Note

More ECB speak on rate trajectory

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EU Mid-Market Update: More ECB speak on rate trajectory; Major Euro Area PMI data miss consensus.

Notes/Observations

- Despite no underlying changes in macro themes, European markets turned lower by up to 1% with the exception of the CAC40. This echoes poor Asian overnight performance and with US futures pointing to between 1-2% down, it appears risk aversion is outweighing buyers who rallied yesterday.

- During the EU morning session, a collection of European PMI data that was mixed, with some analysts noting that the results indicate inflation may have peaked in Europe. GBP dropped significantly after missing on services and composite in its PMI data.

- ECB Chief Lagarde reinforced her stance from yesterday and doubled down by now stating that rates are likely to be positive by the end of Q3 22. Yesterday she indicated that would be normalized at 0..

- China's COVID situation remains relatively unchanged. Another day with 0 cases outside of the quarantine zone in Shanghai.

- Post-close US earnings potentially shook up traders outlook, notable Snap, currently 30% down in premarket..

- Major Euro area May Preliminary PMI mainly weaker (Beats: Germany; Miss: Euro Zone, France, UK).

- ECB Lagarde says Council was not in panic mode.

- ECB’s Villeroy plays down expectations of 50bps rate hike- China sought support as the economy being battered by Covid outbreaks.

Asia

- New Zealand Q1 Retail Sales (ex-inflation) Q/Q: -0.5% v 0.0%e.

- Australia May Preliminary PMI Manufacturing registered its (24th month of expansion (55.3 v 53.5 prior.

- Japan May Preliminary PMI Manufacturing registered its 16 month of expansion (53.2 v 53.5 prior.

- Japan Fin Min Suzuki stated that to firmly respond to need to cope with price hikes.

- BOJ Monetary Affairs Head Nakamura: Reiterates to patiently continue with powerful monetary easing to support economy.

- China Vice Premier Sun Chunlan urged officials in Beijing to take quicker moves to deal with COVID.

- SCMP: Push in China to loosen US dollar dominance said to take on new urgency. Article cited sanctions on Russia; Some Chinese advisers were urging the government to change the exchange rate regime and turn the yuan into an anchor currency.

- China Sec Journal: Could be issue of special sovereign bonds to help the economy.

Ukraine conflict

- Russia Foreign Min Lavrov stated that If West wanted to offer ideas of re-establishing relations, Moscow would think whether it needed it. Stressed that Russia's economic ties with China would grow even faster.

Europe

- ECB Chief Lagarde rate hike plan had irked some at the ECB who wanted a faster option.

- ECB’s Villeroy (neutral, France): Euro area growth resilient, main problem short term is inflation. Must normalize monetary policy because of broadening inflation, will bring back inflation to 2%.

- UK Chancellor of the Exchequer (Fin Min) Sunak ordered plan for potential windfall tax on over £10B of excess profits by electricity generators.

Americas

- Fed's Bostic (non-voter, hawk): Inflation was too high and need to be brought down. FED needed to be ready to either move faster or slower on rates depending on how economy reacted. Comfortable with 50 bps hikes next couple of meetings. Noted that 25bp to 50bps on table in Sep, if inflation was too high. Was open to moving more aggressively if inflation higher. Might make sense to pause in Sept, depending on economy.

- Fed's George (FOMC voter, hawk) expected hikes to lift rates to ~2.0% by Aug; War or lockdowns in China could slow growth.

- Fed's Daly (non-voter, dove): Economy had a lot of momentum; Did not expect a recession; Fed putting interest rates to where they won't stimulate or bridle the economy.

- US Trade Representative (USTR) Tai: Engaging with China on Phase 1 commitments of trade; must be strategic on tariffs; Biden team believes trade needs new approaches.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.90% at 431.70, FTSE -0.63% at 7,466.22, DAX -1.13% at 14,014.60, CAC-40 -1.46% at 6,266.11, IBEX-35 -0.83% at 8,554.44, FTSE MIB -1.15% at 23,860.00, SMI -0.23% at 11,440.22, S&P 500 Futures -1.49%].

