Higher yields continue to weigh on risk appetite, ECB's Villerory flutters hawkish feathers

Notes/Observations

- Rising inflation forecasts coupled with lower growth outlook dominant global theme.

- German Mar Industrial Production highlights the impact Ukraine war and Russian sanctions.

- Continued ECB speak hints of looming rate hike.

Asia

- Japan Apr Tokyo CPI reading above BOJ target and fastest increase since 2014) (Y/Y: 2.5% v 2.3%e).

- RBA-Statement on Monetary Policy (SOMP) noted that it would need to further increase rates over coming periods. Labor costs were the primary driver in later inflation forecasts. RBA raised its Core inflation forecasts for the horizon period (through mid-2024).

Russia/Ukraine

- Hungary PM Orban stated that his govt would not support EU proposals in their present form as they would undermine the country's energy security; Hungary needed 5 year exemption from EU Russia oil ban (Note: EU envoys held talks with Hungary on Thursday, May 5th and EU diplomats remained hopeful that a deal can be reached within days).

Europe

- Momentum is increasing for the ECB to hike interest rates in Jul to combat inflation.

- ECB's Holzmann (Austria, hawk) stated that ECB was planning to raise rates and would discuss and probably do it at the June meeting.

- ECB’s Rehn (Finland) believed ECB should raise rates in July and continue taking them up gradually after.

- Conservative party said to have lost control of Wandsworth Council in London Local election for the 1st time since 1978.

Americas

- Chile Central Bank (BCCh) raised the Overnight Rate Target by 125bps to 8.25% (more-than-expected).

Speakers/Fixed income/FX/Commodities/Erratum

Equities

Indices [Stoxx600 -0.89% at 434.36, FTSE -0.60% at 7,458.30, DAX -0.75% at 13,798.49, CAC-40 -1.11% at 6,298.00, IBEX-35 -0.46% at 8,395.69, FTSE MIB -0.04% at 23,751.00, SMI -0.55% at 11,818.86, S&P 500 Futures -0.28%].

Market Focal Points/Key Themes: European indices open lower across the board and stayed under pressure as the session wore on; better performing sectors include energy and health care; among the sectors leading to the downside are technology and consumer discretionary; oil and gas subsector supported after Brent moved above $110/bbl again; travel & leisure subsector under pressure following disappointing results from IAG; Morrisons proposes rescue for McColl’s; focus on US NFP data later in the day; earnings expected in the upcoming Americas session include Dish Networks, Spectrum Brands, Telus and Under Armour.

Equities

- Consumer discretionary: Adidas [ADS.DE] -6% (earnings), InterContinental Hotels [IHG.UK] -1% (earnings).

- Financials: ING Group [INGA.NL] -1% (earnings).

- Industrials: Leonardo [LDO.IT] +3% (earnings), SAF-Holland [SFQ.DE] +12% (earnings), International Consolidated Airlines Group [IAG.UK] -8% (earnings).

Speakers

- ECB’s Villeroy (France) stated that one should not rush to conclude region was in stagflation; He added that policy normalization was 'fully warranted'. Reiterated stance that policy would be guided by optionality and gradualism. Inflation was not only higher but more broad-based and inflationary expectations were less-and-less anchored at 2%. He added that a weak Euro currency did jeopardize price stability objective.

- BOE’s Pill (chief economist) stated that energy and goods prices were driving up inflation. Reiterated MPR staff projections that inflation could hit 10% before turning lower. BOE assumed that energy prices would stabilize and added there were downside inflation risks if energy prices did drop. BOE did not have a forex target or objective and are not focused on short-term market reactions.

- EU Commission President Von der Leyen reiterated stance that region must reduce its reliance on Russian gas as they were no longer a reliable partner. Ukraine war and related Russian sanctions was putting the Euro Zone economy through a stress test. Confident EU would agree on the new 6th round of sanctions.

- Sweden Central Bank (Riksbank) Apr Minutes noted that inflation had risen rapidly and was more broad-based both domestically and globally. All members emphasized they were prepared to raise interest rates quickly if necessary. Gov Ingves stated that a new direction was needed for monetary policy and might need more tightening if inflation keeps surprising. Member Breman noted that would support what was necessary to achieve inflation target. Member Floden noted that the policy change was sufficient in order for inflation to get back to target.

Currencies/Fixed Income

- USD began the session on firm footing as European as equity markets opened on softer footing as rising inflation forecasts coupled with lower growth outlook dominated the global theme. Safe-haven flows aided the greenback which saw the USD Index at a fresh 20-year high above 104.06.

- EUR/USD bounced back after ECB’s Villeroy (France) noted that a weak Euro did jeopardize its price stability mandate. Pair bounced from 1.-485 to test 1.0580 on short covering rally.

- GBP/USD moved of its post-pandemic lows after BOE chief economist Pill noted that short-term inflation could test the 10% area but added he did expect energy prices to stabilize.

Economic data

- (SE) Sweden Mar Maklarstatistik Housing Prices Y/Y: 8% v 10% prior; Apartment Prices Y/Y: 7% v 7% prior.

- (CH) Swiss Apr Unemployment Rate: 2.3% v 2.2%e; Unemployment Rate (seasonally adj): 2.2% v 2.2%e.

- (DE) Germany Mar Industrial Production M/M: -3.9% v -1.3%e; Y/Y: -3.5% v -0.4%e.

- (UK) Mar Halifax House Price Index M/M: 1.1% v 0.5% prior; Y/Y: 10.8% v 10.8% prior.

- (FI) Finland Mar Preliminary Trade Balance: -€1.2B v -€1.1B prior.

