Trump reportedly growing frustrated with demands on reconciliation bill

EU mid-market update: Spicy UK inflation pushes BOE rate cuts down the road and raises questions about govt fiscal policy; Trump reportedly growing frustrated with demands on reconciliation bill.

Notes/observations

- UK Apr inflation was hot, as figures came in higher than estimates for all components. Headline 3.5%, Core 3.8% and Services 5.4%. An increase from Mar was expected to some degree, due to employer national insurance contribution rise coming into effect from beginning Apr and an energy price cap increase from Ofgem. Reduces chances of BOE rate cut in June, shifting focus to what happens in Aug. Market pricing now pushes back rate cut to Nov.

- Crude gains on middle east tensions after Israel said to be planning to strike Iranian nuclear facilities; US intelligence agencies now see Israel shifting forces and running rehearsals for a potential strike on Iran’s nuclear facilities, yet Jerusalem has not reached a final decision, barely six months after Israel’s late-October 2024 raid that reportedly shattered a secret Iranian weapons-research site at Parchin.

- US treasuries are 3-6bps higher across the curve, Dankse Bank analysts expect long-end U.S. Treasury term premia to continue trending higher.

- President Trump, irritated by GOP calls to lift the state-and-local-tax (SALT) cap, reportedly warned House Republicans in a closed-door Tuesday meeting that quarrels over the deduction—or over cuts to safety-net programs like Medicaid—mustn’t stall his “big, beautiful” tax-and-spending bill.

- ECB’s Chief Economist Lane expected to speak at 12:00 ET, taking part in a discussion in a Madrid lecture. Comments in focus after U.S. softened its trade stance. Currently, money markets price in two more rate cuts by the ECB this year, including one in June.

- Asia closed higher with KOSPI outperforming +0.9%. EU indices -0.6% to +0.4%. US futures -0.6%. Gold +0.6%, DXY -0.3%; Commodity: Brent +1.5%, WTI +1.6%; Crypto: BTC +1.2%, ETH +0.7%.

Asia

- Japan Apr Trade Balance: -¥115.8B v +¥215.3Be; Exports Y/Y: 2.0% v 2.5%e; Imports Y/Y: -2.2% v -4.2%e.

- South Korea May Exports 1-20 Days Y/Y: -2.4% v -5.2% prior; Imports Y/Y: -2.5% v -11.8% prior.

- (NZ) New Zealand Apr Trade Balance (NZD): 1.4B v 0.8B prior; Exports: No est v 7.6B prior; Imports: No est v 6.6B prior.

- Australia Apr Westpac Leading Index M/M: -0.1% v -0.15% prior.

- Japan Upper House approved Kazuyuki Masu to join BOJ board; To replace Toyoaki Nakamura (dove); [term is due to end on Jun 30th, 2025].

Global conflict/tensions

- Israel reportedly planning to strike Iranian nuclear facilities; Not clear that Israel has made a final decision; As of now, there remains a deep disagreement within the US government about the likelihood of an attack.

- US Sec of State Rubio noted that US would impose news sanctions on Russia if there was no progress on a peace deal. Believed Russia would stop talks over sanction threat.

Europe

- UK Deputy PM Rayner said to propose big tax increases in memo to Chancellor Reeves.

- UK PM Starmer said not to seek rejoining EU customs union.

Americas

- Fed’s Hammack noted that sentiment data about the economy had been concerning.

- Fed’s Daly noted that Fed policy was in a good place, highly sensitive to risk of inflation. The net effect of Trump Admin trade, immigration and other policies remained unknown.

- Fed's Bostic (non-voter for 2025) noted that the US downgrade and tax bill could add to the overall uncertainty; Unclear how consumers will respond to tariffs; We'll need to continue our 'Wait and see' policy.

- Canada Fin Min Champagne stated that G7 meeting wanted to get unity behind policies that restored stability and growth. Started discussions on "de minimis" exemptions.

- House Speaker Johnson and a group of blue-state Republicans said to have reached a critical but tentative deal to boost the cap on state and local tax deductions to $40K.

