US stocks were choppy amid hawkish-leaning Fed speak and as markets await Israel's response - Newsquawk Asia-Pac Market Open

• US stocks were choppy and finished mixed following hawkish Fed comments and mixed earnings reports, while the major indices attempted to find some ground after recent selling and with a lack of response (so far) from Israel. The attention was on two key Fed speeches in which Fed Chair Powell and Vice Chair Jefferson omitted comments regarding rate cuts and suggested holding rates at their current levels for longer if needed, which weighed on Treasuries and facilitated further upside in yields.
• USD edged mild gains and peaked just above the 106.50 level owing to hawkish Fed comments including from Fed Chair Powell who noted recent data shows a lack of further progress on inflation this year and if higher inflation persists, the Fed can maintain the current rate as long as needed, while Fed's Jefferson made no references to rate cuts and stated that if inflation comes in above his expectations, it will be appropriate to hold the policy rate at current levels for longer.
• Looking ahead, highlights include New Zealand CPI, Japanese Trade Data, Singapore Non-Oil Exports, Australian MI Leading Index, Supply from Australia, Holiday Closure in India.

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LOOKING AHEAD

• Highlights include New Zealand CPI, Japanese Trade Data, Singapore Non-Oil Exports, Australian MI Leading Index, Supply from Australia, Holiday Closure in India.
• Click here for the Newsquawk Week Ahead.

US TRADE

• US stocks were choppy and finished mixed following hawkish Fed comments and mixed earnings reports, while the major indices attempted to find some ground after recent selling and with a lack of response (so far) from Israel. The attention was on two key Fed speeches in which Fed Chair Powell and Vice Chair Jefferson omitted comments regarding rate cuts and suggested holding rates at their current levels for longer if needed, which weighed on Treasuries and facilitated further upside in yields.
• SPX -0.21% at 5,051, NDX +0.04% at 17,713, DJIA +0.17% at 37,798, RUT -0.42% at 1,967.
• Click here for a detailed summary.

NOTABLE HEADLINES

• Fed Chair Powell said the performance of the US has been quite strong and recent data shows a lack of further progress on inflation this year, while he added the Fed can maintain the current rate for as long as needed if higher inflation persists, as well as noted that restrictive policy needs further time to work and it will likely take longer for confidence on inflation.
• Fed Vice Chair Jefferson (voter) said if incoming data suggests inflation is more persistent than he expects, it will be appropriate to hold in place the current restrictive stance of policy for longer, while he added the outlook is still quite uncertain and recent readings on both job gains and inflation have come in higher than expected.
• Fed's Barkin (voter) said CPI data has not "been supportive" of a soft landing and it is smart for the Fed to take its time on the decision to cut rates, while he added the economy is not overheating, but if so, the Fed can deal with it.
• Fed's Williams (voter) said inflation across categories has fallen over one-and-a-half years and US potential growth is around 2%.
• US Treasury Secretary Yellen said US inflation is significantly down from the peak but there is more work to do, while global economic performance has been powered in parts by a strong US economy and the labour market is remarkably healthy.
• US House Majority Leader Scalise is considering adding border security to the foreign aid package, according to Erik Wasson on X.

DATA RECAP

• US Industrial Production MM (Mar) 0.4% vs. Exp. 0.4% (Prev. 0.1%, Rev. 0.4%)
• US Manufacturing Output MM (Mar) 0.5% vs. Exp. 0.3% (Prev. 0.8%, Rev. 1.2%)
• US Building Permits Number (Mar) 1.458M vs. Exp. 1.515M (Prev. 1.524M, Rev. 1.523M)
• US Housing Starts Number (Mar) 1.321M vs. Exp. 1.487M (Prev. 1.521M, Rev. 1.549M)
• Atlanta Fed GDPnow (Q1) was raised to 2.9% from 2.8%.

