• The early optimism across the equity complex faded in European hours; Euro Stoxx 50 +0.4%
• US equity futures have trimmed earlier upside with contracts near the unchanged mark; ES +0.1%
• Buck built a base before Fed speak, Euro pulled back sharply, Kiwi held up well after RBNZ hike and higher OCR outlook
• South Korean Presidential Office said they have detected signs of North Korea testing a nuclear detonation device
• Apple's (AAPL) iPhone development schedule is reportedly hit by lockdowns in China, according to Nikkei

25th May 2022

SNAPSHOT

LOOKING AHEAD

• FOMC Minutes (May), Fed's Brainard, Earnings from NVIDIA.
• Click here for the Week Ahead preview

GEOPOLITICS

RUSSIA-UKRAINE

NEGOTIATIONS/TALKS

• Ukrainian President reiterates he can only speak to Russian President Putin directly; Ukraine will fight until it recovers all of its territory, via Reuters.

DEFENCE/MILITARY

• Russian Foreign Minister says it is premature to discuss setting up a Russian military base in Kherson region of Ukraine, via Reuters.

ENERGY/ECONOMIC SANCTIONS & UPDATES

• Russia ready to provide humanitarian corridor for food ships leaving Ukraine, according to IFX which citres the Russian Deputy Foreign Minister, via Reuters.
• Russia's Gazprom continues gas shipments to Europe via Ukraine, Wednesday volume at 44.35mln cubic metres (vs prev. 46.1mln cubic metres), via Reuters.

OTHER

• South Korean Presidential Office says they have detected signs of North Korea testing a nuclear detonation device, via Yonhap; adds that it seems North Korea is preparing for a possible nuclear test.
• South Korean military said North Korea had fired three ballistic missiles from Pyongyang's Sunan area, while South Korea is to convene an emergency security meeting after North Korea fired multiple missiles, according to Reuters.
• South Korea conducted combined drills with the US including ground-to-ground missile tests in response to North Korea's missile launch, according to Reuters.
• South Korean Presidential Office says they have detected signs of North Korea testing a nuclear detonation device, via Yonhap; adds that it seems North Korea is preparing for a possible nuclear test, via Reuters.

CENTRAL BANKS

• RBNZ hiked the OCR by 50bps as expected to 2.00% and raised its OCR forecasts to 2.68% in September 2022 (prev. 1.89%), 3.88% in June 2023 (prev. 2.84%) and 3.95% in September 2023 (prev. 3.1%), while the committee agreed to continue to lift the OCR to a level that will confidently bring consumer price inflation to within the target range and is resolute in its commitment to ensuring CPI returns to within 1%-3% target. RBNZ stated that monetary conditions need to constrain demand until there is a better match with New Zealand's productive capacity but noted that once aggregate supply and demand are more in balance, the OCR can return to a lower and more neutral level. Furthermore, they agreed stabilising inflation is its priority and that a higher level of OCR is necessary to ensure annual inflation returns to the target range in the next two years, as well as noted that the risk of doing too little too late is worse than doing too much too soon.
• RBNZ Governor Orr said they are very focused on restraining aggregate demand and need to anchor inflation expectations. Orr added the range of estimates for the neutral rate is around 2%-3% and they need rates above 3%, while they believe without a doubt that there is a lot more work ahead on rates.
• Russian Central Bank (CBR) to hold an extraordinary meeting on Key Rate on May 26th.
• ECB's Knot says he is fully on board with ECB President Lagarde's blog post; return of wage indexation in some places is worrisome, according to Reuters.
• ECB Chief Economist Lane says Eurozone inflation is still moving towards the 2% target in the medium-term.
• ECB's Panetta said inflation path is starting from a much higher point, medium-term inflation outlook is highly uncertain, should normalise gradually. Click here for the full headline.
• ECB's Rehn says upside risks to inflation have clearly increased; backs a 25bps hike in July, according to Bloomberg.
• ECB's de Guindos says ECB has not discussed an anti-fragmentation tool in detail, according to Bloomberg.
• ECB's Lane says monetary policy normalisation appropriate, initial steps are clear and robust; reiterates ECB forward guidance, according to Reuters.
• BoE Chief Economist Pill says too much tightening runs risk of getting stuck in deep recession, but too little tightening runs risk inflation gets self-sustaining momentum, according to Reuters.

