Will the west respond to Israel's aggression?

Notes/observations

- US and UK markets return from an extended weekend to an unchanged narrative. Little movement seen across European equites and FX. Reminder that SEC enforced settlement change to T+1 from T+2 begins today.

- Several important members of the Fed and ECB attend a Bank of Japan event but there has not been any market moving commentary on expected rate path, timing of the first rate cut or a change to members hawkish/dovish tilt.

- With Q1 earnings season essentially over, sentiment turns to geopolitical tensions amid events from Middle East over the weekend with aggression in Rafah from Israel, China's drills in Taiwan. Politics elections to play an increasingly important role as UK vote approaches on July 4th and US on Nov 5th.

- Asia closed lower with Shanghai Composite underperforming -0.5%. EU indices are mixed with Dax outperforming +0.5%. US futures are +0.1-0.5%. Gold -0.3%, DXY -0.1%; Commodity: Brent +0.1%, WTI +1.4%; Crypto: BTC -0.8%, ETH -1.1%.

Asia

- Japan Apr PPI Services Y/Y: 2.8% 2.3%e (fastest annual pace since May 2015). The 10-year JGB yield over 1.04%.

- Australia Apr Retail Sales M/M: 0.1% v 0.2%e.

- Japan Fin Min Suzuki testified in Parliament that govt was not thinking of cutting incomes taxes for multiple years; Reiterated excessive moves in FX were undesirable.

Mid-East

- Iran reportedly from Feb to May further increased its stockpile of uranium enriched to near weapons-grade levels. Country continued to stonewall an investigation into uranium particles.

Global conflict/tensions

- Israel PM Netanyahu called an air strike on Rafah that killed civilians as a tragic mistake but pledged to carry on the conflict against Hamas until every goal had been achieved.

- White House stated that Israel must take every precaution to protect civilians.

- Taiwan Parliament said to pass bill aimed to curb powers of the new President. Legislation put forward by opposition parties that would expand lawmakers’ powers to investigate the government.

Europe

- UK May BRC Shop Price Index Y/Y: 0.0% v 1.0%e v 0.8% prior.

- Bank of England's (BOE) Dep Gov Broadbent noted that attacks on BOE's inflation record are 'tripe'.

Americas

- US equities, corporate municipal bonds and other securities settlements changing from T+2 to T+1.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.07% at 522.58, FTSE -0.06% at 8,312.39, DAX +0.44% at 18,843.95, CAC-40 -0.11% at 8,123.91, IBEX-35 +0.24% at 11,352.87, FTSE MIB +0.30% at 34,866.00, SMI +0.09% at 11,967.00, S&P 500 Futures +0.31%].

Market focal points/key themes: European indices open higher, but quickly lost momentum to trade mixed through the early part of the session; sectors inclined to the upside include materials and energy; among lagging sectors are consumer discretionary and telecom; oil & gas subsector supported following two days of gains in Brent; Calliditas to be acquired by Asahi Kasei; ABN AMRO acquires Hauck Aufhauser Lampe from Fosun; Eurazeo divests stake in Lumapps to Bridgepoint; no major corporate earnings expected in the upcoming US session.

Equities

- Consumer staples: Fevertree [FEVR.UK] -3.5% (analyst downgrade).

- Industrials: LEM Holding [LEHN.CH] -1.5% (earnings) - Healthcare: Calliditas Therapeutics [CALTX.SE] +77.5% (to be acquired at SEK208/shr by Asahi Kasei), Evotec [EVT.DE] +1.0% (extends colab with CHDI Foundation on Huntington's) - Materials: Genuit Group [GEN.UK] +0.5% (trading update) - Technology: Nvidia [0R1I.UK] +5.5% (Elon Musk said that he wants to get his supercomputer ('gigafactory of compute') running by fall 2025; requires thousands of Nvidia GPUs) - Real Estate: Adler Group [ADJ.DE] +6.0% (earnings), Persimmon [PSN.UK] -2.0% (looking to place £1B bid for Cala group).

Speakers

- Sweden Central Bank (Riksbank) Gov Thedeen stated that prior rate hikes contributed to lower inflation. Inflation target seems to have passed the test.

- ECB’s Schnabel (Germany) stated that asset purchases should remain part of toolkit but be careful using outside of crisis. TLTROs have smaller, less persistent footprint.

- Fed’s Bowman (voter, hawk) stated that would have supported slowing QT later or tapering pace. Balance-sheet runoff had proceeded relatively smoothly.

- Fed’s Bowman (voter, hawk) stated that would have supported slowing QT later or tapering pace.

- Fed's Kashkari (non-voter) commented that should not rush to cut rates; Needed to wait and see for more confidence on prices.

- Belgium PM De Croo was confident that the 14th Russia sanctions package to come in H2.

- China Pres Xi stated that needed high quality and sufficient employment.

Currencies/fixed income

- USD was steady in a quiet session. Dealers noted that the greenback registered some weakness recently as speculation grows upcoming US PPI data (due out on Fri) could fuel fresh prospects of Fed interest-rate cuts.

- EUR/USD at 1.0880 area ahead of key EU inflation data this week. ECB meets next week and likely to deliver a rate cut but continued to downplay the rate path afterwards.

- USD/JPY continued to hover below the 157 level. Japan continued its rhetoric that FX should reflect fundamentals.

