Fed rate bets cool

Notes/Observations

- Risk appetite finding fresh legs as speculation swirls of a pause in the Fed’s tightening cycle in September Sentiment has shifted to the positive prospect of a slower rate path schedule due to negative economic growth forecasts.

-Asia markets closed higher and Europe starts off with modest gains between 0-1% for the indices after momentum carries over from yesterday's Wall Street rally. US Futures in the green.

-FTSE remains an underperformer in Europe after UK Chancellor Sunak's statement on household aid plan and a windfall tax levy of 25% on UK energy company profits. UK energy sector trades lower.

-ECB's De Cos reiterated a gradual rate increase path after German ZEW chief said the ECB needs to do more to combat inflation.

-No significant covid news out of China but comments from Foreign Min Wang continues to amp up US/China tensions by rebuking US claims that China threatens the international order as disinformation.

-The Ukraine focus has pivoted from the conflict, to the secondary effect of a global food crisis as more countries speak up over the pending humanitarian crisis. Italy PM Draghi said he is interested in unblocking the ports in the black sea, as Russia Agriculture Min invites the idea of Russia building vessels for grain exports.

- Toyota cuts its Jun production plans by 50K citing Chinese lockdowns.

Asia

- Japan May Tokyo CPI Y/Y: 2.4% v 2.5%e; CPI (ex-fresh food) Y/Y: 1.9% v 2.0%e.

- Australia Apr Retail Sales M/M: 0.9% v 1.0%e.

- China Apr Industrial profits -8.5% y/y (first contraction in 2 years).

- China Politburo to hold meeting on Friday. Reports circulated that China Premier Li believed that its economic growth was slipping out of a reasonable range and warned of dire economic consequences if govt did not move decisively to stop the economy falling more. Li said to see to avoid a Q2 economic contraction.

- Japan PM Kishida reiterated stance that recent JPY currency (Yen) moves were driven by various factors.

- BOJ Gov Kuroda stated that unless energy prices dropped sharply, core CPI to likely to remain ~2.0% for ~1-year.

- US and Taiwan said to be planning to announce negotiations to deepen economic ties. Bilateral talks to focus on enhancing economic cooperation and supply-chain resiliency.

- Beijing officials have begun probing a medical lab due to violations of covid testing rules. China Stats Office later stated that it would not tolerate fake statistics (**Reminder: Beijing City health Chief Yu Luming was said to have been removed from position).

Ukraine conflict

- US is said to be readying to send Ukraine advanced, long-range rocket systems that are now top request from Ukrainian official.

- Russia Foreign Min Lavrov warned the West that supplying weapons to Ukraine that could strike Russian territory would be a step towards unacceptable escalation.

- Russia President Putin told Italy PM Draghi he intended to keep supplying gas to Italy. Russia was willing to help on the food crisis if sanctions were lifted.

- Russia has approx. $100M in interest on debt coming due on Friday, May 27th If Russia’s obligations are not fulfilled, a 30-day grace period ensues.(**Reminder: US Treasury confirmed it would let general license that had allowed Russia to pay US bondholders to expire on Wed, May 25th).

Speakers/Fixed income/FX/Commodities/Erratum

Equities

Indices [Stoxx600 +0.50% at 440, FTSE -0.15% at 7553, DAX +0.52% at 14302, CAC-40 +0.67% at 6453, IBEX-35 +0.00% at 8889, FTSE MIB -0.31% at 2390, SMI +0.49% at 11549, S&P 500 Futures +0.25%].

Market Focal Points/Key Themes: European indices open generally higher and advanced into the green as the session progressed; sectors among those leading to the upside are consumer discretionary and technology; underperforming sectors include real estate and energy; Denmark closed for holiday; utilities sector under pressure following rise in crude prices; reportedly Air France-KLM might participate in Ita Airways acquisition; UPM-Kymmene acquires AMC in Germany; earnings expected during the upcoming Americas session include National Bank of Canada and Hibbett.

Equities

- Consumer discretionary: Adevinta ADE.NO +7.7% (analyst action), Maisons du Monde MDM.FR -24.5% (cuts guidance).

- Consumer staples: Henkel HEN3.DE -1.3% (analyst action).

- Energy: BW Offshore BWO.NO +4.5% (earnings), REC Silicon REC.NO -4.1% (earnings).

- Financials: doValue DOV.IT +4.6% (deal with Cerberus).

- Healthcare: AB Science AB.FR +1.0% (Health Canada reviews NDS for treatment of ALS).

- Industrials: Awilco LNG ALNG.NO -3.1% (earnings).

- Real Estate: Unibail-Rodamco-Westfield URW.NL -2.1%(analyst action).

- Technology: Kahoot! KAHOT.NO +3.7% (analyst action).

