Awaiting the FOMC decision and outlook on rates

EU mid-market update: Awaiting the FOMC decision and outlook on rates; Regional banks sell-off extends during premarket session.

Notes/observations

- Malaysia Central Bank unexpectedly hikes by 25bps and resumes tightening cycle, just 1 day after Australia's RBA. Surprise hawkishness is likely to make traders question upcoming FOMC and ECB decisions. How much weight will the Fed give to banking instability, with regional US banks selling off overnight? Regional banks, including Pacwest Bancorp and Western Alliance, are extending yesterday’s losses during US premarket trading session.

- FOMC rate decision at 14:00 ET (19:00 GMT) with consensus heavily for 25bps hike (85% chance, 15% for pause based on market pricing). Swath of last-minute US economic data since FOMC began the 2-day meeting. Yesterday, weak Jolts job openings and factory orders. Later today, ADP employment change and final services PMI.

- Earnings Recap: UniCredit's higher NII and lower loan-loss provisions help lift results; Lufthansa's Adj EBIT wider than expected; Deutsche Post notes Apr volume trends are encouraging; Lloyds pretax beats estimates and notches lower costs, affirms FY23 guidance; BNP Paribas beats and plans €5.0B in share buybacks for rest of 2023.

- Asia closed lower with Hang Seng under-performing at -1.4%. EU indices are +0.2-0.9%. US futures are +0.1-0.2%. Gold 0.0%, DXY -0.4%; Commodity: Brent -2.2%, WTI -2.4%, TTF -2.2%; Crypto: BTC +2.1%, ETH +1.6%.

Asia

- Australia Mar Retail Sales M/M: 0.4% v 0.2%e.

- Australia Apr Final PMI Services: 53.7 v 52.6 prelim (moves back into expansion).

- New Zealand Q1 Unemployment Rate: 3.4% v 3.5%e.

- RBNZ Financial Stability Review (FSR) noted that the domestic financial system is well placed to handle the increasing interest rate environment and international financial market disruptions.

- Bank of Korea Gov Rhee stated that was a bit premature to talk about policy pivot.

Energy

- Weekly API Crude Oil Inventories: -3.9M v -6.1M prior.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.43% at 463.08, FTSE +0.26% at 7,792.96, DAX +0.50% at 15,806.15, CAC-40 +0.70% at 7,434.95, IBEX-35 +0.08% at 9,088.89, FTSE MIB +1.04% at 26,908.00, SMI +0.36% at 11,464.00, S&P 500 Futures +0.18%].

Market Focal Points/Key Themes: European indices open higher across the board and stayed upbeat through the early part of the session; all sectors start the day in the green; sectors leading the way higher include materials and consumer discretionary; lagging sectors include industrials and real estate; focus on FOMC rate decision later in the day; earnings expected in the upcoming US session include Bunge, Barrick, Leonardo and NiSource.

Equities

- Consumer discretionary: Deutsche Post [DPW.DE] +2.0% (earnings; CFO comments on Apr trends), Aston Martin Lagonda Global Holdings [AML.UK] -2.5% (earnings), Pandora [PNDORA.DK] -1.0% (Q1 beat, raises FY23 guidance), Flutter Entertainment [FLTR.UK] -1.0% (Q1 beat).

- Financials: Unicredit [UCG.IT] +6.0% (Q1 beat, raises FY23 guidance), BNP Paribas [BNP.FR] -0.5% (Q1 beat, €5.0B of share buybacks planned in 2023), Lloyds Banking Group [LLOY.UK] -1.0% (earnings).

- Industrials: Stellantis [STLA.NL] -2.0% (earnings), Lufthansa [LHA.DE] -4.5% (Q1, affirms FY23), Signify [LIGHT.NL] -8.5% (Q1 miss, affirms FY23 guidance, SSS decline), Wolters Kluwer [WKL.NL] +1.5% (Q1 update, affirms FY23), Demant [DEMANT.DK] +0.5% (Q1 trading update, affirms FY23, organic rev up strong).

- Technology: TeamViewer [TMV.DE] -9.0% (Q1, cautions over impact of weaker economic growth), Auto1 Group [AG1.DE] +6.5% (Q1, affirms FY23).

Speakers

- France Fin Min Le Maire commented that the domestic economy was resilient and robust despite protests. No significant impact from the social protests. Planning new meetings with companies during week of May 8th to look at how to address inflation and hoping to break to food price inflation spiral by autumn.

- Malaysia Central bank Policy Statement noted that the current monetary policy stance was slightly accommodative and to timely further normalize the degree of accommodation. Would continue to ensure policy stance was consistent with inflation and growth outlook. Core inflation to remain at elevated levels amid firm demand conditions. Balance of inflation risks remained tilted to the upside but did expect both headline and core CPI to moderate over the year and seen averaging between 2.8-3.8%.

- Ex-Dallas Fed's Pres Kaplan said he actually think the banking situation may well be more serious than we currently understand, and that the Fed should do a hawkish pause at today's meeting.

- US Navy stated that Iranian forces seized a Panama-flagged oil tanker in the Strait of Hormuz.

