Lagging effects of ECB tightening begins to grip as EU inflation falls further

EU mid-market update: Lagging effects of ECB tightening begins to grip as EU inflation falls further; US House to vote on debt limit deal later.

Notes/observations

- Hurdles remain for US debt ceiling deal to pass House and Senate, and with overnight Chinese PMIs missing expectations (questions health of post COVID recovery), sentiment has been tilted to the downside with widespread weakness seen in stocks across Asia and Europe and dropping bond yields. European indices pushed higher from the open but remain in the red.

- Abundance of data throughout the EU session reinforced easing in inflation and mixed GDP. Cooler CPI has led to a scaling back of rate hike expectations.

- Thailand Central Bank hiked by 25bps as expected, commentary indicating no change to pace in the near future.

- Asia closed lower with Hang Seng under-performing at -1.9%. EU indices are -0.3% to +0.5%. US futures are -0.2%. Gold -0.2%, DXY +0.4%; Commodity: Brent -0.4%, WTI -0.3%, TTF +2.1%; Crypto: BTC -2.3%, ETH -1.7%.

Asia

- China May Manufacturing PMI (Govt Official) registered its 2nd month of contraction (48.6 v 49.5e).

- Japan Apr Retail Sales M/M: -1.2% v +0.5%e; Y/Y: 5.0% v 7.1%e.

- Australia Monthly CPI reading ticked higher for the 1st time since Dec (Apr YoY:6.8% v 6.4%e) but ex-volatile Items did improve (Y/Y: 6.5% v 6.9% prior).

- RBA Gov Lowe noted that it was very much in data-dependent mode on interest rates.

- A North Korea rocket fell in the West Sea of Korean peninsula. North Korea govt stated that it might stage a second satellite launch before June 11th.

Europe

- UK May Lloyds Business Barometer: registered its 1st decline in 3 months (28 v 33 prior).

Debt ceiling talks

- Debt ceiling bill clears key procedural hurdle to advance to House floor for a vote on Wednesday. One Reb rep noted that over 50% of Republicans back the deal.

- House Speaker McCarthy noted that debt ceiling bill was easy for Republicans to vote for and confident bill would pass.

Americas

- Fed's Mester (non-voter) saw no compelling reason to pause on rate hikes. Believed its more compelling for bringing rates up and then holding for a while.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.1% at 456, FTSE -0.1% at 7517, DAX -0.3% at 15861, CAC-40 -0.4% at 7184, IBEX-35 +0.1% at 9173, FTSE MIB -0.3% at 2597, SMI +0.6% at 11345, S&P 500 Futures -0.2%].

market focal points/key themes: European indices opened lower across the board, but rebounded off of lows later in the session (and SMI even returning to the green); all sectors start the day in the red; less negative sectors include utilities and health care; sectors leading the way lower include industrials and real estate; oil & gas subsector under pressure with Brent hovering over $73/bbl; earnings expected in the upcoming US session include Advance Auto Parts and Hovnanian Enterprises.

Equities

- Consumer discretionary: Entain [ENT.UK] -2.2% (HMRC probe developments); Strabag [STB1.DE] +0.4% (Q1 results).

- Communication Services: TKH Group [TK.NL] -0.4% (divestment).

- Consumer staples: B&M European Value [BME.UK] +5.8% (results).

- Energy: Azelio [AZELIO.SE] -22.1% (results).

- Financials: Handelsbanken [SHBA.SE] +0.5% (divestment).

- Healthcare: Sanofi [SAN.FR] +1.4% (Positive phase 2 data of novel investigational anti-CD40L antibody frexalimab).

- Materials: Dottikon [DESN.CH] +1.8% (FY22 results).

- Technology: Netcompany [NETC.DK] +0.9% (long-term outlook).

- Utilities: Veolia [VIE.FR] +2.6% (analyst action).

Speakers

- ECB Financial Stability Review noted that the financial outlook remained fragile. Banks might need to set aside more funds to cover losses. Uncertain economy, inflation and rates weighed on firms.

- ECB’s Villeroy (France) reiterated probably passed inflation peak in France. Pledged to bring inflation down to 2% between now and 2025.

- ECB's Visco (Italy) noted that key rates were at restrictive levels, must proceed with right pace.

- ECB's Muller (Estonia) noted that core inflation was showing no signs of slowing; likely to have more than one 25bps rate hike. Reiterated that rate cuts in early 2024 seem too optimistic.

