• APAC stocks were subdued after hotter-than-expected US CPI reverberated across global markets.
• Softer-than-expected Chinese CPI and persistent producer price deflation kept the door open for future support measures.
• European equity futures indicate a contained open with the Euro Stoxx 50 future flat after the cash market closed up 0.2% on Wednesday.
• DXY has held onto 105 status, USD/JPY ventured above 153, EUR/USD heads into the ECB on a 1.07 handle.
• Looking ahead, highlights include US IJC & PPI, ECB Policy Announcement & Lagarde Conference, Comments from Fed's Williams, Collins, Bostic & Barkin, Supply from Italy & US.

US TRADE

EQUITIES

• 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 the US has a plan to deal with inflation and noted that inflation news may delay a rate cut, while he does not know what the Fed will do. Biden stated rate cuts may be delayed by a month but added there will be a rate cut by the end of the year.

APAC TRADE

EQUITIES

• APAC stocks were subdued after hotter-than-expected US CPI data and a further unwinding of Fed rate cut bets reverberated across global markets, although stocks are off their worst levels and participants also digested the latest Chinese inflation figures.
• ASX 200 was led lower by underperformance in the rate-sensitive real estate and tech sectors amid higher yields.
• Nikkei 225 declined at the open but retained the 39,000 level with downside cushioned by currency weakness.
• Hang Seng and Shanghai Comp. were mixed with underperformance in Hong Kong amid notable weakness in developers and tech stocks, while the mainland bucked the trend as softer-than-expected Chinese CPI and persistent producer price deflation kept the door open for future support measures.
• US equity futures remained lacklustre after recent data further diminished near-term Fed rate cut hopes.
• European equity futures indicate a contained open with the Euro Stoxx 50 future flat after the cash market closed up 0.2% on Wednesday.

FX

• DXY took a breather following a surge above the 105.00 level as the firmer-than-expected US CPI data triggered a broad hawkish reaction which lifted yields and saw money markets price in around 40bps of cuts this year vs 68bps pre-data, while the FOMC Minutes release provided very little to spur price action and was seen as stale given the recent hot data.
• EUR/USD was stuck firmly below 1.0800 after giving way to the dollar strength and as the focus shifts to the ECB.
• GBP/USD attempted to find some composure after collapsing beneath the 1.2600 handle.
• USD/JPY mildly pulled back after its brief incursion to 153.00 territory where it printed its highest since July 1990, while the recent moves have heightened intervention alertness, although the latest jawboning from officials was largely a reiteration.
• Antipodeans remain lacklustre after the recent sell-off and alongside the mostly negative risk environment.
• PBoC set USD/CNY mid-point at 7.0968 vs exp. 7.2622 (prev. 7.0959).

FIXED INCOME

• 10-year UST futures were off worst levels but languished firmly beneath the 109.00 level after the hotter-than-expected US inflation spurred a further unwinding of rate cut bets and a pushback in the timing of the first fully-priced rate cut to November from July.
• Bund futures remained subdued beneath the 132.00 level, while the attention now turns to the ECB meeting.
• 10-year JGB futures tracked the recent losses in global peers with Japanese yields at fresh YTD highs and the 2-year yield climbed to its highest since November 2009, while firmer results from the 20yr JGB auction failed to provide any relief.

COMMODITIES

• Crude futures eked slight gains and extended on yesterday's best levels after rebounding on geopolitical risks as the US sees a missile strike on Israel by Iran and proxies as imminent in the "coming days", while Israeli officials warned they would retaliate to an attack.
• Spot gold continued to nurse post-CPI losses with the rebound helped by its status as an inflationary hedge.
• Copper futures were rangebound with only some slight reprieve from the recent data-induced selling.

CRYPTO

• Bitcoin was ultimately flat on the day after choppy price action and with upside capped by resistance at the USD 71,000 level.