FX

• USD edged mild gains and peaked just above the 106.50 level owing to hawkish Fed comments including from Fed Chair Powell who noted recent data shows a lack of further progress on inflation this year and if higher inflation persists, the Fed can maintain current rate as long as needed, while Fed's Jefferson made no references to rate cuts and stated that if inflation comes in above his expectations, it will be appropriate to hold the policy rate at current levels for longer.
• EUR was only slightly softer against the dollar with a brief dip reversed as support held around the 1.0600 level.
• GBP marginally weakened but remained at the 1.2400 handle after mixed earnings and employment metrics.
• JPY ultimately softened on the day after USD/JPY reversed an early sharp drop that had raised suspicion of intervention.
• Canadian CPI Inflation MM (Mar) 0.6% vs. Exp. 0.7% (Prev. 0.3%)
• Canadian CPI Inflation YY (Mar) 2.9% vs. Exp. 2.9% (Prev. 2.8%)

FIXED INCOME

• Treasuries were sold after top Fed officials pushed back on rate cuts.

COMMODITIES

• Oil prices were little changed amid ongoing angst around Israel and the firmer dollar.
• US Energy Inventory Data (bbls): Crude +4.1mln (exp. +1.4mln), Cushing -0.2mln, Gasoline -2.5mln (exp. -0.9mln), Distillate -0.4mln (exp. -0.3mln)
• Iran's deputy oil minister said they continue to do everything to ensure that energy exports in the region are carried out without problems, while all countries and players need to adhere to principles of non-harm to energy producers to ensure stability.
• White House senior adviser Podesta commented about potential SPR oil releases and said the US wants to ensure affordable gasoline.
• TC Energy (TRP) responded to an incident in Yellowhead County involving NGTL which affected a section of the pipeline that was shut down, while there are no reported injuries.
• Peru copper production rose 12.7% in February to 216,752 metric tonnes.

GEOPOLITICAL

MIDDLE EAST

• Israel’s war cabinet was said to be locked between restraint and revenge, while Israel was yet to agree on its response to Iran, according to CNBC. Kan News reported that they decided in Israel how the reaction against Iran would be carried out and the agreement came against the background of significant differences of opinion as some ministers demanded to wait for agreements with countries in the region. However, it was later reported that the Israeli war cabinet meeting ended without making a final decision on the response to Iran, according to ABC citing a source
• Israel’s thinking is that there is no harm in keeping Iran guessing by delaying a potential response, according to an Israeli source cited by The Times of Israel who said "let them be anxious" and that the response could be "within Iran or outside Iran", while the majority position in the cabinet is that Israel should respond forcefully to Iran’s unprecedented strike.
• Ministers reportedly asked Israeli PM Netanyahu to slow down in responding to Iran and wait for the formation of an alliance in the region against it. Furthermore, there is great international pressure being exerted on Israel to prevent it from responding to Iran and an initiative is being put forward to impose more sanctions on Iran as an alternative to the Israeli response, according to Israeli Broadcasting Corporation sources cited by Al Jazeera.
• Ministers' demand that Israel PM Netanyahu attack sensitive installations in Iran was refused and the debate about the date of the attack still continues, while the longer the attack is delayed, it may not come into effect, according to Kann citing sources.
• Israeli army spokesperson said it is impossible not to respond to the Iranian attack and they will act at the appropriate place and time, according to Sky News Arabia.
• Israeli official said the intent is to send a painful message to Iran and this can't be something cosmetic, according to FT.
• Israeli lawmaker said when Israel responds to the unprecedented weekend Iranian drone and missile salvoes, its aim will be to send a message of deterrence to Tehran while drawing a line under this round of hostilities, according to Reuters.
• Iranian President Raisi said the Zionist entity and its supporters will realize the true meaning of the broad Iranian response if they commit any mistakes, according to Al Jazeera.
• Russian President Putin held a phone call with Iran's President Raisi and expressed hope that all parties in the Middle East would show restraint, while Raisi said he is not interested in further escalation in the Middle East and noted that Iran's actions were forced and limited in nature, according to RIA.
• US expects that Israel’s military response to Iran’s strikes will be limited in scope, according to a senior US official and a source cited by CNN.
• US Secretary of State Blinken told a group of American Jewish leaders that further escalation with Iran is not in the interests of either the US or Israel, according to Axios citing sources at the meeting. The US assessment is that Iran would respond to any significant, overt Israeli strike on Iranian soil with a new round of missile and drone attacks, while the US thinks it will be very hard to replicate the huge success they had on Saturday with defeating the attack if Iran launches hundreds of missiles and drones again which the Israelis know, according to a US official.
• US State Department said the US has still not been briefed in detail on plans for an evacuation from Rafah or humanitarian considerations of a potential Israeli operation.
• US President Biden's aides are reportedly preparing to hit Iran with economic sanctions in retaliation to the attack on Israel, while experts noted there are limited meaningful options that won't spike oil or antagonise China, according to the Washington Post.
• US Treasury is to green-light new Iran sanctions after Israel attack, while the G7 is also considering sanctions with the goal of isolating Iran internationally and increasing economic pressure on the regime, according to Axios. It was later reported that US Treasury Secretary Yellen said they have been working to diminish Iran's ability to export oil and there may be more that can be done.
• EU's Borrell said some EU members proposed expanding restrictive measures against Iran, while it was separately reported that the EU aims for new Iranian sanctions over the Israel strike in the coming days, according to Bloomberg.

