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Authored by James Hickman via SchiffSovereignMan.com,

It’s barely been a year since the 2023 bank crisis in which several large banks, including Silicon Valley Bank and Signature Bank, failed.

At the time, I wrote that the bank failures weren’t over, and that there would be more.

But it’s been quiet for most of the last year; the banking system has been pretty calm thanks in large part to an emergency program that the Federal Reserve created to bail out other troubled banks.

They called it the Bank Term Funding Program (BTFP), and it essentially expired a few weeks ago. In other words, no more emergency lending to troubled banks.

Barely a month later, we have already witnessed our first casualty: Pennsylvania-based Republic First (not to be confused with First Republic, which failed last year) was shut down by regulators on Friday afternoon.

Republic First had the same issues as the others that failed last year — too many ‘unrealized bond losses’ on their balance sheet.

Just like Silicon Valley Bank, Signature Bank, etc. last year, Republic First had used their customers’ deposits to buy US Treasury bonds in 2021 and 2022, back when bond prices were at all-time highs.

By early 2023, the situation had reversed. Bond prices had plummeted; even supposedly ‘safe’ and ‘stable’ US Treasury bonds had fallen substantially in price, and banks were sitting on huge losses.

Remember that bond prices fall when interest rates rise. So when the Fed jacked up interest rates from 0% to 5% in an attempt to control inflation, they were simultaneously creating huge losses in the bond market… which also meant huge losses for banks.

Silicon Valley Bank was just the tip of the iceberg. Plenty of other banks (including Bank of America) had racked up enormous bond losses. In fact the total unrealized losses in the banking sector last year amounted to a whopping $620 billion.

The Fed knew they had an enormous problem on their hands. So they created this Bank Term Funding Program, which was basically a giant game of ‘make believe’.

Through the BTFP, banks were allowed to borrow money from the Fed using their cratering bond portfolios as collateral. But instead of valuing the bonds at the actual market price, everyone simply pretended that the bonds were still worth 100 cents on the dollar.

In other words, the banks just made up prices for their assets, and the Fed allowed them to do it.

(It’s ironic that a certain former President is on trial in New York City for inflating the value of his assets, even though banks were inflating the value of their bonds through the BTFP.)

The Fed managed to prevent any further embarrassing bank failures last year by sprinkling this magical fairy dust across the banking system.

But now that the BTFP has expired, it has become obvious that problems in the banking system haven’t gone away. Republic First’s failure a few days ago is just one symptom.

Think about it: Bond prices are still down (because interest rates remain much higher than they were in 2021-2022). Banks are still sitting on massive unrealized losses.

And now that the Fed has stopped playing ‘make believe’, the bank failures have started up again.

It’s not to say that ALL banks are in terrible shape; some banks wisely used the last twelve months to get their financial houses in order.

Unfortunately most didn’t… which is why there’s still more more than HALF A TRILLION dollars in unrealized losses in the US banking system. This means that Republic First probably won’t be the only failure, unless the Fed steps in with its magical fairy dust again.

Also bear in mind that losses from their US Treasury portfolios aren’t the only problem in the banking system; for example, plenty of banks are sitting on huge potential losses from loans they made on office properties.

I don’t think the scope of this problem is anywhere near the 2008 financial crisis, which brought down some of the world’s largest banks. Not even close.

But the reality is that there are still a lot of banks with a lot of unrealized losses. And the biggest one of all happens to be the Federal Reserve.

According to its own financial statements, just released last month, the Fed’s total unrealized losses are almost $1 TRILLION — $948.4 BILLION to be more precise. And the vast majority of those unrealized losses come from US Treasuries.

So just like Silicon Valley Bank, Signature, First Republic, and now Republic First, the Federal Reserve has rendered itself completely insolvent.

In fact, total Federal Reserve capital is just $51 billion… versus $948 billion in losses. This means the Fed is insolvent 19 times over.

Think about that: the largest, most important central bank in the world… the steward of the global reserve currency… is completely insolvent on a mark-to-market basis.

You’d think that would be front page news. But no one ever talks about it. No one even wants to talk about it.

Of course plenty of people will insist that it doesn’t matter, just like they insist that the national debt doesn’t matter.

But this is yet more absurd fantasy; just look at the facts:

• The FDIC’s published reports show more than $500 billion in unrealized losses in the US banking sector.

• The Federal Reserve, which in theory would bail out the banking sector, is itself insolvent by $900 billion.

• The US government, which would bail out the Fed, is insolvent by more than $50 trillion.

It’s just debt on top of debt on top of debt. Losses on top of losses on top of losses.

Just like the BTFP, everyone wants to play a giant game of ‘make believe’ and pretend that the Fed’s solvency is not a problem, that the US government’s enormous debt is not a problem.

On the contrary, they’re huge challenges. And the ultimate consequence is going to be the loss of the US dollar as the global reserve currency.

Authored by Jonathan Turley,

Rube Goldberg, the inventor of bizarre machines that performed simple tasks through dozens of mechanical steps, was once asked about the essence of creating such fantastic, illogical machines. He replied “An inventor is simply a fellow who doesn’t take his education too seriously.”

After the first week of testimony, the trial of Donald Trump is increasingly looking like a mad prosecution machine by lawyers who don’t take law too seriously.

I have long been a critic of the Bragg indictment as legally incomprehensible. However, I must confess that after a week of testimony, some of us have developed a weird fascination with the utter madness of the scene unfolding in Manhattan. It was not until the second week of proceedings that Bragg even revealed part of his theory of criminality. For months, even liberal legal analysts have expressed dismay that Bragg’s indictment had not clearly stated what specific crime that Trump sought to conceal by allegedly misrepresenting payments to former adult film actress Stormy Daniels.

The premise of the prosecution always had that Rube Goldberg feel. It was so implausible as to be impossible. After all, the base charge is a simple misdemeanor under a New York law against falsifying business records. Trump paid Cohen hundreds of thousands of dollars in legal fees and costs, including $130,000 for a nondisclosure agreement with Daniels.

Bragg is vague as to what should have been noted on the ledgers for the payments. It is not even clear if Trump knew of this expense’s designation as a legal cost.

However, it really did not matter, because the misdemeanor has been as dead as Dillinger for years.

The dead misdemeanor was shocked back into life by claiming that it was committed to conceal another crime. Under New York’s penal law, section 175.10, it can be a felony if the “intent to defraud includes an intent to commit another crime or to aid or conceal the commission thereof.”

For months, Bragg has suggested that the “other crime” was the violation of federal election laws, suggesting that the payment was really a campaign contribution Trump made to himself that was not properly recorded. The problem is that the Justice Department investigated that crime already and decided that it was not a viable criminal claim. It did not even seek a civil fine.

Bragg’s predecessor and Bragg himself rejected the theory behind this prosecution.

But then a pressure campaign led Bragg to green-light a prosecution roughly eight years after the 2016 campaign.

In the trial, Bragg added a type of frying pan flip to his Rube Goldberg contraption by arguing that Trump may have been trying to hide his violation of another dead misdemeanor under yet another New York election law prohibiting “conspir[ing] to promote or prevent the election of any person to a public office by unlawful means.”

In other words, Trump was conspiring to try to win his own election. This even though the notations were made after he had won the election, and even though Trump was running for a federal, not a state office.

So again, what is the unlawful means?

The machine then flips you back to the beginning — seeking “to influence the election.” There are still the federal election violations, but that theory was rejected after an investigation. And if it were a real crime, it would be brought by federal, not state prosecutors.

There are also the misdemeanor falsifications of business records under section 175.05. So Bragg would use one dead misdemeanor to trigger a second dead misdemeanor to create a felony on the simple notations used to describe payments for a completely legal nondisclosure agreement.

This circular reasoning is already incredibly creative, but the actual evidence used to propel this ball through the machine is even wackier. Bragg decided to start with a witness to discuss an affair that is not part of the indictment. David Pecker, former publisher of the National Enquirer tabloid, had supposedly been paid to kill a story of a Trump affair with a different woman, Karen McDougal, a former Playboy model.

Pecker proceeded to make the prosecution case even more convoluted. On cross examination, Pecker admitted that had Trump told him that he knew nothing about any reimbursement to Cohen for any hush money, that he had killed or raised such stories with Trump for decades before he ever announced for president and that he had also killed stories for other celebrities and politicians, including Arnold Schwarzenegger, Tiger Woods, Rahm Emanuel and Mark Wahlberg.