Energy

- Weekly API Crude Oil Inventories: +2.5M v +4.3M prior.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.36% at 552.00, FTSE +0.02% at 8,782.64, DAX -0.24% at 23,959.04, CAC-40 -0.61% at 7,893.81, IBEX-35 +0.46% at 14,327.64, FTSE MIB -0.14% at 40,466.00, SMI -0.68% at 12,335.60, S&P 500 Futures -0.57%].

Market focal points/key themes: European indices opened mostly lower but recovered a bit through the early part of the session; trade once again in focus as G-7 discuss tariffs on de minimis imports from China; utilities and technology are among the better performing sectors; sectors trending in the red include industrials and consumer discretionary; Circus acquires FullyAI; earnings expected in the upcoming Americas session include Weibo, TJX, Lowe’s and Target.

Equities

- Consumer discretionary: Currys [CURY.UK] +1.5% (trading update, raises outlook), JD Sports Fashion [JD.UK] -7.0% (earnings; conf call comments), Hornbach [HBH.DE] -11.0% (results), Kering [KER.FR] -2.5% (Kering Eyewear partners with Google to develop smart glasses), Elior [ELIOR.FR] -5.0% (results).

- Industrials: Porsche [P911.DE] -1.5% (AGM comments) - Technology: Playtech [PTEC.UK] -1.0% (trading update) - Utilities: SSE [SSE.UK] +1.5% (earnings).

Speakers

- ECB Financial Stability Review stressed that economic policy uncertainty was on the rise. Sharp adjustments in financial markets risked becoming disorderly. Escalating trade conflict could challenge euro area firms and households.

- ECB de Guindos (Spain) noted that EU bond yields had decoupled from US. Markets were complicit but that could change.

- Indonesia Central Bank Policy Statement noted that the decision to cut rates was consistent with the forecast of low and manageable inflation in 2025 and 2026 within target to maintain the stability of the rupiah currency in accordance with its fundamentals, and to contribute to economic growth. Pressure on the rupiah currency had eased due to improved global market conditions and BI's intervention.

- Japan govt said to loosen target for reaching primary balance, from FY25 to range of FY25-26.

Currencies/fixed income

- USD continued to be on soft footing as recent soft data building the case for another Fed rate cut later this year. The recent US sovereign downgrade also highlighting US fiscal concerns.

- GBP/USD hit a 3-year high against the USD following hotter-than-expected UK CPI data. Markets dialed back BOE rate cut calls with next move fully priced in at Nov. Pair at 134.00 by mid-session.

- EUR/USD was steady around the 1.1325 area for the morning.

- USD/JPY at 144.07 and building upon recent yen strength as Japanese yields remained elevated.

- 10-year German Bund yield at 2.66% and 10-year Gilt yield at 4.76%. 10-year Treasury yield at 4.54%.

Economic data

- (UK) Apr CPI M/M: 1.2% v 1.1%e; Y/Y: 3.5% v 3.3%e; CPI Core Y/Y: 3.8% v 3.6%e; CPI Services Y/Y: 5.4% v 4.8%e; CPIH Y/Y: 4.1% v 3.9%e.

- (UK) Apr RPI M/M: 1.7% v 1.4%e; Y/Y: 4.5% v 4.2%e; RPI-X (ex-mortgage payments) Y/Y: 4.2% v 2.8% prior; Retail Price Index: 402.2 v 401.2e.

- (CH) Swiss Apr M3 Money Supply Y/Y: 2.9% v 2.9% prior.

- (ID) Indonesia Central Bank cuts Bi-Rate by 25bps to 5.50% (as expected).

- (PL) Poland Apr Sold Industrial Output M/M: -3.5% v -4.6%e; Y/Y: +1.2% v -0.2%e.

- (PL) Poland Apr Employment M/M: 0.0% v -0.1%e; Y/Y: -0.8% v -0.9%e.

- (PL) Poland Apr Average Gross Wages M/M: -0.1% v -1.3%e; Y/Y: 9.3% v 8.1%e.

- (PL) Poland Apr PPI M/M: -0.2% v -0.1%e; Y/Y: -1,4% v -1.5%e.

- (PL) Poland May Consumer Confidence: -14.5 v -14.9e.

- (ZA) South Africa Apr CPI M/M: 0.3% v 0.2%e; Y/Y: 2.8% v 2.7%e.

- (ZA) South Africa Apr CPI Core M/M: 0.1% v 0.2%e; Y/Y: 3.0% v 3.1%e.

