GLOBAL CAPITAL MARKETS OVERVIEW:  

U.S. stocks experienced an initial setback at the open due to stronger inflation in April before rebounding, led by economically sensitive companies such as financials, commodities, industrials, and small caps, while tech stocks remained under pressure. The Dow rose more than 200 points, the S&P gained 0.4%, and the Nasdaq fell more than 0.5% an hour after the opening bell. Annual U.S. inflation slowed to 8.3% in April, below consensus forecasts of 8.1%, while core CPI rose 6.2% versus expectations for a 6% increase. Such a reading blows the Fed's narrative of temporary inflationary pressures, opening a 75-basis point rate hike in June. Coinbase fell more than 23% on the corporate front after the largest U.S. cryptocurrency exchange reported a quarterly loss and a 19% drop in monthly users. In addition, Toyota Motor Corp's shares fell more than 4% after it forecast a 21% drop in net profit for the current fiscal year due to higher material and logistics costs. European stock indexes closed well above flatline on Wednesday, with the domestic DAX up 2% and the regional Stoxx 600 up 1.6%, led by energy, luxury goods, and auto stocks, the prospect of further economic stimulus in China, and lower infection rates in Shanghai and Beijing boosted investor sentiment. Thyssenkrupp raised its sales and operating profit outlook. TUI Group said it expects to be profitable again in 2022, ITV reported "strong" first-quarter results, and Continental posted a notable first-quarter result. Year-over-year revenue growth also supported the gains. Earlier, gains all but stalled after U.S. inflation data for April came in above expectations, suggesting price pressures will take longer to subside and raising prospects for more aggressive monetary policy tightening, while in the eurozone, in July, The stakes for a rate hike are still rising. On Wednesday, the FTSE MIB index rose 2.8 percent to close at 23,724, boosted by bank stocks as investors digested higher-than-expected U.S. consumer inflation data. Italy's UniCredit led gains in Milan, rising 10.8% after the lender announced its first $2.7 billion share buyback this week. It was also in preliminary talks to sell its Russian unit. Other stocks in the banking sector also reported that Mediobanca might seek to exit its position in Generali and join other firms in the asset management business. Bank of Central America and General Bank both rose more than 4.5%. Meanwhile, Eni's shares rose 2.7% after announcing that shareholders had approved its new dividend payment mechanism. At the same time, the company also won approval for a $2.5 billion share buyback program from the authorities. CAC 40 rose 2.5 percent to close at 6,270, extending a rebound from the previous session, with luxury and energy stocks performing strongly as investors digested the latest U.S. inflation data. While U.S. inflation fell for the first time since August, consumer prices slowed less than expected, reinforcing calls from hawks for the Federal Reserve to tighten monetary policy. Meanwhile, fewer coronavirus cases in China boosted heavyweight luxury brands in Paris, with LVMH, L'Oreal, and Pernod Ricard up more than 4%. Meanwhile, Alstom fell 5% after rising 9% during the session as investors digested mixed results during the earnings call. FTSE 100 regained lost ground, rising about 1.4% to close at 7,348; as energy and mining stocks rose, commodities rose, and China's coronavirus infections slowed. Meanwhile, Compass Group shares rose 7.4% after the company reported a surge in first-half operating profit, scrapped revenue guidance, and announced the launch of a £500m share buyback. Meanwhile, investors priced in higher-than-expected U.S. inflation in April, suggesting price pressures will take longer to subside and raising the prospect of more aggressive monetary policy tightening by the Federal Reserve. MOEX-Russia index edged down to 2,837 on Wednesday, as investors continued to focus on talks within the European Union over a sixth round of sanctions after Victory Day celebrations, with miners and energy stocks putting pressure on to start a week of shortened trading. Lukoil shares fell 0.8% on the long-running threat that the EU could implement a six-month phase-out of Russian oil imports that would be the toughest against Moscow if the reluctant country accepts penalties or retaliatory measures. Meanwhile, Gazprom closed up 0.8% even though gas from Russia, which accounts for about 8% of total gas to Europe, was blocked at a transit terminal in Ukraine. Meanwhile, the Russian Agricultural Group shares rose more than 3.6 percent after reporting a 23 percent rise in annual revenue to 61.5 billion rubles in the first quarter, largely due to a surge in agricultural prices following the Russian invasion. Canada's main stock index, the S&P/TSX, attempted a rebound on Wednesday after closing at a ten-month low, helped by commodity-linked stocks. Materials and oil and gas stocks rose more than 2% as the outlook for oil and metals consumption in China improved as infection rates in Shanghai and Beijing declined. At the same time, inflation data did not dampen expectations for further economic stimulus. In a corporate update, Canada's competition watchdog said Rogers Communications' offer to buy Shaw Communications for C$16 billion wasn't enough. On Wednesday, Hong Kong stocks ended a four-day losing streak, with the benchmark Hang Seng index rebounding from a near two-month peak to close at around 19,800, boosted by healthcare and consumer-related stocks. Investors priced in stronger-than-expected headline inflation and producer prices in China as one of the worst coronavirus outbreaks facing the world's second-largest economy unfolded. BYD Corp rose more than 8% among individual share price changes, the biggest gainer in the index, and the second biggest gainer was Xinyi Solar Holdings, up nearly 7%. On Wednesday, the Shanghai Composite rose 0.75% to 3,059 points, and Shenzhen rose 1.8% to 11,109 points, extending gains from the previous session, as Shanghai reported a 51% drop in new infections on Tuesday. At the same time, Beijing also reported fewer 's cases. Investors also estimated higher-than-expected producer and consumer prices in China in April, largely due to economic disruptions caused by the lockdown. The recent recovery in Chinese stocks has fueled hopes that the market may be bottoming out after a month-long sell-off. Policy measures since mid-March and the authorities' commitment to market stability have brought only a short-lived increase. New energy stocks led gains, with Contemporary Amber (8.1%), BYD Corporation (8.3%), and Lange Green Energy (4.4%) gaining strongly. High-growth tech and healthcare stocks also gained, including Orient Currency (1.7%), Hangzhou Hikvision (2.8%), China Resources Double (5.5%), and Shanghai Fosun (9.3%). Japan  Nikkei 225 rose 0.18% to close at 26,214 on Wednesday, while the broader Topix index fell 0.6% to close at 1,851 in mixed trade as investors bought up companies with upbeat outlooks and were swayed by U.S. inflation data. Be cautious of any upside surprises ahead of the release. Analysts say the market is waiting for confirmation that U.S. consumer prices have peaked before making big bets. Index heavyweights rose strongly, including Japan's Yusen (5.4%), Tokyo Electron (2.8%), Nippon Steel (6.9%), Fast Retailing (1.7%), and Daikin Industries (4%). Meanwhile, financial and services-related stocks mostly fell. Elsewhere, Sony Group rose 2.1% after announcing a $1.5 billion share buyback that doubled its operating profit, thanks to PlayStation sales. The video game maker Nintendo also rose 3.3% after it announced a 10-1 stock split on Oct. 1. Australia S&P/ASX 200 rose 0.19% to close at 7065 on Wednesday, snapping three days of losses that offset losses earlier in the day, with sharply higher interest rates and caution over U.S. inflation data amid the risk of a global recession dampened market sentiment. Analysts say the market is waiting for confirmation that U.S. consumer prices have peaked before making big bets. Australian shares were mixed on Wednesday, with index heavyweights including BHP Billiton (1.4%), Rio Tinto (2.6%), Fortescue Metals (2.3%), CSL Ltd (2.1%), and Macquarie Group (1.2%) rise. Meanwhile, the "big four" banks fell, led by National Australia Bank, which lost 3.9 percent after recently raising its cost estimates. Link Administration shares also fell 15.1% as the exchange suspended trading ahead of the announcement. New Zealand S&P/NZX index closed almost flat on Wednesday after closing the previous session to its lowest level since June 21, 2020. Traders digested reports that New Zealand will fully reopen its international borders. Meanwhile, Prime Minister Jacinda Ardern said in his speech today that opening borders would help ease the urgent skills shortage and open up tourism. The border opened two months earlier than the government's previous timeline in July. Market participants expect U.S. inflation data for April to be released later, hoping that consumer prices may have peaked. In China, official data showed that consumer and producer prices rose more than expected amid strict Covid-19 restrictions. Chatham Phosphate and Geneva Financial rose 15.4% and 10.2%, respectively; losers included New Zealand King Salmon Investments (down 14.3%), Bramworth Ltd (down 9.4%), and Good Wine Hotels (down 5.8%) %).

