GLOBAL CAPITAL MARKETS OVERVIEW:

Volatility continued to dominate the market on Thursday, with all three major indexes down about 0.5%, after initial attempts to rebound failed amid lingering concerns about the impact of a sharp tightening on the growth momentum. The market move came on the heels of April consumer price data, leaving the Fed's bets for a sharp monetary tightening largely unscathed as the central bank rein in runaway inflation. On the corporate front, shares of Rivian Automotive rose more than 20%, while Beyond Meat fell more than 4% on quarterly results. Meanwhile, data showed that producer price inflation eased in April, and the number of Americans filing new jobless claims rose for a second month. European stocks came under renewed selling pressure on Thursday, with the regional Stoxx 600 closing in the red and the DAX 30 down nearly 1%, as investors grew worried that tightening monetary policy to curb record inflation could send the eurozone into a tailspin. decline. Utilities and energy stocks fell the most, while technology stocks gained. Meanwhile, the UK economy unexpectedly shrank in March, with preliminary data showing first-quarter GDP growth fell to 0.8%, below analysts' forecast for a 1% increase. On the earnings front, Siemens shares fell more than 2 percent after announcing lower second-quarter profit and a cost of exiting Russia of about 600 million euros. By contrast, Coca-Cola's bottling business, Coca-Cola HBC, jumped more than 5% last quarter after net sales rose 31% year over year. On Thursday, the FTSE MIB index fell 0.7% to close at 23,566, down more than 2% during the session, as investors further digested higher-than-expected consumer inflation in the United States and its impact on the Fed's tightening cycle. The utilities and healthcare sectors recorded the biggest losses, with Hera down 7.3% as investors further digested its earnings results, while Amplifon and Recordati fell more than 5%. On the other hand, UniCredit shares rose nearly 3% after surging 10.8% yesterday, as traders continued to focus on reports that UniCredit is in talks to acquire the Russian unit of the Italian bank. CAC 40 fell more than 1% to close at 6,206, in line with its European peers, as investors further digested higher-than-expected U.S. inflation data and a case for the Federal Reserve to tighten monetary policy. The heavyweight luxury sector was one of the biggest losers in Paris, with Kering and Hermes down nearly 2 percent and LVMH down 1.3 percent. On the other hand, chip maker STMicroelectronics rose 4% after it announced continued revenue growth at its investor day. On Thursday, the MOEX-Russia Index fell 3.7 percent to close at 2,298, its lowest level in two weeks, as investors continued to focus on talks on the sixth round of sanctions from the European Union, pressured by the energy and financial sectors. Lukoil shares fell 5.2% on the long-running threat that the European Union could implement a six-month phase-out of Russian oil imports. It will be the strongest retaliatory measure against Moscow if Brussels reaches a consensus with countries reluctant to veto sanctions. Elsewhere, Gazprom shares fell 4.7% as gas flows to Europe through Ukraine remained restricted, while investors digested Moscow's bid for Gazprom's former German subsidiary (now state-owned) ) and a round of sanctions on the Polish partial owner of the Yamal pipeline. However, selling pressure from sanctions has been relatively limited, as Russian markets are artificially supported by capital controls, including a ban on foreigners from selling Russian stocks. On Thursday, Canada's main stock index, the S&P/TSX, extended losses to its highest level in nearly a year as growing stagflation weighed on heavyweight energy and mining stocks and rallied with metals and oil. Futures fluctuate synchronously. In terms of corporate updates, Manulife Insurance and Sun Life Financial reported lower core earnings in the first quarter from a year earlier due to the impact of the coronavirus outbreak in Asia, with the former also missing expectations. The commodity-heavy index is deep into correction territory, down 15% since hitting an all-time high of 22,087 on March 29, with mining stocks taking the majority share amid a sharp fall in metals prices. On Thursday, the Shanghai Composite fell 0.12 percent to 3,055 points, and Shenzhen shares fell 0.13 percent to 11,095 points, consolidating two days of gains as investors awaited major policy support from authorities after repeated promises to boost growth and stabilize financial markets. In the latest development, China's State Council vowed to use monetary and fiscal tools to support employment amid the economic fallout from the outbreak. China's securities regulator also pledged to take action to boost confidence in its battered stock market, joining a chorus of calls to try to calm investors' nerves. Meanwhile, the number of Covid-19 cases in China continues to decline. Energy and real estate stocks led losses, with CNOOC Ltd (-3%) and China Construction Group Real Estate (-10%) lower. On the other hand, high-growth technology and healthcare brands are also advancing, including Sanan Optoelectronics (9%) and Shanghai Junshi (10%). New Zealand S&P/NYSE fell 55.81 points, or 0.5%, to settle at 11,177.36 on Thursday, its lowest close since June 21, 2020, after nearly flat in the previous session. After U.S. stocks extended losses on Wednesday, traders were jittery amid persistent worries about economic damage from aggressive interest rate hikes. Meanwhile, Atlanta Federal Bank President Bostic said he would be willing to raise interest rates further if high inflation persists. Domestically, food prices in New Zealand kept rising in April, although the index fell from a 10-year high of 7.6 percent in March. Meanwhile, inflation expectations in the country rose further in the second quarter, further suggesting that the Royal Bank of New Zealand will continue to raise interest rates. The biggest losers were New Zealand King Salmon Investments (down 12.5%), Gentrack Group Limited (down 5.6%), and RUA Bioscience Limited (down 5.6%). On Thursday, the Nikkei 225 fell 1.77% to 25,749, while the broader Topix index fell 1.19% to 1,829, closing at its lowest level in nearly two months as investors digested a stronger-than-expected U.S. inflation. In April, the headline U.S. CPI was near a 40-year high of 8.3%, while the core CPI also beat expectations at 6.2%, raising concerns among investors that price gains may persist and fueling concerns about a faster Concern about rate hikes. Technology stocks led losses, with companies including SoftBank Group (down 8%), Keyence (down 2.3%), M3 Inc (down 10.3%), and Recruit Holdings (down 2.6%) falling sharply. Other index heavyweights also fell, including Kawasaki Kishimori (down 2.1%), Fast Retailing (down 4.6%), Oriental Properties (down 4.9%), and Takeda Pharmaceuticals (down 3.2%). Elsewhere, Toyota Motor fell 1.5% despite a record full-year net profit after issuing a cautious forecast as the outbreak and war in Ukraine disrupted supply chains. Australia S&P/ASX 200 index fell 0.8% to around 7,010 on Thursday as U.S. data showed higher-than-expected core inflation, fueling fears of faster rate hikes and a sharp sell-off on Wall Street. Australian tech stocks tumbled, with the tech-heavy Nasdaq falling sharply overnight, led by Block Inc (-15%), Xero (-10.7%), Wisetech Global (-4.5%), Seek Ltd (- 3.9%), Altium Ltd (-9.2%) and Megaport Ltd (-6.6%). Other index heavyweights also fell, including CSL Ltd (down 2%), Macquarie Group (down 1.7%), Goodman Group (down 2.1%), CSR Ltd (down 8.8%) and IDP Education (down 1.7%) 5.8%). Meanwhile, energy companies outperformed the market due to higher oil prices, with Ampor Ltd (3.4%), Beach Energy (1%), and Caron Energy (1.6%) gaining. Elsewhere, Commonwealth Bank rose 1% after reporting a first-quarter profit of about $2.4 billion.

 

REVIEWING ECONOMIC DATA: 

Looking at the last economic data:

- GE: Germany's current account surplus fell to 18.8 billion euros in March 2022 from 33.8 billion euros a year earlier. The goods surplus fell to 12.8 billion euros from 24.2 billion euros in March 2021, and the services account turned into a 2.5 billion euro deficit from a 1.2 billion euro surplus a year earlier. At the same time, the primary income surplus increased from 11.8 billion euros to 11.4 billion euros, while the secondary income deficit increased from 3.4 billion euros to 4.9 billion euros.

- US: The number of Americans filing new claims for unemployment benefits rose by 1,000 to 203,000 in the week ended May 7, 2022, up from a revised 202,000 in the previous period and above market estimates of 195,000 people. This is the highest reading since mid-February. On a non-seasonally adjusted basis, initial jobless claims fell 6,554 from last week to 191,803, with Massachusetts (down 3,140), California (down 2,816), and New Jersey (down 2,466) people) saw a significant decrease in initial jobless claims. The 4-week moving average is at 192,750, an increase of 4,250 points from the previous week's revised average. Moving averages remove weekly volatility.

- US: In April 2022, U.S. producer prices rose 0.5% month-on-month, down from an upwardly revised 1.6% in March and primarily in line with market expectations. Wholesale costs of goods surged 1.3% last month, reflecting higher prices for cars, chicken, eggs, electricity, and natural gas. Meanwhile, the final demand construction index rose 4%, while final demand services prices were unchanged. Wholesale prices rose 11% from a year earlier, beating market expectations of 10.7% compared to March's 11.5% rise. Still, producer inflation remains at a 40-year high, and the report shows little sign that price pressures will ease significantly shortly.

- US: Major core government debt rebounded on Thursday as investors rushed into safe-haven assets amid concerns that aggressive central bank tightening measures to rein in record inflation could hurt global growth. The 10-year U.S. Treasury note yield, which sets the tone for global corporate and household borrowing costs, fell to a two-week low of around 2.8 percent. Meanwhile, the German 10-year bond yield, the regional benchmark, fell ten basis points to 0.88%, its highest level since late April. The 10-year spread in Italy narrowed to more than 2.74 percentage points. The 10-year spread is an influential gauge of risk in the eurozone bond market, given the size of Italy’s debt.

- UK: In mid-May, the pound weakened further to below $1.22, hitting a fresh two-year low, as investors worried that despite soaring inflation, the risk of a recession remained. The UK economy expanded at a slower-than-expected 0.8% in the first quarter and contracted by 0.1% in March alone, the latest data showed, while the Bank of England expects the economy to stagnate in the second quarter and shrink in the fourth quarter. . At the same time, traders are increasingly betting that the Federal Reserve will raise borrowing costs faster than other central banks to curb soaring inflation, with the Bank of England not seen as having as much breathing room.

- UK: Preliminary estimates put the UK economy growing by 8.7% year-on-year in the first quarter of 2022, up from 6.6% in the fourth quarter but slightly below the 9% forecast. Services grew by 9.9%, production by 2%, and construction by 7.4%. However, a slowdown is expected in the coming months as the war in Ukraine, and rising inflation hurt consumers' purchasing power.

- UK: UK 10-year gilt yields fell to a four-week low of 1.78% in mid-May after hitting a 6-1/2-year high of 2% earlier this month as investors grew increasingly concerned about economic weakness. UK GDP grew by a less-than-expected 0.8% in the first quarter after contracting by 0.1% in March. Meanwhile, the growing likelihood that the Bank of England will enter a recession this year will make it harder to keep raising borrowing costs even as inflation remains at levels not seen in 20 years.

- UK: UK construction orders rose 11.4% year-on-year in the first quarter of 2022, after a slight adjustment of 35.4% in the previous three months. Infrastructure orders grew faster (34.5% in Q4 versus 19.1% in Q4), while all other work orders grew slower (22.6% versus 46.1% in Q4). In contrast, new orders for housing fell (1-14.8% vs. 15.5%). As a result, construction orders fell 2.6% in the first quarter after a revised 9.4% increase.