OTHER

• US State Department said Secretary of State Blinken will raise US concerns regarding China's support in Russia building up its defence industrial base to fight the war in Ukraine, during a visit to China in the coming weeks.

ASIA-PAC

NOTABLE HEADLINES

• China's Financial Regulator said they will allocate more credit resources to support manufacturing industry development and will continuously increase the proportion of medium to long-term loans to the manufacturing industry. Furthermore, they will increase credit loan investment, reduce reliance on collateral and increase support for first-time lenders in the manufacturing sector.
• Chinese Premier Li said they are ready to import more high-value goods from Germany which should open up for higher quality items as well.
• US Treasury Secretary Yellen said she will meet with Chinese officials this week to discuss anti-money laundering and balanced growth.
• Country Garden (2007 HK) reportedly seeks to extend some onshore bonds again, according to Bloomberg News.

EU/UK

NOTABLE HEADLINES

• BoE Governor Bailey said they have full employment in the UK, while he added that Europe and the US have different inflation dynamics and that there are 'very encouraging signs' on the world economy. Furthermore, Bailey sees strong evidence the process of disinflation is working its way through.
• BoE's incoming Deputy Governor Lombardelli said the decline in inflation is likely to be bumpy and sees two-sided risks, while she stated that inflation may prove more persistent than expected and won't put a date on when she expects a rate cut but added it is clearly the direction of travel for European economies.
• UK Chancellor Hunt said the period of high inflation is "well and truly behind us" and the UK has very strong growth prospects, according to Bloomberg TV.
• Fitch said UK 'AAA' covered bond ratings are resilient despite a sluggish economic outlook.
• ECB's Lagarde said the ECB will cut rates soon barring any major surprises and subject to no development of additional shock, it will be time to moderate restrictive monetary policy in reasonably short order, according to CNBC.
• ECB's Makhlouf said the ECB is pretty close to a rate cut now and needs to be extremely cautious with decisions, according to CNBC.
• ECB's Rehn said future rate decisions will ensure that policy rates will remain sufficiently restrictive for as long as necessary and if the June assessment confirms inflation convergence towards the target, they could lower the rate, while a cut assumes there will be no further setbacks in geopolitics or energy prices. Rehn also said there is currently a divergence between the US and European economies and they naturally may take different kinds of decisions in the coming period, while he added the ECB does not pre-commit to any rate path.
• ECB's Villeroy said he expects a June rate cut to be followed by others with "pragmatic and agile gradualism", while they will monitor possible consequences of Middle East developments.
• German ZEW said a recovering global economy is boosting expectations for Germany with half of respondents anticipating the country's economy to pick up over the next 6 months.

DATA RECAP

• UK Employment Change (Feb) -156k vs. Exp. 45k (Prev. -21k)
• UK ILO Unemployment Rate (Feb) 4.2% vs. Exp. 4.0% (Prev. 3.9%)
• UK HMRC Payrolls Change (Mar) -67k (Prev. 20k, Rev. -18k)
• UK Average Earnings (Ex-Bonus)(Feb) 6.0% vs. Exp. 5.8% (Prev. 6.1%)
• EU ZEW Survey Expectations (Apr) 43.9 (Prev. 33.5)
• German ZEW Economic Sentiment (Apr) 42.9 vs. Exp. 35.0 (Prev. 31.7)
• German ZEW Current Conditions (Apr) -79.2 vs. Exp. -76.0 (Prev. -80.5)