• APAC stocks traded mixed as regional bourses only partially sustained the momentum from global peers; S&P 500 closed +2%.
• Fed Chair Powell said the Fed will not hesitate to move past neutral and will continue raising rates until they see inflation coming down.
• European equity futures are indicative of a marginally firmer open with Eurostoxx 50 +0.2% after the cash market closed higher by 1.5% yesterday.
• DXY remains on a 103 handle, EUR/USD maintains 1.05 status and AUD weathers soft wage data.
• Looking ahead, highlights include UK CPI, EZ CPI (Final), US Building Permits/Housing Starts, Canadian CPI, Speech from Fed's Harker, Supply from Germany & US, Earnings from Aviva, easyJet, Cisco & Target.

US TRADE

• US stocks were firmer with a pro-risk bias after hot US retail sales data and industrial/manufacturing production data added to the positive COVID tone out of Shanghai.
• SPX +2.02% at 4,089, NDX +2.62% at 12,564, DJIA +1.34% at 32,655, RUT +2.99% at 1,839.
• Click here for a detailed summary.

NOTABLE US HEADLINES

• Fed Chair Powell said the Fed knows this is a time to be tightly focused on getting inflation down, while they have the tools and resolve to bring inflation back down and there is broad support on the FOMC for having 50bps on the table at the next two meetings. Powell said they are raising rates expeditiously to a more normal level which they will probably reach in Q4 this year, although that is not a stopping point and they do not know where neutral is or where tight is. Furthermore, they will be looking at financial conditions and economic health meeting by meeting, while they will not hesitate if they need to move past neutral and will continue raising rates until they see inflation coming down.
• Fed's Evans (2023 voter) said the Fed should hike rates to a 2.25%-2.50% neutral range expeditiously and he favours front-loaded interest rate hikes. Evans added they may need to take policy somewhat above neutral to achieve the 2% price target and if inflation doesn't respond to tighter policy to the degree needed, they will continue working on it. Furthermore, he expects they will be talking about transitioning to 25bps hikes by the July or September meeting and expects they would have completed any 50bps increases by December and would have put in place a few 25bp hikes, according to Reuters.
• Fed's Kashkari (2023 voter) said the Fed has indicated it will get rates to at least neutral by the end of the year but added that he asks himself if the Fed will need to do more, according to Reuters.

GEOPOLITICS

RUSSIA-UKRAINE

MILITARY/DEFENSIVE/ASSISTANCE

• French President Macron told Ukraine President Zelensky that he stands ready to respond to all demands for support, particularly with military equipment, while arms deliveries continue and will intensify, according to Reuters.
• US State Department said it is launching a new Conflict Observatory to capture, analyse, and make widely available evidence of Russia-perpetrated war crimes and other atrocities in Ukraine, according to Reuters.

ENERGY/SANCTIONS/ECONOMIC

• US Treasury is set to block Russian debt payments, raising the odds of a default and won't extend the carveout (which lets Russia pay coupons in Dollars) which ends on May 25th, according to Bloomberg. However, a US admin official said this is under consideration but did not have a decision to review at this time and said the US is looking at all options to increase pressure on Russian President Putin.
• European Commission will unveil a EUR 210bln plan on Wednesday regarding how Europe can end its reliance on Russian fossil fuels by 2027, according to Reuters.
• EU is looking to raise EUR 20bln to fund its exit from Russian energy by selling off some of its surplus of Emissions Trading Scheme certificates at the expense of its climate goals, according to EU officials and diplomats cited by the FT.
• EU and Hungary are negotiating financial support to Budapest so that it lifts its veto on the bloc's planned embargo on Russian oil, although differences remain over funds for refineries, according to Reuters sources.
• Slovakia’s Finance Minister said they will propose a special tax on Russian crude processed in the country, according to Reuters.

OTHER

• US assessed that North Korea could be preparing to conduct an ICBM test within the next few days as US President Biden travels to Asia, according to CNN.

