Inflation concerns return as yields spike, on watch for JPY and CNY interventions

Asia Market Update: Inflation concerns return as yields spike; On watch for JPY & CNY interventions; Oil spikes on Iran retaliation warning; US PPI in focus tonight + ECB rate decision; CB decisions continue in Asia on Friday.

General trend

- Markets did not like the continued higher than expected US CPI figures, and the risk-off mood spread to Asia, where all markets were off >-1% at the open, with the Kopsi worst at -1.5% with the added pressure of election results out of Korea overnight, where Pres Yoon’s ruling party suffered heavy defeats in national assembly representation to fall to minority status.

- However, markets pared losses during the day, with the Kospi actually moving back into positive territory by the afternoon.

- Japanese officials jawboned about how the new 34-year low in the JPY (153 handle) was ‘rapid’ but stopped short of calling for intervention (yet).

- Oil spiked $1.50 in three minutes overnight and stayed up today as the US warned of an imminent missile strike by Iran on Israel.

- CNY 1-yr onshore forward points were at a 2008 low and China State Banks seen selling USD above 7.2350 as the PBOC’s fix again in the 1.09 handle is testing the lower end of the 2% trading band limit.

- Indeed, PBOC’s Yuan mid-point fix was 1654 pips stronger than estimates of 7.2622, the largest difference since data was available from 2018.

- Japan 2-year JGB yield rose to their highest since 2009, with JP yields in general +6-9bps.

- China’s consumer inflation remains low in March, coming in well below estimates to be only a tick over zero on a y/y basis. March food was down -2.7% y/y.

- US equity FUTs flat to +0.1% during Asian trading.

- US PPI tonight and ECB rates decision will keep the markets’ eye firmly on inflation.

Looking ahead (Asian time zone)

- Thu Apr 11th (Thu night ECB rate decision, US PPI).

- Fri Apr 12th CN Balance of Trade, SG Q1 GDP + MAS Statement, KR Interest Rate Decision (Fri eve UK GDP, Fri night US Michigan Consumer Sentiment).

Holidays in Asia this week

- Thu Apr 11th India, Indonesia, Malaysia.

- Fri Apr 12th Indonesia.

Headlines/economic data

Australia/New Zealand

- ASX 200 opens -0.4% at 7,815.

- Australia Mar CBA Household Spending M/M: +0.2% v -0.3% prior; Y/Y: 3.4% v 3.5% prior.

- Australia Apr Consumer Inflation Expectation Survey: 4.6% v 4.3% prior [highest since Nov].

- China expected to lift Australia live lobster import ban - Chinese press.

- Australia PM Albanese unveils ‘Future Made in Australia’ plan; focuses on green energy - Press.

- New Zealand Mar Heavy Truckometer M/M: -1.8% v +2.4% prior - update.

- New Zealand Trade Min McClay to visit China next week - US financial press.

- New Zealand sells total NZ$500M vs. NZ$500M indicated in 2029, 2032 and 2051 bonds.

China/Hong Kong

- Hang Seng opens -1.7% at 16,856.

- Shanghai Composite opens -0.5% at 3,013.

- CHINA MAR CPI Y/Y: 0.1% V 0.4%E.

- CNY 1-yr onshore forward points at 2008 low.

- China State Banks seen selling USD above 7.2350.

- Follow up: Chinese Small and Medium-sized banks reportedly cut deposit rates in April - PBOC-affiliated Financial News.

- 2318.HK Ping An Trust [subsidiary] said to delay repayment on ~$107M trust product, relates to 'Funing 615' trust plan; cites property market issues – financial press.

- Goldman Sachs upgrades its forecast for China's economic growth in 2024 to 5.0% from 4.8% [citing the country's manufacturing outperformance] - US financial press.

- China MOFCOM: Lodges solemn representations with EU on issues such as investigation of foreign subsidies to China.

- Chinese Commerce Official urges EU to end anti-subsidy probes - press.

- China's PBOC: China to set up system for green sector in 5 years; To boost credit support for green sector [overnight update].

- China reportedly instructs banks to stop offering interest rates on deposits above deposit rate ceiling – press [overnight update].

- China President Xi: Taiwan talks can start if One-China principle is accepted; Compatriots on both sides of Taiwan strait are Chinese; No force can separate us; There are no issues which can not be discussed - following meeting with ex-Taiwan leader [overnight update].

- BABA Founder Jack Ma: Alibaba Group is now on the right track; Urge staff to stay the course - press citing internal memo [overnight update].

- Shanghai Futures Exchange to impose trading limits futures from Apr 12th – press [overnight update].

- China Foreign Minister Daily Briefing: Highly concerned over EU discrimination against Chinese industries and companies [overnight update].

- China PBOC sets Yuan reference rate: 7.0968 v 7.0959 prior.

- China PBOC Open Market Operation (OMO): Sells CNY2B in 7-day reverse repos; Net injects CNY2B v Net CNY0B prior.

Japan

- Nikkei 225 opens -1.2% at 39,090.

- Japan Mar M2 Money Supply Y/Y: 2.5% v 2.4% prior (revised lower from 2.5%).

- Japan Mar Tokyo Avg Office Vacancies: 5.5% v 5.9% prior.

- Japan releases weekly flows data [period ended Apr 5th]: Foreign buying of Japan equities: +¥1.76T v -¥441.6B prior; Japan buying of foreign bonds: +¥346.4B v -¥1.67T prior.

