Risk appetite continues to find tailwinds

Notes/Observations

-Risk appetite drives forward after Wall Street snap's seven week losing streak. Asia closed 0.5-2.25% higher, Europe starts roughly 0.5-1.0% higher and US futures point positively with Nasdaq100 shining at 1.5%. DXY -0.1%, Gold +0.2%, Brent and WTI +0.8%, BTC +5.8%. European bond yields are notably higher.

-Liquidity is lower as the US market is on holiday for Memorial day. Elsewhere it is worth noting the UK will be closed on Thursday and Friday as the country celebrates the Queen's Jubilee.

-Macro focus today lies on the EU's 6th sanction package, with conflicting reports on whether they have made progress towards a resolution. Hungary is the defiant member, claiming sanctions will severely affect their economy. The EU has proposed an exemption to their pipeline (Druzba) in an attempt to pass the package as the vote must be unanimous among members. Potentially seeing the package announced later today.

-In Asia, Honda, Toyota and Nissan reported production figures for Apr with an as expected heavy decline in output due to covid lockdowns.

-Looking ahead, China appears to be reigning in the outbreak and announced relaxed restrictions for businesses over the weekend, to be implemented June 1st.

-Furthermore, China is evaluating their monetary policy with policies in Shanghai designed to support their domestic economy as the growth outlook deteriorated. Tax cuts, reduction in rents and boosts for foreign trade firms were vowed to last until the end of 2022.

-With global GDP forecasts being cut, Fed comments on potentially pausing rate hike cycle in Sept and China's supportive domestic policy, traders appear bullish on the expectation of a slightly more accommodative environment than originally assumed.

Asia

- Beijing reopened parts of its public transportation, along with certain malls; Health official said COVID outbreak was under control, but risk of rebound exists.

- RBNZ Chief Economist Conway expressed confidence it could engineer a soft landing. Strong labor market to help to weather the storm, RBNZ did signal 50bps rate hikes to come to combat rising inflationary expectations.

Ukraine conflict

- Russia Foreign Min Lavrov stated that the liberation of the Donetsk and Luhansk regions were unconditional priority for Russia; Other Ukrainian regions should decide their future themselves.

- Germany Econ Min Habeck stated that the unity of EU countries regarding sanctions against Russia was beginning to crumble.

- EU said to be looking at possibly watering down a ban on Russian oil imports to placate Hungary’s leader, Orban (***Note: Hungary was blocking the latest European sanctions against Putin.

Europe

- Italy Business Lobby Confindustria: GDP could be impacted by 2% in both 2022 and 2023 if natural gas imports from Russia are halted in Jun.

- German Industrial Association (BDI): Exports could grow 2.5% this year if supply chain issues ease.

- Fitch affirmed Italy sovereign rating at BBB; Outlook Stable.

- S&P cut Ukraine Foreign Currency rating to CCC+; Outlook Negative.

Americas

- President Biden to meet with Fed Chair Powell on May 31 (Tues).

Speakers/Fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.68% at 446.96, FTSE +0.23% at 7,602.87, DAX +0.63% at 14,553.84, CAC-40 +0.68% at 6,560.06, IBEX-35 -0.04% at 8,929.67, FTSE MIB +0.38% at 24,729.00, SMI +0.50% at 11,705.60, S&P 500 Futures +0.92%].

Market Focal Points/Key Themes: European indices opened higher across the board, fell back slightly as the session wore on; sectors leading to the upside include technology and consumer discretionary; underperforming sectors include telecom and utilities; Norwegian Royal Salmon and Salmar to merge; focus on emergency European Council meeting; US closed for holiday.

Equities

- Consumer discretionary: Norwegian Air [NAS.NO] +6.5% (acquires Boeing jets), Aryzta [ARYN.CH] +9% (sales; raises outlook).

- Financials: Foxtons [FOXT.UK] +6% (new CEO).

- Healthcare: Sanofi [SAN.FR] -3% (FDA's clinical hold).

- Telecom: Telecom Italia [TIT.IT] +3% (MoU).

Speakers

- ECB’s Lane (Ireland, chief economist, dove) stated that was appropriate to end negative rates by end of Q3. Believed 25bps hikes in July and Sept are benchmark pace.

- EU Foreign Policy Chief Borrell stated that it would have a deal on next sanctions against Russia by Monday (May 30th) afternoon.

- German VDMA Engineering association cut its 2022 production forecast from 4% to 1%.

- Russia said to be planning a bond-payment mechanism to sidestep US sanctions and a potential default as a grace period ticks down on its latest missed coupons.

