US stocks ultimately gained after two-way price action post-PPI - Newsquawk Asia-Pac Market Open

• US stocks were higher on the day and the Nasdaq posted a fresh record close with two-way price action seen in which the initial broad-based hawkish reaction to the mixed PPI data was swiftly pared as participants digested the details and awaited remarks from Fed Chair Powell who provided little new but noted that confidence in inflation moving back down is lower than it was before.
• USD was ultimately softer on the day with two-way price action seen post-US PPI in which the Y/Y figures printed in line with estimates but the previous headline reading was revised lower, while headline and core M/M metrics were hotter-than-expected. The data initially triggered a hawkish reaction although this was quickly pared with analysts noting the details under the bonnet were more encouraging for PCE than the headline suggested along with downward revisions to prior data. Nonetheless, the focus now turns to Wednesday's CPI reading.
• Looking ahead, highlights include Australian Wage Price Index, PBoC MLF Rate, Supply from Australia, Holiday Closures in South Korea and Hong Kong.

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LOOKING AHEAD

• Highlights include Australian Wage Price Index, PBoC MLF Rate, Supply from Australia, Holiday Closures in South Korea and Hong Kong.
• Click here for the Newsquawk Week Ahead.

US TRADE

• US stocks were higher on the day and the Nasdaq posted a fresh record close with two-way price action seen in which the initial broad-based hawkish reaction to the mixed PPI data was swiftly pared as participants digested the details and awaited remarks from Fed Chair Powell who provided little new but noted that confidence in inflation moving back down is lower than it was before.
• SPX +0.48% at 5,246, NDX +0.68% at 18,322, DJIA +0.32% at 39,557, RUT +1.14% at 2,085.
• Click here for a detailed summary.

NOTABLE HEADLINES

• Fed Chair Powell said the US economy has been performing very well and has a very strong labour market, while he noted confidence in inflation moving back down is lower than it was before. Powell said restrictive policy may take longer than expected to do its work to bring inflation down but said they will get inflation down to 2%. Furthermore, he said it is really a question of keeping policy at the current level for a long period of time and does not think it is likely that the next move would be a rate hike, while he added they are more likely to hold policy where it is.
• WSJ's Timiraos commented on X that "No meaningful change in the economic outlook since Powell's last comments means no meaningful change in Powell's outlook today".
• USTR's Tai said stay tuned on actions involving imports from Mexico.

DATA RECAP

• US PPI exFood/Energy MM (Apr) 0.5% vs. Exp. 0.2% (Prev. 0.2%, Rev. -0.1%)
• US PPI exFood/Energy YY (Apr) 2.4% vs. Exp. 2.4% (Prev. 2.4%)
• US PPI Final Demand MM (Apr) 0.5% vs. Exp. 0.3% (Prev. 0.2%, Rev. -0.1%)
• US PPI Final Demand YY (Apr) 2.2% vs. Exp. 2.2% (Prev. 2.1%, Rev. 1.8%)

FX

• USD was ultimately softer on the day with two-way price action seen post-US PPI in which the Y/Y figures printed in line with estimates but the previous headline reading was revised lower, while headline and core M/M metrics were hotter-than-expected. The data initially triggered a hawkish reaction although this was quickly pared with analysts noting the details under the bonnet were more encouraging for PCE than the headline suggested along with downward revisions to prior data. Nonetheless, the focus now turns to Wednesday's CPI reading.
• EUR benefitted from the softer buck and reclaimed the 1.0800 status, while German ZEW data was better-than-expected and ECB officials continued to signal a June cut.
• GBP initially retreated after BoE's Pill continued to talk up the possibility of rate cuts but then recovered as the dollar weakened which saw the GBP/USD approach just shy of the 1.2600 handle.
• JPY underperformed its G10 peers in which USD/JPY printed an intraday high of 156.75 before mildly pulling back amid the dollar pressure.

FIXED INCOME

• Treasuries were firmer after paring post-PPI losses with the attention shifting to US CPI.

COMMODITIES

• Oil prices were lower amid a source report that OPEC+ has reopened the fraught debate on members' oil capacity in which UAE, Kazakhstan, Iraq, Kuwait and Algeria are among countries whose potential to pump more next year is under scrutiny, while the OPEC MOMR said demand growth for 2024 and 2025 remain broadly unchanged vs prior month at 2.2mln BPD and 1.8mln BPD, respectively.
• US Energy Inventory Data (bbls): Crude -3.1mln (exp. -0.5mln), Cushing -0.6mln, Gasoline -1.3mln (exp. +0.5mln), Distillate +0.3mln (exp. +0.8mln).
• OPEC MOMR (May) stated that demand growth for 2024 and 2025 remain broadly unchanged vs prior month at 2.2mln BPD and 1.8mln BPD, respectively.
• OPEC+ reportedly reopened the fraught debate on members' oil capacity with UAE, Kazakhstan, Iraq, Kuwait and Algeria among countries whose potential to pump more next year is under scrutiny, while some have pushed for an upward revision and the UAE is again seeking a higher figure, according to Bloomberg sources.
• It was initially reported that Kazakhstan requested a higher level of oil production from OPEC+ higher oil production for 2025, according to IFX. However, Kazakhstan’s Energy Ministry later said it has not requested a higher level of oil production for next year.
• Chile government sees 2024 inflation at 3.8% (prev. 3.1%) and sees 2024 average copper price at USD 4.20/lb (prev. 3.84), while Chile copper commission Cochilco said it is moderately optimistic on copper price evolution and the upcoming revision of copper price outlook is considerable vs. previous forecast.

