UK CPI reading highlights sticky core reading

EU mid-market update: UK CPI reading highlights sticky core reading; risk aversion flows persist as US debt ceiling deal remains elusive.

Notes/observations

- Risk aversion seen on back of US debt ceiling concerns, European indices and US futures fall, USD broad strength. Latest on debt ceiling talks from McCarthy who stated 'we are nowhere near a deal yet'.

- Hot UK CPI launches Gilt yields higher and a pump in GBP. Focus on Core CPI, which came in highest since 1992. Headline CPI was also higher than consensus but did drop into single digits for first time in 8 months. Market pricing increases odds of BoE hike at next meeting to 100%.

- Recent sell-off in luxury retail stocks continues amid concerns over Chinese market recovery and possibility of 2nd COVID-19 wave in China during early summer.

- RBNZ raised Official Cash Rate by 25bps to 5.50%, as expected, but did not change peak rate guidance (5.50%), assumes no more tightening. Iceland Central Bank raised 7-Day Deposit Rate by 125bps to 8.75%, expresses concern over underlying inflation becoming entrenched.

- Asia closed lower with Hang Seng under-performing at -1.8%. EU indices are -1.2% to -2.0%. US futures are -0.1%. Gold +0.1%, DXY 0.0%; Commodity: Brent +1.7%, WTI +1.9%, TTF -0.6%; Crypto: BTC -1.9%, ETH -2.0%.

Asia

- New Zealand Q1 Retail Sales (ex-inflation) Q/Q: -1.4% v +0.2%e.

- Reserve Bank of New Zealand (RBNZ) raised Cash Rate by 25bps to 5.50% (as expected); Affirmed terminal OCR at 5.50% (signaled no further tightening needed). Stressed that OCR would need to remain at a restrictive level for the foreseeable future, to ensure that consumer price inflation returned to the 1-3% annual target.

Europe

- ECB's Nagel (Germany) reiterated stance that ECB would need to raise rates several more times and then maintain peak rate for sufficiently long time.

- ECB Chief Lagarde in blog post reiterated o bring inflation back to our target of 2% over the medium term; ‘That is why we have raised interest rates at a record pace, and why we will bring them to sufficiently restrictive levels’.

Debt ceiling talks

- White House representatives and Republicans ended another round of debt talks with no signs of progress.

- Republican debt negotiator Graves noted that no additional meetings had been scheduled; substantial gaps did remain but some progress on issues.

- US Republican Congressman French Hill noted that there was still time to get a debt deal done by June 1st.

- Fed Chair Powell held a closed door meeting on Tuesday with new Democrat Coalition; he did avoid talking about debt limit.

Energy

- Weekly API Crude Oil Inventories: -6.8M v +3.7M prior.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -1.42% at 459.46, FTSE -1.49% at 7,647.03, DAX -1.20% at 15,959.65, CAC-40 -1.42% at 7,273.96, IBEX-35 -1.21% at 9,154.53, FTSE MIB -1.87% at 26,667.00, SMI -0.52% at 11,425.50, S&P 500 Futures -0.09%].

Market focal points/key themes: European indices opened down across the board, but recovered a bit through the early hours of trading; all sectors in the red; less negative sectors include telecom and energy; real estate and materials sectors among those leading the way lower; earnings expected in the upcoming US session include Kohl’s, Abercrombie & Fitch, American Eagle and Nvidia.

Equities

- Consumer discretionary: LVMH [MC.FR] -1.5%, Kering [KER.FR] -2.0% (speculation on China to face the second wave of COVID-19 by end-June; Burberry comments on market outlook last week; recession concerns), Marks & Spencer [MKS.UK] +9.5% (FY22/23 results, guides initial FY23/24 rev), CTS Eventim [EVD.DE] -5.5% (Q1 results).

- Energy: SSE [SSE.UK] +1.5% (earnings).

- Financials: MedioBanca [MB.IT] +2.5% (provides FY26 targets), Vontobel [VONN.CH] -4.5% (CEO and COO steps down).

- Industrials: Kingfisher [KGF.UK] -1.5% (Q1 update, affirms FY23/24, plans new buyback programme), Leonardo [LDO.IT] -4.5% (analyst action - cut to neutral at Goldman Sachs).

