MNI US OPEN: Yields Down, USD Up On China Lockdown Fears

GERMANY APR IFO BUSINESS CLIMATE +91.8

MNI: GERMANY APR IFO CURRENT ASSESSMENT 97.2; MAR 97.1r

Ifo Survey Sees Indexes Stabilising

APR IFO BUSINESS CLIMATE 91.8 (FCST 89.0); MAR 90.8

APR IFO CURRENT ASSESSMENT 97.2 (FCST 95.9); MAR 97.1r (PREV 97.0)

APR IFO EXPECTATIONS 86.7 (FCST 83.5); MAR 84.9r (PREV 85.1)

• The IFO survey saw small improvements across all three indicators in April, beating forecasts which all expected further declines of 1.6-1.8 points. The driver of these improvements was less severe pessimism.
• The business climate index rose by one point, following the initial March shock of the onset of the Ukraine war.
• Service sector business climate improved substantially, and manufacturing saw expectations improve, largely on the back of easing pandemic restrictions.
• Trade expectations remain very pessimistic and the construction industry continues to be significantly hampered by material shortages.
• Current assessment of the business climate increased by 1.2 points and expectations by 1.6 points following the record 13.3-point drop seen in March.

MNI: SPAIN MAR PPI +6.6% M/M, +46.6% Y/Y, FEB +41.2%r Y/Y

Spanish Factory-Gate Inflation at Record +46.6%

MAR PPI +6.6% M/M, +46.6% Y/Y, FEB +41.2%r Y/Y

MAR CORE PPI +13.7% Y/Y, FEB +12.3% Y/Y (1984 HIGH)

• Spanish factory-gate inflation hit new record highs in March, jumping 5.4pp to +46.6% y/y and rising by +6.6% m/m.
• On the month, energy prices rose 15.2%, followed by both intermediate goods and non-durable consumer goods by +2.8% m/m, largely due to iron and steel, chemicals and fertiliser costs. Heightened fuel prices due to the invasion of Ukraine saw substantial upticks in energy prices in Spain's MArch data.
• Core factory-gate inflation reached +13.7% y/y , with energy costs over double of 2021 at +134.6% y/y in March.
• Spain’s flash April CPI print is due Thursday, followed by the Eurozone print on Friday. Inflation in the Eurozone is running hot at 7.4%, setting a tone of urgency ahead of the June policy meeting, with July now seen as a live possibility of the first hike in rates this cycle.

Source: INE

MNI: EZ FEB CONSTRUCTION +1.9% M/M, +9.4% Y/Y; JAN +3.9% M/M

FIXED INCOME: China Covid concerns drive FI markets higher

• Core fixed income was on the front-foot through the Asian session and early European trading, but after a substantial rally and repricing of the front-end, Bunds and gilts are off their highs (although Treasuries continue to move higher).
• The moves have been driven by concerns about wider Chinese lockdowns amid rising Covid-19 cases. With China's zero Covid policies, the bars to further lockdowns (and hence more economic disruption) are much lower than in most European countries or the US. This has the impact of hitting the demand-side, particularly for commodities with oil prices down almost $5/bbl this morning. Given the sensitivity of markets to inflation developments at present, fixed income has seen some decent moves so far today.
• There is little top tier data other than the German IFO survey (which was better than expected) and with the Fed/BOE meetings next week there are no speakers other than from the ECB - Panetta is due to speak at 18:00BST / 13:00ET.
• TY1 futures are up 0-24+ today at 119-22+ with 10y UST yields down -8.6bp at 2.816% and 2y yields down -7.8bp at 2.591%.
• Bund futures are up 0.87 today at 154.12 with 10y Bund yields down -7.0bp at 0.899% and Schatz yields down -3.9bp at 0.237%.
• Gilt futures are up 0.49 today at 118.51 with 10y yields down -5.7bp at 1.904% and 2y yields down -7.0bp at 1.629%.

FOREX: Risk-Off Start Puts JPY On Top

• Markets are erring cautiously in early Monday trade, with risk proxies hit hard, while haven FX makes furtive gains. This puts JPY and the greenback at the top of the G10 table, while AUD, GBP and SEK are the poorest performers. Risk-off is also evident elsewhere, with equities weak and Treasury yields retracing sharply.
• Oil prices have taken a considerable leg lower, with Brent and WTI prices off close to 5% apiece as perceived commodities demand slips on concerns over renewed rolling lockdowns across China. Beijing is being watched carefully after reports of a COVID breakout in the city, with markets clearly worried the city will undergo similar measures to Shanghai. The worst case scenario would be a strict lockdown policy in adherence with China's COVID Zero approach, hampering economic growth that is already well below target.
• For the single currency - a relief rally on the re-election of Macron as French President was short-lived, with EUR/USD's gap higher at the open fading through Asia-Pac trade and well into the European morning. The pair's now put in a near 150 pip range so far today, keeping a number of option expiries in view for today's NY cut - most notably $1.0700(E712mln), $1.0800-03(E521mln) and $1.0825(E502mln).
• The Monday schedule is light, with few data points to digest and a quiet central bank speaker slate after the FOMC entered their pre-decision media blackout period over the weekend. As such, the highlights Monday include a speech from ECB's Panetta and an appearance from BoC's Macklem.

EQUITIES: Global Weakness After China Stocks Plunge

• Asian markets closed weaker, with Chinese stocks plunging: Japan's NIKKEI closed down 514.48 pts or -1.9% at 26590.78 and the TOPIX ended 28.63 pts lower or -1.5% at 1876.52. China's SHANGHAI closed down 158.407 pts or -5.13% at 2928.512 and the HANG SENG ended 769.18 pts lower or -3.73% at 19869.34.
• European equities are down sharply, with the German Dax down 264.68 pts or -1.87% at 13878.32, FTSE 100 down 171.69 pts or -2.28% at 7350.94, CAC 40 down 171.13 pts or -2.6% at 6411.79 and Euro Stoxx 50 down 96.65 pts or -2.52% at 3743.67.
• U.S. futures are lower, with the Dow Jones mini down 340 pts or -1.01% at 33388, S&P 500 mini down 46.5 pts or -1.09% at 4220.75, NASDAQ mini down 129.25 pts or -0.97% at 13225.25.

COMMODITIES: Oil And Copper Hit On China Covid Concerns

• WTI Crude down $5.02 or -4.92% at $97.09
• Natural Gas down $0.13 or -1.91% at $6.409
• Gold spot down $13.62 or -0.71% at $1918.28
• Copper down $11.15 or -2.42% at $449.05
• Silver down $0.39 or -1.63% at $23.7565
• Platinum down $5.64 or -0.61% at $925.64