GLOBAL CAPITAL MARKETS OVERVIEW:

The Dow Jones Industrial Average rose nearly 400 points on Friday afternoon. In contrast, the S&P 500 and Nasdaq rose 2.2% and 3.5%, respectively, as investors took advantage of a roller coaster weekend of falling valuations to tighten aggressive monetary policy and concerns about slowing economic growth. Yesterday, Federal Reserve Chairman Jerome Powell said that reducing inflation to the central bank’s 2% target could bring some pain, including a recession. Markets interpret such remarks as more dovish, allaying fears that the Fed will raise rates by 0.75 percentage points. Meanwhile, Twitter shares tumbled 10% after Elon Musk said he would suspend acquisition deals pending details on the number of spam/fake accounts. However, the major moving averages are still on track to end the week lower despite today's gains. Canada's main stock index, the S&P/TSX, rose 2 percent on Friday to close at 20,099.8, buoyed by strong gains in energy, technology, and healthcare stocks, from a one-year low in the previous session Point bounce. Meanwhile, investors reassessed the size of the Fed's tightening cycle after Fed Chairman Jerome Powell said a 75 basis point rate hike would not be considered at the next two policy meetings. On the data front, new vehicle sales in Canada rose to 144,600 in March from an upwardly revised 105,600 in February. The index fell 2.6% for the week, its seventh straight weekly decline, as stagflation woes and the prospect of aggressive tightening by major central banks, notably the Federal Reserve, weighed on the commodity index. Major European stock indexes rebounded on Friday, with the regional Stoxx 600 and the domestic DAX gaining 2.1%, as comments from the Fed chair eased fears of a larger rate hike. Powell reiterated that the Fed is likely to raise 50 basis points at its next two meetings and would not "actively consider" a 75 basis point move. Among sectors, travel and leisure stocks rose 4.7% to lead the gains, followed by banks, oil and gas, and technology. Meanwhile, strong corporate results helped boost investor sentiment, with Deutsche Telekom reporting better-than-expected revenue and profit and boosting its full-year outlook, while Norwegian Airlines lifted negative EBIT from first a year ago. The quarterly figure of NOK 1462 shrank to NOK 849 million. On a weekly basis, the Stoxx 600 gained 0.8%, avoiding a fifth straight weekly loss, with broad support across almost all sectors, while the DAX gained 2.5%. The CAC 40 rose 2.5% to close at 6,363 on Friday, up 1.7% for the week, boosted by a strong showing in the tech sector as investors reassessed Fed tightening after Fed Chairman Jerome Powell said he would not consider a 75 basis point rate hike The size of the cycle. STMicroelectronics closed up 6%, extending yesterday's 4% gain after the company showed its outlook at an investor day. Meanwhile, easing fears of tighter monetary policy and reports that Shanghai could reopen from a strict lockdown in May boosted heavyweight luxury brands in Paris, with Hermes up 3.5% and LVMH up 2.8%. On Friday, the FTSE 100 rose 2.6% to close at 7,418, recovering from a 1.6% slump the previous day, in line with global stocks after comments from Federal Reserve Chairman Jerome Powell eased fears of a larger rate hike. Powell reiterated that the Fed is likely to raise 50 basis points at its next two meetings and would not "actively consider" a 75 basis point move. Real estate, energy, healthcare, consumer cyclical, and financials led gains. Meanwhile, investors also welcomed the upbeat company results from Rolls-Royce, which said it had made "significant progress" in recovering from the impact of the pandemic. Sage had a strong first half and set a full-year target, while the global utility beat internal forecasts. For the week, the FTSE 100 rose 0.4%. The MOEX Russia index reversed losses on Friday and edged up to 2,308 but was still down 3.6% in the shorter trading week as investors focused on developing sanctions between Russia and the European Union. Shares in Gazprom closed up 2.2%, although the suspension of gas flows from the Yamal pipeline after the Kremlin banned Gazprom from working with pipeline owner Europol Gaz and others in Europe Transactions between natural gas companies. The Russian sanctions are retaliation for the EU's longstanding threat of a possible six-month phase-out of Russian oil imports. If Hungary supports the embargo, it is the toughest measure against Moscow. Conversely, the mining sector fell 1.1%, pressured by expectations of lower exports due to a stronger rouble. Having ended in losses, the Russian market has been artificially supported by capital controls, including a ban on foreigners from selling Russian shares. On Friday, the Shanghai Composite rose 0.96% to 3,084, and Shenzhen shares rose 0.59% to 11,160, extending recent gains as investors assessed the possibility of a policy rate cut next week after multiple pledges to support economic growth. Economists are divided on whether the People's Bank of China will move to lower the one-year policy lending rate as early as Monday, despite the weak outlook for China's economy under the zero-coronavirus policy. Investors worry that excessive easing could accelerate capital outflows and damage domestic assets when major economies are tightening policy. Automakers led gains, with strong gains from BYD (6.3%), Chongqing Changan (10%), and Great Wall Motor (10%). Energy and real estate companies also rose, including Henan Shenhuo (10%) and Poly Development (6.4%). Benchmark indexes have gained about 3 percent this week in hopes that China will provide significant policy support. New Zealand S&P/NYSE fell 9.18 points, or around 0.1%, to settle at a near 22-month low of 11,168.18 on Friday, down nearly 4% for the week, with U.S. stocks volatile Thursday, with the S&P 500 just one step away from confirming a bear market One step away, the market is worried about continued high inflation and Fed tightening. Domestically, inflation expectations in the country rose further in the second quarter, a further sign that the Royal Bank of New Zealand will continue to raise interest rates to stem the surge in prices. Wellington Avenue Technology Ltd fell 8.1 percent, while TruScreen Group and Radius Residential Care fell 5.5 percent and 5.3 percent. For the first time in more than two years, New Zealand began welcoming back tourists from more than 50 countries, including the UK, US, Canada, and Japan, under its Covid-19 policy. Japan