Market Focal Points/Key Themes: European indices open lower across the board and remained negative as the session wore on; all sectors start the day in the red; less negative sectors include telecom and financials; while utilities and consumer discretionary were among the sectors leading to the downside; banking subsector among better performers following comments by ECB’s Lagarde; travel subsector under pressure after Air France-KLM launches rights issue, Lufthansa confirms offer for ITA; advertising firms under pressure following disappointing results from Snapchat; Nestle to buy Puravida; focus on series of world leader speeches at Davos forum, and “Quad” meeting in Japan; earnings expected in the upcoming US session include Best Buy, Agilent, Intuit and Urban Outfitters.

Equities

- Consumer discretionary: Air France-KLM [AF.FR] -7% (rights issues).

- Financials: Barclays [BARC.UK] +2% (starts buyback).

- Industrials: Renewi [RWI.UK] +8% (earnings; acquisition).

- Real Estate: TAG Immobilien [TEG.DE] -5% (earnings).

- Materials: Forterra [FORT.UK] +3% (trading update), Avon Protection [AVON.UK] -18% (earnings).

Speakers

- ECB chief Lagarde Davos interview noted that it was a good rime to share outlook how to end negative rates as the Council was clearly now at a turning point. Stressed that ECB was not in a panic mode nor behind the curve. She stated that rates likely to be positive at end of Q3 and reiterated the trajectory that ECB would be out of negative rates before end of Q3.

- ECB’s Villeroy (neutral, France) stated that the ECB was in process of normalizing and maintaining its accommodative stance. He saw the neutral rate between 1% and 2% and hitting it at some time during 2023. Noted that a 50bps point rate hike was not part of ECB consensus and the process to be gradual.

- France Fin Min Le Maire stated ahead of the Ecofin meeting that he believed EU could find agreement on minimum tax deal in June.

- Spain PM Sanchez stated that the Govt to soon implement price cap on gas.

- German Economy Ministry Emergency Energy Decree stressed that the country must be able to significantly reduce gas in power production. To set up a gas replacement reserve with coal in power generation sector to run until Mar 31st, 2024. New measures did not change plan to complete exit from coal by 2030. Coal plants to be activated only in a gas emergency to limit CO2 emissions.

- German VCI (Chemical Industry Association) noted that Q1 production fell in the first quarter after firms reduced output due to soaring energy costs.

- Indonesia Central Bank (BI) Policy Statement noted that the decision to keep policy steady was to support economic growth amid external pressures. To tighten liquidity earlier and to raise the RRR to 7.50% from July and to 9.00% in Sept.

- Indonesia Central Bank (BI) Gov Warjiyo pre-rate decision press conference noted that the domestic economy was supported by strong exports. Q2 GDP outlook suggested stronger activities. Inflation remained under control but pressures seen continuing. It saw inflation remaining with target for both 2022 and 2023 period. To keep IDR currency (Rupiah) to be in-line with fundamentals.

- Indonesia Central bank updated its Staff Projections which maintained 2022 GDP growth between 4.5-5.3% and kept 2022 CPI between 2.0-4.0% range.

- China PBOC and China Insurance and Banking Regulator (CBIRC) reportedly asked banks to boost lending to support economy. Called on banking sector to step up support for SMEs and employment.

Currencies/fixed income

- USD remained on the defensive during the early part of the session with focus on PMI readings and continued ECB speak.

- ECB rhetoric again put some upward momentum in the EUR currency for the time being. EUR/USD tested a 1-month high 1.0735 after ECB chief Lagarde clarified her position on the rate trajectory and noted that rate could be slightly positive before the end of September. Another ECB member (Villeroy) downplayed expectations that it could deliver a 50bps hike in July and that policy will remain accommodative.

- GBP slumped after UK PMI data missed consensus and saw markets reduce bets for additional BOE tightening. GBP/USD slumped to test 1.2485 after trading around 1.2550 before the PMI readings.

