G7 leader summit takes place in Japan with Ukraine's Zelenskiy visits it in-person

EU Mid-Market Update: G7 Leader Summit takes place in Japan with Ukraine's Zelenskiy visits it in-person; German DAX index tests record-high for 1st time since Jan 2022.

Notes/observations

- Macro eyes look towards Asia as G7 Summit in Hiroshima begins. In an early statement, leaders declared further sanctions to be imposed onto Russia. Ukraine Pres Zelenskiy said to attend G7 Summit in person.

- BOJ Gov Ueda released his first official speech and text, wholeheartedly doubling down on maintaining ultra-loose monetary easing policy, inclusive of YCC (in line with current stance).

- In Europe, ECB economic bulletin stated underlying price pressures remain strong, ahead of scheduled speeches from ECB’s Chief Lagarde and Schnabel.

- Generally, assets are little changed as economic data schedule is scarce for the session. Catalysts to come from plethora of Central Bank speakers expected, including BOE Haskel, Fed’s Chair Powell, Fed’s Williams, Bowman, and ECB's Schnabel, Lagarde and De Cos.

- Asia closed mostly higher, with exception of Hang Seng and Shanghai Composite, Hang Seng -1.4%. EU indices are +0.4-0.8%. US futures are +0.1-0.2%. Gold +0.4%, DXY -0.2%; Commodity: Brent +0.4%, WTI +0.3%, TTF +3.3%; Crypto: BTC -1.80%, ETH -0.9%.

Asia

- Japan Apr National CPI Y/Y: 3.5% v 3.5%e; CPI Ex Fresh Food (core) Y/Y: 3.4% v 3.4%e; Core-core rate registered its [fastest rise since Sept 1981 at 4.1%.

- China major state-owned banks said to be seen swapping Yuan (CNY) for USD in onshore FX forwards market.

- Chinese press noted that analysts believed the CNY currency depreciation (Yuan) was 'controllable' as economy recovered. Recent depreciation of yuan exchange rate had been within reasonable range from the trend view and was expected to remain basically at a stable and balanced level in future.

Europe

- UK May GfK Consumer Confidence: -27 v -27e (4th consecutive increase and highest in 15 months).

Debt ceiling talks

- US Senate Majority Leader Schumer (D-NY) noted that debt limit talks were making progress.

- White house economic advisor Brainard noted that the largest risk to the economy right now was Congress failing to prevent a default. A default on US debt could throw the US economy into a recession.

Americas

- Fed’s Bullard (Non-Voter) said to have suggested that higher rates viewed as ‘insurance’ against inflation. Would keep an open mind going into the next policy meeting in June but reiterated he was inclined to back another rate rise.

- Mexico Central Bank (Banxico) left the Overnight Rate unchanged at 11.25% (as expected) for its 1st pause in 16 decisions in the current tightening cycle.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.65% at 468.81, FTSE +0.42% at 7,774.89, DAX +0.71% at 16,277.85 [tests record high], CAC-40 +0.67% at 7,496.56, IBEX-35 +0.23% at 9,234.42, FTSE MIB +1.10% at 27,534.00, SMI +0.85% at 11,535.00, S&P 500 Futures +0.21%].

Market Focal Points/Key Themes: European indices open higher and advanced as the session progressed; Danmark and Turkey closed for holiday; better performing sectors include materials and technology; underperforming sectors include financials and real estate; Dufry to offer new shares to acquire remaining interest in Autogrill; reportedly e.on looking to sell Npower; earnings expected in the upcoming US session include Deere and Food Locker.

Equities

- Consumer discretionary: Ubisoft [UBI.FR] -5.0% (double analyst downgrade), Autogrill [AGL.IT] +3.0% (Dufry's tender offer results).

- Energy: PGS ASA [PGS.NO] +3.0% (secures >$10M Barents Sea contract).

- Materials: Boliden AB [BOL.SE] +1.0% (analyst action - cut to hold at Berenberg).

- Industrials: Smiths Group [SMIN.UK] +1.0% (Q3 trading update, raises FY23 organic rev), Outokumpu [OUT1V.FI] +1.0% (Moody's upgrades rating to 'Ba2' from 'Ba3), Fincantieri Spa [FCT.IT] +1.5% (signs $526M contract to build a frigate for US Navy).

- Technology: Infineon Technologies [IFX.DE] +1.5% (NAND firms said to consider price increase, cites sources at memory module maker - press).