The Nikkei 225 rose 2.64% to close at 26,428 on Friday, while the broader Topix index rose 1.91% to close at 1,864, up from a near two-month low as investors snapped up battered stocks. Technology stocks led the market rally. SoftBank Group Corp provided the most significant boost to the Nikkei, which surged 12.2% after record losses at its Vision Fund investment arm and its 1.7 trillion yen annual net loss. Other gainers in the tech sector included Tokyo Electron (5.5%), Recruit Holdings (6.9%), and Mercari Inc (8.4%). In addition, index heavyweights Kawasaki Kishimori (4.2%), Sony Group (2.9%), Eneos Holdings (6.5%), Fast Retailing (4.4%), and Olympus Corporation (8.5%) also helped lift the market. However, despite Friday's rebound, the benchmark index ended the week lower as high inflation, rising interest rates, and a weaker global economic outlook weighed on markets.

 

REVIEWING ECONOMIC DATA: 

Looking at the last economic data:

- RU: Annual inflation in Russia climbed further to 17.8% in April 2022 from 16.7% the previous month. It was the highest reading since January 2002, when the ruble was in turmoil and the West imposed unprecedented sanctions on the country over the war in Ukraine. Prices of food and non-alcoholic beverages continued to rise significantly (20.48% and 17.99%, respectively); non-food (20.19% vs. 20.34%) and services (10.87% vs. 9.94%). On a monthly basis, prices rose 1.56%, down sharply from the previous month's 7.61% increase and the most significant increase since 1999.

- US: Preliminary estimates showed that the University of Michigan's consumer confidence index for the U.S. fell to 59.1 in May 2022 from 65.2 in April, missing market expectations of 64. This is the lowest level since August 2011. Likewise, the current economic conditions index fell to 63.6 from 69.4, while the expectations index was 56.2 from 62.5. The median inflation rate is expected to have been 5.4% year-on-year, with little change over the past three months.

- US: U.S. import prices were flat in April after rising 2.9% in March, missing consensus forecasts of 0.6%. This is the first time this year that import prices have not risen. Fuel prices fell 2.4% after rising 39.2% in December-March as lower oil prices (-2.9%) offset higher gas costs (6.8%). Non-fuel import prices rose 0.4%, driven by industrial supplies and material costs (0.6%), namely steelmaking materials, fertilizers, and steel mill products; capital goods (up 0.4%), food, feed, and beverages (0.9%); and cars (up 0.3%). Import prices rose 12% year on year.

- US: In April 2022, U.S. export prices rose 0.6% from the previous month, down from a downwardly revised 4.1% gain in March and slightly below market expectations of 0.7%. Agricultural export prices rose 1.1%, after rising 4.3% in the previous month, as higher corn, cotton, meat, and nuts offset lower wheat and soybean prices. Meanwhile, exports excluding agriculture rose 0.5% after a rise of 4.1% due to higher supply costs for capital goods and non-agricultural industries. U.S. export prices have risen 18 percent annually.

- HK: According to final estimates, the Hong Kong economy will contract by 4.0% year-on-year in the first quarter of 2022, following a downward revision to the expansion rate of 4.7% in the previous period. It was the first drop in GDP since the fourth quarter of 2020 and the sharpest drop since the third quarter of 2020, as the city imposed a strict lockdown to contain its worst coronavirus outbreak to date. The shutdown of a significant segment of economic activity has led to a sharp contraction in private consumption spending (-5.5% vs. -5.3% in Q4 2021) and a collapse in gross fixed investment (8.4% vs. -0.6%), while government stimulus boosted increased public spending (6.0% vs. 4.1%). Overseas, the slowdown in trade led to lower exports of goods (down 4.5% to 11.5%) and services (down 2.8% to 6.9%), and imports of goods (down 5.9% to 9.9%) and services (down 3.4% to 4.5%). As a result, the seasonally adjusted quarterly GDP fell 3.0%, slightly above the 2.9% forecast in the revised fourth quarter of 2021, which was flat.

- EU: In March 2022, industrial production in the eurozone fell by 1.8% month-on-month, the most significant drop in nearly two years, compared with a 2% decline expected by the market due to the impact of the war in Ukraine. Production of capital goods fell 2.7%, non-durable consumer goods production fell 2.3%, intermediate goods production fell 2%, energy production fell 1.7%, and durable consumer goods production rose 0.8%. Among the euro zone's major economies, output fell 5% in Germany, 0.5% in France, and 1.8% in Spain. In addition, industrial output fell 0.8% compared to a year earlier.

- CN: In April 2022, Chinese banks added 645.4 billion yuan in new yuan loans, the lowest level since December 2017 and well below market expectations of 1,515 billion yuan, as coronavirus lockdowns in many cities, including Shanghai, led to credit Demand weakening. With the outbreak of the new crown epidemic and rising production costs, companies are facing operational difficulties. In addition, seasonal factors may also impact lending as Chinese banks rush to make more loans at the end of the first quarter. In March, new RMB loans reached 3.11 trillion yuan. Meanwhile, the broad M2 money supply increased by 10.5% in April, the highest level since November 2020, above expectations of 9.9% and 9.7% in March. As a result, outstanding renminbi loans rose 10.9% year-on-year, down from 11.4% in March and expected to be 11.4%.

- FR: Annual inflation in France was confirmed at 4.8% in April 2022, the highest level since October 1985, compared with 4.5% in March. Prices accelerated in services (+2.3% in March, up 3.0%), food (+2.9% after 3.8%), and manufactured goods (+2.1% after 2.6%). Meanwhile, energy prices slowed but continued to rise sharply over the year (+26.5% vs. +29.2% previously). Monthly consumer prices rose 0.4% after a record 1.4% increase in March. The coordination index increased by 5.4% year-on-year, the highest level in history, and increased by 0.5% from the previous month.

 

LOOKING AHEAD:   

Today, investors will receive:

-USD: Empire State Manufacturing Index, FOMC Member Williams Speaks, and TIC Long-Term Purchases.

- EUR: German WPI m/m, EU Economic Forecasts, and Trade Balance.

- GBP: Rightmove HPI m/m, CB Leading Index m/m, and Monetary Policy Report Hearings.

- JPY: PPI y/y, and Prelim Machine Tool Orders y/y.

- NZD: BusinessNZ Services Index.

- CNY: Retail Sales y/y, Fixed Asset Investment ytd/y, Industrial Production y/y, NBS Press Conference, and Unemployment Rate.

- CAD: Housing Starts, Manufacturing Sales m/m, and Wholesale Sales m/m.

 

KEY EQUITY & BOND MARKET DRIVERS:

- CA: Canada's 10-year government bond rose to 2.96% after hitting its lowest intraday level in 10 days at 2.887% on May 12 as investors reassessed the outlook for monetary tightening. Federal Reserve Chairman Jerome Powell warned in an interview on Thursday that controlling inflation could cause some economic pain but remained his top priority. Domestically, Canada's unemployment rate hit a new low of 5.2 percent in March, while annual inflation accelerated more than expected in March to a 31-year high, reinforcing the Bank of Canada's more aggressive tightening in June. Possibility of policy. Bank of Canada deputy governor Tony Greville said the Bank of Canada's policy rate needs to return "quickly" to a more neutral level to bring inflation back to target, but he downplayed interest rates rising by more than half in any one move. percentage point outlook.

- AU: The yield on the benchmark 10-year Australian government bond fell to 3.36%, resuming a downward trend since hitting a more than seven-year high of 3.60% on May 9, as prospects for a post-pandemic recovery dimmed. JPMorgan slashed its growth forecast for China, Australia's largest trading partner, and Australia's important business and consumer confidence data deteriorated sharply from the month before May. Downside pressure also came from the Fed chairman, who rejected a bet on a 75 basis point rate hike at a future meeting. Still, some traders see limited losses as stable inflation and wage pressures in the Australian economy support bets for further RBA tightening.

- US: Equity futures contracts tied to the three major indexes rose more than 1% as investors took advantage of lower valuations over a roller coaster weekend dominated by worries about aggressive monetary policy tightening and slowing economic growth. On Thursday, Fed Chairman Jerome Powell said that reducing inflation to the central bank's 2 percent target could bring some pain, adding that addressing price growth without causing a recession could depend on external factors. Markets interpret such remarks as more dovish, allaying fears that the Federal Reserve will at some point raise rates by 0.75 percentage points to tame decades of high inflation. Meanwhile, Twitter shares tumbled about 15% in premarket trading after Elon Musk said he was pausing acquisition deals pending details on the number of spam/fake accounts. The Dow and S&P 500 lost 3.55% and 4.69%, respectively, while the Nasdaq Composite lost 6.37% for the week.

- FR: France's 10-year OAT fell to 1.4% from a nearly eight-year high of 1.7% hit on May 9 and tracked higher demand for bonds in Europe and North America as traders digested unexpectedly high U.S. inflation data. The extent to which the European Central Bank is raising interest rates has been reassessed amid a deteriorating 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% in April, while domestic data confirmed a 36-year high of 4.8%.

- US: The yield on the 10-year U.S. Treasury note, which sets the tone for global corporate and household borrowing costs, was around 2.90% combined as investors reassessed the prospect of tightening monetary policy in light of the challenging growth outlook. In a market interview on Thursday, Federal Reserve Chairman Jerome Powell warned that reducing inflation to the central bank's 2 percent target could cause economic pain. However, markets interpret such remarks as more dovish, allaying fears that the Federal Reserve will at some point raise rates by 0.75 percentage points to tame decades of high inflation.

- EU: European stock futures were higher on Friday as global markets rebounded, with comments from the Federal Reserve chair easing fears of a more significant rate hike. Powell reiterated that the Fed is likely to raise 50 basis points in its next two meetings and would not "actively consider" a 75 basis point move. Meanwhile, strong corporate earnings helped lift investor sentiment. Deutsche Telekom reported better-than-expected revenue and profit and boosted its full-year outlook. Norwegian Air will also be in focus. This week, major European stock markets are set for significant losses.

- AU: According to the Housing Industry Association of Australia (HIA), new home sales in Australia fell 1.2 percent month on month in April 2022, reversing the previous month's 3.9 percent increase. This is the third drop in the past four months, reflecting the remaining impact of severe weather and flooding in parts of the country, as well as concerns that mortgage affordability will be lower after the recent rise in cash rates and that the Reserve Bank of Australia will continue to Signs of its tough stance to curb rising inflation. New home sales fell the most in South Australia (-2.0%), followed by Queensland (-9.0%) and New South Wales (-9.4%). In contrast, Western Australia (8.8 percent) and Victoria (4.0 percent) recorded sales increases.

 

STOCK MARKET SECTORS:

- High: Consumer Discretionary, Information Technology, Energy, Real Estate.

- Low: Utilities, Health Care.

 

TOP CURRENCY & COMMODITIES MARKET DRIVERS: 

-EUR: The euro hit a fresh five-year low of $1.035 in mid-May, close to its January 2017 trough of $1.0341, and a break above that would put the euro at its lowest level in 20 years. Since February, the common currency has been under intense pressure as Russia's invasion of Ukraine deepened the energy crisis, fueled inflation, and slowed growth. Meanwhile, higher-than-expected U.S. inflation data raised expectations that the Federal Reserve will tighten monetary policy sooner than other major central banks. As a result, investors now expect the ECB to raise rates by 25 basis points in July and September and again at the end of the year, while the Federal Reserve has already raised rates twice for a cumulative 75 basis points.

- RUB: Russia’s ruble rose to 61.25 to the dollar in May, its highest level in 28 months, as tight capital controls by the Russian central bank kept the ruble among other currencies so far this year despite soaring inflation and a sharp economic contraction due to sanctions. The largest appreciation. Authorities require export-oriented companies to convert 80 percent of their earnings into rubles at the Moscow Exchange rate on the domestic market, while foreign investors cannot exit their stock positions on MOEX. Two weeks after the Russian invasion, the ruble fell to 150 rubles per dollar. On monetary policy, CBR said it would keep its policy rate in a range of 12.5-14% for the full year, up from 9.5% before the invasion. Investors remain focused on phasing out strict capital controls as authorities extend the time exporters have to sell foreign currency earnings from three to 60 days.

 

CHART OF THE DAY:

The Nikkei 225 rose 2.64% to close at 26,428 on Friday, while the broader Topix index rose 1.91% to close at 1,864, up from a near two-month low as investors snapped up battered stocks. Technology stocks led the market rally. SoftBank Group Corp provided the most significant boost to the Nikkei, which surged 12.2% after record losses at its Vision Fund investment arm and its 1.7 trillion yen annual net loss. Other gainers in the tech sector included Tokyo Electron (5.5%), Recruit Holdings (6.9%), and Mercari Inc (8.4%). In addition, index heavyweights Kawasaki Kishimori (4.2%), Sony Group (2.9%), Eneos Holdings (6.5%), Fast Retailing (4.4%), and Olympus Corporation (8.5%) also helped lift the market. However, despite Friday's rebound, the benchmark index ended the week lower as high inflation, rising interest rates, and a weaker global economic outlook weighed on markets.  

- Japan Nikkei 225 index - D1, Resistance around ~ 28 631, Support (target zone) around ~ 24 837.

