European inflation data continues to climb, remain at multi-decade highs

Notes/Observations

- UK Apr CPI continued its ascent but came in slightly below consensus (YoY: 9.0% v 9.1%e). Was the 9th month above target and highest annual pace since Nov 1981.

- EU Apr Final CPI reading unrevised but matched highest level since Euro launch.

- Markets remain unconvinced about China with Beijing increasing mass testing as cases rise despite Shanghai emerging from lockdown. Premiur Liu's supportive words did not stick and Powell's affirmation of hawkish sentiment result in subdued Asia performance and US futures on the decline. Europe remains focused on inflation fears and the reignited Northern Ireland debate.

Asia

- Japan Q1 Preliminary GDP Q/Q: -0.2% v -0.4%e; GDP Annualized Q/Q: -1.0% v -1.8%e.

- Australia Q1 Wage Price Index Q/Q: 0.7% v 0.8%e; Y/Y: 2.4% v 2.5%e.

- China Apr New Home Sales registered its 8th straight monthly decline (M/M: -0.3% v -0.1% prior; Y/Y: 0.7% v 0.7% prior.

- Japan Econ Min Yamagiwa: Economy expected to pick up, uncertainty remains on Ukraine; Need to pay attention to rising raw material prices and swings in financial markets and supply side restrictions.

Russia/Ukraine

- US Treasury Dept said not to extend carveout for Russia debt payments on May 25th and block debt payments and raise odds of Russian default.

- Russia may conduct referendum to annex Ukraine's Kherson region instead of direct governor elections planned on Sept 11th, 2022.

Europe

- EU said to offer UK Northern Ireland Protocol an olive branch but threatens trade war. EU propose tweaking the bloc’s own laws to ease checks between mainland Britain and the province. Would need to respond with all measures at its disposal.

- Chancellor of the Exchequer (Fin Min) Sunak said to be considering a possible early cut to income tax to help ease the cost-of-living crisis amid growing political pressure to intervene. Cut in the basic rate of income tax from 20p to 19p is currently scheduled to take effect in April 2024. But Treasury insiders confirmed that the Chancellor is considering whether to bring it forward by one year.

Americas

- Fed Chair Powell stated that would continue raising rates until inflation came down; Would be no hesitation about that.

- Fed's Mester (FOMC voter, hawk) stated that was comfortable moving 50 basis points at next couple meetings but would remain data dependent. Wanted to keep every option on the table, including 75bps.

- Fed's Evans (dove, non-voter): Fed should raise rates to Neutral 2.25-2.5% expeditiously; Saw need to take rate 'somewhat' above neutral; Inflation was much too high, and the Fed must react.

Energy

- Weekly API Crude Oil Inventories: -2.4M v +1.6M prior.

- US official: Govt to ease some sanctions against Venezuela to allow Chevron to negotiate a license with state oil company PDVSA, but will reimpose sanctions if talks with Venezuela govt break down.

Speakers/Fixed income/FX/Commodities/Erratum

Equities

Indices [Stoxx600 -0.11% at 438.48, FTSE -0.05% at 7,514.57, DAX -0.10% at 14,173.45, CAC-40 -0.12% at 6,422.41, IBEX-35 +0.45% at 8,514.10, FTSE MIB +0.39% at 11,776.27, SMI +0.39% at 11,776.10, S&P 500 Futures -0.41%].

Market Focal Points/Key Themes: European indices open mixed with a positive bias but failed to establish a direction as the session wore on; better performing sectors include utilities and real estate; underperforming sectors include materials and telecom; luxury subsector supported after better than anticipated earnings from Burberry; Siemens Energy considering buying out Gamesa; CMA takes 9% of Air France-KLM; reportedly Unicredit-Commerzbank tie-up put on hold due to Ukraine invasion; earnings expected during the upcoming US session include Cisco, Target and TIX Companies.

Equities

- Consumer discretionary: Tradedoubler [TRAD.SE] +25% (earnings), Burberry [BRBY.UK] -2% (earnings), TUI AG [TUI1.DE] -11% (placement).

- Energy: Siemens Gamesa [SGRE.ES] +11% (potential offer).

- Financials: ABN AMRO Bank [ABN.NL] -10% (earnings).

- Industrials: Air France-KLM [AF.FR] +3% (agreement; sells stake), Experian [EXPN.UK] -3.5% (earnings; raises dividend).

