US stocks declined and Treasuries tumbled after Retail Sales topped forecasts and amid geopolitical concerns surrounding a potential 'imminent' Israel response - Newsquawk Asia-Pac Market Open

• US stocks continued to sell off which saw the S&P 500 post its largest two-day decline in more than a year with the index down 2.6% since Friday and finished beneath its 50DMA for the first time in five months. Stock futures had initially attempted a recovery after geopolitical hedges from the weekend were unwound, although the risk-off conditions were then renewed and stocks retreated throughout the session amid reports that Israel was working on a retaliation which an official said could be 'imminent'. This supported gold, oil and some haven currencies, while Treasuries remained pressured after better-than-expected Retail Sales added to the hot US economy narrative.
• USD was underpinned following hot US Retail Sales data and due to the risk-off mood amid geopolitical concerns.
• Looking ahead, highlights include Chinese House Prices, GDP & Activity Data, Comments from Fed's Daly, Supply from Japan.

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LOOKING AHEAD

• Highlights include Chinese House Prices, GDP & Activity Data, Comments from Fed's Daly, Supply from Japan.
• Click here for the Newsquawk Week Ahead.

US TRADE

• US stocks continued to sell off which saw the S&P 500 post its largest two-day decline in more than a year with the index down 2.6% since Friday and finished beneath its 50DMA for the first time in five months. Stock futures had initially attempted a recovery after geopolitical hedges from the weekend were unwound, although the risk-off conditions were then renewed and stocks retreated throughout the session amid reports that Israel was working on a retaliation which an official said could be 'imminent'. This supported gold, oil and some haven currencies, while Treasuries remained pressured after better-than-expected Retail Sales added to the hot US economy narrative.
• SPX -1.20% AT 5,062, NDX -1.65% AT 17,707, DJI -0.65% AT 37,735, RUT -1.37% AT 1,976.
• Click here for a detailed summary.

NOTABLE HEADLINES

• Fed's Williams (voter) said consumer spending has been strong and noted tailwinds from the supply side of the economy, while he does not see the most recent CPI report as a turning point but noted the latest CPI is important information affecting the forecast and it is his view that rate cuts will likely start this year.

DATA RECAP

• US NY Fed Manufacturing (Apr) -14.3 vs. Exp. -7.5 (Prev. -20.9)
• US Retail Sales MM (Mar) 0.7% vs. Exp. 0.3% (Prev. 0.6%, Rev. 0.9%)
• US Retail Control (Mar) 1.1% vs. Exp. 0.4% (Rev. 0.3%)
• Atlanta Fed GDPNow (Q1) rose to 2.8% from 2.4%.

FX

• USD was underpinned following hot US Retail Sales data and due to the risk-off mood amid geopolitical concerns.
• EUR mildly softened against the dollar with the single currency not helped by the latest dovish ECB rhetoric.
• GBP was ultimately flat against the dollar with early upward momentum thwarted by resistance near 1.2500.
• JPY remained pressured against the dollar as yield differentials widened which saw USD/JPY climb above the 154.00 level, while a source report noted the BoJ is said to be shifting to a more discretionary approach in setting policy with less emphasis on inflation and though it expected to forecast inflation to stay around the 2% target through early 2027, this alone won't serve as a strong hint of a near-term rate hike.

FIXED INCOME

• Treasuries were pressured as geopolitical risk hedges were unwound and hot US Retail Sales put the focus back on the resilient US growth outlook.

COMMODITIES

• Oil prices hit multi-week lows on Monday as geopolitical risk was unwound but then rebounded post-settlement after geopolitical concerns were reignited on prospects of an 'imminent' Israeli response to Iran, while the US also threatened to not renew temporary sanctions relief on Venezuela's oil and gas sector unless there is progress from President Maduro.
• US oil output from top shale-producing regions is due to climb marginally in May to the highest since December 2023, according to EIA.
• US will not renew the temporary license that eased sanctions on Venezuela's oil and gas sector unless progress is made by President Maduro, according to a US State Department spokesperson.
• Russia managed to restore some primary oil refining units hit by Ukrainian drones, according to Reuters calculations.

