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The US dollar fell following stronger than expected European PMI data and disappointing US equivalents. Bond yields fell, and equities rose, the S&P500 up 1.2%.


The US dollar index is down 0.4% on the day, hit first by stronger Eurozone service sector PMIs and then a weaker PMI update on the US side. EUR rose from 1.0639 to 1.0711. USD/JPY ranged between 154.56 and 154.88 (a 34-year high), even as Japanese officials continue to heavily protest JPY weakness.


With the USD broadly on the backfoot AUD rose from 0.6441 to 0.6490 overnight. NZD rose from 0.5903 to 0.5948. AUD/NZD rose from 1.0910 to 1.0929.


US PMIs were weaker than expected. The composite fell to 50.9 (est. 52.0, prior 52.1), with services at 50.9 (est. 52.0, prior 51.7) and manufacturing at 49.9 (est. 52.0, prior 51.9). The employment component was at the lowest level since June 2020, and prices paid and received notably moderated.

The Richmond Fed manufacturing survey was at -7 (est. -8, prior -11), noting moderating prices and wages. New home sales rose 8.8% (est. +0.9%, prior revised from -0.3% to -5.1%).


Eurozone PMIs were solid. The composite rose to 51.4 (est. 50.7, prior 50.3), with services at 52.9 (est. 51.8, prior 51.5) and manufacturing at 45. 6 (est. 46.5, prior 46.1). The report noted rising employment as well as pricing pressures.


UK PMIs were also solid. The composite rose to 54.0 (est. 52.6, prior 52.8), with services at 54.9 (est. 53.0, prior 53.1) and manufacturing at 48.7 (est. 50.7, prior 50.3).


The Bank of England’s Chief Economist Pill voiced voicing caution about lingering inflation, saying there’s still a “reasonable way to go” before he’s convinced that underlying price pressures have been tamed. 


Interest rates

The US 2yr treasury yield fell from 5.00% to 4.91%, while the 10yr yield fell from 4.65% to 4.57%. Markets price the Fed funds rate, currently 5.375% (mid), to be unchanged at the next meeting on 2 May, with a 75% chance of a cut by September.


Australian government bond yields (futures) fluctuated between 3.84% and 3.89%, currently little changed at 3.86%, while the 10yr yield fluctuated between 4.28% and 4.33%. Markets currently price the RBA cash rate to be unchanged at the next meeting on 7 May, with a 60% chance of a cut by November.


New Zealand rates markets price the OCR, currently at 5.50%, to be unchanged at the next meeting on 22 May, with a 65% chance of a cut by October.


Credit indices matched equity with another strong session that saw Main in 2.5bp to 55.5, CDX was another 2bp better at 52.5 and US IG cash was also 1-2bp tighter.  Primary was more mixed with strong issuer volumes in Europe but a more subdued outcome in the US where a host of names remain in blackout.  In Europe, 13 issuers price EUR7.8bn (ex-SSA of ~EUR12.9bn including the EU with EUR8bn) across corps and fins including Glencore with a EUR600M 7yr at MS+135 and Sydney Airport’s EUR1bn offering, which was split evenly across an 8yr at MS+105 (BBSW+151) and 12yr at MS+135 (BBSW+187).  Goodman Group also followed up yesterday’s tender offer announcement on its EUR500M Sep-25s with a mandate announcement for a new EUR500M (WNG) 6yr.  The US saw just the 2 issuers with Citibank NA (bank) pricing USD5bn including USD3bn 2yr at T+52/SOFR+59 (BBSW+61) and USD2bn of 10yr at T+97 (BBSW+140), and CK Hutchison selling USD2bn across a 5yr/10yr (5yr green). 



Crude markets were supported by API data on US crude inventories which fell 3.23mb last week plus the recovery in US equity markets and a weaker US$. The June WTI contract is up 1.78% at $83.36 while the June Brent contract is up 1.7% at $88.48. Traders were also watching the passage of the Ukraine and Israel support bill which includes measures to broaden the scope of sanctions on Iran’s exports of crude to include foreign ports, vessels and refineries that knowingly engage in trade. The bill passed a procedural vote on Tuesday and will advance to a full Senate vote on Wednesday. Carlyle CSO Jeff Currie argued the odds of crude rising above $100 are “extraordinarily high” while StanChart’s Eric Robertson argued that oil prices in the mid to low $90 area is “very plausible”, but prices above $100 “would require a geopolitical event”. In gas markets, Shell and TotalEnergies were reported as being among several global energy companies in talks to buy stakes in Abu Dhabi National Oil Co’s next LNG export project in the UAE. A final investment decision could happen as soon as next month. And gas prices in Europe fell 3% on weak demand and improving weather. Traders looked through the announcement of a leak at the Hammerfest gas facility in Norway.


Metals were dominated by fresh developments in the LME Russian metal arbitrage games. The LME made further changes to the rules behind warranting and trading Russian metal on the exchange. While complex, the rule changes mean that “no warehouses shall agree any Post-Sale Economic Incentive Arrangement [if] the terms of effect of which is to prevent a later metal owner from withdrawing from the warehouse the underlying metal”. As noted yesterday, Bloomberg reported that “Glencore and Trafigura’s sanctions games are draining the LME” of aluminium as the brokers looked to withdraw ‘old’ Russian metal held pre-April 12 before re-registering the metal as category 2 Russian metal which can only be traded by non-UK persons, increasing the period of time it will sit there generating carry via “rent sharing” agreements with the exchange. The rule change saw metals slump with copper down 1% at $9,728, nickel down 3.26% at $19,095 and aluminium down 3.5% at $2,576. Tin plunged 7.4% to $31,938 as traders questioned whether the recent run up was fully justified. Tin was up 30% in April at its highs on Friday, but it has corrected 11% so far this week. In macro news, Chile trimmed its forecast for copper production to 5.51mt in 2024, down from 5.63mt in January. Cochilco said that it expects production to rise to 5.84mt in 2025. The Russian Deputy Minister of Industry and Trade was reported as discussing measures to support Rusal with the possible abolition of an export duty and the purchase of the company’s products into state reserves, though the Government would first need to analyse the balance in the global aluminium market before making decisions on support.


Finally note that iron ore showed some signs of further profit taking after the aggressive run up in April so far. The May SGX contract is down $1.10 from the same time yesterday to $114.20 while the 62% Mysteel index is down $3.60 to $113.05. Brazil followed Chile announcing quotas and tariffs for steel imports. Quotas will be set on products whose imports increase by 30% this year when compared to the average between 2020 and 2022 with a tariff set at 25%. Latin America imported 10mt of Chinese steel last year, up 44%yy according to data from the Latina American Steel Association. The Brazilian Government expects the initiative to help reduce the idle capacity in Brazil’s domestic steel industry.


Day ahead

Australia: Q1 CPI will be released. Solid contributions are expected from dwelling prices, rents, and the annual repricing of health and education. Government electricity rebates and disinflationary pressures from durable goods items should provide somewhat of an offset. Westpac (and the median forecaster) estimates CPI rose 0.8%q/q and 3.5%y/y, with the trimmed mean up 0.8%q/q and 3.8%y/y.


NZ: The trade deficit is expected to widen slightly in March, though it remains much smaller than last year given weak imports (Westpac f/c: –$402m).


Germany: April’s IFO business climate survey should continue to reflect an emerging uptrend from a historically weak level (market f/c: 88.8).


US: Growth in durable goods orders is expected to improve in March, marking a decent finish to an otherwise soft quarter overall (market f/c: 2.5%m/m).

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