He also testified that Trump told him that paying hush money never really worked because stories still get out. And he understood that Michael Cohen was working as Trump’s personal counsel, not his campaign counsel. Finally, he testified that Trump had no direct involvement in arranging any payments to McDougal.

Pecker added that Bragg’s star witness, Michael Cohen, commonly exaggerated and often became loud and argumentative. Cohen will effectively ask the jury to send his former client to jail for following his own legal advice.

Bragg will now call to the stand Cohen, whom a judge just recently denounced as a serial perjurer who is continuing to game the system.

Even as legal experts debate what crime can be found in any of these flips and dips, Judge Juan Merchan seems content to listen as this weird machine bleeps and whirls in his courtroom.

That is why Bragg has created the perfect Rube Goldberg attraction. The artist himself explained his unlikely success by saying, “It just happened that the public happened to appreciate the satirical quality of these crazy things.”

In New York, that appreciation has moved from the satirical to the legal.

Another day, another chapter in the Elon Musk vs. SEC saga.

The US Supreme Court declined to hear Elon Musk's appeal regarding his ongoing "Twitter sitter" case, Bloomberg reported on Monday, keeping Musk's agreement with the SEC to have a company lawyer approve his social media posts in place.

Musk, without success, had argued that the 2018 agreement infringed upon his constitutional right to free speech.

The decision marks the latest development in Musk's lengthy, ongoing dispute with the SEC, which started after he tweeted in August 2018 that he had "funding secured" for a potential $80 billion take-private deal for Tesla.

As a result, Tesla stock rocketed higher the day of. 

Following Musk's tweet, the SEC filed a lawsuit alleging shareholder deception and, shortly after, Musk settled with the SEC, agreeing to step down as Tesla chairman and pay a $20 million fine.

In 2021, Musk reopened the dispute by conducting a Twitter poll regarding selling 10% of his stock. This prompted the SEC to issue subpoenas to Musk and Tesla. Musk then sought to annul his pre-screening agreement, but his arguments were dismissed by a federal appeals court last year.

Musk’s lawyers had argued to the Supreme Court that the agreement was a “quintessential prior restraint that the law forbids.”

They said in their appeal: “The pre-approval provision at issue continues to cast an unconstitutional chill over Mr. Musk’s speech whenever he considers making public communications.”

In its brief, the SEC responded: “This court has consistently held that, in resolving litigation, parties may choose to waive even fundamental constitutional rights."

Authored by Zachary Stieber via The Epoch Times (emphasis ours),

Results from early testing show that pasteurization killed highly pathogenic avian influenza in milk, the U.S. Food and Drug Administration (FDA) says.

Containers of milk in El Paso, Texas, on March 17, 2021. (Jose Luis Gonzalez/Reuters)

Results from “an initial limited set of geographically targeted samples” show that “pasteurization is effective in inactivating” the influenza, commonly known as the bird flu, the FDA said in an April 26 update.

The FDA gathered samples from grocery stores with confirmed cases of the flu in cattle. The agency has said that one in five tested positive for avian influenza, but stressed that polymerase chain reaction (PCR) testing can return positive due to residual fragments.

“This additional testing did not detect any live, infectious virus. These results reaffirm our assessment that the commercial milk supply is safe,” the regulatory agency stated.

Testing of samples of powdered infant formula sold at stores also returned negative.

Many infectious disease experts and government officials have said they believe the pasteurization process will inactivate the virus, also known as avian influenza.

“I’m not worried about the milk itself,” said Samuel Alcaine, an associate professor of food science at Cornell University. “It does indicate that the virus is more widespread among dairies than we had previously thought.”

The FDA, which has refused to say how many milk samples tested positive, the sources of the samples that tested positive, and what other products were tested outside milk and formula, is in the process of conducting additional testing. That testing could find milk with live virus intact, agency officials acknowledged.

“The FDA is further assessing retail samples from its study of 297 samples of retail dairy products from 38 states,” it said. “All samples with a PCR positive result are going through egg inoculation tests, a gold-standard for determining if infectious virus is present. These important efforts are ongoing, and we are committed to sharing additional testing results as soon as possible. Subsequent results will help us to further review our assessment that pasteurization is effective against this virus and the commercial milk supply is safe.”

The bird flu has traditionally spread in birds. Cases of H5N1 in cattle began being confirmed in the United States earlier this year. The virus has since been detected in herds in nine states. A herd in Colorado tested positive on April 25, the U.S. Department of Agriculture said.

One person in Texas has had a confirmed case this year and survived the infection.

Worldwide, 28 cases of H5N1 have been reported to the World Health Organization since the beginning of 2021, including the recent case in Texas and a case in the United States in 2022. Some of the patients survived, while others died.

Authorities say that cow-to-cow transmission has occurred. Major questions that remain unanswered include the method of that transmission and whether cows have spread the virus back to birds.

The White House has said that it is monitoring the avian flu situation, launching an “immediate response team” to ensure the safety of the nation’s food supply, monitor trends to mitigate risk and prevent the virus’ spread.

Starting on Monday, the U.S. Department of Agriculture will require dairy cows to test negative for bird flu before they are moved across state lines.

In addition to Colorado, infections among cattle have been confirmed in Texas, Kansas, Michigan, Ohio, Idaho, New Mexico, North Carolina, and South Dakota.

In Indiana, officials are considering potential restrictions, such as testing within the state, even though there are no confirmed cases, according to Bret Marsh, the state veterinarian.

“We’re taking a look here at the state level to see what we may need to do,” he said on a conference call.

Reuters contributed to this report.

As DB's Jim Reid notes, with just two days left in a rollercoaster April for markets - and FX - last week actually saw the best week for the S&P 500 (+2.67%) and NASDAQ (+4.23%) since November, following several weeks of declines, as earnings gave markets a boost even if the US inflation data was on net worrying. And while the month is almost over, the new week is just starting and as Reid notes, it's shaping up an exceptionally busy week of important events.

The FOMC on Wednesday is the obvious highlight of the week, but we also have payrolls on Friday to look forward to. DB expect a more hawkish-leaning Fed this week. While our economists expect the Committee will maintain an easing bias, they do expect the statement and press conference to echo Chair Powell’s view that firmer inflation prints suggest it will take longer to gain confidence about disinflation. The press conference will be fascinating to see the nuances in Powell’s responses as he justifies a likely unchanged easing bias, even if the rhetoric is more hawkish, in the face of rising inflation.

In terms of the jobs report on Friday, our US economists see payrolls gaining +240k in April (consensus +250k), down from +303k in March. The consensus expects the unemployment rate and the hourly earnings growth rate to stay at 3.8% and +0.3% MoM, respectively, although DB expects the former to tick up a tenth. Overall the market sees a solid report.

Other key data in the US includes consumer confidence tomorrow, the manufacturing ISM, JOLTS, and ADP on Wednesday, and the services ISM on Friday. We also see the latest US Treasury quarterly refunding announcement on Wednesday, after the borrowing estimate is due today. This was a big pivot point for global markets back in August (negative) and October (positive) but since then a commitment not to increase auction sizes has reduced its importance.

Finally in the US, earnings season maintains its peak pace as 174 report in the S&P versus 180 last week with Amazon (Tuesday) and Apple (Thursday) the obvious highlights. Meanwhile, 66 Stoxx 600 companies will report this week.

In Europe, preliminary CPI reports for Germany and Spain today, and the Eurozone tomorrow will have a lot of significance for the June ECB meeting and whether we will see the first cut. Our European economists preview the release here. For the Eurozone, they expect the headline HICP to fall one-tenth to 2.31% yoy, its lowest value since August 2021 and see core inflation slowing further to 2.45% yoy, 0.50pp lower than in March 2024. Staying in Europe the latest GDP data for Germany, France, Italy and the Eurozone are due tomorrow. In Asia, various China PMIs (tomorrow) will be a big focus and in Japan, several key economic indicators are also due, including industrial production and labour market data tomorrow.

