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Authored by Peter Tchir via Academy Securities,

Last weekend we suggested that “I Like My Exceptionalism to Be Exceptional” and highlighted data that was anything but exceptional. As the Citi Economic Surprise Index continues to fall, and CONsumer CONfidence showed anything but confidence, it seemed like a good idea to add to last weekend’s theme.

More on “Exceptionalism” In Jobs

Let’s start with “full-time” jobs. Full and part-time jobs come from the “Household” part of the NFP data. From my perspective, full-time jobs are more important than part-time jobs. There are certainly other views on the matter, but I prefer full-time jobs.

I find a few things “interesting” on this chart (and by interesting, I mean less than exceptional).

• Depending on the time horizon, we are below trend growth in full-time jobs (this time horizon captures that).

• We had a strong post-COVID rebound, and by March 2022 we had created 832k more full-time jobs than we had prior to the pandemic. In the over 2 years since then we have added 1.4 million full-time jobs. That is 56k per month – hardly “exceptional.”

• The high level was 134.8 million in June of 2023. That dropped to 132.9 million as of March 2024. So, in a 9-month window, where “exceptionalism” was the story, the Household Survey (which admittedly was nowhere near as strong as the Establishment Survey) showed a loss of almost 2 million full-time jobs! Last month’s Household report showed a big gain of almost 1 million full-time jobs, making the data look less bad. One can wonder (and I often do) why we even bother collecting the Household data if it is not taken seriously? Or maybe it should be?

Maybe this is one reason why the “perception” of the economy isn’t as good as the data suggests? Because we pick and choose which data people should pay attention to, that is distorting the reality of the economy most people face.

Now let’s look at the CES Net Birth-Death Model. You know the movie where they say, “you had me at hello?” Well, this “explainer” loses me at about the 2nd line. Maybe I should struggle through more carefully and try to build my own model. Many I am sure have, but I’m not sure if I could, and I definitely don’t care enough to do it. So, with that as a caveat, I often wonder about the impact this has on jobs and how accurate it really is. Maybe it is the awkward name which scares me (seriously, birth-death is the best name someone could come up with for this important component of NFP?).

Since January 2021, the Establishment Survey says we have added 8.5 million jobs, of which 3 million were generated from the birth/death model. Seems reasonable that this “plug” or calculation is about 35%.

In the past year (April 2023 to April 2024), 53% of the jobs created can be attributed to this model. 1.6 million of the 3.1 million jobs created (according to the Establishment Survey). Presumably, this data is correct, yet maybe this explains why there is a difference between the perception of the economy on many fronts, and what Wall Street touts as the “actual” data. Maybe some portion of these “estimated” jobs aren’t really jobs?

I am not sure which data series is “correct“ or which “calculations” we should place more faith in. Yes, according to the BLS, the margin for error is materially higher in the Household Survey than the Establishment Survey, but both are quite high relative to the “precision” with which the data is presented.

CONsumer CONfidence “Exceptionalism”

I’m not sure in which direction this weekend’s report would have gone had it not been for Friday’s University of Michigan report. Given the ongoing glut of weaker than expected data, and a lot of feedback on last weekend’s piece, I probably would have done the same report. But CONsumer CONfidence solidified the direction we had to go. For those of you who read the T-Report regularly, you know that I am suspicious of the validity of the CONsumer CONfidence survey (hence the double CON). But apparently the devil can quote scripture for his or her own purposes, so why can’t I?

Confidence plunged to 67 from 77 and had one of the biggest misses versus expectations of all time. Current conditions and future conditions didn’t matter – it was bad across the board. Inflation expectations (which the Fed pays attention to) seem to be “less anchored” than they were as the one- year inflation expectation jumped to 3.5% from 3.2% (the highest since November). The 10-year crept back to 3.1%. It had gotten to 3.2% in November, but other than that one print, this is tied as the highest longer-term inflation measure since this whole mess began!

I promised myself I wouldn’t use the word stagflation, since that is nowhere close to my base case, but it is increasingly difficult to dismiss the possibility. So maybe I will just say Stag and Flation and leave it at that as a way to hint that it is creeping into my scenario analysis without quite getting there.

But I digress, the one chart I want to show is the sentiment for Democrats.

University of Michigan provides the data broken down by party affiliation. I have no idea how useful that is in reality, but it is curious. There is almost always a better perception by those whose party is in charge. Any time we dip below the black line on this chart, we should be worried because that is lower than confidence was when Trump was president. We are not there yet, but it has declined to the lowest level in a year. The decline was so rapid that it raised eyebrows. Prior declines could easily be linked to COVID or to the Fed starting to unwind easy money. This one is less easy to pinpoint, especially with the cacophony of “exceptionalism” that I’m taking more notice of than I usually would.

For what it is worth, I believe the University of Michigan itself published something to the effect that they double checked the data and confirmed that it is statistically significant.

Maybe I’m just the devil quoting scripture for my own purposes, but this report (which I often dismiss) is at least somewhat troubling and doesn’t do much for the “exceptionalism.”

The Exceptional “Doctor Copper”

We are seeing the price of many commodities increase. I will highlight “Doctor Copper” as it is one of the strongest charts and is normally associated with global economic growth.

IF the rule of thumb holds, then an acceleration of copper should be indicative of increased global activity, which should benefit everyone. Let’s start with what we know:

Copper (along with other raw materials) is rising in price again, potentially sparking another round of inflation fears as commodity price increases are likely to impact either prices or margins – neither particularly appealing for markets. Let’s think about what could be driving this.

• A shift in what the world is consuming (maybe it is data) which is creating unusually large demand for specific resources. Seems plausible and would indicate some sectors should do well, but the rise in these commodities doesn’t herald a new age of global growth.

• A shift in who is consuming. India has certainly been a massive beneficiary of the shift away from manufacturing in China. I’ve posited that any real risk of a commodity inflation bubble, like we saw in the mid-2000s, would be a result of India’s rise and economic empowerment there. Could this be yet another sign of India’s growth and their need for raw materials? l like that idea, as it supports my India growth story and commodity price risk views, but it is mere conjecture (wishful thinking, even) on my part at this stage. My argument is that even if this is a part of the move, it will benefit India and not the globe.

• China finally rebounding? That is possible. It is difficult for any economy, especially one being propped up by the government, to do worse month after month. At some point there will be a rebound. Here, I would argue vehemently that a rise in commodity prices due to increased manufacturing in China is not good for many companies. It will inflate prices for components, and I’m increasingly convinced that our The Threat of Made By China 2025 understates the risk due to competition with Chinese brands.

Rising commodity prices are unlikely to be helpful from an inflation standpoint. They may be contributing to the inflation expectations in the University of Michigan Survey. What remains to be seen is are they reflective of an improving global landscape, or are they more tied to a theme that is unlikely to benefit domestic companies as much as in the past? It will be very interesting to see how this plays out, and I’m definitely in “trying to figure it out” mode, rather than having high conviction in how it fits my theory.

Tariff Exceptionalism

It looks like we are headed down the path of increasing tariffs. Since 2018, I was largely in support of tariffs, and I probably need to remain supportive. Back in 2018, many argued that the tariffs were going to “Start a Trade War.” My main argument in favor had been that “we’ve been in a trade war for two decades, where only 1 side fired shots.” I did miss how quickly and efficiently China would move into Mexico (as one example) to mitigate the impacts of tariffs.

But since this entire report is a backhanded “compliment” to “exceptionalism” I only want to point out the absurdity of solar panels.

• At one time the U.S. was one of the largest manufacturers of solar panels.

• The production of solar panels, for a variety of reasons, shifted to China. While cost was clearly one reason, I suspect that the “ungreen” nature of making solar panels contributed to that shift as many nations seemed to be in the “if we don’t see it, it didn’t happen” mode of thinking in terms of production that wasn’t green. China was quick to fill that market need.

• At the same time, or in parallel, we have pushed and legislated for the need to use sustainable energy, such as solar. We’ve created subsidies and rules to increase demand for solar panels.

• Now, as we need more and more energy (anything from data centers to EVs has been adding to demands on our electric grids), we will put tariffs on Chinese made solar panels. This increases the cost, potentially substantially, on something public policy is driving us towards.

It really hurts my head that over the past few decades (there is no single administration to blame), we have failed to tie together industrial policy, economic policy, and environmental policy.

Not that “free markets” were ever free, but maybe there is a lesson in here somewhere. Though, as much as I’d like that lesson to be that laissez-faire works, I suspect the lesson would be that more control works better, c’est la vie.

In any case, the trade war is ramping up. While the fight is between China and the U.S. (with countries like Germany weighing in), the battleground will likely be in markets across the globe, and I remain afraid that we are far less prepared for that than the market is currently pricing in!

Bottom Line

Lower yields. I still like 4.3% to 4.5% on 10s and am pricing in two cuts this year. I am convinced that the economic data will show signs of further weakness. What I am less convinced of, and need to reevaluate, is whether inflation can come down, or whether we’ve bottomed and are heading higher? I don’t like the notion of stagflation as a concept, but it has popped up on my radar screen. So, while I still think yields will drop, I have less conviction. If we get a drop in CPI, which seems plausible, I would probably look to fade any bond market rally on that. 

What do lower yields mean for stocks? I think we are near the end of the lower yields/Fed Put rally that has helped stocks creep higher on anemic volumes. Last week we argued that the market might “gap” from “no landing” to some form of “bumpy landing” and I think that is in the midst of occurring, which won’t support risk assets. I still prefer China and think India as an investment will continue to outperform (I think I’ve been more focused on China as it fed my “contrarianism” more than India).

Credit. Boring. Still prefer to reduce exposure to the riskiest credits but think credit will remain “boring” relative to rates or stocks.

Hope you all had a truly exceptional Happy Mother’s Day and enjoyed time with your family!

Now, we can get back to worrying about how “exceptional” or not the economy is!

Well if Fed Chair Powell couldn't see the 'flation' before, perhaps he can now...

After flatlining around 3.,0% for the last four months the median one-year-ahead inflation expectations increased to 3.3%, according to The New York Fed's April Survey of Consumer Expectations.

They also increased to 2.8 percent from 2.6 percent at the five-year-ahead horizon, while decreasing to 2.8 percent from 2.9 percent at the three-year horizon.

Home price expectations ticked up to 3.3 percent after seven consecutive months at 3.0 percent, reaching their highest level since July 2022.

Consumers also anticipated faster price growth for gasoline, food, medical care, a college education and rents, according to the New York Fed survey.

The data follow a string of reports that have indicated sticky inflation and a relentless run-up in home prices.

Data out this week is projected to show US consumer prices still rose at stubborn pace last month, and shelter has been consistently responsible for boosting measures of inflation.

All of which is hammering household budgets as the share of consumers that expect they’ll miss a minimum debt payment over the next three months is at the highest since the onset of the pandemic.

Finally, views of the labor market worsened, with earnings growth expectations decreasing and the probability of higher unemployment rising.

Respondents were also less confident in their ability to find a new job if they lost their current one, falling to the lowest reading in three years.

So - all things considered - not the shiny basket of awesomeness that 'Bidenomics' keeps being promoted as eh?

Authored by Steve Watson via Modernity.news,

Warmonger in chief Lindsey Graham suggested Sunday that Israel, with the help of the US, should use nuclear weapons on Iran and Hamas fighters in Palestinian territories.

Appearing on NBC News’ “Meet the Press,” the Republican Senator asked “Why did we drop two bombs, nuclear bombs on Hiroshima and Nagasaki?”

“To end a war that we couldn’t afford to lose,” Graham continued, adding “You don’t understand, apparently, what Israel is facing. They’re facing three groups: Iran, who has received $80 billion in aid… They’re taking that money to kill all the Jews.”

Graham claimed that Israel is facing a significant threat to its existence, and therefore should do whatever it takes, just as the US did in World War Two.

Lindsey Graham suggests dropping big fat NUKES on Iran and Hamas. Doesn't explain how that would work, just says 'it was ok when we did it to Japan'. Full report here: https://t.co/I5kmBiK9OQ pic.twitter.com/LdHXnNVTYd

“Why is it okay for America to drop two nuclear bombs on Hiroshima and Nagasaki to end their existential threat war?”

Graham continued, adding “Why was it okay for us to do that? I thought it was okay. To Israel, do whatever you have to do to survive as a Jewish state.”

“Give Israel the bombs they need to end the war they can’t afford to lose and work with them to minimise casualties,” Graham urged.

Host Kristen Welker provided some pushback, noting that there are now more advanced weapons that could be deployed, rather than just dropping a big fat nuke, and that there might be an alternative to all out war.

But Graham wasn’t having it, stating “When you’re telling the world you’re going to restrict weapons delivery to the Jewish state who is fighting a three-front war for their survival, it emboldens Iran, it emboldens Hamas.”

It’s hardly surprising coming from Graham, who has been calling for wiping Iran off the face of the Earth for years now. But how exactly is Israel going to nuke Hamas without causing more untold carnage to millions of innocent people, including those in its own country?

*  *  *

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After a very slow week, the key event for markets this week will be US inflation data with April’s PPI (Tuesday) and CPI (Wednesday) the highlights. We’ll see if the higher-than-expected US inflation seen in Q1 extends into Q2 or not. Markets will also hear from Powell (tomorrow) and Vice Chair Jefferson (today) as the highlights of a busy Fedspeak calendar that are included in the day-by-day list at the end. The next most important US data release is Retail Sales on Wednesday.

Elsewhere China’s monthly activity numbers (Friday) are important, and staying in Asia, we also have Japanese PPI (tomorrow) and Q1 GDP (Thursday). In Europe tomorrow’s ZEW survey in Germany and UK labor market stats are highlights. Swedish CPI (Wednesday) may get a little extra attention after last week's Riksbank cut, only the second G10 currency to ease this cycle after Switzerland earlier in the year. Earnings season quietens with only 7 S&P 500 companies and 69 Stoxx 600 companies reporting.

Previewing the main events now and let’s start chronologically with regards to US inflation. For PPI tomorrow, the headline (+0.3% consensus, vs. +0.2% previously) and core (+0.2% consensus vs. +0.2% last month) are always less important than the key components that feed into the core PCE deflator – namely, health care services, portfolio management and domestic airfares. As DB economists point out, whilst the March health care services print was relatively soft (+0.1%), the six-month annualized growth rate of 3.5% was still higher than at any point in the decade prior to the pandemic. They also highlight that with respect to portfolio management, the strength in asset market performance leading up to March should result in a strong print for April, given the typical lags.

With regards to CPI, DB economists think that given the 3% rise in seasonally adjusted gas prices, headline CPI (+0.37% forecast vs. +0.38% previously) should grow faster than core (+0.29% vs. +0.36%). This would lead to core YoY CPI falling two-tenths to 3.6%, and headline falling a tenth to 3.4%, both in-line with consensus. The three-month annualized rate under this scenario would fall by four-tenths to 4.1%, but the six-month annualized rate would tick up a tenth to 4.0%. As ever all eyes will be on whether rents finally respond more in keeping to the numerous models that have suggested they should already be well below where they currently are.

For Wednesday's US Retail Sales, DB’s headline (+0.5% vs. +0.7% previously), ex-autos (+0.4% vs. +1.1%) and retail control (+0.3% vs. +1.1%) forecasts suggest some payback from a strong March release. There will be a few extra eyes on initial jobless claims this week given the spike to +231k last week after months of relative stability around the +210k level. DB economists think the spike could have been mostly due to NY school holiday dates having been shifted and would therefore expect much of the spike to reverse. We also have US housing starts and permits on Thursday which include a 2019-2024 seasonal revision which could be of note. Various regional factory surveys are out which will help fine tune PMI forecasts.