- France Fin Min Le Maire stated that the govt maintained its 2023 GDP growth forecast at 1.0%.

- Thailand Central Bank Policy Statement noted that the vote to hike by 25bps was unanimous. Gradual and measured rate normalization wer still appropriate given upside risks to inflation. Prepared to adjust size and timing of normalization if necessary. Domestic economy continued to gain traction.

- Thailand Central Bank updated its Staff Projections which maintained 2023 GDP growth at 3.6% and 2024 GDP growth at 3.8%. It cut the 2023 Headline CPI forecast from 2.9% to 2.5% (within target) while maintaining the 2024 Headline CPI at 2.4%.

Currencies/fixed income

- USD maintained its firm tone as markets continued its growing expectations that the Fed would continue raising interest rates. Greenback also aided by safe-haven flows as weaker-than-expected economic data from China and Japan pressured equity markets.

- EUR/USD staying below the 1.07 level as inflation prints from France, Germany and Italy eased during the session.

- Commodity FX under pressure over concerns about the Chinese economy.

Economic data

- (NL) Netherlands Apr Retail Sales Y/Y: 2.7% v 5.6% prior.

- (FI) Finland Q1 GDP Q/Q: +0.2% v -0.6% prior; Y/Y: -0.4% v 0.1% prior.

- (DE) Germany May CPI North Rhine Westphalia M/M: -0.2% v +0.4% prior; Y/Y: 5.7 v 6.7% prior.

- (DE) Germany Apr Import Price Index M/M: -1.7% v -0.5%e; Y/Y: -7.0% v -5.8%e.

- (DK) Denmark Q1 Preliminary GDP Q/Q: 0.2% v 0.5% prior; Y/Y: 2.4% v 1.6% prior.

- (DK) Denmark Apr Unemployment Rate: 2.4% v 2.3% prior; Gross Unemployment Rate: 2.8% v 2.8% prior.

- (HU) Hungary Apr PPI M/M: -2.0% v -1.2% prior; Y/Y: 15.9% v 21.7% prior.

- (CH) Swiss Apr Real Retail Sales Y/Y: -3.7% v -1.9% prior.

- (TH) Thailand Apr Current Account Balance: -$0.5B v +$2.2Be; Overall Balance of Payments (BoP): -$1.7B v +$0.8B prior; Trade Account Balance: $0.1B v $4.3B prior; Exports Y/Y: -4.9% v -5.8% prior; Imports Y/Y: -3.7% v -5.7% prior.

- (FR) France Q1 Final GDP Q/Q: 0.2% v 0.2% prelim; Y/Y: 0.9% v 0.8% prelim.

- (FR) France May Preliminary CPI M/M: -0.1% v +0.3%e; Y/Y: 5.1% v 5.5%e.

- (FR) France May Preliminary CPI EU-Harmonized M/M: -0.1% v +0.3%e; Y/Y: 6.0% v 6.4%e.

- (FR) France Apr PPI M/M: -5.1% v +1.9% prior; Y/Y: 7.0% v 12.8% prior.

- (FR) France Apr Consumer Spending M/M: -1.0% v +0.3%e; Y/Y: -4.3% v -3.6%e.

- (TH) Thailand Central Bank (BoT) raised Interest Rate by 25bps to 2.00% (as expected).

- (TR) Turkey Q1 GDP Q/Q: 0.3% v 0.5%e; Y/Y: 4.0% v 3.5%e.

- (DE) Germany May Net Unemployment Change: +9.0K v +13.5Ke; Unemployment Claims Rate: 5.6% v 5.6%e.

- (DE) Germany May CPI Hesse M/M: 0.0% v 0.3% prior; Y/Y: 5.9% v 6.9% prior.

- (DE) Germany May CPI Bavaria M/M: -0.1% v +0.4% prior; Y/Y: 6.1% v 7.2% prior.

- (DE) Germany May CPI Brandenburg M/M: 0.1% v 0.4% prior; Y/Y: 6.3% v 7.6% prior.

- (DE) Germany May CPI Baden Wuerttemberg M/M: 0.1% v 0.5% prior; Y/Y: 6.6% v 7.3% prior.

- (ES) Spain Mar Current Account Balance: €5.5B v €2.3B prior.

