German IFO survey improves, ECB Lagarde sharpens stance on rate hike

Remarks/Comments
– Germany’s May IFO survey beat consensus and improves m/m.
-ECB chief Lagarde turns hawkish with a blog post pointing out that they are likely to exit negative interest rates by the end of Q3 2022. The euro surged following Of actuality.
-China’s COVID outbreak appears to be on a steady decline, but heavy pressure remains on new outbreaks as Beijing and Tianjin reverse positive results from Shanghai.
– Sino-US tensions have escalated as Biden confirms that the United States would defend Taiwan. China responded with aggressive remarks that the United States was playing with fire and reiterated that Taiwan was part of the “One China” policy.
-Global risk appetite appears to be alive. Although Asian indices closed mixed with the Hang Seng underperforming at -1.1%, Europe holds up small gains between 0 and 0.7%, US futures point to an unwaveringly positive outlook around 0.5% higher, potentially seeing price value now that S&P approaches carry market territory.
– Australia’s federal election over the weekend resulted in a change of government.
Asia
– The Australian Labor coalition won 72 seats in Parliament against 52 for the Liberal coalition; Anthony Albanese will become PM.
– PM Albanese was then sworn in; Appointed Calmers as Treasurer; Gallagher Fin Min, Wong as Minister of Foreign Affairs.
– RBA Deputy Governor Kent reiterated that the RBA has no plans to sell bonds from the portfolio, holdings will remain strong for a few years to come.
– Japanese Prime Minister Kishida said he is currently witnessing a change in the international order due to Russia’s unilateral action. Reaffirmed that there was no change in Taiwan policy (Note: Comments after meeting US President Biden).
Ukrainian conflict
– Russian gazprom banned Finland from receiving Russian gas after Finland refused to pay in RUB (roubles) (Insight: This decision coincides with Finland’s formal application for NATO membership).
– Finland Econ Min said situation was under control as Russia cut gas; I have seen some companies shut down their operations when Russian gas is cut off.
Europe
– ECB chief Lagarde reiterated the streak of the ECB going down the path of stopping net asset purchases and then some time after. [which could be a few weeks] rise in interest rates.
– Germany’s Fin Min Lindner said it saw external risks of euro depreciation, but welcomed the prospect of higher interest rates. We have taken inflation very seriously and we must put an end to our expansive financial policy.
Americas
Deese, White House Economic Advisor: The national economy can withstand the Fed’s hike cycle. The Fed needed space to do its job and fight inflation.
Energy
– Last Friday (May 20) was the deadline for a number of EU companies to send payments to Gazprom.
Speakers/Fixed Income/FX/Commodities/Erratum
Shares
clues [Stoxx600 +0.26% at 432.24, FTSE +0.63% at 7,436.35, DAX +0.49% at 14,050.78, CAC-40 -0.22% at 6,271.33, IBEX-35 +0.51% at 8,527.50, FTSE MIB -1.14% at 23,821.00, SMI +0.47% at 11,361.88, S&P 500 Futures +0.48%].
Market Focal Points/Key Themes: European indices opened higher across the board, but later the French and Italian indices fell negative; all sectors start the day positively; sectors leading up include consumer discretionary and materials; while the financial and telecommunications sectors lagged; Siemens Energy makes an offer for the remaining stake in Siemens Gamesa; Deutsche Euroshop receives a takeover offer from Hercules; Broadcom reportedly in talks to acquire VMware; earnings expected in the upcoming US session include Advance Auto Parts.
Shares
– Consumer Discretionary: Kingfisher [KING.UK] +2.5% (trade update).
– Finance: Deutsche EuroShop [DEQ.DE] +41% (offer).
– Health: Orphazyme [ORPHA.DK] -12% (board changes).
– Technology: Kainos [KNOS.UK] +16% (gains).
Speakers
– Head of ECB Lagarde commented in a blog post that it is likely able to exit negative rates by the end of the third quarter.
-President Biden said a recession was not inevitable. Rising gas prices were having an impact on families. The release of the strategic petroleum reserve had helped, but was not enough. Confirmed that he was considering reducing current tariffs on China and would discuss the issue with Yellen after returning to the United States.
– European Commission confirmed the extension of the suspension of the EU debt rule until 2023; Proposes to restore the limits in 2024.
– IFO German economists said the national economy was resilient.
– Central Bank of India (RBI) Gov Das said it had entered another phase of coordinated action to contain inflation. Coordinated action between fiscal and monetary authorities to have a moderating effect on inflation. To have more action by October on inflation. Update the inflation outlook at the next monetary policy meeting. Look to continue the walks in future meetings.
– India Oil Min Puri said oil prices remaining at $110 a barrel could lead to bigger problems other than inflation.
– Thailand Central Bank Gov Sethaput said he was in no rush to change the monetary policy framework; confident that inflation will decline to 1.7% in 2023. Necessary to ensure that the recovery remains intact.
– Zhenglong, head of China’s National Health Commission (NHC) said the COVID situation in steady decline recently. Shanghai’s COVID outbreak was improving overall, but still under heavy pressure to prevent resurgence.
– Chinese Foreign Minister Wang Yi reiterated that it deplores and rejects US comments on Taiwan and will take firm action to safeguard its sovereignty and interests; The United States was playing with fire on the Taiwan issue.
Currency/fixed income
– FX markets saw a continuation of broad-based greenback weakness as the unwinding of risk aversion flows continued. USD at 2-week lows against various major pairs.
