Sterling slips ahead of BoE decision with focus on the vote breakdown

EU mid-market update: Sterling slips ahead of BOE decision with focus on the vote breakdown; Israel eyes Rafah push despite US pressure.

Notes/observations

- Focus on Bank of England (BOE) rate decision at 07:00 ET, widely expected to leave rates unchanged at 5.25%. Attention is the vote, with analysts predicting an approximate split of 7-2 for hold, dissenters for cut. Market currently sees 3-4 cuts in 2024, beginning in June (next meeting). Cable is moderately lower and FTSE100 holds in the green ahead of decision.

- No sign of Israel holding back against Rafah (Southern edge of Gaza), despite pressure from US in withholding of key weaponry. Reminder that Israel refused to agree to ceasefire agreement with Hamas due to the terms. Also worth noting that protests by Palestinian supporters has exacerbated in recent days/weeks globally, particularly across universities. Crude trades higher on back of US inventory draw yesterday and Middle East tensions.

- Denmark, Finland, Iceland, Latvia, Norway, Sweden and Switzerland are closed for a bank holiday (Ascension Day).

- EU Key Corporate News: BAE affirmed FY guidance and sees US passing of Ukraine aid to boost momentum; Telefonica Q1 bottom line beat with affirmed guidance; BBVA lower and Sabadell higher after BBVA formally submits bid for Sabadell in hostile takeover, despite Board rejecting the offer.

- Asia closed mixed with KOSPI underperforming -1.2%. EU indices are -1.1% to +0.8%. US futures are -0.2% to -0.3%. Gold +0.1%, DXY +0.1%; Commodity: Brent +0.9%, WTI +1.0%; Crypto: BTC -1.8%, ETH -0.6%.

Asia

- China Apr Trade Balance: $72.4B v $81.0Be; Exports Y/Y: +1.5% v +1.3%e; Imports Y/Y: +8.4% v +4.6%e.

- BOJ Summary of Opinions for April stated it would adjust the degree of monetary accommodation as necessary. Anticipated that accommodative financial conditions would be maintained for the time being.

- Japan Mar Labor Cash Earnings Y/Y: 0.6% v 1.4%e; Real Cash Earnings Y/Y: -2.5% v -1.5%e.

- South Korea Mar Current Account: $6.9B v $6.9B prior - UK Apr RICS House Price Balance: -5% v -2%e.

- Japan top FX diplomat Kanda reiterated that would not comment on FX, nor past interventions. Reiterated ready for currency intervention at any time.

- Japan Fin Min Suzuki reiterated stance that was important for currencies to move in stable manner reflecting fundamentals; Closely watching FX moves.

- China's Hangzhou city said to lift residential property purchasing curbs.

Global conflict/tensions

- Advisor to Iran's Supreme Leader Kharrazi stated that Iran had the 'capability to build a nuclear weapon'. Iran would have to change its nuclear doctrine if its existence was threatened.

Europe

- UK Apr RICS House Price Balance: -5% v -2%e.

- National Institute of Economic and Social Research (NIESR) saw the 1st BOE rate cut in August; Lowers UK GDP growth from 0.9% to 0.8%.

- ECB's Holzmann (Austria) stated that did not see a reason to lower rates too much too quickly.

- ECB’s Wunsch (hawk, Netherlands) stated that still saw significant risks in wages and services prices. Saw a path for initiating rate cuts this year. Room to cut 50 bps but when would depend on the data.

Americas

- Brazil Central Bank (BCB) cut Selic Target Rate by 25bps to 10.50% (as expected) with vote being 5-4 (dissenters sought a more aggressive 50bps cut).

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.10% at 515.28, FTSE +0.06% at 8,359.09, DAX +0.31% at 18,544.55, CAC-40 -0.09% at 8,124.11, IBEX-35 -1.17% at 11,022.50, FTSE MIB -0.03% at 34,142.00, SMI closed, S&P 500 Futures -0.23%].

Market focal points/key themes: European indices open mixed and took on a negative bias as the session wore on; Nordic countries, Switzerland and Russia closed for holiday; among outperforming sectors are energy and technology; while underperforming sectors include industrials and real estate; oil & gas subsector supported after Chinese imports rose and US inventories fell substantially; BBVA launches hostile takeover of Sabadell; Watches of Switzerland acquires Roberto Coin; focus on BOE interest rate decision later in the day; earnings expected in the upcoming US session include Enel, Pirelli, Brookfield and Constellation Energy.