Speakers

- ECB’s Rehn (Finland) stated that must not let inflation expectations get un-anchored and reiterated stance that 1st rate hike should come in summer. Many Council members supported stance of need for quick move.

- ECB's Enria (SSM chief): Reiterates stance that growth outlook is the main risk to the banking sector.

- Ireland Dep PM Varadkar commented that was dfficult to know if EU could trust UK govt. He stressed that the Northern Ireland Protocol was working.

- Finland and Sweden jointly formally submitted their NATO membership applications (as expected).

- Russia Fin Min Siluanov stated that was not planning to default on deb. Would service external debt in RUB currency (Ruble) if US blocks other options.

- Russia said to extend fertilizer export quotas to Dec.

- Philippines Central Bank (BSP) Gov Diokno reiterated inflation risks tilted to the upside this year.

- Taiwan Central Bank stated that it expected uncertainties to affect growth.

- China reportedly in talks with automakers on EV subsidy extension; Terms for 2023 extension not yet finalized.

Currencies/fixed income

- USD regained some composure after Tuesday’s losses as market participants reaffirmed the Fed’s commitment to controlling inflation by raising interest rates following several Fed speak late Tuesday. Upcoming catalyst for today includes Canada Apr Inflation reading at 08:30 ET.

- EUR/USD drifted away from recent gains as analysts believed expectations for interest-rate rise from the ECB seemed a tad too aggressive.

- GBP/USD fell to retest the 1.24 level after UK Apr CPI data came in slightly below consensus. Dealers noted that cost-of-living crisis in the UK was inflicting more financial pain on households.

- Australia's underwhelming 1Q wage data seemed to give the RBA a green light to go slow on interest rate hikes. AUD/USD holding above the 0.70 level.

- NZD/USD - trades flat into the 0.635 level (2 year lows).

- USD/CAD - climbing slightly to around 1.285 level ahead of inflation data (highest since Dec 2020).

- USD/CHF - retesting 1.000 level, currently 0.992-0.998 (highest since Dec 2019).

- USD/JPY - hovering between 129.0-129.5 after pulling back from recent highs at 130.0-131.0 levels (20 year highs).

Economic data

- (EU) EU27 Apr New Car Registrations: -20.6% v -20.5% prior.

- (UK) Apr CPI M/M: 2.5% v 2.6%e; Y/Y: 9.0% v 9.1%e (9th month above target and highest annual pace since Nov 1981); CPI Core Y/Y: 6.2% v 6.2%e; CPIH Y/Y: 7.8% v 7.8%e.

- (UK) Apr RPI M/M: 3.4% v 3.4%e; Y/Y: 11.1% v 11.0%e; RPI-X (ex-mortgage Interest Payments) Y/Y: 11.2% v 11.3%e; Retail Price Index: 334.6 v 334.4e.

- (UK) Apr PPI Input M/M: 1.1% v 1.1%e; Y/Y: 18.6% v 19.0%e.

- (UK) Apr PPI Output M/M:2.3% v 1.1%e; Y/Y: 14.3% v 12.5%e.

- (AT) Austria Apr Final CPI M/M: 0.3% v 0.3% prelim; Y/Y: 7.2% v 7.2% prelim.

- (ZA) South Africa Apr CPI M/M: 0.6% v 0.6%e; Y/Y: 5.9% v 5.9%e.

- (ZA) South Africa Apr CPI Core M/M: 0.4% v 0.3%e; Y/Y: 3.9% v 3.8%e.

- (UK) Mar ONS House Price Index Y/Y: 9.8% v 9.9%e.

- (EU) Euro Zone Apr Final CPI Y/Y: 7.4% v 7.4% advance; CPI Core Y/Y: 3.5% v 3.5% prior; CPI M/M: 0.6% v 0.6% advance.

- (GR) Greece Mar Unemployment Rate: 12.2% v 12.7% prior.

- (CY) Cyprus Apr CPI EU Harmonized M/M: 3.1% v 1.8% prior; Y/Y: 8.6% v 6.2% prior.

Fixed income issuance

- (LX) Luxembourg opened its book to sell EUR-denominated 7-year and 20-year bonds via syndicate.

- (PL) Poland opened its book to sell EUR-denominated 10-year bonds via syndicate; guidance seen +125bps to mid-swaps.

- (RO) Romania opened its book to sell USD-denominated 6-year and 12-year bonds via syndicate.

- (IN) India sold total INR330B vs. INR330B indicated in 3-month, 6-month and 12-month bills.

