MNI EUROPEAN OPEN: Risk Consolidates After Monday's Surge

May-13 05:25By: Jonathan Cavenagh

Europe

EXECUTIVE SUMMARY

TRUMP SAYS CHINA AGREED TO ROLL BACK NON-TARIFF BARRIERS- BBG
REPUBLICANS FLOAT NEW TAX BREAKS FOR TIPS, LOCAL TAXES IN TRUMP BUDGET PACKAGE - RTRS
EUROPE WAITS FOR TURKEY SUMMIT TO ASK TRUMP FOR RUSSIA SANCTIONS - BBG
BOJ STRESSES WAIT AND SEE APPROACH - OPINIONS - MNI BRIEF
MNI DISCUSSES THE IMPACT OF CONSUMER SPENDING ON THE BOJ'S OUTLOOK - MNI
PBOC TO INCREASE ROLE OF PRICE TOOLS - DEPUTY - MNI BRIEF

Fig 1: USD BBDXY Index & Nominal 10yr Tsy Yield

Source: MNI - Market News/Bloomberg

BOE (MNI BRIEF): Bank of England external Monetary Policy Committee member Alan Taylor, one of two members who backed a 50 basis point cut in May, described himself as "being a bit activist" and said he had supported faster easing because, looking at energy prices, weak activity surveys and evidence of slowing pay growth, he had the clarity he needed to justifying easing.

PENSION FUNDS (BBG): “UK pension fund managers have agreed to invest at least 5% of their assets at home, marking a win for the Labour government that’s seeking to boost the economy by drawing billions of pounds into local startups and infrastructure projects.”

ECB (BBG): “ European Central Bank Governing Council member Martins Kazaks urged for caution even as he backed a further reduction in borrowing costs.

SANCTIONS (BBG): “ European leaders are ready to wait until after a possible meeting between Ukraine’s President Volodymyr Zelenskiy and Russia’s Vladimir Putin in Turkey before pushing the US to announce fresh sanctions on Moscow, people familiar with the matter said.”

US/CHINA (BBG): “ US President Donald Trump said China had agreed to remove non-tariff barriers to US imports as he announced a deescalation of his trade war with Beijing, suggesting even greater concessions could be in store if talks progress.”

FISCAL (RTRS): “Republicans in the U.S. Congress proposed new tax breaks for tipped income, overtime pay, private school tuition, seniors, and state and local taxes on Monday as they fleshed out a sweeping budget package that would also cut taxes and tighten healthcare benefits for the poor.”

FISCAL (MNI BRIEF): The U.S. Treasury collected USD15.6 billion in net customs duties in April, nearly double the USD8.2 billion seen in March after new tariffs kicked in, the Treasury Department said Monday. Fiscal year-to-date, net customs duties totaled USD59.2 billion, up from USD44.1 billion in the year-ago period.

FED (MNI BRIEF): Federal Reserve Governor Adriana Kugler said Monday the 90-day rollback of sky-high tariffs on goods flowing between the U.S. and China will mean a reduction in the impact on the U.S. economy.

OTHER

JAPAN (MNI BRIEF): Several Bank of Japan's board members expressed caution about raising interest rates at the April 30-May 1 meeting, citing significant uncertainty over the outlook for the economy and prices, according to the summary of opinions released Tuesday, with policymakers agreeing that the timing of any future rate hike must be considered carefully.

JAPAN (MNI): MNI discusses the impact of consumer spending on the BOJ's outlook. On MNI Policy MainWire now, for more details please contact sales@marketnews.com.

JAPAN (RTRS): Japanese Finance Minister Katsunobu Kato said on Tuesday that he would seek to meet U.S. Treasury Secretary Scott Bessent on the sidelines of the G7 meetings in Canada next week to discuss foreign exchange.

BRAZIL/CHINA (MNI BRIEF): “The Central Bank of Brazil (BCB) and the People's Bank of China (PBOC) will sign a BRL157 billion currency swap deal this Tuesday at an event in Beijing. "The main objective of the agreement is to provide liquidity to support the functioning of financial markets in times of need," the Brazilian central bank said in a statement.

