Rising yields weight upon risk appetite, UK data highlights a faltering recovery

Notes/Observations

- Risk appetite diminished as concerns over interest-rate rises impacts sentiment.

- Major European Apr PMI Manufacturing data holds onto expansion (Beats: Euro Zone France, UK; Misses: Germany).

- UK Mar Retail Sales data miss highlights the impact of inflation biting into consumer pockets; suggest UK economic recovery was faltering.

- Companies due to report during the NY morning include Autoliv, American Express, Cleveland-Cliffs, HCA Healthcare, Kimberly-Clark, Newmont Corp, Schlumberger, Verizon.

Asia

- Japan Mar National CPI registered its fastest annualized pace in 2 years (Y/Y: 1.2% v 1.2%e; CPI Ex-fresh food (core) Y/Y: 0.8% v 0.8%e.

- Japan Apr Preliminary PMI Manufacturing registered its 15 month of expansion (53.4 v 54.1 prior).

- Australia Apr Preliminary PMI Manufacturing registered its (23rd month of expansion (57.9 v 57.7prior).

- PBoC Gov Yi GangPolicy is accommodative and in a comfortable range and help ensure sound economic growth in Q1. Monetary policy focused on small to medium sized enterprises and those impacted by coronavirus; Ready to help SMEs with additional tools if necessary.

- Japan Fin Min Suzuki and US Treasury Sec Yellen said to have likely to have discussed coordinated currency intervention during recent talks; Sounded as if the US side would consider idea positively.

Europe

- ECB chief Lagarde stated that inflation would be more than double target at year end. June meeting key for end of APP bond buying program and potential rate path. EURO exchange rate clearly had impact on inflation, reiterated Council view that ECB does not target FX rate.

- BOE Gov Bailey recently stated that real income shock to cause slowdown in growth. Inflation target is going through most severe test since it was created, target is critical anchor for BoE.

- UK PM Johnson said to order another delay in implementing checks on EU imports. Some suggest he should wait until 2025 when there was a new system set to be put in place.

- UK govt said to be preparing legislation to give ministers sweeping powers to scrap the post-Brexit trade deal in Northern Ireland which risks new confrontation with Europe.

Americas

- Fed Chair Powell commented from an IMF panel that a 50bps hike would be on the table for May meeting; It was appropriate to be moving quickly.

- Fed’s Bullard (voter, hawkish dissenter) stated that the Fed was behind the curve but not as far as one thought, but did not expect a hard landing.

- Bank of Canada (BOC) Gov Macklem stated that March inflation showed supply chain disruption; Possible that interest rates needed to go above neutral to cool demand.

Speakers/Fixed income/FX/Commodities/Erratum

Equities

Indices [Stoxx600 -1.02% at 456.86, FTSE -0.46% at 7,592.50, DAX -1.39% at 14,301.37, CAC-40 -1.34% at 6,624.95, IBEX-35 -0.59% at 8,762.16, FTSE MIB % at #, SMI -+0.01% at 12,303.05, S&P 500 Futures -0.19%].

Market Focal Points/Key Themes: European indices open broadly lower, but moderated some of the losses as the session wore on; risk appetite stifled by higher yields; all sectors start the day in the red; less negative sectors include telecom and utilities; sectors leading to the downside include energy and consumer discretionary; FTSE 100 supported by M&A chatter on several UK firms; Greece and Cyprus closed for holiday; AB InBev divests its Russian assets; focus on results from CHMP’s meeting later in the day; earnings expected during the upcoming US session include Schlumberger, American Express, Verizon and Vinci.

Equities

- Financials: Record plc [REC.UK] +6% (trading update).

- Healthcare: Essity [ESSITY-A.SE] +12% (earnings).

- Industrials: Renault [RNO.FR] -1.5% (sales).

- Technology: SAP [SAP.DE] -3.5% (earnings), Fingerprint Cards [FINGB.SE] -19% (earnings), TeamViewer [TMV.DE] -4% (new CFO).

- Materials: Petropavlovsk [POG.UK] +23% (production).

Speakers

- ECB chief Lagarde said to have told Council members to hold back on 'personal dissenting' views on decisions for several days. Told policymakers to present the majority view to the public after the ECB's policy decisions.

- ECB's Holzmann (Austria, hawk) reiterates call that ECB should end APP (conventional QE) as soon as possible with a visible rate increase afterwards.

- France Fin Min Le Maire stated that 2022 inflation will remain high and decline progressively in 2023.

- Norway Central Bank (Norges) Q1 Bank Lending Survey noted that experienced broadly unchanged credit demand but saw higher funding costs and lending rates in Q1.

- UK PM Johnson noted that UK and India had agreed on new and expanded its defense partnership; Told negotiators to complete free trade deal by Oct 2022.

- Germany Chancellor Scholz stated that his govt to continue to supply Ukraine with weapons.

- UK Minister Burns noted that govt might have to take unilateral action on Northern Ireland protocol.

- Russia Military official stated that it planned to take full control of Donbas and Southern Ukraine as part of second phase of military operation; Planning to secure passage to Crimea.

- Japan Chief Cabinet Sec Matsuno reiterated govt stance that FX stability was important, abrupt moves were undesirable.

