US stocks were subdued after Fed's Williams opened the door for potential rate hikes but it is not his baseline forecast - Newsquawk Asia-Pac Market Open

• US stocks were subdued and unwound their initial gains as the bearish trend continued with headwinds from Fed's Williams comments after he opened the door for potential rate hikes although they are not his current base case, while declines were led by underperformance in tech, with TSMC pressured after its earnings report where it trimmed its outlook for the semiconductor industry as a whole despite decent quarterly figures and its Q2 guidance. Participants also digested the latest data releases which mostly beat expectations including a strong Philly Fed survey and hot Prices Paid with the latter at its highest since December 2023 and was near, but below, its long-run average.
• USD was slightly firmer and the DXY rose back above 106.00 with upside seen as risk sentiment soured, while data releases were better-than-expected including the Philly Fed Index which surpassed expectations with a hot Prices Paid subcomponent and initial jobless claims were unchanged at 212k but came in below estimates. There were also several Fed speakers with Williams towing a slightly more hawkish line in which he reiterated that policy is in a good place and doesn't feel the urgency to cut rates, as well noted that rate hikes are not his baseline forecast but if the data called for higher rates, the Fed would hike.
• Looking ahead, highlights include Japanese CPI, Malaysian GDP & Trade Data, Comments from Fed's Bostic.

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LOOKING AHEAD

• Highlights include Japanese CPI, Malaysian GDP & Trade Data, Comments from Fed's Bostic.
• Click here for the Newsquawk Week Ahead.

US TRADE

• US stocks were subdued and unwound their initial gains as the bearish trend continued with headwinds from Fed's Williams comments after he opened the door for potential rate hikes although they are not his current base case, while declines were led by underperformance in tech, with TSMC pressured after its earnings report where it trimmed its outlook for the semiconductor industry as a whole despite decent quarterly figures and its Q2 guidance. Participants also digested the latest data releases which mostly beat expectations including a strong Philly Fed survey and hot Prices Paid with the latter at its highest since December 2023 and was near, but below, its long-run average.
• SPX -0.22% at 5,011, NDX -0.57% at 17,394, DJIA +0.06% at 37,775, RUT -0.26% at 1,942.
• Click here for a detailed summary.

NOTABLE HEADLINES

• Fed's Williams (voter) said the Fed is data dependent and the data has been very good and the economy is strong, while he reiterated that policy is in a good place and doesn’t feel the urgency to cut rates. Williams said rates will eventually need to be lowered and rate cuts will be determined by economic activity, as well as noted that rate hikes are not his baseline forecast but if the data called for higher rates, the Fed would hike.
• Fed's Bostic (voter) said inflation is too high and they still have a ways to go on inflation, while the pathway to 2% will be slower than people expect and bumpy. Bostic added inflation is going where the Fed wants it to go but it is slow and he reiterated they won't be able to cut rates until towards the end of the year.
• Fed's Kashkari (non-voter) said once inflation is heading back to the 2% target, the Fed can cut rates but added that they could potentially wait until 2025 to cut rates, while he stated they need to be patient until they are convinced that inflation is falling and noted the resilience of the housing market has been a surprise, according to a Fox News interview.

DATA RECAP

• US Philly Fed Business Index (Apr) 15.5 vs. Exp. 2.3 (Prev. 3.2)
• US Philly Fed Prices Paid 23.0 (Prev. 3.7)
• US Leading Index MM (Mar) -0.3% vs. Exp. -0.1% (Prev. 0.1%, Rev. 0.2%)
• US Existing Home Sales (Mar) 4.19M vs. Exp. 4.2M (Prev. 4.38M)
• US Initial Jobless Claims 212k vs. Exp. 215k (Prev. 211k, Rev. 212k)
• US Continued Jobless Claims 1.812M vs. Exp. 1.810M (Prev. 1.817M, Rev. 1.810M)

