MNI US OPEN: Tentative Stability

GERMANY MAY ZEW CURRENT CONDITIONS -36.5

GERMANY MAY ECONOMIC SENTIMENT INDEX -34.3

ZEW Expectations Increase Modestly, However Still Very Pessimistic

GERMANY MAY ZEW CURRENT CONDITIONS -36.5 (APR -30.8)

GERMANY MAY ECONOMIC SENTIMENT -34.3 (APR -41)

• The Germany ZEW survey saw economic sentiment increase 6.7 points to -34.3 in May. The key development since April is the continued expectation of a deterioration of the German economy, however, to a lesser degree than previously assumed.
• The current conditions index slumped a further 5.7 points in the third consecutive month of decrease following the onset of the Ukraine war.
• The enforcement of strict lockdowns in China and associated exasperation of supply chain issues generated more downwards growth pressure in May, worsening economic outlooks in manufacturing industries.
• Inflation rates are expected to ease following the ECB's hawkish shift in recent months.

MNI: ITALY MAR SA IND OUTPUT 0.0% M/M (FEB +4.0%) +3.0%Y/Y WDA

MNI: NORWAY APR CPI +1.2% M/M, +5.4% Y/Y

MNI: NORWAY APR CORE CPI +0.9% M/M, +2.6% Y/Y

FIXED INCOME: Gilts driving core FI higher

• Since yesterday's close, core fixed income continued higher in early Asian trading before reversing some of these gains ahead of and in early European trading. However, since the gilt open, gilts have ground higher and outperformed USTs and Bunds, but helped to pull them higher (although at the time of writing still off the Asian highs).
• There is no real headline reason for gilts to have moved higher today. We set out some of our thoughts on gilts here. Today sees the opening of parliament (with the Queen's Speech) in which there is expected to be at least some discussion on the NI Protocol - bringing Brexit risks back to UK markets. And MPC member Saunders' speech yesterday indicated that the neutral Bank Rate was between 1.25-2.50% (the lower bound just 25bp away), which suggested that we might start to see even the hawks slow down in terms of their votes for more hikes (or at least pull into question whether we will see any more 50bp votes). We think these reasons could be dragging gilts higher today.
• Focus later today will remain on CB-talk. We are due to hear from Fed's Williams, Barkin, Waller, Kashkari and Mester as well as the ECB's Nagel, Villeroy and de Guindos.
• TY1 futures are up 0-12+ today at 118-18+ with 10y UST yields down -1.3bp at 3.024% and 2y yields up 1.3bp at 2.608%.
• Bund futures are up 0.40 today at 152.14 with 10y Bund yields down -3.0bp at 1.063% and Schatz yields down -2.2bp at 0.202%.
• Gilt futures are up 0.56 today at 118.67 with 10y yields down -6.0bp at 1.894% and 2y yields down -6.2bp at 1.316%.

FOREX: Markets More Sanguine as Equities Recover Off Lows

• Price action is more sanguine early Tuesday, with most major pairs inside the weekly range headed into the NY crossover. Risk off persisted in early Asia hours, with US futures markets sinking further alongside US yields - this prompted a spell of further USD strength and put AUD/USD at new cycle lows of 0.6911, before markets stabilised through early European hours.
• Scandi currencies trade more solidly, with NOK leading markets higher following the more solid than expected April CPI release from Norway. Y/Y underlying CPI beat median by 0.2ppts to touch 2.6% - the highest since early 2021. This prompted a reversal of EUR/NOK off the multi-month highs, and now sits below 10.20.
• GBP is the poorest performer of the day, with EUR/GBP testing last week's highs of 0.8591 ahead of the formal opening of parliament and the setting out of the government's policy agenda. Market focus will be trained on two likely areas of the speech. The first,the gov'ts efforts to boost the economy amidst rising inflation. Second is any potential legislation related to the Northern Ireland protocol within the Brexit Withdrawal Agreement.
• Tier one data releases are few and far between Tuesday, keeping focus on the central bank speaker slate. Fed's Williams, Barkin, Waller, Kashkari and Mester as well as ECB's de Cos, Nagel, Villeroy and de Guindos are due.

EQUITIES: Tech Rebounds, But Still Down Sharply On The Week

• Asian markets closed mixed: Japan's NIKKEI closed down 152.24 pts or -0.58% at 26167.1 and the TOPIX ended 16.01 pts lower or -0.85% at 1862.38. China's SHANGHAI closed up 31.703 pts or +1.06% at 3035.844 and the HANG SENG ended 368.27 pts lower or -1.84% at 19633.69.
• European stocks are higher, with the German Dax up 191.74 pts or +1.43% at 13380.67, FTSE 100 up 60.99 pts or +0.85% at 7216.58, CAC 40 up 88.64 pts or +1.46% at 6086.02 and Euro Stoxx 50 up 45.43 pts or +1.29% at 3526.86.
• U.S. futures are rebounding, led by tech (after tech led losses Monday), with the Dow Jones mini up 274 pts or +0.85% at 32437, S&P 500 mini up 40.75 pts or +1.02% at 4028.25, NASDAQ mini up 191 pts or +1.57% at 12384.25.

COMMODITIES: Precious Metals Higher As Dollar Trades Sideways

• WTI Crude up $0.55 or +0.53% at $102.19
• Natural Gas up $0 or +0.01% at $7.135
• Gold spot up $8.65 or +0.47% at $1861.43
• Copper up $0.55 or +0.13% at $422.5
• Silver up $0.13 or +0.59% at $22.0106
• Platinum up $20.48 or +2.14% at $973.13