Equities

- Energy: Siemens Energy [ENR.DE] -0.5% (analyst downgrade) - Financials: Sabadell [SAB.ES] +4.0%, BBVA [BBVA.ES] -5.5% (BBVA confirms to launch hostile bid for Sabadell; Spanish govt opposes), Nexi [NEXI.IT] +6.5% (results).

- Industrials: Mercedes-Benz [MBG.DE] -5.5% (new Chairman), BAE Systems [BA.UK] +1.0% (trading update, affirmed guidance), John Wood Group [WG.UK] -1.5% (trading update) - Technology: Infineon [IFX.DE] +1.5% (Arm Holdings guidance), BE Semiconductor [BESI.NL] +4.5% (receives order) - Telecom: Telefonica [TEF.ES] +0.5% (Q1 results), Prysmian [PRY.IT] +2.5% (earnings).

Speakers:

- Turkey Central Bank (CBRT) Gov Karahan Quarterly Inflation Report press conference stressed that it was determined to keep a tight monetary policy stance until it saw a significant improvement on the inflation outlook. TRY currency (Lira) stability to help slow down goods inflation. Had no exchange rate target. Could use sterilization tools if needed.

- Turkey Central Bank (CBRT) Quarterly Inflation Report (QIR) raised the end-2024 inflation from 36.0% to 38.0% while maintaining the end-2025 inflation forecast at 14.0% (**Note: Turkey has 3-7% target range with a 5% target).

- Israel Fin Min Smotrich called for the conquering of Rafah here and now; Must continue war despite US Pres Biden opposition.

- Russia Pres Putin annual Victory Day speech stated that the country would do everything to avoid global confrontation.

- Malaysia Central Bank Policy Statement noted that its monetary policy stance remained supportive of economy at current level of OPR. Inflation to moderate but its outlook depended on subsidy policy. Saw higher economic activity in Q1 with stronger recovery in exports going forward. MYR currency (ringgit) did not reflect economy fundamentals and growth prospects.

Currencies/fixed income

- FX price action was listless with focus turning to the BOE rate decision later today. Dealers noted that if the BOE hinted towards an interest-rate cut in the months to come, potentially as early as June, this would further highlight the divergence between US and European monetary policy.

- GBP/USD at 1.2475 by mid-session. Dealers to focus on the BOE Minutes and vote of its decision. The vote to be closely watched for any additional dissent for easing (last was 8-1 with dissenter Dhingra sought a cut). OIS was pricing is for almost a 50-50 probability for June rate cut with an August ease being fully priced in.

- USD/JPY at 155.85 despite more rhetoric from Japanese officials on the currency front. Japan top FX diplomat Kanda reiterated that would not comment on FX, nor past interventions. Reiterated ready for currency intervention at any time. Japan Fin Min Suzuki reiterated stance that was important for currencies to move in stable manner reflecting fundamentals; Closely watching FX moves.

Economic data

- (CZ) Czech Mar Retail Sales (ex-auto) Y/Y: 6.1% v 2.8%e.

- (MY) Malaysia Central Bank (BNM) left the Overnight Policy Rate unchanged at 3.00% (as expected).

- (HU) Hungary Apr YTD Budget Balance (HUF): -2.598TT v -2.321T prior.

Fixed income issuance

- (ES) Spain Debt Agency (Tesoro) sold total €5.777B vs. €5.5-6.5B indicated range in 2029, 2032 and 2039 bonds.

- Sold €2.408B in 3.50% May 2029 SPGB bonds; Avg Yield: 2.974% v 2.848% prior; Bid-to-cover: 1.58x v 1.73x prior (Apr 4th 2024).

- Sold €1.458B in 0.70% Apr 2032 SPGB bond; Avg Yield: % v 3.582% prior; Bid-to-cover: 2.16x v 1.99x prior (Nov 2nd 2023).

- Sold €1.911B in 3.9% July 2039 SPGB bonds; Avg Yield: 3.611% v 3.531% prior; bid-to-cover: 2.00x v 1.56x prior.