Short-covering activity - stocks bounce from an oversold condition

GLOBAL CAPITAL MARKETS OVERVIEW:

The Dow Jones Industrial Average rose nearly 400 points on Friday afternoon. In contrast, the S&P 500 and Nasdaq rose 2.2% and 3.5%, respectively, as investors took advantage of a roller coaster weekend of falling valuations to tighten aggressive monetary policy and concerns about slowing economic growth. Yesterday, Federal Reserve Chairman Jerome Powell said that reducing inflation to the central bank’s 2% target could bring some pain, including a recession. Markets interpret such remarks as more dovish, allaying fears that the Fed will raise rates by 0.75 percentage points. Meanwhile, Twitter shares tumbled 10% after Elon Musk said he would suspend acquisition deals pending details on the number of spam/fake accounts. However, the major moving averages are still on track to end the week lower despite today's gains. Canada's main stock index, the S&P/TSX, rose 2 percent on Friday to close at 20,099.8, buoyed by strong gains in energy, technology, and healthcare stocks, from a one-year low in the previous session Point bounce. Meanwhile, investors reassessed the size of the Fed's tightening cycle after Fed Chairman Jerome Powell said a 75 basis point rate hike would not be considered at the next two policy meetings. On the data front, new vehicle sales in Canada rose to 144,600 in March from an upwardly revised 105,600 in February. The index fell 2.6% for the week, its seventh straight weekly decline, as stagflation woes and the prospect of aggressive tightening by major central banks, notably the Federal Reserve, weighed on the commodity index. Major European stock indexes rebounded on Friday, with the regional Stoxx 600 and the domestic DAX gaining 2.1%, as comments from the Fed chair eased fears of a larger rate hike. Powell reiterated that the Fed is likely to raise 50 basis points at its next two meetings and would not "actively consider" a 75 basis point move. Among sectors, travel and leisure stocks rose 4.7% to lead the gains, followed by banks, oil and gas, and technology. Meanwhile, strong corporate results helped boost investor sentiment, with Deutsche Telekom reporting better-than-expected revenue and profit and boosting its full-year outlook, while Norwegian Airlines lifted negative EBIT from first a year ago. The quarterly figure of NOK 1462 shrank to NOK 849 million. On a weekly basis, the Stoxx 600 gained 0.8%, avoiding a fifth straight weekly loss, with broad support across almost all sectors, while the DAX gained 2.5%. The CAC 40 rose 2.5% to close at 6,363 on Friday, up 1.7% for the week, boosted by a strong showing in the tech sector as investors reassessed Fed tightening after Fed Chairman Jerome Powell said he would not consider a 75 basis point rate hike The size of the cycle. STMicroelectronics closed up 6%, extending yesterday's 4% gain after the company showed its outlook at an investor day. Meanwhile, easing fears of tighter monetary policy and reports that Shanghai could reopen from a strict lockdown in May boosted heavyweight luxury brands in Paris, with Hermes up 3.5% and LVMH up 2.8%. On Friday, the FTSE 100 rose 2.6% to close at 7,418, recovering from a 1.6% slump the previous day, in line with global stocks after comments from Federal Reserve Chairman Jerome Powell eased fears of a larger rate hike. Powell reiterated that the Fed is likely to raise 50 basis points at its next two meetings and would not "actively consider" a 75 basis point move. Real estate, energy, healthcare, consumer cyclical, and financials led gains. Meanwhile, investors also welcomed the upbeat company results from Rolls-Royce, which said it had made "significant progress" in recovering from the impact of the pandemic. Sage had a strong first half and set a full-year target, while the global utility beat internal forecasts. For the week, the FTSE 100 rose 0.4%. The MOEX Russia index reversed losses on Friday and edged up to 2,308 but was still down 3.6% in the shorter trading week as investors focused on developing sanctions between Russia and the European Union. Shares in Gazprom closed up 2.2%, although the suspension of gas flows from the Yamal pipeline after the Kremlin banned Gazprom from working with pipeline owner Europol Gaz and others in Europe Transactions between natural gas companies. The Russian sanctions are retaliation for the EU's longstanding threat of a possible six-month phase-out of Russian oil imports. If Hungary supports the embargo, it is the toughest measure against Moscow. Conversely, the mining sector fell 1.1%, pressured by expectations of lower exports due to a stronger rouble. Having ended in losses, the Russian market has been artificially supported by capital controls, including a ban on foreigners from selling Russian shares. On Friday, the Shanghai Composite rose 0.96% to 3,084, and Shenzhen shares rose 0.59% to 11,160, extending recent gains as investors assessed the possibility of a policy rate cut next week after multiple pledges to support economic growth. Economists are divided on whether the People's Bank of China will move to lower the one-year policy lending rate as early as Monday, despite the weak outlook for China's economy under the zero-coronavirus policy. Investors worry that excessive easing could accelerate capital outflows and damage domestic assets when major economies are tightening policy. Automakers led gains, with strong gains from BYD (6.3%), Chongqing Changan (10%), and Great Wall Motor (10%). Energy and real estate companies also rose, including Henan Shenhuo (10%) and Poly Development (6.4%). Benchmark indexes have gained about 3 percent this week in hopes that China will provide significant policy support. New Zealand S&P/NYSE fell 9.18 points, or around 0.1%, to settle at a near 22-month low of 11,168.18 on Friday, down nearly 4% for the week, with U.S. stocks volatile Thursday, with the S&P 500 just one step away from confirming a bear market One step away, the market is worried about continued high inflation and Fed tightening. Domestically, inflation expectations in the country rose further in the second quarter, a further sign that the Royal Bank of New Zealand will continue to raise interest rates to stem the surge in prices. Wellington Avenue Technology Ltd fell 8.1 percent, while TruScreen Group and Radius Residential Care fell 5.5 percent and 5.3 percent. For the first time in more than two years, New Zealand began welcoming back tourists from more than 50 countries, including the UK, US, Canada, and Japan, under its Covid-19 policy. Japan

