MNI EUROPEAN OPEN: USD Struggles To Rebound

EXECUTIVE SUMMARY

• MNI FED WATCH: ON HOLD UNTIL TARIFFS EFFECTS MATERIALIZE
• ECB’S STOURNARAS SAYS INTEREST-RATE CUTS ARE LIKELY TO CONTINUE - BBG 
• ISRAEL MAY SEIZE ALL GAZA IN EXPANDED OPERATION, OFFICIALS SAY - RTRS 
• CHINA SERVICES ACTIVITY SLIPS, ADDING RISK OF RAPID SLOWDOWN - BBG 

Fig 1: Australia Q1 Spending Volumes Flat, March Saw Cyclone Impact

Source: MNI - Market News/Bloomberg/Refinitiv. 

UK 

TRADE (BBC): “Film tariffs are set to form part of trade negotiations between the UK and US after Donald Trump threatened to apply a 100% charge against movies made in foreign countries.”

EU

ECB (BBG): “The European Central Bank is set to carry on cutting interest rates, according to Governing Council member Yannis Stournaras. “It seems we will continue” with such moves, he said. “But we have said that the approach that will apply is that at each meeting we will see the data and decide.” 

GERMANY (BBG): “Friedrich Merz has vowed to hit the ground running when he takes over as German chancellor on Tuesday, pledging swift action to galvanize Europe’s biggest economy, restore Berlin’s leadership role on the global stage and address voter concerns about irregular migration.”

EU (POLITICO): “On Tuesday, the European Commission, the EU’s executive, will unveil a long-awaited plan to sever the bloc’s final Russian energy links. According to two European diplomats, the scheme will propose new powers for private companies to divest from Russia, allowing them to end contracts early and urging them to halt any future deals.”

EU (POLITICO): “National capitals are pushing to weaken rules that would require them to screen foreign investments in sensitive technologies, such as semiconductors or artificial intelligence, according to the latest draft compromise text on the review of the rules governing foreign direct investment (FDI) screening seen by POLITICO.”

EU (POLITICO): “The European Union has missed a key milestone in its effort to rein in the riskiest artificial intelligence models amid heavy lobbying from the U.S. government.”

RUSSIA (BBC): “Russia says Ukraine has launched an overnight drone attack targeting Moscow for the second night in a row. All four of the capital's major airports have been closed temporarily to ensure safety, Russia's aviation watchdog Rosaviatsia said on Telegram.”

POLAND (POLITICO): “Polish President Andrzej Duda said Monday that he is pressing Donald Trump to ramp up sanctions on Russia to force an end to the war.”

US

MNI FED WATCH (MNI): The Federal Reserve will keep interest rates unchanged Wednesday for a third straight meeting and reaffirm it is well placed to wait for more clarity before reacting to President Donald Trump's barrage of tariffs this month. 

FED (MNI INTERVIEW): The Federal Reserve is likely to cut interest rates by a half point in June as evidence mounts the economy was already in recession before the trade war began, former Dallas Fed adviser Danielle DiMartino Booth told MNI. The Fed is likely to keep rates steady at this week’s meeting even though it should already be reducing borrowing costs, she added. 

FED (MNI INTERVIEW): The Federal Reserve will keep interest rates unchanged Wednesday for a third straight meeting and reaffirm it is well placed to wait for more clarity before reacting to President Donald Trump's barrage of tariffs this month. 

SERVICES (MNI INTERVIEW): Service sector activity quickened slightly in April but continued modest growth will depend on an ongoing easing of trade tensions, ISM Services survey chief Steve Miller told MNI Monday. 

OTHER 

CANADA (MNI INTERVIEW): Damage to Canada's economy from the uncertainty of shifting U.S. tariffs will lead the BOC to cut interest rates modestly in coming months, former central bank and finance department adviser Chris Ragan told MNI.

MIDDLE EAST (RTRS): “Israeli Prime Minister Benjamin Netanyahu said on Monday an expanded offensive against Palestinian militant group Hamas would be "intensive" after his security cabinet approved plans that may include seizing the Gaza Strip and controlling aid.” 