GEOPOLITICAL

MIDDLE EAST

• Israeli tanks began to penetrate the centre of Rafah for the first time amid fierce clashes, while the Israeli army said operations continue in eastern Rafah and the crossing area in the southern Gaza Strip, according to Al Arabiya.
• Senior US official told Axios the Biden administration reached an understanding with Israel that any Rafah operation would not be significantly expanded before National Security Adviser Sullivan's visit.
• Rafah crossing closure is due to Israeli escalation and not Egypt's responsibility, while Egypt told Israel it is dangerous to continue blocking aid to Gaza, according to Al Qahera citing a senior source.
• Qatari PM said Gaza ceasefire talks are at a stalemate and the Rafah operation has sent things backwards, while fundamental differences remain on both sides. Furthermore, he said there can be a deal in a matter of days but there is no clarity from Israel on how to end the war.

OTHER

• EU decided to broaden the scope of its sanctions framework to include not only the provision of drones from Iran to Russia but also missiles, while it also expanded the sanctions regime geographically to cover the Middle East, according to a press release.
• US ban on Russian-enriched uranium imports takes effect on August 11th, according to the US Energy Department.
• US National Cyber Director Koker said Chinese hackers are targeting US interests at an unprecedented scale.

ASIA-PAC

NOTABLE HEADLINES

• White House said US President Biden is directing the US Trade Representative to increase tariffs on USD 18bln of imports from China which will cover steel and aluminium, semiconductors, electric vehicles, batteries, components and critical minerals, solar cells, ship-to-shore cranes and medical products. The tariff rate on certain steel and aluminium products under Section 301 will increase from 0-7.5% to 25% in 2024 and the tariff rate on semiconductors will increase from 25% to 50% by 2025, while the tariff rate on electric vehicles will increase from 25% to 100% in 2024.
• China’s Commerce Ministry said China is strongly dissatisfied with the US tariff hike and will take resolute measures to defend its rights and interests, while it added the US should immediately correct its wrongdoings and cancel additional tariff measures against China. Furthermore, it said the US tariff hike violates President Biden's commitment to not seek to suppress and contain China's development and not to seek to decouple and break links with China.
• US President Biden said China heavily subsidises products that are dumped on foreign markets. It was separately reported that presidential candidate Trump said the US should put more tariffs on more Chinese products and should go beyond EVs in imposing tariffs on China.
• Australian Budget sees 2023/24 budget surplus at AUD 9.3bln (exp. AUD 9bln) and 2024/25 deficit is seen at AUD 28.3bln (exp. 13.9bln) with deficits seen through to 2026/27 (as expected), while 2023/24 CPI is seen at 3.5%, 2024/25 at 2.75% 2025/26 at 2.75%.

EU/UK

NOTABLE HEADLINES

• BoE Chief Economist Pill said there is still some work to do on the persistence of inflation and it is not unreasonable to believe that over the summer, the BoE will see enough confidence to consider rate cuts, while he also commented that the BoE is making good progress on returning inflation to target.
• ECB's Knot said the recovery is to accelerate into H2 and the Eurozone is clearly showing signs of a recovery, while he is increasingly confident that inflation will converge to target and is seeing an improvement in services inflation. Furthermore, Knot said if they continue on this track regarding inflation, then it will be appropriate to gradually remove some restriction and June could be a good opportunity for the first rate cut.
• ECB's Wunsch said the first 50bps of total cuts are close to a no-brainer, while they should proceed gradually and not commit to a second move in July, while he added that high rates for longer by the Fed could lead to a slower pace of ECB rate reductions, according to Handelsblatt.
• Eurosystem insider said even a very poor Eurozone inflation reading this month would not necessarily dissuade the ECB's Governing Council from going through with the 25bp rate cut that has been amply signalled for its June meeting, according to Econostream.

DATA RECAP

• UK Employment Change (Mar) -177k vs. Exp. -215k (Prev. -156k)
• UK ILO Unemployment Rate (Mar) 4.3% vs. Exp. 4.3% (Prev. 4.2%)
• UK Average Earnings (Ex-Bonus)(Mar) 6.0% vs. Exp. 5.9% (Prev. 6.0%)
• UK Average Weekly Earnings 3M YY (Mar) 5.7% vs. Exp. 5.5% (Prev. 5.6%, Rev. 5.7%)
• German CPI Final MM (Apr) 0.5% vs. Exp. 0.5% (Prev. 0.5%)
• German CPI Final YY (Apr) 2.2% vs. Exp. 2.2% (Prev. 2.2%)
• German HICP Final MM (Apr) 0.6% vs. Exp. 0.6% (Prev. 0.6%)
• German HICP Final YY (Apr) 2.4% vs. Exp. 2.4% (Prev. 2.4%)
• German ZEW Economic Sentiment (May) 47.1 vs. Exp. 46.0 (Prev. 42.9)
• German ZEW Current Conditions (May) -72.3 vs. Exp. -75.8 (Prev. -79.2)
• EU ZEW Survey Expectations (May) 47 (Prev. 43.9)