European PMIs beat but concern over services remains

EU Mid-Market Update: European PMIs beat but concern over services remains; NVDA earnings blowout keeps AI train at full speed.

Notes/Observations

- Equity sentiment remains bullish from Nvidia beat on top and bottom line once again, with hot guidance, dividend increase, and a 10-for-1 stock split. Momentum lifts technology stocks in EU.

- Flash PMIs for France, Germany, Euro Zone and UK rolled in. Weakness in French services was countered by beat in German and Euro Zone, causing whipsaw of Euro to a higher level. UK PMI saw manufacturing above all estimates but weakness in services once again the focus, weighing on sterling. UK assets little fazed in trade after PM Sunak general election called for July 4th.

- Focal corporate news: In M&A, BBVA CEO reiterated will not improve bid for Sabadell; In earnings, saw updates from Rolls-Royce, Wizz and National Grid. National Grid also announced £7.0B rights offering as part of £60B infrastructure update, weighing on stock.

- Asia closed mixed with Hang Seng underperforming -1.7%. EU indices are -0.1% to +0.4%. US futures are 0.0% to +0.8%. Gold -0.8%, DXY -0.1%; Commodity: Brent +0.2%, WTI +0.2%; Crypto: BTC -0.5%, ETH +1.3%.

Asia

- Bank of Korea (BOK) left 7-day Repo Rate unchanged at 3.50% (as expected) for its 11th straight pause in the current tightening cycle. Statement noted that although inflation had continued its slowing trend, upside risks to inflation had increased due to an improvement in economic growth and heightened volatility of the exchange rate

- Japan May Preliminary PMI Manufacturing: 50.5 v 49.6 prior (1st expansion since Oct 2022.) PMI Services: 53.6 v 54.3 prior.

- Australia May Preliminary PMI Manufacturing: 49,6 v 49.6 prior.

- Australia May Consumer Inflation Expectation Survey: 4.1% v 4.6% prior (lowest since August 2021).

- New Zealand Q1 Retail Sales (ex-inflation) Q/Q: +0.5% v -0.3%e.

- Singapore Q1 Final GDP Q/Q: +0.1% v -0.3%e; Y/Y: 2.7% v 2.5%e.

- RBNZ Gov Orr stated that CPI was starting to decline, but remained sticky in some parts of the economy less sensitive to rate hikes. Indicated patience and stated the OCR was projected to stay at 5.50% into 2025.

Global conflict/tensions

- China held its biggest military drills around Taiwan; intended to “serve as a strong punishment for the separatist acts (**Reminder: Lai Ching-te was recently sworn in as Taiwan's new president).

Europe

- UK sets July 4th for general election.

Americas:

- FOMC May Minutes noted that various participants mentioned willingness to tighten policy further should risk to outlook materialize. Recent data had not increased confidence in progress towards 2% inflation target.

- Biden administration asserted its support for an independent Federal Reserve.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.2% at 522, FTSE -0.1% at 8,364, DAX +0.1% at 18,704, CAC-40 +0.1% at 8,097, IBEX-35 -0.2% at 11,312, FTSE MIB +0.1% at 3,386, SMI +0.4% at 11,994, S&P 500 Futures +0.4%].

Market Focal Points/Key Themes: European indices open mixed with a bias towards rising, maintaining the trend through the early part of the session; upbeat earnings from Nvidia overnight seen powering risk appetite, and supporting the tech sector; among sectors leading the way higher are technology and industrials; lagging sectors include real estate and utilities; Hargreaves Landsdown rejects takeover offer from CVC and Nordic; Gerresheimer to acquire Blitz LuxCo; Merck to acquire Mirus Bio; earnings expected in the upcoming US session include Medtronic, Ralph Lauren and Lionsgate.

Equities

- Consumer discretionary: Wizz Air [WIZZ.UK] +6.0% (results).

- Consumer staples:

- Energy: National Grid [NG.UK] -9% (results and £7.0B rights offering).

- Financials: BBVA [BBVA.ES] -0.5%, Sabadell [SAB.ES] +0.5% (BBVA CEO reiterates will not improve Sabadell bid).

- Healthcare:

- Industrials: Qineteq [QQ.UK] +12.5% (results); Rolls-Royce [RR.UK] -0.5% (trading update).

- Technology:

- Telecom:

Speakers

- ECB's De Guindos (Spain): Prudent approach would be a 25bps cut; no preset path on rates after Jun.

- Sweden Central Bank (Riksbank) Bunge commented that inflation targeting seemed to have overcome the 1st really big challenge of high inflation. Economy needed to become even more stable and function better to avoid problem next time rates need to be raised.

- Russia govt spokesperson: President Putin to hold talks with Belarus leader Lukashenko on Thurs and Fi (May 23rd-24th).

- Treasury Sec Yellen commented that G7 finance ministers will discuss their concerns about China's excess industrial capacity and potential responses.

Currencies/fixed income

- USD was trying to hold onto its firm tone as the recent FOMC May Minutes back the view of rates staying higher for longer. Dealers noted that markets were focusing on US economic data and their policy implications.

- EUR/USD was initially softer after French Services PMI moved back into contraction. The German reading hinted that the worst of its economy was behind it now. Euro finding some support after.negotiated pay rose 4.7% from a year ago in first quarter. Pair at 1.0840 by mid-session.