APAC TRADE

EQUITIES

• APAC stocks traded mixed as the regional bourses only partially sustained the momentum from global peers.
• ASX 200 was led higher by outperformance in the mining and materials related sectors, while softer than expected wage price data reduced the prospects of a more aggressive RBA rate hike next month.
• Nikkei 225 briefly reclaimed the 27,000 level but retreated off its highs as participants digested GDP data which printed in negative territory, albeit at a narrower than feared contraction.
• Hang Seng and Shanghai Comp were subdued with large-cap tech stocks pressured in Hong Kong including JD.com despite beating earnings expectations and with Tencent bracing for the expected slowest revenue growth since its listing, while the mainland was hampered by the mixed COVID-19 situation as Shanghai registered a 4th consecutive day of zero transmissions outside of quarantine, although Beijing was said to lockdown some areas in its Fengtai district for 7 days.
• US equity futures retraced some of the prior day's gains but with downside limited by muted trade; ES -0.2%
• European equity futures are indicative of a marginally firmer open with Eurostoxx 50 +0.2% after the cash market closed higher by 1.5% yesterday.

FX

• DXY was rangebound and only partially nursed yesterday’s weakness where it slipped to beneath the 104.00 level amid strength in its major counterparts and a pick up in risk sentiment.
• EUR/USD came off its highs but still held on to most of the prior day's gains which were helped by comments from ECB's Knot who noted that a 25bp hike in July is realistic and touted the possibility of future 50bp increases.
• GBP/USD took a breather from its recent data-fuelled outperformance after hitting resistance at 1.2500.
• USD/JPY retreated after early momentum stalled at 129.50 and as participants digested the GDP data.
• Antipodeans were initially lower with AUD/USD pressured following the softer than expected Wage Price Index at 0.7% which was also beneath ANZ Bank's suggested 1% threshold needed to trigger a 40bps hike by the RBA next month. Both AUD and NZD have trimmed losses ahead of the European open.

FIXED INCOME

• 10yr UST futures were flat after yesterday’s bear flattening and hawkish rhetoric from Fed Chair Powell.
• Bunds languished near the prior day’s lows with yields lifted after comments from ECB’s Knot.
• 10yr JGBs eked mild gains following a mixed 5yr auction which garnered higher accepted prices.

COMMODITIES

• Crude futures were choppy amid the mixed China COVID situation but with some support from bullish inventory data.
• US Energy Inventory Data (bbls): Crude -2.4mln (exp. +1.4mln), Cushing -3.1mln, Gasoline -5.1mln (exp. -1.3mln), Distillates +1.1mln (exp. unchanged).
• Spot gold was subdued as the greenback modestly attempted to nurse recent losses.
• Copper prices are marginally lower amid the mixed risk tone and weakness in its largest buyer China.

CRYPTO

• Bitcoin declined overnight in which prices gradually trickled to beneath the 30,000 level.

NOTABLE HEADLINES

• Shanghai authorities issued a new white list containing 864 financial institutions permitted to resume work, according to sources cited by Reuters.

DATA RECAP

• Chinese China House Prices YY* (Apr) 0.7% (Prev. 1.5%)
• Japanese GDP QQ (Q1) -0.2% vs. Exp. -0.4% (Prev. 1.1%, Rev. 0.9%)
• Japanese GDP QQ Annualised (Q1) -1.0% vs. Exp. -1.8% (Prev. 4.6%, Rev. 3.8%)
• Australian Wage Price Index QQ (Q1) 0.7% vs. Exp. 0.8% (Prev. 0.7%)
• Australian Wage Price Index YY (Q1) 2.4% vs. Exp. 2.5% (Prev. 2.3%)

UK/EU

NOTABLE HEADLINES

• UK Chancellor Sunak is reportedly mulling bringing forward the 1p income tax cut to the basic rate by one year, according to iNews citing Treasury insiders. Other reports suggest that Sunak is putting plans together to raise the warm home discount by hundreds of GBP in July ahead of lowering taxes in autumn to assist with the cost of living crisis, according to The Times.
• EU is to offer the UK new concessions on the Northern Ireland protocol but has threatened a trade war if UK PM Johnson refuses to agree to a compromise, according to The Telegraph.
• ECB President Lagarde has given national central bank chiefs a larger say in policy meetings, while she is asking her board to speak less and leave more time to debate, according to Reuters sources.