MNI EUROPEAN OPEN: China Housing Sentiment Improves On Easing Restrictions
EXECUTIVE SUMMARY
- FED’s DALY - CUTS DEPEND ON UNCERTAIN INFLATION PATH - MNI BRIEF
- ISRAEL STRIKES EASTERN RAFA AS CEASEFIRE TALKS END WITH NO DEAL - RTRS
- EX-BOJ’S YAMAMOTO URGES SWIFT ASSET REDUCTIONS - MNI INTERVIEW
- BIDEN POISED TO IMPOSE TARIFFS ON CHINA EVS, STRATEGIC SECTORS - BBG
- CHINA SLOWDOWN TOPS CONCERNS OF EUROPEAN FIRMS - MNI BRIEF
- CHINESE CITIES TO EASE HOUSING RESTRICTIONS SIGNIFICANTLY - MNI
Fig. 1: Hong Kong & Mainland China Property Equity Indices
Source: MNI - Market News/Bloomberg
U.K.
POLITICS (BBG): Keir Starmer is set to pledge millions of pounds for border enforcement as the poll-leading Labour Party seeks to trample on Conservative territory by unveiling a strategy to tackle the surge in migrants crossing to British shores in small boats if it wins a general election expected in the autumn.
EUROPE
POLAND (MNI NBP WATCH): The National Bank of Poland kept key rates unchanged on Thursday, with inflation on course to meet its medium-term target, albeit with the threat of “significant” increases in upward price pressures in the second half of the year if fuel prices are raised.
EU/CHINA (MNI BRIEF): 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.
EU/CHINA (BBG): China is losing its luster as a top country to invest in as firms seek to avoid geopolitical risks and turn to Southeast Asia and Europe, according to a survey by the European Union Chamber of Commerce in China.
HUNGARY (BBG): President Xi Jinping pledged more rail and energy investments in Hungary to serve as China’s gateway into the European Union as he secured backup from Prime Minister Viktor Orban for Beijing’s pushback against the “overcapacity” accusations by the West.
U.S.
FED (MNI BRIEF): The timing of U.S. interest rate cuts will depend on the path of inflation, and "the confidence bands have widened" on where inflation will be in the next few months, Federal Reserve Bank of San Francisco President Mary Daly said Thursday.
FED (MNI BRIEF): Federal Reserve Bank of San Francisco President Mary Daly said Thursday she sees no need to weaken the U.S. economy to hit the Fed's inflation target. "There's a sense the economy's in a more stable footing. So the question is do we have to really push the economy down and I don't see evidence of that just yet," she said at the Mercatus Center at George Mason University.
FED (MNI INTERVIEW): The Federal Reserve appears inclined to wait a while longer for higher rates to cool the economy as long as inflation doesn't reaccelerate, though measures of demand growth show no signs of slowing nine months into holding rates at a 23-year high, former Dallas Fed principal policy adviser Evan Koenig told MNI.
OTHER
ISRAEL (RTRS): Israeli forces bombarded areas of Rafah on Thursday, Palestinian residents said, as Prime Minister Benjamin Netanyahu dismissed U.S. President Joe Biden's threat to withhold weapons from Israel if it assaults the southern Gaza city. A senior Israeli official said late on Thursday that the latest round of indirect negotiations in Cairo to halt hostilities in Gaza had ended and Israel would proceed with its operation in Rafah and other parts of the Gaza Strip as planned.
JAPAN (MNI INTERVIEW): 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.
JAPAN (BBG): 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.
MEXICO (MNI BAXICO WATCH): 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.
CANADA (MNI BRIEF): Canada's Emergency Preparedness Minister warned Thursday of another difficult wildfire season following last year's record damage that disrupted the country's economy and blanketed New York City with smoke.
CHINA
US/CHINA (BBG): 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 with new levies while rejecting the kind of across-the-board hikes sought by Donald Trump, people familiar with the matter said.
HOUSING (MNI): 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.
STEEL (21ST CENTURY BUSINESS HERALD): China’s steel firms have recently increased exports in an “unsustainable manner” using high volumes and low prices, with the industry at risk of intensified trade frictions, Chen Yuqian, deputy secretary-general of the China Iron and Steel Association, told 21st Century Business Herald.
