• APAC stocks were mostly negative after the resumed sell-off on Wall St where the S&P 500 slipped beneath 4,000 for the first time since March 2021
• EU's Von Der Leyen tweeted that progress was made with Hungary but further work is needed.
• European equity futures are indicative of a marginally higher open with Eurostoxx 50 +0.2% after the cash market closed lower by 2.8% yesterday.
• DXY pulled back from YTD highs and the 104 level, benefiting most G10 FX counterparts ex-JPY.
• Looking ahead, highlights include German ZEW, Chinese M2, Speeches from Fed's Williams, Waller, Bostic, Barkin, Kashkari, Mester, ECB's de Guindos & BoE's Saunders, Supply from the Netherlands, UK, Germany & US, earnings from Bayer, Porsche, Norwegian Cruise Line & Warner Music.

US TRADE

• US stocks suffered firm losses as the May sell-off persisted in which the S&P 500 fell beneath 4,000 and the VIX rose above 35, while the downside was more a continuation of ongoing concerns, including recession fears, supply chain issues in China with its zero-COVID policy, global central bank tightening and geopolitical woes rather than fresh newsflow.
• SPX -3.12% at 3,994, NDX -3.98% at 12,187, DJIA -1.99% at 32,245, R2K -4.24% at 1,761.
• Click here for a detailed summary.

NOTABLE US HEADLINES

• US Federal Reserve Financial Stability Report said uncertainty over economic outlook has increased since November and that the Russian invasion and persistent inflation were identified as top financial risks by survey respondents. Furthermore, Fed's Brainard (voter) said businesses and households appear to have resources to cover debt burdens, which is an important aspect of resilience in a rising interest-rate environment. Brainard also said large price spikes and margin calls in commodities from Russia's Ukraine war highlight the potential for contagion to large financial institutions, while the Fed is working with regulators to better understand the exposures of commodity market participants.
• Fed's Bostic (2024 voter) said 50bps is a pretty aggressive move and the Fed can stay at that pace, while he thinks the Fed needs to be somewhere in the neutral range between 2.0%-2.5% by end-2023 and sees the Fed raising rates two or three times then assessing economy. Furthermore, he sees two-three 50bps rate hikes as a baseline and will be open to adjusting, according to Reuters.
• US President Biden said his top priority is fighting inflation and lowering prices, according to Bloomberg.

GEOPOLITICS

RUSSIA-UKRAINE

DEFENCE/MILITARY/ASSISTANCE

• US President Biden signed a lend-lease act to get weapons to Ukraine faster. President Biden commented that he is prepared to accept that Ukraine aid and COVID-19 funding move separately in Congress, while he called for Congress to pass the aid for Ukraine immediately and then promptly move on to COVID-19 funding, according to Reuters.
• US Secretary of State Blinken and Defense Secretary Austin urged the US Congress to pass the Ukraine bill before May 19th, while it was separately reported that US Democrats proposed a roughly USD 40bln in a Ukraine funding package, according to Reuters and Punchbowl.
• US Pentagon spokesman Kirby said Ukrainians are being moved to Russia and taken to "camps" against their will, according to The Telegraph.
• European Commission is reportedly planning to issue new EU debt to cover Ukraine’s short-term financing needs over the next three months estimated at EUR 15bln, according to Politico citing sources.

ENERGY/SANCTIONS

• EU officials were said to have a "sense of confidence" that EU Commission President von der Leyen will return from Budapest, Hungary with a deal on the oil embargo, according to WSJ's Norman. However, EU's Von Der Leyen later tweeted that progress was made with Hungary but further work is needed.
• EU has dropped plans to ban the EU shipping industry from carrying Russian oil after failing to get key partners (Malta and Greece) onboard, but still aims to ban insurance, according to FT.
• Hungarian Foreign Minister reiterated that Hungary will not vote on the European Commission's initiative on sanctions against Russia because it is a problem for the country and does not contain a proposal for a solution, according to Hungarian press.
• Germany is preparing a crisis plan for any abrupt end to Russian gas supplies which would allow Germany to take control of critical firms and provide financial support to energy firms, according to Reuters sources. Furthermore, measures are being made in case Russia takes unilateral action and they are discussing how measures could see it take control of the Rosneft-operated PCK refinery in Schwedt which is a major refinery for its Russian oil imports, while officials said they are reaching the limit of sanctions that can be imposed without triggering an economic spiral.
• Germany’s economy faces losing around 12% of its annual output (approx. EUR 429bln) if Russian natural gas supplies are halted abruptly, according to the FT citing a study by a government adviser.
• Japan announced new sanctions on Russia including freezing assets of individuals and groups with Russian PM Mishustin among those affected by Japan's asset freeze, while Japan is to introduce a ban on exports of cutting-edge goods to Russia as part of sanctions, according to Reuters.

DIPLOMATIC/OTHER

• French President Macron said Ukraine could wait decades for EU membership, according to Axios.
• US called for an emergency meeting of the UN Security Council to discuss North Korea's missile launch, according to Yonhap. It was later reported that the UN Security Council will meet on Wednesday.

OTHER

• US called for an emergency meeting of the UN Security Council to discuss North Korea's missile launch, according to Yonhap.

APAC TRADE

EQUITIES

• APAC stocks were mostly negative after the resumed sell-off on Wall St where the S&P 500 slipped beneath the 4,000 level for the first time since March 2021.
• ASX 200 briefly gave up the 7,000 status with notable underperformance in the energy and mining-related sectors.
• Nikkei 225 slumped from the open although moved off its lows as participants digested stronger than expected Household Spending data and after BoJ's Uchida dismissed the prospects of a tweak to the BoJ’s 50bps yield target band.
• Hang Seng and Shanghai Comp both initially joined in on the selling with heavy losses in the tech sector contributing to the underperformance in Hong Kong on return from the extended weekend, although the downside in the mainland was later reversed after the recent policy support efforts by China’s MIIT and CBIRC.
• US equity futures initially extended on losses but then gradually recovered with the E-mini S&P back above the 4,000 level; ES +0.6%.
• European equity futures are indicative of a marginally higher open with Eurostoxx 50 +0.2% after the cash market closed lower by -2.8% yesterday.

FX

• DXY was subdued overnight after pulling back from YTD highs and the 104.00 level amid an easing of yields.
• EUR/USD benefitted from the softer greenback but with upside contained within yesterday’s range on the 1.0500 handle.
• GBP/USD traded firmer after largely shrugging off the ongoing Brexit-related frictions with UK Foreign Secretary Truss reportedly set to abandon large parts of the Northern Ireland protocol after giving up on talks with the EU on a Brexit deal.
• USD/JPY was choppy and briefly declined beneath 130.00 before returning flat.
• Antipodeans found some mild reprieve as the early panic in the region gradually moderated and after better than expected Retail Sales data from Australia.

FIXED INCOME

• 10yr UST futures were higher as yields slightly eased and the US 10yr yield briefly dropped below 3.0%.
• Bunds marginally extended on gains after breaching 152.00 to the upside amid the risk aversion.
• 10yr JGBs kept afloat after yesterday’s rebound from a trough around 149.00 but with gains capped after mixed results from the 10yr JGB auction which showed a jump in the b/c but lower accepted prices.

COMMODITIES

• Crude futures remained pressured by global demand woes and slim progress on an EU embargo.
• Spain and Portugal have the green light from European Commission for their proposal to limit gas prices in Iberia with Spain to present a legal instrument to implement the price cap as soon as Tuesday, according to Reuters.
• Germany and Qatar are said to be at an impasse over key conditions in talks to secure a long-term LNG supply deal with Germany not wanting to sign a deal of at least 20yrs, according to Reuters.
• Venezuela's PDVSA started importing Iranian heavy crude for domestic refining, according to documents cited by Reuters.
• Spot gold was marginally higher and benefitted from a subdued dollar.
• Copper found some reprieve overnight after bouncing off YTD lows.

CRYPTO

• Bitcoin nursed some losses after a brief decline to beneath the 30,000 level spurred dip-buying.

NOTABLE HEADLINES

• BoJ senior official Uchida said there is no plan to tweak the 50bps band set around the BoJ's 10yr JGB yield target and it was suggested that widening the band is undesirable as it would effectively be a rate hike, according to Reuters.
• South Korean President Yoon said Korea and other countries are experiencing unemployment and low growth, while the door for dialogue will remain open to resolving North Korean threats and they will present an audacious plan to strengthen the North Korean economy if it genuinely embarks on the process of denuclearisation, according to Reuters.

DATA RECAP

• Australian Retail Trade (Q1) 1.2% vs. Exp. 1.0% (Prev. 8.2%)
• Australian NAB Business Confidence* (Apr) 10 (Prev. 16.0)
• Australian NAB Business Conditions* (Apr) 20 (Prev. 18.0, Rev. 15)
• Japanese All Household Spending MM* (Mar) 4.1% vs. Exp. 2.6% (Prev. -2.8%)
• Japanese All Household Spending YY* (Mar) -2.3% vs. Exp. -2.8% (Prev. 1.1%)

UK/EU

NOTABLE HEADLINES

• UK Foreign Secretary Truss is reportedly set to ditch the Northern Ireland protocol after giving up on EU talks, according to The Times.
• Barclaycard UK April consumer spending rose 19.1% vs April 2019 which is the largest increase since October, although inflation impacted retail and hospitality, according to Reuters.

DATA RECAP

• UK BRC Retail Sales YY (Apr) -1.7% (Prev. -0.4%)
• UK BRC Total Sales YY (Apr) -0.3% Y/Y (Prev. 3.1%)