Day-by-day calendar of events:

Monday April 29

• Data : US April Dallas Fed manufacturing activity, Germany April CPI, Eurozone April services, industrial and economic confidence
• Earnings : PetroChina, China Construction Bank, BYD, NXP Semiconductors, Domino's Pizza, Paramount Global
• Auctions : US Treasury borrowing estimates

Tuesday April 30

• Data : US Q1 employment cost index, February FHFA house price index, April MNI Chicago PMI, Dallas Fed services activity, Conference Board consumer confidence, UK March net consumer credit, mortgage approvals, M4, April Lloyds business barometer, China April official PMIs, Caixin manufacturing PMI, Japan March retail sales, job-to-applicant ratio, jobless rate, industrial production, housing starts, Italy Q1 GDP, March hourly wages, April CPI, Germany Q1 GDP, April unemployment claims rate, France Q1 GDP, March PPI, consumer spending, April CPI, Eurozone Q1 GDP, April CPI, Canada February GDP, New Zealand Q1 jobs report , Denmark March unemployment rate
• Central banks : BoE's APF report
• Earnings : Amazon, Eli Lilly & Co, Samsung, Coca-Cola, AMD, McDonald's, Stryker, Starbucks, Mondelez, Mercedes-Benz Group, Volkswagen, PayPal, adidas, Diamondback Energy, Restaurant Brands, Pinterest, Vonovia, Covestro, Caesars Entertainment

Wednesday May 1

• Data : US March JOLTS report, construction spending, April total vehicle sales, ISM index, ADP report, Canada April manufacturing PMI
• Central banks : Fed's decision
• Earnings : Mastercard, Qualcomm, Pfizer, KKR, GSK, Marriott, Estee Lauder, DoorDash, Corteva, Haleon, Devon Energy, Barrick Gold, eBay, Albemarle, Etsy
• Auctions : US quarterly refunding announcement

Thursday May 2

• Data : US Q1 unit labor costs, nonfarm productivity, March trade balance, factory orders, initial jobless claims, Japan April monetary base, consumer confidence index, Italy March PPI, April manufacturing PMI, new car registrations, budget balance, Canada March international merchandise trade, Switzerland April CPI
• Central banks : BoJ minutes of the March meeting
• Earnings : Apple, Novo Nordisk, Shell, Linde, ConocoPhillips, Booking, Cigna, Regeneron, Apollo, Pioneer, Universal Music Group, Block, Ares, Moderna, Blue Owl, Vestas, AP Moller - Maersk, Orsted, ArcelorMittal, Live Nation Entertainment, DraftKings
• Other : UK local elections, OECD economic outlook

Friday May 3

• Data : US April jobs report, ISM services, UK April official reserves changes, Italy March unemployment rate, France March industrial production, budget balance, Eurozone March unemployment rate, Canada April services PMI, Norway April unemployment rate
• Earnings : Hershey, Daimler Truck, Cheniere Energy

* * *

Looking at just the US, Goldman writes that the key economic data releases this week are the Employment Cost Index on Tuesday, ISM manufacturing and JOLTS job openings on Wednesday, and the employment report on Friday. The May FOMC meeting is on Wednesday. The post-meeting statement will be released at 2:00 PM ET, followed by Chair Powell’s press conference at 2:30 PM. Treasury will release its Q2 financing estimates on Monday and the Quarterly Refunding Statement on Wednesday.

Monday, April 29

• 10:30 AM Dallas Fed manufacturing activity, April (consensus -11.3, last -14.4)

Tuesday, April 30

• 08:30 AM Employment cost index, Q1 (GS +0.9%, consensus +1.0%, last +0.9%): We estimate the employment cost index rose by 0.9% in Q1 (qoq sa), which would lower the year-on-year rate by two tenths to 4.0% (nsa yoy). Our forecast reflects deceleration in the Atlanta Fed wage tracker and in average hourly earnings of production and nonsupervisory workers. We also expect a slower pace of ECI growth among unionized workers, following the 1.7% spike in Q4 (SA by GS, not annualized). On the positive side, we assume ECI benefit growth picks back up to 0.9% (vs. 0.7% in Q4), reflecting expanded benefit offerings at the start of the year.
• 09:00 AM FHFA house price index, February (consensus +0.1%, last -0.1%)
• 09:00 AM S&P Case-Shiller 20-city home price index, February (GS +0.07%, consensus +0.10%, last +0.14%)
• 09:45 AM Chicago PMI, April (GS 46.4, consensus 45.0, last 41.4): We estimate that the Chicago PMI rose by 5pt to 46.4 in April, reflecting the rebound in global manufacturing activity.
• 10:00 AM Conference Board consumer confidence, April (GS 104.3, consensus 104.0, last 104.7

Wednesday, May 1

• 08:15 AM ADP employment change, April (GS +185k, consensus +180k, last +184k): We estimate a 185k rise in ADP payroll employment in April, reflecting a solid underlying pace of job growth and a possible boost from residual seasonality: the ADP measure has picked up in April relative to Q1 in four of the last six years excluding 2020.
• 09:45 AM S&P Global US manufacturing PMI, April final (consensus 49.9, last 49.9)
• 10:00 AM Construction spending, March (GS +0.8%, consensus +0.3%, last -0.3%)
• 10:00 AM JOLTS job openings, March (GS 8,650k, consensus 8,680k, last 8,756k): We estimate that JOLTS job openings fell by 0.1mn to 8.65mn in March, reflecting the pullback in online job postings.
• 10:00 AM ISM manufacturing index, April (GS 50.8, consensus 50.1, last 50.3): We estimate the ISM manufacturing index rose by 0.5pt to 50.8 in April, reflecting the rebound in global manufacturing activity. Our manufacturing tracker rose 1.5pt to 49.9.
• 02:00 PM FOMC statement, April 30-May 1 meeting: As discussed in our FOMC preview, the upside inflation surprise over the last three months has delayed the first cut and narrowed the path for the FOMC to cut at all this year. We have not changed our big picture inflation view because the surprises look idiosyncratic, the categories that are still hot reflect lagged catch-up rather than current cost pressures, and the key pillars of the disinflation narrative remain intact. We expect the next few inflation reports to be softer and have therefore stuck with our forecast of cuts in July and November, but even moderate upside surprises could delay cuts further.
• 05:00 PM Lightweight motor vehicle sales, April (GS 15.8mn, consensus 15.7mn, last 15.5mn)

Thursday, May 2

• 08:30 AM Trade balance, March (GS -$69.0bn, consensus -$69.2bn, last -$68.9bn)
• 08:30 AM Nonfarm productivity, Q1 preliminary (GS +0.8%, consensus +0.8%, last +3.2%); Unit labor costs, Q1 preliminary (GS +3.5%, consensus +3.3%, last +0.4%): We expect nonfarm productivity growth of +0.8% (qoq saar) in the Q1 preliminary reading. We expect unit labor costs—compensation per hour divided by output per hour—to grow 3.5% in the Q1 preliminary reading, which would increase the year-over-year rate to +4.2%.
• 08:30 AM Initial jobless claims, week ended April 27 (GS 215k, consensus 210k, last 207k): Continuing jobless claims, week ended April 20 (consensus 1,798k, last 1,781k)
• 10:00 AM Factory orders, March (GS +1.6%, consensus +1.6%, last +1.4%); Durable goods orders, March final (consensus +2.6%, last +2.6%); Durable goods orders ex-transportation, March final (last +0.2%); Core capital goods orders, March final (last +0.2%);Core capital goods shipments, March final (last +0.2%)