Courtesy of DB, here is a day-by-day calendar of events

Monday May 13

• Data: US April NY Fed 1-yr inflation expectations, Japan April M2, M3, Germany March current account balance, Canada March building permits
• Central banks: Fed's Mester and Jefferson speak
• Earnings: SoftBank, Tencent Music, Petrobras

Tuesday May 14

• Data: US April PPI, NFIB small business optimism, UK Q1 output per hour, March weekly earnings, employment change, April jobless claims change, Japan April PPI, machine tool orders, Germany and Eurozone May Zew survey
• Central banks: Fed's Powell speaks, ECB's Knot speaks, BoE's Pill speaks
• Earnings: Alibaba, Tencent, Rheinmetall, Home Depot, Vodafone, Sony, Bayer

Wednesday May 15  

• Data: US April CPI, retail sales, May NAHB housing market index, Empire manufacturing index, March total net TIC flows, business inventories, Italy March general government debt, Eurozone Q1 GDP, employment, March industrial production, Canada March manufacturing sales, April housing starts, existing  home sales, Sweden April CPI
• Central banks: Fed's Kashkari speaks, ECB's Villeroy speaks, China 1-yr MLF rate
• Earnings: Cisco, Allianz, Burberry, RWE

Thursday May 16

• Data: US April industrial production, import and export price indices, housing starts, capacity utilization, building permits, May Philadelphia Fed business outlook, New York Fed services business activity, initial jobless claims, Japan Q1 GDP, March capacity utilization, Italy March trade balance, Norway Q1 GDP
• Central banks: Fed's Harker, Bostic and Mester speak, ECB's financial stability review, Panetta, De Cos, Nagel and Villeroy speak, BoE's Greene speaks
• Earnings: Walmart, Baidu, JD.com, Applied Materials, Deere, Siemens, Take-Two, Deutsche Telekom, BT

Friday May 17

• Data: US April leading index, China April retail sales, industrial production, new home prices, property investment, France Q1 ilo unemployment rate, Canada March international securities transactions
• Central banks: ECB's Vasle, Guindos, Vujcic, Holzmann and Kazaks speak, BoE's Mann speaks

* * *

Focusing on just the US, Goldman writes that the key economic data releases this week are the CPI and retail sales reports on Wednesday and the Philadelphia Fed Manufacturing Index on Thursday. There are several speaking engagements from Fed officials this week, including an event with Vice Chair Jefferson and Cleveland Fed President Mester on Monday and an event with Chair Powell on Tuesday.

Monday, May 13

• No major economic data releases scheduled.
• 09:00 AM Fed Vice Chair Jefferson and Cleveland Fed President Mester (FOMC voter) speak: Fed Vice Chair Phillip Jefferson and Cleveland Fed President Loretta Mester will take part in a discussion on central bank communications at an event hosted by the Cleveland Fed. Q&A is expected. On April 16th, Vice Chair Jefferson noted that his baseline “continues to be that inflation will decline further with the policy rate held steady at its current level, and that the labor market will remain strong, with labor demand and supply continuing to rebalance.” Vice Chair Jefferson also said that “if incoming data suggest that inflation is more persistent than I currently expect it to be, it will be appropriate to hold in place the current restrictive stance of policy for longer.” On April 17th, President Mester noted that she was still “expecting inflation to come down,” but that she thought the FOMC needed “to be watching and gathering more information before we take action.” President Mester will retire from the FOMC in June.

Tuesday, May 14

• 06:00 AM NFIB Small business optimism, April (consensus 88.1, last 88.5)
• 08:30 AM PPI final demand, April (GS +0.3%, consensus +0.3%, last +0.2%); PPI ex-food and energy, April (GS +0.2%, consensus +0.2%, last +0.2%); PPI ex-food, energy, and trade, April (GS +0.2%, last +0.2%)
• 09:10 AM Fed Governor Cook speaks: Fed Governor Lisa Cook will deliver a speech at an event hosted by the New York Fed. Text is expected. On March 25th, Governor Cook noted that while disinflation “has been bumpy and uneven,” “a careful approach to further policy adjustments can ensure that inflation will return sustainably to 2% while striving to maintain the strong labor market.”
• 10:00 AM Fed Chair Powell speaks: Fed Chair Jerome Powell will take part in an event with European Central Bank Governing Council member Klaas Knot hosted by Netherlands’ Foreign Bankers’ Association. Q&A is expected. At the press conference following the FOMC’s May meeting, Chair Powell pushed back strongly against the possibility of rate hikes, saying that he thinks “it’s unlikely that the next policy rate move will be a hike.” He added that the FOMC would need to see evidence that policy is not sufficiently restrictive in order to hike but is not seeing that. Chair Powell also suggested that he did not take much signal from the inflation uptick in Q1, emphasized the “lag structures built into the inflation process,” and noted that he expected sequential inflation to slow this year.

Wednesday, May 15

• 08:30 AM Empire State manufacturing survey, April (consensus -10.3, last -14.3)
• 08:30 AM CPI (mom), April (GS +0.37%, consensus +0.4%, last +0.4%); Core CPI (mom), April (GS +0.28%, consensus +0.3%, last +0.4%); CPI (yoy), April (GS +3.42%, consensus +3.4%, last +3.5%); Core CPI (yoy), April (GS +3.61%, consensus +3.6%, last +3.8%): We estimate a 0.28% increase in April core CPI (mom sa), which would lower the year-on-year rate by two tenths to 3.6%. Our forecast reflects a 2.5% pullback in airfares and net declines in auto prices (used -0.8%, new unchanged) based on rising inventories, mixed auction prices, and a pullback in incentives. We also assume another decline in communication prices (-0.25%) now that post-holiday price normalization has run its course; Adobe data also indicates falling prices for consumer electronics. We estimate a further slowdown in the primary rent measure (+0.37% vs. +0.41% in March) reflecting the continued softness in apartment inflation, but we assume continued strength in OER (+0.45% vs. +0.44% in March) given the resilience of the single-family segment. On the positive side, we forecast another large gain in car insurance rates (+1.6% vs. +2.6% in March) based on online price data, and we assume a 2bp boost to core CPI from this year’s tax preparation price hikes (within financial services CPI). We estimate a 0.37% rise in headline CPI, reflecting higher energy (+1.7%) and food (+0.3%) prices. Our forecast is consistent with a 22bp increase in core PCE in April.
• 08:30 AM Retail sales, April (GS flat, consensus +0.4%, last +0.7%); Retail sales ex-auto, April (GS -0.2%, consensus +0.2%, last +1.1%); Retail sales ex-auto & gas, April (GS -0.4%, consensus +0.1%, last +1.0%); Core retail sales, April (GS -0.4%, consensus +0.1%, last +1.1%)... We estimate core retail sales fell 0.4% in April (ex-autos, gasoline, and building materials; mom sa). Our forecast reflects payback from strong Easter spending in March, as well as sequential softness in credit card spending across retailers and restaurants. We estimate unchanged headline retail sales, reflecting higher auto sales and gasoline prices. 10:00 AM Business inventories, March (consensus flat, last +0.4%) 10:00 AM NAHB housing market index, May (consensus 51, last 51)
• 12:00 PM Minneapolis Fed President Kashkari (FOMC non-voter) speaks: Minneapolis Fed President Neel Kashkari will take part in a fireside chat at the 2024 Williston Basin Petroleum Conference. Q&A is expected. On May 7th, President Kashkari said that he thought “the most likely scenario is we sit here [at the current fed funds rate] for an extended period of time.” President Kashkari noted that the FOMC could cut rates “if inflation starts to tick back down or we saw more marked weakening in the labor market,” but that “if we get convinced eventually that inflation is embedded or entrenched now at 3% and that we need to go higher, we would do that.”:
• 03:20 PM Fed Governor Bowman speaks: Fed Governor Michelle Bowman will speak at the DC Blockchain Summit 2024 in Washington D.C. Q&A is expected. On May 10th, Governor Bowman said that she had “not written in any cuts” for 2024 in the FOMC’s latest Summary of Economic Projections. Governor Bowman noted that her “expectation would be a number of months of progress, … and a number of probably meetings as well before I might be comfortable with” interest rate cuts.

Thursday, May 16

• 08:30 AM Philadelphia Fed manufacturing index, May (GS 9.0, consensus 7.5, last 15.5); We estimate that the Philadelphia Fed mane the economy and eventually get us to 2%,” but that he was not “in a mad-dash hurry to get there if all these other good things are happening.” President Bostic also emphasized that if “inflation starts moving in the opposite direction away from our target, I don’t think we’ll have any other option but to respond to that,” noting that he would “have to be open to increasing rates.”

Friday, May 17

• There are no major economic data releases scheduled.
• 10:15 AM Fed Governor Waller speaks: Fed Governor Christopher Waller will deliver a speech on the payments system at the International Organization for Standardization Technical Committee. Text is expected. On March 27th, Governor Waller noted that he continued to “believe that further progress will make it appropriate for the FOMC to begin reducing the target range for the fed funds rate this year. But until that progress materializes, I am not ready to take that step.” Governor Waller also emphasized that “the strength of the US economy and resilience of the labor market mean the risk of waiting a little longer to ease policy is small and significantly lower than acting too soon and possibly squandering our progress on inflation.”
• 12:15 PM San Francisco Fed President Daly (FOMC voter) speaks: San Francisco Fed President Mary Daly will deliver a commencement address at the University of San Francisco School of Management. Text is expected. On May 9th, President Daly noted that the policy rate was “restrictive, but it might take more time to just bring inflation down.” She also emphasized that “it’s far too early to declare that the labor market is fragile or faltering.”
• 05:45 PM Fed Governor Kugler speaks: Fed Governor Adriana Kugler will deliver a commencement address at the Frank Batten School of Leadership and Public Policy at the University of Virginia. Text is expected. On April 3rd, Governor Kugler noted that her “baseline expectation is that further disinflation can be accomplished without a significant rise in unemployment,” and that “if disinflation and labor market conditions proceed as I am currently expecting, then some lowering of the policy rate this year would be appropriate.”

Data Sourced from DB, Meta and GS

Authored by Jonathan Turley,

Below is my column on the completion of the testimony of Stormy Daniels and the start of the testimony of Michael Cohen. With a dubious legal theory, the testimony has only magnified the criticism of the prosecution as parading sensational rather than material evidence before the jury and the public. Manhattan District Attorney Alvin Bragg is losing even CNN hosts and legal analysts. Fareed Zakaria noted “I doubt the New York indictment would have been brought against a defendant whose name was not Donald Trump” Elie Honig has observed that, if brought in a less democratic district, “I would say there’s no chance of a conviction.” The Bragg case was never “normal” but last week it seemed to go paranormal.

Here is the column:

“I see dead people.” Before this week, that claim was most associated with the nine-year-old character Cole Sear from the 1999 film “The Sixth Sense.” But now it is one of the talents claimed by former adult film actress Stormy Daniels in her bizarre testimony in Manhattan during former President Donald Trump’s trial.

It turns out that speaking to the dead was one of the few relevant things Daniels had to offer in the case, which is now on a collision course with a motion for acquittal before the case even goes to the jury.

The Daniels testimony will live in infamy in the annals of criminal justice. For two days, she offered lurid and completely irrelevant details whose only possible purpose was to humiliate Trump. Admitting that she was coached by the prosecution in her testimony, it was clear that she was there not to win a case but to win an election. Judge Juan Merchan allowed this legal burlesque to unfold in his courtroom, later blaming defense counsel who had vociferously objected to her appearance and the scope of the examination.

The cross examination was devastating.

It shattered her laughable claim that she had not really been seeking money in shaking Trump down for a non-disclosure agreement, a claim contradicted by her own former lawyer. Daniels also revealed that she had spoken with the dead, and that a ghost had once held her boyfriend under water in a bathtub. She also said that she lived in a haunted house, only to discover later that the spirit haunting it was actually a large possum.

In a case based on a dead misdemeanor and a rapidly falling heart rate on the manufactured felony, one can understand the appeal of witnesses who can speak for the dead.

Indeed, Daniels’s graphic testimony may prove the moral high point of this trial, since serial perjurer and disbarred attorney Michael Cohen is scheduled to testify Monday.

Cohen recently broke his pledge, midway through the trial, to stop attacking and taunting Trump. Cohen has insisted that he deserves the protection of the gag order by Judge Merchan as a witness, despite serious constitutional concerns. Merchan continues to threaten Trump with jail if he responds to Cohen’s unrelenting attacks. Merchan waited for the weekend before his testimony to suggest that the prosecutors tell Cohen to stop the public antics.

But it remains unclear what the order is protecting Cohen from. Not only is he trolling for money on social media with reference to the trial, but he is also widely being attacked by others. It is only Trump who cannot address his attacks, including political opposition to his campaign.

Cohen’s testimony will be the culmination of this travesty of a trial. But Bragg already jumped the shark with Daniels. After three weeks, legal experts are still debating what the crime was that Trump was seeking to conceal by recording payments for a standard non-disclosure agreement as a legal expense.

(That is the same characterization used by Hillary Clinton’s campaign for its funding for the infamous Steele dossier.)

It is still unclear that Trump even knew how the payments were characterized, and the alleged false record was not even created until after the election was over. Yet he stands accused of using the “false business records” to somehow steal or rig an election that was already over.

After this circus with Cohen is complete, Trump will be allowed to testify.

He would be insane to do so. Merchan has already said that he will allow a broad scope to cross-examination, making any appearance unlikely.

That is when Merchan will face a key test of judicial ethics.

He has failed to protect the rights of the defendant from a baseless, politically motivated prosecution. He could insist that he simply felt Bragg had a right to present his case. He will soon be done and, as expected, it is entirely based on Cohen, a disbarred perjurer who will ask for his former client to be sent to prison for following his own legal advice.

After Bragg closes the prosecution’s case, the defense will make a standard motion for dismissal. Merchan should grant that motion.

There has been no showing of an actual crime, let alone a clear record tying Trump to key decisions or actions.

Merchan will then have to decide whether he has the courage that Bragg lacked. Bragg knew that this case was ridiculous. The Justice Department had declined any prosecution for a federal campaign finance violation, the theory referenced in the case. Indeed, it did not even seek a civil fine over the payments. Bragg’s predecessor had also rejected the prosecution.

When Bragg took over, he similarly balked and stopped the move toward an indictment. But two prosecutors in his office, Carey R. Dunne and Mark F. Pomerantz, then resigned and started a public pressure campaign to get New Yorkers to demand prosecution.

Pomerantz went even further and took an action that some of us viewed as deeply unethical and unprofessional. Over the objections of his own former office and colleagues, he published a book on the case against Trump — then still under investigation and not charged, let alone convicted. It was a pressure campaign directed at Bragg. In New York, Bragg knew that he would either have to indict Trump or forget about reelection.

Merchan will now have to make the same choice in yielding to politics or principle…or to the paranormal.

He has already allowed every effort to bring this dead misdemeanor back to life.

But even Stormy Daniels may not be able to serve as  Merchan’s medium in reaching back eight years.

Apple is nearing a deal with Microsoft-backed OpenAI to infuse its large language model, known as ChatGPT, into the future iPhone operating system, according to Bloomberg, citing sources familiar with the discussions. 

