• Equities are entirely in the red in continuation of similar price action seen in APAC trade
• Dollar is flat, EUR slips after German State CPIs show a cooler M/M and largely as-expected Y/Y
• Bonds are softer in a continuation of the prior day’s losses, Bunds pare most of the post-German State CPI upside
• Crude is firmer amid ongoing geopolitical uncertainty, XAU slips and base metals are mixed
• Looking ahead, German CPI, US Richmond Fed Index, comments from Fed’s Williams & Bostic, Supply from the US, Earnings from HP & Salesforce

EUROPEAN TRADE

EQUITIES

• European bourses, Stoxx 600 (-0.4%) opened on a softer footing and continued to trundle lower as the session progressed, taking impetus from a subdued APAC session.
• European sectors are entirely the red, except Energy, which benefits from broader strength in the crude complex amid ongoing geopolitical uncertainty; strength which has dragged Travel & Leisure to the bottom of the pile.
• US Equity Futures (ES -0.6%, NQ -0.7%, RTY -0.7%) are entirely in the red, posting similar losses to that seen across European indices. As for stock specifics, American Airlines (-7.7% pre-market) sinks after it lowered its Q2 adj. EPS guidance.
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FX

• USD is mixed vs. peers but DXY ultimately a touch firmer on account of EUR weakness. DXY has marginally eclipsed yesterday's best with a 104.79 high print.
• EUR the laggard across the majors with EUR/USD nudged lower by regional German CPIs which saw M/M metrics come in broadly softer than implied by expectations for the mainland. EUR/USD has delved as low as 1.0830 vs. yesterday's 1.0889 peak.
• Steady trade for the GBP vs. the USD with focus instead on EUR/GBP which has slipped below 0.85 for the first time since Aug'23 following the German State CPI metrics.
• USD/JPY is currently flat with limited follow-through from comments by BoJ's Adachi. USD/JPY saw some volatility earlier in the session after tripping through stops at 157 but this was short-lived.
• AUD in focus after following hot CPI data overnight. ING notes that the high CPI print puts paid to the chances of a RBA rate cut this year. AUD/USD spiked higher from around 0.6651 to 0.6666 before fading gains.
• PBoC set USD/CNY mid-point at 7.1106 vs exp. 7.2528 (prev. 7.1101).
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FIXED INCOME

• USTs are modestly softer, following the prior day's soft 2yr and 5yr outings (7yr later today); Treasuries are off worst levels, in tandem with upticks in Bunds following the German State CPI figures.
• Bunds have been lifted in recent trade (though still lower by 41 ticks) after German State CPIs came in, broadly speaking, cooler than the mainland implied M/M and roughly in-line Y/Y. Bunds went as high as 129.82, before fading the initial upside and now residing around pre-release levels.
• Gilts are underperforming as the odds of a June BoE cut continue to languish around the 5% mark; Gilts down to a 95.97 base, 50 ticks below Tuesday's trough and bringing into view 95.36 & 95.42 lows from the last week of April and first week of May respectively.
• BTPs briefly reclaimed 117.00 on the German inflation numbers though has since dipped below the level, but does fare better than European peers.
• Germany sells EUR 1.22bln vs exp. EUR 1.5bln 2.60% 2041 Bund and EUR 0.4bln vs exp. EUR 0.5bln 1.0% 2038 Bund
• UK sells GBP 1bln 0.125% 2039 I/L Gilt: b/c 3.16x (prev. 3.48x) & real yield 1.051% (prev. 1.076%)
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COMMODITIES

• Crude is firmer intraday and extending on Tuesday's gains amid ongoing geopolitical uncertainty, in wake of Israel's recent strikes on Rafah; Brent in a USD 84.09-84.44/bbl parameter.
• Subdued trade across precious metals after Tuesday's rise, but with price action confined to Tuesday's ranges with spot gold within a USD 2,346-2,361/oz parameter at the time of writing - vs USD 2,340-2,364/oz yesterday.
• Base metals are largely consolidating following Tuesday's rally driven in part by the slew of housing market support measures announced by various Chinese cities.
• UBS forecasts end-2024 copper at USD 11.5k/MT and USD 12k/MT by mid-2025; sees higher commodity prices ahead, expects total returns of circa. 10% for broad commodity indexes over the next 6-12months.
• Caspian Pipeline Consortium says export shipments seen falling by 7% in 2024; oil exports are seen declining from expected targets.
• Norway Energy Minister says Government will not open the Nordland 6 area for Oil and Gas exploration
• Norway's Kollsnes and Troll A platform are expected to restart today, according to the Power Exchange.
• Venezuela revoked the invitation for the EU to send electoral observers, according to the head of the electoral council.
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CRYPTO

• Bitcoin is very modestly softer and dips below USD 68k, whilst Ethereum holds just above USD 3.8k.