FX

• USD was slightly firmer with the DXY back above 106.00 with upside seen as risk sentiment soured, while data releases were better-than-expected including the Philly Fed Index which surpassed expectations with a hot prices paid subcomponent and initial jobless claims were unchanged at 212k but came in below estimates. There were also several Fed speakers with Williams towing a slightly more hawkish line in which he reiterated that policy is in a good place and doesn't feel the urgency to cut rates, as well noted that rate hikes are not his baseline forecast but if the data called for higher rates, the Fed would hike.
• EUR saw mild losses amid the firmer buck and after a slew of ECB rhetoric highlighting upcoming ECB-Fed divergences.
• GBP returned to relatively flat territory with price action choppy and amid very little from the UK aside from comments from BoE's Greene who said to expect inflation to return to the target in coming months but don't expect it to stay there and doesn't think a rate cut is imminent, while the attention turns to the upcoming Retail Sales data.
• JPY marginally weakened with USD/JPY extending on its rebound from support around the 154.00 level and with participants now awaiting the latest CPI data from Japan.

FIXED INCOME

• Treasuries bear-flattened after Fed's Williams alluded to a rate hike tail scenario in the backdrop of a hot Philly Fed survey and with eyes on supply.

COMMODITIES

• Oil prices were choppy amid signs of technical fatigue in the oil market juxtaposed against fresh Iranian bellicose rhetoric.
• Kazakhstan vowed again to reduce its crude output and compensate for producing well above its OPEC+ target, according to an Argus reporter.

GEOPOLITICAL

MIDDLE EAST

• Multiple reports claimed Israeli PM Netanyahu is postponing a counter-strike on Iran until after the Passover next week and it was also said that he promised a more limited retaliation in return for freedom to strike Rafah hard.
• Israeli government spokeswoman said PM Netanyahu set a date for entry into Rafah and they appreciate any American support in understanding the objectives of the war, according to Al Jazeera.
• Large movements of Israeli armoured vehicles were reported near the outskirts of the city of Rafah, according to Al Arabiya. It was separately reported that Israel’s army is waiting for the green light to start its operations in Rafah and that the invasion will take place in two phases, starting with issuing statements to evacuate residents and establish places of displacement, according to Israel Broadcasting Corporation.
• US has reportedly agreed to back an Israeli operation in Rafah in return for Israel not conducting a major strike on Iran, according to JNS citing Egyptian officials.
• US and Israel were reported to hold a virtual meeting on Thursday about a possible Israeli operation in Rafah, according to Axios citing US officials. It was later reported both sides agreed on the shared objective to see Hamas defeated in Rafah.
• Iranian Foreign Minister told the UN Security Council that Iran "had no other option" but to attack Israel, while he added Iran's defence and countermeasures have concluded and Israel must be compelled to stop any further military adventurism against their interests. Furthermore, he warned if there is any use of force by Israel or violation of Iran's sovereignty, Iran's response will be decisive and proper to make Israel regret its actions.
• Senior Iranian Guards Commander Haghtalab said Tehran could review its nuclear doctrine and that nuclear sites are in "total security", while he added "Our hands are on the trigger, Israel's nuclear facilities have been identified". Furthermore, he said they are ready to launch powerful missiles to destroy designated targets in Israel and warned if Israel dares to hit their nuclear sites, they will surely hit back.
• US President Biden announced new sanctions on Iran related to the IRGC which targets the Iranian UAV program, steel industry, and automobile companies in response to the unprecedented attack on Israel, while the White House later said it will keep the option open for more Iran sanctions.
• UK added 13 new designations as part of the Iran sanctions regime. It was separately reported that a UK Ministry of Defence insider said they now expect strikes “back and forth” between Israel and Iran, according to Politico.
• US reportedly makes a fresh push for a Saudi-Israel diplomatic deal, according to WSJ. White House urges Israeli PM Netanyahu to accept commitment to Palestinian statehood in exchange for Saudi recognition, and is to offer Riyadh a more formal defence relationship and assistance in acquiring civilian nuclear power.