The two sides have been finalizing terms for a pact to use ChatGPT features in Apple's iOS 18, the next iPhone operating system, said the people, who asked not to be identified because the situation is private. Apple also has held talks with Alphabet Inc.'s Google about licensing that company's Gemini chatbot. Those discussions haven't led to an agreement, but are ongoing. -Bloomberg

Bloomberg reported a few weeks ago that the discussions with OpenAI had intensified. 

In a note to clients on Monday, Wedbush analyst Daniel Ives "expect exclusivity around a number of...advanced OpenAI features on the iPhone that Apple will build around a broader AI strategy on iPhone 16 and iOS." 

Last May, Apple CEO Tim Cook expressed cautious optimism about the proliferation of artificial intelligence services hitting the market, indicating that "there are a number of issues that need to be sorted."

"We've obviously made enormous progress, integrating AI and machine learning throughout our ecosystem," Cook said, adding, "And we weaved it into products and features for many years." 

News of ChatGPT potentially being added to iOS 18 comes ahead of Apple's annual Worldwide Developers Conference next month, where artificial intelligence is expected to be a significant focus of the event. 

In markets, shares of Google in premarket trading fell nearly 2%, while Apple shares were higher by more than 1.5%. 

Now, ChatGPT is set to become mass-adopted across iPhones worldwide - as long as the user updates the operating software. There are more than 2 billion active Apple products (iPhones, iPads, Macs, and other hardware devices).

Authored by Edward Harrison via Bloomberg,

The biggest US tech stocks are not only a bet on innovation but also a possible hedge against inflation, according to some respondents in the latest Bloomberg Markets Live Pulse survey.

Gold, the haven of choice for decades, is still seen as the best safeguard against the risk of rising prices, according to 46% of survey participants.

But nearly a third said the tech behemoths are their first pick for the role.

Source: Bloomberg MLIV Pulse survey May 6-10. Respondents who chose `other' wrote in: bonds, cash, commodities, large caps.

The response highlights the dominant role that companies like Nvidia Corp., Amazon.com Inc., and Meta Platforms Inc. are playing in the US financial markets as they expand their sway over major swaths of the economy.

That has allowed them to generate steady profits, stoking rallies that are making investors confident that they will continue to be a source of solid gains.

Inflation in the US has come down significantly from the scorching levels in 2022, but it surpassed economists’ expectations during the first three months of the year and has remained stubbornly above the Federal Reserve’s 2% target.

That has left price increases by and large the biggest concern among investors.

A majority of the survey’s respondents - 59% of 393 - cited resurgent inflation as the top tail risk facing financial markets between now and the end of the year.

The next reading of the consumer price index is scheduled for this Wednesday and is likely to come around 3.4%.

Nvidia, for example, has surged more than six times since inflation first rose past 2% in March 2021. Even Apple Inc., which has seen peaks and valleys, has outperformed the broader market in that timeframe, gaining over 50% to the S&P 500’s roughly 30%. Still, like other growth stocks, tech companies are sensitive to changes in inflation and interest-rates, because their valuations hinge largely on future profits.

About a quarter of respondents pointed to a US recession as the top risk of 2024. In that case, Treasuries and not stocks would offer a better shield, the survey shows.

Source: Bloomberg MLIV Pulse survey May 6-10

The surprising resilience of the economy despite the Fed’s tighter monetary policy has kept cash flowing into the US, where bond yields are high and corporate profits continue to grow.

The influx has been fueling a renewed rise in the US dollar, which is overwhelmingly seen as the best currency for weathering times of market turmoil.

Almost three-quarters of the respondents said the dollar was the best haven currency, with the Swiss franc getting about 23% of the vote and the Japanese yen about six times less. Among respondents from the US and Canada, dollar got 86% of the vote, while in Europe, 43% of participants went for the Swiss currency.

The yen has lost its haven status because of its depreciation against the dollar and due to Japan’s ultra-easy monetary policy, the survey showed. The yawning gap between interest rates in Japan and the US has sent the yen to the lowest levels since 1990 earlier this year.

Gold is up almost 15% this year with the People’s Bank of China as one of the largest sources of demand. 

With the confiscation of Russia’s dollar assets in the wake of the war in Ukraine, many countries are trying to diversify away from the dollar, with gold a natural beneficiary.

Only 13% of respondents in the MLIV Pulse survey said that the search for geopolitically unaligned assets has benefited Bitcoin.

US equity futures extended last week's solid gains when they traded just about 1% below all time highs, as investors awaited key CPI later this week that will shape the Fed's actions in coming months. As of 7:30am, contracts on the S&P 500 rose about 0.2% (but still below Friday's highs), after the index posted a third straight week of gains; meanwhile contracts on the Nasdaq 100 climbed 0.3% even though Alphabet dropped 2% in premarket trading after Bloomberg reported that Apple is closing in on an agreement to use OpenAI’s technology on the iPhone. Treasury yields dipped and the dollar was steady. In addition to the week's inflation data(both PPI and CPI) a handful of Fed speeches will also be in focus this week, including Cleveland Fed President Loretta Mester and Fed vice chair Philip Jefferson, who speak later in the day.

In premarket trading, Alphabet shares fall 2% as Apple is said to be closing in on an agreement to use OpenAI’s technology on the iPhone. Amusingly, GameStop shares soared and on track for the best month since March 2021 after the first (rather cryptic) tweet by Roaring Kitty after 3 years of silence on the platform, has sparked yet another massive short squeeze in the otherwise worthless company, and is allowing Keith Gil to dump stock at a huge gain.

pic.twitter.com/YgjVqtgcNS

Here are some other notable premarket movers:

• AC Immune shares jump 53% after Takeda signs a worldwide option and license agreement for the biotech’s active immunotherapies targeting amyloid beta, including ACI-24.060 for the treatment of Alzheimer’s disease.
• Cisco Systems shares tick 0.5% higher after losing its only negative analyst rating as BNP Paribas Exane upgrades to neutral from underperform, with limited downside now seen to consensus estimates for the networking equipment maker.
• Incyte climbs 5.5% after announcing that its board approved a share repurchase authorization of $2 billion.
• Intel rises 1.2% after the Wall Street Journal reports that the chipmaker is in advanced talks for a deal in which Apollo Global Management would provide more than $11 billion to help the company build a plant in Ireland, citing people familiar with the matter.
• Penn Entertainment (PENN) drops 2.9% after BofA downgrades the casino and gaming company to neutral following what it describes as disappointing results.
• Squarespace (SQSP) rises 13% after entering into a definitive agreement to go private with Permira in an all-cash transaction valued at approximately $6.9 billion.
• Tencent Music Entertainment’s US-listed shares are up 3.5% after the online music platform reported first-quarter results that beat expectations.

Ahead of Wednesday's all-important CPI report, all eyes will be on US producer prices due Tuesday. Data last week pointed to an economy that is slowing amid stubborn inflation, posing a challenge to the outlook for Fed policy.

“We need a catalyst to break the range on rates or change our view on risky assets,” said Mohit Kumar, Jefferies Europe chief economist. “US CPI data this week could be a potential catalyst. Even though US data has started to show some signs of moderating, inflation remains sticky, creating fears of stagflation.”

