Risk aversion flows continue to dominate amid growth concerns

Notes/Observations

- Risk aversion flows continue to dominate amid growth concerns.

Asia

- Australia Apr Employment Change: +4.0K v +30.0Ke; Unemployment Rate: 3.9% v 3.9%e (lowest unemployment since 1974).

- Japan Apr Trade Balance: -¥839.2B v -¥1.150Te; Exports Y/Y: 12.5% v 13.9%e; Imports Y/Y: 28.2% v 35.0%e.

- Japan Mar Core Machine Orders M/M: 7.1% v 3.9%e; Y/Y: 7.6% v 3.3%e.

- New Zealand Budget raised the 2022 GDP 3.2% to 4.2% while cutting the 2023 GDP 4.4% to 4.2%; raised the CPI forecast for both 2022 and 2023 period. Raised its Raises bond issuance for the current fiscal year.

Europe

- ECB said to be seen making two to three 25bps hikes during 2022 (Reminder: have seen mounting signals from ECB policy makers for a first interest rate rise in July).

- UK Chancellor of the Exchequer (Fin Min) Sunak: Inflationary pressures are starting to weigh on growth. BoE governor and his team are completely focused on getting inflation back to target.

- UK PM Johnson’s advisers said to be blocking treasury’s call for a windfall tax on energy companies. UK govt believes move would be viewed as an attack on business.

Americas

Fed’s Harker (alternate voter) expected 50bps hikes in June and July; After July, saw 'measured pace' of rate hikes; Fed to hike until confident inflation was returning to target.

Energy

- Russia Economic Ministry saw the country’s natural gas output at 721BCM v 764BCM y/y. Prices for consumers outside CIS countries +72% y/y to $523.3/1K cum.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -1.92% at 425.64, FTSE -2.18% at 7,275.68, DAX -1.86% at 13,747.15, CAC-40 -1.84% at 6,235.79, IBEX-35 -1.07% at 8,385.55, FTSE MIB -1.23% at 23,789.00, SMI -2.59% at 11,279.50, S&P 500 Futures -1.27%].

Market Focal Points/Key Themes: European indices open lower across the board and fell further as the session wore on; weaker risk appetite attributed to sell-off on Wall Street yesterday; better performing sectors include energy and health care; sectors among those leading to the downside include consumer discretionary and industrials; oil & gas subsector supported after Brent popped above $110/bbl; Turkey closed for holiday; Homeserve receives takeover offer from Brookfield; Derichebourg to take stake in Elior; reportedly Telefonica looking to sell its stake in Prisa; focus on commentary following G7 FinMin and central bank heads meeting in Bonn, Germany; earnings expected in the upcoming Americas session include AT&T, Kohl’s, Applied Materials and Palo Alto Networks.

Equities

- Consumer discretionary: Royal Mail [RMG.UK] -8% (earnings), Homeserve [HSV.UK] +11% (offer), EasyJet [EZJ.UK] -1% (earnings).

- Consumer staples: Suedzucker [SZU.DE] -2% (final earnings).

- Financials: Generali [G.IT] +1% (earnings).

- Healthcare: Valneva [VLA.FR] +10% (EMA accepts filing).

- Industrials: Maersk [MAERSKB.DK] -5% (executive and Shanghai official comments).

Speakers

- German Chancellor Scholz stated that Ukraine and allies would not accept any Putin-dictated peace; Germany will secure and strengthen defensive capabilities.

- Czech Central Bank Dep Gov Nidetzky stated that perhaps near a peak in rates but outlook was filled with uncertainties and risks.

- Philippines Central Bank Policy Statement noted that inflation outlook had risen and elevated pressures could persist. Had observed emergence of 2nd round of inflationary effects and timely increase in rates would held cap 2nd round effects of inflation. Supported non-monetary interventions.

- Philippines Central Bank updated its Staff Projections which raised the 222 CPI forecast from 3.7% to 4.3% and also raised the 2023 CPI outlook from 3.3% to 3.6%.