 

REVIEWING ECONOMIC DATA: 

Looking at the last economic data:

- US: The U.S. posted a budget surplus of $308 billion in April 2022, the largest on record, different from a shortfall of $226 billion a year earlier and above consensus expectations for a surplus of $226 billion. April has always been a budget surplus month due to the traditional April 15 tax filing deadline, except in 2009, 2010 and 2011 and 2020, and 2021 after the financial crisis, except April due to the COVID-19 pandemic. Tax receipts rose 97% to an all-time high of $864 billion, helped by a robust economic recovery. Meanwhile, spending fell 16% to $555 billion, reflecting lower COVID-19 relief spending. For the first seven months of fiscal 2022, the U.S. federal deficit is $360 billion, down 81% from the same period in 2021.

- US: U.S. stocks turned negative in afternoon trade after swinging between gains and losses as investors digested recent inflation data. Annual U.S. inflation slowed to 8.3% in April, below consensus forecasts of 8.1%, while core CPI rose 6.2% versus expectations for a 6% increase. Such a reading blows the Fed's narrative of temporary inflationary pressures, opening a 75-basis point rate hike in June. Coinbase fell more than 25% on the corporate front after the most significant U.S. cryptocurrency exchange reported a quarterly loss and a 19% drop in monthly users. In addition, Toyota Motor Corp's shares fell more than 4% after it forecast a 21% drop in net profit for the current fiscal year due to higher material and logistics costs.

- US: In April 2022, the U.S. CPI for all commodities except food and energy rose by 0.6% month-on-month, higher than the previous month's 0.3% increase and higher than market expectations of 0.4%. In addition to the housing index (0.5%), airfares index (18.6%) and new car index (1.1%), prices for healthcare (0.4%), entertainment (0.4%) and household goods and operations also rose. Annual core inflation fell to 6.2 percent from a peak of 6.5 percent in 1982 but was above market forecasts of 6 percent.

- US: Annual U.S. inflation fell to 8.3% in April from a 41-year high of 8.5% in March but was below consensus forecasts of 8.1%. Energy prices rose 30.3%, down from 32% in March, namely gasoline (43.6% vs. 48%), while fuel prices rose even more (80.5% vs. 70.1%). On the other hand, food prices rose 9.4%, the highest level since April 1981, and prices for housing (5.1% vs. 5%) and new cars (11.2% vs. 12.5%) also rose faster. Consumer prices rose 0.3% every month, slightly above expectations for a 0.2% gain but below the 16-year high of 1.2% in March. The gasoline index fell 6.1%, offsetting gains in natural gas (3.1%) and electricity (0.7%). While the economic slowdown in April suggests inflation may have peaked, inflation is unlikely to fall to pre-pandemic levels anytime soon. It will remain high for a long time as supply disruptions persist and energy and food prices continue to rise the Fed's 2% target.

