US equity futures and global markets are weaker with both tech and small caps underperforming as yields rise (10Y TSY  at 4.53% last) and the curve bear steepens. As of 8:00am ET, S&P futures are down 0.5% with sentiment hit by a CNN report that Israel may be preparing to strike Iranian nuclear facilities. That sent oil higher, while haven assets outperformed; Nasdaq futures also drop 0.6%, with Mag7 names mostly lower and Semis/Cyclicals underperforming. In Europe major markets are mostly lower with the UK leading and France lagging. UK inflation his a 15-month high. Treasury yields ticked above key psychological levels, with the 30-year above 5%. The dollar lost ground against all major currencies pushing the DXY index back below 100 as the yen continues its relentless ascent while Japanese long bonds crater. Commodities are higher this morning, benefiting from the lower dollar and led higher by energy and precious metals with the former higher on elevated geopolitical risk. Oil climbed about 0.7% on a report that Israel could be gearing up for a possible strike on Iran’s nuclear facilities. It is another light macro data day with no macro news but with multiple Fed speakers. Earnings from big retailers will be in focus for clues on the impact of tariffs.

In premarket trading, Mag 7 stocks are mixed (Alphabet +0.5%, Tesla +0.5%, Apple -0.4%, Microsoft -0.5%, Nvidia -0.7%, Amazon -0.8%, Meta -0.6%). Canada Goose rose 9% after the coat manufacturer posted fourth-quarter revenue that beat estimates. Lowe’s (LOW) climbs 2% after comparable sales beat expectations during the latest quarter as shoppers maintained home spending despite weakening consumer sentiment and economic turbulence.

Moderna (MRNA) slips 1.3% after the biotechnology company voluntarily withdrew its pending biologics license application for its flu, Covid combination vaccine for adults 50 years and older.

Target (TGT) slumped 4% after the beleaguered company cut its FY sales outlook, and now sees full year sales declining by single digits after previously seeing growth

NU Holdings (NU) falls 2.6% after saying said Chief Operating Officer Youssef Lahrech is stepping down, adding to a string of management changes in the upper ranks of Latin America’s standout financial technology firm.

Palo Alto Networks (PANW) slips 3% after the cybersecurity provider posted quarterly results and gave an outlook. Analysts note subscription and support revenue slightly missed expectations and JPMorgan reduced its price target.

Take-Two Interactive (TTWO) declines 4% after the video-game publisher announced plans to sell $1 billion of new stock to investors. The offering range is $225 to $232 per share, according to people familiar with the matter.

Toll Brothers (TOL) gains 3% after the company reaffirmed its expectations for home sales in its full fiscal year, citing resilience among its affluent buyers.

UnitedHealth (UNH) tumbles 5% after the Guardian reported that the health insurer secretly paid nursing homes to reduce hospital transfers for ailing residents.

VF Corp. (VFC) falls 12% after the owner of apparel and footwear brands forecast a wider-than-expected adjusted operating loss from continuing operations for the first quarter.

Target, Lowe’s, Marshalls-owner TJX and Timberland maker VF Corp are all set to report this morning. Any comments on post-tariff pricing adjustments will be key after Walmart warned of price hikes last month, with Trump retorting that the retailer should “eat the tariffs.”

Overnight, republicans said they reached an agreement on state and local tax deductions for President Donald Trump’s economic bill after negotiating through the night. While investors have rushed back into stocks on hopes that the US is easing off its tariff threats, there are questions about whether gains can be sustained as concerns about fiscal deficits and mounting debt drive bond yields higher.

“There’s a lot of optimism that has been discounted in markets and it seems that many investors believe that the trade war is over,” said Frederique Carrier, head of investment strategy for RBC Wealth Management in the British Isles and Asia. “However, the underlying issues which have been at the root of tensions for decades have not been tackled.”  

Equity trading volumes were light across the board. The UK and European Union extended the bidding window for debt auctions on Wednesday in response to Bloomberg LP technical issues. