• European bourses are mixed/modestly-firmer, Euro Stoxx 50 +0.3%, as the initial upside momentum waned amid fresh China COVID updates and hawkish ECB commentary
• Stateside, futures are firmer but similarly off best levels, ES +0.5%, with recent/familiar themes very much in focus ahead of a thin US-specific docket
• EUR lifted and outperforming amid hawkish commentary from ECB’s Lagarde, Kiwi in close proximity amid shadow board guidance
• WTI and Brent bid, alongside precious metals, amid the USD’s pullback with attention on broader sentiment and mixed China-COVID commentary
• US President Biden is mulling reducing China tariffs and said he would be willing to use force to defend Taiwan
• Looking ahead, highlights include ECB’s Holzmann, Nagel, Villeroy, BoE's Bailey & Fed’s Bostic

As of 11:25BST/06:25ET

LOOKING AHEAD

• Speeches from ECB’s Holzmann, Nagel, Villeroy, BoE's Bailey & Fed’s Bostic.
• Click here for the Week Ahead preview

GEOPOLITICS

RUSSIA-UKRAINE

NEGOTIATIONS/TALKS/ASSISTANCE

• Russian negotiator Medinsky said Russia is ready to continue stalled peace talks with Ukraine and said that Russia has never refused talks, according to Associated Press.
• Russian Deputy Foreign Minister says that Moscow will be prepared to return to discussions with Kyiv when Ukraine demonstrates a constructive response, according to Interfax; will not rule out the possibility of discussing an exchange of Azovstal prisoners with Kyiv.
• US and several countries walked out on the APEC trade ministers’ meeting in Bangkok to protest the Russian invasion of Ukraine, according to Reuters.
• UK PM Johnson spoke with Ukrainian President Zelensky and discussed Russian President Putin’s blockade of Odessa, while PM Johnson resolved to redouble efforts to provide vital food and humanitarian aid to Ukraine, as well as ensure the country is able to export to the world, according to Reuters.

MILITARY/NATO/DIPLOMATIC

• Polish President Duda told the Ukrainian parliament that Kyiv did not fall to Russians and will not fall to Russians, while Duda added that Ukraine showed the world that it can resist Russia and he will not rest until Ukraine becomes a member of the EU, according to Reuters.
• US Secretary of State Blinken and France’s new Minister of Europe and Foreign Affairs Colonna discussed NATO and how to support Sweden and Finland’s application for membership into the alliance, while they also agreed on the importance of continuing support for Ukraine and maintaining the significant costs on Russian President Putin for the invasion of Ukraine, according to Reuters.
• Turkish President Erdogan told NATO Secretary General Stoltenberg that Ankara won’t accept Finland and Sweden’s membership unless they cooperate over terrorism and other issues, according to Reuters.
• Turkish President Erdogan conducted a call with Swedish PM Andersson in which he told her that Sweden’s support for terrorist organisations to stop and that the arms embargo towards Turkey should be lifted, while Turkey expects concrete steps on concerns regarding PKK and others. It was also reported that Finnish President Niinisto said he had an open and direct call with Turkish President Erdogan in which he told Erdogan that as NATO allies, they will commit to each other’s security and the relationship between their countries will grow stronger, according to Reuters.
• US Pentagon is reportedly weighing deploying special forces to guard the embassy in Kyiv, according to WSJ.

ENERGY/SANCTIONS/ECONOMIC

• EU Parliament Vice President Barley said the remaining 26 EU member states should launch a Russian oil embargo without Hungary, according to Deutsche Welle.
• German Economy Minister says Germany wants to ban Russian oil, with or without Hungary, via Sky News Arabia.

OTHER

• Yemeni Houthis' top official al-Mashat said the group was not against extending the UN-brokered truce although described it as not encouraging enough, according to Reuters.

CENTRAL BANKS

• ECB's Lagarde says based on the current outlook, we are likely to be in a position to exit negative interest rates by the end of the third quarter; against the backdrop of the evidence I presented above, I expect net purchases under the APP to end very early in the third quarter. This would allow us a rate lift-off at our meeting in July, in line with our forward guidance. The next stage of normalisation would need to be guided by the evolution of the medium-term inflation outlook. If we see inflation stabilising at 2% over the medium term, a progressive further normalisation of interest rates towards the neutral rate will be appropriate.
• ECB President Lagarde indicated that July is likely for a rate increase as she noted that they will follow the path of stopping net asset purchases and then hike interest rates sometime after that which could be a few weeks, according to Bloomberg.
• Bundesbank Monthly Report: German GDP is likely to increase modestly in Q2 from current standpoint. Click here for more detail.
• RBI Governor Das says, broadly, they want to increase rates in the next few meetings, at least at the next one; cannot give a number on inflation at present, the next MPC may be the time to do so.
• CBRT Survey (May), end-2022 Forecasts: CPI 57.92% (prev. 46.44%), GDP Growth 3.3% (prev. 3.2%), USD/TRY 17.5682 (prev. 16.8481), Current Account Balance USD -34.34bln (prev. USD -27.5bln).
• NBP Governor Glapinski says rate increases will likely continue until there is confidence that inflation will permanently decline.