- (UK) Mar ONS House Price Index Y/Y: 6.4% v 5.5% prior.

- (IS) Iceland Central Bank (Sedibank) cuts 7-Day Term Deposit Rate by 25bps to 7.50%.

Fixed income issuance

- (VN) Vietnam Finance Ministry sold total VNM8.26T vs. VND10.0T indicated in 5-year, 7-year, 10-year, 15-year and 30-year bonds.

- (IN) India sold total INR190B vs. INR190B indicated in 3-month, 6-month and 12-month bills.

- (DK) Denmark sold total DKK1.3B in 2027 and 2035 DGB Bonds.

Looking ahead

- (AR) Argentina Apr UTDT Leading Indicator: % v -2.1% prior.

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

- 05:30 (DE) Germany to sell €4.0B in 2.50% Feb 2035 Bunds.

- 05:30 (PT) Portugal Debt Agency (IGCP) to sell €1.25-1.5B in 6-month and 12-month Bills.

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

- 06:00 (IE) Ireland Mar Property Prices M/M: No est v 0.3% prior; Y/Y: No est v 8.0% prior.

- 06:00 (RU) Russia to sell OFZ Bonds.

- 06:00 (EU) European Union to sell combined €3.0B in 3-month, 6-month and 12-month Bills.

- 06:00 (CZ) Czech Republic to sell CZK1.0B in Floating Rate Bonds).

- 06:30 (UK) DMO to sell £4.25B in 4.0% Oct 2031 Gilts.

- 07:00 (US) MBA Mortgage Applications w/e May 16th: No est v 1.1% prior.

- 07:00 (ZA) South Africa Mar Retail Sales M/M: No est v -1.3% prior; Y/Y: 3.2%e v 3.9% prior.

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

- 08:00 (MX) Mexico Mar Retail Sales M/M: -0.1%e v +0.2% prior; Y/Y: +2.3%e v -1.1% prior.

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

- 10:30 (US) Weekly DOE Oil Inventories.

- 11:30 Treasury to sell 17-Week Bills.

- 12:00 (IE) ECB’s Lane (Ireland, chief economist).

- 12:00 (CA) Canada to sell 30-year Bonds.

- 12:15 (US) Fed’s Barkin.

- 13:00 (US) Treasury to sell 20-Year Bonds.

- 15:00 (AR) Argentina Mar Economic Activity Index (Monthly GDP) M/M: No est v 0.8% prior; Y/Y: 6.4%e v 5.7% prior.

- 18:00 (HU) Hungary May Business Confidence: No est v -11.4 prior; Consumer Confidence: No est v -28.1 prior; Economic Sentiment: No est v -15.7 prior.

- 19:00 (AU) Australia May Preliminary PMI Manufacturing: No est v 51.7 prior; PMI Services: No est v 51.0 prior; PMI Composite: No est v 51.0 prior.

- 19:50 (JP) Japan Mar Core Machine Orders M/M: -1.6%e v +4.3% prior; Y/Y: -1.8%e v 1.5% prior.

- 20:00 (SG) Singapore Q1 Final GDP Q/Q: -1.0%e v -0.8% prelim; Y/Y: 3.6%e v 3.8% prelim.

- 20:30 (JP) Japan May Preliminary PMI Manufacturing: No est v 48.7 prior; PMI Services: No est v 52.4 prior; PMI Composite: No est v 51.2 prior.

- 22:00 (SL) Sri Lanka Central Bank (CBSL) Interest Rate Decision: Expected to leave Overnight Policy Rate unchanged at 8.00%.

- 21:00 (CN) China Apr Swift Global Payments (CNY): No est v 4.1% prior.

- 21:30 (JP) BOJ Board Noguchi in Miyazaki.

- 22:00 (NZ) New Zealand Budget.

- 22:00 (NZ) New Zealand to sell combined NZ$450M in 2029, 2033 and 2041 bonds.

- 23:00 (ID) Indonesia Q1 Current Account: -$0.2Be v -$1.1B prior.

- 23:00 (TH) Thailand Central Bank to sell THB20B in new 2027 Bonds.

- 23:35 (JP) Japan to sell 10-year inflation-linked JGB Bonds.