AUSTRALIA (BBG): "Australia’s center-right Liberal party has elected Sussan Ley as its new leader, the first woman to head the party since it was founded in 1944, taking up the task of leading the opposition back to government after a devastating election loss 10 days ago."

CHINA

CHINA/US (PEOPLE’S DAILY): “China is willing to continue trade talks with the US based on the positive outcomes from the meeting in Geneva, even though the road ahead may be bumpy, according to a commentary by People’s Daily, the flagship newspaper of the Chinese Communist Party.”

POLICY (MNI BRIEF): The People’s Bank of China will downplay quantitative targets and focus more on price-based tools like interest rates in future, Deputy Governor Xuan Changneng said at the Central Bank of Iceland's Annual Economic Conference, according to a statement on the PBOC website Tuesday.

AUTOS (CAAA): “Auto production and sales in China hit 10.1 and 10.0 million units in the first four months of the year, up 12.9% and 10.8% y/y, marking the first time both exceeded 10 million simultaneously, according to the China Association of Automobile Manufacturers.”

MINERALS (CSJ): “Beijing will strengthen its supply chain control of strategic mineral exports, China Securities Journal reported, following a Ministry of Commerce meeting with several departments. Central and provincial officials managing concentrations of strategic mineral resources must closely track flows, strengthen information sharing and enhance early warnings to strictly prevent illegal outflows, the meeting outlined.”

CHINA MARKETS

MNI: PBOC Net Drains CNY225 Bln via OMO Tuesday

MNI (BEIJING) - The People's Bank of China (PBOC) conducted CNY180 billion via 7-day reverse repos, with the rate unchanged at 1.40%. The operation led to a net drain of CNY225 billion after offsetting the maturities of CNY405 billion today, according to Wind Information.

The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.4420% at 09:38 am local time from the close of 1.4967% on Monday.
The CFETS-NEX money-market sentiment index, measuring interbank money-market liquidity, closed at 46 on Monday, the same as the close on Friday. A higher reading points to tighter liquidity condition, with 50 representing an equilibrium.

MNI: PBOC Sets Yuan Parity Lower At 7.1991 Tues; +0.15% Y/Y

MNI (BEIJING) - The People's Bank of China (PBOC) set the dollar-yuan central parity rate lower at 7.1991 on Tuesday, compared with 7.2066 set on Monday. The fixing was estimated at 7.2197 by Bloomberg survey today.

MARKET DATA

AUSTRALIA MAY WESTPAC CONSUMER CONFIDENCE INDEX 92.1; PRIOR 90.1
AUSTRALIA APR NAB BUSINESS CONFIDENCE -1; PRIOR -3
AUSTRALIA APR NAB BUSINESS CONDITIONS 2; PRIOR 3

JAPAN APR MONEY STOCK M2 Y/Y 0.5%; PRIOR 0.8%

MARKETS

US TSYS: Asia Wrap - Yields Drift Lower

TYM5 has traded slightly higher within a range of 110-02 to 110-08 during the Asia-Pacific session. It last changed hands at 110-07, up 0-02 from the previous close.

The US 2-year yield has drifted lower, dealing around 3.983%, down 0.03 from its close.
The US 10-year yield has drifted lower, dealing around 4.45%, down 0.02 from its close.
“ The House tax committee released key details of the multi-trillion dollar tax-cut bill President Trump is seeking to enact as his signature legislative achievement this year.”(BBG) This would add to the easing if passed and provide another tailwind for risk.
The 10-year Yield range seems to be 4.10% - 4.5%, price has bounced nicely off the 4.25/30 support, price is now testing the upper bound of the range around 4.45/50%. A sustained break above this level would see another round of selling targeting the 4.75% area.
MNI US CPI Preview - The broad assumption is that April is too early to have seen the impact from sharp increases in tariffs in April, with summer months more likely as inventories are reduced after significant front-running.
However, Monday’s significant cooling in US-China tensions - with US tariffs on China temporarily being cut from 145% to 30% and China tariffs on US from 125% to 10% for a 90-day period - will see this report viewed in a different light again.
That said, while April’s data could be glossed over as unrepresentative of ongoing inflation dynamics, the risks to an outsized market reaction tilt to the hawkish side (albeit with Monday’s further hawkish readjustment likely limiting the magnitude). Weaker-than-expected data could be shrugged off as the calm before the storm. Stronger April inflation pressures could be a signal that firms are already raising prices.
Data/Events : US CPI

JGBS: Twist-Flattener After Solid 30Y Auction, PPI Data Tomorrow

JGB futures are holding sharply weaker and near session lows, -86 compared to settlement levels, despite a solid post-auction rally at the long end of the curve.

