MNI US OPEN - Bond Rout Continues, German 10y Yield at New High

NEWS

ECB (BBG): ECB’s Villeroy Says Inflation Is Too Strong and Too Broad
The European Central Bank must pare back stimulus as inflation is too strong and too broad, Governing Council member Francois Villeroy de Galhau said. In a speech at an economics conference in Paris, the Bank of France chief said that even a measure of core inflation -- which strips out the impact of surging prices of food and energy -- is above the ECB’s 2% target after reaching 3.8% in May. He said the central bank’s meeting next week will be “decisive” in setting out a response.

EU/RUSSIA (MNI/BBG): The sixth package of Russian sanctions failed to garner unanimous support yesterday, as Hungary blocked the passage of a final deal and demanded that the head of the Russian orthodox church, Patriarch Kirill, be removed from sanctions lists. Ambassadors are to meet again today after Hungary’s protest, but Bloomberg cite sources as saying “Hungary crossed the line […] and the mood was not good”.

CHINA (MNI): China May Act Against U.S. Export Controls
China firmly opposes the U.S. using export controls as a tool of political suppression and economic bullying, and it will take necessary measures to safeguard the legitimate rights and interests of Chinese companies, said Gao Feng, spokesman of the Ministry of Commerce at a briefing on Thursday.

CHINA (MNI): China Accelerates Bond Sales To Fund Infrastructure
China will accelerate the issuance of an estimated CNY3.65 trillion in local government special bonds by the end of June to boost infrastructure investment and help stabilise economic growth, said Ou Wenhan, Assistant Minister of Finance at a briefing on Thursday.

JAPAN (MNI): BOJ Adachi: Deflation, Stagflation Global Econ Risk
Bank of Japan board member Seiji Adachi on Thursday voiced concern over the risks of deflation and stagflation of the world economy. "In the process of tightening policy in the U.S., (we have to) pay attention to the risk that the U.S. economy deteriorates sharply through adjustments of asset prices," Adachi told business leaders in Sapporo City.

DATA

MNI BRIEF: EZ PPI At Fresh Euro-era High, But Below Forecasts
Factory gate inflation in the eurozone rose again in April, albeit at a slower monthly pace than in March, partly helped by lower energy costs. On the month, the producer price index rose 1.2%, higher by 37.2% year on year, both a touch below financial market expectations. Energy inflation fell 2.1% m/m, but still recorded a staggering 99.2% increase year-on-year.

MNI: SWISS MAY CPI +0.7% M/M, +2.9% Y/Y (FCST 2.6%); APR +2.5% Y/Y
AUSTRALIA APR RETAIL SALES +0.9% M/M

BOND SUMMARY: A very busy morning session in Europe

• A busy session for EGBs and Bund, despite the UK out for the Queen's Jubilee, Government Bonds have collapsed, pushing Yields at new multi year highs.
• German 10yr yield is highest since 2014, with next upside target seen at 1.234%, the 38.2% retrace of the 2008/2020 fall.
• Reference 150.35 = 150.20.
• German 2yr Yield highest since October 2011.
• German 5yr highest since January 2014.
• BTP was initially leading but futures are off their respective lows at the time of typing.
• BTP/Bund spread was 2.7bps wider, with next upside target at the 2022 double top at 205.10, which is also the widest print since May 2020.
• BTP/Bund is now just 0.3bp wider, since the bounce in Futures, at 201.2bps.
• Volumes in Europe are still dominated by rolling positions into September.
• Gilts are closed for the UK holidays.
• Tnotes have taken their cue from the sell off in Europe, but have recovered from their lows, led by EGBs.
• Looking ahead, US ADP and Factory orders. US Durable goods will be final reading.
• Speakers include, ECB de Cos, Fed Logan and Mester

FOREX: EUR is on the front foot

• All the action is in Govies, with Futures in Germany and Europe plummeting, pushing Yields at multi year highs. Early mover in FX, was the CHF, after the Swiss CPI beat.
• CHF went bid across G10, but the currency has since pared some gains, led by the EUR.
• EUR is mostly on the front foot against G10s, after Bund collapsed, and German Yields spiked to multi year highs. The EUR leads versus the CAD and USD, up ~0.39%.
• EURUSD resistance is seen at 1.0697 (printed 1.0695 high).
• EURCAD has pared half of yesterday's losses, and small initial resistance moves down to 1.35471.
• Risk On tone has kept the USD in the red, after a mixed start on the European Govie open. Best performers versus the USD are the SEK, GBP and the EUR.
• Looking ahead, data include US ADP and Factory orders. US Durable goods will be final reading.
• Speakers, sees Riksbank's Jansson speaking on rising interest rates, Riksbank's Ohlsson on Economy, Monetary Policy.
• BoC Paul Beaudry gives press conference. ECB de Cos speaks in Paris, while Fed speakers include Logan and Mester.