– EUR/USD at center of trade as Germany’s IFO survey released and ECB chief Lagarde clarified her stance with hawkish remarks on exiting negative interest rates by the end from the third quarter of 2022. The pair rose to test 1.0640 after hawkish comments from Lagarde.
– GBP/USD – struggling to break 1.257, remains confined between 1.2550 and 1.2570 after poor UK data last week.
– USD/CAD – in a range between 1.2785 and 1.2810.
– USD/CHF – down slightly to 0.972.
– USD/JPY – pivoted after the Nikkei close, now falling towards 127.5.
– AUD/USD – trending up in the 0.7120 area. The results of the country’s elections overnight..
– NZD/USD – is trading higher at 0.6460.
Economic data
– (CH) Swiss Apr M3 Money supply Y/Y: -0.1% vs. +0.7% before.
– (TR) Turkey May Real Sector Confidence (seasonal assistant): 107.0 against 107.7 before; Real sector confidence NSA (unadj): 109.4 against 109.7 before.
– (TR) Central Bank of Turkey TCMB May Inflation Expectations Survey Next 12 Months: 33.3% vs. 28.4% previously.
– (TR) Turkey May Capacity Utilization: 78.0% vs. 77.8% previously.
– (MY) Malaysia mid-May Foreign reserves: 111.4 billion dollars against 112.5 billion dollars.
– (DE) Germany, IFO business climate survey: 93.0 v 91.4e; Current rating survey: 99.5v 96.8ev 97.2 forward; Expectations survey: 86.9 v 86.5e.
– (TW) April unemployment rate in Taiwan: 3.7% vs. 3.8%e.
– (TW) April industrial production in Taiwan Y/Y: 7.3% vs. 3.2%e.
– (CH) Swiss weekly total of sight deposits (CHF): 754.1 billion against 753.5 billion previously; Domestic sight deposits: 664.9B against 666.5B previously.
– (PL) Real April retail sales in Poland M/M: -0.1% v +0.9%e; Y/Y: 19.0% vs. 16.2%e; Retail sales Y/Y: 33.4% vs. 25.7%e.
– (PL) Poland Apr Construction Output Y/Y: 9.3% vs. 18.4%e.
– (TR) Turkey April Foreign tourist arrivals Y/Y: 225.6% vs. 129.7% before.
– (HK) Hong Kong Apr CPI Composite Y/Y: 1.3% vs. 2.0%e.
Issuance of fixed income securities
– None seen.
Look forward
– (PE) Peru Q1 GDP Y/Y: 3.8%ev 3.2% before.
– 05:25 (EU) Daily ECB liquidity statistics.
– 05:30 ((DE) Germany will sell a combined €6.0 billion in 3-month and 9-month BuBills.
– 05:30 (EU) The European Union will sell 2.5 billion euros of 1.00% NGEN bonds from July 2032.
– 05:30 (ZA) South Africa announces details of the upcoming I/L bond sale (held on Friday).
– 06:00 (IL) Unemployment rate in Israel in May: no est against 3.8% before; Unemployment rate (including Covid effect): none is against 4.8% before.
– 06:00 (BE) The Belgian Debt Agency (BDA) will sell 2.8 to 3.8 billion euros of OLO 2025, 2032 and 2066 bonds.
– 06:00 (IL) Israel will sell combined ILS700B bonds in 2024, 2026 and 2032.
– 06:45 (US) Daily Libor Fixin.
– 07:00 (RO) Romania will sell 200 million RON in 2026 bonds at 4.85%.
– 07:00 (TR) Turkey will sell bonds.
– 07:00 (IN) India announces details of upcoming bond sale (held on Friday).
– 07:25 (BR) Weekly survey of economists from the Central Bank of Brazil.
– 08:00 (UK) Daily Baltic Dry Bulk Index.
– 08:30 (US) April Chicago Fed National Activity Index: 0.50ev 0.44 ahead.
– 09:00 (FR) The French Debt Agency (AFT) will sell 4.4 to 5.6 billion euros in 3-month, 6-month and 12-month bonds.
– 09:00 (IS) Central Bank of Israel (BOI) Interest Rate Decision: Expected to raise base rate by 25bps to 0.60%.
– 09:00 (BE) Belgium May Business Confidence: 2.0ev 2.4 before.
– 10:15 (EU) ECB’s Holzmann (Austria) with ECB’s Nagel (Germany) and BOE’s Gov Bailey in Vienna.
– 11:30 a.m. (US) The Treasury will sell 13-week and 26-week bills.
– 12:00 (United States) Fed bostic on the economic outlook.
– 4:00 p.m. (US) Weekly crop progress report.
– 5:00 PM (KR) South Korea Consumer Confidence in May: No est v 103.8 ahead.
– 6:45 p.m. (NZ) New Zealand Q1 retail sales (ex inflation) Q/Q: 0.0% ev 8.6% before.
– 19:00 (AU) Australia May Preliminary PMI Manufacturing: No est v 53.5 before; PMI Services: No is v 56.1 earlier; PMI Composite: No is v 55.9 before.
– 7:30 PM (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence: No est v 89.3 ahead.
– 8:30 p.m. (JP) Japan May Preliminary Manufacturing PMI: no est v 53.5 ahead; PMI Services: No is v 50.7 prior; PMI Composite: No is v 51.1 earlier.
– 10:30 PM (KR) South Korea will sell 700,000 KRW in 20-year bonds.
– 23:00 (KR) South Korea Q1 Household Credit (KRW): No east v 1,862.1T ahead.
– 23:00 (TH) The Central Bank of Thailand will sell 50 billion THB in 3-month bills.
– 22:30 (JP) Japan will sell 6-month notes.