The 30-year JGB auction low price aligned with dealer expectations per a Bloomberg survey. Moreover, the cover ratio rose to 3.0739x from 2.9582x, and the auction tail narrowed significantly to 0.30 from 0.75 (the longest since 2023).
(MNI, ICYMI) Several Bank of Japan's board members expressed caution about raising interest rates at the April 30-May 1 meeting. The summary did not offer any hint regarding the pace or timing of rate increases, reflecting the board's cautious stance at the meeting, which led to a hold on the 0.5% policy rate.
BoJ Governor Uchida reiterated the central bank’s stance to raise interest rates once its economic outlook is realised in Parliament today.
Cash US tsys are 1-2bps richer in today's Asia-Pac session after yesterday's heavy session sparked by news that the US and China agreed to pause their retaliatory reciprocal tariffs for 90 days.
Cash JGBs are 1-2bps cheaper across benchmarks out to the 10-year but 7-8bps richer beyond.
Swap curve has twist-flattened with rates 3bps higher to 5bps lower.
Tomorrow, the local calendar will see PPI data alongside BoJ Rinban Operations covering 1-3-year and 5-25-year JGBs.

AUSSIE BONDS: Heavy Session As ACGBs Track Global Bonds

ACGBs (YM -11.0 & XM -7.5) are weaker and hovering near Sydney session lows.

NAB business conditions fell 1 point from a month earlier to 2 in April, the lowest since August 2020.
Cash US tsys are ~2bps richer in today's Asia-Pac session after yesterday's heavy session sparked by news that the US and China agreed to pause their retaliatory reciprocal tariffs for 90 days.
Cash ACGBs are 7-10bps cheaper with the 3/10 curve flatter and the AU-US 10-year yield differential at -3bps.
The bills strip has bear-steepened, with pricing -3 to -11.
RBA-dated OIS pricing is 2-11bps firmer today with late 2025/early 2026 leading. This leaves meeting pricing 4-35bps firmer than levels before the release of Q1 CPI data on April 30. A 25bp rate cut in May is currently given a 96% probability, with a cumulative 82bps (117bps before the CPI data) of easing priced by year-end (based on an effective cash rate of 4.09%).
Tomorrow, the local calendar will see Q1 Wage Price Index and Home Loans data.
AOFM plans to sell A$1200mn of the 3.50% 21 December 2034 bond tomorrow and A$800mn of the 2.50% 21 May 2030 bond on Friday.

BONDS: NZGBS: Closed Cheaper & Near Worst Levels, Tracking US Tsys

NZGBs closed near session cheaps, with benchmark yields 6-8bps higher and the 2/10 curve steeper. With the domestic calendar again empty, today’s local market price action reflected heavy trading in global bonds following yesterday’s news that the US and China agreed to pause their retaliatory reciprocal tariffs for 90 days.

Nevertheless, NZGBs underperformed the $-bloc slightly, with the NZ-US and NZ-AU 10-year yield differentials 1-2bps wider.
“New Zealand will commit an extra NZ$100m to the Elevate venture capital fund in next week’s Budget, Finance Minister Nicola Willis said in a speech Tuesday in Wellington. Elevate began in 2020 to support high-growth tech-based startups by co-investing in private venture capital funds.” (per BBG)
Swap rates closed 9-11bps higher.
RBNZ dated OIS pricing closed 1-6bps firmer across meetings. 25ps of easing is priced for May, with a cumulative 70bps by November 2025.
Tomorrow, the local calendar will see Card Spending and Net Migration.
On Thursday, the NZ Treasury plans to sell NZ$200mn of the 4.50% May-30 bond, NZ$200mn of the 4.25% May-36 bond and NZ$50mn of the 1.75% May-41 bond.