EUROPEAN TRADE

EQUITIES

• European bourses are mixed/modestly-firmer, Euro Stoxx 50 +0.3%, as the initial upside momentum waned amid fresh China COVID updates and hawkish ECB commentary.
• Note, the FTSE MIB is the noted underperformer this morning, -1.0%, amid multiple large-cap names trading ex-divided.
• Stateside, futures are firmer but similarly off best levels, ES +0.5%, with recent/familiar themes very much in focus ahead of a thin US-specific docket.
• XPeng (XPEV) Q1 2022 (USD): EPS -0.32 (exp. -0.30), Revenue 1.176bln (exp. 1.16bln); Vehicle Deliveries 34.56k, +159% YY. -2.8% in pre-market
• JPMorgan (JPM) has reaffirmed its adjusted expenses guidance; credit outlook remains positive; sees FY22 NII USD 56bln (prev. USD 53bln)
• Click here for more detail.

FX

• Euro joins Kiwi at the top of G10 ranks as President Lagarde chimes with end of NIRP by Q3 guidance, EUR/USD sets fresh May peak near 1.0690.
• Bulk of NZIER shadow board believe RBNZ will deliver another 50bp hike on Wednesday, NZD/USD hovers comfortably above 0.6450 in the run up to NZ Q1 retail sales.
• DXY in danger of losing 102.000+ status as Euro revival boosts other index components.
• Aussie up with price of iron ore and extended Yuan recovery gains with change of PM and Government regime taken in stride; AUD/USD probes 0.7100, USD/CNH not far from Fib support sub-6.6500, USD/CNY a tad lower.
• Sterling eyes 1.2600 awaiting BoE Governor Bailey at a PM panel discussion, Loonie and Nokkie glean traction via firm WTI and Brent, USD/CAD under 1.2800, EUR/NOK beneath 10.3000.
• Lira languishing after CBRT survey showing higher end 2022 forecasts for Turkish CPI, current account deficit and USD/TRY circa 17.5690 vs just shy of 16.0000 at present.
• Click here for more detail.

Noted FX Expiries, NY Cut:

• USD/JPY: 127.00 (465M), 128.00-05 (490M), 128.15-17 (1.94BN), 128.25-30 (365M), 129.00 (1.53BN), 129.80 (750M), 130.00 (360M)
• Click here for more detail.

FIXED INCOME

• Bunds and Eurozone peers underperform as ECB President Lagarde signals end of negative rates by September.
• 10 year German bond nearer 153.00 having topped 154.00, Gilts around 1/4 point below par after trading flat at best and T-note shy of 120-00 within 120-03+/119-21+ range.
• EU NG issuance covered 1.38 times and Austria announces leads for 2049 Green syndication.
• Click here for more detail.

COMMODITIES

• WTI and Brent are firmer and in-proximity to session highs amid USD action offsetting the earlier drift with risk sentiment/China's mixed COVID stance.
• Currently, the benchmarks are just off highs of USD 111.96/bbl and USD 114.34/bbl respectively, vs lows of 109.50 and 111.97 respectively.
• Saudi Arabia signalled it will stand by Russia as a member of OPEC+ amid mounting pressure from sanctions, according to FT.
• Iraq’s government aims to set up a new oil company in the Kurdistan region and expects to enter service contracts with local oil firms, according to Reuters.
• Iran’s Oil Minister agreed to revive the pipeline laying project to pump Iranian gas to Oman which was stalled for nearly two decades, according to IRNA.
• Qatari Foreign Minister Sheikh Mohammed bin Abdulrahman Al Thani said Iran’s leadership has matters under review regarding “the Iranian nuclear file” and said that pumping additional quantities of Iranian oil to the market will help stabilise crude prices and lower inflation, according to Al Jazeera TV.
• India cut its excise duty on petrol by INR 8/litre and diesel by INR 6/litre which will result in a revenue loss of about INR 1tln for the government, while Indian Finance Minister Sitharaman announced subsidies on cooking gas cylinders, as well as cuts to custom duties on raw materials and intermediaries for plastic products, according to Reuters.
• Indian oil minister says oil remaining at USD 110/bbl could lead to bigger threats than inflation, via CNBC TV18.
• Spot gold has lifted above the 21-DMA (1858.77/oz) and is within reach of the 100-DMA (1886.30/oz) amid the ongoing pullback in the USD.
• Click here for more detail.

NOTABLE EUROPEAN HEADLINES

• EU’s infectious-disease agency is to recommend member states prepare strategies for possible vaccination programmes to counter increasing monkeypox cases, according to FT. It was also reported that Austria confirmed its first case of monkeypox and that Switzerland also confirmed its first case of monkeypox in the canton of Bern, according to Reuters.
• EU policymakers are reportedly renewing efforts to push for real-time databases of stock and bond trading information as they believe that a 'consolidated tape' will make EU exchanges more attractive for investors, according to FT.
• EU Commission has proposed maintaining EU borrowing limits suspension next year amid the war in Ukraine; expects to reinstate limits in 2024; Germany supports the suspension.

