US stocks and bonds tumbled, while the dollar and yields surged after hot CPI data dampened rate cut hopes - Newsquawk Asia-Pac Market Open

• US stocks were pressured after above-forecast March CPI data shattered expectations for Fed rate cuts in the months ahead which sent stocks and bonds lower as the dollar and yields ripped, while Fed pricing now sees less than 40bps of cuts across 2024 vs 68bps before the CPI data with the first fully priced rate cut pushed back to November from July. As such, all the major indices finished lower and the greatest losses were in the most rate-sensitive sectors, particularly the small cap Russell 2k.
• USD surged with DXY above the 105.00 level after hotter-than-expected US CPI data triggered a broad hawkish reaction which saw a surge in yields and money markets price around 40bps of cuts this year vs 68bps pre-data, while the FOMC Minutes provided little to spur price action and were seen as stale given the recent data.
• Looking ahead, highlights include Japanese Money Supply, Australian MI Inflation Expectations & Building Approvals, Chinese CPI & PPI, Supply from Japan, Market Closures in India, Indonesia, Malaysia & the Middle East.

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LOOKING AHEAD

• Highlights include Japanese Money Supply, Australian MI Inflation Expectations & Building Approvals, Chinese CPI & PPI, Supply from Japan, Market Closures in India, Indonesia, Malaysia & the Middle East.
• Click here for the Newsquawk Week Ahead.

US TRADE

• US stocks were pressured after above-forecast March CPI data shattered expectations for Fed rate cuts in the months ahead which sent stocks and bonds lower as the dollar and yields ripped, while Fed pricing now sees less than 40bps of cuts across 2024 vs 68bps before the CPI data with the first fully priced rate cut pushed back to November from July. As such, all the major indices finished lower and the greatest losses were in the most rate-sensitive sectors, particularly the small cap Russell 2k.
• SPX -0.95% at 5,161, NDX -0.87% at 18,012, DJIA -1.09% at 38,462, RUT -2.78% at 2,023.
• Click here for a detailed summary.

FOMC MINUTES

• FOMC Minutes from the March 19th-20th meeting stated almost all participants judged it would be appropriate to pivot to a less restrictive policy stance at some point this year and participants noted the disinflation process was continuing on a path generally expected to be somewhat uneven. Participants generally judged risks to achieving employment and inflation goals were moving into better balance but noted uncertainty about the persistence of high inflation. Furthermore, participants generally noted recent data had not increased confidence that inflation was moving sustainably down to 2%.

NOTABLE HEADLINES

• Fed's Barkin (voter) thinks a lot of progress is being made on inflation, while he said AI is going to expand rapidly and replace some jobs and does not see any suggestions that CRE is a systemic risk.
• Fed's Goolsbee (non-voter) said the Fed is facing more trade-offs this year than last year and stated that rising black unemployment is a signal for caution.
• US President Biden said rate cuts may be delayed by a month but added that there will be a rate cut by the end of the year.
• WSJ's Timiraos commented that to begin any kind of "mid-cycle adjustment", the Fed needed to see evident weakness in the economy or the type of cooler inflation readings that were the norm in H2 2023, but added that they have neither three months into 2024 and that cuts get deferred.

DATA RECAP

FX

• USD surged with DXY above the 105.00 level after hotter-than-expected US CPI data triggered a broad hawkish reaction which saw a surge in yields and money markets price around 40bps of cuts this year vs 68bps pre-data, while the FOMC Minutes provided little to spur price action and were seen as stale given the recent data.
• EUR weakened amid the broad dollar strength which dragged EUR/USD beneath 1.0800, while the focus now turns to the ECB.
• GBP slid firmly beneath the 1.2600 handle as the buck surged, with activity currencies also pressured by the negative mood.
• JPY was pressured and USD/JPY eventually climbed above 153.00 for its highest since July 1990, heightening intervention alertness.
• Bank of Canada kept rates unchanged at 5.0%, as expected. BoC stated that inflation is still too high but has eased in recent months and noted that while inflation is still too high and risks remain, CPI and core inflation have eased further in recent months. Furthermore, it stated that the Council will be looking for evidence that this downward momentum is sustained.
• BoC's Macklem said as the BoC considers how much longer to keep rates at 5%, it is looking for evidence that recent further easing in underlying inflation will be sustained, while he also commented that a June rate cut is "possible" and the decline they have seen in momentum is very recent.

