ON DECK FOR TUESDAY, MAY 17

 

MARKETS:

  • Risk-on sentiment lacks obvious catalysts
  • US retail sales: strong headline, but core?
  • US industrial output: prices and ISM support another gain
  • Powell & Co on tap
  • UK jobs perk up, gilts cheapen

Risk-on sentiment has few obvious catalysts backing it this morning. I’m not sure where all of the gloomy recessionistas suddenly went, but they’re not dominating the headlines at least for today. The fact that Walmart earnings misses expectations and issued negative guidance is also being ignored. China’s developments that are being cited in the popular press are either old, or expected, or mixed and all to the point of counselling caution against cherry-picking the developments. China’s lowering of mortgage rates is old news from yesterday morning and was shaken off by local stocks at the time. China’s covid-19 cases fell in Shanghai and the relaxation of restrictions is underway, but that was expected with a previously mapped out plan, while cases are flaring elsewhere in the country (not to mention places like NYC).

Further, while UK jobs looked good and impacted local markets, they lack the global star power of, say, nonfarm payrolls as a catalyst for world markets. So on we march toward US retail sales and whatever new twists Powell & Co might throw at markets today. I’m not sure markets are prone to thinking this way, but it doesn’t hurt that Russia’s acceptance of Finland and Sweden joining NATO (see Lavrov’s comments this morning) may feed the impression that the conflict will remain contained to Ukraine.

In any event, sovereign bonds are having one of their worst days of late. US Treasury yields are up 1–5bps in a bear 2s10s flattener move, EGBs are mostly higher by 6–9bps across maturities and Aussie/Kiwi yields also climbed overnight. See gilts below. The USD is broadly weaker against all major currencies except the yen. US equity futures are up by 1½% to just over 2% with TSX futures up by just under 1% and European cash markets are gaining by about 1–1½%. Oil is up a buck and copper is a bit higher as well.

US retail sales should get a hefty lift when April’s numbers land (8:30amET) from what we already know in terms of vehicle sales volumes and prices, but lower gas prices will weigh on the headline and core sales ex-autos and gas will probably be the greater focus. A mild gain in industrial production is expected to be led by prices in mfrg and mining plus continued manufacturing production gains (9:15amET).

Just when it was looking down and out, the UK job market perked up (charts 1, 2). The result was to vault sterling to the top of the heap among major currencies to the USD, but on a general down day for the buck. Gilts are getting hammered with the 2s yield up 12bps in a bear flattener move as BoE hike expectations move a bit higher.  The preliminary flash payroll estimate increased by 121k in April and the prior flash estimate of 35k was revised up to 59k. The less fresh total employment tally increased by 83k on a rolling quarter-ago basis as per convention, and all of that gain was posted in the single month of March that was up by 84k. Wages also accelerated to 7% y/y (5.6% prior revised up from 5.4%) which beat consensus expectations for 5.4%. Most of that wage beat was due to bonuses, however, as ex-bonus wages were range bound at about 4.2% y/y.


Chair Powell’s interview will last for about 35 minutes from 2–2:35pmET at the WSJ’s rather audaciously titled “The Future of Everything” event. No text. I doubt very much that he’ll stray from his recent messaging (50bps for a couple of meetings and then see, implemented roll-off caps) and how he thinks the period ahead will be challenging but they’re aiming for a soft landing while external events will be the deciding factor on that count (in his view). A number of other Fed officials are also on tap throughout the day.

Other releases included stale Q1 Eurozone GDP (+0.3% q/q, 0.2% consensus) with jobs up 0.5% q/q. Thai Q1 GDP also beat expectations at 2.2% q/q (1.7% consensus).

 

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