In Europe, the Stoxx Europe 600 index was little changed after posting its best weekly return since January (as we previewed just days prior) amid optimism the ECB is poised to ease policy as soon as next month. The autos and health care sectors led gains, while construction and utilities stocks were the biggest laggards. Among individual European movers, AP Moller-Maersk A/S jumped as much as 10% in Copenhagen after analysts at Citigroup Global Markets lifted their earnings estimates on the stock to reflect a recent rise in freight rates. Shell Plc rose to a record in London. Here are the most notable movers:

• Maersk shares jump as much as 10% to touch a three-month high, as the shipping stock catches up after Danish markets were closed for holidays on Thursday and Friday last week. Analysts at Citi lifted their earnings estimates on the stock to reflect the recent rise in freight rates.
• OX2 shares gain as much as 44% as private equity firm EQT is offering 16.4 billion kronor ($1.5 billion) for the wind park developer.
• Gulf Keystone shares jump as much as 15% after the oil and gas producer operating in the Kurdistan region of Iraq demonstrated it can be profitable and generate cash from selling its output locally, according to analysts, with a key export pipeline still closed. This is reflected by the $10m share buyback announced this morning.
• Diploma shares rise as much as 11% to touch a record high, the biggest gainer on the FTSE 100 index on Monday. The construction components firm reported solid results and upped its revenue and margin forecasts for the full year, while analysts noted a strong tailwind from M&A.
• Nobia gains as much as 9%, the most in a month, after Nordea reinstated its coverage of the Swedish kitchen-interiors firm with a buy rating, expecting a recovery in construction market and consumer confidence to be a boon for the company.
• NKT gains as much as 9% after Nordea “firmly” reiterated its buy rating for the Copenhagen-listed power-cable manufacturer, predicting that the continued electrification of society will be a huge boon for the firm in the coming years.
• Almirall rises as much as 8.7% as the skin-health focused pharmaceuticals company delivers sales ahead of expectations. The beat was led by the performance of its Ilumetri psoriasis product. Meanwhile, guidance for the full year has been maintained.
• Ceconomy rises as much as 6.2% after the German retailer of consumer electronics gave a better-than-expected profit forecast for the year. Baader Bank and Oddo point to Western/Southern Europe segment as a main driver.
• Victrex shares drop as much as 5.6% after the polymer maker reported a 92% drop in pretax profit for the first half of the year due to high inventory levels and destocking among medical device customers. The firm has “a lot of work” to do in the second half of the year, according to Jefferies, which expects double-digit downgrades to 2024 consensus estimates.
• BAE Systems shares in London fall as much as 2.9% after closing at a record high on Friday. The UK defense company was downgraded to neutral by analysts at BofA Securities, who see limited upside following the stock’s recent re-rating. That comes amid broader pressure on the European defense sector this morning.

The euro-area economy will expand more quickly than previously thought this year as the bloc’s biggest member, Germany, exits more than a year of near-stagnation, a Bloomberg poll of analysts showed. The results capture the improving mood in the region, with first-quarter GDP readings surprising to the upside and inflation is receding toward 2%.

Earlier in the session, Asian stocks were mixed with Chinese technology companies gaining ahead of earnings and the release of eco data this week. Hong Kong’s equity benchmark climbed to the highest since August, and mainland China equities also rose. But shares in South Korea, Japan and Australia fell. The MSCI Asia Pacific Index climbed as much as 0.3%, reversing earlier losses of as much as 0.2%, after reports that China is planning to issue ultra-long bonds to support its economy. TSMC, Alibaba Group and Tencent Holdings were the biggest contributors to the gauge’s gains. Mainland Chinese shares pared declines after initially falling amid concerns over an escalation of US tariffs and weak local credit data. Benchmarks in Hong Kong gained, with a gauge of technology stocks listed in the financial hub headed for its highest close since November. Taiwan shares also rose, while indexes in Japan fell.

News of the China’s plan to sell ultra-long special bonds boosted sentiment after weak data from the country published over the weekend had led to initial Asian stock losses. The specter of further US-China trade tensions also weighed on equities with a report on how much President Biden is set to increase tariffs on Chinese electric vehicles.

“You are looking at a slightly muddied growth outlook” for China, Sonal Desai, chief investment officer at Franklin Templeton, said in an interview on Bloomberg Television. Regardless of who gets elected in the US presidential election in November, we are going to see an escalation of US-China trade tensions, he said.

In FX, the Bloomberg Dollar Spot Index edged 0.1% lower.  “After the dovish FOMC meeting and the soft April NFP sucked the momentum from the dollar’s upside, the question is whether price data can actively contribute to the dollar’s downside,” FX strategists at ING write in a note, adding that a softer PPI reading could point to a lower core PCE deflator figure, the Fed’s preferred inflation reading, due on May 31. This week’s data follows a US labour report earlier in the month which showed a slowdown in jobs growth and raised speculation that the Fed may start cutting the rate in the coming months

Traders are betting on a 73% possibility that the Fed will start cutting rates in September, little changed from late last week; roughly 40 basis points of cuts are priced in through the end of the year

In rates, treasuries are slightly richer across the curve, following similar gains for bunds and gilts during European morning. US yields richer by 1bp to 2bp across the curve with 10-year around 4.48%, about 1.5bp lower than Friday’s close, slightly underperforming bunds and gilts in the sector. Curve spreads are steeper by less than 1bp. Wednesday’s April CPI report is poised to provide the biggest test yet of the bond rally that started this month, when Jerome Powell swatted away worries that the Fed may raise interest rates; PPI data on Tuesday will also be in focus. Trading ranges narrow ahead of critical PPI and CPI reports Tuesday and Wednesday. A busy corporate new-issue slate is expected, with a weekly total of about $30 billion anticipated. The next scheduled Treasury auction is 20-year bond sale on May 22

In commodities, oil gained on optimism China’s bond plan may boost growth, and traders assessed the willingness of OPEC+ to agree to extend supply curbs at its upcoming policy meeting. Iron ore and copper extended gains

It has been a strong session for Bitcoin, climbing back up over 63k, while Ethereum is looking to reclaim USD 3k.

Looking at today's calendar, the US economic data slate includes April New York Fed 1-year inflation expectations at 11am; retail sales and industrial production are also ahead this week. Fed officials’ scheduled speeches include Mester and Jefferson at 9am; Cook, Powell, Kashkari, Bowman, Barr, Harker, Bostic, Waller, Daly and Kugler appear later in the week

Market Snapshot

• S&P 500 futures little changed at 5,251.00
• STOXX Europe 600 little changed at 520.98
• MXAP up 0.3% to 178.02
• MXAPJ up 0.5% to 556.98
• Nikkei down 0.1% to 38,179.46
• Topix down 0.2% to 2,724.08
• Hang Seng Index up 0.8% to 19,115.06
• Shanghai Composite down 0.2% to 3,148.02
• Sensex little changed at 72,722.04
• Australia S&P/ASX 200 little changed at 7,750.03
• Kospi little changed at 2,727.21
• German 10Y yield little changed at 2.51%
• Euro little changed at $1.0777
• Brent Futures up 0.3% to $83.04/bbl
• Gold spot down 0.7% to $2,343.69
• US Dollar Index little changed at 105.30

Top Overnight News

• China’s CPI rose for a third straight month in April, increasing at a pace of 0.3% compared with a year earlier, according to official data released Saturday, edging up from March’s 0.1% reading and surpassing the 0.2% growth expected by economists. Meanwhile, the PPI fell 2.5% in April from a year earlier for a 19th consecutive month of declines. WSJ
• China’s credit in April shrank for the first time as government bond sales slowed, while loan expansion was worse than expected in a sign of weak demand. Aggregate financing, a broad measure of credit, decreased by almost 200 billion yuan ($27.7 billion) in April from the previous month, according to Bloomberg calculations of data released by the PBOC. That’s the first time the measure has declined since comparable data began in 2017, reflecting a contraction in financing activity. BBG
• Chinese authorities have kicked off plans to sell Rmb1tn ($140bn) of long-dated bonds, as Beijing raises spending to stimulate the economy. FT
• In the past three days, Russian troops, backed by fighter jets, artillery and lethal drones, have poured across Ukraine’s northeastern border and seized at least nine villages and settlements, ¬and more square miles per day than at almost any other point in the war, save the very beginning. In some places, Ukrainian troops are retreating, and Ukrainian commanders are blaming each other for the defeats. NYT
• Iraq’s oil minister on Sat said the country won’t agree to any additional voluntary oil production cuts, although he expressed support for the overall OPEC+ alliance in more conciliatory comments on Sunday. RTRS
• Stubbornly sticky rent is preventing the Fed from winning the “last mile” portion of its war on inflation and commencing policy easing. WSJ
• Biden’s campaign considers Haley voters as a core part of its coalition in Nov, and has been heartened by the fact she continues to perform so well in GOP primaries despite being out of the race for weeks (Trump meanwhile has made little effort to court Haley or her supporters). Politico
• McDonald’s is looking to launch a $5 meal plan in the US, a sign the company is becoming more aggressive on price to recapture market/mindshare as consumers dial back spending. BBG  
• Apple has closed in on an agreement with OpenAI to use the startup’s technology on the iPhone, part of a broader push to bring artificial intelligence features to its devices, according to people familiar with the matter. BBG

