Risk appetite trying to find fresh legs ahead of US CPI data

Notes/Observations

- German Apr CPI reading confirms its highest annual pace since German reunification.

- ECB members out in force stressing the need to normalize policy (Lagarde, Nagel, de Guindos, Elderson, Vasle, Muller all heard from during session).

- Upcoming US CPI data on Wed might suggest that peak has already passed (Note: CPI peaks coincided with equity market bottoms in the late 60s, 70s, and early 80s).

Asia

- China Apr inflation data softening as CPI at lowest annual since Nov while PPI at its slowest pace in a year.

- South Korea Apr Unemployment Rate: 2.7% v 2.8%e.

- Australia May Consumer Confidence Index falls to (Lowest since Aug 2020) (90.4 v 95.8 prior.

- South Korea confirms planning a KRW33T extra budget without bond issuance.

- Shanghai Local Govt noted that 8 districts in the city had basically no coronavirus spread.

Russia/Ukraine

- US House passed a package worth ~ $40b for Ukraine (vote: 368-57); Bill now goes to Senate.

Europe

- ECB’s De Guindos (Spain): ECB needs to normalize policy sooner rather than later; We need to be watchful for second round effects.

- ECB’s Villeroy (neutral, France) stated there was no doubt that the ECB would act to ensure price stability. Governments must address debt as rates rise.

- National Institute of Economic and Social Research (NIESR): BOE will need to raise rates to 2.5% and keep it there until the middle of the decade in order to bring inflation under control.

Americas

- President Biden and his advisers are looking into dropping US tariffs on foreign imports to try to fight inflation. No decision has been made yet.

- Fed's Bostic (non-voter, hawk) st: Supports 50bps hikes at the next two or three meetings.

- Fed's Waller (hawk, voter) stated that Fed was not alone in getting inflation call wrong. Raising rates to cool off demand, curb inflation.

- US Senate confirmed Lisa Cook for the Federal Reserve Board of Governors; the vote was 51 to 50; Vice President Harris cast the tie-breaking vote.

Energy

- Weekly API Crude Oil Inventories: +1.6M v -3.5M prior.

Speakers/Fixed income/FX/Commodities/Erratum

Equities

Indices [Stoxx600 +1.16% at 425.18, FTSE +1.24% at 7,333.04, DAX +0.98% at 13,667.12, CAC-40 +1.95% at 6,236.37, IBEX-35 +1.13% at 8,231.08, FTSE MIB +1.88% at 23,503.00, SMI -0.21% at 11,517.30, S&P 500 Futures +1.16%].

Market Focal Points/Key Themes: European indices open higher across the board and advanced further into the green; gas transit through Ukraine suspended for the first time since start of war; sectors among those leading to the upside include consumer discretionary and technology; lagging sectors include health care and financials; Swedish Match confirms to be acquired by Philip Morris; Secure Income acquired by LXI; focus on upcoming US inflation data; earnings expected during the upcoming Americas session include Walt Disney, Metro, Patrizia and MedioBanca.

Equities

- Consumer discretionary: Swedish Match [SWMA.SE] +9% (confirms to be acquired; earnings), TUI [TUI1.DE] +4.5% (earnings).

- Consumer staples: Ahold Delhaize [AD.NL] -2% (earnings).

- Energy: E.ON [EOAN.DE] -1% (earnings).

- Financials: Swiss Life [SLHN.CH] -0.5% (earnings).

- Healthcare: Bayer AG [BAYN.DE] -6% (Supreme Court appeal), Roche Holding [ROG.CH] -5.5% (study did not meet primary endpoint).

- Industrials: ThyssenKrupp [TKA.DE] +8% (earnings), Continental [CON.DE] +2% (earnings), Alstom [ALO.FR] -8% (earnings).

Speakers

- ECB chief Lagarde reiterates stance that policy normalization will be gradual after first rate hike; Reiterates stance her expectation APP (conventional QE) to end in early part of Q3. Reiterated view that have not yet precisely defined the notion of “some time”, but could mean a period of only a few weeks (**Note: in-line with most recent ECB policy statement and press conference).