Friday, May 3

• 08:30 AM Nonfarm payroll employment, April (GS +275k, consensus +250k, last +303k); Private payroll employment, April (GS +225k, consensus +198k, last +232k); Average hourly earnings (mom), April (GS +0.20%, consensus +0.3%, last +0.3%); Average hourly earnings (yoy), April (GS +3.95%, consensus +4.0%, last +4.1%); Unemployment rate, April (GS 3.8%, consensus 3.8%, last 3.8%); Labor force participation rate, April (GS 62.7%, consensus 62.7%, last 62.7%): We estimate nonfarm payrolls rose by 275k in April (mom sa), reflecting a favorable evolution in the April seasonal factors and a continued boost from above-normal immigration. Big Data measures were mixed but generally indicate a solid or strong pace of job gains, and our layoff tracker continues to indicate that the pace of layoffs is low. We estimate that the unemployment rate edged down but was unchanged on a rounded basis at 3.8%, reflecting a rise in household employment and flat-to-up labor force participation (at 62.7%). Foreign-born unemployment normalized in March, falling sharply by 261k (SA by GS) and limiting the scope for further declines in April. We estimate average hourly earnings rose 0.20% (mom sa), which would lower the year-on-year rate from 4.14% to 3.95%. Our forecast reflects waning wage pressures and a nearly 10bp drag from calendar effects (mom sa).
• 09:45 AM S&P Global US services PMI, April final (consensus 50.9, last 50.9)
• 10:00 AM ISM services index, April (GS 52.1, consensus 52.0, last 51.4): We estimate that the ISM services index rose 0.7pt to 52.1 in April. Our non-manufacturing survey tracker edged up 0.3pt to 52.1.
• 07:45 PM Chicago Fed President Goolsbee (FOMC non-voter) speaks: Chicago Fed President Austan Goolsbee will participate in a panel discussion at the Hoover Institution. A Q&A is expected. On April 19, Goolsbee said, "Right now, it makes sense to wait and get more clarity before moving [rates]." He added, "So far in 2024, that progress on inflation has stalled. You never want to make too much of one month’s data, especially inflation, which is a noisy series, but after three months of this, it can’t be dismissed."
• 08:15 PM New York Fed President Williams (FOMC voter) speaks: New York Fed President John Williams will speak in a panel discussion at the Hoover Institution. Speech text and a Q&A are expected. On April 18, Williams said, "I definitely don’t feel urgency to cut interest rates...I think interest rates will need to be lower at some point, but the timing of that is driven by the economy." He added, "We have a strong economy… which means that the rates we have haven’t caused the economy to slow too much."

Source: DB, Goldman

By Vassilis Karamanis, Bloomberg Markets Live reporter and FX strategist

Unless Japanese authorities show their hand with conviction when it comes to intervening in the spot market, the yen is bound to stay under pressure over the medium-term.

The currency’s sharp rally this morning certainly looks like an intervention — it’s not often that we get a 500-pip move seemingly out of nowhere. But thin liquidity due to a public holiday in Japan that forced algorithmic trading to take over as trailing stops were triggered could be what’s driven the market. The fact that traders aren’t sure this is an official hand supporting the yen is telling. Masato Kanda, the nation’s top currency official, said no comment when asked about the moves.

The market has been testing Japanese authorities’ patience — or determination — when it comes to yen weakness for some time now. And it will keep on doing so for as long as intervention threats are seen as a clumsily-played bluff.

The yen kept breaching through one big level after the other on Friday against the dollar and everyone’s question was whether we would finally have official yen buying before a long weekend in Japan. The answer was an emphatic no.

Did price action Friday actually give Japanese authorities the green light to intervene in the spot market?

The yen fell by the most since October on an intraday basis, for a two standard-deviation move; one-week realized volatility touched a one-month high

It was down 3.5% on a ten-day basis; Kanda said that a 4% move over two weeks doesn’t reflect fundamentals and is unusual
Over one month, the dollar was up by around seven big figures against the Japanese currency; Kanda has said that a 10-yen move over such a time period is considered rapid.

So in nominal terms, we could argue it was justified that no intervention took place, given a simple rates-check during a Japan holiday could actually do the trick. But in real terms, no one would blame Japanese authorities if they went beyond their official guidelines to step in the spot market. It’s not just about the 350-pip day range that took place. It’s the starting point that also matters. Fresh 34-year lows were hit Thursday.

Traders could see lack of official yen buying as an attempt to find excuses in order to stay pat. After all, a weaker currency in theory accelerates inflationary dynamics that will eventually support the Bank of Japan as to signal a more-aggressive-than priced in tightening bias — which could really be a game changing moment for the currency, especially if at the same time the Federal Reserve will indeed be close to easing its own policy.

And as long as credibility comes to the question, the more confident traders will be to re-add dollar longs in case the Ministry of Finance does decide to intervene. There was some speculation during the weekend that Japan is waiting for the Fed meeting and the release of the next US jobs report due this week before deciding to press the button. To me, it doesn’t matter so much if this is credible thinking, but the mere fact traders are discussing it shows the ball is moving away from officials’ court.

It’s not easy going against a central bank. In poker terms, policymakers always start the game with a pair of aces. But the flop did no favors to them and their raise on the turn looks miscalculated. Maybe the upcoming river will see traders winning this hand despite Monday’s retreat for the dollar that at the time of writing has no official confirmation it was down to spot intervention.

US equity futures swung between gains and losses and traded near session highs as US traders walked to their desks on Monday morning after a rollercoaster day for the Japanese yen, which increasingly looks like some 3rd world banana republic currency instead of belonging to the world's 3rd largest economy, and which first plunged below 160 vs the USD - the lowest level since 1990 amid dismal volumes thanks to the Japanese market holiday on Monday - only to soar more than 500 pips in what is now the first confirmed BOJ intervention since 2022. Futures were buoyed by rising earnings optimism as traders looked ahead to another very busy week for company results, and as of 7:40am, S&P futures gained 0.2% with Nasdaq futures rising 0.3%, boosted by another surge in Tesla shares.  10Y Treasury yields fell four basis points to 4.62% ahead of today's announcement by the Treasury of its funding needs for the coming quarter, while the dollar weakened. Oil retreated, with Brent first trading below $89 a barrel, only to rebound higher amid the endless speculation that a peace deal between Israel and Hamas is coming that would reduce geopolitical tensions in the Middle East (spoiler alert: there will be no deal). Gold rose and bitcoin fell.

In premarket trading, Tesla surged 11%, slamming the recent pile up of shorts (the biggest in two years) as Elon Musk’s quick visit to China paid immediate dividends, with Tesla receiving in-principle approval from government officials to deploy its driver-assistance system in the world’s biggest auto market.

Here are some other premarket movers:

• Here Altimmune drops 4% after Guggenheim downgraded the stock, saying a partnership for the biotech’s lead asset pemvidutide look “increasingly unlikely.”
• Apple climbs 2% after Bernstein upgraded its rating, calling issues in China “more cyclical than structural” and highlighting that the tech giant’s business in the country has tended to be more volatile than the wider company.
• AT&T rises 1% as Barclays upgrades to overweight, noting the wireless carrier’s “steadier execution story.”
• Paramount Global jumps 5% after Bloomberg reported that the Redstone family and Skydance Media CEO David Ellison have both offered concessions to make a possible change in control at the media company more appealing to other investors.
• Shopify advances 3% after Citi raises the e-commerce company to buy, expecting solid first-quarter results following recent industry conferences and channel checks.
• SoFi Technologies gains 2% after the company boosted its adjusted Ebitda guidance for the full year.
• Southwest Airlines declines 1.2% after Jefferies downgraded the carrier to underperform, noting that optimization plans are languishing as delays at Boeing reduce fleets.
• Tandem Diabetes rises 4% after Wells Fargo upgraded the medical device manufacturer, saying a survey indicates stable growth in insulin pumps.

The big overnight market event was the rollercoaster move in the Japanese yen which again took center stage with dramatic moves that fueled speculation over whether the government had intervened to support its beleaguered currency. In holiday-thinned trading, the yen swung wildly, rallying more than 2% on Monday after earlier dropping as much as 1.2% to 160.17 per dollar.

While analysts suggested the size and speed of the jump smacked of intervention, some traders questioned that conclusion and said Japanese banks sold dollars for customers as it rallied. Japan’s top currency official, Masato Kanda, chose to keep investors guessing by declining to comment. Dow Jones reported authorities stepped in to support the yen, citing people familiar with the matter.

It is a busy week: the Fed meeting on Wednesday and US jobs report on Friday will also be critical for markets this week. The last time Fed Chair Jerome Powell spoke, he signaled that policymakers were likely to keep borrowing costs high for longer than previously anticipated, pointing to the lack of further progress on bringing inflation down, and to enduring strength in the labor market. Meanwhile, with Apple and Amazon.scheduled to report in the next few days, investors will be hoping for more evidence that big technology profits can keep propelling stocks.

Echoing Goldman Sachs, Morgan Stanley’s in house permabear Michael Wilson said the pressure from higher Treasury yields is taking the shine off an upbeat earnings season; that's even as Bloomberg data showed that 81% of S&P 500 firms have beaten first-quarter profit estimates so far. Still, as we noted over the weekend, the average stock price has barely outperformed the benchmark index on the day of results — the worst scorecard since the fourth quarter of 2020, the figures showed.

