Bond yields move lower as growth concerns percolate

EU Mid-Market Update: Bond yields move lower as growth concerns percolate; EU session subdued with market participants on sideline due to Ascension day holiday.

Notes/Observations

- Asia closed mixed to flat and this continued to European markets as news remains quiet due to the Ascension Day holiday keeping markets closed in Denmark, Finland, Norway, Iceland, Sweden and Switzerland. US futures following suit at flat to 0.5% down as traders digest yesterday’s Fed minutes.

-Traditional risk appetite is awaiting a firm direction while speculative assets take a hit as per the recent status quo. BTC/USD down 3%. ETH/USD down 7%.

- UK Chancellor Sunak is set to announce an emergency package of support for British households facing rising domestic energy bills this autumn.

- Russia Central bank continues to cut rates believing inflation will return to target in 2024.

- Global bond yields lower as fears of a slowdown in economic growth.

Asia

- Bank of Korea (BOK) raised the 7-Day Repo Rate by 25bps to 1.75% (as expected). KRW reverses gains and trades flat.

- BOK Gov Rhee post rate decision press conference: noted that the decision to hike by 25bps was unanimous. Policy focus to remain on stabilizing prices for a few months; Preemptive response to inflation was most important. Almost certain CPI would exceed 5.0% soon and likely to peak after mid-year.

- RBNZ Gov Orr: testified that monetary conditions needed to act as a restraint; could not rule out a recession but could not predict one. Did not want higher CPI expectations to persist and to move rates at 'pace’.> To be data-dependent.

- Japan Apr PPI Services Y/Y: 1.7% v 1.5%e.

- China PBOC to set up a mechanism to encourage lending to small companies; Calls on banks to increase inclusive loans for SMEs.

- Shanghai port reported to have resumed 95% of handling capacity while backlogs remain:

Europe

- Numerous markets closed for a Ascension Day banking holiday including Denmark, Finland, Norway, Iceland, Sweden and Switzerland.

- BOE’s Tenreyro stated that faced a very fine balance when setting policy in the future.

Americas

- FOMC May Minutes showed that most Fed officials backed the 50bps hike at the upcoming meetings. All officials did support to begin balance sheet reduction. All affirmed determination to restore price stability. Emphasized that they were 'highly attentive' to inflation risks and agreed those risks were skewed to the upside.

- Fed’s Brainard (vice chair): Fed taking strong actions that would reduce inflation.

- CBO projected Federal budget deficit to average $1.6T from 2023-2032 v $2.78T in FY 2021. Forecasts US real GDP for Cal 2022 at 3.1% v 5.5% seen in 2021; Forecasted US real GDP for Cal 2023 at 2.2%.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.19% at 435, FTSE 0.00% at 7521, DAX +0.36% at 14058, CAC-40 +0.40% at 6323, IBEX-35 +0.60% at 8812, FTSE MIB -0.02% at 2369, SMI +0.07% at 11491, S&P 500 Futures -0.13%].

Market Focal Points/Key Themes: European indices open modestly higher, but later traded mixed with a positive bias; sectors among those leading to the upside are energy and industrials; laggard sectors include technology and materials; Nordics, Switzerland closed for holiday; tech sector weighed after reports Apple looking to build similar number of iPhones as last year; oil & gas subsector supported after reports of increased refining output; MOL and UTP under pressure after Hungary government new tax proposal; UK government to look into BT’s stake increase in Altice; FirstGroup receives indicative takeover offer from I Squared; reportedly Nestle looking to make a bid for GSK’s consumer health business; focus on closing speeches from leaders at Davos; earnings expected during the upcoming US session include Macy’s. Autogrill, Alibaba and Medtronic.

Equities

- Consumer discretionary: Auto Trader AUTO.UK +1.8% (earnings).

- Energy: Galp GALP.PT % (analyst action).

- Financials: Serco SRP.UK +9.4% (guidance, analyst action), Intermediate Capital ICP.UK +7.5% (earnings).

- Healthcare: Bayer BAYN.DE +2.0% (analyst action).

- Industrials: Webuild WBD.IT +3.4% (contract award)- Materials: Vallourec VK.FR -8.9% (placement), Johnson Matthey JMAT.UK -6.0% (results).

- Telecom: BT Group BT.A.UK -5.0% (UK government looking into deal with Altice).

- Utilities: United Utilities UU.UK -4.1% (results).

Speakers

- Russia Central bank Policy Statement reiterated its forward guidance to consider further rate cuts at upcoming meetings. It saw Inflation slowing to 5.0-7.0% range in 2023 and returning back to the 4% target in 2024. External conditions were still challenging and are constraining domestic economic activity.

- Russia Dep PM Novak saw 2022 oil production between 480-500M tons.

- BOJ Gov Kuroda testified in Parliament that the current run of 2% inflation would not last into the next fiscal year and beyond; needed to continue with monetary easing. Reiterated view that a weak JPY currency (Yen) was good for the economy as a whole. When exiting the easy policy would likely combine rate hikes and balance sheet reduction through specific means; timing to depend on economic and price developments.

Currencies/fixed income

- USD was slightly firmer against the major pairs in a quiet session with several markets closed for a bank holiday. Greenback aided by the Wed release of the May FOMC Minutes which backed the pace of 50bps hikes in upcoming meetings.

- EUR/USD staying below the 1.07 level in subdued trading.

- GBP/USD at 1.2560 level with focus on the UK Chancellor Sunak is set to announce an emergency package of support for British households.