- ECB’s Nagel (Germany) stated that policy normalization should be swift and smooth; timely hikes should following the end of APP bond purchases (conventional QE). Rate hike could happen in July with the number of hikes by end-2022 remained to be seen.

- ECB’s Elderson (Netherlands, SSM member) stated that the Ukraine situation weakening growth outlook but no recession seen for Europe. Could consider policy normalization in July.

- ECB Vasle (Slovenia) stated that inflation outlook was becoming more broad-based. Policy response must follow changed circumstances.

- ECB’s Muller (hawk, Estonia): Appropriate to raise rates into positive territory by 2nd-2022; Rise in bond spreads is consistent with changed ECB policy outlook.

- Swiss Fin Min Maurer stated that domestic CPI might go 'somewhat higher' from 2.5% in 2022. Believed that any increase would be relatively slow as strong CHF currency (Franc) was seen mitigating impact of import costs on inflation.

- UK Govt Official Gove stated that nothing was off the table regarding Brexit negotiations.

- Czech President Zeman selected dovish member Ales Michl as new Czech Central Bank governor (as expected).

- Incoming Czech Central Bank gov Michl (dove) stated that expected to propose rate stability for some time; Saw rates in July as sufficient to tame demand risks.

- Malaysia Central Bank (BNM) Policy Statement noted that it decided to begin reducing accommodation with the pace to be measured and gradual. Upward pressure on prices to be partly contained. Saw 2022 Headline CPI between 2.2-3.2% range; Core CPI between 2.0-3.0% range. It noted that economic growth was on firm footing.

Currencies/Fixed income

- USD was steady ahead of the key US CPI data. Headline annual inflation was expected to fall to 8.1% from 8.5% in March. Some risk appetite was percolating as the data might suggest that peak inflation has already passed. Some analysts were all giddy that CPI peaks coincided with equity market bottoms in the late 60s, 70s, and early 80s (hence risk appetite sentiment).

- EUR/USD at 1.0560 by mid-session. ECB speakers continue to talk about the need to normalize policy.

- USD/JPY pair at 129.70 by mid-session as overall risk appetite weighed on the greenback.

Economic data

- (DE) Germany Apr Final CPI M/M: 0.8% v 0.8% prelim; Y/Y: 7.4% v 7.4% prelim.

- (DE) Germany Apr Final CPI EU Harmonized M/M: 0.7% v 0.7% prelim; Y/Y: 7.6% v 7.6% prelim.

- (RO) Romania Apr CPI M/M: 3.7% v 1.1%e; Y/Y: 13.8% v 11.1%e.

- (MY) Malaysia Central Bank (BNM) raised the Overnight Policy Rate by 25bps to 2.00% for its 1st rate hike since 2018.

- (MY) Malaysia end-Apr Foreign Reserves: $112.5B v $114.4B prior.

Fixed income issuance

- (IN) India sold total INR330B vs. INR330B in 3-month, 6-month and 12-month bills.

- (IT) Italy Debt Agency (Tesoro) sold €6.5B vs. €6.5B indicated in 12-month Bills; Avg Yield: +0.121% v -0.105% prior; Bid-to-cover: 1.50x v 1.33x.

- (SE) Sweden sold SEK5.0B vs. SEK5.0B indicated in 3-month Bills; Avg Yield: +0.192% v -0.0292% prior; Bid-to-cover: 2.10x v 176x prior.

- (NO) Norway sold NOK2.0B vs. NOK2.0B indicated in 2.0% Apr 2028 Bonds; Avg Yield: 2.77% v 1.58% prior, Bid-to-cover: 2.14x v 2.66x prior.

- (UK) DMO sold £2.5B in 0.50% Jan 2029 Gilts; Avg Yield:1.636 % v 1.109% prior; bid-to-cover: 2.48x v 2.39x prior; Tail: 1.2bps v 0.4bps prior.