- (CH) Swiss May Expectations Survey: -32.2 v -33.3 prior.

- (IT) Italy Q1 Final GDP Q/Q: 0.6% v 0.5% prelim; Y/Y: 1.9% v 1.8% prelim.

- (NO) Norway Central Bank (Norges) Jun Daily FX Purchases (NOK): 1.3B v 1.4B prior.

- (PL) Poland Q1 Final GDP Q/Q: 3.8% v 3.9% prelim; Y/Y: -0.3% v -0.2% prelim.

- (PL) Poland May Preliminary CPI M/M: 0.0% v 0.3%e; Y/Y: 13.0% v 13.4%e.

- (CZ) Czech Apr M2 Money Supply Y/Y: 7.5% v 6.7% prior.

- (DE) Germany May CPI Saxony M/M: -0.3% v +0.3% prior; Y/Y: 6.5% v 7.6% prior.

- (IT) Italy May Preliminary CPI M/M: +0.3% v -0.1%e; Y/Y: 7.6% v 7.2%e.

- (IT) Italy May Preliminary CPI EU Harmonized M/M: +0.3% v -0.2%e; Y/Y: 8.1% v 7.5%e.

- (GR) Greece Retail Sales Value Y/Y: -8.7% v +1.1% prior; Retail Sales Volume Y/Y: -0.3% v +9.8%.

- (IS) Iceland Q1 GDP Q/Q: 0.3% v 2.2% prior; Y/Y: 7.0% v 3.1% prior.

- (IS) Iceland Apr Final Trade Balance (ISK): -20.6B v -20.6B prelim.

Fixed income issuance

- (VN) Vietnam Finance Ministry sold total VND619M vs. VNM5.0T indicated in 5-year, 10-year, 15-year and 20-year bonds.

- (SE) Sweden sold SEK5.0B vs. SEK5.0B indicated in 12-month Bills; Avg Yield: +0.3608% v -0.2307% prior; Bid-to-cover: 2.32x v 2.35.

Looking ahead

- (IN) India to sell combined INR320B in 3-month, 6-month and 12-month bills.

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

- 05:30 (DE) Germany to sell €3.0B in 2.10% Nov 2029 Bunds.

- 05:30 (GR) Greece Debt Agency (PDMA) to sell €625M in 6-month Bills.

- 05:30 (EU) ECB allotment in 3-month LTRO tender.

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

- 06:00 (PT) Portugal Q1 Final GDP Q/Q: 1.6%e v 1.6% prelim; Y/Y: 2.5%e v 2.5% prelim.

- 06:00 (PT) Portugal May Preliminary CPI M/M: No est v 0.6% prior; Y/Y: No est v 5.7% prior.

- 06:00 (PT) Portugal May Preliminary CPI EU Harmonized M/M: No est v 1.3% prior; Y/Y: 6.0%e v 6.9% prior.

- 06:00 (IE) Ireland May Preliminary CPI EU Harmonized Y/Y: No est v 6.3% prior.

- 06:30 (IN) India Mar Fiscal Deficit (INR Crore): No est v 7.3B prior.

- 06:45 (US) Daily Libor Fixing.

- 07:00 (RU) Russia to sell OFZ Bonds.

- 07:00 (US) MBA Mortgage Applications w/e May 26th: No est v -4.6% prior.

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

- 07:30 (IN) India Apr Eight Infrastructure (key) Industries: No est v 12.2% prior.

- 07:30 (BR) Brazil Apr Nominal Budget Balance (BRL): -34.7Be v -79.5B prior; Primary Budget Balance: +16.3Be v -14.2B prior; Net Debt to GDP Ratio: 57.2%e v 57.2% prior.

- 08:00 (ZA) South Africa Apr Trade Balance (ZAR): 0.5Be v 6.9B prior.

- 08:00 (DE) Germany May Preliminary CPI M/M: 0.2%e v 0.4% prior; Y/Y: 6.5%e v 7.2% prior.

- 08:00 (DE) Germany May Preliminary CPI EU Harmonized M/M: 0.2%e v 0.6% prior; Y/Y: 6.7%e v 7.6% prior.

- 08:00 (IN) India Q1 GDP Y/Y: 5.0%e v 4.4% prior; GVA Y/Y: 4.9%e v 4.6% prior; 2023 GDP Annual Estimate: No est v 7.0% prior.