NOTABLE EUROPEAN DATA

• German Ifo Business Climate New (May) 93.0 vs. Exp. 91.4 (Prev. 91.8, Rev. 91.9); Expectations New (May) 86.9 (Prev. 86.7, Rev. 86.8)
• Current Conditions New (May) 99.5 (Prev. 97.2, Rev. 97.3)
• UK Rightmove House Price Index MM (May) 2.1% (Prev. 1.6%); YY (May) 10.2% (Prev. 9.9%)

NOTABLE US HEADLINES

• US President Biden: mulling reducing tariffs on China; would be willing to use force to defend Taiwan, policy towards Taiwan has not changed, does not want to see any unilateral changes to the status quo; wants OPEC to increase oil production. Subsequently, China's Foreign Ministry says it deplores and rejects the US comments from President Biden that they are willing to use force to defend Taiwan, via Reuters.
• White House COVID coordinator Jha said people should be wearing masks in a crowded indoor place and he expects an FDA decision on Moderna’s (MRNA) COVID vaccine for children under 5 years old in a few weeks, according to Reuters.
• Click here for the US Early Morning note.

CRYPTO

• Bitcoin is modestly firmer having reclaimed the USD 30k mark, but is yet to stray too far from the handle.

APAC TRADE

EQUITIES

• APAC stocks were mixed as momentum waned due to China's COVID woes and record Beijing infections.
• ASX 200 was just about kept afloat before ebbing lower after initial strength in mining names and the smooth change of government in Australia.
• Nikkei 225 advanced at the open with Tokyo said to be planning to revive its travel subsidy plan for residents.
• Hang Seng and Shanghai Comp were pressured by ongoing COVID concerns after Beijing extended its halt of dining in services and in-person classes for the whole city, as well as reporting a fresh record of daily COVID infections, while Shanghai restored its cross-district public transport on Sunday but ordered supermarkets and shops in the central Jingan district to shut and for residents to stay home until at least Tuesday

NOTABLE APAC HEADLINES

• Beijing reported 83 new symptomatic cases and 16 new asymptomatic cases for May 22nd with the city's total new cases at a new record, according to Bloomberg. It was also reported that thousands of Beijing residents were relocated to quarantine hotels due to a handful of infections, according to the BBC.
• Beijing is mulling easing its hotel quarantine requirement to one week in a hotel and one week at home from a previous hotel requirement of ten days and one week at home for international travellers, according to SCMP.
• Shanghai reported 570 new asymptomatic cases, 52 asymptomatic cases, 3 new COVID-related deaths and zero cases outside of quarantine, according to Reuters. Shanghai’s central district of Jingan will require all supermarkets and shops to close, while residents will be required to stay at home and conduct mass testing from May 22nd-24th, according to Reuters.
• China NHC Official says the COVID situation, overall, is showing a steady declining trend.
• Japanese PM Kishida said it is very disappointing that China is unilaterally developing areas in the East China Sea when borders are not yet set which Japan cannot accept, while it has lodged a complaint against China through diplomatic channels, according to Reuters.
• Japanese PM Kishida told US President Biden that they must achieve a free and open Indo-Pacific together, while President Biden said the US is fully committed to Japan's defence and that the IPEF will increase cooperation with other nations and deliver benefits to people in the region, according to Reuters.
• US-South Korea joint statement noted they agreed to discuss widening the scope and scale of joint military exercises and the US reiterated its commitment to defending South Korea with nuclear, conventional and missile defence, as well as reaffirmed its commitment to deploy strategic military assets in a timely and coordinated manner as necessary. The sides also condemned North Korea’s missile tests as a grave threat and agreed to relaunch a high-level extended deterrence strategy and consultation group at the earliest date, while they noted the path to dialogue with North Korea remains open and called for a resumption of negotiations, according to Reuters.
• US President Biden said the US-South Korea alliance has never been stronger and more vibrant. President Biden added they are ready to strengthen the joint defence posture to counter North Korea and are ready to work toward the complete denuclearisation of North Korea, while he offered vaccines to North Korea and said he would meet with North Korean leader Kim if he is serious, according to Reuters.
• South Korean President Yoon said North Korea is advancing nuclear capabilities and that US President Biden shares grave concerns regarding North Korea’s nuclear capabilities, while Yoon said they discussed the timing of possible deployment of fighter jets and bombers, according to Reuters.
• US official said the inclusion of South Korea to the Quad is not currently under consideration and stated that President Biden is impressed with the steps South Korea took to support efforts in Ukraine, while the official added that COVID may be a factor in the lack of North Korean response to the US offer for talks, according to Reuters.
• India’s government is mulling additional spending of INR 2tln in FY22/23 to cushion consumers from increasing prices and address multi-year high inflation, according to Reuters.
• Australian Labor Party leader Albanese was elected as Australia’s PM and was sworn in on Monday, according to Reuters.
• NZIER Shadow Board said there is a wide range of views within the shadow board regarding how much the RBNZ should hike interest rates, particularly for the coming year, while the majority view is for a 50bps hike to the OCR at this week's meeting.