HONG KONG (BBG): “The Hong Kong Monetary Authority sold a record HK$60.5 billion ($7.8 billion) of the city’s currency, according to an alert sent on its Bloomberg page Tuesday in Asia, after it tested the upper end of its trading band. That adds to the HK$56.1 billion of sales versus the greenback since Friday.” 

CHINA 

SERVICES (BBG): “China’s services activity deteriorated more than expected in April, a private survey showed, the latest setback for an economy already under pressure from US tariffs.” 

TRAVEL (CSJ): “China recorded cross-regional passenger traffic of 1.47 billion trips during the Labor Day holiday, up 8% year on year, China Securities Journal reports, citing the Ministry of Transport.” 

TOURISM (MoFCom): “Key retail and catering firms in China saw sales growth of 6.3% y/y during the May holiday season, according to data from the Ministry of Commerce.”  

FISCAL (YICAI): “Local governments issued CNY3.5 trillion of bonds nationwide in the first four months of 2025, up 84% y/y, Yicai reported. Refinancing bonds accounted for CNY2 trillion, up 116% y/y, of which CNY1.6 trillion replaced hidden debt, indicating most of this year’s debt-swap quota has been utilised, Yicai noted.” 

CHINA MARKETS 

MNI: PBOC Net Drains CNY682 Bln via OMO Tuesday

MNI (BEIJING) - The People's Bank of China (PBOC) conducted CNY405 billion via 7-day reverse repos, with the rate unchanged at 1.50%. The operation led to a net drain of CNY682 billion after offsetting the maturities of CNY1087 billion reverse repos today, according to Wind Information. 

• The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.6270% at 09:47 am local time from the previous close of 1.7986%.
• The CFETS-NEX money-market sentiment index, measuring interbank money-market liquidity, closed at 50 on April 30, the last working day before the Labour Day holiday, compared with the previous close of 49. A higher reading points to tighter liquidity condition, with 50 representing an equilibrium.

MNI: PBOC Sets Yuan Parity Lower At 7.2008 Tues; -0.53% Y/Y

MNI (BEIJING) - The People's Bank of China (PBOC) set the dollar-yuan central parity rate lower at 7.2008 on Tuesday, compared with 7.2014 set on April 30, the last working day before the Labour Day holiday. The fixing was estimated at 7.2465 by Bloomberg survey today.

MARKET DATA

AUSTRALIA MARCH HOUSEHOLD SPENDING -0.3% M/M; EST. +0.2%; FEB. +0.3%
AUSTRALIA MARCH HOUSEHOLD SPENDING +3.5% Y/Y; EST. 3.9%; FEB. +3.6%

AUSTRALIA MARCH BUILDING APPROVALS -8.8% M/M; EST. -1.5%; FEB. -0.2%
AUSTRALIA MARCH PRIVATE-SECTOR HOME APPROVALS -4.5% M/M; FEB. +1.1%

CHINA APRIL CAIXIN SERVICES PMI 50.7; EST. 51.8; MAR. 51.9
CHINA APRIL CAIXIN COMPOSITE PMI 51.1; MAR. 51.8

MARKETS

US TSYS: Asia Wrap - Futures Edge Lower

TYM5 has traded lower within a range of 110-30 to 111-03 during the Asia-Pacific session. It last changed hands at 110-30, down 0-03 from the previous close.

• Futures are trading lower in Asia as China returns from holidays, China’s April's PMI services unexpectedly dipped in April in signs that the US tariff war is hurting.
• The CAIXIN PMI services had printed above 51 for six successive months and market expectations were for a continuation of this theme and a print of +51.8.
• April's result of +50.7 is the lowest since September and could be an early warning sign that the economy is slowing quicker than first thought.
• Risk in Asia has traded on the backfoot for most of our session following on from the poor close in the US.
• No cash market today with a holiday in Japan.
• The 10-year Yield range seems to be 4.10% - 4.45%, price has moved above the 4.30% pivot and with more supply to come this week a push back to 4.45% is possible before the buyers come in.
• Data/Events :  US Trade balance

AUSSIE BONDS: Cheaper But Subdued Trading With Japan Out, Apr-37 Supply Tomorrow

ACGBs (YM -3.0 & XM -6.0) are weaker and near Sydney session cheaps.