- US: Mortgage applications in the U.S. rose 2% in the week ended May 6, the second straight increase, even as borrowing costs rose as the spring housing market entered its busiest period. Home purchase applications surged 4.5%, while mortgage refinancing applications fell 2%. The average contract rate on a 30-year fixed-rate mortgage rose 17 basis points to 5.53%, the highest level since 2009. “Despite a slow start to the home-buying season this spring, potential homebuyers have shown some resilience to higher interest rates,” said Joel Kan. “Home buying activity has increased for two weeks, and more borrowers continue to take advantage of adjustable-rate mortgages (ARMs). They were coping with higher interest rates. ARMs rose to 11% of total loans and 19% in dollar terms.” MBA Economist.

- EU: ECB President Christine Lagarde told a meeting in Ljubljana that the first-rate hike would come sometime after net asset purchases ended, which could mean only a few weeks away. The ECB confirmed that it would complete net asset purchases in the third quarter at its April meeting. Investors now expect the ECB to raise rates by 25 basis points in July and September and again at the end of the year, as inflation in the eurozone is more than three times higher than the central bank's 2% target, likely for some time to come. Stay high inside. At their April 2022 meeting, ECB policymakers kept interest rates low. They confirmed that monthly net purchases under the app would reach 40 billion euros in April and 30 billion in May, and 20 billion in June.

- EU: ECB President Christine Lagarde told a meeting in Ljubljana that the first-rate hike would come sometime after net asset purchases ended, which could mean only a few weeks away. The ECB confirmed that it would complete net asset purchases in the third quarter at its April meeting. Investors now expect the ECB to raise rates by 25 basis points in July and September and again at the end of the year, as inflation in the eurozone is more than three times higher than the central bank's 2% target, likely for some time to come. Stay high inside. At their April 2022 meeting, ECB policymakers kept interest rates low. They confirmed that monthly net purchases under the app would reach 40 billion euros in April and 30 billion in May, and 20 billion in June.

- EU: Annual inflation in Germany was confirmed at 7.4% in April 2022, the highest level since 1981, and accelerated from 7.3% in the previous month, mainly driven by energy (35.3% vs. 39.5% in March) and Driven in rising food prices (8.6% vs. 6.2%). Prices of energy products rose sharply, especially heating oil (98.6%), motor fuel (38.5%), and natural gas (47.5%), reflecting the impact of Russia's invasion of Ukraine. Prices were higher in all food categories, mainly edible oils and fats (27.3%), meat and meat products (11.8%), dairy products and eggs (9.4%), and fresh vegetables (9.3%). Meanwhile, service costs rose faster (3.2% vs. 2.8%), and rents rose 1.6%. The consumer price index rose 0.8% every month, down from a 2.5% gain in March and the highest level since October 1951. Compared with other European countries, the CPI rose 7.8% year on year and 0.7% month-on-month.

- JP: In April 2022, Japan's foreign exchange reserves fell to $1,322.193 billion from $135.61 billion the previous month. Total reserve assets are divided into foreign exchange reserves ($1,195.415 billion), IMF reserve position ($10.283 billion), special drawing rights ($60.364 billion), gold ($51.985 billion), and other reserve assets ($4.146 billion) ).

- CN: Chinese stocks rose 23 points. Great Wall Motor (10.02%), Shanghai Pharma (5.72%), and Shanghai Fosun Pharma (3.29%) drove the growth. The most significant losses came from China Fortune (down 3.16%), Zijin Mining Group (down 1.66%), and Yili Group (down 1.25%).

- CN: Auto sales in China fell 47.6% in April 2022 from a year earlier, the most significant drop since March 2020, as the coronavirus dampened production and turned consumers away. Considering the first four months of 2022, car sales are 12% year over year. On the other hand, sales of new energy vehicles increased by 44.6% in April and 112% from January to April.

- JP: A flash reading showed that Japan's economic indicator, a measure of a range of data that includes factory output, employment, and retail sales, edged up to 97.0 in March 2022 from a final 96.8 a month earlier. This is the highest number since September 2019, helped by an improvement in the COVID-19 outbreak, with the Japanese government lifting all restrictions after the national infection rate fell.

- JP: Flash data showed Japan's index of leading economic indicators rose to 101.0 in March 2022, after rising to 100.1 a month earlier. The index, a gauge of economic conditions in the coming months, is compiled using employment opportunities and consumer confidence. The situation has improved as the COVID-19 infection rate drops and vaccinations surge, as the government ends a state of quasi-emergency.

 

LOOKING AHEAD:   

Today, investors will receive:

- USD: PPI m/m, Core PPI m/m, Unemployment Claims, Natural Gas Storage, and 30-y Bond Auction.

- GBP: RICS House Price Balance, Prelim GDP q/q, Construction Output m/m, GDP m/m, Goods Trade Balance, Index of Services 3m/3m, Industrial Production m/m, Manufacturing Production m/m, Prelim Business Investment q/q, and NIESR GDP Estimate.

- JPY: BOJ Summary of Opinions, Bank Lending y/y, Current Account, 30-y Bond Auction, and Economy Watchers Sentiment.

- NZD: FPI m/m, Visitor Arrivals m/m, and Inflation Expectations q/q.

- CNY: M2 Money Supply y/y, and New Loans.

- AUD: MI Inflation Expectations.

- CHF: PPI m/m.

- CAD: Gov Council Member Gravelle Speaks.

 

KEY EQUITY & BOND MARKET DRIVERS:

- CA: Canada's 10-year government bond rose to 3.07%, a far cry from an 11-year high of 3.17% set on May 9, tied to a rise in U.S. Treasury yields on expectations that Canada's monetary policy stance will become increasingly challenging. Meanwhile, Canada's unemployment rate hit a record low of 5.2 percent in March, further strengthening the case for the Bank of Canada to tighten policy more aggressively in June. Meanwhile, annual inflation in Canada accelerated more than expected in March, hitting a 31-year high amid widespread price pressures.

