Ukraine peace talks finally begin in Istanbul as Trump wants to meet with Putin

EU mid-market update: Ukraine peace talks finally begin in Istanbul as Trump wants to meet with Putin; No breakthrough on US reconciliation bill; Waiting for University of Michigan Survey.

Notes/observations

- Press reports that a two-hour meeting Thursday in Speaker Johnson’s office failed to win over holdout Republicans on the reconciliation bill, so negotiations will continue through the weekend. One frustrated GOP member even texted Punchbowl, “Speaker let this get out of control.”; Note that BCA Research sees tariff fears may soon be replaced by concerns over fiscal sustainability and bond market stress.

- Ukraine officials’ talks with Turkish and US teams start in Istanbul, with direct Ukraine-Russia talks expected later today.

- Trump said the U.S. is on the verge of “incredible” investment inflows—around $12–14 trillion already announced or soon to be—with some 150 countries (especially China) lining up for trade deals, while Washington will issue letters spelling out what nations must pay to do business in America and has struck a UAE–U.S. agreement to allow advanced AI semiconductor sales.

- According to Flexport CEO, ocean freight bookings from China to the U.S. have surged 275% w/w, potentially outstripping capacity and prompting carriers to impose peak-season surcharges and surge pricing. As a result, container rates are expected to climb from roughly $2-3K today to $6-7K by late June, with spot rates to the U.S. West Coast already up 8% this week and likely rising another 50% in the next ten days.

- BOJ’s dove Nakamura argued that the BOJ should remain accommodative for now—Japan’s moderate recovery still faces heightened uncertainty from U.S. tariff policies, slowing global growth, FX swings and uneven wage gains—and remains in a critical phase of escaping deflation.

Asia

- Japan Q1 Preliminary GDP Q/Q: -0.2% v -0.1%e; Annualized Q/Q: -0.7% v -0.3%e.

- South Korea Apr Import Price Index M/M: -1.9% v -0.4% prior; Y/Y: -2.3% v +3.4% prior.

- South Korea Apr Export Price Index M/M: -1.2% v +0.4% prior; Y/Y: 0.7% v 6.4% prior.

- New Zealand Apr Manufacturing PMI: 53.9 v 53.2 prior (4th month of expansion).

- New Zealand Q2 Inflation Expectation Survey: 2-year Outlook: 2.3% v 2.1% prior.

- BOJ's Nakamura (dove) noted that was appropriate for BOJ to maintain monetary policy for now; Greater uncertainties from US tariff policies could pose serious challenges for Japan; If the BOJ rushed to raise the policy interest rate even during an economic slowdown, this could dampen both consumption and investment, with a lag.

- Japan Fin Min Kato reiterated confirmed with the US that FX should be market determined. Sought to have meeting with US Tsy Sec Bessent on various issues including FX.

- Japan Econ Min Akazawa stated that govt to take all necessary steps to offer liquidity support to impacted firms from US tariffs. Must be mindful of downside risks to economy from US trade policy. Aimed to reach deal with the US 'ASAP'.

Europe

- UK PM Starmer said to be ‘confident’ of securing UK-EU deal to reset relations. Confident that Britain would reach a deal before meeting with EU leaders in London on Monday, May 19th.

Americas

- Fed's Barr (voter) noted that supply disruptions could lower growth and raise inflation. Did not comment on interest rate outlook;

- Mexico Central Bank (Banxico) cut Overnight Rate by 50bps to 8.50% (as expected) Decision to cut by 50bps was unanimous. Price environment would allow easing cycle to continue.

Energy

- Iran Foreign Min Araghchi noted that what negotiators were saying in the media might be different to in talks; Hearing many contradictory US positions.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.64% at 550.46, FTSE +0.40% at 8,668.61, DAX +0.81% at 23,873.15, CAC-40 +0.59% at 7,900.05, IBEX-35 +0.74% at 14,013.00, FTSE MIB +0.67% at 40,689.00, SMI +1.33% at 12,375.90, S&P 500 Futures +0.31%].

Market focal points/key themes: European indices opened higher across the board and advanced through the early part of the session; among sectors leading to the upside are health care and consumer discretionary; lagging sectors include materials and technology; reportedly JSW in exclusive talks to acquire Akzo Nobel’s India unit; potential EU-US trade negotiations in focus; no major earnings expected in the upcoming US session.

Equities

- Consumer discretionary: Richemont [CFR.CH] +5.5% (earnings).

- Financials: Swiss Re [RUKN.CH] +2.0% (earnings).

- Healthcare: Bayer [BAYN.DE] +3.0% (seeks new Roundup settlement within 18 months while reportedly exploring Monsanto unit bankruptcy).

- Industrials: ThyssenKrupp [TKA.DE] +1.5% (thyssenkrupp Marine Systems remains on track to become an independent company in the current calendar year).

- Technology: Future plc [FUTR.UK] -7.5% (earnings).

- Telecom: 1&1 AG [DRI.DE] +19% (United Internet offer for stake), Eutelsat [ETL.FR] -3.5% (earnings).

Speakers

- ECB's Villeroy (France) commented that was not in a currency war situation but one of a trade war. Protectionism and uncertainty was having a negative impact on US economic confidence.

- ECB's Kazaks (Latvia) noted that was close to terminal rate if baseline held; No need to rush on rate cuts; A lot of uncertainty around trade measures. Reiterated meeting by meeting approach was right.

- Sweden Central Bank (Riksbank) Gov Thedeen commented that international developments causing elevated uncertainty and dampening domestic prospects. Uncertainty meant it being appropriate to sit tight and wait.

- Czech Central Bank (CNB) May Minutes noted that vote to cut by 25bps was not unanimous (6:1) as one member preferred to hold.

- South Africa Democratic Alliance (DA) leader Steenhuisen stated that budget draft had no extra borrowing.

- Thailand Finance Ministry said to propose THB157B stimulus budget to sustain economic growth.

- President Trump stated that was time to go back home; we'll see happens next with Russia and Ukraine.

- Fed's Bostic (non-voter for 2025) stated that saw 1 rate cut this year amid uncertainty; had to push against inflation pressures. Expecting slower economic growth but a recession was not in outlook. De-escalation in US-China trade talks did change outlook a little.

Currencies/fixed income

- FX market was steady under quiet conditions on Friday. Dealers noted that continued uncertainty over US tariffs weighed on risk appetite. Dealers did not that the USD could weaken as some recent evidence of easing price pressures boosted expectations for further interest rate cuts by the Fed.

- EUR/USD steady and holding just above the 1.12 level.

- USD/JPY back above 145 at mid-session.

- 10-year German Bund yield at 2.59% and 10-year Gilt yield at 4.62%. 10-year Treasury yield at 4.41%.

Economic data

- (FR) France Q1 ILO Unemployment Rate: 7.4% v 7.4%e; Mainland Unemployment Rate: 7.2% v 7.1% prior.

- (CH) Swiss Q1 Industrial Output Y/Y:8.5 % v 2.1% prior; Industry & Construction Output Y/Y: 7.3% v 2.1% prior.

- (ES) Spain Mar Home sales Y/Y: 40.6% v 13.9% prior.

- (TR) Turkey Central Bank (TCMB) Mar Inflation Expectation Survey: Expected Inflation Next 12 Months: 25.1% v 25.6% prior.

- (NL) Netherlands Mar Trade Balance: €12.5B v €10.9B prior; Exports Y/Y: 3.2% v 1.9% prior; Imports Y/Y: 2.1% v 2.9% prior.

- (CN) Weekly Shanghai copper inventories (SHFE): 108.1K v 80.7K tons prior.

- (TH) Thailand May Foreign Reserves w/e May 9th: $256.4B v $256.1B prior.

- (IT) Italy Apr Final CPI M/M: 0.1% v 0.2% prelim; Y/Y: 1.9% v 2.0% prelim; CPI (ex-tobacco) Index: 121.3 v 121.4 prior.

- (IT) Italy Apr Final CPI EU Harmonized M/M: 0.4% v 0.5% prelim; Y/Y: 2.0% v 2.1% prelim.

- (RU) Russia Narrow Money Supply Narrow w/e May 7th: 18.15T v 18.13T prior.

- (HK) Hong Kong Q1 Final GDP Q/Q: 1.9% v 2.0% prelim; Y/Y: 3.1% v 3.1% prelim.

- (EU) Euro Zone Mar Trade Balance (Seasonally Adj): €27.9B v €22.7B prior; Trade Balance NSA (unadj): €36.8B v €24.0B prior.

- (IT) Italy Mar Total Trade Balance: €3.7B v €4.4B; Trade Balance EU: -€2.5B v -0.4B prior.

- (IS) Iceland Apr International Reserves (ISK): 880B v 866B prior.

Fixed income issuance

(IN) India sold total INR250B vs. INR250B indicated in 2031 and 2074 bonds.

Looking ahead

- (RO) Romania Central Bank (NBR) Interest Rate Decision: Expected to leave Interest Rate unchanged at 6.50%.

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

- 05:30 (ZA) South Africa to sell combined ZAR1.0B in I/L 2031, 2038 and 2046 Bonds.

- 06:00 (UK) DMO to sell £6.5B in 1-month, 3-month and 6-month bills (£1.5B, £2.0B and £3.0B respectively).

- 07:00 (BR) Brazil May FGV Inflation IGP-10 M/M: 0.1%e v -0.2% prior; Y/Y: No est v 8.7% prior.

- 07:00 (CH) SNB President Schiegel.

- 07:30 (IN) India Forex Reserve w/e May 9th: No est v $686.1B prior.

- 08:00 (PL) Poland Apr CPI Core M/M: 0.6%e v 0.4% prior; Y/Y: 3.5%e v 3.6% prior.

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

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

- 09:00 (IN) India announces upcoming bill issuance (held on Wed).

- 08:30 (US) Apr Housing Starts: 1.364Me v 1.324M prior; Building Permits: 1.450Me v 1.467M prior.

- 08:30 (US) Apr Housing Starts M/M: +3.0%e v -11.4% prior; Building Permits M/M: -1.2%e v +0.5% prior.

- 08:30 (US) Apr Import Price Index M/M: -0.3%e v -0.1% prior; Y/Y: -0.2%e v +0.9% prior; Import Price Index (ex-petroleum) M/M: 0.1%e v 0.0% prior.

- 08:30 (US) Apr Export Price Index M/M: -0.4%e v 0.0% prior; Y/Y: No est v 2.4% prior.

- 08:30 (US) May New York Fed Services Business Activity Index: No est v -19.8 prior.

- 08:30 (CA) Canada Mar Int'l Securities Transactions (CAD): No est v -6.5B prior.

- 09:00 (RU) Russia Mar Trade Balance: No est v $10.5B prior; Exports: No est v $30.9B prior; Imports: No est v $20.4B prior.

- 10:00 (US) May Preliminary University of Michigan Confidence: 53.2e v 52.2 prior.

- 11:00 (IE) ECB’s Lane (Ireland, chief economist).

- 11:00 (EU) Potential sovereign ratings after European close (Moody's on Italy; S&P on Cyprus; Fitch on Greece and Cyprus).

- 12:00 (RU) Russia Q1 Advance GDP Y/Y: 1.7%e v 4.5% prior.

- 12:00 (RU) Russia Apr CPI M/M: 0.5%e v 0.7% prior; Y/Y: 10.3%e v 10.3% prior.

- 12:00 (RU) Russia Apr CPI Core M/M: No est v 0.7% prior; Y/Y: No ets v 9.7% prior.

- 13:00 (US) Weekly Baker Hughes Rig Count.

- 16:00 (US) Mar Total Net TIC Flows: No est v $284.7NB prior; Net Long-term TIC Flows: No est v $112.0B prior.

- (AR) Argentina Apr Budget Balance: No est v 745.33B prior.