- Materials: CropEnergies [CE2.DE] +0.5% (earnings).

Speakers

- UK Chancellor of the Exchequer (Fin Min) Hunt noted that inflation data showed there was no room for complacency.

- German IFO Economists noted that the domestic economy was treading water and saw Q2 GDP heading towards stagnation. Prior rate hikes appeared to have dampened demand. Strong collapse in Expectation Survey was striking and believe there would be significantly fewer new orders. Number of companies who aimed to raise prices has fallen further.

- Iceland Central Bank (Sedibanki) Policy Statement noted that underlying inflation continued to rise and long term inflation expectations were well above target. Stronger risks that inflation would become entrenched and especially important to prevent a wage-price spiral.

- Greece to hold next round of elections on Jun 25th. President to appoint an interim PM.

- EU banking sector said to sail through early round of regulator stress tests.

- IMF Chief Georgieva expressed confidence that the US would reach an agreement over its debt limit.

- India Central Bank (RBI) Gov Das noted that monetary policy was in a pause and not at a pivot.

Currencies/fixed income

- USD was steady against most major pairs on safe-haven flows. Dealers noted that negotiations over raising the US debt ceiling continued to drag on.

- GBP/USD initially popped higher to test 1.2470 following hotter UK CPI data for April. Markets were now pricing in BOE Base Rate peaking at 5.50% (implies another 100bps in hikes). Cable was unable to hold onto its gains as the session wore on.

- Dealers noted that selloff in stock markets prompted investors to sell riskier currencies. EUR/SEK saw the Swedish currency at a 14-year low.

- NZD/USD slumped following the RBNZ rate decision after the central bank signaled a pause in its tightening cycle.

Economic data

- (FI) Finland Apr PPI M/M: -1.6% v -0.7% prior; Y/Y: -0.3% v +3.8% prior.

- (FI) Finland Apr Unemployment Rate: 7.9% v 6.9% prior.

- (JP) Japan Apr Final Machine Tool Orders Y/Y: -14.4% v -14.4% prelim.

- (UK) Apr CPI M/M: 1.2% v 0.7%e; Y/Y:8.7 % v 8.2%e; CPI Core Y/Y: 6.8% v 6.2%e; CPIH Y/Y: 7.8% v 7.2%e.

- (UK) Apr RPI M/M: 1.5% v 1.2%e; Y/Y: 11.4% v 11.1%e; RPI-X (ex-mortgage interest payments) Y/Y: 10.4% v 10.2%e; Retail Price Index: 372.8 v 371.7e.

- (UK) Apr PPI Input M/M: -0.3% v +0.2%e; Y/Y: 3.9% v 4.8%e.

- (UK) Apr PPI Output M/M: 0.0% v 0.2%e; Y/Y: 5.4% v 5.8%e.

- (HU) Hungary Mar Average Gross Wages Y/Y: 16.9% v 0.1% prior.

- (CZ) Czech May Business Confidence: 6.9 v 10.1 prior; Consumer Confidence: -20.3 v -16.3 prior; Composite Confidence (Consumer & Business): 1.4 v 4.8 prior.

- (TR) Turkey May Real Sector (Manufacturing) Confidence (Adj): 105.1 v 105.1 prior; Real Sector Confidence (unadj): 108.3 v 108.0 prior.

- (TR) Turkey May Capacity Utilization: 76.0% v 75.4% prior.

- (DE) Germany May IFO Business Climate Survey: 91.7 v 93.0e; Current Assessment Survey: 94.8 v 94.7e; Expectations Survey: 88.6 v 91.6e.

- (ZA) South Africa Apr CPI M/M: 0.4% v 0.5%e; Y/Y: 6.8% v 7.0%e.

- (ZA) South Africa Apr CPI Core M/M: 0.5% v 0.5%e; Y/Y: 5.3% v 5.4%e.

- (PL) Poland May Consumer Confidence: -29.9 v -32.2 prior.

- (TW) Taiwan Apr M1 Money Supply Daily Avg Y/Y: 2.7% v 2.0% prior; M2 Money Supply Daily Avg Y/Y: 6.7% v 6.6% prior.