- GE: German 10-year bond yields rebounded, hovering above the 1 percent mark, after the latest data showed U.S. consumer prices slowed less than expected in April, bolstering bets on the Federal Reserve to tighten monetary policy. Meanwhile, investors continued to assess how the European Central Bank could raise interest rates this week amid a worsening economic outlook for the eurozone. Hawkish forecasts in early May pushed German bond yields to near eight-year highs. While the scale of the tightening remains unclear, ECB members have been advocating for a tightening cycle to begin in July, shortly after the end of the asset-purchase program. Preliminary data showed that inflation in the eurozone hit a record 7.5% in April, while Germany was the highest since 1981. Meanwhile, Germany's ZEW Economic Sentiment Index rose to -34.3 in May, well above market expectations for a further decline.

- US: The 10-year U.S. Treasury yield, which sets the tone for global corporate and household borrowing costs, rebounded to 3.03% from a session low of 2.91% as investors digested hotter-than-expected consumer price data. Headline inflation fell to 8.3% in April from a 40-year high of 8.5% in March, but above market expectations of 8.0%, suggesting inflation may have peaked, but its decline may take longer than previously thought. Core inflation also slowed less than expected and remained above 6%, offering little relief to the Fed committee. Yields hit 3.20% on Monday for the first time since November 2018, with markets forecasting rates to climb to 3% by the end of the year.

- US: U.S. stock futures reversed course and fell sharply on Wednesday as investors digested stronger-than-expected inflation data. That has raised concerns that the Fed may be forced to act more aggressively to curb runaway price growth. Annual U.S. inflation slowed to 8.3% in April from a 41-year high of 8.5% in March but fell short of consensus forecasts of 8.1%, while the core CPI, which excludes food and energy prices, rose 6.2% versus expectations to 6%. Such a reading is the latest blow to the Fed's temporary inflationary pressures, opening the door for a 75-basis point rate hike in June. Investors will also be watching earnings reports from companies like Toyota Motors, Walt Disney, and Beyond Meat. In a highly volatile regular session Tuesday, the Dow fell 0.26% for a fourth straight day, while the S&P 500 and Nasdaq Composite gained 0.25% and 0.95%, respectively.

- CN: China's 10-year government bond yield rebounded to 2.83% from a near four-week low of 2.811%, as investors weighed inflation data on consumer and producer prices and the People's Bank of China's commitment to continued support for the economy. The consumer price index rose 2.1% in April, more than expected, the fastest gain since November last year and still well below the central bank's 2022 target of 3%. In addition, factory gate prices rose at their slowest pace in a year due to government controls on commodity prices, which still leaves considerable room for the People's Bank of China to further boost economic growth. On the bright side, infection rates have fallen in Shanghai and Beijing, and they are hoping that the long, strict lockdown may soon be lifted.

- AU: The yield on the benchmark 10-year Australian government bond hovered around 3.49%, near a seven-year high of 3.60%, on inflation concerns and expectations of further rate hikes by the Reserve Bank of Australia. RBA governor Lowe, who is responsible for reining in more than 20 years of high inflation, said it would be flexible. Investors expect the upcoming first-quarter wage growth data to support more than 25 basis points. Growth, if it proves too fast. The RBA hiked rates by 25 basis points to 0.35%, beating expectations and reducing the odds of further rate hikes, but well behind the Fed, which walked its fund's rate by 50 basis points, adding to Australian bond yields pressure.

 

 

 

STOCK MARKET SECTORS:

- High: Energy, Materials, Utilities.

- Low: Information Technology, Consumer Discretionary, Communication Services, Financials.

 

TOP CURRENCY & COMMODITIES MARKET DRIVERS: 

- USD: The dollar index bottomed around 103.6, pulling back from a session high of 104.1, as much of the gains seen after hotter-than-expected U.S. inflation began to subside. Still, DXY remains close to levels since 2002 as the Federal Reserve begins aggressively tightening monetary policy to curb soaring inflation. Annual U.S. inflation slowed to 8.3% in April, below consensus forecasts of 8.1%, while core CPI rose 6.2% versus expectations for 6%. Such a reading blows the Fed's narrative of temporary inflationary pressures, opening a 75-basis point rate hike in June. The dollar has also been boosted by safe-haven demand recently amid economic uncertainty surrounding Europe and China, with Russia's war on Ukraine and the coronavirus-induced lockdown in China clouding the outlook.

- OIL: U.S. crude inventories unexpectedly rose by 8.487 million barrels in the week ended May 6, after rising by 1.302 million barrels in the previous week, compared with market expectations for a decline of 457,000 barrels. However, crude inventories at the Cushing, Oklahoma distribution center fell by 587,000 barrels after 1.379 million barrels of crude were injected. Meanwhile, gasoline inventories fell by 3.607 million barrels, beating forecasts of 1.574 million barrels, and distillate fuel inventories, including diesel and heating oil, fell by 911,000 barrels, missing 1.312 million barrels.

 

CHART OF THE DAY:

On Wednesday, the CAC 40 rose 2.5 percent to close at 6,270, extending a rebound from the previous session, with luxury and energy stocks performing strongly as investors digested the latest U.S. inflation data. While U.S. inflation fell for the first time since August, consumer prices slowed less than expected, reinforcing calls from hawks for the Federal Reserve to tighten monetary policy. Meanwhile, fewer coronavirus cases in China boosted heavyweight luxury brands in Paris, with LVMH, L'Oreal, and Pernod Ricard up more than 4%. Meanwhile, Alstom fell 5% after rising 9% during the session as investors digested mixed results during the earnings call. - France CAC 40 index - D1, Resistance  around ~ 6339, Support (target zone) around  ~ 5888.

