• European indices have started the week's last trading day positively and have extended on gains in early trade
• US equity futures have also been trending higher since the reopening of futures trading overnight
• DXY bound tightly to 103.000, but only really firm relative to Yen on renewed risk appetite
• Debt futures reverse course amidst pre-weekend risk revival, partly prompted by PBoC LPR cut
• WTI and Brent July futures consolidate in early European trade; spot gold has been moving in tandem with the Buck
• Looking ahead, EZ Consumer Confidence (Flash), S&P reviewing South Africa, Speeches from ECB's Lane, Centeno, de Cos

20th May 2022

SNAPSHOT

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GEOPOLITICS

RUSSIA-UKRAINE

DEFENCE/MILITARY

• Russian Duma is to consider a law to remove age limits for contractual services in the military, according to the Duma website.
• Luhansk People's Republic says "liberation" will be completed soon, according to Russian news outlet TASS.Yonhap
• Russian Defense Minister says military threats near Russia's Western borders are on the rise due NATO and US actions; cites Sweden and Finland NATO applications.

OTHER

• White House said it told China that the US will respond decisively to North Korean provocations and it believes China is ratcheting up tensions over Taiwan, while it discussed this issue recently with a top official in Beijing and said that US President Biden and Chinese President Xi may talk in the upcoming weeks. White House also said China's step to replenish strategic oil reserves with Russian oil would not contravene US sanctions and it does not expect to revisit the F-16 deal with Turkey as part of NATO negotiations regarding Sweden and Finland, according to Reuters.
• Satellite photos suggest that China is training to attack Japan's aircraft as it has set up an object that appears to be modelled on an airborne warning and control system (AWACS) plane used by the Japan Air Self-Defense Force (JASDF) in a desert area of Xinjiang, according to Nikkei.

CENTRAL BANK

• BoE Chief Economist Pill says inflation is the largest challenge faced by the MPC over the past 25 years. The MPC sees an upside skew in the risks around the inflation baseline in the latter part of the forecast period. Pill said further work needs to be done. "In my view, it would be preferable to have any such gilt sales running ‘in the background’, rather than being responsive to month-to-month data news.", via the BoE.
• ECB's Kazaks hopes the first ECB hike will happen in July, according to Bloomberg.
• ECB's Muller says focus needs to be on fighting high inflation, according to Bloomberg.
• ECB's Visco says the ECB can move out of negative rate territory; a June hike is "certainly" out of the question but July is perhaps the time to start
• Chinese Loan Prime Rate 1Y (May) 3.70% vs. Exp. 3.65% (Prev. 3.70%); Chinese Loan Prime Rate 5Y (May) 4.45% vs. Exp. 4.60% (Prev. 4.60%)
• Fed's Kashkari (2023 voter) said they are removing accommodation even faster than they added it at the start of COVID and have done quite a bit to remove support for the economy through forward guidance. Kashkari stated that he does not know how high rates need to go to bring inflation down and does not know the odds of pulling off a soft-landing, while he is seeing some evidence they are in a longer-term high inflation regime and if so, the Fed may need to be more aggressive, according to Reuters.

EUROPEAN TRADE

EQUITIES

• European indices have started the week's last trading day positively and have extended on gains in early trade.
• Swiss SMI (+0.5%) sees its upside capped by losses in Richemont which provided a downbeat China outlook.
• European sectors are almost wholly in the green with a clear pro-cyclical bias/anti-defensive bias - Healthcare, Personal & Consumer Goods, Telecoms, Food & Beverages all reside at the bottom of the chart, whilst Autos & Parts, Travel & Leisure and Retail lead the charge on the upside.
• US equity futures have also been trending higher since the reopening of futures trading overnight
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FX

• DXY bound tightly to 103.000, but only really firm relative to Yen on renewed risk appetite.
• Yuan back to early May peaks after PBoC easing of 5 year LPR boosts risk sentiment - Usd/Cny and Usd/Cnh both sub-6.7000.
• Kiwi outperforms ahead of anticipated 50 bp RBNZ hike next week and with tailwind from Aussie cross pre-close call election result.
• Euro and Pound capped by resistance at round number levels irrespective of hawkish ECB commentary and surprisingly strong UK consumption data.
• Lira lurching after Turkish President Erdogan rejection of Swedish and Finnish NATO entry bids.
• Japanese PM Kishida says rapid FX moves are undesirable, via Nikkei interview; keeping close ties with overseas currency authorities, via Nikkei.
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FIXED INCOME

• Debt futures reverse course amidst pre-weekend risk revival, partly prompted by PBoC LPR cut.
• Bunds hovering above 153.00, Gilts sub-119.50 and T-note just over 119-16.
• UK debt also taking on board surprisingly strong retail sales metrics and EZ bonds acknowledging more hawkish ECB rhetoric.
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COMMODITIES

• WTI and Brent July futures consolidate in early European trade in what has been another volatile week for the crude complex.
• Spot gold has been moving in tandem with the Buck and rose back above its 200 DMA
• Base metals are mostly firmer, with LME copper re-eyeing USD 9,500/t to the upside as the red metal is poised for its first weekly gain in seven weeks
• Russia's Gazprom continues gas shipments to Europe via Ukraine, with Friday volume at 62.4mln cubic metres (prev. 63.3mbm)
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NOTABLE EUROPEAN HEADLINES

NOTABLE EUROPEAN DATA

• UK Retail Sales MM* (Apr) 1.4% vs. Exp. -0.2% (Prev. -1.4%, Rev. -1.2%)
• UK Retail Sales YY* (Apr) -4.9% vs. Exp. -7.2% (Prev. 0.9%, Rev. 1.3%)

CRYPTO

• Bitcoin is relatively flat intraday around the USD 30k mark.

APAC TRADE

EQUITIES

• APAC stocks picked themselves up from recent losses as risk sentiment improved from the choppy US mood.
• ASX 200 gained with outperformance in tech and mining stocks leading the broad gains across industries.
• Nikkei 225 was underpinned following the BoJ’s ETF purchases yesterday and despite multi-year high inflation.
• Hang Seng and Shanghai Comp strengthened with a rebound in tech setting the pace in Hong Kong and with the mainland also lifted following the PBoC’s Loan Prime Rate announcement in which it defied the consensus by maintaining the 1-Year LPR at 3.70% but cut the 5-Year LPR by 15bps to 4.45%, which is the reference for mortgages. Nonetheless, this wasn’t much of a shock as the central bank had kept the 1-Year MLF Rate unchanged earlier in the week and effectively cut interest rates for first-time homebuyers by 20bps on Sunday.

NOTABLE APAC HEADLINES

• Chinese Premier Li vows efforts to aid the resumption of production, via Xinhua; will continue to build itself into a large global market and a hot spot for foreign investment, via Reuters.
• US and Japanese leaders are to urge China to reduce its nuclear arsenal, according to Yomiuri. It was also reported that Japanese PM Kishida is expected to announce a defence budget increase during the summit with US President Biden, according to TV Asahi.

DATA RECAP

• Japanese National CPI YY (Apr) 2.5% vs. Exp. 2.5% (Prev. 1.2%)
• Japanese National CPI Ex. Fresh Food YY (Apr) 2.1% vs. Exp. 2.1% (Prev. 0.8%)
• Japanese National CPI Ex. Fresh Food & Energy YY (Apr) 0.8% vs. Exp. 0.7% (Prev. -0.7%)