Mid-East tension heat up – Russia announces tactical nuclear weapon drills citing West provocations

Notes/observations

- Euro Area PMI Services generally mixed in session but remain in expansion territory.

- UK Bank Holiday follows market closures in Japan and South Korea.

- Geopolitical tensions percolate as Gaza talks collapsing and civilians being evacuated from Rafah ahead of pre-announced assault; Russia announced to hold tactical nuclear drills with no timing provided.

-Maersk sees effects of the situation in the Red Sea widening and continuing to cause industry-wide disruptions as the risk zone has expanded, and attacks are reaching further offshore

Asia

- China Apr Caixin PMI Services: 52.5 v 52.5e (16th month of expansion)

- Australia Treasurer Chalmers stated that a 2nd consecutive budget surplus was within reach. budget to focus on CPI in the near-term, growth in the medium-term

Global conflict/tensions

-Russia to hold tactical (non-strategic) nuclear drills involving navy and aviation; Russia said it is a response to statements from the West about sending troops to Ukraine

- Ceasefire talks in Cairo were over with no deal; Israel stated that the Rafah attack would take place 'soon'; Palestine health officials reported 9 Palestinians killed in a house targeted in Rafah, Southern Gaza

- Biden admin made clear to Israel that the way it conducted any Rafa operation would influence US policy to the war

Europe

- ECB’s Lane (Ireland, chief economist) stated that he had confidence on inflation returning to target was improving

- EU’s Von der Leyen stated that she would push for fair competition with China during talks with Pres Xi in Paris

- Fitch affirmed Italy sovereign rating at BBB; Outlook Stable

Americas

- Fed's Williams (voter) had no comment on interest-rate outlook but suggested inflation was still moving lower.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.32% at 507.16, FTSE closed, DAX +0.45% at 18,074.95, CAC-40 +0.29% at 7,980.81, IBEX-35 +0.27% at 10,884.50, FTSE MIB +0.62% at 33,839.00, SMI +0.48% at 11,326.91, S&P 500 Futures +0.18%]

Market focal points/key themes: European indices open generally higher and maitained gains through the early part of the session; several European bourses closed for holiday including UK, Ireland, Greece and Cyprus; among sectors leading the way higher are energy and financials; lagging sectors include consumer discretionary and healthcare; oil & gas subsector supported on tensions in Gaza; Atos says receives four offers; earnings expected in the upcoming US session include American Express, Moderna, Eli Lilly, and Tyson Foods.

Equities

- Consumer discretionary: PostNL [PNL.NL] -3.0% (earnings)

- Financials: Sabadell [SAB.ES] +2.0% (Board said to meet today to study BBVA proposal) - Healthcare: Laboratorios Farmaceuticos Rovi [ROVI.ES] +3.0% (attracts interest for unit), Carmat [ALCAR.FR] +10.5% (affirms outlook) - Industrials: Maersk [MAERSKB.DK] +0.5% (comments on Red Sea disruption) - Technology: Infineon [IFX.DE] +1.0% (Foxconn sales; to supply Xiaomi with chips), Atos [ATO.FR] -1.0% (discloses four financial restructuring proposals) - Real Estate: SBB [SBBB.SE] +3.5% (earnings)

Speakers

- Finland Finance Ministry supplementary budget proposal said to reduce 2024 new borrowing requirements by €300M.

- Russia announced it would hold tactical (non-strategic) nuclear drills in response to 'provocation’ from the West on sending troops into Ukraine. Drills to include practice of deployment and use of tactical nuclear weapons.

- Senior Hamas official stated that Hamas might withdraw from truce talks due to Rafah operation; Itwais a dangerous escalation by Israel and would have consequences.

Currencies/fixed income

- USD was steady in quiet trade on Monday after suffering losses suffered after Friday's weaker-than-expected US payroll data and weak ISM purchasing managers' survey that improved hopes for a Fed rate cut in coming months.

- EUR/USD failed to find some traction despite some upward revisions on Service PMI data readings. Pair staying below the 1.08 level.

- USD/JPY edged higher toward the 154 level. Treasury Sec Yellen had no comment on whether Japan did intervened in FX market last week. She did note that the Yen currency did move quite a bit in relatively short time frame but believed that yen intervention was a 'rumor'.

Economic data

- (RU) Russia Apr Services PMI: 50.5 v 51.4 prior (15th month of expansion); Composite PMI: 51.9 v 52.7 prior.

- (SE) Sweden Apr PMI Services: 48.1 v 53.8e (1st contraction in 5 months); PMI Composite: 49.0 v 53.0 prior.