Mega-caps lead market lower, Oil prices jump amid encouraging COVID news out of China

GLOBAL CAPITAL MARKETS OVERVIEW:  

U.S. stocks experienced an initial setback at the open due to stronger inflation in April before rebounding, led by economically sensitive companies such as financials, commodities, industrials, and small caps, while tech stocks remained under pressure. The Dow rose more than 200 points, the S&P gained 0.4%, and the Nasdaq fell more than 0.5% an hour after the opening bell. Annual U.S. inflation slowed to 8.3% in April, below consensus forecasts of 8.1%, while core CPI rose 6.2% versus expectations for a 6% increase. Such a reading blows the Fed's narrative of temporary inflationary pressures, opening a 75-basis point rate hike in June. Coinbase fell more than 23% on the corporate front after the largest U.S. cryptocurrency exchange reported a quarterly loss and a 19% drop in monthly users. In addition, Toyota Motor Corp's shares fell more than 4% after it forecast a 21% drop in net profit for the current fiscal year due to higher material and logistics costs. European stock indexes closed well above flatline on Wednesday, with the domestic DAX up 2% and the regional Stoxx 600 up 1.6%, led by energy, luxury goods, and auto stocks, the prospect of further economic stimulus in China, and lower infection rates in Shanghai and Beijing boosted investor sentiment. Thyssenkrupp raised its sales and operating profit outlook. TUI Group said it expects to be profitable again in 2022, ITV reported "strong" first-quarter results, and Continental posted a notable first-quarter result. Year-over-year revenue growth also supported the gains. Earlier, gains all but stalled after U.S. inflation data for April came in above expectations, suggesting price pressures will take longer to subside and raising prospects for more aggressive monetary policy tightening, while in the eurozone, in July, The stakes for a rate hike are still rising. On Wednesday, the FTSE MIB index rose 2.8 percent to close at 23,724, boosted by bank stocks as investors digested higher-than-expected U.S. consumer inflation data. Italy's UniCredit led gains in Milan, rising 10.8% after the lender announced its first $2.7 billion share buyback this week. It was also in preliminary talks to sell its Russian unit. Other stocks in the banking sector also reported that Mediobanca might seek to exit its position in Generali and join other firms in the asset management business. Bank of Central America and General Bank both rose more than 4.5%. Meanwhile, Eni's shares rose 2.7% after announcing that shareholders had approved its new dividend payment mechanism. At the same time, the company also won approval for a $2.5 billion share buyback program from the authorities. CAC 40 rose 2.5 percent to close at 6,270, extending a rebound from the previous session, with luxury and energy stocks performing strongly as investors digested the latest U.S. inflation data. While U.S. inflation fell for the first time since August, consumer prices slowed less than expected, reinforcing calls from hawks for the Federal Reserve to tighten monetary policy. Meanwhile, fewer coronavirus cases in China boosted heavyweight luxury brands in Paris, with LVMH, L'Oreal, and Pernod Ricard up more than 4%. Meanwhile, Alstom fell 5% after rising 9% during the session as investors digested mixed results during the earnings call. FTSE 100 regained lost ground, rising about 1.4% to close at 7,348; as energy and mining stocks rose, commodities rose, and China's coronavirus infections slowed. Meanwhile, Compass Group shares rose 7.4% after the company reported a surge in first-half operating profit, scrapped revenue guidance, and announced the launch of a £500m share buyback. Meanwhile, investors priced in higher-than-expected U.S. inflation in April, suggesting price pressures will take longer to subside and raising the prospect of more aggressive monetary policy tightening by the Federal Reserve. MOEX-Russia index edged down to 2,837 on Wednesday, as investors continued to focus on talks within the European Union over a sixth round of sanctions after Victory Day celebrations, with miners and energy stocks putting pressure on to start a week of shortened trading. Lukoil shares fell 0.8% on the long-running threat that the EU could implement a six-month phase-out of Russian oil imports that would be the toughest against Moscow if the reluctant country accepts penalties or retaliatory measures. Meanwhile, Gazprom closed up 0.8% even though gas from Russia, which accounts for about 8% of total gas to Europe, was blocked at a transit terminal in Ukraine. Meanwhile, the Russian Agricultural Group shares rose more than 3.6 percent after reporting a 23 percent rise in annual revenue to 61.5 billion rubles in the first quarter, largely due to a surge in agricultural prices following the Russian invasion. Canada's main stock index, the S&P/TSX, attempted a rebound on Wednesday after closing at a ten-month low, helped by commodity-linked stocks. Materials and oil and gas stocks rose more than 2% as the outlook for oil and metals consumption in China improved as infection rates in Shanghai and Beijing declined. At the same time, inflation data did not dampen expectations for further economic stimulus. In a corporate update, Canada's competition watchdog said Rogers Communications' offer to buy Shaw Communications for C$16 billion wasn't enough. On Wednesday, Hong Kong stocks ended a four-day losing streak, with the benchmark Hang Seng index rebounding from a near two-month peak to close at around 19,800, boosted by healthcare and consumer-related stocks. Investors priced in stronger-than-expected headline inflation and producer prices in China as one of the worst coronavirus outbreaks facing the world's second-largest economy unfolded. BYD Corp rose more than 8% among individual share price changes, the biggest gainer in the index, and the second biggest gainer was Xinyi Solar Holdings, up nearly 7%. On Wednesday, the Shanghai Composite rose 0.75% to 3,059 points, and Shenzhen rose 1.8% to 11,109 points, extending gains from the previous session, as Shanghai reported a 51% drop in new infections on Tuesday. At the same time, Beijing also reported fewer 's cases. Investors also estimated higher-than-expected producer and consumer prices in China in April, largely due to economic disruptions caused by the lockdown. The recent recovery in Chinese stocks has fueled hopes that the market may be bottoming out after a month-long sell-off. Policy measures since mid-March and the authorities' commitment to market stability have brought only a short-lived increase. New energy stocks led gains, with Contemporary Amber (8.1%), BYD Corporation (8.3%), and Lange Green Energy (4.4%) gaining strongly. High-growth tech and healthcare stocks also gained, including Orient Currency (1.7%), Hangzhou Hikvision (2.8%), China Resources Double (5.5%), and Shanghai Fosun (9.3%). Japan  Nikkei 225 rose 0.18% to close at 26,214 on Wednesday, while the broader Topix index fell 0.6% to close at 1,851 in mixed trade as investors bought up companies with upbeat outlooks and were swayed by U.S. inflation data. Be cautious of any upside surprises ahead of the release. Analysts say the market is waiting for confirmation that U.S. consumer prices have peaked before making big bets. Index heavyweights rose strongly, including Japan's Yusen (5.4%), Tokyo Electron (2.8%), Nippon Steel (6.9%), Fast Retailing (1.7%), and Daikin Industries (4%). Meanwhile, financial and services-related stocks mostly fell. Elsewhere, Sony Group rose 2.1% after announcing a $1.5 billion share buyback that doubled its operating profit, thanks to PlayStation sales. The video game maker Nintendo also rose 3.3% after it announced a 10-1 stock split on Oct. 1. Australia S&P/ASX 200 rose 0.19% to close at 7065 on Wednesday, snapping three days of losses that offset losses earlier in the day, with sharply higher interest rates and caution over U.S. inflation data amid the risk of a global recession dampened market sentiment. Analysts say the market is waiting for confirmation that U.S. consumer prices have peaked before making big bets. Australian shares were mixed on Wednesday, with index heavyweights including BHP Billiton (1.4%), Rio Tinto (2.6%), Fortescue Metals (2.3%), CSL Ltd (2.1%), and Macquarie Group (1.2%) rise. Meanwhile, the "big four" banks fell, led by National Australia Bank, which lost 3.9 percent after recently raising its cost estimates. Link Administration shares also fell 15.1% as the exchange suspended trading ahead of the announcement. New Zealand S&P/NZX index closed almost flat on Wednesday after closing the previous session to its lowest level since June 21, 2020. Traders digested reports that New Zealand will fully reopen its international borders. Meanwhile, Prime Minister Jacinda Ardern said in his speech today that opening borders would help ease the urgent skills shortage and open up tourism. The border opened two months earlier than the government's previous timeline in July. Market participants expect U.S. inflation data for April to be released later, hoping that consumer prices may have peaked. In China, official data showed that consumer and producer prices rose more than expected amid strict Covid-19 restrictions. Chatham Phosphate and Geneva Financial rose 15.4% and 10.2%, respectively; losers included New Zealand King Salmon Investments (down 14.3%), Bramworth Ltd (down 9.4%), and Good Wine Hotels (down 5.8%) %).

