace of growth in the first quarter, supported by still-strong domestic activity. Southeast Asia's largest economy grew 5.11% from a year earlier during the first three months of the year, Indonesia's official statistics agency said Monday.
CHINA
EQUITIES (SECURITIES TIMES): China stocks could continue trending upward driven by the CPC Politburo meeting's positive tone in late April and the U.S. Federal Reserve's more dovish stance, Securities Times reported citing analysts. Global funds have a strong willingness to allocate to Chinese assets with risk appetite increasing significantly, said CITIC Securities.
COMMODITIES (CFLP): The China Commodity Price Index reached 115.4 points in April, up 3% m/m and down 0.4% y/y, according to the China Federation of Logistics and Purchasing (CFLP). Authorities' implementation of macroeconomic policy to drive domestic demand was gradually emerging as the CBPI had risen for two consecutive months, a CFLP representative said.
FRANCE (XINHUA): President Xi plans to exchange views with President Macron on the development of China-French and China-European relations as well as major international and regional issues, according to a written speech delivered upon arrival in Paris. Xinhua, a state news agency, said Sino-French trade has grown 5.9% on average annually since 2019, with France a major source for Beijing’s imports of airplanes and aircraft parts.
TOURISM (BBG): Hong Kong recorded 758,000 visitors from mainland China during the five-day Labor Day holiday as of 9pm local time Sunday, Hong Kong Economic Journal reports, citing data from the immigration department. The number represents more than 20% increase of Chinese visitors over the same period last year.
MARKET DATA
AUSTRALIA APRIL MELBOURNE INSTITUTE INFLATION INDEX +0.1% M/M +3.7% Y/Y; PRIOR +0.1%/3.8%
AUSTRALIA ANZ APRIL JOB ADVERTISEMENTS RISE 2.8% M/M; PRIOR -1.0%
CHINA APRIL CAIXIN COMPOSITE PMI 52.8 VS 52.7 IN PREVIOUS MONTH
CHINA APRIL CAIXIN SERVICES PMI 52.5 VS 52.7 IN PREVIOUS MONTH
MARKETS
US TSYS: Treasury Futures Steady As Japan & UK Out, Fed Speak Later
- Treasury Futures have done very little with Japan and UK out Today, 10Y futures have traded in very tight ranges making lows of 108-23 and now trade at intraday highs at 108-26, while the 2Y contract is just off intraday highs of 101-23.75 at 101-23.625.
- Treasuries have rallied following today’s NFP release., with the move higher strengthening a bullish S/T set-up and signals potential for an extension of the correction. The 10Y contract's initial resistance is 109-09+ (50-day EMA High Apr 10 and intraday high), while to the downside, initial support is at 108-10 (20-day EMA).
- Across the local rates markets: ACGBs yields are 1-3bps lower with the curve bull-flattening, NZGBs yields are 2-5bps lower pivoting at the 10Y, while in the EM space INDON yields are 5-12bps lower and PHILIP yields are 2-7bps lower.
- Projected rate cut pricing: June 2024 -10% w/ cumulative rate cut -2.5bp at 5.302%, July'24 at -28% vs. -34% (post data high) w/ cumulative at -9.5bp vs. -12.3bp (post data) at 5.233%, Sep'24 cumulative -22.1bp (-25.9bp post data), Nov'24 cumulative -31.7bp (-35.6bp earlier). Dec'24 cumulative currently -46.4bp vs. -54.7bp post data as two 25bp cut pricing moderates.
- Looking Ahead: Little on the data calendar today, focus on Fed Speak (Barkin and Williams to Speak)
AUSSIE BONDS: ACGBs Curve Flatter Ahead Of RBA Tomorrow
ACGBs (YM +1 & XM +2.5) ahead of tomorrows RBA rate decision, local equity markets have rallied today following on from moves made in US markets on Friday, while US equity futures are little changed. Earlier, MI Inflation for Apr was 0.1% m/m vs 0.1% prior & 3.7% y/y vs 3.8% prior, while ANZ-Indeed Job Advertisements were 2.8% in Apr vs -1.0% in March.
- US Tsys futures are little changed today with cash trading closed until the US logs in later with Japan and the UK out for the day.
- Cash ACGB yields are 1-3bps richer today with the curve bull-flattening, while the AU-US 10-year yield differential at -11.5bps.
- Swap rates are 1-3bps higher
- The bills strip is slightly cheaper, with pricing 2-3bps lower
- RBA-dated OIS pricing is 1-2.5bps firmer for meetings beyond September. 2bps of easing is priced by year-end from an expected terminal rate of 4.39%.
- RBA Set to Hold, Sound Hawkish Given Hot CPI - BBG (See link)
- Looking ahead: Tomorrow Retail Sales Ex Inflation while focus will be on the RBA.
NZGBS: Richer But Subdued Trading, Equities Drop
NZGBs closed 4-6bps richer and near the session’s best levels, and continued moves post US NFP on Friday. The local calendar was light on today with just ANZ Commodity Price data out coming in at 0.5% for April up from -1.3% in March.