European stocks are higher, the Stoxx 600 rising 0.3% to 509.7, with Dutch medtech Philips the biggest stand-out performer, rising the most on record after striking a settlement related to a device recall; Deutsche Bank was the biggest decliner after making €1.3 billion of provisions, with its country peer Porsche falling too, following its latest earnings. Here are the biggest movers Monday:

• Philips gains as much as 37%, the most on record, after the Dutch medical equipment manufacturer agreed to pay $1.1 billion to settle US claims related to the 2021 recall of sleep apnea devices
• Alfen surges as much as 14% after it agreed with Dutch grid operator Liander on a new production method to avoid moisture in its Pacto transformer substations, with KBC raising the firm to buy
• Anglo American shares gain as much as 4.1% after Bloomberg News reported over the weekend that BHP is considering making an improved proposal after its $39b initial offer was rejected
• Unicaja Banco jumped as much as 8% to the highest level since 2018, after the Spanish lender delivered revenue ahead of expectations in the first quarter
• Douglas jumps as much as 5.3% after several brokerages initiated the German perfume retailer at buy, including Citi, which called the stock a “scarce asset” in a growing category
• Bravida rises as much as 6% after an internal investigation which revealed previously reported overinvoicing at the Swedish real estate services firm was very limited
• Atos shares jump as much as 20%, to the highest in almost three weeks, after the IT firm got a non-binding letter of intent from the French state to acquire some parts of the business
• Deutsche Bank declines 5.7%, the sharpest drop since 2023, after the German lender’s announcement that it is setting aside as much as €1.3b in legal provisions in a blow to profitability
• Porsche AG shares fall as much as 4.6% after the German firm saw a “challenging” first quarter, according to analysts, who note the automaker’s headline earnings miss
• Morphosys falls as much as 2.4% after a report flagged a potential issue related to experimental drug pelabresib, an issue which could complicate the planned acquisition by Novartis
• Siltronic shares fall as much as 3.4% after the German wafer maker was downgraded to hold by Hauck & Aufhaeuser following a profit warning issued last week

Meanwhile, Asian equities climbed for a second straight day, as benchmarks for mainland and Hong Kong stocks looked set to enter a bull market. The MSCI Asia Pacific Index climbed as much as 0.3%, with AIA Group and TSMC among the top contributors to the gains. The MSCI China Index and Hong Kong’s Hang Seng Index were both on track to close more than 20% higher than their January lows, helped by a surge in property shares after a major Chinese developer reached a solution with bondholders for its liquidity issues.

“China may continue to outperform especially in a scenario where global risk sentiment remains cautious,” Nomura strategists including Chetan Seth wrote in a note. “Fundamentals remain tepid” and economic data in the next couple of months are important to avoid a reversal of recent gains, they added. Benchmarks in Taiwan, the Philippines and South Korea also advanced on Monday. Markets in Japan and Vietnam were closed for holidays.
 

In FX, the yen rallied to a 155 handle versus the dollar, having earlier weakened past 160 for the first time since 1990. The abrupt swing prompted speculation authorities may have intervened, although Japan’s top currency official has declined to comment even as Dow confirmed intervention. The Bloomberg Dollar Spot Index is down 0.3% as the greenback loses ground versus all its G-10 rivals.

In rates, treasuries climbed with US 10-year yields falling 4bps to 4.62%, with gains supported by euro-zone bond markets, particularly France’s, outperforming after Moody’s and Fitch affirmed the sovereign’s rating Friday. April inflation numbers from Germany and Spain were taken in stride.  US yields richer by 2bp to 4bp across the curve with long-end-led gains flattening 2s10s, 5s30s spreads by 1.5bp and 0.5bp on the day; 10-year remains near session low around 4.625% with bunds outperforming by around 1.5bp in the sector, French 10-year by ~3bp. On Wednesday, Treasury announces quarterly refunding, expected to follow through on its January guidance of holding off on further increases

Oil prices are lower as the US pushes to broker a peace deal between Israel and Hamas. WTI falls 0.2% to trade near $83.70. Spot gold is little changed around $2,338/oz.

Monday’s US session has few calendar events. US economic data slate includes April Dallas Fed manufacturing activity at 10:30am New York time; ahead this week are consumer confidence, ADP employment change, manufacturing PMI, ISM manufacturing, factory orders and April jobs report. Fed members are in self-imposed quiet period ahead of May 1 policy announcement.

Market Snapshot

• S&P 500 futures up 0.2% to 5,142.75
• STOXX Europe 600 up 0.3% to 509.67
• MXAP up 0.9% to 173.90
• MXAPJ up 0.9% to 540.54
• Nikkei up 0.8% to 37,934.76
• Topix up 0.9% to 2,686.48
• Hang Seng Index up 0.5% to 17,746.91
• Shanghai Composite up 0.8% to 3,113.04
• Sensex up 1.2% to 74,584.25
• Australia S&P/ASX 200 up 0.8% to 7,637.38
• Kospi up 1.2% to 2,687.44
• German 10Y yield little changed at 2.55%
• Euro up 0.2% to $1.0719
• Brent Futures down 0.6% to $88.94/bbl
• Gold spot up 0.1% to $2,339.61
• US Dollar Index down 0.31% to 105.61

Top Overnight News

• Tesla CEO Musk made a surprise visit to Beijing with media reports saying he aims to discuss enabling autonomous driving mode on Tesla cars in China. Later, it was reported Tesla is to partner with Baidu for China self-driving approval, according to Bloomberg. (BBC/Bloomberg) Separately, two US Senators say NHTSA should require Tesla to restrict autopilot use to certain roads.
• White House said President Biden approved the Kansas disaster declaration and ordered federal assistance to supplement recovery efforts in areas affected by severe winter storm from January 8th-16th.
• Apple intensified talks with OpenAI for iPhone generative AI features in which they are discussing the terms of a possible agreement and how the OpenAI features would be integrated into Apple’s iOS 18, according to Bloomberg. EU says that Apple's (AAPL) iPad operating system has been designated as a gatekeeper under the EU DMA; apple has six months to comply with EU tech rules.
• Paramount is reportedly preparing to fire CEO Bakish, via FT citing sources; additionally, sources add that the Co. is expected to receive a counterbid from Sony and Apollo this week to the offer from Skydance Media. (FT)
• China's industrial profits fell in March and slowed gains for the quarter compared to the first two months, raising doubts about the strength of a recovery for the world's second-biggest economy. Cumulative profits of China's industrial firms rose 4.3% to 1.5 trillion yuan ($207.0 billion) in the first quarter from a year earlier, NBS data showed, slower than a 10.2% rise in the first two months. RTRS
• China’s banking regulator warns the country’s regional banks to stop piling into long-term government bonds as they could be hit with heavy losses if rates rise. FT
• Japan's currency surged as much as 5 yen against the dollar on Monday, with traders citing heavy dollar-selling intervention by Japanese banks for the first time in 18 months after the yen hit fresh 34-year lows earlier in the day. RTRS
• Russia is expected to launch a new large-scale offensive in May or June (although the influx of American weapons will make Ukraine better positioned to withstand the onslaught). FT
• Ukraine isn’t expected to regain offensive momentum until 2025 at the earliest and has no clear military path to recapturing the ~20% of the country stolen by Russia. WaPo
• BHP is considering an improved bid for Anglo American, people familiar said. The miner may need to find over $9 billion in cost savings from the tie-up to raise the offer, which may be a stretch. BBG
• Apple’s iPad was hit by the EU rules aimed at stopping potential competition abuses before they take hold. Apple now has six months to make sure its tablet ecosystem complies with preemptive measures. BBG
• AAPL has renewed negotiations w/OpenAI and remains in talks w/Google about incorporating AI-linked technology into the next version of iOS (investors expect to hear a lot more about Apple’s plans at the upcoming WWDC). BBG  

A more detailed look at global markets courtesy of Newsquawk

APAC stocks began the week on the front foot after the tech-led surge last Friday on Wall St and amid increased optimism regarding a Gaza truce with negotiators set for talks in Cairo on Monday, although Japan was on holiday and ahead of this week's key risk events. ASX 200 was led higher by real estate, tech and telecoms owing to softer yields. Hang Seng and Shanghai Comp. gained with the former entering into bull market territory after climbing over 20% from its January lows, while participants digested a slew of earnings and the mainland also shrugged off the slowdown in March Industrial Profits.