The Nikkei 225 rose 2.64% to close at 26,428 on Friday, while the broader Topix index rose 1.91% to close at 1,864, up from a near two-month low as investors snapped up battered stocks. Technology stocks led the market rally. SoftBank Group Corp provided the most significant boost to the Nikkei, which surged 12.2% after record losses at its Vision Fund investment arm and its 1.7 trillion yen annual net loss. Other gainers in the tech sector included Tokyo Electron (5.5%), Recruit Holdings (6.9%), and Mercari Inc (8.4%). In addition, index heavyweights Kawasaki Kishimori (4.2%), Sony Group (2.9%), Eneos Holdings (6.5%), Fast Retailing (4.4%), and Olympus Corporation (8.5%) also helped lift the market. However, despite Friday's rebound, the benchmark index ended the week lower as high inflation, rising interest rates, and a weaker global economic outlook weighed on markets.

 

REVIEWING ECONOMIC DATA: 

Looking at the last economic data:

- RU: Annual inflation in Russia climbed further to 17.8% in April 2022 from 16.7% the previous month. It was the highest reading since January 2002, when the ruble was in turmoil and the West imposed unprecedented sanctions on the country over the war in Ukraine. Prices of food and non-alcoholic beverages continued to rise significantly (20.48% and 17.99%, respectively); non-food (20.19% vs. 20.34%) and services (10.87% vs. 9.94%). On a monthly basis, prices rose 1.56%, down sharply from the previous month's 7.61% increase and the most significant increase since 1999.

- US: Preliminary estimates showed that the University of Michigan's consumer confidence index for the U.S. fell to 59.1 in May 2022 from 65.2 in April, missing market expectations of 64. This is the lowest level since August 2011. Likewise, the current economic conditions index fell to 63.6 from 69.4, while the expectations index was 56.2 from 62.5. The median inflation rate is expected to have been 5.4% year-on-year, with little change over the past three months.

- US: U.S. import prices were flat in April after rising 2.9% in March, missing consensus forecasts of 0.6%. This is the first time this year that import prices have not risen. Fuel prices fell 2.4% after rising 39.2% in December-March as lower oil prices (-2.9%) offset higher gas costs (6.8%). Non-fuel import prices rose 0.4%, driven by industrial supplies and material costs (0.6%), namely steelmaking materials, fertilizers, and steel mill products; capital goods (up 0.4%), food, feed, and beverages (0.9%); and cars (up 0.3%). Import prices rose 12% year on year.

- US: In April 2022, U.S. export prices rose 0.6% from the previous month, down from a downwardly revised 4.1% gain in March and slightly below market expectations of 0.7%. Agricultural export prices rose 1.1%, after rising 4.3% in the previous month, as higher corn, cotton, meat, and nuts offset lower wheat and soybean prices. Meanwhile, exports excluding agriculture rose 0.5% after a rise of 4.1% due to higher supply costs for capital goods and non-agricultural industries. U.S. export prices have risen 18 percent annually.

- HK: According to final estimates, the Hong Kong economy will contract by 4.0% year-on-year in the first quarter of 2022, following a downward revision to the expansion rate of 4.7% in the previous period. It was the first drop in GDP since the fourth quarter of 2020 and the sharpest drop since the third quarter of 2020, as the city imposed a strict lockdown to contain its worst coronavirus outbreak to date. The shutdown of a significant segment of economic activity has led to a sharp contraction in private consumption spending (-5.5% vs. -5.3% in Q4 2021) and a collapse in gross fixed investment (8.4% vs. -0.6%), while government stimulus boosted increased public spending (6.0% vs. 4.1%). Overseas, the slowdown in trade led to lower exports of goods (down 4.5% to 11.5%) and services (down 2.8% to 6.9%), and imports of goods (down 5.9% to 9.9%) and services (down 3.4% to 4.5%). As a result, the seasonally adjusted quarterly GDP fell 3.0%, slightly above the 2.9% forecast in the revised fourth quarter of 2021, which was flat.