- JPY currency was firmer after BOJ Gov Kuroda testified in parliament that exiting the easy policy would likely combine rate hikes and balance sheet reduction through specific means. He added that the timing to depend on economic and price developments. USD/JPY at 106.80 by mid-session.

- Less common major pairs remain subdued in volatility as no substantial macro news prevails. AUD/USD hovers around 0.705-0.710. NZD/USD flat at 0.65. USD/CAD retests 1.28. USD/CHF down slightly at 0.960.

- Core and Peripheral Yields move lower in European Trading as fears of a slowdown in economic growth continued to percolate.

Economic data

- (HU) Hungary Apr Unemployment Rate: 3.6% v 3.6%e.

- (TR) Turkey May Economic Confidence: 96.7 v 94.7 prior.

- (HU) Hungary Central Bank left the One Week Deposit Rate unchanged at 6.45%; as expected.

- (RU) Russia Central Bank (CBR) cut the Key One-Week Auction Rate by 300bps to 11.00% (more-than-expected).

- (IT) Italy May Consumer Confidence Index: 102.7 v 99.9e; Manufacturing Confidence Index: 109.3 v 109.0e; Economic Sentiment: 110.9 v 108.4 prior.

- (HK) Hong Kong Apr Trade Balance (HKD): -36.6B v -34.0Be; Exports Y/Y: +1.1% v -6.9%e; Imports Y/Y: +2.1% v -6.9%e.

- (IT) Mar Industrial Sales M/M: 2.4% v 2.9% prior; Y/Y: 21.4% v 20.8% prior.

Fixed income issuance

- (IT) Italy Debt Agency (Tesoro) sold €2.25B vs. €1.75-2.25B indicated range in 0.00% Nov 2023 BTP Bonds; Avg Yield: 0.77% v 0.48% prior; bid-to-cover: 1.89x v 1.60x prior.

- (IT) Italy Debt Agency (Tesoro) sold €1.25B vs. €0.75-1.25B indicated range in 0.10% May 2033 inflation linked bonds (BTPei); Real Yield: +0.86% v -0.29% prior; bid-to-cover: 1.40x v 1.32x prior.

Looking ahead

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

- 05:30 (ZA) South Africa Apr PPI M/M: 0.9%e v 2.5% prior; Y/Y: 12.0%e v 11.9% prior.

- 05:30 (HU) Hungary Debt Agency (AKK) to sell HUF20B in 12-month Bills.

- 05:30 (PL) Poland to sell 2024, 2027, 2031 and 2032 Bonds (5 tranches).

- 06:00 (CZ) Czech Republic to sell CZK5.0B in 1-month Bills.

- 06:00 (RO) Romania to sell RON300M in 4.75% Oct 2034 Bonds.

- 06:45 (US) Daily Libor Fixing.

- 07:00 (TR) Turkey Central Bank (CBRT) Interest Rate Decision: Expected to leave One-Week Repo Rate unchanged at 14.00%.

- 07:00 (CA) Canada May CFIB Business Barometer: No est v 64.9 prior.

- 07:00 (BR) Brazil May FGV Construction Costs M/M: 0.9%e v 0.9% prior.

- 07:00 (MX) Mexico Mar Retail Sales M/M: 0.8%e v 0.8% prior; Y/Y: 2.7%e v 6.4% prior.

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

- 08:30 (US) Q1 Preliminary GDP Annualized (2nd reading) Q/Q: -1.3%e v -1.4% advance; Personal Consumption: 2.8%e v 2.7% advance.

- 08:30 (US) Q1 Preliminary GDP Price Index: 8.0%e v 8.0% advance; Core PCE Q/Q: 5.2%e v 5.2% advance.

- 08:30 (US) Initial Jobless Claims: 215Ke v 218K prior; Continuing Claims: 1.31Me v 1.317M prior.

- 08:30 (CA) Canada Mar Retail Sales M/M: 1.4%e v 0.1% prior; Retail Sales (ex-auto) M/M: 2.1%e v 2.1% prior.

- 08:30 (US) Weekly USDA Net Export Sales.

- 09:00 (RU) Russia Gold and Forex Reserve w/e May 20th: No est v $585.7B prior.

- 09:30 (BR) Brazil Apr Tax Collections (BRL): 194.5Be v 164.2B prior.

- 10:00 (US) Apr Pending Home Sales M/M: -2.0%e v -1.2% prior; Y/Y: -8.0%e v -8.9% prior.

- 10:00 (MX) Mexico Central Bank (Banxico) May Minutes.

- 10:30 (US) Weekly EIA Natural Gas Inventories.

- 11:00 (US) May Kansas City Fed Manufacturing Activity Index: 18e v 25 prior.

- 11:30 (US) Treasury to sell 4-Week and 8-Week Bills.

- 12:00 (CA) Canada to sell 30 Year Bonds.

- 12:00 (US) Fed's Brainard (Vice Chair).

- 13:30 (PT) ECB's Centeno (Portugal).

- 13:00 (US) Treasury to sell 7-Year Notes.

- (AR) Argentina May Consumer Confidence Index: No est v 35.7 prior.

- 18:00 (NZ) New Zealand May Consumer Confidence Index: No est v 84.4 prior.

- 19:30 (JP) Japan May Tokyo CPI Y/Y: 2.5%e v 2.4% prior (revised from 2.5%); CPI (ex-fresh food) Y/Y: 2.0%e v 1.9% prior; May CPI (ex-fresh food/energy) Y/Y: 0.9%e v 0.8% prior.

- 21:30 (AU) Australia Apr Retail Sales M/M: 1.0%e v 1.6% prior.

- 21:30 (CN) China Apr YTD Industrial Profits: No est v 8.5% prior.