- China FX Regulator SAFE official Wang stated that its FX market operated stably in Q1; US Fed rate hikes caused outflows in countries in the past; China had fundamentals to adapt to Fed rate hikes. Yuan exchange rate had been more flexible in 2022 and to continue two-way movement in the future. Reiterated that CNY currency (Yuan) to maintain basically stable at a reasonable level.

Currencies/Fixed income

- USD holding onto its firm tone after Fed Chair Powell confirmed on Thursday that interest rates were likely to rise in bigger increments than the usual 25 basis points. Overall Risk appetite diminished as concerns over interest-rate rises impacts sentiment and aided the safe-haven plays..

- EUR/USD holding above the 1.08 but continued to face headwinds in the overall USD Bull Run. More hawkish ECB speak to tame inflation ensured but had little impact for the time being. Markets now see 50bps of ECB hikes by Sept. Dealers noted that a win by incumbent French President Macron in presidential elections on Sunday was largely priced in and should evoke limited market reaction.

- GBP/USD dropped over a big figure in the session after UK Mar Retail Sales data miss highlighted the impact of inflation that was biting into consumer pockets. Pair below the 1.29 level by mid-session for its lowest since a Covid lockdown in November 2020.

- USD/JPY edged away from recent 20-year highs after Japan Fin Min Suzuki was said to have discussed the possibility of coordinated currency intervention with U.S. Treasury Secretary Janet Yellen.

- Commodity currencies were softer as Oil prices and base metals declined over concerns interest-rate hikes would impact demand.

Economic data

- (UK) Mar Retail Sales (ex-auto/fuel) M/M: -1.1% v -0.4%e; Y/Y: -0.6% v +0.8%e.

- (UK) Mar Retail Sales (includes auto/fuel) M/M: -1.4% v -0.3%e; Y/Y: 0.9% v 2.8%e.

- (FR) France Apr Preliminary PMI Manufacturing: 55.4 v 53.7e (17th month of expansion); PMI Services: 58.8 b 56.5e; PMI Composite: 57.5 v 55.0e.

- (DE) Germany Apr Preliminary PMI Manufacturing: 54.1 v 54.5e (22nd month of expansion); PMI Services: # v 55.3e; PMI Composite: # v 54.1e.

- (CN) Weekly Shanghai copper inventories (SHFE): 69.9K v 88.7K tons prior.

- (EU) Euro Zone Apr Preliminary PMI Manufacturing: 55.3 v 54.9e (22nd month of expansion); PMI Services: 57.7 v 55.0e; PMI Composite: 55.8 v 53.9e.

- (EU) Euro Zone Feb Current Account (seasonally adj): €20.8B v €21.6b prior.

- (RU) Russia Narrow Money Supply w/e Apr 15th (RUB): 14.64T v 14.72T prior.

- (PL) Poland Mar Real Retail Sales M/M: 16.4% v 15.7%e; Y/Y: 9.6% v 8.8%e; Retail Sales Y/Y:22.0% v 18.6%e.

- (PL) Poland Mar Construction Output Y/Y: 27.6% v 14.8%e.

- (TW) Taiwan Mar Unemployment Rate: 3.7% v 3.7%e.

- (UK) Apr Preliminary PMI Manufacturing: 55.3 v 54.0e (23rd month of expansion); PMI Services: 58.3 v 60.0e; PMI Composite: 57.6 v 58.7e.

- (IT) Italy Feb Current Account Balance: -€1.5B v -€5.9B prior.

- (GR) Greece Feb Current Account Balance: -€2.1B v -€2.0B prior.

- (HK) Hong Kong Mar CPI Composite Y/Y: 1.7% v 1.8%e.

- (EU) Euro Zone 2021 Govt Debt to GDP Ratio: % v 97.3% prior.

Fixed income issuance

- (IN) India sold total INR320B vs. INR320B indicated in 2026, 2034, 2035 and 2051 bonds.

Looking ahead

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

- 05:30 (ZA) South Africa to sell combined ZAR1.2B in I/L 2033, 2046 and 2050 Bonds.

- 06:00 (IE) Ireland Mar PPI M/M: No est v 0.1% prior; Y/Y: No est v 2.8% prior.

- 06:00 (UK) DMO to sell £3.5B in 1-month, 3-month and 6-month bills (£1.0B, £1.0B and £1.5B respectively).

- 06:45 (US) Daily Libor Fixing.

- 07:00 (IN) India announces upcoming bill issuance (held on Wed).

- 07:30 (IN) India Central Bank (RBI) Apr Minutes.

- 07:30 (IN) India Weekly Forex Reserve w/e Apr 15th: No est v $604.0B prior.

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

- 08:30 (CA) Canada Feb Retail Sales M/M: -0.4%e v +3.2% prior; Retail Sales (ex-auto) M/M: 0.4%e v 2.5% prior.

- 08:30 (CA) Canada Mar Industrial Product Price M/M: 2.1%e v 3.1% prior; Raw Materials Price Index M/M: No est v 6.0% prior.

- 09:00 (CL) Chile Mar PPI M/M: No est v 2.5% prior.

- 09:00 (EU) ECB chief Lagarde.

- 09:45 (US) April Preliminary Manufacturing PMI: 58.0e v 58.8 prior; Services PMI: 58.0e v 58.0 prior; Composite PMI: 57.9e v 57.7 prior.

- 11:00 (EU) Potential sovereign ratings after European close (S&P on Italy, Greece and Netherlands sovereign ratings).

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