 

REVIEWING ECONOMIC DATA: 

Looking at the last economic data:

- US: The U.S. posted a budget surplus of $308 billion in April 2022, the largest on record, different from a shortfall of $226 billion a year earlier and above consensus expectations for a surplus of $226 billion. April has always been a budget surplus month due to the traditional April 15 tax filing deadline, except in 2009, 2010 and 2011 and 2020, and 2021 after the financial crisis, except April due to the COVID-19 pandemic. Tax receipts rose 97% to an all-time high of $864 billion, helped by a robust economic recovery. Meanwhile, spending fell 16% to $555 billion, reflecting lower COVID-19 relief spending. For the first seven months of fiscal 2022, the U.S. federal deficit is $360 billion, down 81% from the same period in 2021.

- US: U.S. stocks turned negative in afternoon trade after swinging between gains and losses as investors digested recent inflation data. Annual U.S. inflation slowed to 8.3% in April, below consensus forecasts of 8.1%, while core CPI rose 6.2% versus expectations for a 6% increase. Such a reading blows the Fed's narrative of temporary inflationary pressures, opening a 75-basis point rate hike in June. Coinbase fell more than 25% on the corporate front after the most significant U.S. cryptocurrency exchange reported a quarterly loss and a 19% drop in monthly users. In addition, Toyota Motor Corp's shares fell more than 4% after it forecast a 21% drop in net profit for the current fiscal year due to higher material and logistics costs.

- US: In April 2022, the U.S. CPI for all commodities except food and energy rose by 0.6% month-on-month, higher than the previous month's 0.3% increase and higher than market expectations of 0.4%. In addition to the housing index (0.5%), airfares index (18.6%) and new car index (1.1%), prices for healthcare (0.4%), entertainment (0.4%) and household goods and operations also rose. Annual core inflation fell to 6.2 percent from a peak of 6.5 percent in 1982 but was above market forecasts of 6 percent.

- US: Annual U.S. inflation fell to 8.3% in April from a 41-year high of 8.5% in March but was below consensus forecasts of 8.1%. Energy prices rose 30.3%, down from 32% in March, namely gasoline (43.6% vs. 48%), while fuel prices rose even more (80.5% vs. 70.1%). On the other hand, food prices rose 9.4%, the highest level since April 1981, and prices for housing (5.1% vs. 5%) and new cars (11.2% vs. 12.5%) also rose faster. Consumer prices rose 0.3% every month, slightly above expectations for a 0.2% gain but below the 16-year high of 1.2% in March. The gasoline index fell 6.1%, offsetting gains in natural gas (3.1%) and electricity (0.7%). While the economic slowdown in April suggests inflation may have peaked, inflation is unlikely to fall to pre-pandemic levels anytime soon. It will remain high for a long time as supply disruptions persist and energy and food prices continue to rise the Fed's 2% target.