- (UK) Mar ONS House Price Index Y/Y: 4.1% v 4.5%e.

- (IS) Iceland Central Bank (Sedibanki) raised the 7-Day Term Deposit Rate by 125bps to 8.75%.

- (IS) Iceland Apr Wage Index M/M: 1.6% v 0.9% prior; Y/Y: 9.5% v 9.5% prior.

Fixed income issuance

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

- (DK) Denmark sold total DKK700M in 2025, 2033 and 2034 DGB bonds.

- (SE) Sweden sold total SEK2.0B vs. SEK2.0B indicated in 2028 and 2033 bonds.

- (NO) Norway sold total NOK2.0B vs. NOK2.0B indicated in 2027 and 2033 Bonds.

Looking ahead

- (NG) Nigeria Central Bank (CBN) Interest Rate Decision: Expected raise Key Rate by 50bps to 18.50%.

- (NG) Nigeria GDP Q1 Y/Y: No est v 3.5% prior.

- (IL) Israel Apr Leading 'S' Indicator M/M: No est v 0.3% prior.

- (AR) Argentina May Consumer Confidence: No est v 37.1 prior.

- (CO) Colombia Apr Retail Confidence: No est v 17.2 prior; Industrial Confidence: No est v 3.5 prior.

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

- 05:30 (UK) BOE Gov Bailey.

- 05:30 (DE) Germany to sell combined €3.0B in 2038 and 2040 Bunds.

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

- 06:00 (UK) May CBI Industrial Trends Total Orders: -19e v -20 prior; Selling Prices: 21e v 23 prior.

- 06:00 (CZ) Czech Republic to sell 2028, 2030 and 2034 Bonds.

- 06:30 (UK) DMO to sell £3.0B in 0.875% July 2033 Green Gilts.

- 06:45 (US) Daily Libor Fixing.

- 07:00 (RU) Russia to sell OFZ Bond auction (2 tranches).

- 07:00 (US) MBA Mortgage Applications w/e May 19th: No est v -5.7% prior.

- 07:00 (SE) Sweden Central Bank (Riksbank) Dep Gov Floden on economic situation.

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

- 08:00 (PL) Poland Apr M3 Money Supply M/M: 0.5%e v 0.4% prior; Y/Y: 6.6%e v 6.5% prior.

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

- 09:00 (BE) Belgium May Business Confidence: No est v -7.8 prior.

- 09:00 (CL) Chile Apr PPI M/M: No est v 0.7% prior.

- 09:00 (UK) BOE Gov Bailey at WSJ event.

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

- 11:30 (US) Treasury to sell 2-Year FRN Reopening.

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

- 12:00 (RU) Russia Apr PPI M/M: 2.1%e v 2.6% prior; Y/Y: -13.7%e v -10.7% prior.

- 12:00 (CA) Canada to sell 10 Year Bonds.

- 13:00 (US) Treasury to sell 5-Year Notes.

- 13:30 (BR) Brazil Apr Federal Debt Total (BRL): No est v 5.893T prior.

- 14:00 (US) FOMC May Meeting Minutes.

- 15:00 (AR) Argentina Mar Supermarket Sales Y/Y: No est v 1.0% prior; Shop Center Sales Y/Y: No est v 10.1% prior.

- (AR) Argentina May Consumer Confidence: No est v 37.1 prior.

- (CO) Colombia Apr Retail Confidence: No est v 17.2 prior; Industrial Confidence: No est v 3.5 prior.

- 17:00 (KR) South Korea Apr PPI Y/Y: No est v 3.3% prior.

- 20:00 (SG) Singapore Q1 Final GDP Q/Q: -0.6%e v -0.7% prelim; Y/Y: 0.2%e v 0.1% prior.

- 21:00 (KR) Bank of Korea (BOK) Interest Rate Decision: Expected to leave 7-Day Repo Rate unchanged at 3.50%.

- 23:00 (TH) Thailand Central Bank to sell THB30B in new 2025 Bonds.

- 23:35 (JP) Japan to sell 40-Year JGB Bonds.