Looking ahead

- (RU) Russia Apr Light Vehicle Car Sales Y/Y: -38.8%e v -62.9% prior.

- (FR) Bank of France Apr Industrial (Business) Sentiment: 103e v 103 prior.

- (CH) Switzerland to sell 2032 and 2055 Bonds.

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

- 05:30 (DE) Germany to sell €4.0B in 0% Feb 2032 Bunds.

- 05:30 (PT) Portugal Debt Agency (IGCP) to sell €750M in 0.475% Oct 2030 OT bonds.

- 05:30 (HU) Hungary Debt Agency (AKK) switch auction.

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

- 06:00 (PT) Portugal Apr Final CPI M/M: No est v 2.2% prelim; Y/Y: No est v 7.2% prelim.

- 06:00 (PT) Portugal Apr Final CPI EU Harmonized M/M: No est v 2.4% prelim; Y/Y: No est v 7.4% prelim.

- 06:45 (US) Daily Libor Fixing.

- 07:00 (US) MBA Mortgage Applications w/e May 6th: No est v 2.5% prior.

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

- 07:30 (SI) ECB Vasle (Slovenia).

- 08:00 (BR) Brazil Apr IBGE Inflation IPCA M/M: 1.0%e v 1.7% prior; Y/Y: 12.1%e v 12.0% prior.

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

- 08:20 (DE) ECB’s Schnabel (Germany).

- 08:30 (US) Apr CPI M/M: 0.2%e v 1.2% prior; Y/Y: 8.1%e v 8.5% prior.

- 08:30 (US) Apr CPI (ex-food/energy) M/M: 0.4%e v 0.3% prior; Y/Y: 6.0%e v 6.5% prior.

- 08:30 (US) Apr CPI Index NSA: 288.742e v 287.504 prior; CPI Core Index SA: 289.861e v 288.811 prior.

- 08:30 (US) Apr Real Avg Hourly Earning Y/Y: No est v -2.7% prior (revised from %); Avg Weekly Earning Y/Y: No est v -3.6% prior (revised from %).

- 09:00 (RU) Russia Apr Official Reserve Assets: No est v $606.4B prior.

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

- 10:30 (TR) Turkey Apr Cash Budget Balance (TRY): No est v -40.6B prior.

- 12:00 (US) Fed’s Bostic.

- 13:00 (US) Treasury to sell 10-Year Notes.

- 14:00 (US) Apr Monthly Budget Statement: +$220.0Be v $-$192.7B prior.

- 17:00 (NZ) New Zealand Apr House Sales Y/Y: No est v -33.5% prior.

- 18:45 (NZ) New Zealand Apr Food Prices M/M: No est v 0.7% prior.

- 18:45 (NZ) New Zealand Mar Net Migration: No est v -593 prior.

- 19:01 (UK) Apr RICS House Price Balance: 70%e v 74% prior.

- 19:50 (JP) Japan Mar BoP Current Account: ¥1.738Te v ¥1.648T prior; Adjust Current Account: ¥628.2Be v ¥516.6B; Trade Balance (BOP): +¥100.5Be v -¥176.8B prior.

- 19:50 (JP) Japan Apr Bank Lending Y/Y: No est v 0.5% prior; Bank Lending (ex-trusts) Y/Y: No est v 0.5% prior.

- 21:00 (AU) Australia May Consumer Inflation Expectation Survey: No est v 5.2% prior.

- 22:00 (PH) Philippines Q1 GDP Q/Q: 1.5%e v 3.1% prior; Y/Y: 6.8%e v 7.8% prior (revised from 7.7%).

- 22:00 (JP) Japan Apr Tokyo Avg Office Vacancies: No est v 6.37 prior.

- 23:00 (KR) South Korea Mar M2 Money Supply M/M: No est v 0.6% prior; “L” Money Supply M/M: No est v 0.5% prior.

- 23:00 (NZ) New Zealand Q2 Inflation Expectation (2-year): No est v 3.3% prior.

- 23:35 (JP) Japan to sell 30-Year JGB Bonds.