-Risk returns as high level commentary appears to calm recession nerves. US market returns from Juneteenth holiday today.

- Tighter financial conditions are set to weigh on economic growth as central banks appeared to be compelled to act.

- Asia has closed mainly higher with bond yields lower. EU indices start in positive territory at +0.5-1.6%, EU bond yields are lower. US futures are +1.75-2.0% higher. Elsewhere Gold -0.2%, BTC +4.2%, ETH +4.1%, DXY -0.7%, Brent +1.3%, WTI +2.1%.

- During the EU session various ECB officials (Rehn Kazimir) stressed the need to raise interest rates to contain inflation. ECB's Villeroy reiterated Lagarde's talk on anti-fragmentation tools, eluding that the ECB could sell assets before maturity.

- In the UK, BOE members Mann and Pill suggest recession is an unavoidable second thought as they comment that the BOE continued to walk the tightrope between inflation and stunted growth. Mann yesterday said she is open to a policy reversal in the medium term and that a depreciating GBP is adding to inflation. Pill expects a contraction in the current quarter but also confirmed inflation is the main target and that they are ready to act more aggressively.

- Numerous analysts (Nomura, Goldman) see rising risk of US recession later this year.

- Main stimulus for positive sentiment was from US President Biden, suggesting a recession is not inevitable. Spotlight has appeared on the China tariffs being scrapped but no decision will be made before the G7 summit, showcasing a more amical foreign policy for trade compared to prior years.


- RBA Jun Minutes noted that Main argument for a 50bps hike in June was that the level of interest rates were still very low. Board felt 25bps increases every meeting this year would be a rapid tightening. Agreed inflation would not return to 2.0-3.0% target range if policy setting maintained. Committed to doing what was necessary to ensure that inflation returns to the target over time.

- RBA Gov Lowe stated that would do what was needed to return inflation to target range; Emphasized that RBA was not on a preset path for rate hikes.

- RBA review on Yield Control noted likely in the future that bond purchases would be preferred to a bond yield target.

- Japan Fin Min Suzuki: Believe that current inflation is due to increases in commodity prices; Doesn't believe debate on fiscal health has receded; will take appropriate action on FX if needed.

- Bank of Korea (BOK) stated that could not rule out possibility of CPI >4.7% for 2022 (prior view was 4.5%); Inflation to be 'well above' 5.0% for a while.

- BOK Gov Rhee: stated that CPI situation was grave and to focus on situation until it changed; Unsure if CPI >6.0 in June/July period; Still saw GDP 'well above' 2.0%.


- ECB chief Lagarde reiterated stance that ECB intended to raise the key interest rates by 25bps at the July and again at the Sept policy meeting; Will look at balance sheet size issue at a later stage.

- ECB's Lane (Ireland, chief economist) noted that the increment of the September rate hike was still undecided.

- ECB's Villeroy (neutral, France) noted that the anti-fragmentation tool must backstop commitment to euro and send clear no-limits message; It should be available as much as necessary.

- BOE's Mann (hawkish dissenter) believed that a 50bps move reduced the risk of domestic inflation being boosted by a weaker GBP currency (sterling); Bigger hikes by Fed and ECB could lift UK inflation.

- UK railway unions rejected a last-minute offer from train companies; 40K staff plan on railway strikes on Jun 21, 23, 25th.

- Germany labor union, IG Metall, calling for up to 8% increases in wages.


- President Biden noted that a decision on pause on federal gas tax could be end of the week; Reiterated US recession was not inevitable.

- Economist Lawrence Summers noted that needed five years of unemployment above 5% to contain inflation.

- Nomura analysts saw US mild recession starting in Q4 2022 was now more likely than not.

- Goldman analyst raised its probability of recession over next year from 15% to 30%.

Speakers/Fixed income/FX/Commodities/Erratum


Indices [Stoxx600 +1.08% at 411.54, FTSE +0.65% at 7,168.20, DAX +1.28% at 13,435.09, CAC-40 +1.83% at 6,028.17, IBEX-35 +0.38% at 8,317.30, FTSE MIB +1.15% at 22,257.00, SMI +0.77% at 10,566.24, S&P 500 Futures +1.88%].