- SW: In April 2022, annual inflation in Sweden rose to 6.4%, the highest level since December 1991 and above market forecasts of 6.1%. The central upward pressure came from housing and utilities (8.5%) due to higher electricity and fuel prices, rental apartments and condominiums, and owner-occupied homes (including maintenance prices). Other pressures came from food and non-alcoholic beverages (6.6%); transportation when car prices rose (11.6%); recreation and culture (5.2%), food and hospitality (up 7.1%), and miscellaneous goods and services (up 7.1%) 4.4%). On a monthly basis, consumer prices rose 0.6% in April, down from a 1.8% gain in March and at the fastest pace since January 1991.

- JP: Japan's services sector confidence index rose 2.6 points from the previous month to hit a four-month high of 47.8 in April 2022, as coronavirus restrictions were lifted, an economic observer survey showed. It also marked the second straight month of improvement in sentiment, with the Household Trends Index rising, reflecting a rise in services-related items, growth in manufacturing boosting measures of business trends, and strengthening employment-related trends. The Economic Outlook Index rose 0.2 points to 50.3, its highest level in four months, as Covid-19 cases eased.

- AU: Private residential approvals in Australia in March 2022 were 9932, down 3.0% from the previous month, in line with preliminary data and a change from the previous month's 14.6% increase. The latest figures mark the second drop in private residential permits since the start of the year. The significant declines in approvals were in New South Wales (down 7.5%), Victoria (down 5.0%), and South Australia (down 2.2%). In contrast, Queensland (5.8%) and Western Australia (0.3%) saw increases in approvals.

- AU: The seasonally adjusted estimate of the total number of dwellings approved in Australia in March 2022 is 15,183, down 18.5% month-on-month, and without rapid adjustment, up 42.0% a month ago, the fastest on record speed. This was the second drop in the past three months, with private sector dwellings excluding housing falling (29.9% in February vs. 79.1% in February). Additionally, approvals for private residences fell 3.0% after a 14.6% increase in the previous month. Across Australia, dwelling approvals fell in Victoria (down 34.6 percent), Tasmania (down 27.3 percent), New South Wales (down 23.9 percent), and South Australia (down 23.5 percent). In contrast, Queensland (12.4 percent) and Western Australia (5.1 percent) saw increases in building permits.

- NZ: Food price inflation in New Zealand fell to 6.4% in April 2022 from 7.6% the previous month. The slowdown in prices was mainly for fruits and vegetables (9.4% in March compared to 18% in March), meat, poultry, and fish (8.1% vs. 8.7%), and groceries (6.4% vs. 6.7%). On the other hand, the prices of restaurant meals and ready meals (5.3% vs. 5.1%) and non-alcoholic beverages (2.8% vs. 2.7%) rose faster. As a result, food prices rose 0.1% every month after rising 0.7%.

 

LOOKING AHEAD:   

Today, investors will receive:

-USD: Import Prices m/m, Prelim UoM Consumer Sentiment, Prelim UoM Inflation Expectations, and FOMC Member Mester Speaks.

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

- EUR: French Final CPI m/m, and Industrial Production m/m.

- NZD: BusinessNZ Manufacturing Index.

- JPY: M2 Money Stock y/y.

- AUD: RBA Deputy Gov Bullock Speaks.

 

KEY EQUITY & BOND MARKET DRIVERS:

- CA: Canada's 10-year government bond fell to 2.94 percent, its lowest level since May 4, in a similar move to U.S. Treasury yields, as investors sought safety amid persistent fears that aggressive monetary tightening would hurt global growth. Domestically, Canada's unemployment rate hit a record low of 5.2 percent in March, further strengthening the case for the Bank of Canada to adopt more aggressive tightening in June. Meanwhile, annual inflation in Canada accelerated more than expected in March, hitting a 31-year high amid widespread price pressures.

- IT: Yields on the 10-year BTP fell below 2.8%, extending losses of 3.2% from a three-year high hit on May 8, when government debt securities rallied as traders digested unexpectedly high inflation data and rallied in 2018. The European Central Bank's rate hike has been reassessed amid a deteriorating economic outlook for the eurozone. Lower borrowing costs also narrowed the closely-watched spread to below 1.9 points, indicating less concern over Italian debt risks. While the scale of the tightening remains unclear, ECB member states have been advocating for a tightening cycle to begin in July, shortly after the end of the asset purchase program, the latest signal coming from ECB President Christine Lagarde. Inflation in Italy fell from a recent peak to 6.2% in April, while inflation in the eurozone hit a record high of 7.5%.

- RU: Yields on 10-year OFZ bonds hit 10.3% in May, their highest level in three weeks, as investors digested a new policy report from Russia’s central bank. The central bank forecasts that the Russian economy will contract by 8-10% in 2022, possibly 3% the following year, before returning to moderate growth in 2024. Meanwhile, CBR expects key rates to be between 12.5-14% this year, falling to 9-11% in 2023 and 6-8% in 2024. At its April meeting, the bank cut its benchmark interest rate by 300 basis points to 14%, beating market expectations. The move further accommodates the decline in economic activity, reflecting a shifting balance between soaring inflation and financial stability risks. On the other hand, the OFZ market remains supported by increased demand from investors looking for fixed coupon payments, as declining economic conditions due to sanctions have led to many companies suspending dividend payments.

- GE: German 10-year bond yields are below 0.9%, down sharply from a nearly eight-year high of 1.2% hit on May 8, as traders digest higher-than-expected consumer prices in the U.S., bond demand in Europe and North America. A rebound occurs. Investors also reassessed the extent to which the European Central Bank will raise interest rates amid a worsening economic outlook for the eurozone. While the scale of the tightening remains unclear, ECB member states have been advocating for a tightening cycle to begin in July, shortly after the end of the asset purchase program, the latest signal coming from ECB President Christine Lagarde. Preliminary data showed that inflation in the eurozone hit a record 7.5 percent in April, while it was at its highest level in Germany since 1981. Meanwhile, Germany's ZEW Economic Sentiment Index rose to -34.3 in May, well above market expectations for a further decline.