NOTABLE DATA RECAP

• German State CPIs: Cooler M/M and largely as-implied/expected Y/Y resulted in a dovish reaction with pricing for a June cut lifting above 90% probability
• German GfK Consumer Sentiment (Jun) -20.9 vs. Exp. -22.5 (Prev. -24.2, Rev. -24.0)
• Spanish Retail Sales YY (Apr) 0.3% (Prev. 0.6%)
• French Consumer Confidence (May) 90.0 vs. Exp. 91.0 (Prev. 90.0)
• Swedish Retail Sales YY (Apr) 0.5% (Prev. 1.1%); Retail Sales MM (Apr) 0.3% (Prev. -0.4%)
• EU Money-M3 Annual Growth (Apr) 1.3% vs. Exp. 1.3% (Prev. 0.9%); Loans to Non-Fin (Apr) 0.3% (Prev. 0.4%); Loans to Households (Apr) 0.2% (Prev. 0.2%)
• Italian Consumer Confidence (May) 96.4 vs. Exp. 96.0 (Prev. 95.2); Mfg Business Confidence (May) 88.4 vs. Exp. 88.1 (Prev. 87.6)

NOTABLE EUROPEAN HEADLINES

• BHP (BHP AT) update on Anglo American (AAL LN) takeover: BHP believes a further extension to the UK regulatory deadline is required to allow for further engagement on its proposal to Anglo American. Since, Anglo American (AAL LN) rejects request from BHP (BHP AT) for "put up or shut up (PUSU)" extension; unanimously reject's BHP's third proposal.
• Reuters Poll: ECB to cut deposit rate by 25bps to 3.75% on June 6, said all 82 economists; 55/82 economists said ECB to cut rates by 75bps in 2024 (vs. April poll 52/96)

NOTABLE US HEADLINES

• ConocoPhillips (COP) is reportedly in advanced talks to purchase Marathon Oil (MRO), via FT citing sources; could value the Co. at just over its current USD 15bln market cap.
• American Airlines (AAL) lowers guidance for adjusted operating margin by 1ppt to around 8.5%-10.5% and now expects Q2 Adj. EPS to be between USD 1.00-1.15 (prev. view USD 1.15-1.45)
• Fed Discount Rate minutes noted that all Fed reserve banks voted to hold the discount rate in April.

GEOPOLITICS

MIDDLE EAST

• Algeria's UN envoy said they will propose a draft UN Security Council resolution on Gaza "to stop the killing in Rafah", according to Reuters.
• US military said Iranian-backed Houthis launched five anti-ship ballistic missiles from Houthi-controlled areas of Yemen into the Red Sea, while M/V LAAX which is a Marshall Islands-flagged, Greek-owned and operated bulk carrier, was struck by three of the missiles but continued its voyage.
• "Israeli forces have now pushed deeper inside Rafah, mostly along the Philadelphi Corridor, and are operating in the Tal Zaroub area. This means Israel controls almost the entirety of the Philadelphi Corridor", according to journalist Horowitz.

OTHER

• French President Macron said Ukraine should be allowed to hit military targets in Russia, according to FT.
• North Korean leader Kim Jong Un said owning spy satellites will help the country's self-defence capabilities against US military provocation and that the recent satellite launch failed due to abnormal operation of the first-stage engine. Kim said the satellite launch was conducted with transparency and compliance with international law, while he added they will never give up efforts to own space reconnaissance capabilities.
• China's Taiwan Affairs Office said a difference in systems is not an impediment to "reunification" with Taiwan, while it added that as long as Taiwan independence provocations continue, China military's actions will too.
• Polish PM Tusk says Poland will reintroduce a buffer zone at the border with Belarus at the beginning of next week; Polish Defence Minister says ready to increase army presence on border with Belarus.

CENTRAL BANKS

• BoJ Board Member Adachi said changing monetary policy frequently to stabilise FX moves would lead to big changes in rate moves and if interest rate moves are too big, that would cause disruptions in household and corporate investment. Adachi said responding to short-term FX moves with monetary policy would affect price stability but noted if excessive yen falls are prolonged and are expected to affect the achievement of the price target, responding with monetary policy becomes an option. Adachi also commented that the BoJ must maintain accommodative financial conditions until the price goal is achieved and they are not yet at a stage where they are convinced that there is a sustained achievement of the price target, so must maintain accommodative conditions and must absolutely avoid raising interest rates prematurely. Furthermore, he said they will likely reduce JGB purchases at some stage in the future but warned reducing the BoJ's JGB bond buying at a sharp pace could cause damage to the economy, as well as noted that if yen declines accelerate or become prolonged, inflation could re-accelerate faster than expected and may require the BoJ to quicken the interest rate hike.

APAC TRADE

• APAC stocks traded mostly lower after the indecisive performance stateside amid the rising yield environment.
• ASX 200 was dragged lower amid a jump in yields and after disappointing data including firmer-than-expected monthly CPI for April and a surprise contraction in Construction Work Done during Q1.
• Nikkei 225 failed to sustain an early momentum and a brief foray above 39,000 with headwinds from rising yields.
• Hang Seng and Shanghai Comp were mixed with notable losses in tech and consumer stocks front-running the declines in Hong Kong, while the mainland bucked the trend after more Chinese cities announced property support measures and the PBoC also conducted a relatively substantial liquidity injection heading into month-end.

NOTABLE ASIA-PAC HEADLINES

• IMF upgraded China's 2024 economic growth target to 5% from 4.6% after "strong" Q1 and upgraded China's 2025 economic growth target to 4.5% from 4.1%, while IMF's Deputy Managing Director said they see scope for a more comprehensive policy package to address property sector issues and China's central government resources should be deployed to assist buyers of pre-sold unfinished homes.
• China could invest some CNY 6bln in R&D of all-solid-state batteries, according to Chinese state media.
• S&P affirms India's BBB-/A-3 rating; revises outlook to "positive" from "stable" amid robust growth and rising quality of government spending.

DATA RECAP

• Australian Weighted CPI YY (Apr) 3.60% vs. Exp. 3.40% (Prev. 3.50%)
• Australian Construction Work Done (Q1) -2.9% vs. Exp. 0.5% (Prev. 0.7%)