‘Hawkish’ Tilt In Fed Minutes Continued To Push Yields Higher

Notes/Observations

• Fed signals an eventual shift from its easy-money pandemic policies.

Asia:

• Australia Apr Employment Change missed consensus (-30.6K v +20.0Ke) while Unemployment Rate fell for the 6th straight month (5.5% v 5.6%e).
• Japan Apr Trade Balance: ¥255.3B v ¥147.7Be; Exports Y/Y: 38.0% v 30.8%e; Imports Y/Y: 12.0% v 9.0%e.
• China’s Monthly Loan Prime Rate (LPR) Setting left both 1-Year Loan Prime Rate 5-Year Loan Prime rates unchanged at 3.85% and 4.65% respectively.
• Japan Defense Min Kishi said to plan to boost defense spending without concern for adhering to a longstanding limit of 1% of GDP.
• PBOC Researcher said China would need to eventually give up exchange-rate control.

Europe:

• ECB’s Schnabel (Germany) noted that ECB saws no reason to raise interest rates as inflation was expected to fall next year. Reiterated stance to keep financing favorable in order to support the economy.

Mid-East:

• Ceasefire between Israel and Hamas could occur as soon as Friday, May 21st.

Americas:

• FOMC Apr Minutes generally noted that the economy remained far from maximum employment and price stability targets. A number of participants noted it might be appropriate at some point in the upcoming meetings to begin discussing plans to adjust the pace of asset purchases (aka tapering).
• Fed’s Bostic (FOMC voter) noted that if it saw substantial progress it would advocate towards changing policy but not there yet.
• Biden administration said to be contemplating weakening their capital gains tax plans on estates after seeing some opposition from Democrats.

Speakers/Fixed income/FX/Commodities/Erratum

Equities

• Indices [Stoxx600 +0.23% at 437.36, FTSE +0.03% at 6,952.11, DAX +0.25% at 15,152.05, CAC-40 +0.33% at 6,282.88, IBEX-35 -0.44% at 9,031.00, FTSE MIB -0.07% at 24,468.50 , SMI +0.25% at 11,072.41, S&P 500 Futures -0.43%].
• Market Focal Points/Key Themes: European indices open higher across the board, but later turned to trade mixed; sectors leading to the upside include consumer discretionary and technology; only sectors starting the day in the red were financials and utilities; reportedly STMicro looking to take over Nordic Semi; earnings expected during the upcoming US session include Hormel Foods, Kohl’s, Mechel and Ralph Lauren.

Equities

• Consumer discretionary: Royal Mail [RMG.UK] -4% (earnings), EasyJet [EZJ.UK] -3% (earnings).
• Industrials: Kingfisher [KGF.UK] -1% (trading update) , Suedzucker [SZU.DE] -1% (earnings).
• Technology: Nordic Semiconductor [NOD.NO] +11% (STMicro said to mull offer; CFO does not comments).
• Telecom: Deutsche Telekom [DTE.DE] +2% (CMD), Bouygues [EN.FR] +1% (earnings).

Speakers

• Italy govt draft said to maintain tax benefits for banking deals. To re-introduce tax breaks on disposal of Non-performing Loans (NPLs) until Dec 31st and set €2.0B annual ceiling to ease the disposal.
• BOE’s Cunliffe noted that the house price strength in a recession is striking but could be very different after the pandemic.
• Norway Central Bank (Norges) Financial Infrastructure Report saw room for improvement. Among the most serious threats to critical financial infrastructure was digital mapping and sabotage.
• Sweden Central Bank (Riksbank) Dep Gov Breman noted that climate change was a threat to price stability as well as financial stability.
• South Africa Mines Union said to demand 15% wage increase for gold sector.
• Iran President Rouhani stated that it had reached a broad outline to end oil sanctions but still discussing final details.