- TRY currency (Lira) weakened beyond the 16 level against USD for the 1st time this year as the central bank policy had yet to seen any improvement on the inflation front. TRY currency (Lira) has depreciated almost 9% so far this quarter as CPI hit the 70% area. CBRT meets on Thursday (May 26th) and was expected to keep its policy on hold in its current easing cycle..

- EUR/USD - rises to 1.0715 level after ECB comments on rate path outlook.

- GBP dropped significantly after missing on services PMI. (GBP/USD -collapsed 100 pips in 10 mins to 1.2480 level after PMI data.

- USD/CHF - lower slightly at 0.963.

- USD/JPY - still trades between the range 127.2-128.1.

- AUD/USD - down at 0.707 after new Govt is sworn in yesterday.

- NZD/USD - down at 0.6427.

- USD/CAD - climbs slightly to 1.280 level.

Economic data

- (NO) Norway Q2 Consumer Confidence: -11.7 v +0.7 prior.

- (FI) Finland Apr PPI M/M: 2.4% v 5.0% prior; Y/Y: 29.2% v 26.7% prior.

- (FI) Finland Apr Unemployment Rate: 6.9% v 7.0% prior.

- (UK) Apr Public Finances (PSNCR): +£2.4B v -£1.5B prior; PSNB (ex-banking groups): £18.6B v £18.8Be prior; Central Government NCR: £2.4B v £18.7B prior; Public Sector Net Borrowing: £17.8B v £17.9Be.

- (FR) France May Business Confidence: 106 v 105e; Manufacturing Confidence: 106 v 107e; Production Outlook Indicator: -9 v -7e; Own-Company Production Outlook: 6 v 7e.

- (CZ) Czech May Business Confidence: 20.3 v 16.7 prior; Consumer Confidence: -31.0 v -26.0 prior; Composite Index (Consumer & Business Confidence):10.0# v 8.1 prior.

- (ZA) South Africa Mar Leading Indicator: 128.0 v 127.2 prior.

- (HU) Hungary Mar Average Gross Wages Y/Y: 17.5% v 13.9%e.

- (ID) Indonesia Central Bank (BI) left the 7-day Reverse Repo Unchanged at 3.50% (as expected).

- (FR) France May Preliminary Manufacturing PMI: 54.5 v 55.2e (18th month of expansion); Services PMI 58.4 v 58.5e; Composite PMI: 57.1 v 57.0e.

- (DE) Germany May Preliminary Manufacturing PMI: 54.7 v 54.0e (23rd month of expansion); Services PMI: 56.3 v 57.2e; Composite PMI: 54.6 v 53.8e.

- (EU) Euro Zone May Preliminary Manufacturing PMI: 54.4 v 54.8e ( 23rd month of expansion); Services PMI: 56.3 v 57.5e; Composite PMI: 54.9 v 55.0e.

- (TW) Taiwan Apr M1 Money Supply Y/Y: 9.8% v 10.9% prior; M2 Money Supply Y/Y: 8.1%v 8.1% prior.

- (RO) Romania Apr M3 Money Supply Y/Y: 13.1% v 13.6% prior.

- (UK) May Preliminary Manufacturing PMI: 54.6 v 55.0e (24th month of expansion); Services PMI: 51.8 v 57.0e; Composite PMI: 51.8 v 56.5e.

Fixed income issuance

- (ID) Indonesia sold total IDR20.0T vs. IDR20T target in bills and bonds.

- (AT) Austria Debt Agency (AFFA) opened book to sell May 2049 green RAGB bonds via syndicate; guidance seen +25bps to mid-swaps.

- (IT) Italy Debt Agency (Tresoro) opened its book to sell new EUR-denominated 15-year BTP via syndicate; guidance seen +11bps to mid-swaps.