GOLD (YICAI): Investors should pay attention to risk and not blindly follow the rally in gold, said Guo Liyan, deputy director of the Institute of Economics at the Chinese Academy of Macroeconomics. He told Yicai bulk commodities will not always rise, while other experts said buyers need to behave rationally and protect themselves from volatility.
SMES (SECURITIES DAILY): The development index of small and medium-sized enterprises rose by 0.1 points to 89.4 in April, rebounding for two consecutive months, but remaining below the prosperity threshold of 100. The index, however, was higher than the same period in 2022 and 2023, Securities Daily reported citing data by China Association of Small and Medium Enterprises.
CHINA MARKETS
PBOC Net Injects CNY2 Bln Via OMO Fri; Rates Unchanged
The People's Bank of China (PBOC) conducted CNY2 billion via 7-day reverse repo Friday, 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 1.8300% at 09:28 am local time from the close of 1.8249% on Thursday.
- The CFETS-NEX money-market sentiment index, measuring interbank money-market liquidity, closed at 43 on Thursday, compared with the close of 45 on Wednesday. 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 lower at 7.1011 on Friday, compared with 7.1028 set on Thursday. The fixing was estimated at 7.2128 by Bloomberg survey today.
MARKET DATA
NEW ZEALAND BUSINESSNZ MANUFACTURING PMI 48.9; PRIOR 46.8
JAPAN MARCH HOUSEHOLD SPENDING Y/Y -1.2%; MEDIAN -2.3%; PRIOR -0.5%
JAPAN MARCH CURRENT ACCOUNT BALANCE ¥3398.8bn; MEDIAN ¥3454.6bn; PRIOR ¥2644.2bn
JAPAN MARCH CURRENT ACCOUNT ADJUSTED ¥2010.6bn; MEDIAN ¥2044.2bn; PRIOR ¥1412.1bn
JAPAN MARCH TRADE BALANCE BOP BASIS ¥491b; MEDIAN ¥549.6b; PRIOR -¥280.9b
JAPAN APRIL BANK LENDING INCL TRUSTS Y/Y 3.1%; PRIOR 3.2%
JAPAN APRIL BANK LENDING EX-TRUSTS Y/Y 3.6%; PRIOR 3.6%
JAPAN APRIL ECO WATCHERS SURVEY CURRENT SA 47.4; MEDIAN 50.3; PRIOR 49.8
JAPAN APRIL ECO WATCHERS SURVEY OUTLOOK SA 48.5; MEDIAN 51.6; PRIOR 51.2
MARKETS
JGBS: Futures Drift Lower, 30yr Auction Saw Tail Yield At 2.00%
JGB futures have had a modest downside bias post the lunchtime break, but have seen support emerge sub 144.20. We were last 144.24, -.05 for JBM4.
- The 30yr auction saw a lower bid to cover ratio of 3.245, versus 3.467 prior. The tail yield was just above 2.00%, which may be appealing to longer term investors, particularly Lifers etc.
- Adding to some downside momentum for JGBs has been a softer tone to US 10yr futures, which couldn't break through Thursday highs in earlier trade.
- On the data front, household spending for March was stronger than expected, dipping only -1.2%y/y, versus an expected -2.5% decline (we were up 1.2% m/m). March trade and current account figures showed surplus trends, but were in line with expectations.
- In the cash JGB space the 10yr yield has mostly tracked steady, last near 0.915%, so still April highs. The 30yr is up a touch to 1.99%.
- In the swaps space, the 10yr is back under 0.99%, but 20-40yr tenors are all +3bps higher.
US TSYS: Tsys Futures Erase Gains To Trade Lower, Busy Day Of Fed Speakers
- Treasury futures opened lower this morning before testing the overnight highs, tsys has since pared gains to trade inline with opening levels the 10Y contract is down (- 03) to 109-00 from NY closing prices, we still sit comfortably above initial support at 108-15+ (20-day EMA), while the 2Y contract down (- 01) at 101-23.125.
- Earlier, a TU-FV-UXY Fly block traded, and a likely block seller of 5Y.
- Looking across local rate markets; ACGBs & NZGBs yields are 1-3bps lower, curves have bull-steepened, while JGBs have twist-flattened with yields now flat to 2bps higher.
- Cash Treasury curve is little changed today the 2Y in +0.2bp at 4.817%, 10Y -0.4bp to 4.449%.