- (ES) Spain Debt Agency (Tesoro) sold €470.2M vs. €250-750M indicated range in 0.7% Nov 2033 inflation-linked bonds (SPGBei); Real Yield: 1.042% v 1.199% prior; Bid-to-cover: 2.64x v 1.76x prior.

- (IT) Italy Debt Agency (Tesoro) sold €7.5B vs. €7.5B indicated in 12-month Bills; Avg Yield: 3.546% v 3.533% prior; Bid-to-cover: 1.35x v 1.33x prior.

- (IE) Ireland Debt Agency (NTMA) sold total €1.0B vs. €1.0B indicated in 2034 and 2041 IGB Bonds.

Looking ahead

- (PL) Poland Central Bank (MNB) Interest Rate Decision: Expected to leave Base Rate unchanged at 5.75%.

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month Bill.

- 05:40 (UK) BOE 7-day short-term repo operation.

- 06:00 (IE) Ireland Mar Industrial Production M/M: No est v 3.7% prior; Y/Y: No est v -34.9% prior.

- 06:00 (IE) Ireland Apr CPI M/M: No est v 0.5% prior; Y/Y: No est v 2.9% prior.

- 06:00 (IE) Ireland Apr CPI EU Harmonized M/M: No est v 0.3% prior; Y/Y: No est v 1.6% prior.

- 06:00 (IL) Israel Apr Consumer Confidence: No est v 53 prior.

- 06:00 (RO) Romania to sell 2028 and 2031 bonds.

- 07:00 (UK) Bank of England (BOE) Interest Rate Decision: Expected to leave Bank Rate unchanged at 5.25%.

- 07:00 (UK) BOE May Minutes.

- 07:00 (UK) BOE Quarterly Monetary Policy Report (Staff Projections).

- 07:00 (ZA) South Africa Mar Manufacturing Production M/M: +0.6%e v -0.3% prior; Y/Y: 0.8%e v 4.1% prior.

- 07:30 (UK) BOE Gov Baily post rate decision press conference.

- 08:00 (MX) Mexico Apr CPI M/M: 0.2%e v 0.3% prior; Y/Y: 4.6%e v 4.4% prior.

- 08:00 (MX) Mexico Apr CPI Core M/M: 0.2%e v 0.4% prior; Y/Y: 4.4%e v 4.6% prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:15 (IT) ECB’s Cipollone (Italy).

- 08:15 (ES) ECB’s De Guindos (Spain).

- 08:30 (US) Initial Jobless Claims: 213Ke v 208K prior; Continuing Claims: 1.78Me v 1.774M prior.

- 08:30 (US) Weekly USDA Net Export Sales.

- 09:00 (UK) Bank of England (BOE) Decision Maker Panel (DMP) Apr Survey.

- 10:00 (CA) Bank of Canada Financial System Review.

- 10:30 (US) Weekly EIA Natural Gas Inventories.

- 11:00 (CA) Bank of Canada Gov Macklem.

- 11:30 (US) Treasury to sell 4-Week and 8-Week Bills.

- 12:15 (UK) BOE Pill (chief economist).

- 13:00 (US) Treasury to sell 30-Year Bonds.

- 15:00 (MX) Mexico Central Bank (Banxico) Interest Rate Decision: Expected to leave Overnight Rate unchanged at 11.00%.

- 18:30 (NZ) New Zealand Apr Manufacturing PMI: No est v 47.1 prior.

- 19:00 (PE) Peru Central Bank (BCRP) Interest Rate Decision: Expected to cut Reference Rate by 25bps to 5.75%.

- 19:30 (JP) Japan Mar Household Spending Y/Y: -2.3%e v -0.5% prior.

- 19:50 (JP) Japan Mar Current Account Balance: ¥3.455Te v ¥2.644T prior; Adjusted Current Account Balance: ¥2.044Te v ¥1.368T prior; Trade Balance (BoP Basis): +¥(US) Preview: Weekly Claims data expected at 08:30 ET (12:30 GMT)549.6Be v -¥280.9B prior.

- 19:50 (JP) Japan Apr Bank Lending Y/Y: No est v 3.2% prior; Bank Lending (ex-trusts) Y/Y: No est v 3.6% prior.

- 23:30 (JP) Japan to sell 3-Month Bills; Avg Yield: % v 0.0259% prior; bid-to-cover: x v 2.93x prior.

- 23:35 (JP) Japan to sell 30-Year JGB Bonds.