Mini Program: Daily summary of investment bank/institutional views

1. Goldman Sachs: Brent crude oil price is expected to be $84 per barrel by December

Goldman Sachs analysts expect Brent crude futures to be $84 a barrel by the end of this year, assuming that supply from the Middle East and Russia will not be further disrupted by conflict. Analysts such as Yulia Grigsby said there were clear signs that tensions between Israel and Palestine could de-escalate, and speculative positions retreated. However, high-frequency fundamental data remained mixed, with weak production in North America and Russia, but continued increases in OECD commercial inventories. Brent crude prices are expected to fall, but long crude oil positions can still be a useful tool to hedge against geopolitical supply shocks.

2. HSBC: The Bank of Japan may raise interest rates three more times

Economists at HSBC Global Research said the Bank of Japan is likely to raise its policy rate target three times by the end of 2025. There were no major surprises at the Bank of Japan's meeting last week, and gradual progress is key. The Bank of Japan is expected to raise rates to minimize disruption to Japan's real economy and keep overall financial conditions accommodative. It is expected to raise its policy rate target to 0.25% in the third quarter of 2024, followed by 25 basis points in the first and third quarters of 2025, to 0.75% by the end of 2025.

3. Bank of America: Upward pressure on USD/JPY may continue into the third quarter

BofA Securities said that if the U.S. economy proves resilient, upward pressure on USD/JPY could continue into the third quarter. The two major support factors for USD/JPY (rising carry trade and Japan's structural deficit) are expected to remain unaffected until at least the third quarter. With Japan closed today, Friday and next Monday, FX liquidity is likely to remain low during the Asian trading session. Japanese authorities are likely to remain on standby during the holidays and intervene if necessary. It is expected that the scale of FX intervention required may exceed 9.2 trillion yen in 2022, which may exceed 2% of Japan's GDP.

4. Bank of America: Continued intervention is needed to keep USD/JPY below 155

Strategists including Shusuke Yamada and Izumi Devalier of Bank of America said that if the U.S.-Japan exchange rate is to remain below 155 and buy time before the Bank of Japan raises interest rates, the Ministry of Finance may have to continue foreign exchange intervention if it wants to maintain the U.S.-Japan exchange rate below 155 without disappointing news on the U.S. economy. The Bank of Japan is expected to raise interest rates from the third quarter of 2024. But the weakness of the yen may not be enough to change the Bank of Japan's policy, and the upward pressure on the U.S.-Japan exchange rate may continue into the third quarter. However, a "hawkish surprise", such as the Bank of Japan admitting that policy is too loose, starting to raise interest rates in June, or terminal interest rates higher than market expectations, may be necessary to properly boost the yen.

5. JPMorgan: The Fed still needs more confidence in inflation

Marko Kolanovic, chief market strategist at JPMorgan Chase, said that the downward surprise in last week's U.S. GDP data and the upward momentum of inflation are putting pressure on the "soft landing" narrative, which is a sign that the U.S. economy is moving in a "stagflation direction" compared with market expectations. It is expected that Federal Reserve Chairman Powell's remarks after the Fed meeting this week will indicate that officials need more confidence that inflation is expected to fall to the target of 2%.

6. Deutsche Bank: The Reserve Bank of Australia is unlikely to raise interest rates, but may take a tough stance at the meeting

Deutsche Bank said the chances of a rate hike by the Reserve Bank of Australia are too slim, given that Australia's inflation rate is lower than other countries such as New Zealand and Norway. Macro strategist Tim Baker said that in our view, the pricing of the Reserve Bank of Australia's policy is very mispriced, and if Australia converges with other countries, it should cut interest rates by at least 30 basis points. Australia's inflation rate is trending down, while basic indicators including market costs and discretionary costs are within the Reserve Bank's target range. In addition, household surveys currently look reasonable and consistent with inflation landing inside the Reserve Bank's target range. Nevertheless, the Reserve Bank of Australia is likely to take a hawkish stance at its May meeting, which may boost the Australian dollar and market pricing in the short term.