- Telecom: Telefonica Deutschland [O2D.DE] -3.0% (analyst action - cut to hold at Deutsche Bank).

Speakers

- ECB Economic Bulletin reiterated its stance that inflation remained too high for too long. Future decisions will ensure that the policy rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to its 2% medium-term target.

- ECB Chief Lagarde noted that the Council was heading towards more delicate decisions going forward.

- ECB said to be stepping up scrutiny of bank liquidity following recent bank failures; Might communicate stricter requirements to some banks later in 2023. Likely to highlight it in its annual review of the risks faced by banks.

- Hungary Fin Min Varga stated that it target was to bring CPI down to single digits in 2023.

- BOJ Gov Ueda reiterated stance that continue with ultra-loose monetary easing patiently under yield curve control (YCC). Reiterated view that would not hesitate to take additional easing steps if necessary. Reiterated stance that the cost of premature policy change could be very high. Reiterated domestic CPI likely to fall back to the 2% target towards the middle of the year. Reiterated that inflationary expectations must heighten for inflation to hit 2%.

- G7 communique on Ukraine noted that it would impose further sanctions and measures to increase the costs to Russia and those supporting the war effort. Peace cannot be realized without the complete and unconditional withdrawal of Russian troops and military equipment.

- China Foreign Ministry Spokesman Wang announced that China will NOT attend G20 meetings in Indian-administered Kashmir (**Note: China and India have had disputes over the Kashmir territory over recent years).

Currencies/fixed income

- USD continued to be on firm footing as continued optimism over debt ceiling talks percolate. Dealers also noted that recent Fed speak continued to hound the theme of US interest rates staying higher for longer.

- USD/JPY at 6-month highs above the 138 area.

- EUR/USD at 7-month lows at 1.0770 area.

- The USD/CNY remained above the psychological 7 level and prompted FX intervention speculation after report that China major state-owned banks were swapping Yuan (CNY) for USD in onshore FX forwards market. China govt and PBoC official both recently reiterated its stance to keep CNY currency (yuan) rate basically stable.

Economic data

- (DE) Germany Apr PPI M/M: +0.3% v -0.5%e; Y/Y: 4.1% v 4.3%e.

- (SE) Sweden Q1 Total Number of Employees Y/Y: 1.2% v 2.0% prior.

- (SE) Sweden Q1 Industry Capacity: 90.6% v 89.8% prior.

- (RU) Russia Narrow Money Supply w/e May 12th (RUB): 17.52T v 17.44T prior.

- (CN) Weekly Shanghai Copper Inventories (SHFE): 102.5K v 118.4K tons prior.

- (TW) Taiwan Q1 Current Account: $19.0B v $23.4B prior.

Fixed income issuance

- (IN) India sold total INR330B vs. INR330B indicated in 2028, 2033 and 2052 bonds.

Looking ahead

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

- 05:30 (ZA) South Africa to sell combined ZAR1.0B in I/L 2029, 2033 and 2038 Bonds.

- 05:45 (UK) BOE's Haskel.

- 06:00 (UK) DMO to sell £4.5B in 1-month, 3-month and 6-month bills (£0.5B, £1.5B and £2.5B respectively).

- 06:45 (US) Daily Libor Fixing.

- 07:30 (IN) India Weekly Forex Reserve w/e May 12th: No est v $B prior.

- 08:00 (MX) Mexico Mar Retail Sales M/M: +0.1%e v -0.3% prior; Y/Y: 2.9%e v 3.4% prior.

- 08:00 (BR) Brazil Mar Economic Activity Index (Monthly GDP) M/M: -0.3%e v +3.3% prior; Y/Y: 3.5%e v 2.8% prior.

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

- 08:00 (IN) India announces upcoming bill issuance (held on Wed).

- 08:30 (CA) Canada Mar Retail Sales M/M: -1.4%e v -0.2% prior; Retail Sales (ex-auto) M/M: -0.8%e v -0.7% prior.

- 08:45 (US) Fed’s Williams on Monetary Policy Conference.

- 09:00 (US) Fed's Bowman.

- 09:55 (DE) ECB's Schnabel (Germany).

- 11:00 (US) Fed Chair Powell with former Chair Bernanke on Policy Panel.

- 11:00 (DE) ECB's Schnabel (Germany).

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

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

- 15:00 (EU) ECB's Lagarde with member De Cos (Spain) on Brazil Central Bank Panel.