- FED BRIEF (MNI): Fed's Daly Sees No Need To 'Push Economy Down' - (See link)
- Projected rate cut pricing look steady vs. post-claims: June 2024 at -10.0% w/ cumulative rate cut -2.5bp at 5.302%, July'24 at -28% w/ cumulative at -9.5bp at 5.233%, Sep'24 cumulative -22bp, Nov'24 cumulative -31.1bp, Dec'24 -45.8bp.
- Busy session ahead for Fed speakers with Fed Governor Michelle Bowman and Vice Chair for Supervision Michael Barr as well as regional Fed presidents Lorie Logan (Dallas), Austan Goolsbee (Chicago) and Neel Kashkari (Minneapolis) scheduled to speak
- Looking Ahead: UofM Sentiment & Monthly Budget Statement
AUSSIE BONDS: ACGBs Slightly Richer, Curve Unchanged, NAB Business Surveys Monday
ACGBs (YM +1.0 & XM +1.5) are slightly richer today, there has been little in the way of headlines and another empty calendar today. US tsys futures are trading near session lows, after earlier looked to test overnight highs.
- Cross-asset moves: US equity futures are slightly higher today, China property names and surged higher on news of further easing of buying restrictions, in the G10 currency space, AUD & NZD are the worst performers after being the top on Thursday, while Iron Ore is little changed at $116 a ton.
- The ACGB curve is little changed today yields are about 2bps lower with the 2y10y is +0.100 at 29.50, while the AU-US 10-year yield differential is 2bps higher for the day now -13.5bps
- Swap rates are 1-2bps lower in the front-end, and unchanged out past the 5yr.
- The bills strip is slightly richer up 2bp
- RBA-dated OIS implied rate is pricing 1-2bps lower into the November meeting, while the market is now pricing just 3bps of easing into year-end to a terminal rate of 4.32%
- Today, the calendar is light. Looking ahead to next week we have NAB business surveys on Monday, Wage Price index on Wednesday and Employment Numbers on Thursday.
NZGBS: Slightly Richer, Curve Little Changed, BusinessNZ PMI Rises
NZGBs are 1-2bps richer, with the curve little changed. It has been a very slow day in the rates market here in Asia, US Tsys futures are little changed. Earlier, we had BusinessNZ Manufacturing PMI for April came in at 48.9 up from 46.8 in March.
- US Treasury futures looked to test overnight highs earlier, before paring gains with the 10Y contract trading down (- 03+) at 108-31+, there have been a few block trades going through with a TU-FV-UXY Fly block traded, and a likely block seller of 5Y.
- The NZGB curve is little changed, yields are about 1bp lower with the 2Y -1.3bps at 4.794% and the 10Y -1bps at 4.714%.
- Swap rates are 1-2bps lower
- RBNZ dated OIS is 2-4bps softer out past the August meeting, with a cumulative 42bps of easing is priced by year-end
- Looking Ahead: Food Prices & 2Yr Inflation Expectation on Monday
FOREX: USD Modestly Higher, Central Bank Speak Dominates Later
The USD BBDXY index sits marginally higher for the session, last near 1254, up nearly 0.10%. We are away from best levels for the USD, but have recouped some of Thursday's losses.
- USD/JPY was weaker in the first part of trade, but found support sub 155.30. Better household spending data may have helped yen at the margins, however, the market remains in buy on dip mode for the pair. We last sat near 155.70/75, around 0.15% weaker in yen terms.
- The pair looks too high relative to weaker US-JP yield differentials but a generally positive equity backdrop (ex China) is providing some offset.
- AUD and NZD are both weaker, albeit up from session lows. AUD/USD was around 0.6605/10 in latest dealings, off 0.20%. Dips to 0.6600 saw support. NZD/USD was off by a similar amount to 0.6020/25.
- Headlines around potentially fresh US tariffs (which could be announced next week) has likely weighed on China stocks, while USD/CNH has firmed back towards 7.2300. Both factors likely curbing appetite for AUD and NZD at the margin.
- Looking ahead, focus turns to the prelim Q1 UK GDP release, industrial and manufacturing numbers ahead of the Canadian jobs report for April and the prelim University of Michigan sentiment release. Central bank speak remains thick and fast, with appearances from ECB's Cipollone & Elderson, BoE's Pill & Dhingra and Fed's Bowman, Logan, Kashkari, Goolsbee and Barr.