- US: Mortgage applications in the U.S. rose 2% in the week ended May 6, the second straight increase, even as borrowing costs rose as the spring housing market entered its busiest period. Home purchase applications surged 4.5%, while mortgage refinancing applications fell 2%. The average contract rate on a 30-year fixed-rate mortgage rose 17 basis points to 5.53%, the highest level since 2009. “Despite a slow start to the home-buying season this spring, potential homebuyers have shown some resilience to higher interest rates,” said Joel Kan. “Home buying activity has increased for two weeks, and more borrowers continue to take advantage of adjustable-rate mortgages (ARMs). They were coping with higher interest rates. ARMs rose to 11% of total loans and 19% in dollar terms.” MBA Economist.

- EU: ECB President Christine Lagarde told a meeting in Ljubljana that the first-rate hike would come sometime after net asset purchases ended, which could mean only a few weeks away. The ECB confirmed that it would complete net asset purchases in the third quarter at its April meeting. Investors now expect the ECB to raise rates by 25 basis points in July and September and again at the end of the year, as inflation in the eurozone is more than three times higher than the central bank's 2% target, likely for some time to come. Stay high inside. At their April 2022 meeting, ECB policymakers kept interest rates low. They confirmed that monthly net purchases under the app would reach 40 billion euros in April and 30 billion in May, and 20 billion in June.

- EU: ECB President Christine Lagarde told a meeting in Ljubljana that the first-rate hike would come sometime after net asset purchases ended, which could mean only a few weeks away. The ECB confirmed that it would complete net asset purchases in the third quarter at its April meeting. Investors now expect the ECB to raise rates by 25 basis points in July and September and again at the end of the year, as inflation in the eurozone is more than three times higher than the central bank's 2% target, likely for some time to come. Stay high inside. At their April 2022 meeting, ECB policymakers kept interest rates low. They confirmed that monthly net purchases under the app would reach 40 billion euros in April and 30 billion in May, and 20 billion in June.

- EU: Annual inflation in Germany was confirmed at 7.4% in April 2022, the highest level since 1981, and accelerated from 7.3% in the previous month, mainly driven by energy (35.3% vs. 39.5% in March) and Driven in rising food prices (8.6% vs. 6.2%). Prices of energy products rose sharply, especially heating oil (98.6%), motor fuel (38.5%), and natural gas (47.5%), reflecting the impact of Russia's invasion of Ukraine. Prices were higher in all food categories, mainly edible oils and fats (27.3%), meat and meat products (11.8%), dairy products and eggs (9.4%), and fresh vegetables (9.3%). Meanwhile, service costs rose faster (3.2% vs. 2.8%), and rents rose 1.6%. The consumer price index rose 0.8% every month, down from a 2.5% gain in March and the highest level since October 1951. Compared with other European countries, the CPI rose 7.8% year on year and 0.7% month-on-month.

- JP: In April 2022, Japan's foreign exchange reserves fell to $1,322.193 billion from $135.61 billion the previous month. Total reserve assets are divided into foreign exchange reserves ($1,195.415 billion), IMF reserve position ($10.283 billion), special drawing rights ($60.364 billion), gold ($51.985 billion), and other reserve assets ($4.146 billion) ).

- CN: Chinese stocks rose 23 points. Great Wall Motor (10.02%), Shanghai Pharma (5.72%), and Shanghai Fosun Pharma (3.29%) drove the growth. The most significant losses came from China Fortune (down 3.16%), Zijin Mining Group (down 1.66%), and Yili Group (down 1.25%).

- CN: Auto sales in China fell 47.6% in April 2022 from a year earlier, the most significant drop since March 2020, as the coronavirus dampened production and turned consumers away. Considering the first four months of 2022, car sales are 12% year over year. On the other hand, sales of new energy vehicles increased by 44.6% in April and 112% from January to April.

- JP: A flash reading showed that Japan's economic indicator, a measure of a range of data that includes factory output, employment, and retail sales, edged up to 97.0 in March 2022 from a final 96.8 a month earlier. This is the highest number since September 2019, helped by an improvement in the COVID-19 outbreak, with the Japanese government lifting all restrictions after the national infection rate fell.

- JP: Flash data showed Japan's index of leading economic indicators rose to 101.0 in March 2022, after rising to 100.1 a month earlier. The index, a gauge of economic conditions in the coming months, is compiled using employment opportunities and consumer confidence. The situation has improved as the COVID-19 infection rate drops and vaccinations surge, as the government ends a state of quasi-emergency.

 

LOOKING AHEAD:   

Today, investors will receive:

- USD: PPI m/m, Core PPI m/m, Unemployment Claims, Natural Gas Storage, and 30-y Bond Auction.

- GBP: RICS House Price Balance, Prelim GDP q/q, Construction Output m/m, GDP m/m, Goods Trade Balance, Index of Services 3m/3m, Industrial Production m/m, Manufacturing Production m/m, Prelim Business Investment q/q, and NIESR GDP Estimate.

- JPY: BOJ Summary of Opinions, Bank Lending y/y, Current Account, 30-y Bond Auction, and Economy Watchers Sentiment.

- NZD: FPI m/m, Visitor Arrivals m/m, and Inflation Expectations q/q.

- CNY: M2 Money Supply y/y, and New Loans.

- AUD: MI Inflation Expectations.

- CHF: PPI m/m.

- CAD: Gov Council Member Gravelle Speaks.

 

KEY EQUITY & BOND MARKET DRIVERS:

- CA: Canada's 10-year government bond rose to 3.07%, a far cry from an 11-year high of 3.17% set on May 9, tied to a rise in U.S. Treasury yields on expectations that Canada's monetary policy stance will become increasingly challenging. Meanwhile, Canada's unemployment rate hit a record low of 5.2 percent in March, further strengthening the case for the Bank of Canada to tighten policy more aggressively in June. Meanwhile, annual inflation in Canada accelerated more than expected in March, hitting a 31-year high amid widespread price pressures.