Economic data

- (FI) Finland Apr House Price Index M/M: -0.1% v +1.3% prior; Y/Y: -4.0% v -4.2% prior.

- (DE) Germany Apr Wholesale Price Index M/M: 0.4% v 0.2% prior; Y/Y: -1.8% v -3.0% prior.

- (SE) Sweden Apr Trade Balance (SEK): 7,9B v 5.3B prior.

- (NO) Norway Apr Retail Sales M/M: -0.3% v -0.1%e.

- (DK) Denmark Apr Retail Sales M/M: -0.6% v -0.1% prior; Y/Y: 0.2% v 3.2% prior.

- (EU) Euro Zone Apr Consumer Expectation Survey: 1 Year CPI Expectations: 2.9% v 3.0% prior; 3-Year CPI Expectations: 2.4% v 2.5%e.

- (AT) Austria May Manufacturing PMI: 46.3 v 43.5 prior (22nd month of contraction).

Fixed income issuance

- (ID) Indonesia sold total IDR22.0T vs. IDR22.0T target in bills and bonds.

- (NL) Netherlands Debt Agency (DSTA) sold €1.625B vs. €1.0-2.0B indicated range in 0.0% Jan 2038 DSL Bonds; Avg Yield: 2.923% v 2.759% prior.

- (IT) Italy Debt Agency (Tesoro) old total €4.5B vs. €3.75-4.5B indicated in 2-year and 3-year BTP bonds.

- Sold €2.25-2.75B in 3.20% Jan 2026 BTP bonds; Avg Yield: 3.51% v 3.42% prior; bid-to-cover: 1.42x v 1.44x prior (Apr 23rd 2024).

- Sold €1.5-1.75B in 0.00% Dec 2024 BTP (**Note: 6-month left to maturity on this 3-year leg); Avg Yield: 3.48% v 2.62% prior; bid-to-cover: 1.73x v 2.39x prior.

- (IT) Italy Debt Agency (Tesoro) sold €1.5B vs. €1.0-1.5B indicated range in 0.10% May 2033 inflation-linked bonds (BTPei); Real Yield: 1.860% v 2.020% prior; bid-to-cover: 1.57x prior.

- (CH) Switzerland sold CHF521.15M in 3-month Bills; Avg Yield: 1.298% v 1.278% prior; bid-to-cover: 5.87x v 3.98x prior.

Looking ahead

- (IL) Israel Apr Leading 'S' Indicator M/M: No est v -0.1% prior.

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

- 05:30 (DE) Germany to sell €1.0B in 2.1% Apr 2029 BOBL.

- 05:30 (DE) Germany to sell €1.0B in2.3% Feb 2033 Green Bunds.

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

- 05:30 (ZA) South Africa to sell combined ZAR3.75B in 2032, 2034 and 2044 bonds.

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

- 06:00 (UK) May CBI Retailing Reported Sales: -25e v -44 prior; Total Distribution Reported Sales: No est v -8 prior.

- 06:00 (IE) Ireland Apr Retail Sales Volume M/M: No est v 1.7% prior; Y/Y: No est v 1.0% prior.

- 06:00 (IL) Israel to sell combined ILS3.05B in 2027, 2028, 2029, 2033, 2034 and 2035 bonds.

- 07:30 (BR) Brazil Apr Central Govt Budget Balance (BRL): +13.0 v -1.5B prior.

- 08:00 (BR) Brazil mid-May IBGE Inflation IPCA-15 M/M: 0.5%e v 0.2% prior; Y/Y: 3.7%e v 3.8% prior.

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

- 08:00 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed).

- 08:30 (CA) Canada Apr Industrial Product Price M/M: 0.7%e v 0.8% prior; Raw Materials Price Index M/M: 3.0%e v 4.7% prior.

- 09:00 (US) Mar FHFA House Price Index M/M: 0.5%e v 1.2% prior; Q/Q: No est v 1.5% prior.

- 09:00 (US) Mar S&P/CoreLogic House Price Index (20-City) M/M: 0.30%e v 0.61% prior; Y/Y: 7.30%e v 7.29% prior; House Price Index (overall) Y/Y: No est v 6.38% prior.

- 09:15 (NL) ECB's Knot (Netherlands).

- 09:55 (US) Fed's Kashkari on panel.

- 10:00 (US) May Consumer Confidence: 96.0e v 97.0 prior.

- 10:30 (US) May Dallas Fed Manufacturing Activity: -12.5e v -14.5 prior.

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

- 11:30 (US) Treasury to sell 2-Year Notes.

- 13:00 (UK) BOE’s Haskel.

- 13:00 (US) Treasury to sell 5-Year Notes.

- 13:05 (US) Fed’s Cook.

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

- 20:00 (AU) Australia to sell A$600M in 1.50% Jun 2031 bonds.

- 20:30 (AU) Australia Apr Westpac Leading Index M/M: No est v -0.1% prior.

- 21:00 (NZ) New Zealand May ANZ Business Confidence: No est v 14.9 prior; Activity Outlook: No est v 14.3 prior.

- 21:30 (AU) Australia Apr CPI Y/Y: 3.4%e v 3.5% prior.

- 21:30 (AU) Australia Q1 Construction Work Done: 0.5%e v 0.7% prior.

- 21:30 (JP) BOJ’s Adachi.

- 23:00 (TH) Thailand to sell THB30B in 2.4% Nov 2027 bonds.