ASIA EQUITIES: HK Equities Higher, Prop Shares Surge, US Tariffs Hurt China Stocks
Hong Kong and China equities are mixed today, with China mainland shares falling on reports the US is set to impose tariffs on Chinese EVs and other strategic sectors, while property developers shares are higher after new home sales in the city surged to a record high in April and Chinese regulators’ proposal to exempt individual investors from paying dividend taxes on some stocks, also benefitting the sector are more Chinese cities scrapping their remaining curbs on residential property purchases. There is little on the data calendar today, with Chinese CPI and PPI data out tomorrow.
- Hong Kong equities are mostly higher today, the HSTech Index has erased earlier losses and is now trading up 0.10%,the property sector is were all the focus has been today with Mainland Property Index up 2.75%, the CSI 300 Real Estate Index up 2.90% and the BBG China Property Gauge up over 8% while the the wider HS Index is up 2.20%. China onshore markets are little changed today with the CSI300 up just 0.05%, while small-caps are under performing today with the CSI1000 is down 1.45% while the ChiNext off 1.30%.
- China Northbound saw a 8b yuan inflow on Thursday. Equity flow momentum has dropped over the past few days with 5-day average now at 0.50b, and now below the 20-day average at 1.20b and the 100-day average at 0.81b yuan.
- In the property space, Chinese real estate developers' shares surged for a second consecutive day after Xi'an lifted property-purchase restrictions, following Hangzhou's lead. Hong Kong developers also saw gains as new home sales in the city reached a record high in April, coupled with Chinese regulators proposing to exempt individual investors from paying dividend taxes on certain stocks.
- MNI: Chinese Cities To Ease Housing Restrictions Significantly - (See Link)
- President Biden's administration is expected to announce a targeted decision on China tariffs next week, focusing on strategic sectors like electric vehicles and solar cells while maintaining existing levies. This move marks one of Biden's significant actions in the economic competition with China, following his call to increase tariffs on Chinese steel and aluminum. The decision reflects Biden's strategy of seeking fair competition with China while avoiding a blanket tariff approach like his predecessor, Trump. Despite anticipation of China's retaliatory measures, Biden's administration aims to strategically address trade issues with China, which have been a focal point in US-China relations, per BBG.
- Looking forward, PPI & CPI on Saturday
ASIA PAC EQUITIES: Regional Asian Equities Follow US Markets Higher
Asian equity markets are higher today, after US equities edged higher on Thursday, following stronger-than-expected Jobless Claims. There is little in the way of economic data out in the APAC region today, and haven't seen any major headlines out. Equity flows were mixed on Thursday, however were largely positive over the past week, with the exception of India and Indonesia who have seen 23 of the past 25 days of net selling by foreign investors. As we look ahead to next week, we have Japan GDP & Industrial Production, Australian & South Korean Employment data, New Zealand Food Price Index and Indian CPI.
- Japanese equities opened higher today, but have given up a bulk of the gains, the initial moves higher were fueled by gains in the US overnight after jobs data showed signs of a cooling labor market that supported the case for Federal Reserve rate cuts this year. Earlier, we had Household Spending we beat estimates falling just 1.2% vs -2.3% and also BoP Current Account Balance which came in at ¥3398.8b and just below consensus at ¥3454.6b. The Nikkei is 0.26% higher, while the Topix performers slightly better up 0.30%.
- South Korean equities have following global peers higher today. The Kospi is comfortably above all major moving averages, while the RSI and MACD indicators have edged higher, signaling buyers remain well in control. It has been a quiet week for headlines out of the region and looking ahead we just have the unemployment rate next Friday. The Kospi is up 0.60%.
- Taiwan equities are slightly higher today, after yesterday saw foreign investors selling local stocks. There is little in the way of headlines out of the region today and looking ahead there is nothing on the data calendar for the coming week, moves will largely be dependent on global peers and in particular global semiconductor prices. The Taiex is up 7.23% from recent lows and 0.60% today.
- Australian equities much like others in the region have edged higher, following gains in the US. Mining and financials are the top performing sectors in the region, with the ASX200 now on track for it's third week of gains. The ASX200 is up 0.55% today.