- China Caixin PMI services index falls to 52.5 from 52.7 in March and down from 56.4 from a year ago, now marking the sixteenth consecutive month of expansion.
- US Tsys futures are little changed today, with curves slightly flatter.
- Swap rates are 1-4 bps lower
- RBNZ dated OIS pricing is slightly softer today, with a cumulative 44bps of easing is priced by year-end.
- NZGBs are 4-6bps lower today, with the 2Y -4bps at 4.74%, the 10Y -5.7bps at 4.754, with the curve pivoting at the 10Y
- Cross-asset NZD is down 0.24% at 0.5997, Equities are down 1% while 5Y CDS is steady at 15bps
- RBNZ Has Limited Scope to Cut Cash Rate This Year, OECD Says - (See link)
- Looking Ahead: The Government’s 9-Month Financial Statements on Tuesday and BusinessNZ Manufacturing PMI on Friday.
FOREX: Yen Weakens To Be Largest Mover Of Session
The US dollar is slightly higher with the BBDXY index up 0.1%, close to intraday highs. The yen was the largest mover during the APAC session weakening 0.5% against the dollar to 153.88, close to the intraday high of 154.01, but Japan is closed today which may have weighed on the currency.
- NZDUSD is down 0.2% to 0.6001 having recently fallen below 60c. It made a low of 0.5996. With AUDUSD slightly higher at 0.6615 supported by post-holiday China equities, AUDNZD is 0.3% higher at 1.1025, close to the high. AUDJPY is 0.6% higher at 101.79.
- European currencies are little changed so far today with EURUSD around 1.0765 and GBPUSD 1.2546.
- There has been some strengthening of Asian currencies following CNY appreciating 0.4% against the dollar following China’s 3 day holiday last week. USDPHP is down 0.2% to 57.23 and USDIDR -0.3% to 16030.
- Later the Fed’s Barkin and Williams speak. There are also the US Senior Loan Officer Survey, European services/composite April PMIs and euro area March PPI.
EQUITIES: Asian Equities Follow US Markets Higher, Japan & South Korea Out
Asian markets are mostly higher today, with MSCI Asia Pacific up as much as 0.7%. Markets in Japan, South Korea & Thailand have been out for public holidays. Local markets are largely following moves made on Friday in the US markets after equities rallied on weaker than expected NFP, with Taiwan Tech names including TSMC and Hon Hai the largest contributors to gains in the region. Locally, It was a quiet day in the region for economic data with Australia MI Inflation, China Caixin PMI and Indonesian GDP data out.
- Taiwan equities are higher today, with semiconductor names the top performing sector. The Taiex is now up 6.60% from lows made the day of the Israel/Iran conflict, and now comfortably trades above all major EMA's while the 14-day RSI sits at 58 and the MACD has increasing green buyers indicating buyers are in control. Looking ahead focus will turn to CPI due out on Wednesday with expectations of 2.20% up from 2.14% in March. The Taiex is up 1.06%.
- Australian equities are higher today with the ASX200 up 0.70% and breaking back above the 20 & 50-day EMAs. Most sectors are in the green except for Pharmaceuticals, & Professional Services, while Macquarie Bank lags in the financials space. Earlier, we had MI Inflation for Apr at 0.1% m/m vs 0.1% prior & 3.7% y/y vs 3.8% prior, while ANZ-Indeed Job Advertisements were 2.8% in Apr vs -1.0% in March .
- Elsewhere in SEA, New Zealand equities are down 0.85%, earlier ANZ Commodity Price increased in Apr to 0.50% from -1.3% in March. Indonesian equities are up 0.20% after GDP beat estimates at 5.11% vs 5.08% expected, Philippines equities are up 0.90% Singapore equities are up 0.25% while Malaysian equities are up 0.25%.
EQUITIES: China Onshore Market Plays Catch-Up, Property Sales Increase
Hong Kong and China equities are mixed today, with China onshore markets playing catch up today after being closed for the past three trading sessions as sentiment improves on the back of Beijing’s supportive policy stance and signs of a continued consumption recovery, while foreign investors continue to buy local stocks marking the third straight months on inflows. China small-cap and growth indices are the top performing areas of the market today, while the mainland property Index is lower, although is still the top performing sector of late.
- Hong Kong equities are mixed today the HSTech Index up unchanged, but is up 23.15% from recent lows made on Apr 19th a break of the 4,000 level would open a retest of 4,200 and highs from Nov 23. The Mainland Property Index is down 1.25% today, although is still up 26% from recent lows, and currently holds just above the 200-day EMA, while the wider the HSI is down 0.10%. China onshore markets are higher today, playing some catch up after being closed for the past three sessions, the CSI300 1.60% and has now settled above the 200-day EMA, the small-cap indices are performing better today with the CSI1000 and CSI2000 both up about 1.80%, while the ChiNext is up 2.20%
- In the property space, China's program backing developer bonds faces a test as Country Garden Holdings Co. faces payments on bonds guaranteed by China Bond Insurance Co. While Country Garden avoided a local default, challenges persist amid a property crisis and a liquidity squeeze. During the Holiday break, Beijing's suburban areas witnessed increased activity in second-hand home transactions following the relaxation of some home-buying restrictions at the end of April. The number of homes listed for sale decreased, indicating improved market sentiment, particularly in districts like Haidian. Analysts anticipate increased sales due to the easing of restrictions, with a significant portion of available homes located outside the city's fifth ring road.