- GBP/USD at 1.2720. UK PM Sunak called snap general elections to be held early in July. Dealers noted that BOE would likely want to avoid politicizing a decision to cut rates.

- USD/JPY at 156.75 b mid-session.

Economic data

- (NL) Netherlands May Consumer Confidence: -22 v -21 prior.

- (DK) Denmark May Consumer Confidence Indicator: -6.5 v -8.6 prior.

- (JP) Japan Apr Final Machine Tool Orders Y/Y: -8.9% v -11.6% prelim.

- (HU) Hungary Mar Average Gross Wages Y/Y: 13.9% v 13.1%e.

- (TR) Turkey May Consumer Confidence: 80.5 v 80.5 prior.

- (MY) Malaysia end-May Foreign Reserves: $113.3B v $112.8B prior.

- (FR) France May Preliminary Manufacturing PMI: 46.7 v 45.9e (17th month of contraction); Services PMI: 49.4 v 51.7e; Composite PMI: 49.1 v 51.0e.

- (DE) Germany May Preliminary Manufacturing PMI: 45.4 v 43.5e (23rd month of contraction); Services PMI53.9 v 53.5e; Composite PMI: 52.2 v 51.0e.

- (EU) Euro Zone May Preliminary Manufacturing PMI: 47.4 v 46.1e (23rd month of contraction); Services PMI: 53.3 v 53.6e; Composite PMI: 52.3 v 52.0e.

- (PL) Poland Apr Real Retail Sales M/M: -1.8% v -1.1%e; Y/Y: 4.1% v 5.4%e; Retail Sales (current prices) Y/Y: 4.3% v 5.2%e.

- (TW) Taiwan Apr Industrial Production Y/Y: 14.6% v 11.3%e.

- (UK) May Preliminary Manufacturing PMI: 51.3 v 49.5e (moved back into expansion); Services PMI: 52.9 v 54.7e; Composite PMI: 52.8 v 54.0e.

- (HK) Hong Kong Apr CPI Composite Y/Y: 1.1% v 2.0%e.

- (EU) ECB Q1 Euro-Area Negotiated Wage Index: 4.7% v 4.5% prior.

- (BE) Belgium May Consumer Confidence Index: -7 v -6 prior.

Fixed income issuance

- None seen.

Looking ahead

- G7 Finance Ministers meet (ECB’s Lagarde and Cipollone attend).

- (EG) Egypt Central Bank (CBE) Interest Rate Decision: Expected to leave Key Rates unchanged.

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

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

- 05:40 (UK) BOE 7-day short-term repo operation.

- 07:00 (TR) Turkey Central Bank (CBRT) Interest Rate Decision: Expected to leave One-week Repo Rate unchanged at 50.00%.

- 07:30 (UK) BOE’s Pill (chief economist).

- 08:00 (MX) Mexico Q1 Final GDP Q/Q: 0.2%e v 0.2% prelim; Y/Y: 1.6%e v 1.6% prelim; Nominal GDP Y/Y: No est v 8.0% prelim.

- 08:00 (MX) Mexico Mar IGAE Economic Activity Index (Monthly GDP) M/M: 0.5%e v 1.4% prior; Y/Y: -1.1%e v +4.4% prior.

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

- 08:30 (US) Apr Chicago Fed Nat Activity Index: 0.15e v 0.15 prior.

- 08:30 (US) Initial Jobless Claims: 220Ke v 222K prior; Continuing Claims: 1.79Me v 1.794M prior.

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

- 09:00 (RU) Russia Gold and Forex Reserve w/e May 17th: No est v $598.4B prior.

- 09:45 (US) May Preliminary S&P Manufacturing PMI: 49.9e v 50.0 prior; PMI Services: 51.2e v 51.3 prior; PMI Composite: 51.0e v 51.3 prior.

- 09:45 (FR) ECB’s Villeroy (France).

- 10:00 (US) Apr New Home Sales: 679Ke v 693K prior.

- 10:00 (EU) Euro Zone May Advance Consumer Confidence: -14.2e v -14.7 prior.

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

- 11:00 (US) May Kansas City Fed Manufacturing Activity: -7e v -8 prior.

- 11:00 (MX) Mexico Central Bank (Banxico) May Minutes.

- 11:00 (PE) Peru Q1 GDP Y/Y: +1.4%e v -0.4% prior.

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

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

- 15:00 (US) Fed’s Bostic.

- 18:00 (CL) Chile Central Bank (BCCH) Interest Rate Decision: Expected to cut Overnight Rate Target by 50bps to 6.00%.

- 18:00 (NZ) New Zealand May ANZ Consumer Confidence: No est v 82.1 prior.

- 18:45 (NZ) New Zealand Apr Trade Balance (NZD): No est v 0.6B prior; Exports: No est v 6.5B prior; Imports: No est v 5.9B prior.

- 19:01 (UK) May GfK Consumer Confidence: -18e v -19 prior.

- 19:30 (JP) Japan Apr National CPI Y/Y: 2.4%e v 2.7% prior; CPI Ex-Fresh Food (core) Y/Y: 2.2%e v 2.6% prior; CPI Ex-Fresh Food, Energy (core-core) Y/Y: 2.4%e v 2.9% prior.

- 21:00 (JP) BOJ bond buyback operation.

- 23:30 (JP) Japan to sell 3-Month Bills.