EUROPEAN TRADE

EQUITIES

• The early optimism across the equity complex faded in early European hours.
• Major European indices post mild broad-based gains with no real standouts.
• Sectors initially opened with an anti-defensive bias but have since reconfigured to a more pro-defensive one
• Stateside, US equity futures have trimmed earlier gains, with relatively broad-based gains seen across the contracts; ES (+0.1%)

Click here for more detail.

FX

• Buck builds a base before Fed speak, FOMC minutes and US data - DXY tops 102.250 compared to low of 101.640 on Tuesday.
• Kiwi holds up well after RBNZ hike, higher OCR outlook and Governor Orr outlining the need to tighten well beyond neutral - Nzd/Usd hovers above 0.6450 and Aud/Nzd around 1.0950.
• Euro pulls back sharply as ECB’s Panetta counters aggressive rate guidance with gradualism to avoid a normalisation tantrum - Eur/Usd sub-1.0700 and Eur/Gbp under 0.8550.
• Aussie undermined by flagging risk sentiment and contraction in Q1 construction work completed - Aud/Usd retreats through 0.7100.
• Loonie and Nokkie glean some underlying traction from oil returning to boiling point - Usd/Cad capped into 1.2850, Eur/Nok pivots 10.2500.
• Franc, Yen and Sterling all make way for Greenback revival - Usd/Chf bounces through 0.9600, Usd/Jpy over 127.00 and Cable close to 1.2500.

Click here for more detail.

FIXED INCOME

• Choppy trade in bonds amidst fluid risk backdrop and ongoing flood of global Central Bank rhetoric, Bunds and Gilts fade just above 154.00 and 119.00.
• Eurozone periphery outperforming as ECB's Panetta urges gradualism to avoid a normalisation tantrum and Knot backs President Lagarde on ZIRP by end Q3 rather than going 50 bp in one hit.
• US Treasuries flat-line before US data, Fed's Brainard, FOMC minutes and 5-year supply - 10 year T-note midway between 120-21/09+ parameters.

Click here for more detail.

COMMODITIES

• WTI and Brent July futures are firmer intraday with little newsflow throughout the European morning.
• US Energy Inventory Data (bbls): Crude +0.6mln (exp. -0.7mln), Gasoline -4.2mln (exp. -0.6mln), Distillates -0.9mln (exp. +0.9mln), Cushing -0.7mln.
• Spot gold is pressured by the recovery in the Dollar but found some support at its 21 DMA.
• Base metals are pressured by the turn in the risk tone this morning.

Click here for more detail.

NOTABLE US HEADLINES

• Apple's (AAPL) iPhone development schedule is reportedly hit by lockdowns in China, according to Nikkei. Development of at least one of Apple's new flagship iPhones for this year has fallen behind schedule due to disruptions from the monthlong COVID lockdowns in China, Nikkei said. Apple told suppliers to speed up product development efforts to make up for the lost time, which in the worst-case scenario could impact the manufacturing schedule and initial production volumes of the new phones.

CRYPTO

• Bitcoin trades on either side of USD 30k with no real direction.

APAC TRADE

EQUITIES

• APAC stocks were mostly positive but with gains capped and price action choppy after a lacklustre lead from global counterparts as poor data from the US and Europe stoked growth concerns, while the region also reflected on the latest provocations by North Korea and the RBNZ’s rate increase.
• ASX 200 was led higher by commodity-related stocks despite the surprise contraction in Construction Work.
• Nikkei 225 remained subdued after recent currency inflows and with sentiment clouded by geopolitical tensions.
• Hang Seng and Shanghai Comp were marginally higher following further support efforts by the PBoC and CBIRC which have explored increasing loans with major institutions and with the central bank to boost credit support, although the upside is contained amid the ongoing COVID concerns and with Beijing said to tighten restrictions among essential workers.

NOTABLE APAC HEADLINES

• US SEC official said significant issues remain in reaching a deal with China over audit inspections and even if US and China reach a deal on proceeding with inspections, they would still have a long way to go, according to Bloomberg.
• China will be seeing a Pacific Island Agreement when Senior Diplomat Wang Yi visits the region next week, according to documents cited by Reuters.

DATA RECAP

• Australian Construction Work Done (Q1) -0.9% vs. Exp. 1.0% (Prev. -0.4%)
• Singapore GDP QQ (Q1 F) 0.7% vs Exp. 0.8% (prev. 1.4%)
• Singapore GDP YY (Q1 F) 3.7% vs Exp. 3.7% (prev. 3.4%)