UK Retail Sales weathers the spike in recent inflation data

Notes/Observations

- UK Apr retail sales data beats consensus; reading suggested that cost-of-living crisis had not caused consumer spending to collapse.

- UK BOE chief economist Pill warned that balance of inflation risks were to the upside..

- German Apr PPI hits a fresh seven decade high.

- China PBoC cut the 5-year LPR to support property market; China's path out of coronavirus lockdowns remained unclear.

Asia

- Japan Apr National CPI data saw both CPI and Core CPI above target with core at its fastest pace since Mar 2015 ( YoY: 2.5% v 2.5%e; CPI Ex-fresh food (core) Y/Y: 2.1% v 2.0%e.

- China PBoC Monthly LPR Setting left the 1-year Loan Prime Rate unchanged at 3.70% (unexpected) while cutting the 5-Year Loan Prime Rate by 15bps to 4.45% (more-than-expected). Note: 5-year LPR is seen as a reference for home mortgages.

- Japanese Fin Min Suzuki stated that G-7 did not reach accord on Ukraine overall support value. Japan told the G7 that it would respond appropriately to FX moves based on the G7 agreement (in line with Apr comments).

- Former Japan top currency diplomat Sakakibara ('Mr Yen'): Possible the USD/JPY can weaken to 150 (last time it traded at that rate was 1990); cites increasingly deepening monetary policy divergence.

Russia/Ukraine

- Russian navy blockading Ukraine’s Black Sea ports is predicted to cut national wheat exports by 35% this year.

- US Senate approved a $40B Ukraine aid package , bill now goes to President Biden to sign.

Europe

- UK May GfK Consumer Confidence: -40 v -39e (lowest since records began in 1974).

- Sweden Central Bank (Riksbank) Dep Gov Floden: Underlying inflation in April was, in a very broad sense, in line with our forecast. Starting to see second hand effects from inflation rise.

Americas

- Sec of State Blinken called on countries with significant grain and fertilizer reserves and financial resources to step up to address global food insecurity.

- Treasury Sec Yellen stated that she did not see reason for Fed to raise 2% inflation goal.

- Fed's Kashkari (dove, non-voter) stated that saw evidence that in a longer term high inflation regime, and if so needed to be more aggressive.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +1.37% at 433.86, FTSE +1.75% at 7,430.19, DAX +1.68% at 14,114.88, CAC-40 +1.06% at 6,338.99, IBEX-35 +1.20% at 8,506.98, FTSE MIB +1.64% at 24,460.00, SMI +0.49% at 11,365.10, S&P 500 Futures +1.09%].

Market Focal Points/Key Themes: European indices open higher and quickly advanced into the green as the session progressed; sectors among those leading to the upside are industrials and materials; laggard sectors include consumer discretionary and telecom; Air France-KLM in negotiation for investment from Apollo; Zurich Insurance to sell Russian unit; Straumann acquires PlusDental; attention on upcoming decision by EMA’s CHMP on medicine approvals in Europe; earnings expected during the upcoming US session include Deere, Booz Allen and FootLocker.

Equities

- Consumer discretionary: Air France-KLM [AIR.FR] +3.5% (agreement with Apollo on capital injection), Richemont [CFR.CH] -9% (earnings; raises dividend), Wincanton [WIN.UK] +2.5% (earnings).

- Consumer staples: Danone [BN.FR] +1% (to increase baby formula supplies to US).

- Healthcare: Bavarian Nordic [BAVA.DK] +19.5% (potential demand for monkeypox vaccine).

- Technology: M&C Saatchi [SAA.UK] +35% (new offer).

Speakers

- BOE's Pill (chief economist) stated that monetary tightening still had further to run; Inflation was biggest challenge the MPC has faced over past 25 years. MPC has not yet taken decision about whether to begin GILT sales.

- ECB's Visco (Italy, dove) stated that a June hike was out of the question but July was 'perhaps' the time to start raising rates. Believed ECB could raise rates gradually and move out of negative rate territory over coming months.

- ECB's Kazaks (Latvia, hawk) stated that he hoped the first rate hike to happen in July 2022. Monetary policy could not do the heavy lifting to aid the economy.

- ECB's Muller (Estonia, hawk): stated that it needed to focus on fighting high inflation.

- Germany Fin Min Lindner stated that G7 Central banks must take the lead to fight inflation and get it back down to 2%. G7 agreed to raise more than €18B for Ukraine.

- Norway Central Bank (Norges) 2Q Household Inflation Expectations Survey raised the 12-months inflation expectations from 3.2% to 4.3% and also raised the 2-3-year inflation expectations from 4.0% to 4.4%.

- Czech Central Bank (CNB) May Minutes from extraordinary meeting noted that members backed FX intervention as a move to prevent longer-term weakening of CZK currency in situation of high inflation. Needed to send out clear message that is prepared to use all tools to meet inflation target.

- Japan PM Kishida reiterated G7 rhetoric that rapid moves in FX are undesirable.