A more detailed look at global markets courtesy of Newsquawk

APAC stocks were mostly cautious after mixed inflation and soft financing data from China over the weekend, although Chinese markets found some solace from China's plans to issue ultra-long treasury bonds.  ASX 200 was led lower by underperformance in the energy sector and amid a tepid NAB Business survey. Nikkei 225 lacked firm direction with price action choppy amid a slew of earnings releases. Hang Seng & Shanghai Comp were initially pressured after mixed inflation data and disappointing financing data which showed a rare contraction in Aggregate Financing, while expectations of increased US tariffs on Chinese EVs also provided early headwinds. However, the Hong Kong benchmark then recovered and climbed above the 19,000 level amid tech strength, while the mainland pared the majority of its losses as the attention turned to China's plans to issue ultra-long treasury bonds on May 17th.

Top Asian News

• Chinese authorities kicked off plans to sell USD 140bln of long-dated bonds, according to the FT. It was later reported that China's Finance Ministry is to issue ultra-long treasury bonds on May 17th in which it plans to issue 20yr, 30-year and 50-year treasuries worth CNY 300bln, CNY 600bln and CNY 100bln, respectively, while it plans to complete the issuance of long-term treasury bonds by end-November.
• Country Garden (2007 HK) said it repaid onshore coupons within the grace period, according to Reuters.
• BoJ offered to buy JPY 375bln in 1-3yr JGBs, JPY 425bln in 5-10yr JGBs and JPY 150bln in 10-25yr JGBs (reduced 5yr-10yr purchases from a previous JPY 475bln).
• Australia’s government cut its 2024/2025 real GDP growth forecast to 2% from 2.25% and cut its 2025/2026 growth forecast to 2.25% from 2.50%, while it said inflation could slow to the RBA’s 2%-3% target range by year-end which is sooner than previously expected, according to Reuters.
• Tencent Music Entertainment Group (TME) Q1 2024 (USD): EPS 0.13 (exp. 0.14), Revenue 0.94bln (exp. .91bln).

European bourses, Stoxx600 (U/C) are mixed and trading on either side of the unchanged mark, in what has been a very quiet European morning. European sectors are mixed; Autos tops the pile, with optimism potentially deriving from Chinese CPI as well as new long-dated bond sales, which will help to provide liquidity for the Chinese markets. US Equity Futures (ES +0.1%, NQ +0.1%, RTY +0.3%) are very modestly in the green, following the tentative price action also seen in Europe.

Top European News

• UK PM Sunak is set to declare the UK stands 'at a crossroads' as he readies the Tories ahead of an election, according to FT.
• Socialists were ahead in the Catalan regional election with 41 seats out of the 135-seat chamber and separatists Junts were second with 36 seats after 91% of votes were counted, according to Reuters.
• S&P affirmed Poland at A-; Outlook Stable.

FX

• Dollar is modestly softer, having spent much of the European morning flat, with recent EUR strength pushing the index lower, albeit marginally so. Currently, the DXY is towards the bottom end of today's 105.36-20 range.
• EUR is incrementally firmer vs the USD, catching a slight bid in recent trade though with specifics light. Currently holding around its 50DMA at 1.0786.
• GBP is flat vs USD, with very modest early morning weakness petering out. Focus this week will be March’s job data, as well as potential commentary from BoE Chief Economist Pill.
• USD/JPY is incrementally firmer, having wobbled very briefly after the BoJ said it reduced its purchases of 5yr-10yr JGBs. The announcement led USD/JPY to as low as 155.57, before quickly paring the move. As it stands, the pair holds above its 20DMA, with the high for today at 155.95.
• Mixed trade for the Antipodeans, initially softened by the cautious risk tone in APAC trade and after the PBoC set a weaker reference rate setting. Weakness in the Kiwi, after inflation expectations, has led NZD/USD as low as 0.60.
• PBoC set USD/CNY mid-point at 7.1030 vs exp. 7.2284 (prev. 7.1011).

Fixed Income

• USTs are a touch firmer but near unchanged overall as the benchmark takes a slight breather from Friday's marked bearish action but remain within a couple of ticks of the 108-21+ trough from Friday with last week's 108-19+ base below.
• Bund price action has been very contained and largely directionless. Drivers thus far have been exceptionally limited and the European docket ahead is very light.
• Gilts in-fitting with the UK docket thin today with the narrative much the same as for EGBs above. Gilts themselves in a thin 20 tick range after a very contained open. Currently around the 97.75 mark above the 97.66 low.

Commodities

• Crude benchmarks are on the front-foot, however action is modest and we remain within around a USD 1/bbl of Friday's base. Focus today has been on commentary from the Iraqi Oil Minister and awaiting updates out of Rafah. Brent July current holding at USD 83/bbl.
• Precious metals are slipping a touch but with the action more of a gentle decline than a pronounced fall thus far. Specifics light and impetus from broader assets limited as overall market action is fairly contained; XAU near session lows around USD 2,240.
• Base metals largely followed the fortunes of China overnight with initial action bearish on the overall soft tone and weak financing data from the region.
• Iraqi Oil Minister said on Saturday that Iraq has made enough voluntary production cuts and will not agree to any future reduction taken by OPEC. However, it was reported on Sunday that the Oil Minister said the voluntary oil output cut is subject to agreement between OPEC countries and any negotiable proposals may be presented at the time, while he added they are part of OPEC and it is necessary to comply with any decisions made by the organisation. The state news agency also reported the Oil Minister said Iraq is committed to voluntary output cuts made by OPEC members and is keen on cooperating with members to achieve more stability in global oil markets.
• Iraqi Oil Ministry launched 29 oil and gas projects within the fifth and sixth licensing rounds.
• Qatar set June marine crude OSP at Oman/Dubai plus USD 1.75/bbl and land crude OSP was set at Oman/Dubai plus USD 0.85/bbl, according to a pricing document.
• QatarEnergy is to acquire two new exploration blocks offshore Egypt in which it signed a farm-in agreement with ExxonMobil (XOM) to acquire a 40% participating interest in the exploration blocks.
• Russian Deputy PM Novak said Russia will be able to increase fuel output in the future, according to TASS.

Geopolitics: Middle East

• Israel’s IDF said it ordered residents of additional east Rafah areas to evacuate and head to the humanitarian zone in Al-Mawasi, according to Reuters.
• Israeli military spokesperson said Hamas has been trying to re-establish military capabilities in Gaza’s Jabalia and Israel is trying to prevent that, while it announced that Israeli forces in Gaza’s Zeitun killed 30 Palestinian militants. It was separately reported that Israel's military opened a new crossing into the Gaza Strip in coordination with the US government for humanitarian aid, according to Reuters.
• US State Department said Secretary of State Blinken stressed to Israeli Defence Minister Gallant the urgent need to protect civilians and aid workers in Gaza and urged to ensure humanitarian access to Gaza, while Blinken reaffirmed to Gallant US opposition to a major ground military operation in Rafah, according to Al Jazeera and Sky News Arabia.