- UK: UK construction production rose 4.7% year-on-year in March 2022, slowing from a 7.0% rise in the previous month but beating market expectations of 2.4%. New homes increased by 0.7% (7.0% in February), all new jobs increased by 4.3% (7.0% in February), and repairs and maintenance increased by 5.5% (7.0% in February). As a result, construction activity rose 1.7% on a monthly basis, the highest in three months.

- US: U.S. stock futures were volatile on Thursday as major moving averages continued to sell-off overnight as investors digested stronger-than-expected inflation data. Futures contracts linked to the three major indices convert between gains and losses. In regular trading on Wednesday, the Dow Jones Industrial Average was down 1.02%, the S&P 500 was down 1.65%, and the Nasdaq Composite was down 3.18%, with all three averages falling further to their lowest levels in more than a year. The moves came as data showed consumer prices rose 8.3% in April, beating forecasts of 8.1% and still near a 40-year high of 8.5% in March. Core CPI also came in above expectations at 6.2% in April, raising concerns that price increases could persist. Investors continued to gauge the strength of the Federal Reserve's tightening of monetary policy to rein in rising prices, and uncertainty over its next move will further drive market volatility.

 

STOCK MARKET SECTORS:

- High: Health Care, Real Estate.

- Low: Information Technology, Financials, Energy, Industrials, Utilities.

 

TOP CURRENCY & COMMODITIES MARKET DRIVERS: 

- CNY: The offshore yuan weakened more than 6.80 yuan against the dollar on Thursday, falling to its lowest level since September 2020, as China's central bank signaled further monetary easing, while strong U.S. inflation prints bolstered bets on a sharp Fed rate hike. On Thursday, the People's Bank of China said it made stabilizing economic growth a top priority and would step up support for vulnerable industries, adding that it had cut lending rates from already low levels. The central bank has taken relatively modest easing measures in recent months despite the sharp decline in economic activity caused by the coronavirus lockdown. The People's Bank of China cut banks' reserve requirement ratios by less than expected last month and did not cut policy rates. Still, lending rates in the economy have fallen, with the weighted average rate on business loans at 4.4% in the first quarter, down 0.21 percentage points from the end of 2021.

- AUD: The Australian dollar fell to its lowest level in nearly two years on Thursday, above $0,695, as fears of a global economic slowdown weighed on commodity-linked currencies, while higher-than-expected U.S. inflation data reinforced concerns about sharp Fed tightening. A bet on monetary policy. The U.S. central bank is leading a global monetary tightening cycle to curb price spikes. Despite the Reserve Bank of Australia's unexpectedly hawkish turn, the Australian dollar has also fallen. On May 3, the Reserve Bank of Australia started the rate hike cycle with a higher-than-expected 25 basis point rate hike. The RBA has recently raised its core inflation forecast sharply, and even assuming a series of rate hikes, it will not return to the 2-3 percent target range envisaged by 2024. Markets are pricing in another 25 percentage point hike to 0.6% in June and nearly 3% each month by the end of the year.

- NZD: The New Zealand dollar fell below $0.63 on Thursday, falling to its lowest level in nearly two years, as fears of a global economic slowdown weighed on commodity-linked currencies, while higher-than-expected U.S. inflation data reinforced concerns about the Federal Reserve's Federal Reserve bet on aggressive tightening. The U.S. central bank is leading a global monetary tightening cycle to curb price spikes. Meanwhile, a Reserve Bank of New Zealand survey showed near-term inflation expectations rose in the second quarter of 2022, with businesses forecasting annual inflation for the year ahead from 4.4% in the previous survey rose to 4.9%. Royal Bank of New Zealand (RBNZ) began tightening monetary policy last year, raising its benchmark interest rate four times to keep ahead of inflation. Bond futures imply an 89% chance that the central bank will raise the 1.5% cash rate by 0.5 percentage points at its May 25 policy review.

- USD: The U.S. dollar index held steady above 104 on Thursday, hovering near a 19-year high after U.S. inflation was higher than expected, allowing the Federal Reserve to continue aggressive monetary tightening. In April, the U.S. headline CPI was near a 40-year high of 8.3%, while the core CPI also beat expectations at 6.2%, fueling investor concerns that price increases may persist and fueling concerns about faster rate hikes. concerns. The data showed that inflation may have peaked, but it is unlikely to ease quickly and hamper the Fed's current tightening program. According to the following two Fed meetings in June and July, the market expects rates to rise by at least half a percentage point at the CME FedWatch tool. The U.S. 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.

 

CHART OF THE DAY:

The yen rose above 129 to the dollar on Thursday, moving further away from 20-year lows hit earlier in the week, as U.S. Treasury yields surged on speculation that inflation could peak and the outlook for the global economy weakened. Fall back. Meanwhile, the yen remained subdued as a Bank of Japan official said it would be inappropriate to change monetary policy to control the exchange rate, according to a summary of comments at the April meeting. The Bank of Japan doubled down on its massive stimulus program in April and stepped up its commitment to its ultra-low-yield policy, saying it would offer unlimited purchases of 10-year government bonds to defend the implications surrounding its zero-per-market-day target 0.25% yield cap. In stark contrast, the Fed has been aggressively raising interest rates.  