- (RU) Russia Apr Services PMI: 44.5 v 35.5e (2nd straight contraction); Composite PMI: 44.4 v 37.7 prior.

- (SE) Sweden Mar Private Sector Production M/M: 0.0% v -0.5% prior; Y/Y: 3.2% v 3.9% prior.

- (SE) Sweden Mar Industrial Orders M/M: +3.9% v -1.1% prior; Y/Y: 6.5% v 1.1% prior.

- (SE) Sweden Mar Industry Production Value Y/Y: 0.8% v 1.4% prior; Service Production Value Y/Y: 3.9% v 6.2% prior.

- (SE) Sweden Mar Household Consumption M/M: -0.1% v +0.2% prior; Y/Y: 3.1% v 3.8% prior.

- (SE) Sweden Apr Budget Balance (SEK): -16.0B v +23.4B prior.

- (DK) Denmark Mar Industrial Production M/M: 5.2% v 1.3% prior.

- (AU) Australia Apr Foreign Reserves: A$77.5B v A$79.5B.

- (FR) France Q1 Preliminary Private Sector Payrolls Q/Q: 0.3% v 0.2%e.

- (ES) Spain Mar Industrial Production M/M: -1.8% v -0.5%e; Y/Y: 0.1% v 2.8%e; Industrial Output NSA (unadj) Y/Y: 1.1% v 4.1% prior.

- (CH) Swiss Apr Foreign Currency Reserves (CHF): 926.1B v 910.1B prior.

- (AT) Austria Apr Wholesale Price Index M/M: 0.9% v 9.7% prior; Y/Y: 26.0% v 25.6% prior.

- (HU) Hungary Mar Industrial Production M/M: -0.1% v +1.9% prior; Y/Y: 4.2% v 3.1%e.

- (TH) Thailand end-Apr Foreign Reserves: $228.6B v $238.8B prior.

- (CN) Weekly Shanghai copper inventories (SHFE): 52.3K v 48.4K tons prior.

- 04:00 (IT) Italy Mar Retail Sales M/M: % v 0.7% prior; Y/Y: % v 4.3% prior.

- (RU) Russia Narrow Money Supply w/e Apr 29th (RUB): 14.45T v 14.52T prior.

- (TW) Taiwan Apr CPI Y/Y: 3.4% v 3.3%e; CPI Core Y/Y: 2.5% v 2.2%e; WPI Y/Y: 15.1% v 14.2% prior.

- (UK) Apr Construction PMI: 58.2 v 58.0e (15th month of expansion).

Fixed income issuance

- (IN) India sold total INR320B vs. INR320B indicated in 2026, 2028, 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 2029, 2038 and 2046 Bonds.

- 06:00 (UK) DMO to sell £2.0B in 1-month, 3-month and 6-month bills (£0.5B, £0.5B and £1.0B respectively).

- 06:00 (BE) Belgium Debt Agency (BDA) to sell OLO bonds.

- 06:30 (IS) Iceland switch auction.

- 06:45 (US) Daily Libor Fixing.

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

- 07:00 (MX) Mexico Feb Gross Fixed Investment: 4.5%e v 8.6% prior.

- 07:00 (BR) Brazil Apr FGV Inflation IGP-DI M/M: No est v 2.4% prior; Y/Y: No est v 15.6% prior.

- 07:15 (UK) BOE’s Pill (chief economist).

- 07:30 (TR) Turkey Apr Real Effective Exchange Rate (REER): No est v 54.01 prior.

- 07:30 (IN) India Weekly Forex Reserve w/e Apr 29th: No est v $600.4B prior.

- 07:45 (US) Apr CBIZ Small Business Employment Index.

- 08:00 (PL) Poland Apr Official Reserves: No est v $158.1B prior.

- 08:00 (PL) Poland Central Bank Apr Minutes (2 decisions ago).

- 08:00 (CL) Chile Apr CPI M/M: 1.0%e v 1.9% prior; Y/Y: 10.1%e v 9.4% prior.

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

- 08:30 (US) Apr Change in Nonfarm Payrolls: +380Ke v +431K prior; Change in Private Payrolls: +378Ke v +426K prior; Change in Manufacturing Payrolls: +35Ke v +38K prior.

- 08:30 (US) Apr Unemployment Rate: 3.5%e v 3.6% prior; Underemployment Rate: No est v 6.9% prior; Labor Force Participation Rate: 62.5%e v 62.4% prior.

- 08:30 (US) Apr Average Hourly Earnings M/M: 0.4%e v 0.4% prior; Y/Y: 5.5%e v 5.6% prior; Average Weekly Hours: 34.7e v 34.6 prior.

- 08:30 (CA) Canada Apr Net Change in Employment: +40.0Ke v +72.5K prior; Unemployment Rate: 5.2%e v 5.3% prior; Full Time Employment Change: No est v +92.7K prior; Part Time Employment Change: No est v -20.3K prior; Participation Rate: 65.4%e v 65.4% prior; Hourly Wage Rate: 3.6%e v 3.7% prior.

- 09:15 (US) Fed’s Williams.

- 10:00 (CA) Canada Apr Ivey Purchasing Managers Index (seasonally adj): No est v 74.2 prior; PMI (unadj): No est v 68.4 prior.

- 11:00 (EU) Potential sovereign ratings after European close.

- 11:00 (UK) BOE’s Tenreyo.

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

- 15:00 (US) Mar Consumer Credit: $25.0Be v $41.8B prior.

- 15:00 (US) Fed’s Bostic.

- 19:15 (US) Fed’s Bullard and Waller speak on Hoover Institute Panel.

- 20:00 (US Fed’s Daly gives commencement Speech.