- Elsewhere in SEA, New Zealand equities closed down 0.07%, Singapore equities up 0.82%, Philippines equities up 0.41% after yesterday falling 1.75% and below the 200-day EMA support.
OIL: Positive Trend Persists, But Only Partially Reversed Last Week's Fall
Brent crude gains have extended in the first part of Friday trade. The active contract was last near $84.40/bbl, up nearly 0.60% for the session. We have posted modest gains in 4 out of 5 trading sessions this week. At this stage we are tracking 1.70% firmer for the week, although this only partially offsets last week's 7.3% fall. WTI front month was last close to $79.80/bbl.
- Broader macro trends around a softer dollar and weaker US yield backdrop have aided the oil rebound in recent sessions.
- We had weaker China import volume data for oil yesterday, but broader macro trends from China were better, while housing equity indices are rising on easier restrictions in a number of cities.
- Israel has launched attacks into Rafah, with cease-fire talks not producing a positive result at this stage. So Middle Eastern tensions will be eyed. Still, Brent prompt spreads have been very steady this week, last around 0.55.
- The technical backdrop for Brent remains cautious. We are probing above the 20-day EMA in the first part of Friday trade, while the 50-day sits further north close to $85.75/bbl. Earlier May lows rest at $81.71/bbl.
GOLD: Extending Thursday's Gains, Up +2% For The Week
Gold has maintained a mostly positive trajectory in the first part of Friday dealing. We were last around $2353/54, up a further 0.30%, after Thursday's +1.6% gain. Earlier highs came in just shy of $2356.
- Thursday's gains came amid a broader USD pullback, as softer jobs claims data weighed on US yields. We have seen some USD stability/gains against the majors today, but this hasn't impacted gold sentiment greatly.
- Gold is tracking comfortably higher for the week, up +2.25% at this stage. This would be the first weekly gain since mid April. We are comfortably back above the 20-day EMA (around $2320/21). Mid April highs came in north of $2431.
UP TODAY (TIMES GMT/LOCAL)
Date | GMT/Local | Impact | Flag | Country | Event |
10/05/2024 | 0600/0700 | ** | UK | UK Monthly GDP | |
10/05/2024 | 0600/0700 | ** | UK | Trade Balance | |
10/05/2024 | 0600/0700 | *** | UK | GDP First Estimate | |
10/05/2024 | 0600/0700 | ** | UK | Index of Services | |
10/05/2024 | 0600/0700 | *** | UK | Index of Production | |
10/05/2024 | 0600/0700 | ** | UK | Output in the Construction Industry | |
10/05/2024 | 0600/0800 | ** | SE | Private Sector Production m/m | |
10/05/2024 | 0600/0800 | *** | NO | CPI Norway | |
10/05/2024 | 0700/0900 | EU | ECB's Cipollone presentation on digital euro | ||
10/05/2024 | 0800/1000 | * | IT | Industrial Production | |
10/05/2024 | 0845/1045 | EU | ECB's Elderson in roundtable at ASVIS/ECCO | ||
10/05/2024 | 1115/1215 | UK | BOE's Pill at National MPC Agency Briefing | ||
10/05/2024 | 1145/1245 | UK | BOE's Dhingra remarks at KCL Econdat Conference | ||
10/05/2024 | - | *** | CN | Money Supply | |
10/05/2024 | - | *** | CN | New Loans | |
10/05/2024 | - | *** | CN | Social Financing | |
10/05/2024 | 1230/0830 | *** | CA | Labour Force Survey | |
10/05/2024 | 1300/0900 | US | Fed Governor Michelle Bowman | ||
10/05/2024 | 1400/1000 | ** | US | U. Mich. Survey of Consumers | |
10/05/2024 | 1400/1000 | US | Dallas Fed's Lorie Logan | ||
10/05/2024 | 1400/1000 | US | Minneapolis Fed's Neel Kashkari | ||
10/05/2024 | 1600/1200 | *** | US | USDA Crop Estimates - WASDE | |
10/05/2024 | 1645/1245 | US | Chicago Fed's Austan Goolsbee | ||
10/05/2024 | 1700/1300 | ** | US | Baker Hughes Rig Count Overview - Weekly | |
10/05/2024 | 1730/1330 | US | Fed Vice Chair Michael Barr | ||
10/05/2024 | 1800/1400 | ** | US | Treasury Budget |