Currencies/Fixed Income

• USD saw some of its recent gains slip away in a quiet session. The greenback was aided by safe-haven flows on Wed and further helped by ‘hawkish’ FOMC Minutes. The April Minutes saw some policymakers believing it might be appropriate to discuss tapering asset purchases if the economy continued to make rapid progress. The greenback’s retracement in the session due to participants noted that it would take several more months of strong data before discussing when tapering would begin.
• EUR/USD holding below the 1.22 level in quiet trading.
• USD/JPY unable to get back above 109 for the time being.
• Dealers noted that sentiment in major bond markets was currently tilted towards higher yields.

Economic data

• (NL) Netherlands Apr Unemployment Rate: 3.4% v 3.5% prior.
• (DE) Germany Apr PPI M/M: 0.8% v 0.8%e; Y/Y: 5.2% v 5.1%e.
• (SE) Sweden Q1 Total Number of Employees Y/Y: -1.5% v -1.4% prior.
• (TW) Taiwan Apr Export Orders Y/Y: 42.6% v 35.4%e.
• (EU) Euro Zone Mar Current Account Balance (seasonally Adj): €17.8B v €25.9B prior.
• (PL) Poland Apr Employment M/M: -0.2% v 0.0%e; Y/Y: 0.9% v 1.1%e.
• (PL) Poland Apr Average Gross Wages M/M: -2.1% v -1.7%e; Y/Y: 9.9% v 10.1%e.
• (PL) Poland May Consumer Confidence: -14.6 v -22.5 prior.
• (TW) Taiwan Q1 Current Account Balance: $26.0B v $27.3B prior.
• (HK) Hong Kong Apr Unemployment Rate: 6.4% v 6.6%e.
• (IT) Italy Mar Current Account Balance: €3.1B v €3.7B prior.
• (GR) Greece Mar Current Account Balance: -€1.5B v -€0.8B prior.
• (PT) Portugal Mar Current Account Balance: €0B (flat)v -€0.1B prior.
• (EU) Euro Zone Mar Construction Output M/M: +2.7% v -2.0% prior; Y/Y: +18.3% v -5.4% prior.

Fixed income Issuance

• (RU) Russia opened its book to sell EUR-denominated 2027 and 2036 bonds.
• (ES) Spain Debt Agency (Tesoro) sold total of €5.386B vs. €5.0-6.0B indicated range in 2024, 2028, and 2031 SPGB Bonds.
• Sold €1.723B in 0.0% May 2024 SPGB bonds; Avg yield: -0.356% v -0.411% prior; Bid-to-cover: 1.78x v 2.50x prior.
• Sold €1.677B in 0.00% Jan 2028 SPGB bonds; Avg yield: 0.171% v 0.000% prior; Bid-to-cover: 1.78x v 1.70x prior.
• Sold €1.986B in 0.10% Apr 2031 SPGB bonds; Avg Yield: 0.598% v 0.433% prior; bid-to-cover: 1.77x v 1.62x prior.
• (FR) France Debt Agency (AFT) sold total of €10.491B vs. €9.5-10.5B indicated range in 2024, 2027, and 2028 Bonds.
• Sold €4.789B in 0.00% Feb 2024 Oat; Avg Yield: -0.53% v -0.61% prior; Bid-to-cover: 2.49x v 2.70x prior.
• Sold €3.297B in 0.00% Feb 2027 Oat; Avg Yield: -0.19% v -0.36% prior; bid-to-cover: 2.32x v 2.21x prior.
• Sold €2.405B in 0.75% Nov 2028 Oat; Avg Yield: -0.03% v -0.28% prior; Bid-to-cover: 2.28x v 2.51x prior.
• (NO) Norway sold NOK2.0B vs. NOK2.0B indicated in 1.5% Feb 2026 Bonds; Avg Yield: 1.11% v 0.74% prior; Bid-to-cover: 2.27x v 3.07x prior.
• (IE) Ireland Debt Agency (NTMA) sold €750M vs. €750M indicated in 6-month Bills; Avg Yield: -0.605% v -0.602% prior; Bid-to-cover: 2.1x v 2.3x prior.