CRYPTO

• Hong Kong is likely to approve spot Bitcoin ETFs next week and some launches could happen in April, according to Reuters sources.

FIXED INCOME

• Treasuries suffered their biggest one-day sell-off since late 2022 after hot CPI data shattered June rate cut expectations which was followed by an awful 10yr auction.

COMMODITIES

• Oil prices bounced back with Iran attack response fears offsetting bearish inventories and the dollar rip.
• US EIA Weekly Crude Stocks 5.8M vs. Exp. 1.8M (Prev. 3.2M)
• Russia's Novak asked oil producers to boost diesel and gasoline supply within the domestic market.
• Russia is considering dropping some environmental requirements for gasoline usage to avoid possible shortages which could bring in an additional 10% of gasoline or 300k-350k metric tons per month to the domestic market, according to Reuters sources.
• Shanghai Futures Exchange imposed transaction limits on gold and copper futures "to control recent trading price risks", while the daily opening position limit was set at 2.8k contracts for gold and 2k contracts for copper.

GEOPOLITICAL

MIDDLE EAST

• US sees a missile strike on Israel by Iran and proxies as imminent in "coming days", according to Bloomberg sources. It was also reported that US President Biden said Iran is threatening to launch a significant attack on Israel, while he told Israeli PM Netanyahu that US commitment to Israel’s security is ironclad.
• US senior general is to visit Israel to coordinate on Iran attack threat with CENTCOM commander Gen. Kurilla expected to meet senior Israeli Defence Force officials and Defense Minister Gallant, according to Axios. Israeli officials said they are preparing for a possible, unprecedented direct attack against Israel from Iranian soil using ballistic missiles, drones and cruise missiles against Israeli targets, while Israel would retaliate with its own direct attack against Iran in such a scenario.
• Hamas reportedly informed negotiators that it does not have the forty Israeli hostages required for the first round of a ceasefire, according to CNN citing sources, while a source described this as a "major obstacle".
• Israeli war council member Gantz said if necessary, they may expand the war in the north and Lebanon will pay the price, according to Asharq News.
• Kann's Stein reported via X that Israel killed the three sons of the Hamas leader, Haniya, along with their children in a car attack in the al-Shati refugee camp in Gaza.
• Yemeni Houthis said they carried out four military operations targeting vessels in the Gulf of Aden.

OTHER

• UK government announced the UK is to hold joint military exercises with the US and Japan to boost security and strengthen defence ties.

ASIA-PAC

NOTABLE HEADLINES

• China reportedly instructed commercial banks to cease offering interest rates on deposits above the deposit rate ceiling, according to Reuters citing sources.
• China urged the EU to halt anti-subsidy probes, while it is to monitor EU moves and reserves the right to take measures, according to Bloomberg.
• BoJ will reportedly forecast an increase of about 2% in core CPI for fiscal 2026 in its Outlook Report to be published on April 26th which will reflect changes in behaviour over businesses’ wage hikes and price setting. BoJ will also discuss raising the forecast for fiscal 2024 on the back of a rise in crude prices and higher costs of imported materials due to a weaker yen, according to JiJi.
• South Korean President Yoon could face a heavy defeat in the parliamentary vote, according to KBS.

EU/UK

NOTABLE HEADLINES

• One person was killed and two were seriously injured in a knife attack in Bordeaux while the attacker is dead, according to BFM TV citing police sources.