• Outside of the building approvals and household spending, there hasn't been much by way of domestic drivers to flag.
• Q1 HH spending volume data showed no growth on the quarter, in line with retail sales, to be up only 0.9% y/y after +1.6% q/q & 2.3% y/y in Q4, consistent with the view that the RBA is likely to ease 25bp on May 20. Private consumption in the national accounts is likely to be close to flat in Q1 when it is released on June 4.
• Cash US tsys dealings in today's Asia-Pac session with Japan out. TYM5 is slightly cheaper.
• Cash ACGBs are 3-6bps cheaper, with the 3/10 curve steeper.
• The bills strip has bear-steepened, with pricing flat to -5 across contracts.
• RBA-dated OIS pricing is flat to 3bps firmer across meetings today. A 50bp rate cut in May is given a 3% probability, with a cumulative 103bps of easing priced by year-end.
• Tomorrow, the local calendar will see Foreign Reserves data.
• The AOFM plans to sell A$1000mn of the 3.75% 21 April 2037 bond tomorrow and A$700mn of the 2.75% 21 November 2029 bond on Friday.

BONDS: NZGBS: Closed With A Bear-Steepener, Q1 Employment Report Tomorrow

NZGBs closed showing a bear-steepener, with benchmark yields finishing 1-4bps higher but slightly off the session’s worst levels. The NZ-AU 10-year yield differential was unchanged at +21bps. There were no cash dealings in US tsys in today's Asia-Pac session with Japan out. TYM5 is slightly cheaper. 

• NZ’s commodity export prices were unchanged from a month earlier in April.
• Swap rates closed flat to 4bps higher, with the 2s10s curve steeper.
• RBNZ dated OIS pricing closed little changed across meetings. 26bps of easing is priced for May, with a cumulative 76bps by November 2025.
• Q1 labour market data are released on Wednesday, and forecasts are in a narrow range across the major components. Bloomberg consensus expects the unemployment rate to rise 0.2pp to 5.3%, above the RBNZ’s 5.2% and would be the highest since Q4 2016, and employment to rise 0.1% q/q, signalling a stabilisation in the labour market.
• Private wages are expected to rise 0.5% q/q, slightly slower than Q4. Outcomes close to these are unlikely to alter the RBNZ’s probable 25bp rate cut on May 28.
• On Thursday, the NZ Treasury plans to sell NZ$225mn of the 3.00% Apr-29 bond, NZ$175mn of the 4.25% May-36 bond and NZ$50mn of the 2.75% May-51 bond.

FOREX: G10 Wrap - USD Struggling To Catch A Bid

The BBDXY has had an Asian range of 1221.53 - 1225.17, Asia is currently trading around 1222. USD/Asia has stabilized with China back from holidays. Bloomberg - “The ECB is poised to continue cutting rates, according to Yannis Stournaras. The Greek central bank chief expects a clear slowdown of inflation in Europe due to US tariffs, and believes the continent will respond selectively to any US measures.” The lower China services PMI saw risk trade heavy in our session providing a bid to safe havens like the JPY.

• EUR/USD -  Asian range 1.1280 - 1.1320, Asia is currently trading 1.1315. Intra-day support is around the 1.1250 area, should this area not hold demand should remerge on dips back to 1.1100.
• GBP/USD - Asian range 1.3260 - 1.3300, Asia is currently dealing around 1.3295. Intra-day support  is around the 1.3250 area, then the pivotal 1.30/31 support is next.
• USD/JPY -  Asian range 143.56 - 144.28, has drifted sideways for most of the Asia session. Look for some support initially back towards 143.00, we would probably need another catalyst to test below that again.
• USD/CNH - Asian range 7.2002 - 7.2352, the USD/CNY fix printed 7.2008. The capitulation in USD/Asia has taken a breather today, rallies should now find sellers who could not get out because of the pace of the move. First resistance 7.2600 Area and then back towards 7.3000.
• Cross asset : SPX -0.2%, Gold $3360, US TYM5 110-30, BBDXY 1221, Crude oil $58.02.
• Data/Events : SW PMI’s, FR Industrial Production & PMI’s, Spain Unemployment, Spain PMI’s, Italy PMI’s, Germ PMI’s, EU PPI, US Trade Balance