Market Focal Points/Key Themes: European indices open higher across the board and advanced into the green as the session progressed; sectors among those leading to the upside are materials and energy; slower to rise sectors include telecom and consumer discretionary; BAM to sell Wayss & Freytag unit to Zech; Belgian government announces winners of 5G spectrum rights auction; Leonardo unit to merge with Rada; Michelin takes controlling interest in RLU; earnings expected in the upcoming US session include Lennar.


- Consumer discretionary: Ocado Group [OCDO.UK] -4.5% (results of rights issue).

- Energy: PGS [PGS.NO] +5.5% (contract), Nordex [NDX1.DE] -2% (earnings).

- Healthcare: Mithra Pharmaceuticals [MITRA.BE] +17.5% (placement).

- Industrials: Airbus [AIR.FR] +1.5%, Easyjet [EZJ.UK] +0.5% (aircraft deal), Leonardo [LDO.IT] +7% (unit merger), DS Smith [SMDS.UK] +1% (earnings).


- BOE's Pill (chief economist) noted that the domestic economy had been hit with large shocks; good prices were rising due to supply chain shocks. Real spending power of residents had been squeezed. Recent rate increases were crucial to halt 2nd round inflationary effects and prepared to act more aggressively if needed. Our target was inflation and not the exchange rate but did need to take FX into account.

- ECB’s Rehn (Finland, neutral) noted that the Ukraine conflict was driving up inflation and providing the justification for ECB's decision to speed up its exit from exceptionally easy monetary policy. Reiterated Council stance that inflation was broader and stronger.

- ECB's Enria (SSM chief) called on banks to remain prudent on loan provisions.

- German gas regulator said to not be in hurry to declare highest gas emergency level as of yet.

- Sweden NIER Think Tank updated its economic outlook which cut the 2022 GDP growth forecast from 3.3% to 1.9%and also cut the 2023 GDP outlook from 2.1% to 1.2%. It raised the 2022 Headline CPI forecast from 5.2% to 6.8% and also raised the 2023 Headline CPI from 2.8% to 3.2%. Saw the Riksbank Repo Rate at 1.50% by end-2022 (**Note: currently at 0.25%).

- Thailand Cabinet said to approve measures to help ease impact of a prolonged surge in global oil prices on consumers. Relief measures included subsidizing some retail energy prices during July-September period.

- President Biden's decision on scrapping China tariffs said to be not likely before G7 summit on June 26-28th.

Currencies/Fixed income

- USD was on soft footing during the session as markets believed the Fed would allow growth to weaken to achieve the inflation target. Some analyst now saw probability of a recession in the US over the next year rising to 30%.

- EUR/USD drifted to test the 1.0570 area. Dealers noted that implementation of a proper antifragmentation tool by the ECB could increase the odds of a 50bps rate hike in July, despite the ECB's intention to raise rates by 25bps. Various ECB officials stressed the need to raise interest rates to contain inflation.

- GBP/USD tested the 1.23 level in the session. Focus on Wed’s release of UK CPI data for May. BOE chief economist Pill stressed that was prepared to act more aggressively and tighten monetary policy further if needed.

- USD/JPY was inching back to 135.55 area as BOJ and MOF verbal intervention effects diminished. Policy divergence between Fed and BOJ remain intact..

Economic data

- (FI) Finland May Unemployment Rate: 7.9% v 6.9% prior.

- (CH) Swiss May Trade Balance (CHF): 3.1B v 4.0B prior; Real Exports M/M: +2.4% v -0.2% prior; Real Imports M/M: +7.1% v -4.2% prior; Watch Exports Y/Y: 13.6% v 7.4% prior.

- (CH) Swiss May M3 Money Supply Y/Y: 0.1% v 0.1% prior.

- (ZA) South Africa Apr Leading Indicator: 126.7 v 127.1 prior.

- (PH) Philippines May Overall Balance of Payments (BoP): -$1.6B v -$0.4B prior.

- (EU) Euro Zone Apr Current Account: -€5.8B v -€1.6B prior (2nd straight deficit).

- (PL) Poland May Sold Industrial Output M/M: 1.4% v 2.5%e; Y/Y: 15.0% v 16.7%e.

- (PL) Poland May Employment M/M: -0.1% v +0.1%e; Y/Y: 2.4% v 2.6%e.

- (PL) Poland May Average Gross Wages M/M: -3.4% v -2.4%e; Y/Y: 13.5% v 14.9%e.