Top Asian News

• China's MOFCOM said export control measures proposed by Japan on semiconductors will seriously affect the normal trade between Chinese and Japanese enterprises, as well as undermine the stability of the global supply chain. Furthermore, it stated that China urges the Japanese side to rectify its 'erroneous practices' in a timely manner and China will take necessary measures to firmly safeguard the legitimate rights and interests of Chinese enterprises, according to Reuters.
• US and Taiwan are to hold in-person negotiation talks on trade beginning on April 29th, according to Reuters.
• Japanese PM Kishida said they will promote union policies for wage increases, according to Reuters.
• PBoC has reportedly expanded a warning on bond investments to regional banks, via Bloomberg citing sources.
• Agricultural Bank of China (1288 HK) Q1 (CNY): Net Income 70.839bln (exp. 73.578bln), NII 144.535bln (exp. 137.021bln).
• PetroChina (857 HK) Q1 (CNY): Revenue 812.184bln (exp. 833.77bln), Net +5% Y/Y, EPS 0.25 (exp. 0.24).
• Japanese Top Currency Diplomat Kanda offers no comments on whether there was FX intervention; will continue to take appropriate action against excessive FX moves; does not have a specific FX level in mind. Speculative, rapid, abnormal FX moves have bad impact on the economy, so unacceptable. Ready to respond 24 hours, 365 days, when asked whether Japan was ready to take action in FX. Will disclose at the end of May if there way intervention.

European bourses, Stoxx600 (+0.3%) are almost entirely in the green, taking the lead from a positive APAC session overnight. Trade has been rangebound since the open, though has just been coming off best levels in recent trade. Basic Resources is found towards the top of the pile, benefiting from modestly firmer base metal prices and after further takeover reports regarding BHP/Anglo American. Retail marginally underperforms. US Equity Futures (ES +0.2%, NQ +0.3%, RTY +0.3%) are entirely in the green, posting modest gains in tandem with European peers. In terms of pre-market movers; Apple (+1.5%) gains on reports that it has resumed talks with OpenAI. And Tesla (+6.5%) benefits from news that the Co. has received tentative approval for its self-driving service.

Top European News

• ECB's Wunsch (interview from 20th April) said ECB should be cautious regarding a July cut, should be cautious regarding a larger-than-25bps cut in June. Base case it as least two cuts, "but if we only do two or even three cuts, then we shouldn't communicate that we're going to cut at every meeting". Don't think ECB has sufficient data to have confidence on 100bps of cuts throughout the year. On what could get in the way of a June cut, Wunsch said "really bad news", "two bad readings on the inflation front or other major developments."
• Spanish PM says he has decided to stay on as Prime Minister.
• Scotland's First Minister Humza Yousaf is set to step down after coming to the conclusion that is position is no longer tenable, according to The Sunday Times.
• Fitch affirmed France at AA-; Outlook Stable and affirmed Switzerland at AAA; Outlook Stable, while it affirmed Sweden at AAA; Outlook Stable.

FX

• USD is softer vs. peers in the wake of aggressive USD/JPY selling overnight and into the European morning. From a technical perspective, DXY has been as low as 105.46 but is respecting Friday's 105.41 base.
• JPY was volatile overnight and initially surged above 160.00 with no obvious catalysts and with Japanese participants away from the market. The pair later saw a sharper drop and breached 156.00 to the downside in the absence of any obvious drivers; some have speculated potential intervention. Since, USD/JPY has continued to bleed, going as low as 154.54 (currently 155.80).
• EUR is firmer vs. USD (as is the case for all major peers). Focus in the Eurozone today is on the German national CPI at 13:00BST, with regional releases thus far broadly showing increases on a M/M and Y/Y basis, though initial reaction dovish as the core numbers continue to moderate. 1.0733 is the high thus far and yet to approach Friday's best of 1.0753.
• Antipodeans are benefitting from the broadly softer USD. AUD/USD is now up for a 6th consecutive session with focus on a test of 0.66 after printing a session high of 0.6586.
• Japan's Top currency diplomat Kanda said will not comment now, when asked about whether Japan intervened in the currency market.
• PBoC set USD/CNY mid-point at 7.1066 vs exp. 7.2759 (prev. 7.1056).

Fixed Income

• USTs are bid with specifics light so far and direction drawn from EGB action after the regions core inflation numbers from Spain & German. Currently at the top-end of a 107-18+ to 107-27+ range with the 10yr yield below 4.65% but in familiar ranges.
• Bunds are firmer with markets focussing on the continued moderation in core Spanish and German state CPI into the 13:00BST nationwide German number. Bunds peaked at 130.87 having pared knee-jerk pressure of around 20 ticks on the German headline numbers; now off best levels.
• Gilts are a touch firmer but yet to move significantly from the unchanged mark in a narrow circa-20 tick range with specifics light and direction for today and this week broadly likely to come from European and US events. Currently at 96.25 shy of Friday's 96.33 best and then 96.67 from Wednesday thereafter.
• Italy sells EUR 6.75bln vs exp. EUR 5.75-6.75bln 3.35% 2029, 3.85% 2034 BTP and EUR 3.5bln vs exp. EUR 3-3.5bln CCTeu.
• EU sells EUR vs exp. EUR 2.5bln 3.125% 2028 and EUR 2.5bln 2.75% 2033 EU Bond.

Commodities

• A subdued day for the crude complex despite the weaker Dollar, but amid the lack of geopolitical escalation over the weekend and amid more sanguine atmosphere surrounding the latest Israel-Gaza ceasefire talks. Brent counterpart slipped from USD 89.25/bbl to USD 88.43/bbl.
• Mixed trade across precious metals with only spot silver benefiting from the slide in the Dollar, whilst spot gold sees its upside capped by the lack of geopolitical escalation and ahead of FOMC later this week. XAU clambered off its USD 2,319.84/oz intraday low but is yet to reach highs seen on Friday at USD 2,352.64/oz.
• Base metals are mixed with some of the market benefiting from the softer Dollar, albeit modestly; 3M LME copper trades on either side of USD 10,000/t.
• TotalEnergies (TTE FP) CEO said the Co. is expected to complete the first phase of the solar power project in Iraq within the next year, while the Co. is to complete the first stage of utilising the by-produced gas from Iraq’s project during 2025 with a production capacity of 50mln cubic feet, according to Reuters.
• Turkey is in talks with ExxonMobil (XOM) over a multi-billion dollar LNG deal, according to FT.

Geopolitics: Middle East

• "Al-Arabiya sources: An Israeli delegation will head to Cairo tomorrow and the plan is indirect negotiations with Hamas"
• UKMTO said it has receives a report of an incident 54NM Northwest of Yemen's Mokha
• Egypt offered a new proposal for a truce between Israel and Hamas in which some Israeli hostages would be exchanged for Palestinian prisoners and a three-week ceasefire, while Egyptian officials said Israel helped create the proposal and would enter longer-term discussions once Hamas releases the first group of 20 hostages over the truce period, according to WSJ.
• Hamas said it received Israel’s official response to its position over ceasefire talks and will study the proposal before submitting its response. It was later reported that a Hamas official told AFP that there were no major issues in the group’s remarks on the truce proposal, while it was separately reported that a Hamas delegation is to visit Cairo on Monday for ceasefire talks, according to an official cited by Reuters.
• Israel’s Foreign Minister said Israel will suspend the planned operation in Rafah if Hamas agrees to a hostage deal and stated the release of hostages is their top priority. It was also reported that the Israeli military said the amount of aid going into Gaza will scale up in the coming days.
• Palestinian President Abbas said Israel will go into Rafah in the next few days and the US is the only country that can stop Israel from attacking Rafah, while he is worried that Israel will try to push Palestinians out of the West Bank after it is done with Gaza, according to Reuters.
• Medical official said at least 13 Palestinians were killed in Israeli airstrikes on three houses in Rafah in southern Gaza, according to Reuters.
• US President Biden spoke with Israeli PM Netanyahu on Sunday and reaffirmed his ironclad commitment to Israel’s security, as well as stressed the need for progress in aid deliveries to be sustained and enhanced in full coordination with humanitarian organisations. Furthermore, they discussed Rafah and Biden reiterated his clear position, according to the White House cited by Reuters.
• White House national security spokesperson Kirby said Israel assured the US that they won’t go into Rafah until the US has a chance to share its perspectives and concerns, while he added Israelis have started to meet the aid commitments that US President Biden asked them to meet. It was separately reported that US Secretary of State Blinken will travel to Jordan and Israel following Saudi Arabia, according to Reuters.
• France’s Foreign Minister said to make proposals in Lebanon to stabilise the zone and prevent a war between Hezbollah and Israel, according to Reuters.
• UKMTO said it received reports of an incident 177 nautical miles southeast of the Port of Nashtoon located in eastern Yemen on Saturday night which involved a small boat that approached a ship, although there was no harm or damage and the ship carried on its journey, according to IRNA.