- EU: In March 2022, industrial production in the eurozone fell by 1.8% month-on-month, the most significant drop in nearly two years, compared with a 2% decline expected by the market due to the impact of the war in Ukraine. Production of capital goods fell 2.7%, non-durable consumer goods production fell 2.3%, intermediate goods production fell 2%, energy production fell 1.7%, and durable consumer goods production rose 0.8%. Among the euro zone's major economies, output fell 5% in Germany, 0.5% in France, and 1.8% in Spain. In addition, industrial output fell 0.8% compared to a year earlier.

- CN: In April 2022, Chinese banks added 645.4 billion yuan in new yuan loans, the lowest level since December 2017 and well below market expectations of 1,515 billion yuan, as coronavirus lockdowns in many cities, including Shanghai, led to credit Demand weakening. With the outbreak of the new crown epidemic and rising production costs, companies are facing operational difficulties. In addition, seasonal factors may also impact lending as Chinese banks rush to make more loans at the end of the first quarter. In March, new RMB loans reached 3.11 trillion yuan. Meanwhile, the broad M2 money supply increased by 10.5% in April, the highest level since November 2020, above expectations of 9.9% and 9.7% in March. As a result, outstanding renminbi loans rose 10.9% year-on-year, down from 11.4% in March and expected to be 11.4%.

- FR: Annual inflation in France was confirmed at 4.8% in April 2022, the highest level since October 1985, compared with 4.5% in March. Prices accelerated in services (+2.3% in March, up 3.0%), food (+2.9% after 3.8%), and manufactured goods (+2.1% after 2.6%). Meanwhile, energy prices slowed but continued to rise sharply over the year (+26.5% vs. +29.2% previously). Monthly consumer prices rose 0.4% after a record 1.4% increase in March. The coordination index increased by 5.4% year-on-year, the highest level in history, and increased by 0.5% from the previous month.

 

LOOKING AHEAD:   

Today, investors will receive:

-USD: Empire State Manufacturing Index, FOMC Member Williams Speaks, and TIC Long-Term Purchases.

- EUR: German WPI m/m, EU Economic Forecasts, and Trade Balance.

- GBP: Rightmove HPI m/m, CB Leading Index m/m, and Monetary Policy Report Hearings.

- JPY: PPI y/y, and Prelim Machine Tool Orders y/y.

- NZD: BusinessNZ Services Index.

- CNY: Retail Sales y/y, Fixed Asset Investment ytd/y, Industrial Production y/y, NBS Press Conference, and Unemployment Rate.

- CAD: Housing Starts, Manufacturing Sales m/m, and Wholesale Sales m/m.

 

KEY EQUITY & BOND MARKET DRIVERS:

- CA: Canada's 10-year government bond rose to 2.96% after hitting its lowest intraday level in 10 days at 2.887% on May 12 as investors reassessed the outlook for monetary tightening. Federal Reserve Chairman Jerome Powell warned in an interview on Thursday that controlling inflation could cause some economic pain but remained his top priority. Domestically, Canada's unemployment rate hit a new low of 5.2 percent in March, while annual inflation accelerated more than expected in March to a 31-year high, reinforcing the Bank of Canada's more aggressive tightening in June. Possibility of policy. Bank of Canada deputy governor Tony Greville said the Bank of Canada's policy rate needs to return "quickly" to a more neutral level to bring inflation back to target, but he downplayed interest rates rising by more than half in any one move. percentage point outlook.

- AU: The yield on the benchmark 10-year Australian government bond fell to 3.36%, resuming a downward trend since hitting a more than seven-year high of 3.60% on May 9, as prospects for a post-pandemic recovery dimmed. JPMorgan slashed its growth forecast for China, Australia's largest trading partner, and Australia's important business and consumer confidence data deteriorated sharply from the month before May. Downside pressure also came from the Fed chairman, who rejected a bet on a 75 basis point rate hike at a future meeting. Still, some traders see limited losses as stable inflation and wage pressures in the Australian economy support bets for further RBA tightening.

- US: Equity futures contracts tied to the three major indexes rose more than 1% as investors took advantage of lower valuations over a roller coaster weekend dominated by worries about aggressive monetary policy tightening and slowing economic growth. On Thursday, Fed Chairman Jerome Powell said that reducing inflation to the central bank's 2 percent target could bring some pain, adding that addressing price growth without causing a recession could depend on external factors. Markets interpret such remarks as more dovish, allaying fears that the Federal Reserve will at some point raise rates by 0.75 percentage points to tame decades of high inflation. Meanwhile, Twitter shares tumbled about 15% in premarket trading after Elon Musk said he was pausing acquisition deals pending details on the number of spam/fake accounts. The Dow and S&P 500 lost 3.55% and 4.69%, respectively, while the Nasdaq Composite lost 6.37% for the week.