FOREX: G10 Wrap - USD Breaks Resistance, Can it Extend ?

The BBDXY has had an Asian range of 1237.68 - 1240.11, Asia is currently trading around 1237. USD/JPY has edged lower after Japanese Finance Minister Kato said he will seek an opportunity to discuss currency matters with US Treasury Secretary Scott Bessent when the two are in Canada for a meeting of Group of Seven officials."*UCHIDA: WAGES EXPECTED TO KEEP RISING DUE TO TIGHT LABOR MARKET" - BBG. The USD/CNY fix was set at 7.1991. Today's fixing is sub the 7.2000 level for the first time since Apr 7. It comes despite the stronger USD index levels overnight, although some offset was from lower USD/CNY levels.

EUR/USD - Asian range 1.1085 - 1.1117, Asia is currently trading 1.1115. EUR/USD has had a quiet session as the market digests the overnight moves. The market is still expected to use dips as a buying opportunity and dips back towards 1.09/1.10 should see buyers remerge.
GBP/USD - Asian range 1.3170 - 1.3200, Asia is currently dealing around 1.3195. GPB broke through its support around 1.3200, if this break can hold we could target a move back to 1.3000 where buyers should be expected to return.
USD/JPY - Asian range 147.73 - 148.48, the Asia session is currently dealing around 147.85. USD/JPY scythed through the 1.4700 area as shorts pared back some of their positioning. With stocks on a tear as momentum type funds are forced back into the market the USD will continue to benefit particularly against currencies like the JPY. This will now test the conviction of the USD bears short-term, but levels back towards 150/151 should offer good levels for those that want to express this view.
USD/CNH - Asian range 7.1789 - 7.2045, the USD/CNY fix printed 7.1991. Asia is currently dealing around 7.1835. A lower fix even with the USD broadly higher across the board gave USD/CNH the impetus to extend lower, sellers should be found on any bounce back towards 7.24/25 again.
Cross asset : SPX -0.38%, Gold $3236, US 10-Year 4.45%, BBDXY 1237, Crude oil $61.76
Data/Events :Ger ZEW Survey, US CPI
Fig 1: GBP/USD Spot Daily Chart
Source: MNI - Market News/Bloomberg

FOREX: Antipodean Wrap - AUD & NZD Outperform Thanks To China

The S&P is down 0.39% this morning in the Asian session. Some intra-day retracement is to be expected but the broader risk-on move might still have a couple of days to play out as the price action shows the market was not expecting such a positive outcome so quickly. The Westpac May consumer sentiment report for Australia rose 2.2%m/m to put the index back at 92.10. We remain sub recent highs, with 95.9 recorded back in March of this year. The NAB Australian business survey saw conditions ease to +2 from a revised +3 reach in March. On the confidence front, the reading edged up to -1 from -3 prior. These headline measures aren't suggesting a sharp turnaround in domestic economic growth momentum in the near term. The USD/CNY fix was set at 7.1991. Today's fixing is sub the 7.2000 level for the first time since Apr 7. It comes despite the stronger USD index levels overnight, although some offset was from lower USD/CNY levels.

AUD/USD - Asian range 0.6361 - 0.6393, the AUD is currently dealing around 0.6400. AUD has outperformed this morning benefitting from its close trading relationship with China. Good demand was seen again back towards the 0.6350 support area. A break below 0.6300 needed to reverse direction.
AUD/JPY - Asian range 94.07 - 94.64, price goes into London trading around 94.60. While the support around 92.00 holds, price is likely to continue testing the Weekly resistance seen towards 96.00 where sellers should remerge.
NZDUSD - Asian range 0.5847 - 0.5877, going into London trading around 0.5980. The NZD has found demand this morning after dipping overnight. Price is approaching the bigger support back towards 0.5800, this needs to hold for those who believe the USD is set to move lower.
AUD/NZD - Asian range 1.0869 - 1.0888, the Asian session is currently trading 1.0880. The Cross has not backed off once since making a low of 1.0654 on the 23 April, it is now challenging the pivot around 1.0900 a sustained break above would turn the focus higher.
Fig 1 : NZD/USD Spot Daily Chart

Source: MNI - Market News/Bloomberg

ASIA STOCKS: Optimism Dropping Off

Optimism may be dropping off throughout Asia with only some major bourses up again today as the trade truce remains at the forefront of investors minds. Some investors are now turning their attention to whether the trade truce means no further stimulus is forthcoming in China and hence are likely to focus on the actual impact of tariffs on company’s profitability.