Speakers

- ECB's De Cos (Spain, dove) reiterated Council view that process of increasing rates should be gradual.

- UK Chancellor of the Exchequer (Fin Min) Sunak noted that the recently announced household aid plan to add <1% to inflation (**Reminder: On May 26th Sunak outlined the details of a household support package and windfall tax on energy company profits).

- Taiwan Govt amended its economic outlook due to covid. Cut its 2022 GDP growth forecast from 4.4% to 3.9% while raising the 2022 CPI inflation forecast from 1.9% to 2.7%.

Currencies/fixed income

- USD ended the week on softer footing as speculation of a possible pause in Fed’s tightening cycle come September. Greenback poised for its biggest weekly drop in nearly four months.

- EUR/USD holding around the 1.0750 area with focus turning to next week’s CPI data (Germany on Mon, Euro Zone on Tues) ahead of the ECB’s Jun 9th policy meeting.

- GBP/USD - reverses some gains after Sunak's household aid plan, trades at 1.262.

- AUD/USD - modestly higher above 0.710.

- NZD/USD - accelerates climb as it passes 0.652.

- USD/CAD - steady decline at 1.274.

- USD/CHF - slightly lower at 0.956.

- USD/JPY - remains around 127.00 level despite USD index dropping.

Economic data

- (FI) Finland May Consumer Confidence: -11.6 v -11.7 prior; Business Confidence: 14.0 v 15.0 prior.

- (SE) Sweden Apr Retail Sales M/M: 0.4% v 0.6% prior; Y/Y: 2.4% v 1.8% prior.

- (SE) Sweden Apr Household Lending Y/Y: 6.8% v 6.8% prior.

- (ES) Spain Apr Adjusted Retail Sales Y/Y:+1.5% v -2.0%e; Retail Sales (unadj) Y/Y: +3.3% v -5.5% prior.

- (ES) Spain Mar Total Mortgage Lending Y/Y: 20.1% v 23.3% prior; Mortgage Approvals Y/Y: 18.0% v 14.6% prior.

- (CN) Weekly Shanghai copper inventories (SHFE): 41.6K v 54.4K tons prior.

- (EU) Euro Zone Apr M3 Money Supply Y/Y: 6.0% v 6.3%e.

- (AT) Austria Apr Manufacturing PMI: 56.6 v 57.9 prior (23rd straight expansion).

- (RU) Russia Narrow Money Supply w/e May 20th (RUB): 14.31T v 14.36T prior.

- (TW) Taiwan Q1 Preliminary GDP (2nd reading) Y/Y: 3.1% v 3.1%e.

Fixed income issuance

- (IT) Italy Debt Agency (Tesoro) sold €5.0B vs. €5.0B indicated in 6-month bills; Avg Yield: -0.088% v -0.308% prior; Bid-to-cover: 1.54x v 1.49x prior.

Looking ahead

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

- 05:30 (IN) India to sell combined INR330B in 2023, 2029, 2032 and 2061 bonds.

- 05:30 (ZA) South Africa to sell combined ZAR1.2B in I/L 2033, 2038 and 2046 Bonds.

- 06:00 (UK) DMO to sell £2.0B in 1-month, 3-month and 6-month bills (£0.5B, £0.5B and £1.0B respectively).

- 06:45 (US) Daily Libor Fixing.

- 07:00 (IN) India announces upcoming bill issuance (held on Wed).

- 07:30 (IN) India Weekly Forex Reserve w/e May 20th: No est v $593.3B prior.

- 07:30 (IE) ECB’s Lane (Ireland, chief economist).

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

- 08:00 (ES) Spain Debt Agency (Tesoro) announcement on upcoming bond issuance.

- 08:30 (US) Apr Personal Income: 0.5%e v 0.5% prior; Personal Spending: 0.7%e v 1.1% prior; Real Personal Spending (PCE): 0.7%e v 0.2% prior.

- 08:30 (US) Apr PCE Deflator M/M: 0.2%e v 0.9% prior; Y/Y: 6.2%e v 6.6% prior.

- 08:30 (US) Apr PCE Core Deflator M/M: 0.3%e v 0.3% prior; Y/Y: 4.9%e v 5.2% prior.

- 08:30 (US) Apr Advance Goods Trade Balance: -$114.8Be v -$127.1B prior (revised from -$125.3B).

- 08:30 (US) Apr Preliminary Wholesale Inventories M/M: 1.9%e v 2.3% prior; Retail Inventories M/M: 2.0%e v 2.0% prior.

- 10:00 (US) May Final University of Michigan Confidence: 59.1e v 59.1 prelim.

- 11:00 (EU) Potential sovereign ratings after European close.

- 13:00 (US) Weekly Baker Hughes Rig Count.

- (CO) Colombia Central Bank Board Meeting.