US stocks slipped after firmer-than-expected employment costs ramped up the hawkish pressure on the eve of the FOMC - Newsquawk Asia-Pac Market Open

• US stocks were pressured as the surprise rise in the Q1 Employment Cost Index ramped the hawkish pressure on the Fed ahead of the FOMC on Wednesday. The data resulted in a kneejerk decline for stocks which gradually extended throughout the US session with the rate-sensitive small caps (Russell 2k) leading the losses.
• USD strengthened and clawed back some of Monday's yen-induced losses after firmer-than-expected Employment Costs data added to the hawkish impulse ahead of the looming FOMC, while WSJ's Timiraos wrote that the Fed is to signal it has the stomach to keep rates "high for longer" and noted that firmer price pressures could lead longer-term rates to rise as investors continue paring back expectations of cuts.
• Looking ahead, highlights include New Zealand Jobs Data, Australian Manufacturing PMI, AIG Manufacturing Index & MI Inflation Gauge, Japanese Manufacturing PMI, Supply from Australia, Holiday Closures in China, Hong Kong, Taiwan, South Korea, Singapore, Philippines, Vietnam, Thailand, Indonesia, India and EU.

More Newsquawk in 2 steps:

1. Subscribe to the free premarket movers reports

2. Trial Newsquawk’s premium real-time audio news squawk box for 7 days

LOOKING AHEAD

• Highlights include New Zealand Jobs Data, Australian Manufacturing PMI, AIG Manufacturing Index & MI Inflation Gauge, Japanese Manufacturing PMI, Supply from Australia, Holiday Closures in China, Hong Kong, Taiwan, South Korea, Singapore, Philippines, Vietnam, Thailand, Indonesia, India and EU.
• Click here for the Newsquawk Week Ahead.

US TRADE

• US stocks were pressured as the surprise rise in the Q1 Employment Cost Index ramped the hawkish pressure on the Fed ahead of the FOMC on Wednesday. The data resulted in a kneejerk decline for stocks which gradually extended throughout the US session with the rate-sensitive small caps (Russell 2k) leading the losses, while Treasuries bear-flattened after the hot ECI print and amid an article from WSJ's Timiraos titled "Fed to Signal It Has Stomach to Keep Rates High for Longer".
• SPX -1.57% at 5,035, NDX -1.92% at 17,440, DJIA -1.49% at 37,815, RUT -2.09% at 1,973.
• Click here for a detailed summary.

NOTABLE HEADLINES

• US Treasury Secretary Yellen said the US needs "significant steps" to lower the budget deficit Yellen said high inflation is due largely to fading supply shocks and inflation has come down considerably although prices of many goods are higher than before the pandemic, while she added that people are generally better off despite price increases, but there is more work to be done to reduce living costs.
• WSJ's Timiraos noted the Fed is to signal it has the stomach to keep rates high for longer and firmer price pressures could lead longer-term rates to rise as investors continue paring back expectations of cuts. Furthermore, he stated “...officials are likely to emphasize that they are prepared to hold rates steady, at a level most of them expect will provide meaningful restraint to economic activity, for longer than they previously anticipated”.

DATA RECAP

• US Consumer Confidence (Apr) 97.0 vs. Exp. 104.0 (Prev. 104.7)
• US Chicago PMI (Apr) 37.9 vs. Exp. 45.0 (Prev. 41.4)
• US Employment Costs (Q1) 1.2% vs. Exp. 1.0% (Prev. 0.9%)
• US Monthly Home Price YY (Feb) 7.0% (Prev. 6.3%, Rev. 6.5%)
• US CaseShiller 20 YY NSA (Feb) 7.3% vs. Exp. 6.7% (Prev. 6.6%)

FX

• USD strengthened and clawed back some of Monday's yen-induced losses after firmer-than-expected Employment Costs data added to the hawkish impulse ahead of the looming FOMC, while WSJ's Timiraos wrote that the Fed is to signal it has the stomach to keep rates "high for longer" and noted that firmer price pressures could lead longer-term rates to rise as investors continue paring back expectations of cuts.
• EUR softened as the dollar caught a bid after the aforementioned ECI data which saw the single currency reverse the earlier strength seen from the stronger-than-expected EZ GDP data and firm French CPI data, to trade beneath the 1.0700 handle.
• GBP steadily retreated to a sub-1.2500 level owing to the dollar strength and with little in the way of fresh catalysts for the UK.
• JPY resumed its weakening trend against the greenback and edged closer back towards the 158.00 level despite reports that BoJ data suggested Japan may have intervened in the FX market on Monday.