The Hang Seng was the regional outlier today, falling -1.67% whilst the CSI 300 and Shanghai were flat and Shenzhen following the lead from Hong Kong falling -0.30%.
The KOSPI fell too by -0.15% after yesterday’s gain of +1.17%
Malaysia was open again today after holidays but remained very quiet rising just +0.07% despite Singapore’s Straits Times being up +0.43%.
The Philippines PSEi continues its good run rising +1.45% today.
India’ s NIFTY 50 is down by-0.85%, following yesterday's strong gains of +3.8%

Oil Backs Off From Strong Rally

Oil gave back some overnight gains as the pace of the rally ran out of steam.
WTI opened the trading day in Asia at US$62.00 bbl and has lost -0.18% to be at US$61.85
Brent finished opened the Asia trading session at $64.93 and is lower by -0.20% at $64.83
For both WTI and Brent the last three trading sessions has seen a more than 5% rise in prices.
The gains sees WTI above the 20-day EMA of $61.17 with the next key technical level the 50-day EMA at $63.90
Oil companies like Exxon Mobil Corp. and Chevron Corp. climbed on Monday with commodity related companies in general having a good day.
President Trump campaigned on the promise of cheaper oil and despite the rally in recent days, WTI remains -12% lower year to date.

Gold Steadies from Last Night's Fall

Gold steadied in Asia trading following its second largest daily decline this year overnight and gained +0.10% to US$3,239.52 from where it opened trading in Asia this morning gold at US$3,236.27.
From the high of $3,431.77 on May 06, gold is now down over 5%.
Positioning from Hedge Funds is much more neutral with CFTC data showing that bullish bets have been scaled back to their lowest in more than a year.
Gold is likely to return its attention back now to the FED and and the direction of interest rates as trade wars risks appear to have subsided, for now.
Gold has now traded below the 20-day EMA of $3,276.66 with the next technical level the 50-day EMA at $3,164.09.

UP TODAY (TIMES GMT/LOCAL)

Date	GMT/Local	Impact	Country	Event
13/05/2025	0600/0700	***	GB	Labour Market Survey
13/05/2025	0900/1100	***	DE	ZEW Current Expectations Index
13/05/2025	0900/1000	*	GB	Index Linked Gilt Outright Auction Result
13/05/2025	0900/1000	*	GB	Index Linked Gilt Outright Auction Result
13/05/2025	1000/0600	**	US	NFIB Small Business Optimism Index
13/05/2025	-		EU	ECB's De Guindos At ECOFIN Meeting
13/05/2025	1230/0830	***	US	CPI
13/05/2025	1255/0855	**	US	Redbook Retail Sales Index
13/05/2025	1530/1130	**	US	US Treasury Auction Result for 52 Week Bill
14/05/2025	0130/1130	***	AU	Quarterly wage price index
14/05/2025	0600/0800	***	SE	Final Inflation Report
14/05/2025	0600/0800	***	DE	HICP (f)
14/05/2025	0700/0900	***	ES	HICP (f)
14/05/2025	0715/0815		GB	BOE Breeden At ISDA Conference
14/05/2025	0900/1000	**	GB	Gilt Outright Auction Result
14/05/2025	0915/0515		US	Fed Governor Christopher Waller
14/05/2025	1100/0700	**	US	MBA Weekly Applications Index
14/05/2025	-	***	CN	Money Supply
14/05/2025	-	***	CN	New Loans
14/05/2025	-	***	CN	Social Financing
14/05/2025	1230/0830	*	CA	Building Permits
14/05/2025	1240/1440		EU	ECB's Cipollone On Liquidity Issues Panel
14/05/2025	1310/0910		US	Fed Vice Chair Philip Jefferson