7. Capital Economics: Japan's strong industrial output suggests GDP will rebound

Capital Economics said Japan's strong rebound in industrial production in March, combined with solid forecasts for April-May, pointed to a recovery in the current quarter after a likely first-quarter GDP decline. Assistant economist Gabriel Ng said industrial output rose more than expected but not enough to prevent a sharp month-on-month decline in the first quarter. This means GDP fell more than 2% month-on-month. Still, forecasts for both April and May to rise by around 4% bode well for a quick GDP rebound ahead. Shipments of capital goods performed well in March, making up for a first-quarter decline. Retail sales fell month-on-month in March, but private consumption should still perform better in the first quarter, while the unemployment rate remained stable in March and labor demand is expected to recover quickly.

8. Mizuho Securities: The sharp fluctuations in the yen may be due to low market liquidity

Shoki Omori, chief strategist at Mizuho Securities, said that the sharp fluctuations in the yen against the dollar on Monday may be due to thin market liquidity during the public holiday in Japan, rather than real intervention. The thin liquidity in the yen market during the holiday makes the yen volatile. The market may have taken profits at the 160 and 159.5 levels because the movement in the past few days was too fast. The adjustment of positions by algorithm-driven accounts may also have driven the market movement.

9. UniCredit Bank: Lack of liquidity exacerbates the yen trend

UniCredit analysts said that thin trading due to Japan's holiday may have exacerbated the dollar's move against the yen, which may be at least part of the reason for the yen's sharp fluctuations. The dollar hit a 34-year high of 160.155 against the yen earlier, and then a series of sharp declines brought it back to around 155, sparking rumors that Japanese authorities may intervene in the foreign exchange market. Analysts said that Japanese authorities did not comment on possible intervention, but liquidity was tight and the market may have simply accelerated profit-taking after hitting the 160 mark.

10. ING: Germany's inflation problem may complicate the ECB's task

Carsten Brzeski, head of macro at ING, warned that strong energy prices in Germany could complicate the ECB's task. The latest data released on Monday showed that German inflation remained stable in April, with the initial annual CPI rate recorded at 2.2%, as energy deflation weakened and food inflation picked up. Brzeski said that looking ahead, Germany's economic recovery and supply chain congestion are likely to push inflation higher, but the delayed effect of the high interest rate landscape will play a balancing role. In any case, the ECB's goal of reducing eurozone inflation to 2% still looks difficult. "We continue to see inflation hovering in a wider range of 2% to 3%, rather than continuing to fall straight back to 2%."

11. Saxo Bank: High U.S. Treasury yields reflect that inflation will continue to be above target

Althea Spinozzi, head of fixed income strategy at Saxo Bank, said in a report that the current 4.6% level of the 10-year U.S. Treasury yield reflects market expectations that inflation may continue to be higher than the Fed's 2% target in the context of continued economic growth. The reason behind the surge in U.S. Treasury yields is simple, as inflation levels appear to be well above the Fed's target, hovering around 3%, and showing signs of rebounding. "The Fed may be forced to keep interest rates at current levels for a longer period of time, or resume raising rates if a second wave of inflation becomes a reality."

12. Capital Economics: Despite signs of improvement, the eurozone economy remains weak

Franziska Palmas, European economist at Capital Economics, said weakening business confidence in the euro zone will allow the European Central Bank to implement a series of interest rate cuts starting in June. The European Commission's monthly survey released on Monday showed that overall economic sentiment unexpectedly declined this month due to a decline in confidence in industry and services, while consumer confidence showed little improvement. Palmas said this is a reminder that despite some recent signs of improvement, the euro zone economy remains weak, "so a rate cut in June still seems to be a done deal, and further rate cuts thereafter are likely."

13. Maybank: The yen may effectively fall below 160, and the market is testing Japan's tolerance

Fiona Lim, senior FX strategist at Maybank, said the market is testing Japan's tolerance for a rapid decline in the yen, and the momentum for the yen to effectively fall below the 160 mark against the dollar is clearly in place. The pace of depreciation is accelerating. If no intervention is made, the danger is like trying to catch a falling knife, especially when the Fed may hint this week that it will wait longer to cut interest rates. If the yen continues to fall at the current rate, then the possibility of intervention becomes greater, especially when there are clear signs of speculation in the yen. The lack of intervention so far may be due to timing issues. If the Fed hints that the possibility of a rate hike will reappear (which is not our base case), it may push USD/JPY higher again through rising US Treasury yields and effectively offset any action Japan may take today.

Article forwarded from: Jinshi Data