- China State Planner NDRC stated that it expected PPI increase to continue to ease.

- Russia Dep PM Novak stated that was important for Russia to maintain its share of the energy market; would not be left without an export market as it was competitive. Russia exports approx 4M bpd of oil to Europe; region would need to think where it could get such volumes. Russia oil production rose between 200-300K bps in May and to continue to grow in Jun.

- EU pledged to back getting gas inventories to 80% by next winter and at 90% in coming years.

Currencies/fixed income

- Most pairs are rotating after earlier moves as focus remains on risk sentiment with heavy Wall Street stock selloff yesterday.

- Safe haven flows aided the USD and JPY currencies in the session amid growth concerns. Dealers noted that Fed Chair Powell's stance on fighting inflation made it hard to achieve a 'soft landing' for the US economy. Recent poor US housing data on Wednesday added to slowdown concerns.

- EUR/USD below the 1.05 level despite ECB appeared to be poised to embark on two to three 25bps hikes during 2022 (**Reminder: have seen mounting signals from ECB policy makers for a first interest rate rise in July). Focus on central bank divergence with the Fed seen pushing interest rates as high as needed to stem a surge in inflation.

- USD/JPY - lower and consolidates around 127.8 levels after recent 20-year highs seen above 131.0 highs.

- GBP/USD - climbs to test 1.240 level.

- USD/CAD - lower around 1.282-1.290.

- USD/CHF - lower at 0.980 after pulling back from 1.000.

- AUD/USD - higher but trades between 0.695-0.702 (lowest since Jan 2022).

- NZD/USD - higher and trading between 0.629-0.634 (2 year lows).

Economic data

- (NL) Netherlands Apr Unemployment Rate: 3.2% v 3.2%e.

- (SE) Sweden Q1 Industry Capacity: 90.4% v 90.3% prior.

- (PH) Philippines Central Bank (BSP) raised the Overnight Borrowing Rate by 25bps to 2.25% (as expected).

- (EU) Euro Zone Mar Current Account Balance (seasonally adj): -€1.6B v +€15.7B prior.

- (IT) Italy Mar Current Account Balance: -€1.0B v -€1.5B prior.

- (GR) Greece Mar Current Account Balance: -€2.3B v -€2.1B prior.

- (HK) Hong Kong Apr Unemployment Rate: 5.4% v 5.0%e.

Fixed income issuance

- (ES) Spain Debt Agency (Tesoro) sold total €5.48B vs. €5.0-6.0B indicated range in 2025, 2027, 2032 and 2042 bonds.

- Sold €1.352B in 0.00% May 2025 SPGB bonds; Avg Yield: 1.030% v 0.845% prior.

- Sold €1.117B in 0.80% July 2027 SPGB bond; Avg Yield: 1.383% v 1.387% prior.

- Sold €1.988B in 0.70% Apr 2032 SPGB bond; Avg Yield: 2.046% v 1.601% prior.

- Sold €1.020B in 1.00% July 2042 green SPGB bond; Avg Yield: 2.403% v 1.471% prior.

- (FR) France Debt Agency (AFT) sold total €11.497B vs. €10.0-11.5B indicated range in 2025, 2026 and 2028 Bonds.

- Sold €3.445B in 0.00% Feb 2025 Oat; Avg Yield: 0.63% v 0.58% prior; Bid-to-cover: 2.49x v 3.83x prior.

- Sold €3.435B in 0.00% Feb 2026 Oat; Avg Yield: +0.77% v -0.52% prior; Bid-to-cover: 2.10x v 2.45x prior.

- Sold €4.617B in 0.75% Nov 2028 Oat; Avg Yield: 1.06% v 0.33% prior; Bid-to-cover: 2.46x v 2.01x prior.