NOTABLE ASIA-PAC HEADLINES

• China MOFCOM official said China lodged solemn representations with the EU on issues such as the investigation of foreign subsidies to China and believes the probes launched by the EU so far are all aimed at Chinese new energy-related enterprises, which will seriously damage the confidence of Chinese enterprises in carrying out investment and trade cooperation.
• Japanese Finance Minister Suzuki reiterated it is important for currencies to move in a stable manner reflecting fundamentals and excessive FX moves undesirable, while he won't rule out any steps to respond to excessive FX moves and is looking at the background of yen weakening to 152 and 153 against the dollar and not necessarily the levels themselves. Suzuki said 'no comment' on the FX level and government response but stated that FX levels are basically determined by markets and that a weak yen has merits and demerits.
• Japan's top currency diplomat Kanda said recent yen moves are rapid and won't rule out any steps to respond to disorderly FX moves, while he said they are prepared to take necessary actions whenever possible but wouldn't comment on whether overnight forex moves are excessive.
• Japan Chief Cabinet Secretary Hayashi said won't comment on forex levels and currency intervention, but added it is important for currencies to move in a stable manner reflecting fundamentals and that excessive FX volatility is undesirable. Hayashi also stated that he is closely watching FX moves with a high sense of urgency and won't rule out any steps to respond to excessive FX moves.
• South Korea's PM and senior officials in the Presidential Office offered to resign, while President Yoon said he humbly accepts the parliament election result and will renew the administration, according to Yonhap. It was separately reported that the leader of South Korea's ruling party leader resigned following the parliamentary election defeat, according to AFP News Agency.

DATA RECAP

• Chinese CPI MM (Mar) -1.0% vs. Exp. -0.5% (Prev. 1.0%)
• Chinese CPI YY (Mar) 0.1% vs. Exp. 0.4% (Prev. 0.7%)
• Chinese PPI YY (Mar) -2.8% vs. Exp. -2.8% (Prev. -2.7%)

GEOPOLITICS

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 Secretary of State Blinken made it clear in a call with Israeli Defence Minister Gallant that the US will stand with Israel against any threats by Iran and its proxies, while they discussed efforts to release all hostages through an immediate ceasefire agreement in Gaza and Blinken reiterated that incidents such as the targeting World Central Kitchen workers must not be repeated.
• 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.
• Saudi Arabia, Qatar, UAE and Iraq's Foreign Ministers spoke by phone last night with the Iranian Foreign Minister to discuss regional tensions, according to Axios's Ravid. The officials contacted the Iranian Foreign Minister after conversations with US President Biden's senior Middle East adviser McGurk who asked them to convey a message to Iran that Iran must refrain from escalation with Israel which could also thwart efforts to reach a ceasefire in Gaza.
• Yemeni Houthis said they carried out four military operations targeting vessels in the Gulf of Aden, while it was separately reported that there were four US raids on Hodeidah Airport in Yemen, according to Al Arabiya.

OTHER

• Explosions were heard in Ukraine's Kharkiv with the city being attacked by Russian missiles.
• US-Japan joint statement noted China's escalatory behaviour in the South China Sea is inconsistent with international law and underscored the importance of dialogue with China, while Biden said the US pledges support for the Senkaku Islands' security.
• UK government announced the UK is to hold joint military exercises with the US and Japan to boost security and strengthen defence ties.
• US bipartisan bill reportedly seeks USD 2.5bln for Philippines defence in the face of Chinese pressure.
• North Korean leader Kim said now is the time to be prepared for war more than ever before, according to KCNA.

EU/UK

NOTABLE HEADLINES

• BoE's Green wrote in the FT that markets must stop comparing the UK and the US, as well as noted that inflation persistence is a greater threat for the former than the latter and that rate cuts are a way off. Greene noted that markets now expect the BoE will cut rates earlier and by more than the Fed this year and that UK services inflation remains much higher than in the US, while she added that higher inflation expectations have translated to higher pay growth, by metrics now between 6%-7% in the UK.

DATA RECAP

• UK RICS House Price Balance (Mar) -4 vs. Exp. -6 (Prev. -10)