- (DK) Denmark sold DKK2.66B in 0% Nov 2031 DGB Bonds; Avg Yield: 1.37% v 1.16% prior; bid-to-cover: 1.97x v 1.73x prior.

- (SE) Sweden sold SEK5.0B vs. SEK5.0B indicated in 1.75% Nov 2033 Bonds; Avg Yield: 1.8773% v 1.9552% prior, bid-to-cover: 3.66x v 2.87x prior.

Looking ahead

- G7 meeting (ECB’s Lagarde and Panetta attend).

- (PT) Portugal Mar Current Account Balance: No est v -€0.6B prior.

- (VN) Vietnam to sell combined VND4.5T in 10-year, 15-year and 20-year bonds.

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (DE) Germany to sell €1.5B in 0% Aug 2052 Bunds.

- 05:30 (PT) Portugal Debt Agency (IGCP) to sell €1.5-1.75B in 6-month and 12-month Bills.

- 05:30 (ZA) South Africa announces details of next bond auction (held on Tuesdays).

- 06:00 (PT) Portugal Apr PPI M/M: No est v 6.2% prior; Y/Y: No est v 26.3% prior.

- 06:00 (CZ) Czech Republic to sell €200M in 0% 2024 Bonds.

- 06:00 (EU) EU Commission to sell combined €2.5B in 3-month and 6-month bills.

- 06:45 (US) Daily Libor Fixing.

- 07:00 (US) MBA Mortgage Applications w/e May 13th: No est v 2.0% prior.

- 07:00 (ZA) South Africa Mar Retail Sales M/M: -0.1%e v -0.5% prior; Y/Y: +1.5%e v -0.9% prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:30 (US) Apr Housing Starts: 1.759Me v 1.793M prior; Building Permits: 1.820Me v 1.870M prior (revised from 1.873M).

- 08:30 (CA) Canada Apr CPI M/M: 0.5%e v 1.4% prior; Y/Y: 6.7%e v 6.7% prior; Consumer Price Index: 149.7e v 148.9 prior; CPI Core- Common Y/Y: 2.9%e v 2.8% prior; CPI Core- Median Y/Y: 3.9%e v 3.8% prior; CPI Core- Trim Y/Y: 4.7%e v 4.7% prior.

- 08:30 (CA) Canada Teranet House Price Index M/M: No est v 2.0% prior; Y/Y: No est v 18.4% prior; House Price Index: No est v 302.8 prior.

- 08:30 (CL) Chile Q1 GDP Q/Q: -0.4%e v +1.8% prior; Y/Y: 7.9%e v 12.0% prior.

- 08:30 (CL) Chile Q1 Current Account Balance: -$4.5Be v -$7.6B prior.

- 10:30 (US) Weekly DOE Oil Inventories.

- 12:00 (RU) Russia Q1 Advance GDP (1st reading) Y/Y: 3.7%e v 5.0% prior.

- 13:00 US) Treasury to sell $17B in 20-Year Bonds.

- 16:00 (US) Fed’s Harker on Economic Outlook.

- 18:45 (NZ) New Zealand Q1 PPI Input Q/Q: No est v 1.1% prior; PPI Output Q/Q: No est v 1.4% prior.

- 19:50 (JP) Japan Apr Trade Balance: -¥1.150Te v -¥414.1B prior (revised from -¥412.4B); Adjusted Trade Balance: -¥1.520Te v -¥899.8B prior; Exports Y/Y: 13.9%e v 14.7% prior; Imports Y/Y: 35.0%e v 31.2% prior.

- 19:50 (JP) Japan Mar Core Machine Orders M/M: +3.9%e v -9.8% prior; Y/Y: 3.3%e v 4.3% prior.

- 21:10 (JP) BOJ Outright Bond Purchase Operation for 1~3 Years; 5~10 Years and 25 Years~.

- 21:30 (AU) Australia Apr Employment Change: +30.0Ke v +17.9K prior; Unemployment Rate: 3.9%e v 4.0% prior; Full Time Employment Change: No est v +20.5K prior; Part Time Employment Change: No est v -2.7K prior; Participation Rate: 66.4%e v 66.4% prior.

- 22:00 (SL) Sri Lanka Central Bank (CBSL) Interest Rate Decision: Expected to raise Standing Deposit Rate by 150bps to 15.00%%; Expected to raise Standing Lending Rate by 50bps to 15.00%.

- 22:00 (NZ) New Zealand Budget.

- 23:30 (JP) Japan to sell 12-Month Bills.