Fig 1: GBP/USD Spot Hourly Chart

Source: MNI - Market News/Bloomberg

FOREX: Antipodean Wrap - AUD & NZD Rise Falters As US Stocks Stall

The Asian session started off on the back foot with US stocks closing poorly even after a better than expected ISM Services PMI overnight. The lower China services PMI saw Asia remain under pressure providing headwinds for both the AUD and NZD. MNI - AU Building approvals in March were significantly weaker than expected falling 8.8% m/m with the more stable private houses component down 4.5% m/m. Bloomberg - “ANZ is forecasting a 0.2pp rise in the NZ Q1 unemployment rate to 5.3%, which would be the highest since Q4 2016, as growth in labour supply exceeds labour demand. It doesn’t think the data or the upcoming budget on May 22 will change the RBNZ monetary policy outlook and that the updated forecasts for the May 28 meeting will be more important, especially given the global environment.”

•  
• AUD/USD - Asian range 0.6443 - 0.6470, the AUD is currently dealing around 0.6455. The AUD move higher seems to be running out of steam as risk runs into resistance. Support should be seen back towards 0.6400, a break below 0.6300 needed to reverse direction.
• AUD/JPY - Asian range 92.76 - 93.05, price goes into London trading around 92.85.  Price is stalling towards the resistance seen around 94.00 as risk struggles in Asia. Support seen initially back towards the 92.00 area.
• NZDUSD - Asian range 0.5944 - 0.5973, going into London trading around 0.5965. The NZD continues to hold up well and is consolidating within a 0.5875/0.6025 range. On the day dips back to 0.5900 should continue to find support.
• AUD/NZD - Asian range 1.0819 - 1.0849, the Asian session is currently trading 1.0825. Sellers have returned back towards the 1.0850 area.

Fig 1 : AUD/JPY Spot Hourly Chart

Source: MNI - Market News/Bloomberg
ASIA STOCKS: China Shares Up Post Holidays. 

In their first trading day back post the five day Labour Day holidays, China’s major bourses all rose as expectations that the US trade war could ease.  The equity gains are after Treasury Secretary Scott Bessent’s said the US could see some “substantial progress in the coming weeks” in trade talks with China and President Donald Trump‘s suggesting that said he is willing to lower tariffs on China at some point. 

• China’s Shenzhen Composite lead the way as the index rose +1.90% whilst Shanghai and CSI 300 were up +0.95%.  The Hang Seng was strong today also rising +0.65%.
• The FTSE Malay KLCI fell -0.33% today following on from yesterday’s fall of -0.19% leaving the index down over 6% year to date.
• The Jakarta Composites good run continues rising +0.95% following yesterday's gains of -0.19% to leave it down just -2.5% year to date
• The FTSE Straits Times rose a modest +% whilst the PSEi in the Philippines climbed +0.75%.
• India’s NIFTY 50 is down -0.25% in the morning trade following on from yesterday’s rise of +0.47% on trade deal optimism.  Year to date the NIFTY 50 is up over 3% setting it apart from its regional peers. 

OIL: Crude Unwinds Yesterday’s Losses On Technicals

Oil prices have recovered most of Monday’s losses today driven by technicals. Also Asia including China returned from holidays. WTI is up 1.7% to $58.07/bbl, close to the intraday high, to be down only 0.4% this week. Brent is 1.6% higher at $61.21/bbl and only down 0.1% since Friday. The USD index is off its intraday high to be up only 0.1%. 