- (NL) Netherlands Debt Agency (DSTA) sold €1.53B vs. €1.0-2.0B indicated range in 0% Jan 2052 DSL Bonds; Avg Yield: 1.410% v 0.350% prior (Jan 25th 2022).

- (SE) Sweden sold SEK5.0B vs. SEK5.0B indicated in 3-month Bills; Avg Yield: 0.2079% v 0.192% prior; Bid-to-cover: 2.84x v 2.10x prior.

- (UK) DMO sold £750M in 0.125% Mar 2039 inflation-linked Gilts; Real Yield: -1.670% v -2.633% prior; bid-to-cover: 2.13x v 2.27x prior.

Looking ahead

- (NG) Nigeria Central Bank Interest Rate Decision: Expected to leave Interest Rates unchanged at v 4.0% prior.

- 05:15 (CH) Switzerland to sell 3-month Bills.

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

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills.

- 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO).

- 05:30 (ZA) South Africa to sell combined ZAR3.9B in 2031, 2035 and 2044 bonds.

- 06:00 (UK) May CBI Retailing Reported Sales: -30e v -35 prior; Total Distribution Reported Sales: No est v 3 prior.

- 06:45 (FR) ECB’s Villeroy (France).

- 06:45 (US) Daily Libor Fixing.

- 07:00 (TR) Turkey to sell Bonds.

- 08:00 (PL) Poland Apr M3 Money Supply M/M: 0.0%e v 1.3% prior; Y/Y: 8.4%e v 7.9% prior.

- 08:00 (BR) Brazil mid-May IBGE Inflation IPCA-15 M/M: 0.5%e v 1.7% prior; Y/Y: 12.1%e v 12.0% prior.

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

- 08:30 (US) May Philadelphia Fed Non-Manufacturing Index: No est v 29.3 prior.

- 08:30 (CL) Chile Central Bank Traders Survey.

- 08:30 (SE) Sweden Central Bank (Riksbank) Breman.

- 08:55 (US) Weekly Redbook LFL Sales data.

- 09:00 (CL) Chile Apr PPI M/M: No est v 1.0% prior.

- 09:00 (EU) Weekly ECB Forex Reserves.

- 09:00 (EU) ECB weekly QE bond buying update.

- 09:45 (US) May Preliminary Markit Manufacturing PMI: 57.8e v 59.2 prior; Services PMI: 55.3e v 55.6 prior; Composite PMI: 55.5e v 56.0 prior.

- 10:00 (US) May Richmond Fed Manufacturing Index: 10e v 14 prior.

- 10:00 (US) Apr New Home Sales: 750Ke v 763K prior.

- 10:00 (MX) Mexico Weekly International Reserve data.

- 10:30 (CA) Canada to sell 3-month, 6-month and 12-month bills.

- 12:00 (EU) ECB chief Lagarde.

- 13:00 (US) Treasury to sell 2-Year Notes.

- 15:00 (AR) Argentina Mar Shop Center Sales Y/Y: No est v 32.9% prior; Supermarket Sales Y/Y: No est v 6.6% prior.

- 16:30 (US) Weekly API Oil Inventories.

- 17:00 (KR) South Korea May Business Manufacturing Survey: No est v 88 prior; Non-Manufacturing Survey: No est v 85 prior.

- 19:45 (AU) RBA's Ellis.

- 20:00 (SG) Singapore Q1 Final GDP SA Q/Q: 0.8%e v 0.4% prelim; Y/Y: 3.7%e v 3.4% prior.

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

- 21:30 (AU) Australia Q1 Construction Work Done Q/Q: +1.0%e v -0.4% prior.

- 22:00 (NZ) Reserve Bank of New Zealand (RBNZ) Interest Rate Decision: expected to raise Official Cash Rate by 50bps to 2.00%.

- 23:00 (KR) South Korea Q1 Short Term External Debt: No est v $166.2B prior.

- 23:00 (NZ) New Zealand Central Bank (RBNZ ) Gov Orr post rate decision press conference.

- (TH) Thailand to sell THB30B in 2024 Bonds.

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