GEOPOLITICAL

MIDDLE EAST

• Israeli PM Netanyahu asked defence forces to provide a target of options that would "send a message" but not cause casualties to respond to Iran, while options include a potential strike on a facility in Tehran or a cyber-attack, according to WaPo citing sources.
• Israel's Mossad said a response on Iran can be at any time from today to a month, while it was later reported that an Israeli official said the response to the Iranian attack may be “imminent", according to NBC News.
• Israel's military chief of staff said there will be a response to Iran's launch of many missiles and drones towards Israeli territory.
• Israel's Airforce has completed its preparation for an imminent attack against Iran and the Israeli war cabinet decided in its Monday session to give a "clear and strong" response to Iran's attack, in coordination with the US, according to a report by Israel's Channel 12 cited on X.
• Israeli war cabinet was reportedly studying diplomatic options to increase the isolation of Iran on the world stage, while it conducted deliberations on the response to Iran and will resume deliberations on Tuesday.
• Israeli Defence Minister Gallant told US Defence Secretary Austin on Sunday that Israel has no choice but to retaliate against Iran, according to Axios. In relevant news, a source noted the message Israel is sending to the US confirms the inevitability of a response in full coordination with it, according to Maariv and Al Jazeera.
• Israel's objective is to hurt Iran without causing an all-out war and wants to embark on action against Iran coordinated with the US, according to Israel's Channel 12 News following the cabinet meeting.
• Israeli Minister said they decided to reduce the intensity of the fighting in Gaza because they want to reach an exchange deal, according to Al Jazeera. However, it was separately reported that an Israeli government spokesman said they will not stop their mission to destroy Hamas, while an Israeli army spokesman said a Rafah operation is still on the table and they must still complete it successfully.
• Israeli army spokesman said Defence Minister Galant discussed preparations to carry out the evacuation of civilians in preparation for the ground operation in Rafah, according to Al Jazeera.
• Israeli official said there is not even a single clause in which Hamas approves or accepts the position of the mediators in regards to a hostage deal, according to Axios.
• Iranian official said they are ready for the second level of response through weapons that have not been previously used in the conflict with the Israeli entity, while the official added they do not want war, but are ready for it if it is imposed on them and their options are wide. Furthermore, the official said they have the full will to respond militarily to the Israeli entity again, but in a stronger way and that the Israeli entity must know that crazy and bullying behaviour does not work with a country like Iran, according to Al Jazeera.
• Iranian official said Iran’s response will come within seconds if Israel makes any mistake, according to Al Arabiya.
• Iran's IRGC commander said in the new equation, every time Israel attacks their interests, assets, personalities or citizens, Iran will hit back from its soil, while Israel's Defence Minister said Israel won't accept an equation in which Iran responds with a direct attack every time Israel strikes targets in Syria, according to BBC correspondent Kasra Naji on X.
• US President Biden said the US is committed to Israeli security, while the State Department said the US is still pursuing a hostage deal that would allow an immediate ceasefire. Furthermore, the State Department said Israel has moved a significant way in submitting the proposal rejected by Hamas and that Hamas is currently the barrier and obstacle to a ceasefire in Gaza.
• White House's Kirby said it is false that Iran provided an early warning to Israel and Iran's intent was clearly to cause significant destruction, while he added that messages were received from Iran but no one received a message on the timeframe, targets, or the type of response.
• US Pentagon spokesperson said no specifics were given by Iran to the US on the timing or details of their attack, while the US does not seek conflict with Iran.
• US official said Israel's possible response does not aim to escalate, but rather to make Iran understand Israel's ability to reach anywhere, while Israel may resort to striking targets deep inside Iran, according to Al Jazeera.
• US officials predict Israel will quickly respond to Iran's attacks potentially as early as Monday and hope that both countries could come away with a sense of victory, giving them an off-ramp that would limit escalatory moves, according to WSJ.
• Saudi Arabia acknowledged that it helped defend Israel against Iran whereby Saudi Arabia's royal family posted on its website about the country's role in defending Israel against the Iranian barrage, according to Jerusalem Post.
• Iraqi Deputy PM said they seek to strengthen the partnership with the United States and warned about a regional escalation and being dragged into a wider war, according to Sky News Arabia.

OTHER

• Russia and Ukraine negotiated with Turkey regarding a deal to ensure safety of merchant shipping in the Black Sea which Turkey was due to announce although Ukraine pulled away from the deal at the last minute.
• US Treasury imposed sanctions on 12 Belarus entities and 10 individuals citing support for the Russian war in Ukraine.

ASIA-PAC

NOTABLE HEADLINES

• PBoC held its 2024 Financial Stability meeting and said it will optimise risk monitoring mechanisms, while it will effectively deal with existing risks in an orderly manner and safeguard the bottom line of non-systemic financial risks.
• EU is set to launch a China probe on medical device procurement which could occur as soon as mid-April and result in the EU curtailing access for China to its tenders, according to Bloomberg.
• BoJ is reportedly shifting to a more discretionary approach in setting policy with less emphasis on inflation, according to Reuters sources. Furthermore, a source said various data must be scrutinised, not just the inflation outlook and sources also noted that while the central bank is expected to forecast inflation to stay around the 2% target through early 2027, such forecasts alone won't serve as strong hints of a near-term rate hike.
• Senior Japanese MOF official said they are in frequent and regular talks with the US and other countries' authorities on financial and FX market moves.

EU/UK

NOTABLE HEADLINES

• ECB's Lane said there has been much less progress in domestic inflation compared to broader inflation measures, reflecting the higher sensitivity of domestic inflation to local cost pressures.
• ECB's Kazimir said the ECB can cut rates in June given the persistent fall in inflation and restrictions can be gradually relaxed, while he added the ECB is not committing to any policy path beyond June.
• ECB's Simkus said a rate cut is possible in June and also in July, as well as noted that a further trajectory of cuts will depend on July decisions and there is now more than a 50% chance of more than three rate cuts this year.
• ECB's Rehn said the ECB can cut in June if inflation slows as expected.

DATA RECAP

• EU Industrial Production MM (Feb) 0.8% vs. Exp. 0.8% (Prev. -3.2%, Rev. -3.0%)
• EU Industrial Production YY (Feb) -6.4% vs. Exp. -5.7% (Prev. -6.7%, Rev. -6.6%)