• Bloomberg is reporting that the 9-day relative strength index flashed oversold which drove today’s bounce in both WTI and Brent.
• After OPEC’s decision to increase output by over 400kbd from June following a similar rise in April, supply trends are going to remain firmly in focus. Saudi Arabia warned that there could be further rises if its members don’t stick to their quotas. Iraq and Kazakhstan have been constant overproducers.
• Later today US industry-based inventory data are released, which will give an insight into demand/supply trends there ahead of the official data on Wednesday.
• Later US March trade data are released as well as Canadian trade & PMI and European services/composite PMIs for April.

Gold’s Rally Returns with Strong Gains Today

• Gold’s overnight rally continued into the Asia trading day delivering a +0.80% gain.
• With equities strong across the region, bonds quiet and the dollar stronger against regional crosses, it was a day possibly where gold could have fallen.
• With positioning much lighter in longs than previously and money managers more neutral than they have been in over a year, the rally today looked like the re-establishment of longs given the recent sell off.
• Gold markets will be actively watching the FED this week as expectations for rate cuts diminish following the stronger than expected labour market.
• Gold opened the day at US$3,334.12 and rallied to $3,359.70 by mid afternoon.
• Bolivia’s released details of its reserves today showing that the Central Bank are another of the ever growing list of Central Banks adding to their gold reserves having purchased 4.94 tons of locally-produced gold in the first quarter of 2025.

UP TODAY (TIMES GMT/LOCAL) 

Date	GMT/Local	Impact	Country	Event
06/05/2025	0545/0745	**	CH	Unemployment
06/05/2025	0645/0845	*	FR	Industrial Production
06/05/2025	0715/0915	**	ES	S&P Global Services PMI (f)
06/05/2025	0715/0915	**	ES	S&P Global Composite PMI (final)
06/05/2025	0745/0945	**	IT	S&P Global Services PMI (f)
06/05/2025	0745/0945	**	IT	S&P Global Composite PMI (final)
06/05/2025	0750/0950	**	FR	S&P Global Services PMI (f)
06/05/2025	0750/0950	**	FR	S&P Global Composite PMI (final)
06/05/2025	0755/0955	**	DE	S&P Global Services PMI (f)
06/05/2025	0755/0955	**	DE	S&P Global Composite PMI (final)
06/05/2025	0800/1000	**	EU	S&P Global Services PMI (f)
06/05/2025	0800/1000	**	EU	S&P Global Composite PMI (final)
06/05/2025	0830/0930	**	GB	S&P Global Services PMI (Final)
06/05/2025	0830/0930	***	GB	S&P Global/ CIPS UK Final Composite PMI
06/05/2025	0900/1100	**	EU	PPI
06/05/2025	-		US	FOMC Meeting
06/05/2025	1230/0830	**	CA	International Merchandise Trade (Trade Balance)
06/05/2025	1230/0830	**	US	Trade Balance
06/05/2025	1230/0830	**	CA	International Merchandise Trade (Trade Balance)
06/05/2025	1255/0855	**	US	Redbook Retail Sales Index
06/05/2025	1400/1000	*	CA	Ivey PMI
06/05/2025	1700/1300	**	US	US Note 10 Year Treasury Auction Result
07/05/2025	0030/0930	**	JP	S&P Global Final Japan Services PMI
07/05/2025	0030/0930	**	JP	S&P Global Final Japan Composite PMI
07/05/2025	0600/0800	**	DE	Manufacturing Orders
07/05/2025	0600/0800	***	SE	Flash Inflation Report
07/05/2025	0645/0845	*	FR	Foreign Trade
07/05/2025	0730/0930	**	EU	S&P Global Final Eurozone Construction PMI
07/05/2025	0800/1000	*	IT	Retail Sales
07/05/2025	0830/0930	**	GB	S&P Global/CIPS Construction PMI
07/05/2025	0900/1100	**	EU	Retail Sales
07/05/2025	0900/1000	**	GB	Gilt Outright Auction Result
07/05/2025	1100/0700	**	US	MBA Weekly Applications Index