Currencies/fixed income

- Focus remains on central bank rate decisions. Fed expected to hike by 25bps later today with expectations of a pause afterwards.

- USD was on soft footing against the major pairs as the Fed could adopt a less hawkish tone. Greenback also hampered on concerns the US government could run out of cash by June if lawmakers do not strike a deal to raise the borrowing limit.

- The session saw another surprise rate hike as central banks appear to warn that the fight against inflation was far from over.

- EUR/USD above 1.10 level as some analysts noted the ECB could hike by 50bps on Thursday.

Economic data

- (FI) Finland Mar House Price Index M/M: -0.1% v +1.2% prior; Y/Y: -5.8% v -5.3% prior.

- (FR) France Mar YTD Budget Balance: -€54.7B v -€50.3B prior.

- (MY) Malaysia Central Bank (BNM) raised the Overnight Policy Rate (OPR) by 25bps to 3.00% (not expected).

- (TR) Turkey Apr CPI M/M: 2.4% v 2.6%e; Y/Y: 43.7% v 44.1%e; CPI Core Index Y/Y:45.5 % v 45.4%e.

- (TR) Turkey Apr PPI M/M: 0.8% v 0.4% prior; Y/Y: 52.1% v 62.5% prior.

- (IT) Italy Mar Unemployment Rate: 7.8% v 8.0%e.

- (EU) Euro Zone Mar Unemployment Rate: 6.5% v 6.6%e.

- (GR) Greece Mar Unemployment Rate: 10.9% v 11.3% prior.

- (BE) Belgium Mar Unemployment Rate: 5.9% v 5.8% prior.

Fixed income issuance

- (IN) India sold total INR320B vs. INR320B indicated in 3-month, 6-month and 12-month bills.

- (UK) DMO sold £4.0B in 3.50% Oct 2025 Gilts; Avg Yield: 4.121% v 4.151% prior; bid-to-cover: 2.56x v 2.08x prior; Tail: 0.7bps v 3.0bps prior.

Looking ahead

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

- 05:30 (DE) Germany to sell €3.0B in 2.1% Nov 2029 Bunds.

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

- 06:00 (PT) Portugal Mar Industrial Production M/M: No est v -2.0% prior; Y/Y: No est v 1.8% prior.

- 06:00 (RU) Russia to sell OFZ Bonds (2 tranches).

- 06:45 (US) Daily Libor Fixing.

- 07:00 (US) MBA Mortgage Applications w/e Apr 28th: No est v +3.7% prior.

- 07:00 (UK) Weekly PM Question time in House.

- 08:00 (MX) Mexico Mar Leading Indicators M/M: No est v 0.08 prior.

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

- 08:15 (US) Apr ADP Employment Change: +150Ke v +145K prior.

- 08:30 (CZ) Czech Central Bank (CNB) Interest Rate Decision: Expected to leave Repurchase Rate unchanged at 7.00%.

- 09:00 (SG) Singapore Apr Purchasing Managers Index (PMI): No est v 49.9 prior; Electronics Sector Index: No est v 49.4 prior.

- 09:45 (US) Apr Final S&P/Markit Services PMI: 53.7e v 53.7 prelim; Composite PMI: 53.5e v 53.5 prelim.

- 10:00 (US) Apr ISM Services Index: 51.8e v 51.2 prior.

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

- 11:30 (US) (US) Treasury to sell 17-Week Bills.

- 12:00 (RU) Russia Mar Real Retail Sales Y/Y: -5.0%e v -7.8% prior.

- 12:00 (RU) Russia Mar Unemployment Rate: 3.6%e v 3.5% prior; Feb Real Wages Y/Y: 0.9%e v 0.6% prior.

- 14:00 (US) FOMC Interest Rate Decision: Expected to raise Target Range by 25bps to 5.00-5.25%.

- 14:30 (US) Fed Chair Powell post rate decision press conference.

- 17:00 (KR) South Korea Apr Foreign Reserves: No est v $426.1B prior.

- 17:30 (BR) Brazil Central Bank (BCB) Interest Rate Decision: Expected to leave Selic Target Rate unchanged at 13.75%.

- 18:00 (CO) Colombia Central Bank Apr Minutes.

- 18:45 (NZ) New Zealand Mar Building Permits M/M: No est v -9.0% prior.

- 20:01 (IE) Ireland Apr PMI Services: No est v 55.7 prior; PMI Composite: No est v 52.8 prior.

- 20:30 (SG) Singapore Apr PMI (whole economy): No est v 52.6 prior.

- 20:30 (HK) Hong Kong Apr PMI (whole economy): No est v 53.5 prior.

- 21:00 (NZ) New Zealand Apr ANZ Commodity Price M/M: No est v 1.3% prior.

- 21:30 (AU) Australia Mar Trade Balance (A$): 13.0Be v 13.9B prior; Exports M/M: No est v -3.0% prior; Imports M/M: No est v -9.0% prior.

- 21:45 (CN) China Apr Caixin PMI Manufacturing: 50.0e v 50.0 prior.