- FR: France's 10-year OAT fell to 1.4% from a nearly eight-year high of 1.7% hit on May 9 and tracked higher demand for bonds in Europe and North America as traders digested unexpectedly high U.S. inflation data. The extent to which the European Central Bank is raising interest rates has been reassessed amid a deteriorating 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% in April, while domestic data confirmed a 36-year high of 4.8%.

- US: The yield on the 10-year U.S. Treasury note, which sets the tone for global corporate and household borrowing costs, was around 2.90% combined as investors reassessed the prospect of tightening monetary policy in light of the challenging growth outlook. In a market interview on Thursday, Federal Reserve Chairman Jerome Powell warned that reducing inflation to the central bank's 2 percent target could cause economic pain. However, markets interpret such remarks as more dovish, allaying fears that the Federal Reserve will at some point raise rates by 0.75 percentage points to tame decades of high inflation.

- EU: European stock futures were higher on Friday as global markets rebounded, with comments from the Federal Reserve chair easing fears of a more significant rate hike. Powell reiterated that the Fed is likely to raise 50 basis points in its next two meetings and would not "actively consider" a 75 basis point move. Meanwhile, strong corporate earnings helped lift investor sentiment. Deutsche Telekom reported better-than-expected revenue and profit and boosted its full-year outlook. Norwegian Air will also be in focus. This week, major European stock markets are set for significant losses.

- AU: According to the Housing Industry Association of Australia (HIA), new home sales in Australia fell 1.2 percent month on month in April 2022, reversing the previous month's 3.9 percent increase. This is the third drop in the past four months, reflecting the remaining impact of severe weather and flooding in parts of the country, as well as concerns that mortgage affordability will be lower after the recent rise in cash rates and that the Reserve Bank of Australia will continue to Signs of its tough stance to curb rising inflation. New home sales fell the most in South Australia (-2.0%), followed by Queensland (-9.0%) and New South Wales (-9.4%). In contrast, Western Australia (8.8 percent) and Victoria (4.0 percent) recorded sales increases.

 

STOCK MARKET SECTORS:

- High: Consumer Discretionary, Information Technology, Energy, Real Estate.

- Low: Utilities, Health Care.

 

TOP CURRENCY & COMMODITIES MARKET DRIVERS: 

-EUR: The euro hit a fresh five-year low of $1.035 in mid-May, close to its January 2017 trough of $1.0341, and a break above that would put the euro at its lowest level in 20 years. Since February, the common currency has been under intense pressure as Russia's invasion of Ukraine deepened the energy crisis, fueled inflation, and slowed growth. Meanwhile, higher-than-expected U.S. inflation data raised expectations that the Federal Reserve will tighten monetary policy sooner than other major central banks. As a result, investors now expect the ECB to raise rates by 25 basis points in July and September and again at the end of the year, while the Federal Reserve has already raised rates twice for a cumulative 75 basis points.

- RUB: Russia’s ruble rose to 61.25 to the dollar in May, its highest level in 28 months, as tight capital controls by the Russian central bank kept the ruble among other currencies so far this year despite soaring inflation and a sharp economic contraction due to sanctions. The largest appreciation. Authorities require export-oriented companies to convert 80 percent of their earnings into rubles at the Moscow Exchange rate on the domestic market, while foreign investors cannot exit their stock positions on MOEX. Two weeks after the Russian invasion, the ruble fell to 150 rubles per dollar. On monetary policy, CBR said it would keep its policy rate in a range of 12.5-14% for the full year, up from 9.5% before the invasion. Investors remain focused on phasing out strict capital controls as authorities extend the time exporters have to sell foreign currency earnings from three to 60 days.

 

CHART OF THE DAY:

The Nikkei 225 rose 2.64% to close at 26,428 on Friday, while the broader Topix index rose 1.91% to close at 1,864, up from a near two-month low as investors snapped up battered stocks. Technology stocks led the market rally. SoftBank Group Corp provided the most significant boost to the Nikkei, which surged 12.2% after record losses at its Vision Fund investment arm and its 1.7 trillion yen annual net loss. Other gainers in the tech sector included Tokyo Electron (5.5%), Recruit Holdings (6.9%), and Mercari Inc (8.4%). In addition, index heavyweights Kawasaki Kishimori (4.2%), Sony Group (2.9%), Eneos Holdings (6.5%), Fast Retailing (4.4%), and Olympus Corporation (8.5%) also helped lift the market. However, despite Friday's rebound, the benchmark index ended the week lower as high inflation, rising interest rates, and a weaker global economic outlook weighed on markets.  

- Japan Nikkei 225 index - D1, Resistance around ~ 28 631, Support (target zone) around ~ 24 837.

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