OTHER

• US intelligence found that Russian President Putin did not directly order Navalny’s death in February, according to WSJ. US intelligence report does not dispute Putin’s culpability for the death of Navalny but believes he probably did not order it at that moment, while a Kremlin spokesperson called the intelligence report empty speculation.
• Russian Foreign Ministry said there will be a severe response if Russian assets are touched and it is a pity that some in the West do not understand it, while it was also reported that Russia’s Kremlin said there will be endless legal challenges if Russian assets are seized.
• Russia’s Kremlin said there are no grounds to hold any peace talks with Ukraine given Kyiv’s official refusal to conduct such talks with Russia.
• Kyiv’s top general said fighting on the eastern front worsened and Ukrainian troops had fallen back in three places.
• North Korea’s Foreign Ministry said it will make stern and decisive choices in response to the US using human rights for anti-North Korean behaviour, while it added that the US envoy on North Korean human rights is motivated politically and is considered political provocation, according to KCNA.

US Event Calendar

• 10:30: April Dallas Fed Manf. Activity, est. -11.3, prior -14.4

DB's Jim Reid concludes the overnight wrap

I wrote some of this while supervising my three kids doing their homework this weekend. The 6yr old twins had fractions and adverbs, with the latter being pretty challenging. They had a whole story where they had to insert missing adverbs. It was incredibly, astonishingly, extremely, exceedingly, enormously, supremely, difficult. So if you see a few stray adverbs below it's because I've been swimming in them this weekend.

With just two days left of a difficult April for markets, last week actually saw the best week for the S&P 500 (+2.67%) and NASDAQ (+4.23%) since November as earnings generally gave markets a boost even if the US inflation data was net net worrying. You’ll see our full recap of last week towards at the end but looking forward first it's an exceptionally busy week of important events.

The FOMC conclusion on Wednesday is the obvious highlight (full preview below) but we also have payrolls on Friday to look forward to. DB expect a more hawkish-leaning Fed this week. While our economists expect the Committee will maintain an easing bias (preview here), they do expect the statement and press conference to echo Chair Powell’s view that firmer inflation prints suggest it will take longer to gain confidence about disinflation. The press conference will be fascinating to see the nuances in Powell’s responses as he justifies a likely unchanged easing bias, even if the rhetoric is more hawkish, in the face of rising inflation.

In terms of the jobs report on Friday, our US economists see payrolls gaining +240k in April (consensus +250k), down from +303k in March. The consensus expects the unemployment rate and the hourly earnings growth rate to stay at 3.8% and +0.3% MoM, respectively, although DB expects the former to tick up a tenth. Overall the market sees a solid report.

Other key data in the US includes consumer confidence tomorrow, the manufacturing ISM, JOLTS, and ADP on Wednesday, and the services ISM on Friday. We also see the latest US Treasury quarterly refunding announcement on Wednesday, after the borrowing estimate is due today. This was a big pivot point for global markets back in August (negative) and October (positive) but since then a commitment not to increase auction sizes has reduced its importance. Our strategists preview the event and detail their estimates here. Finally in the US, earnings season maintains its peak pace as 174 report in the S&P versus 180 last week with Amazon (Tuesday) and Apple (Thursday) the obvious highlights. Meanwhile, 66 Stoxx 600 companies will report this week.

In Europe, preliminary CPI reports for Germany and Spain today, and the Eurozone tomorrow will have a lot of significance for the June ECB meeting and whether we will see the first cut. Our European economists preview the release here. For the Eurozone, they expect the headline HICP to fall one-tenth to 2.31% yoy, its lowest value since August 2021 and see core inflation slowing further to 2.45% yoy, 0.50pp lower than in March 2024. Staying in Europe the latest GDP data for Germany, France, Italy and the Eurozone are due tomorrow. In Asia, various China PMIs (tomorrow) will be a big focus and in Japan, several key economic indicators are also due, including industrial production and labour market data tomorrow.

The day-by-day calendar at the end as usual gives a more detailed diary of the main events this coming week.

Asian equity markets have started the week on a positive note extending Friday’s rally on Wall Street. Chinese stocks are the best performers across the region with the Hang Seng (+1.93%) leading gains followed by the CSI (+1.63%) and the Shanghai Composite (+0.94%), buoyed by a rally in property stocks after embattled property developer CIFI Holdings reached a solution with bondholders on a plan to restructure its offshore debt. Elsewhere, the KOSPI (+0.91%) is also trading higher while stock markets in Japan are closed for a public holiday, also meaning no cash Treasury trading as yet. S&P 500 (+0.25%) and NASDAQ 100 (+0.34%) futures are edging higher.

In FX, the Japanese yen remained under pressure as it weakened past 160 earlier (from just below 158 at the open), its weakest level since 1990. This was in thin holiday trading and it's subsequently bounced back to below 156. So some astonishing moves this morning!

Over the weekend, China’s industrial profits fell -3.5% in March (YoY) and have now risen + 4.3% y/y in the first quarter, significantly down from a +10.2% expansion in the January-February period, thus still pointing to challenges for China even with a better outlook of late.

Recapping last week now, the US March PCE inflation came in line with expectations on Friday at +0.3% month-on-month, allowing markets to breathe a slight sigh of relief compared to the strong Q1 PCE deflator in the GDP data the day before. In year-on-year terms, the March PCE release came in just above expectations at +2.7% (vs 2.6% expected). The month-on-month core print was also in line with consensus at +0.3%, and at +2.8% year-on-year (vs 2.7% expected). The March data also pointed to a still vibrant US consumer, with real personal spending up +0.5% on the month (vs +0.3% expected).

With the PCE print largely in line with expectations, US equities rallied, with the S&P 500 rising +1.02% on Friday. A strong performance by the tech giants following strong Q1 results from Alphabet (+10.22%) and Microsoft (+1.82%) the previous evening saw the Magnificent Seven post their best day in two months (+3.27%). After three weeks of consecutive losses, both the S&P 500 (+2.67%) and the NASDAQ (+4.23%) saw their largest weekly gains since last November. Even as technology spearheaded the rally, the gains were broad-based, as the Russell 2000 index rose +2.79% (and +1.05% on Friday). European equities also advanced, with the STOXX 600 up +1.74% last week (and +1.11% on Friday). The FTSE 100 hit another record high after gaining +3.09% (and +0.75% on Friday).

Friday’s PCE print did little to reverse expectations for fewer Fed rate cuts this year. The number of cuts anticipated by the December meeting was unchanged on Friday (+0.1bps) but down -4.9bps over the week to 34bps, with the decline coming on Thursday following the inflation data within the Q1 GDP release. US Treasuries did see a moderate rally on Friday, as the 2yr and 10yr yields fell -0.3bps and -4.0bps respectively. However, this was insufficient to erase earlier losses with Treasury yields seeing their highest weekly close year-to-date, up +0.9bps to 4.996% for 2yrs and +4.3bps to 4.665% for 10yrs. The story was similar in Europe, as investors dialled back their expectations of ECB rate cuts by -2.2bps on the week to 72bps. This saw 10yr bund yields rise +7.5bps on the week to 2.57%, despite a sizeable recovery on Friday (-5.5bps).

Meanwhile in Asia, the major story last week was the weakening of the Japanese yen. With the Bank of Japan leaving interest rates on hold, alongside restrained commentary on the exchange rate by policymakers, the yen fell -2.33% (and -1.78% on Friday) to 158.33 per dollar, its weakest level since 1990. Against this backdrop, the Nikkei 225 rose +2.34% (and +0.81% on Friday).