- GE: German 10-year bond yields rebounded, hovering above the 1 percent mark, after the latest data showed U.S. consumer prices slowed less than expected in April, bolstering bets on the Federal Reserve to tighten monetary policy. Meanwhile, investors continued to assess how the European Central Bank could raise interest rates this week amid a worsening economic outlook for the eurozone. Hawkish forecasts in early May pushed German bond yields to near eight-year highs. While the scale of the tightening remains unclear, ECB members have been advocating for a tightening cycle to begin in July, shortly after the end of the asset-purchase program. Preliminary data showed that inflation in the eurozone hit a record 7.5% in April, while Germany was the highest since 1981. Meanwhile, Germany's ZEW Economic Sentiment Index rose to -34.3 in May, well above market expectations for a further decline.

- US: The 10-year U.S. Treasury yield, which sets the tone for global corporate and household borrowing costs, rebounded to 3.03% from a session low of 2.91% as investors digested hotter-than-expected consumer price data. Headline inflation fell to 8.3% in April from a 40-year high of 8.5% in March, but above market expectations of 8.0%, suggesting inflation may have peaked, but its decline may take longer than previously thought. Core inflation also slowed less than expected and remained above 6%, offering little relief to the Fed committee. Yields hit 3.20% on Monday for the first time since November 2018, with markets forecasting rates to climb to 3% by the end of the year.

- US: U.S. stock futures reversed course and fell sharply on Wednesday as investors digested stronger-than-expected inflation data. That has raised concerns that the Fed may be forced to act more aggressively to curb runaway price growth. Annual U.S. inflation slowed to 8.3% in April from a 41-year high of 8.5% in March but fell short of consensus forecasts of 8.1%, while the core CPI, which excludes food and energy prices, rose 6.2% versus expectations to 6%. Such a reading is the latest blow to the Fed's temporary inflationary pressures, opening the door for a 75-basis point rate hike in June. Investors will also be watching earnings reports from companies like Toyota Motors, Walt Disney, and Beyond Meat. In a highly volatile regular session Tuesday, the Dow fell 0.26% for a fourth straight day, while the S&P 500 and Nasdaq Composite gained 0.25% and 0.95%, respectively.

- CN: China's 10-year government bond yield rebounded to 2.83% from a near four-week low of 2.811%, as investors weighed inflation data on consumer and producer prices and the People's Bank of China's commitment to continued support for the economy. The consumer price index rose 2.1% in April, more than expected, the fastest gain since November last year and still well below the central bank's 2022 target of 3%. In addition, factory gate prices rose at their slowest pace in a year due to government controls on commodity prices, which still leaves considerable room for the People's Bank of China to further boost economic growth. On the bright side, infection rates have fallen in Shanghai and Beijing, and they are hoping that the long, strict lockdown may soon be lifted.

- AU: The yield on the benchmark 10-year Australian government bond hovered around 3.49%, near a seven-year high of 3.60%, on inflation concerns and expectations of further rate hikes by the Reserve Bank of Australia. RBA governor Lowe, who is responsible for reining in more than 20 years of high inflation, said it would be flexible. Investors expect the upcoming first-quarter wage growth data to support more than 25 basis points. Growth, if it proves too fast. The RBA hiked rates by 25 basis points to 0.35%, beating expectations and reducing the odds of further rate hikes, but well behind the Fed, which walked its fund's rate by 50 basis points, adding to Australian bond yields pressure.

 

 

 

STOCK MARKET SECTORS:

- High: Energy, Materials, Utilities.

- Low: Information Technology, Consumer Discretionary, Communication Services, Financials.

 

TOP CURRENCY & COMMODITIES MARKET DRIVERS: 

- USD: The dollar index bottomed around 103.6, pulling back from a session high of 104.1, as much of the gains seen after hotter-than-expected U.S. inflation began to subside. Still, DXY remains close to levels since 2002 as the Federal Reserve begins aggressively tightening monetary policy to curb soaring inflation. Annual U.S. inflation slowed to 8.3% in April, below consensus forecasts of 8.1%, while core CPI rose 6.2% versus expectations for 6%. Such a reading blows the Fed's narrative of temporary inflationary pressures, opening a 75-basis point rate hike in June. The dollar has also been boosted by safe-haven demand recently amid economic uncertainty surrounding Europe and China, with Russia's war on Ukraine and the coronavirus-induced lockdown in China clouding the outlook.

- OIL: U.S. crude inventories unexpectedly rose by 8.487 million barrels in the week ended May 6, after rising by 1.302 million barrels in the previous week, compared with market expectations for a decline of 457,000 barrels. However, crude inventories at the Cushing, Oklahoma distribution center fell by 587,000 barrels after 1.379 million barrels of crude were injected. Meanwhile, gasoline inventories fell by 3.607 million barrels, beating forecasts of 1.574 million barrels, and distillate fuel inventories, including diesel and heating oil, fell by 911,000 barrels, missing 1.312 million barrels.

 

CHART OF THE DAY:

On Wednesday, the CAC 40 rose 2.5 percent to close at 6,270, extending a rebound from the previous session, with luxury and energy stocks performing strongly as investors digested the latest U.S. inflation data. While U.S. inflation fell for the first time since August, consumer prices slowed less than expected, reinforcing calls from hawks for the Federal Reserve to tighten monetary policy. Meanwhile, fewer coronavirus cases in China boosted heavyweight luxury brands in Paris, with LVMH, L'Oreal, and Pernod Ricard up more than 4%. Meanwhile, Alstom fell 5% after rising 9% during the session as investors digested mixed results during the earnings call. - France CAC 40 index - D1, Resistance  around ~ 6339, Support (target zone) around  ~ 5888.

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