- USDJPY - D1, Resistance around ~ 131.227, Support (target zone) around ~ 125.695

Volatile conditions persist, as do growth concerns; Russia threatens retaliation if Finland joins NATO

GLOBAL CAPITAL MARKETS OVERVIEW:

Volatility continued to dominate the market on Thursday, with all three major indexes down about 0.5%, after initial attempts to rebound failed amid lingering concerns about the impact of a sharp tightening on the growth momentum. The market move came on the heels of April consumer price data, leaving the Fed's bets for a sharp monetary tightening largely unscathed as the central bank rein in runaway inflation. On the corporate front, shares of Rivian Automotive rose more than 20%, while Beyond Meat fell more than 4% on quarterly results. Meanwhile, data showed that producer price inflation eased in April, and the number of Americans filing new jobless claims rose for a second month. European stocks came under renewed selling pressure on Thursday, with the regional Stoxx 600 closing in the red and the DAX 30 down nearly 1%, as investors grew worried that tightening monetary policy to curb record inflation could send the eurozone into a tailspin. decline. Utilities and energy stocks fell the most, while technology stocks gained. Meanwhile, the UK economy unexpectedly shrank in March, with preliminary data showing first-quarter GDP growth fell to 0.8%, below analysts' forecast for a 1% increase. On the earnings front, Siemens shares fell more than 2 percent after announcing lower second-quarter profit and a cost of exiting Russia of about 600 million euros. By contrast, Coca-Cola's bottling business, Coca-Cola HBC, jumped more than 5% last quarter after net sales rose 31% year over year. On Thursday, the FTSE MIB index fell 0.7% to close at 23,566, down more than 2% during the session, as investors further digested higher-than-expected consumer inflation in the United States and its impact on the Fed's tightening cycle. The utilities and healthcare sectors recorded the biggest losses, with Hera down 7.3% as investors further digested its earnings results, while Amplifon and Recordati fell more than 5%. On the other hand, UniCredit shares rose nearly 3% after surging 10.8% yesterday, as traders continued to focus on reports that UniCredit is in talks to acquire the Russian unit of the Italian bank. CAC 40 fell more than 1% to close at 6,206, in line with its European peers, as investors further digested higher-than-expected U.S. inflation data and a case for the Federal Reserve to tighten monetary policy. The heavyweight luxury sector was one of the biggest losers in Paris, with Kering and Hermes down nearly 2 percent and LVMH down 1.3 percent. On the other hand, chip maker STMicroelectronics rose 4% after it announced continued revenue growth at its investor day. On Thursday, the MOEX-Russia Index fell 3.7 percent to close at 2,298, its lowest level in two weeks, as investors continued to focus on talks on the sixth round of sanctions from the European Union, pressured by the energy and financial sectors. Lukoil shares fell 5.2% on the long-running threat that the European Union could implement a six-month phase-out of Russian oil imports. It will be the strongest retaliatory measure against Moscow if Brussels reaches a consensus with countries reluctant to veto sanctions. Elsewhere, Gazprom shares fell 4.7% as gas flows to Europe through Ukraine remained restricted, while investors digested Moscow's bid for Gazprom's former German subsidiary (now state-owned) ) and a round of sanctions on the Polish partial owner of the Yamal pipeline. However, selling pressure from sanctions has been relatively limited, as Russian markets are artificially supported by capital controls, including a ban on foreigners from selling Russian stocks. On Thursday, Canada's main stock index, the S&P/TSX, extended losses to its highest level in nearly a year as growing stagflation weighed on heavyweight energy and mining stocks and rallied with metals and oil. Futures fluctuate synchronously. In terms of corporate updates, Manulife Insurance and Sun Life Financial reported lower core earnings in the first quarter from a year earlier due to the impact of the coronavirus outbreak in Asia, with the former also missing expectations. The commodity-heavy index is deep into correction territory, down 15% since hitting an all-time high of 22,087 on March 29, with mining stocks taking the majority share amid a sharp fall in metals prices. On Thursday, the Shanghai Composite fell 0.12 percent to 3,055 points, and Shenzhen shares fell 0.13 percent to 11,095 points, consolidating two days of gains as investors awaited major policy support from authorities after repeated promises to boost growth and stabilize financial markets. In the latest development, China's State Council vowed to use monetary and fiscal tools to support employment amid the economic fallout from the outbreak. China's securities regulator also pledged to take action to boost confidence in its battered stock market, joining a chorus of calls to try to calm investors' nerves. Meanwhile, the number of Covid-19 cases in China continues to decline. Energy and real estate stocks led losses, with CNOOC Ltd (-3%) and China Construction Group Real Estate (-10%) lower. On the other hand, high-growth technology and healthcare brands are also advancing, including Sanan Optoelectronics (9%) and Shanghai Junshi (10%). New Zealand S&P/NYSE fell 55.81 points, or 0.5%, to settle at 11,177.36 on Thursday, its lowest close since June 21, 2020, after nearly flat in the previous session. After U.S. stocks extended losses on Wednesday, traders were jittery amid persistent worries about economic damage from aggressive interest rate hikes. Meanwhile, Atlanta Federal Bank President Bostic said he would be willing to raise interest rates further if high inflation persists. Domestically, food prices in New Zealand kept rising in April, although the index fell from a 10-year high of 7.6 percent in March. Meanwhile, inflation expectations in the country rose further in the second quarter, further suggesting that the Royal Bank of New Zealand will continue to raise interest rates. The biggest losers were New Zealand King Salmon Investments (down 12.5%), Gentrack Group Limited (down 5.6%), and RUA Bioscience Limited (down 5.6%). On Thursday, the Nikkei 225 fell 1.77% to 25,749, while the broader Topix index fell 1.19% to 1,829, closing at its lowest level in nearly two months as investors digested a stronger-than-expected U.S. inflation. In April, the headline U.S. CPI was near a 40-year high of 8.3%, while the core CPI also beat expectations at 6.2%, raising concerns among investors that price gains may persist and fueling concerns about a faster Concern about rate hikes. Technology stocks led losses, with companies including SoftBank Group (down 8%), Keyence (down 2.3%), M3 Inc (down 10.3%), and Recruit Holdings (down 2.6%) falling sharply. Other index heavyweights also fell, including Kawasaki Kishimori (down 2.1%), Fast Retailing (down 4.6%), Oriental Properties (down 4.9%), and Takeda Pharmaceuticals (down 3.2%). Elsewhere, Toyota Motor fell 1.5% despite a record full-year net profit after issuing a cautious forecast as the outbreak and war in Ukraine disrupted supply chains. Australia S&P/ASX 200 index fell 0.8% to around 7,010 on Thursday as U.S. data showed higher-than-expected core inflation, fueling fears of faster rate hikes and a sharp sell-off on Wall Street. Australian tech stocks tumbled, with the tech-heavy Nasdaq falling sharply overnight, led by Block Inc (-15%), Xero (-10.7%), Wisetech Global (-4.5%), Seek Ltd (- 3.9%), Altium Ltd (-9.2%) and Megaport Ltd (-6.6%). Other index heavyweights also fell, including CSL Ltd (down 2%), Macquarie Group (down 1.7%), Goodman Group (down 2.1%), CSR Ltd (down 8.8%) and IDP Education (down 1.7%) 5.8%). Meanwhile, energy companies outperformed the market due to higher oil prices, with Ampor Ltd (3.4%), Beach Energy (1%), and Caron Energy (1.6%) gaining. Elsewhere, Commonwealth Bank rose 1% after reporting a first-quarter profit of about $2.4 billion.