- 08:00 (BR) Brazil Apr National Unemployment Rate: 8.8%e v 8.8% prior.

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

- 08:00 (NZ) New Zealand May CoreLogic House Prices Y/Y: No est v -10.3% prior.

- 08:00 (SE) Sweden Central bank (Riksbank) Breman.

- 08:30 (CA) Canada Mar GDP M/M: -0.1%e v +0.1% prior; Y/Y: 1.8%e v 2.5% prior; Q1 Quarterly GDP Annualized: 2.5%e v 0.0% prior.

- 08:30 (CL) Chile Central Bank Traders Survey.

- 08:30 (EU) ECB chief Lagarde.

- 08:50 (US) Fed’s Collins.

- 08:55 (US) Weekly Redbook LFL Sales data.

- 09:00 (CL) Chile Apr Manufacturing Production Y/Y: -3.1%e v -5.5% prior; Industrial Production Y/Y: -2.4%e v -5.9% prior; Total Copper Production: No est v 440.4K prior.

- 09:00 (CL) Chile Apr Retail Sales Y/Y: No est v -8.4% prior; Commercial Activity Y/Y: No est v -4.0% prior.

- 09:15 (UK) BOE’s Mann.

- 09:45 (US) May Chicago Purchase Manager’s Index (PMI): 47.0e v 48.6 prior.

- 10:00 (US) Apr JOLTS Job Openings: 9.375Me v 9.59M prior.

- 10:01 (AU) Australia May CoreLogic Housing Prices M/M: No est v 0.7% prior.

- 10:30 (US) May Dallas Fed Services Activity: -16.0e v -14.4 prior.

- 11:00 (MX) Mexico Apr Net Outstanding Loans (MXN): No est v 5.56T prior.

- 11:00 (CO) Colombia Apr National Unemployment Rate: No est v 10.0% prior; Urban Unemployment Rate: No est v 10.5% prior.

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

- 12:00 (CA) Canada to sell 2 Year Bonds.

- 12:00 (RU) Russia Apr Industrial Production Y/Y: No est v 1.2% prior.

- 12:00 (RU) Russia Apr Unemployment Rate: 3.6%e v 3.5% prior; Mar Real Wages Y/Y: No est v 2.0% prior.

- 12:00 (RU) Russia Apr Real Retail Sales Y/Y: No est v -5.1% prior.

- 13:30 (US) Fed’s Harker.

- 13:30 (US) Fed’s Jefferson.

- 14:00 (US) Federal Reserve Beige Book.

- 16:30 (US) Weekly API Oil Inventories.

- 19:00 (AU) Australia May Final PMI Manufacturing: No est v 48.0 prelim.

- 19:50 (JP) Japan Q1 Capital Spending (Capex) Y/Y: No est v 7.7% prior; Capital Spending (ex-software) Y/Y: No est v 6.3% prior; Company Profits Y/Y: No est v -2.8% prior; Company Sales Y/Y: No est v 6.1% prior.

- 20:00 (KR) South Korea May Trade Balance: No est v -$2.6B prior; Exports Y/Y: No est v -14.2% prior; Imports Y/Y: No est v -13.3% prior.

- 20:01 (IE) Ireland May PMI Manufacturing: No est v 48.6 prior.

- 20:30 (JP) Japan May Final PMI Manufacturing: No est v 50.8 prelim.

- 20:30 (KR) South Korea May PMI Manufacturing: No est v 48.1 prior.

- 20:30 (TW) Taiwan May PMI Manufacturing: No est v 47.1 prior.

- 20:30 (PH) Philippines May PMI Manufacturing: No est v 51.4 prior.

- 20:30 (MY) Malaysia May PMI Manufacturing: No est v 48.8 prior.

- 20:30 (TH) Thailand May PMI Manufacturing: No est v 60.4 prior.

- 20:30 (VN) Vietnam May PMI Manufacturing: No est v 46.7 prior.

- 21:30 (AU) Australia Q1 Private Capital Expenditure Q/Q: No est v 2.2% prior.

- 21:45 (CN) China May Caixin PMI Manufacturing: 49.5e v 49.5 prior.

- 22:00 (SL) Sri Lanka Central Bank (CBSL) Interest Rate Decision: Expected to leave Key Rates unchanged.

- 23:35 (JP) Japan to sell 10-Year JGB Bonds.