Geopolitics: Other

• Ukrainian President Zelensky said battles are ongoing at seven border villages in Kharkiv and the Donetsk situation is particularly tense, while Ukraine’s military chief said fighting is ongoing and warned of a difficult situation in the Kharkiv region, according to Reuters.
• Ukrainian shelling killed at least 9 people and injured more than a dozen in an apartment block collapse in Russia’s Belgorod, according to Reuters.
• Russian President Putin conducted a surprise reshuffle of top security officials whereby he removed Patrushev as head of the Security Council who will be moved to a new job and proposed that Defence Minister Shoigu become the new head of the Security Council, while he proposed economic adviser Belousov to become the new Defence Minister, according to FT.
• Russian Defence Ministry said its forces have taken five settlements in Ukraine’s Kharkiv region.
• Ukrainian drone attack has damaged an oil depot/power substation in Belgorod and Lipestk regions of Russia, via Reuters citing Ukrainian intelligence.

US Event Calendar

• 11:00: April NY Fed 1-Yr Inflation exp; prior 3.00%

Central Bank Speakers

• 09:00: Fed’s Mester, Jefferson Discuss Central Bank Communications

DB's Jim Reid concludes the overnight wrap

After perusing my social media accounts, I think I’m the only person on the planet who couldn’t find the aurora borealis this weekend. All I have to show for my efforts are a few black sky pictures on my iPhone. I had more success in finding a decent song at Eurovision which is saying something.

The main thing that will light up the skies for markets this week will be US inflation data with April’s PPI (Tuesday) and CPI (Wednesday) the highlights. We’ll see if the higher-than-expected US inflation seen in Q1 extends into Q2 or not. Markets will  also hear from Powell (tomorrow) and Vice Chair Jefferson (today) as the highlights of a busy Fedspeak calendar that are included in the day-by-day list at the end. The next most important US data release is Retail Sales on Wednesday.

Elsewhere China’s monthly activity numbers (Friday) are important, and staying in Asia, we also have Japanese PPI (tomorrow) and Q1 GDP (Thursday). In Europe tomorrow’s ZEW survey in Germany and UK labour market stats are highlights. Swedish CPI (Wednesday) may get a little extra attention after last week's Riksbank cut, only the second G10 currency to ease this cycle after Switzerland earlier in the year. Earnings season quietens with only 7 S&P 500 companies and 69 Stoxx 600 companies reporting.

Previewing the main events now and let’s start chronologically with regards to US inflation. For PPI tomorrow, the headline (+0.4% DB forecast, +0.3% consensus, vs. +0.2% previously) and core (+0.3% DB, +0.2% consensus vs. +0.2% last month) are always less important than the key components that feed into the core PCE deflator – namely, health care services, portfolio management and domestic airfares. As our economists point out, whilst the March health care services print was relatively soft (+0.1%), the six-month annualised growth rate of 3.5% was still higher than at any point in the decade prior to the pandemic. They also highlight that with respect to portfolio management, the strength in asset market performance leading up to March should result in a strong print for April, given the typical lags.

With regards to CPI, our economists previewed it in full here (see "April CPI preview & webinar registration"), and think that given the 3% rise in seasonally adjusted gas prices, headline CPI (+0.37% forecast vs. +0.38% previously) should grow faster than core (+0.29% vs. +0.36%). This would lead to core YoY CPI falling two-tenths to 3.6%, and headline falling a tenth to 3.4%, both in-line with consensus. The three-month annualised rate under this scenario would fall by four-tenths to 4.1%, but the six-month annualised rate would tick up a tenth to 4.0%. As ever all eyes will be on whether rents finally respond more in keeping to the numerous models that have suggested they should already be well below where they currently are.

For Wednesday's US Retail Sales, DB’s headline (+0.5% vs. +0.7% previously), ex-autos (+0.4% vs. +1.1%) and retail control (+0.3% vs. +1.1%) forecasts suggest some payback from a strong March release. There will be a few extra eyes on initial jobless claims this week given the spike to +231k last week after months of relative stability around the +210k level. Our economists think the spike could have been mostly due to NY school holiday dates having been shifted and would therefore expect much of the spike to reverse. We also have US housing starts and permits on Thursday which include a 2019-2024 seasonal revision which could be of note.

Various regional factory surveys are out which will help fine tune PMI forecasts. Over the weekend Chinese consumer inflation edged higher but producer prices stayed very weak. CPI came in at +0.3% YoY in April from +0.1% YoY in March and a tenth above expectations. PPI however fell -2.5% (-2.3% expected and -2.8% in March). So, deflation still remains intense in manufacturing sectors. Mainland Chinese stocks are lower with the CSI (-0.11%) and the Shanghai Composite (-0.09%) both trading slightly lower on prospects of more US trade tariffs on China across various industries with electric vehicles expected to be a particular target according to Bloomberg.

Elsewhere the KOSPI (-0.28%) and Nikkei (-0.20%) are also edging lower in early trade. Meanwhile, the Hang Seng (+0.38%) is bucking the regional negative trend. S&P 500 (+0.04%) and NASDAQ 100 (+0.07%) futures are trading just above flat with USTs fairly stable as I type.

Coming back to China, the government plans to sell the first batch of its 1 trillion yuan ($138 billion) of ultra-long dated bonds on Friday, ramping up its spending to stimulate the economy. The total issuance will include 300 billion yuan 20-year bonds, 600 billion yuan 30-year notes and 100 billion yuan in 50-year tenor and the bonds will be sold from May through November.

Recapping last week now. On Friday we had a weak reading for the University of Michigan’s preliminary consumer sentiment index for May. The headline sentiment index dropped well below expectations, falling from 77.2 to 67.4 (vs 76.2 expected), the lowest level since November. Respondents’ view of current conditions also deteriorated in May, falling from 79.0 to 68.8 (vs 79.0 expected).

Notably, the year-ahead inflation expectations rose from 3.2% last month to 3.5% (vs 3.2% expected), erasing all the index’s decline earlier this year. The 5-10yr expectation also rose from 3.0% to 3.1% (vs 3.0% expected).

The University of Michigan release helped pare back some of the week’s upbeat tone. The upside in inflation expectations saw the number of Fed rate cuts expected by December decline by -5.1bps on Friday (-4.9bps over the week), erasing mid week optimism that monetary policy was heading to a less restrictive stance. Over in Europe it was a similar story, with the amount of ECB cuts priced by December coming down -3.2bps on Friday (and -5.0bps over the week) to 69bps.

Off the back of this, US Treasuries sold off. The 2yr yield rose +5.1bps on Friday, and +4.9bps on the week. Similarly, 10yr yields rose +4.3bps on Friday, although this failed to fully wipe out the decline in yields earlier in the week, as yields ended the week down -1.3bps at 4.50%. Meanwhile in Europe, yields on 10yr bunds were up +2.2bps (+2.2bps on Friday).

In the equity space, the S&P 500 had traded nearly +0.5% higher early on Friday before the University of Michigan survey but then gave up those gains, finally closing the day +0.16% higher. It finished the week up +1.85% in its third consecutive week of gains, the longest winning streak for the index since February. The NASDAQ followed suit, rising +1.14% last week (-0.03% on Friday).

Moreover, global equities were also on the stronger side, as the STOXX 600 gained +3.01% (and +0.77% on Friday). The UK FTSE 100 hit another record high last week, supported by a strong beat to the UK GDP data for Q1 which rose +0.6% quarter-on-quarter (vs +0.4% expected). This saw the FTSE 100 gain +2.68% (and +0.63% on Friday).

Finally, in commodities, oil prices lost ground on Friday, with Brent crude down -1.30% (-0.20% on the week) to $82.79/bbl, its lowest level in nearly two months. By contrast, gold was up +1.32% on Friday (+2.55% over the week) to $2,361/oz, its highest level in three weeks.