- (PL) Poland May PPI M/M: 1.3% v 2.0%e; Y/Y: 24.7% v 24.6%e.

- (IT) Italy Apr Current Account: -€2.2B v -€1.0B prior.

- (GR) Greece Apr Current Account: -€1.6B v -€2.3B prior.

- (HK) Hong Kong May CPI Composite Y/Y: 1.2% v 1.6%e.

- (HK) Hong Kong Q1 Current Account: $78.5B v $97.0B prior; Balance of Payments (BOP): -$52.5B v -$7.0B v prior.

Fixed income issuance

- (ID) Indonesia sold total IDR18.9T vs. IDR20.0T target in bills and bonds.

- (EU) European Union opened its book to sell 25-year green NGEN Bonds; guidance seen +30bps to mid-swaps.

- (UK) DMO opened its book to sell 1.125% Oct 2073 Gilt; guidance seen -3.5bps to -3.25bps to Oct 2071 Gilts.

- (IT) Italy Debt Agency (Tesoro): Retail orders for new 8-year BTP Italia (retail bond) reached €4.0B.

Looking ahead

- (MX) Mexico Banamex Survey of Economists.

- (AR) Argentina May Budget Balance (ARS): No est v -79.2B prior.

- (PT) Portugal Apr Current Account: No est v -€0.4B prior.

- (AT) Austria Debt Agency (AFFA) to sell €2.0B in 6-month and 9-month Bills.

- 05:15 (CH) Switzerland to sell 3-month Bills; Avg Yield: % v -0.758% prior; bid-to-cover: x v 3.36x prior.

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

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills.

- 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO).

- 05:30 (ZA) South Africa to sell combined ZAR3.9B in 2035, 2040 and 2048 bonds.

- 06:00 (UK) Jun CBI Industrial Trends Total Orders: 21e v 26 prior; Selling Prices: 75e v 75 prior.

- 06:30 (EU) ESM to sell €1.1B in 6-month Bills.

- 06:45 (US) Daily Libor Fixing.

- 07:00 (MX) Mexico Q1 Aggregate Supply and Demand: 3.6%e v 3.0% prior.

- 07:00 (BR) Brazil Central Bank Meeting Minutes.

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

- 08:15 (UK) BOE's Tenreyro.

- 08:30 (US) May Chicago Fed National Activity Index: 0.47e v 0.47 prior.

- 08:30 (CA) Canada Apr Retail Sales M/M: 0.8%e v 0.0% prior; Retail Sales (Ex-Auto) M/M: 0.6%e v 2.4% prior.

- 09:00 (EU) Weekly ECB Forex Reserves.

- 09:00 (EU) ECB weekly QE bond buying update.

- 10:30 (CA) Canada to sell 3-month, 6-month and 12-month bills.

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

- 10:00 (US) May Existing Home Sales: 5.40Me v 5.61M prior.

- 10:00 (MX) Mexico Weekly International Reserve data.

- 12:00 (US) Fed’s Mester at event.

- 15: 30 (US) Fed’s Barkin.

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

- 18:00 (NL) Netherlands May House Price Index M/M: No est v 1.1% prior; Y/Y: No est v 19.7% prior.

- 18:45 (NZ) New Zealand May Trade Balance (NZ$): No est v 06B prior; Exports: No est v 6.3B prior; Imports: No est v 5.7B prior.

- 19:50 (JP) Bank of Japan (BOJ) Apr Meeting Minutes (two decisions ago).

- 20:30 (AU) Australia May Westpac Leading Index: No est v -0.2% prior.

- 21:10 (JP) BOJ Outright Bond Purchase Operation for 1~3 Years; 5~10 Years and 25 Years~ maturities.

- 22:35 (CN) China to sell CNY 3-year and 10-year Upsized Bonds.

- 23:00 (NZ) New Zealand May Credit Card Spending M/M: No est v 0.7% prior; Y/Y: No est v 1.1% prior.

- 23:00 (TH) Thailand to sell combined THB40B in 2024 and 2042 bonds.

- 23:30 (TH) Thailand May Customs Trade Balance: -$1.5Be v -$1.9B prior; Exports Y/Y: 8.3%e v 9.9% prior; Imports Y/Y: 17.5%e v 21.5% prior.

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