Currencies/fixed income

- USD was poised to register its 1st losing week in almost two months as US bond yields retreated as markets concluded that the Fed combating inflation would need to be ever more aggressive in tightening policy thus inflicting pain on the economy as a consequence.

- GBP/USD was firmer as UK BOE chief economist Pill warned that balance of inflation risks were to the upside. Cable also aided after UK Apr retail sales data beat consensus with the data suggesting that cost-of-living crisis had not caused consumer spending to collapse. Currently consolidating at the 1.250 resistance level.

- EUR/USD was drifting higher as continued inflation data and hawkish rhetoric stemmed from the region. German PPI reading hit a fresh seven decade high and more neutral/dovish ECB members joining the chorus for a July rate lift-off. Pair at 1.0570 by mid-session.

- AUD/USD - trades flat between 0.700-705 (lowest since Jan 2022).

- NZD/USD - slightly higher between 0.635-0.641 (2 year lows).

- USD/CAD - slightly lower around 1.279-1.284.

- USD/CHF - trades flat at 0.9740 after pulling back from 1.000.

- USD/JPY - consolidating at 128.0 after recent 130.0-131.0 highs (20 year highs).

Economic data

- (NL) Netherlands May Consumer Confidence Index: -47 v -48 prior.

- (FI) Finland Mar House Price Index M/M: 0.9% v 1.0% prior; Y/Y: 3.8% v 3.6% prior.

- (UK) Apr Retail Sales (ex-auto/fuel) M/M: +1.4% v -0.2%e; Y/Y: -6.1% v -8.3%e.

- (UK) Apr Retail Sales (including auto/fuel) M/M: +1.4% v -0.3%e; Y/Y: -4.9% v -7.0%e.

- (DE) Germany Apr PPI M/M: 2.8% v 1.2%e; Y/Y:33.5 % v 31.3%e (highest annual pace since 1949).

- (SE) Sweden Q1 Total Number of Employees Y/Y: 4.6% v 4.0% prior.

- (DK) Denmark May Consumer Confidence Indicator: -22.4 v -20.9 prior.

- (CH) Swiss Q1 Industrial Output Y/Y: 7.9% v 7.3% prior; Industry & Construction Output Y/Y: 66.9% v 6.1% prior.

- (ES) Spain Mar House transactions Y/Y: 25.6% v 24.0% prior.

- (TR) Turkey May Consumer Confidence: 67.6 v 67.3 prior.

- (CN) Weekly Shanghai copper inventories (SHFE): 54.4K v 55.4K tons prior.

- (TW) Taiwan Apr Export Orders Y/Y:-5.5 % v+ 11.5%e (1st decline in 26 months).

- (PL) Poland Apr Sold Industrial Output M/M:-11.3 % v -10.9%e; Y/Y: 13.0% v 16.3%e.

- (PL) Poland Apr Employment M/M: 0.2% v 0.1%e; Y/Y: 2.8% v 2.7%e.

- (PL) Poland Apr Average Gross Wages M/M: -0.6% v -2.0%e; Y/Y: 14.1% v 12.8%e.

- (PL) Poland Apr PPI M/M: 1.9% v 0.7%e; Y/Y: 23.3% v 20.5%e.

- (TW) Taiwan Q1 Current Account Balance: $30.7B v $32.2B prior.

- (BE) Belgium May Consumer Confidence Index: -13 v -14 prior.

Fixed income issuance

- None seen.

Looking ahead

- G7 meeting (ECB’s Lagarde and Panetta attend).

- (MX) CitiBanamex Survey of Economists.

- (AR) Argentina Apr Budget Balance (ARS): No est v -99.8B prior.

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

- 05:30 (IN) India to sell combined INR320B in 2026, 2034, 2036 and 2051 bonds.

- 05:30 (ZA) South Africa to sell combined ZAR1.2B in I/L 2029, 2033 and 2038 Bonds.

- 06:00 (IE) Ireland Apr PPI M/M: No est v 2.5% prior; Y/Y: No est v 4.4% prior.

- 06:00 (UK) DMO to sell £2.00B in 1-month, 3-month and 6-month bills (£0.5B, £0.5B and £1.0B respectively).

- 06:45 (US) Daily Libor Fixing.

- 07:00 (IN) India announces upcoming bill issuance (held on Wed).

- 07:30 (IN) India Weekly Forex Reserve w/e May 13th: No est v $596.0B prior.

- 07:30 (IS) Iceland switch auction.

- 07:40 (PT) ECB's Centeno (Portugal).

- 08:00 (RO) Romania Central Bank (NBR) May Minutes.

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

- 08:00 (IE) ECB;s Lane (Ireland, chief economist) with BOE's Tenreyro.

- 08:30 (CL) Chile Central Bank (BCCh) May Minutes.

- 10:00 (EU) Euro Zone May Advance Consumer Confidence: -21.5e v -22.0 prior.

- 11:00 (EU) Potential sovereign ratings after European close (S&P on South Africa sovereign rating; Moody’s on Portugal sovereign rating).

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

Weekend

- (AU) Australia holds Federal Election.