Monday, May 22, 2023

Daily Market Overview

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• Markets struggled for direction. A backloaded calendar is at least part of the reason. First up are European, British and US PMI business confidence indicators. They’ll gain much attention as the May edition will have captured the effect, if any, of the financial turbulence in full. For all three regions, they are expected to come in at solid levels (for the services sector at least). The Fed will release its policy meeting minutes on Wednesday and the UK publishes April inflation figures. US PCE inflation, a price gauge watched closely by the Fed, is scheduled on Friday. The New Zealand and Hungarian central bank as well as a flurry of central bank speeches fill in the remaining gaps. Voting FOMC member Kashkari was the latest one to weigh in. He said today that hiking or pausing in June is a close call, adding that if they were to “skip a meeting”, it doesn’t mean the Fed is done tightening. Kashkari hasn’t seen any evidence of bank stress tightening credit conditions. He also said rates could possibly need to go north of 6% though added that if banking stress does bring inflation down, the central bank is maybe getting closer to being done. Non-voting member Bullard in a speech later said US recession worries are overstated. He expects rates to be lifted by an additional 50 bps later this year. Kashkari and Bullard are the two most outspoken hawks. Yet their comments did not go unnoticed. US bond yields swapped a few bps of losses for minor gains in the 1-3 bps area. Both the 2-y and the 10-y yield are trying to escape the sideways trading range in place since mid-March. German Bunds slightly underperform with yields adding 2.5-3.7 bps across the curve. European stocks inch lower. The EuroStoxx50 eases 0.3% after failing to take out resistance from the April 2023 high/Nov 2021 post-pandemic recovery high. WS opens with small gains. Japan’s yen on currency markets is the underperformer but all is within tight ranges. USD/JPY rises to 138.40, EUR/JPY to 149.79. EUR/USD and EUR/GBP are going nowhere near 1.081 and 0.868 respectively.
News & Views

• According to the consumer survey published by the National Bank of Belgium today, consumer confidence declined in May from -6 to -9 after reaching the best level since early February 2022 in April. The loss of confidence affected al components in the indicator. The outlook on the economic situation was revised downwards (-20 from -15), to its lowest level since the beginning of the year. Fears of rising unemployment have increased (18 from 14), offsetting the favourable development observed last month. On a personal level, households expect to save less in the coming months (2 from 6). They are also slightly less optimistic about their financial situation for the next twelve months (-3 from -2).
• A series of April activity and price data published by Statistics Poland showed a mixed picture. Sold production (constant prices not seasonally adjusted) of industry in April declined 14,8% M/M to be 6.4% lower compared to the same month last year, the biggest decline since the start of the pandemic in spring 2020. Yearly declines were registered in 25 out of 34 industry divisions. Among the main industrial groupings there was a significant decrease in production of energy (14.5% Y/Y), durable consumer goods (13.5%), intermediate goods (10.8% ) and non-durable consumer goods (5.3%). Sales of capital goods increased (7.2%). Compared to March 2023 volumes of sold production declined in 33 out of 34 industry divisions. PPI inflation also declined more than expected at -0.7% M/M and 6.8% Y/Y, the third consecutive monthly decline. Monthly price declines were registered for manufacturing (-0.5% M/M) and electricity and gas (-2.1%). Average gross wages in April (-1.0% M/M and 12.1 % Y/Y) were close to expectations. Employment unexpectedly rose 0.1% M/M and 0.4% Y/Y.(-0.1% M/M was expected). Polish central bankers recently pushed back against calls for rate cuts as both headline (14.7% y/y) and core inflation (12.2%) stayed elevated. Additional fiscal spending is also a source of concern for inflation. The zloty is holding strong (EUR/PLN 4.5075 currently) after testing the strongest level in 2 years last week.

Graphs & Table

US 2-y yield seeks an escape from the sideways trading range dominating since mid-March

German DAX hovers near all-time high. Break higher means uncharted territory.

USD/JPY: Japanese yen underperforms amid core bond yield rise. Break above March high gets confirmed.

Brent oil ($/b) struggles to leave the YtD lows behind. Doubts rise whether Russia is complying to the output cuts announced by OPEC

Note: All times and dates are CET. More reports are available at which you may sign up to.

This document has been prepared by the KBC Economics Markets desk and has not been produced by the Research department. The desk consists of Mathias Van der Jeugt, Peter Wuyts and Mathias Janssens, analists at KBC Bank N.V., which is regulated by the Financial Services and Markets Authority (FSMA). Read the full disclaimer.

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