Finally in commodities, copper secured its fifth consecutive week of gains after rising +1.48% (and +1.03% on Friday) on the back of growing demand for clean transition metals and tight supply. On the other hand, gold ended its five-week streak of consecutive gains, falling -2.26% (+0.39% on Friday) amid easing geopolitical fears.

The Japanese Yen strengthened sharply overnight after crashing to its lowest level since April 1990, breaking 160/USD.

The FT reports that traders in Hong Kong, Australia and London said it was “highly likely” that the recovery was due to Japan’s finance ministry selling dollar reserves and purchasing the Japanese currency for the first time since late 2022.

While analysts suggested the size and speed of the jump smacked of intervention, some traders questioned that conclusion and said Japanese banks sold dollars for customers as it rallied.

Japan’s top currency official, Masato Kanda, chose to keep investors guessing by declining to comment.

"It is difficult to ignore the bad effects that these violent and abnormal movements [in currencies] will cause for the nation's economy," Kanda told reporters on Monday.

Dow Jones reported authorities stepped in to support the yen, citing people familiar with the matter.

It is unlikely to be the last time Japan intervenes in the currency market this year, given that U.S. interest rates are likely to remain high, said Alvin Tan, head of Asia foreign-exchange strategy at RBC Capital Markets.

"We will have a tug of war going forward between Tokyo and the market," he said.

*  *  *

The yen crashed in early Asia trading, tumbling to match is exact lows from April 1990 in what is being blamed on a 'fat finger' trade or multiple barrier-option trades being triggered, by sources that have literally no idea.

The plunge extended Friday's big drop which followed BoJ Governor Ueda's apparent lack of interest in doing anything about the yen's decline, claiming it had 'no impact' on the currency's inflation picture.

“Currency rates is not a target of monetary policy to directly control,” he said.

“But currency volatility could be an important factor in impacting the economy and prices. If the impact on underlying inflation becomes too big to ignore, it may be a reason to adjust monetary policy.”

In fact, policymakers have repeatedly warned that depreciation won’t be tolerated if it goes too far too fast.

Finance Minister Shunichi Suzuki reiterated after the BoJ meeting that the government will respond appropriately to foreign exchange moves.

Potential triggers for interventions are public holidays in Japan on Monday and Friday next week, which bring the risk of volatility amid thin trading.

“Should the yen fall further from here, like after the BOJ decision in September 2022, the possibility of intervention will increase,” said Hirofumi Suzuki, chief currency strategist at Sumitomo Mitsui Banking Corp.

“It is not the level but it’s the speed that will trigger the action.”

Well currency volatility is what he has now...

Source: Bloomberg

The sudden drop pushed USDJPY perfectly to its April 1990 highs to the tick...

Source: Bloomberg

The currency pain was all focused in the Japanese market as EUR and GBP strengthened against the USD...

Source: Bloomberg

Perhaps even more notably, the yen puked relative to the Chinese yuan, hitting 22 for the first time since 1992 and putting further pressure on Beijing to potentially do something...

Source: Bloomberg

The question is, of course, what will Japan's MoF/BoJ do now - if anything as their recent excuses about 'velocity' or some such spin are now out of the window after a 6-handle standalone surge in their currency in a few short days (when the rest of the world's currencies are not).

“Authorities may say they don’t target levels per se, but they do pay close attention to the trend and the rate of change and current levels suggest they have to act soon or risk facing a credibility crisis,” said Chris Weston, head of research at Pepperstone Group Ltd.

“The FX market is almost taking them on like the bond vigilantes of old.”

Specifically as SocGen's FX strategist Kit Juckes noted on Friday, the yen's decline is becoming disorderly, which points to a final, potentially sharp, decline before it finds a floor.

However, as we detailed last week, the problem with intervention is that once the genie is out of the bottle… it’s hard to put it back in.

In other words, the onus should be on the BOJ to step in with a much more hawkish move than the market expects.

As Viraj Patel from Vanda Research goes on to note that "we’re at a stage where MoF/BoJ have no choice but to intervene. The best way would be for BoJ to hike 25bps this week. It’s not about the macro anymore (BoJ should’ve normalized policy faster last year)."

Instead, what is going on is that Japan's disastrous handling of its currency has evolved into a game between speculators and officials: Specs are short yen for good fundamental reasons (carry). At this stage, a “surprise” hike to send a signal to markets that they are concerned about ongoing FX weakness (and don’t test us) would be less costly to the economy vs. a further devaluation in the yen. It also adds an additional level of uncertainty to the BoJ/MoF reaction function - which speculators (long carry trades) don’t like.

Meanwhile, FX intervention - which unfortunately looks to be the MoF/BoJ’s preferred route based on recent history - is not even a short-term fix anymore. USD/JPY dips would be quickly bought into based on recent market chatter. A hike goes a bit further towards solving the root cause of yen weakness - even it’s only a marginally better option.

However, not everyone is convinced intervention is imminent.

In a note late last week, Deutsche Bank says the currency's decline is warranted and finally marks the day where the market realizes that Japan is following a policy of benign neglect for the yen.

We have long argued that FX intervention is not credible and the toning down of verbal jawboning from the finance minister overnight is on balance a positive from a credibility perspective. The possibility of intervention can't be ruled out if the market turns disorderly, but it is also notable that Governor Ueda played down the importance of the yen in his press conference today as well as signalling no urgency to hike rates. We would frame the ongoing yen collapse around the following points.

1. Yen weakness is simply not that bad for Japan. The tourism sector is booming, profit margins on the Nikkei are soaring and exporter competitiveness is increasing. True, the cost of imported items is going up. But growth is fine, the government is helping offset some of the cost via subsidies and core inflation is not accelerating. Most importantly, the Japanese are huge foreign asset owners via Japan’s positive net international investment position. Yen weakness therefore leads to huge capital gains on foreign bonds and equities, most easily summarized in the observation that the government pension fund (GPIF) has roughly made more profits over the last two years than the last twenty years combined.

2. There simply isn't an inflation problem. Japan's core CPI is around 2% and has been decelerating in recent months. The Tokyo CPI overnight was 1.7% excluding one-off effects. To be sure, inflation may well accelerate again helped by FX weakness and high wage growth. But the starting point of inflation is entirely different to the post-COVID hiking cycles of the Fed and ECB. By extension, the inflation pain is far less and the urgency to hike far less too. No where is this more obvious than the fact that Japanese consumer confidence are close to their cycle highs.

3. Negative real rates are great. There is a huge attraction to running negative real rates for the consolidated government balance sheet. As we demonstrated last year, it creates fiscal space via a $20 trillion carry trade while also generating asset gains for Japan's wealthy voting base. This encourages the persistent domestic capital outflows we have been highlighting as a key driver of yen weakness over the last year and that have pushed Japan's broad basic balance to being one of the weakest in the world. It is not speculators that are weakening the yen but the Japanese themselves.

The bottom line, Deutscxhe concludes, is that for the JPY to turn stronger the Japanese need to unwind their carry trade. But for this to make sense the Bank of Japan needs to engineer an expedited hiking cycle similar to the post-COVID experiences of other central banks. Time will tell if the BoJ is moving too slow and generating a policy mistake. A shift in BoJ inflation forecasts to well above 2% over their forecast horizon would be the clearest signal of a shift in reaction function. But this isn’t happening now.

The Japanese are enjoying the ride.

Finally, it goes without saying that the only true circuit-breaker for yen weakness is lower US yields/weak US macro, which is unlikely until the election if, as so many now speculate, there has been a directive by the Biden admin to make the economy look as good as possible ahead of the elections, even if that means manipulating the data to a grotesque degree.

One added complexity for MoF/BoJ is that their two options for tackling yen weakness indirectly adds upward pressure to global rates/yields. They’re caught between a rock and a hard place… and speculators know (enjoy) this.

And finally there is China: the longer BOJ/MoF does nothing to curb the collapse of the yen, a move which is seen a pumping up the country's exporting base at the expense of other mercantilist nations such as China, the higher the probability Beijing will retaliate against Tokyo by devaluing its own currency. At which point all hell will break loose.

But, one way or another, as Goldman noted, it's crunch time for USDJPY.