- BOJ Gov Kuroda Parliament testimony said to seek to achieve 2% CPI target amid the virtuous economic cycle. Aiming to create virtuous growth of price hikes entailing in wage gains. Cost-push inflation was not sustainable and would not lead to stable price hikes. CPI to maintain around 2% growth over 12 months but would lower thereafter.

- China NDRC said to raise retail fuel prices in current bi-monthly cycle; effective Tuesday, May 31st.

Currencies/Fixed income

- Major pairs strengthen as USD remained on soft footing as risk appetite continued to recovers as China slowly emerged from the lockdown. Liquidity will be lower in the afternoon as the US market remains shut.

- EUR/USD was steady at 1.0750 level despite German and Spanish CPI move higher compared to April levels.

- EU bond yields were higher as market participants ramped up bets for ECB tightening. ECB member Lane (chief economist) echoed market sentiment that he expected 50bps of hikes before end Q3.

- Bank of Canada (BOC) interest rate is the highlight of the week on Wednesday. Consensus is for a 50bps hike and central bank members have become more and more hawkish since the last decision.

- GBP/USD - neutral between 1.260-1.265 range.

- EUR/USD - pushes slightly higher at 1.075.

- AUD/USD - higher at 0.715-0.720.

- NZD/USD - neutral around 0.655.

- USD/CAD - declines ahead of BOC decision, trades at 1.268-1.270.

- USD/CHF - flat at 0.956.

- USD/JPY - subdued but turning slightly higher at 127.0-127.5.

Economic data

- (DE) Germany May CPI North Rhine Westphalia M/M: 0.9% v 0.6% prior; Y/Y: 8.1% v 7.7% prior.

- (NL) Netherlands May Producer Confidence Index: 9.9 v 10.8 prior.

- (FI) Finland Apr Preliminary Retail Sales Volume Y/Y: -3.4% v -0.4% prior.

- (JP) Japan Apr Final Machine Tool Orders Y/Y: 25.0% v 25.0% prelim.

- (DE) Germany Apr Import Price Index M/M: 1.8% v 2.0%e; Y/Y: 31.7% v 31.8e.

- (SE) Sweden Q1 GDP Q/Q: % v -0.3%e; Y/Y: % v 3.0%e.

- (SE) Sweden Apr Trade Balance (SEK): -1.8B v +4.7B prior.

- (SE) Sweden Mar Non-Manual Workers’ Wages Y/Y: 2.7% v 2.2% prior.

- (NO) Norway Apr Retail Sales M/M: -0.9% v +3.0% prior.

- (DK) Denmark Apr Retail Sales M/M: +1.7% v -0.9% prior; Y/Y: +1.2% v -10.6% prior.

- (ES) Spain May Preliminary CPI M/M: 0.8% v 0.6%e; Y/Y: 8.7% v 8.5%e; CPI Core Y/Y: 4.9% v 4.4% prior.

- (ES) Spain May Preliminary CPI EU Harmonized M/M: 0.7% v 0.7%e; Y/Y: 8.5% v 8.3%e.

- (CH) Swiss May KOF Leading Indicator: 96.8 v 102.5e.

- (AT) Austria Apr PPI M/M: 1.3% v 2.8% prior; Y/Y: 21.5% v 21.2% prior.

- (DE) Germany May CPI Hesse M/M: 1.0% v 0.5% prior; Y/Y: 8.4% v 7.9% prior.

- (DE) Germany May CPI Bavaria M/M: 1.0% v 0.4% prior; Y/Y: 8.1% v 7.5% prior.

- (DE) Germany May CPI Baden Wuerttemberg M/M: 0.9% v 1.2% prior; Y/Y: 7.4% v 7.0% prior.

- (CH) Swiss weekly Total Sight Deposits (CHF): 754.0B v 754.1B prior; Domestic Sight Deposits: 663.1B v 664.9B prior.

- (IT) Italy Apr PPI M/M: -0.3% v 4.7% prior; Y/Y: 44.1% v 46.6% prior.

- (PT) Portugal May Consumer Confidence: -32.4 v -27.2 prior; Economic Climate Indicator: 2.0 v 2.3 prior.

- (EU) Euro Zone May Economic Confidence: 105.0 v 104.9e; Industrial Confidence: 6.3 v 7.5e; Services Confidence: 14.0 v 13.7e; Consumer Confidence (final): -21.1 v -21.1 advance.

- (DE) Germany May CPI Saxony M/M: 1.1% v 1.0% prior; Y/Y: 8.0% v 7.2% prior.

- (IS) Iceland May CPI M/M: 0.8% v 1.3% prior; Y/Y: 7.6% v 7.2% prior.

Fixed income issuance

- (DK) Denmark sold total DKK5.58B in 3-month, 6-month bills.