Looking Ahead

• (EU) Daily ECB Liquidity Stats.
• 05:30 (HU) Hungary Debt Agency (AKK) to sell bonds.
• 05:50 (HU) Hungary Central Bank One-Week Deposit Rate Tender.
• 05:50 (FR) France Debt Agency (AFT) to sell €2.0-3.0B in inflation-linked 2032 and 2036 Bonds (Oatei).
• 06:00 (CZ) Czech Republic to sell CZK5.0B in 6-month Bills.
• 06:00 (RO) Romania to sell RON600M in 3.25% 2026 Bonds.
• 06:45 (US) Daily Libor Fixing.
• 07:30 (SE) Sweden Central Bank (Riksbank) Skingsley on monetary policy.
• 07:50 (EU) ECB chief Lagarde with member Holzmann (Austria) and IMF chief Georgieva at event on gender.
• 08:00 (UK) Daily Baltic Dry Bulk Index.
• 08:30 (US) May Philadelphia Fed Business Outlook: 41.0e v 50.2 prior.
• 08:30 (US) Initial Jobless Claims: 450Ke v 473K prior; Continuing Claims: 3.63Me v 3.655M prior.
• 08:30 (US) Weekly USDA Net Export Sales.
• 09:00 (RU) Russia Gold and Forex Reserve w/e May 14th: No est v $590.6B prior.
• 09:00 (ZA) South Africa Central Bank (SARB) Interest Rate Decision: Expected to leave Interest Rate unchanged at 3.50%.
• 10:00 (US) Apr Leading Index: 1.3%e v 1.3% prior.
• 10:30 (US) Weekly EIA Natural Gas Inventories.
• 10:30 (BR) Brazil Apr Tax Collections (BRL): 140.7Be v 137.9B prior.
• 11:30 (US) Treasury to sell 4-week and 8-week Bills.
• 12:00 (RU) Russia Apr PPI M/M: 1.8%e v 3.6% prior; Y/Y: 26.1%e v 16.0% prior.
• 15:00 (AR) Argentina Mar Economic Activity Index (Monthly GDP) M/M: +1.0%e v -1.0% prior; Y/Y: +10.5%e v -2.6% prior.
• 17:00 (KR) South Korea Apr PPI Y/Y: No est v 3.9% prior.
• 19:00 (AU) Australia May Preliminary PMI Manufacturing: No est v 59.7 prior; PMI Services: No est v 58.8 prior; PMI Composite: No est v 58.9 prior.
• 19:01 (UK) May GfK Consumer Confidence: -12e v -15 prior.
• 19:30 (JP) Japan Apr National CPI Y/Y: -0.5%e v -0.2% prior; CPI Ex-fresh food (core) Y/Y: -0.2%e v -0.1% prior; CPI Ex-fresh food/energy (core-core)Y/Y: -0.1%e v +0.3% prior.
• 20:00 (KR) South Korea 1st 20 Days of May Exports Y/Y: No est v 45.4% prior; Imports Y/Y: No est v 31.3% prior.
• 20:30 (JP) Japan May Preliminary PMI Manufacturing: No est v 53.6 prior; PMI Services: No est v 49.5 prior; PMI Composite: No est v 51.0 prior.
• 21:00 (AU) Australia to sell 5-year notes.
• 21:30 (AU) Australia Apr Preliminary Retail Sales M/M: 0.5%e v 1.3% prior.
• 22:05 (NZ) New Zealand to sell 3-year, 7-year, and 15-year notes.
• 23:00 (NZ) New Zealand Apr Credit Card Spending M/M: No est v 3.1% prior; Y/Y: No est v 2.2% prior.
• 23:00 (KR) South Korea Q1 Short-Term External Debt: No est v $157.5B prior.
• 23:00 (ID) Indonesia Q1 Current Account Balance: -$0.7Be v +$0.8B prior.
• 23:30 (TH) Thailand Apr Customs Trade Balance: $0.9Be v $0.7B prior; Exports Y/Y: 10.2%e 8.5% prior; Imports Y/Y: 22.65e v 14.1% prior.
• 23:30 (JP) Japan to sell 3-Month Bills.
• 23:35 (JP) Japan to sell 20-year JGB Bonds.