- Earlier, Caixin China PMI Composite for Apr was 52.8 vs 52.7 in March, and Caixin China PMI Services was 52.5 in line with expectations but slightly lower than 52.7 in March
- Looking forward, Trade Balance on Thursday.
OIL: Crude Stabilises As Saudi Shows Determination To Support Prices
After falling sharply last week, oil prices have stabilised during APAC trading today. OPEC, geopolitics and the weaker-than-expected US jobs data have provided support. WTI is up 0.4% to $78.38/bbl after rising to a high of $78.60 following a low of $78.02. Brent is 0.3% higher at $83.21/bbl after a low of $82.86 and high of $83.45. The USD index is 0.1% higher.
- Crude has also found support from Saudi Arabia’s 90c increase in prices for Arab Light shipped to Asia for the third consecutive month bringing the premium to $2.90/bbl. It is seen as part of the kingdom’s determination to keep the market tight. OPEC output cuts are currently agreed until the end of June but are expected to be extended possibly to year end.
- An agreement is yet to be reached on a ceasefire in Gaza between Israel and Hamas as the latter is now discussing the proposal formulated between Egypt and Israel with its political arm in Qatar. Hopes of an imminent truce drove crude lower last week.
- Brent’s prompt spread remains in backwardation but has narrowed signalling that the market remains tight but is easing, according to Bloomberg.
- Later the Fed’s Barkin and Williams speak. There is also the US Senior Loan Officer Survey, European services/composite April PMIs and euro area March PPI.
GOLD: Bullion Rises On Softer US Jobs Data & Middle East Uncertainties
Bullion was little changed on Friday falling 0.1% to $2301.74 to be down 1.6% on the week. Today it is 0.4% higher on softer-than-expected US April jobs data and continued problems reaching a Gaza truce deal. It rose to a high of $2315.43 and is now around $2310.80. The USD index is 0.1% higher.
- Gold prices reached a high of $2346.83/oz last Monday but eased over the start of the week as the geopolitical risk premium unwound on hopes of a Gaza ceasefire. It stabilised around $2300 over the second half of the week following the Fed stating that it is in no hurry to ease but can’t see the next move as a hike either.
- Gold prices continue to trade in a band between initial support and resistance. They traded below the 20-day EMA, highlighting a corrective cycle. Initial support is at $2281.70, May 1 low. This correction is allowing a significant overbought condition to unwind. The bull trigger is at $2431.50.
- Gold prices are sensitive to Fed expectations and another couple of months of easing labour conditions are likely to provide support.
- Later the Fed’s Barkin and Williams speak. There is also the US Senior Loan Officer Survey, European services/composite April PMIs and euro area March PPI.
MARKETS UP TODAY (TIMES GMT/LOCAL)
Date | GMT/Local | Impact | Flag | Country | Event |
06/05/2024 | 0900/1100 | ** | EU | PPI | |
06/05/2024 | 1530/1130 | * | US | US Treasury Auction Result for 26 Week Bill | |
06/05/2024 | 1530/1130 | * | US | US Treasury Auction Result for 13 Week Bill | |
06/05/2024 | 1650/1250 | US | Richmond Fed's Tom Barkin | ||
06/05/2024 | 1700/1300 | US | New York Fed's John Williams | ||
07/05/2024 | 2301/0001 | * | UK | BRC-KPMG Shop Sales Monitor | |
07/05/2024 | 0030/1030 | *** | AU | Retail trade quarterly | |
07/05/2024 | 0430/1430 | *** | AU | RBA Rate Decision | |
07/05/2024 | 0545/0745 | ** | CH | Unemployment | |
07/05/2024 | 0600/0800 | ** | DE | Manufacturing Orders | |
07/05/2024 | 0600/0800 | ** | DE | Trade Balance | |
07/05/2024 | 0645/0845 | * | FR | Foreign Trade | |
07/05/2024 | 0730/0930 | ** | EU | S&P Global Final Eurozone Construction PMI | |
07/05/2024 | 0830/0930 | ** | UK | S&P Global/CIPS Construction PMI | |
07/05/2024 | 0900/1100 | ** | EU | Retail Sales | |
07/05/2024 | 1255/0855 | ** | US | Redbook Retail Sales Index | |
07/05/2024 | 1400/1000 | * | CA | Ivey PMI | |
07/05/2024 | 1530/1130 | US | Minneapolis Fed's Neel Kashkari | ||
07/05/2024 | 1530/1130 | * | US | US Treasury Auction Result for Cash Management Bill | |
07/05/2024 | 1700/1300 | *** | US | US Note 03 Year Treasury Auction Result | |
07/05/2024 | 1900/1500 | * | US | Consumer Credit |