- (HU) Hungary Mar Preliminary Trade Balance: €1.5B v €1.7B prior.

- (ES) Spain Apr Net Unemployment Change: -60.5Ke v -33.4K prior.

- (ES) Spain Apr Services PMI: 56.2 v 55.7e (8th month of expansion); Composite PMI: 55.7 v 55.5e.

- (ZA) South Africa Apr PMI (whole economy): 50.3 v 48.4 prior.

- (IT) Italy Apr Services PMI: 54.3 v 54.5e (4th month of expansion); Composite PMI: 52.6 v 52.5e.

- (FR) France Apr Final Services PMI: 51.3 v 50.5 prelim (confirmed 1st expansion in 11 months); Composite PMI: 50.5 v 49.9 prelim.

- (DE) Germany Apr Final Services PMI: 53.2 v 53.3 prelim (confirmed 2nd month of expansion); Composite PMI: 50.6 v 50.5 prelim.

- (EU) Euro Zone Apr Final Services PMI: 53.3 v 52.9 prelim (confirmed 3rd month of expansion and h); Composite PMI: 51.7 v 51.4 prelim.

- (CH) Swiss weekly Total Sight Deposits (CHF): 473.2B v 475.7B prior; Domestic Sight Deposits: 461.5B v 467.3B prior.

- (EU) Euro Zone May Sentix Investor Confidence: -3.6 v -5.0e.

- (EU) Euro Zone Mar PPI M/M: % v -0.4%e; Y/Y: % v -7.7%e.

Fixed income issuance

- (ID) Indonesia sold total IDR7.03T vs. IDR8.0B target in Islamic bills and bonds (sukuk).

- (NO) Norway sold NOK2.0B vs. NOK2.0B indicated in 6-month Bills; Avg Yield: 4.43% v 4.48% prior; bid-to-cover: 3.21x v 1.75x prior.

Looking ahead

- (UR) Ukraine Central Bank (NBU) Apr Minutes.

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

- 05:30 (DE) Germany to sell €2.0B in 6-month BuBills.

- 05:30 (NL) Netherlands Debt Agency (DSTA) to sell €2.0-3.0B in 3-month and 6-month Bills.

- 05:30 (ZA) South Africa announces details of upcoming I/L bond sale (held on Fridays).

- 06:30 (TR) Turkey to sell Bonds.

- 07:15 (FR) ECB’s Villeroy (France).

- 07:30 (DE) ECB’s Nagel (Germany).

- 07:30 (IN) India Central bank (RBI) Gov Das.

- 07:25 (BR) Brazil Central Bank Weekly Economists Survey.

- 07:30 (BR) Brazil Mar Nominal Budget Balance (BRL): -65.1Be v -113.9B prior; Primary Budget Balance: -1.9Be v -48.7B prior; Net Debt to GDP ratio: 61.3%e v 60.9% prior.

- 07:30 (TR) Turkey Apr Real Effective Exchange Rate (REER): No est v 58.02 prior.

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

- 08:00 (IN) India announces details of upcoming bond sale (held on Fridays).

- 08:00 (ES) Spain Debt Agency (Tesoro) size announcement on upcoming issuance.

- 08:25 (CH) SNB President Jordan.

- 09:00 (RU) Russia Apr Gold and Forex Reserve w/e Apr 26th: No est v $603.2B prior.

- 09:00 (BR) Brazil Apr Services PMI: No est v 54.8 prior; Composite PMI: No est v 55.1 prior.

- 09:00 (FR) France Debt Agency (AFT) to sell €5.6-7.2B in 3-month, 6-month and 12-month bills.

- 11:30 (US) Treasury to sell 13-Week and 26-Week Bills.

- 12:50 (US) Fed’s Barkin.

- 13:00 (US) Fed’s Williams.

- 16:00 (US) Weekly Crop Progress Report.

- 17:00 (KR) South Korea Apr Foreign Reserves: No est v $419.3B prior.

- 18:00 (NZ) New Zealand Government 9-Month Financial Statements.

- 18:00 (CO) Colombia Central Bank Apr Minutes.

- 19:01 (UK) Apr LFL BRC Sales Y/Y: No est v 3.2% prior.

- 19:30 (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: No est v 81.1 prior.

- 20:30 (JP) Japan Apr Final PMI Services: No est v 54.6 prelim; PMI Composite: No est v 52.6 prelim.

- 21:00 (PH) Philippines Apr CPI M/M: 0.2%e v 0.1% prior; Y/Y: 4.0%e v 3.7% prior.

- 21:30 (AU) Australia Q1 Retail Sales Q/Q: -0.3%e v +0.3% prior.