FIXED INCOME

• Treasuries bear-flattened after a hot ECI print amped the pressure on the Fed ahead of FOMC and QRA.

COMMODITIES

• Oil prices were lower in what was a choppy session with headwinds from a firmer dollar and downbeat risk tone.
• OPEC April oil output fell by 100k BPD M/M to 26.49mln BPD led by Iran, Iraq and Nigeria, according to a Reuters survey.

GEOPOLITICAL

MIDDLE EAST

• Israeli PM Netanyahu said Israel will enter the city of Rafah to eliminate Hamas with or without a ceasefire and hostage release, according to Reuters. It was also reported that Netanyahu said the probability of reaching an exchange deal is slim and they will not accept an absolute withdrawal from the Gaza Strip, while he added the goals of the war have not changed and the Rafah operation will take place soon, according to Al Arabiya.
• Israeli delegation will not head to Cairo until Hamas gives its response, according to an Israeli official cited by Walla's Elster. It was separately reported that Hamas is expected to respond to the exchange deal proposal "tomorrow evening", according to Al Arabiya. Furthermore, Israel is to wait until 'Wednesday night' for Hamas’s response to the Gaza truce proposal, according to an Israeli official cited by AFP.
• US State Department said the US has not seen a credible Israeli plan that would address the varying areas of concerns in Rafah and the US remains committed to reaching a deal for an immediate ceasefire that secures hostages and allows for more aid.

ASIA-PAC

NOTABLE HEADLINES

• BoJ kept its monthly bond purchases plan for May unchanged from April.
• BoJ data suggested Japan may have intervened within the FX market on April 29th and could have spent JPY 5.26tln-5.51tln for intervention, according to Reuters citing BoJ data.
• Former Japanese top FX diplomat Furusawa said it is highly likely the Japanese government intervened on Monday to prop up the JPY.
• Japanese top FX diplomat Kanda said the ASEAN+3 finance ministers' meeting is to be held on the sidelines of the ADB annual conference.
• BoK Minutes (Apr) noted that one board member said the policy interest rate needs to remain restrictive to manage inflationary expectations, while another board member said no need to rush to rate cuts as economic growth prospects remain strong.

EU/UK

NOTABLE HEADLINES

• ECB's de Cos said they should start cutting in June if inflation continues to slow as expected, while he noted data dependency given high uncertainty with decisions to be taken at each meeting.**
• ECB's Holzmann said they would have no new information in July, so would refrain from taking any further steps and he sees no reason why they should take two steps in a row.
• ECB's Villeroy said the HICP data increases the confidence of reaching the target by the end of 2025 and as such, will be able to start cutting in early June.

DATA RECAP

• EU GDP Flash QQ (Q1) 0.3% vs. Exp. 0.2% (Prev. 0.0%, Rev. -0.1%)
• EU GDP Flash YY (Q1) 0.4% vs. Exp. 0.2% (Prev. 0.1%)
• EU HICP Flash YY (Apr) 2.4% vs. Exp. 2.4% (Prev. 2.4%)
• EU HICP-X F&E Flash YY (Apr) 2.8% vs. Exp. 2.9% (Prev. 3.1%)
• French CPI Prelim YY NSA (Apr) 2.2% vs. Exp. 2.2% (Prev. 2.3%)
• French CPI (EU Norm) Prelim YY (Apr) 2.4% vs. Exp. 2.2% (Prev. 2.4%)
• German GDP Flash QQ (Q1) 0.2% vs. Exp. 0.1% (Prev. -0.3%)
• German GDP Flash YY NSA (Q1) -0.9% vs. Exp. -0.8% (Prev. -0.4%)
• German Unemployment Change SA (Apr) 10k vs. Exp. 9k (Prev. 4k)
• German Unemployment Rate SA (Apr) 5.9% vs. Exp. 5.9% (Prev. 5.9%)