- METI: Japan Q2 Crude Steel Output forecast: 21.72Mt, -2.2% y/y.

- Japan 2-year JGB yield rises to the highest since 2009; tracks rise in UST yields; JPY weakness also in focus.

- JAPAN SELLS ¥1.0T VS. ¥1.0T INDICATED IN 20-YEAR JGB BONDS; AVG YIELD: 1.6300% V 1.5590% PRIOR, BID-TO-COVER: 3.05X V 3.01X PRIOR.

- Japan Fin Min Suzuki: No comment on FX moves; Looking at background of yen weakening to 152/153, not necessarily the levels themselves - Japanese press.

- Japan top currency diplomat Kanda: Recent yen moves are 'rapid' - Japanese press.

- President Biden with Japan PM Kishida: Japan, US, and Australia will create networked system of air missile and defense architecture - press conference.

- X DOJ opens formal investigation of US Steel takeover – press.

- USD/JPY Further weakens above 153 (highest since July 1990).

- US and Japan to announce partnership to accelerate nuclear fusion – press [overnight update].

South Korea

- Kospi opens -1.5% at 2,665 (post-holiday for legislative elections yesterday).

- South Korea Mar Total Bank Lending to Households (KRW): 1,098.6T v 1,100.3T prior (shrinks for first time since Mar 2023).

- South Korea Apr 1-10th Exports Y/Y: +21.6% v % prior; Imports Y/Y: +5.8% v % prior.

- South Korea releases final election results: Democratic Party 175 seats, ruling party 108 seats.

- South Korea President Yoon comments after elections: Humbly accepts public sentiment, to renew administration – SK press.

- South Korea exit poll shows Pres Yoon on track to lose parliamentary majority - press.

Other Asia

- Thailand PM Srettha: Cutting interest rates would have been good for the economy (Thailand Central Bank left Benchmark Interest Rate unchanged at 2.50%).

- 2317.TW Foxconn reportedly considering a rotating CEO structure as it seeks to cultivate new leaders - press.

- Philippines Feb Trade Balance: -$3.7B v -$4.0Be.

North America

- KKR Discloses DOJ probe into the adequacy of its previous filings; DOJ reportedly scrutinizing Private Equity merger disclosures.

- (US) MBA Mortgage Applications w/e Apr 5th: +0.1% v -0.6% prior.

- (US) BofA Mar credit & debit card spending per household +0.3% y/y v +2.9% y/y prior; Spending softened in March, but continued wage growth, tax refunds, and easing rent inflation should support consumer momentum.

-(US) MAR CPI M/M: 0.4% V 0.3%E; Y/Y: 3.5% V 3.4%E (all readings above estimates, highest annual pace since Sept 2023); (ex-food/energy) M/M: 0.4% v 0.3%e; Y/Y 3.8% v 3.7%e.

- (US) Mar Real Avg Hourly Earning Y/Y: 0.6% v 1.1% prior; Avg Weekly Earnings Y/Y: 0.6% v 0.5% prior.

- (US) Fed futures now price only 2 full rate cuts in 2024 following US CPI report; First full rate cut now priced at Nov 2024's meeting (two days after US elections) v Sept pre-CPI.

- (CA) BANK OF CANADA (BOC) LEAVES INTEREST RATES UNCHANGED AT 5.00%; AS EXPECTED.

- (US) Atlanta Mar Sticky-CPI annualized 5.0% v 4.0% m/m, Core 5.2% v 4.5% m/m.

- (US) Fed’s Barkin (voter): Think we're making a lot of progress on inflation.

- (US) Fed's Goolsbee (non-voter for 2024): The Fed is facing more trade-offs this year than last.

- (US) TREASURY'S $39B 10-YEAR NOTE REOPENING DRAWS 4.560% V 4.166% PRIOR; BID-TO-COVER RATIO: 2.34 V 2.51 PRIOR AND 2.48 OVER LAST 8 REOPENINGS; Another 3bps tail.

- (US) FOMC MAR MINUTES: WANTED MORE CONFIDENCE ON INFLATION BEFORE CUTTING RATES; Majority favor reducing monthly asset runoff pace by roughly half (implies cutting monthly asset cap to $30B from $60B).

- (US) MAR MONTHLY BUDGET STATEMENT: -$236.5B V -$223.0BE.

Europe

- (UK) Bank of England (BOE) Megan Greene: Markets must stop comparing UK and the US; UK rate cuts should still be a way off - FT Op Ed.

- (UK) Mar RICS House Price Balance: -4% v -6%e.

- (IR) Iran media refutes earlier reporting that Iranian airspace over Tehran had been or will been closed - press.

- (IL) US officials see a missile strike against Israel by Iran or its proxies as imminent – press.

Levels as of 01:20 ET

- Nikkei 225, -0.2%, ASX 200 -0.4%; Hang Seng -0.3%; Shanghai Composite +0.7%; Kospi +0.3%.

- Equity S&P500 Futures: flat; Nasdaq100 +0.1%; Dax +0.1%; FTSE100 +0.1%.

- EUR 1.0739-1.0749 ; JPY 152.75-153.20 ; AUD 0.6502-0.6525; NZD 0.5971-0.5990.

- Gold +0.5% at $2,360/oz; Crude Oil +0.2% at $86.37/brl; Copper +0.5% at $4.2953/lb.