 

REVIEWING ECONOMIC DATA: 

Looking at the last economic data:

- GE: Germany's current account surplus fell to 18.8 billion euros in March 2022 from 33.8 billion euros a year earlier. The goods surplus fell to 12.8 billion euros from 24.2 billion euros in March 2021, and the services account turned into a 2.5 billion euro deficit from a 1.2 billion euro surplus a year earlier. At the same time, the primary income surplus increased from 11.8 billion euros to 11.4 billion euros, while the secondary income deficit increased from 3.4 billion euros to 4.9 billion euros.

- US: The number of Americans filing new claims for unemployment benefits rose by 1,000 to 203,000 in the week ended May 7, 2022, up from a revised 202,000 in the previous period and above market estimates of 195,000 people. This is the highest reading since mid-February. On a non-seasonally adjusted basis, initial jobless claims fell 6,554 from last week to 191,803, with Massachusetts (down 3,140), California (down 2,816), and New Jersey (down 2,466) people) saw a significant decrease in initial jobless claims. The 4-week moving average is at 192,750, an increase of 4,250 points from the previous week's revised average. Moving averages remove weekly volatility.

- US: In April 2022, U.S. producer prices rose 0.5% month-on-month, down from an upwardly revised 1.6% in March and primarily in line with market expectations. Wholesale costs of goods surged 1.3% last month, reflecting higher prices for cars, chicken, eggs, electricity, and natural gas. Meanwhile, the final demand construction index rose 4%, while final demand services prices were unchanged. Wholesale prices rose 11% from a year earlier, beating market expectations of 10.7% compared to March's 11.5% rise. Still, producer inflation remains at a 40-year high, and the report shows little sign that price pressures will ease significantly shortly.

- US: Major core government debt rebounded on Thursday as investors rushed into safe-haven assets amid concerns that aggressive central bank tightening measures to rein in record inflation could hurt global growth. The 10-year U.S. Treasury note yield, which sets the tone for global corporate and household borrowing costs, fell to a two-week low of around 2.8 percent. Meanwhile, the German 10-year bond yield, the regional benchmark, fell ten basis points to 0.88%, its highest level since late April. The 10-year spread in Italy narrowed to more than 2.74 percentage points. The 10-year spread is an influential gauge of risk in the eurozone bond market, given the size of Italy’s debt.

- UK: In mid-May, the pound weakened further to below $1.22, hitting a fresh two-year low, as investors worried that despite soaring inflation, the risk of a recession remained. The UK economy expanded at a slower-than-expected 0.8% in the first quarter and contracted by 0.1% in March alone, the latest data showed, while the Bank of England expects the economy to stagnate in the second quarter and shrink in the fourth quarter. . At the same time, traders are increasingly betting that the Federal Reserve will raise borrowing costs faster than other central banks to curb soaring inflation, with the Bank of England not seen as having as much breathing room.

- UK: Preliminary estimates put the UK economy growing by 8.7% year-on-year in the first quarter of 2022, up from 6.6% in the fourth quarter but slightly below the 9% forecast. Services grew by 9.9%, production by 2%, and construction by 7.4%. However, a slowdown is expected in the coming months as the war in Ukraine, and rising inflation hurt consumers' purchasing power.

- UK: UK 10-year gilt yields fell to a four-week low of 1.78% in mid-May after hitting a 6-1/2-year high of 2% earlier this month as investors grew increasingly concerned about economic weakness. UK GDP grew by a less-than-expected 0.8% in the first quarter after contracting by 0.1% in March. Meanwhile, the growing likelihood that the Bank of England will enter a recession this year will make it harder to keep raising borrowing costs even as inflation remains at levels not seen in 20 years.

- UK: UK construction orders rose 11.4% year-on-year in the first quarter of 2022, after a slight adjustment of 35.4% in the previous three months. Infrastructure orders grew faster (34.5% in Q4 versus 19.1% in Q4), while all other work orders grew slower (22.6% versus 46.1% in Q4). In contrast, new orders for housing fell (1-14.8% vs. 15.5%). As a result, construction orders fell 2.6% in the first quarter after a revised 9.4% increase.