- (IE) Ireland Debt Agency (NTMA) sold €750M vs. €750M indicated in 6-month bills; Avg Yield: -0.240% v -0.410% prior; Bid-to-cover: 1.9x v 1.8x prior.

Looking ahead

- G7 meeting (ECB’s Lagarde and Panetta attend).

- (ZA) South Africa Central Bank (SARB) Interest Rate Decision: Expected to raise Interest Rate by 50bps to 4.75%.

- (EG) Egypt Central Bank Interest Rate Decision: No analysts estimates: Current Lending Rate at 10.25%; Current Deposit Rate at 9.25%.

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

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 5-year, 10-year and 20-year bonds.

- 05:50 (FR) France Debt Agency (AFT) to sell €1.0-1.5B in inflation-linked 2031, 2032 and 2036 linked Bonds (Oatei).

- 06:00 (UK) May CBI Industrial Trends Total Orders: 12e v 14 prior; Selling Prices: 70e v 71 prior.

- 06:00 (CZ) Czech to sell CZK 5.0B in 1-month bills.

- 06:00 (RO) Romania to sell 300 Million Lei of 4.85% 2029 Bonds.

- 06:45 (US) Daily Libor Fixing.

- 07:30 (EU) ECB Publishes Account of April Policy Meeting (Minutes).

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

- 08:30 (US) May Philadelphia Fed Business Outlook: 15.0e v 17.6 prior.

- 08:30 (US) Initial Jobless Claims: 200Ke v 203K prior; Continuing Claims: 1.32Me v 1.343M prior.

- 08:30 (CA) Canada Apr Industrial Product Price M/M: No est v 4.0% prior; Raw Materials Price Index M/M: No est v 11.8% prior.

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

- 08:30 (EU) ECB's Guindos (Spain).

- 09:00 (RU) Russia Gold and Forex Reserve w/e May 13th: No est v $592.1B prior.

- 10:00 (US) Apr Existing Home Sales: 5.65Me v 5.77M prior.

- 10:00 (US) Apr Leading Index: 0.0%e v 0.3% prior.

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

- 11:00 (SE) Sweden Central Bank (Riksbank) Floden on Monetary Policy.

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

- 12:00 (EU) EU's Verstager, ECB's Holzmann at award ceremony.

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

- 13:00 (US) Treasury to sell $14B in 10-Year TIPS Reopening.

- 15:00 (AR) Argentina Mar Economic Activity Index (Monthly GDP) M/M: -0.3%e v - 1.8% prior; Y/Y: 6.2%e v 9.1% prior.

- 15:00 (AR) Argentina Mar Trade Balance: $0.4Be v $0.3B prior.

- 17:00 (KR) South Korea Apr PPI Y/Y: No est v 8.8% prior.

- 18:45 (NZ) New Zealand Apr Trade Balance (NZD): No est v -0.4B prior; Exports: No est v 6.7B prior; Imports: No est v 7.1B prior.

- 19:01 (UK) May GfK Consumer Confidence: -39e v -38 prior.

- 19:30 (JP) Japan Apr National CPI Y/Y: 2.5%e v 1.2% prior; CPI Ex-fresh food (core) Y/Y: 2.0%e v 0.8% prior; CPI Ex-fresh food (core-core) Y/Y: 0.7%e v 0.7% prior.

- 21:15 (CN) China PBoC Monthly LPR Setting: Expected to cut 1-year Loan Prime Rate by 5bps to 3.65%; Expected to leave 5-Year Loan Prime Rate unchanged at 4.60%.

- 23:00 (ID) Indonesia Q1 Current Account Balance: $0.8Be v $1.4B prior.

- 23:00 (NZ) New Zealand Apr Credit Card Spending M/M: No est v 3.2% prior; Y/Y: No est v 3.4% prior.

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

- 23:30 (HK) Hong Kong to sell HK$1.2B in 2.35% 2-year Bond.

- 23:35 (JP) Japan to sell 20-Year JGB Bonds.