OTHER

• US Treasury Department says Yellen and UK Chancellor Hunt discussed ways to constrain Russia's access to goods it needs to build weapons including China's role in supplying Russia's military-industrial complex, while they exchanged views on Chinese industrial practices that cause overcapacity.
• German Chancellor Scholz said NATO partners could deliver a further six patriot systems to Ukraine and Germany at the front.

ASIA-PAC

NOTABLE HEADLINES

• PBoC official said high real interest rates in some sectors may help control capacity and reduce inventories, while it will keep interest rates at appropriate levels but will also prevent rates from becoming too low.
• China's Commerce Ministry firmly objects to the US raising tariffs on Chinese steel and aluminium products, while it urges the US to stop raising tariffs on Chinese products and said the US accusation is typical unilateralism and protectionism.
• Chinese EV makers are reportedly chasing state incentives even though they are less beneficial than federal ones, according to Reuters citing sources. Furthermore, Mexican officials are reportedly pausing any future China automaker meetings and Mexico, under US pressure, will not be offering any incentives to China's EV makers.
• US House Committee is probing index funds that channelled billions of Dollars into blacklisted Chinese companies with the probe focused on BlackRock (BLK) and MSCI (MSCI), according to WSJ.
• FBI Director Wray said Chinese government-linked hackers have burrowed into US critical infrastructure and are waiting for the right moment to deal a devastating blow, according to Reuters.
• BoJ Governor Ueda said there is a chance weak Yen may affect trend inflation and if so, could lead to a policy shift.
• Japanese Finance Minister Suzuki said FX levels reflect various factors and not just rate differentials, while he added they continue to conduct close communication with the US and Korea on FX. Suzuki said it was meaningful that the G7 confirmed excessive FX moves have a negative impact on the economy but noted there was no direct FX discussion at the G20 meeting.

EU/UK

NOTABLE HEADLINES

• BoE's Greene said the latest pay data shows pretty high wage growth although it is moving in the right direction and the latest inflation data surprised to the upside a little. Greene added expect inflation to return to the target in coming months but don't expect it to stay there and doesn't think a rate cut is imminent.
• ECB's de Guindos said inflation has fallen further this year and is expected to continue declining in the medium term but the pace will be slower. De Guindos also stated that if inflation conditions are met, it would be appropriate to reduce the current level of restrictions.
• ECB's Holzmann said must remain cautious after a potential first cut and if the Fed does not cut, he cannot see 3-4 ECB cuts this year. Holzmann added there will likely be a majority for a June ECB cut and noted that the ECB can't look through a potential oil price shock.
• ECB's Knot said he is increasingly confident about the disinflation process and expects inflation to become more bumpy, according to Bloomberg TV.
• ECB's Nagel said the ECB cannot rule out small rebounds in inflation for Germany some months this year, while he added US inflation data shows caution is warranted and he sees a cautious slide in rates after June.
• ECB's Panetta said disinflation is advanced and continuing, while he added that the ECB will consider the level of restriction and that a tighter Fed is empirically a form of tightening for the Euro Area.
• ECB Rehn said inflation is converging towards the ECB's 2% target and monetary restraint is continuing to reduce inflation, impacting the real economy strongly and affecting the outlook, particularly for this year.
• ECB's Simkus said only a huge surprise could derail a cut in June and the FX rate will balance developments between the US and Europe, while he sees around three 2024 cuts in his baseline, according to CNBC. ECB's Simkus also said it is most likely that there will be several cuts, but they don't have to be precise and the ECB is not in a rush.
• ECB's Villeroy said barring a major surprise, should cut rates in the next meeting (June) and he is open to rate cuts at each meeting after June.
• ECB's Vujcic said so far FX market has been very calm about the risk of Fed-ECB divergence.
• Bundesbank Monthly Report stated the German economy is likely to grow in Q1 but not certain this will continue into Q2 and there is no sign of a sustained improvement in the domestic economy overall.

DATA RECAP

• EU Construction Output MM (Feb) 1.83% (Prev. 0.48%, Rev. 0.19%)