- SW: In April 2022, annual inflation in Sweden rose to 6.4%, the highest level since December 1991 and above market forecasts of 6.1%. The central upward pressure came from housing and utilities (8.5%) due to higher electricity and fuel prices, rental apartments and condominiums, and owner-occupied homes (including maintenance prices). Other pressures came from food and non-alcoholic beverages (6.6%); transportation when car prices rose (11.6%); recreation and culture (5.2%), food and hospitality (up 7.1%), and miscellaneous goods and services (up 7.1%) 4.4%). On a monthly basis, consumer prices rose 0.6% in April, down from a 1.8% gain in March and at the fastest pace since January 1991.

- JP: Japan's services sector confidence index rose 2.6 points from the previous month to hit a four-month high of 47.8 in April 2022, as coronavirus restrictions were lifted, an economic observer survey showed. It also marked the second straight month of improvement in sentiment, with the Household Trends Index rising, reflecting a rise in services-related items, growth in manufacturing boosting measures of business trends, and strengthening employment-related trends. The Economic Outlook Index rose 0.2 points to 50.3, its highest level in four months, as Covid-19 cases eased.

- AU: Private residential approvals in Australia in March 2022 were 9932, down 3.0% from the previous month, in line with preliminary data and a change from the previous month's 14.6% increase. The latest figures mark the second drop in private residential permits since the start of the year. The significant declines in approvals were in New South Wales (down 7.5%), Victoria (down 5.0%), and South Australia (down 2.2%). In contrast, Queensland (5.8%) and Western Australia (0.3%) saw increases in approvals.

- AU: The seasonally adjusted estimate of the total number of dwellings approved in Australia in March 2022 is 15,183, down 18.5% month-on-month, and without rapid adjustment, up 42.0% a month ago, the fastest on record speed. This was the second drop in the past three months, with private sector dwellings excluding housing falling (29.9% in February vs. 79.1% in February). Additionally, approvals for private residences fell 3.0% after a 14.6% increase in the previous month. Across Australia, dwelling approvals fell in Victoria (down 34.6 percent), Tasmania (down 27.3 percent), New South Wales (down 23.9 percent), and South Australia (down 23.5 percent). In contrast, Queensland (12.4 percent) and Western Australia (5.1 percent) saw increases in building permits.

- NZ: Food price inflation in New Zealand fell to 6.4% in April 2022 from 7.6% the previous month. The slowdown in prices was mainly for fruits and vegetables (9.4% in March compared to 18% in March), meat, poultry, and fish (8.1% vs. 8.7%), and groceries (6.4% vs. 6.7%). On the other hand, the prices of restaurant meals and ready meals (5.3% vs. 5.1%) and non-alcoholic beverages (2.8% vs. 2.7%) rose faster. As a result, food prices rose 0.1% every month after rising 0.7%.

 

LOOKING AHEAD:   

Today, investors will receive:

-USD: Import Prices m/m, Prelim UoM Consumer Sentiment, Prelim UoM Inflation Expectations, and FOMC Member Mester Speaks.

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

- EUR: French Final CPI m/m, and Industrial Production m/m.

- NZD: BusinessNZ Manufacturing Index.

- JPY: M2 Money Stock y/y.

- AUD: RBA Deputy Gov Bullock Speaks.

 

KEY EQUITY & BOND MARKET DRIVERS:

- CA: Canada's 10-year government bond fell to 2.94 percent, its lowest level since May 4, in a similar move to U.S. Treasury yields, as investors sought safety amid persistent fears that aggressive monetary tightening would hurt global growth. Domestically, Canada's unemployment rate hit a record low of 5.2 percent in March, further strengthening the case for the Bank of Canada to adopt more aggressive tightening in June. Meanwhile, annual inflation in Canada accelerated more than expected in March, hitting a 31-year high amid widespread price pressures.

- IT: Yields on the 10-year BTP fell below 2.8%, extending losses of 3.2% from a three-year high hit on May 8, when government debt securities rallied as traders digested unexpectedly high inflation data and rallied in 2018. The European Central Bank's rate hike has been reassessed amid a deteriorating economic outlook for the eurozone. Lower borrowing costs also narrowed the closely-watched spread to below 1.9 points, indicating less concern over Italian debt risks. While the scale of the tightening remains unclear, ECB member states have been advocating for a tightening cycle to begin in July, shortly after the end of the asset purchase program, the latest signal coming from ECB President Christine Lagarde. Inflation in Italy fell from a recent peak to 6.2% in April, while inflation in the eurozone hit a record high of 7.5%.

- RU: Yields on 10-year OFZ bonds hit 10.3% in May, their highest level in three weeks, as investors digested a new policy report from Russia’s central bank. The central bank forecasts that the Russian economy will contract by 8-10% in 2022, possibly 3% the following year, before returning to moderate growth in 2024. Meanwhile, CBR expects key rates to be between 12.5-14% this year, falling to 9-11% in 2023 and 6-8% in 2024. At its April meeting, the bank cut its benchmark interest rate by 300 basis points to 14%, beating market expectations. The move further accommodates the decline in economic activity, reflecting a shifting balance between soaring inflation and financial stability risks. On the other hand, the OFZ market remains supported by increased demand from investors looking for fixed coupon payments, as declining economic conditions due to sanctions have led to many companies suspending dividend payments.

