Hawkish ECB & Soft Chinese Equities Headline London Morning, Biden-McCarthy Comments Eyed

Pre-NY headline flow has been dominated by commentary from the hawkish wing of the ECB Governing Council, underlining the more hawkish elements of President Lagarde’s post-meeting press conference and in some cases pushing back against market pricing of early ’23 rate cuts, which has biased ECB-dated OIS a touch higher, although markets still don’t fully price in 2 further 25bp hikes. The modest uptick in ECB pricing has also biased peripheral EGB spreads wider on the day.

• U.S. Tsys proved more resilient than broader EGBs throughout the London morning, although the latter have bounced from intraday lows, leaving benchmark German FI yields a little lower across the curve. FX trade sees the BBDXY operating around the middle of its intraday range, a touch firmer. JPY outperforms on prevailing cross-market dynamics.
• There was a downtick in broader equity markets, with weakness in Chinese & Hong Kong equities (in lieu of much softer than expected Chinese import data for the month of April, which drove a wider than expected trade surplus, as well as pressure on some of the better performing sectors from recent times) permeating.
• Central bank speak from Fed’s Jefferson & Williams, along with ECB’s Schnabel & Villeroy, dominate the remainder of Tuesday’s docket. Meanwhile, President Biden’s meeting with Congressional leaders (scheduled for 16:00 NY/21:00 London) will get plenty of attention given the recent roll forward in “x-date” estimations, although there are few signs that much progress will be made today.