- (NO) Norway sold NOK20B vs. NOK2.0B indicated in 6-month Bills; Avg Yield: % v 1.00% prior; bid-to-cover: 1.00x v 2.78x prior.

Looking ahead

- (BE) Belgium May CPI M/M: No est v 0.3% prior; Y/Y: No est v 8.3% prior.

- (BR) Brazil Apr Central Govt Budget Balance (BRL): No est v -6.3B prior.

- (MX) Mexico Apr YTD Budget Balance (MXN): No est v -66.5B prior.

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

- 05:30 ((DE) Germany to sell combined €6.0B in 3-month and 9-month BuBills.

- 05:30 (ZA) South Africa announces details of upcoming I/L bond sale (held on Fridays).

- 06:00 (IE) Ireland Apr Retail Sales Volume M/M: No est v 0.6% prior; Y/Y: No est v 2.9% prior.

- 06:00 (PT) Portugal Apr Retail Sales M/M: No est v 2.5% prior; Y/Y: No est v 12.9% prior.

- 06:00 (IL) Israel to sell combined ILS850B in 2024, 2026, 2031 and 2052 bonds.

- 06:45 (US) Daily Libor Fixing.

- 07:00 (BR) Brazil May FGV Inflation IGPM M/M: 0.5%e v 1.4% prior; Y/Y: 10.7%e v 14.7% prior.

- 07:00 (IS) Iceland to sell 3-month and 6-month Bills.

- 07:00 (IN) India announces details of upcoming bond sale (held on Fridays).

- 07:25 (BR) Brazil Central Bank Weekly Economists Survey.

- 08:00 (ZA) South Africa Apr Monthly Budget Balance (ZAR): No est v -37.2B prior.

- 08:00 (DE) Germany May Preliminary CPI M/M: 0.5%e v 0.8% prior; Y/Y: 7.6%e v 7.4% prior.

- 08:00 (DE) Germany May Preliminary CPI EU Harmonized M/M: 0.5%e v 0.7% prior; Y/Y: 8.1%e v 7.8% prior.

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

- 08:30 (CA) Canada Q1 Current Account Balance: No est v -$0.8B prior.

- 09:00 (CL) Chile Apr Unemployment Rate: 7.9%e v 7.8% prior.

- 09:00 (FR) France Debt Agency (AFT) to sell €4.4-5.6B in 3-month, 6-month and 12-month bills.

- 18:45 (NZ) New Zealand Apr Building Permits M/M: No est v 5.8% prior.

- 19:00 (KR) South Korea Apr Industrial Production M/M: -1.0%e v +1.3% prior; Y/Y: 3.0%e v 3.7% prior.

- 19:01 (UK) May Lloyds Business Barometer: No est v 33 prior.

- 19:30 (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: No est v 90.8 prior.

- 19:30 (JP) Japan Apr Jobless Rate: 2.65e v 2.6% prior; Job-To-Applicant Ratio: 1.23e v 1.22 prior.

- 19:50 (JP) Japan Apr Preliminary Industrial Production M/M: -01%e v +0.3% prior; Y/Y: -3.4%e v -1.7% prior.

- 19:50 (JP) Japan Apr Retail Sales M/M: 0.9%e v 1.7% prior (revised from 2.0%); Y/Y: 2.6%e v 0.7% prior (revised from 0.9%).

- 19:50 (JP) Japan Apr Dept. Store, Supermarket Sales Y/Y: No est v 1.5% prior.

- 21:00 (NZ) New Zealand May Business Confidence: No est v -42 prior; Activity Outlook: No est v 8 prior.

- 21:30 (AU) Australia Q1 Current Account Balance: A$13.5Be v A$12.7B prior.

- 21:30 (AU) Australia Apr Building Approvals M/M: +2.0%e v -18.5% prior.

- 21:30 (AU) Australia Apr Private Sector Credit M/M: 0.5%e v 0.4% prior; Y/Y: 8.0%e v 7.8% prior.

- 21:30 (CN) China May Manufacturing PMI (Govt Official): 49.0e v 47.4 prior; Non-manufacturing PMI: 45.0e v 41.9 prior; Composite PMI: No est v 42.7 prior.

- 22:00 (SG) Singapore Apr M1 Money Supply Y/Y: No est v 7.1% prior; M2 Money Supply Y/Y: No est v 2.9% prior.

- 23:00 (TH) Thailand Central Bank (BOT) to sell THB50B 3-month Bills; Avg Yield: % v 0.37815% prior, bid to cover: x v 2.47x prior.

- 23:35 (JP) (JP) Japan to sell 2-Year Bonds.