- GE: German 10-year bond yields are below 0.9%, down sharply from a nearly eight-year high of 1.2% hit on May 8, as traders digest higher-than-expected consumer prices in the U.S., bond demand in Europe and North America. A rebound occurs. Investors also reassessed the extent to which the European Central Bank will raise interest rates amid a worsening economic outlook for the eurozone. While the scale of the tightening remains unclear, ECB member states have been advocating for a tightening cycle to begin in July, shortly after the end of the asset purchase program, the latest signal coming from ECB President Christine Lagarde. Preliminary data showed that inflation in the eurozone hit a record 7.5 percent in April, while it was at its highest level in Germany since 1981. Meanwhile, Germany's ZEW Economic Sentiment Index rose to -34.3 in May, well above market expectations for a further decline.

- UK: UK construction production rose 4.7% year-on-year in March 2022, slowing from a 7.0% rise in the previous month but beating market expectations of 2.4%. New homes increased by 0.7% (7.0% in February), all new jobs increased by 4.3% (7.0% in February), and repairs and maintenance increased by 5.5% (7.0% in February). As a result, construction activity rose 1.7% on a monthly basis, the highest in three months.

- US: U.S. stock futures were volatile on Thursday as major moving averages continued to sell-off overnight as investors digested stronger-than-expected inflation data. Futures contracts linked to the three major indices convert between gains and losses. In regular trading on Wednesday, the Dow Jones Industrial Average was down 1.02%, the S&P 500 was down 1.65%, and the Nasdaq Composite was down 3.18%, with all three averages falling further to their lowest levels in more than a year. The moves came as data showed consumer prices rose 8.3% in April, beating forecasts of 8.1% and still near a 40-year high of 8.5% in March. Core CPI also came in above expectations at 6.2% in April, raising concerns that price increases could persist. Investors continued to gauge the strength of the Federal Reserve's tightening of monetary policy to rein in rising prices, and uncertainty over its next move will further drive market volatility.

 

STOCK MARKET SECTORS:

- High: Health Care, Real Estate.

- Low: Information Technology, Financials, Energy, Industrials, Utilities.

 

TOP CURRENCY & COMMODITIES MARKET DRIVERS: 

- CNY: The offshore yuan weakened more than 6.80 yuan against the dollar on Thursday, falling to its lowest level since September 2020, as China's central bank signaled further monetary easing, while strong U.S. inflation prints bolstered bets on a sharp Fed rate hike. On Thursday, the People's Bank of China said it made stabilizing economic growth a top priority and would step up support for vulnerable industries, adding that it had cut lending rates from already low levels. The central bank has taken relatively modest easing measures in recent months despite the sharp decline in economic activity caused by the coronavirus lockdown. The People's Bank of China cut banks' reserve requirement ratios by less than expected last month and did not cut policy rates. Still, lending rates in the economy have fallen, with the weighted average rate on business loans at 4.4% in the first quarter, down 0.21 percentage points from the end of 2021.

- AUD: The Australian dollar fell to its lowest level in nearly two years on Thursday, above $0,695, as fears of a global economic slowdown weighed on commodity-linked currencies, while higher-than-expected U.S. inflation data reinforced concerns about sharp Fed tightening. A bet on monetary policy. The U.S. central bank is leading a global monetary tightening cycle to curb price spikes. Despite the Reserve Bank of Australia's unexpectedly hawkish turn, the Australian dollar has also fallen. On May 3, the Reserve Bank of Australia started the rate hike cycle with a higher-than-expected 25 basis point rate hike. The RBA has recently raised its core inflation forecast sharply, and even assuming a series of rate hikes, it will not return to the 2-3 percent target range envisaged by 2024. Markets are pricing in another 25 percentage point hike to 0.6% in June and nearly 3% each month by the end of the year.

- NZD: The New Zealand dollar fell below $0.63 on Thursday, falling to its lowest level in nearly two years, as fears of a global economic slowdown weighed on commodity-linked currencies, while higher-than-expected U.S. inflation data reinforced concerns about the Federal Reserve's Federal Reserve bet on aggressive tightening. The U.S. central bank is leading a global monetary tightening cycle to curb price spikes. Meanwhile, a Reserve Bank of New Zealand survey showed near-term inflation expectations rose in the second quarter of 2022, with businesses forecasting annual inflation for the year ahead from 4.4% in the previous survey rose to 4.9%. Royal Bank of New Zealand (RBNZ) began tightening monetary policy last year, raising its benchmark interest rate four times to keep ahead of inflation. Bond futures imply an 89% chance that the central bank will raise the 1.5% cash rate by 0.5 percentage points at its May 25 policy review.

- USD: The U.S. dollar index held steady above 104 on Thursday, hovering near a 19-year high after U.S. inflation was higher than expected, allowing the Federal Reserve to continue aggressive monetary tightening. In April, the U.S. headline CPI was near a 40-year high of 8.3%, while the core CPI also beat expectations at 6.2%, fueling investor concerns that price increases may persist and fueling concerns about faster rate hikes. concerns. The data showed that inflation may have peaked, but it is unlikely to ease quickly and hamper the Fed's current tightening program. According to the following two Fed meetings in June and July, the market expects rates to rise by at least half a percentage point at the CME FedWatch tool. The U.S. 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.

 

CHART OF THE DAY:

The yen rose above 129 to the dollar on Thursday, moving further away from 20-year lows hit earlier in the week, as U.S. Treasury yields surged on speculation that inflation could peak and the outlook for the global economy weakened. Fall back. Meanwhile, the yen remained subdued as a Bank of Japan official said it would be inappropriate to change monetary policy to control the exchange rate, according to a summary of comments at the April meeting. The Bank of Japan doubled down on its massive stimulus program in April and stepped up its commitment to its ultra-low-yield policy, saying it would offer unlimited purchases of 10-year government bonds to defend the implications surrounding its zero-per-market-day target 0.25% yield cap. In stark contrast, the Fed has been aggressively raising interest rates.  

- USDJPY - D1, Resistance around ~ 131.227, Support (target zone) around ~ 125.695

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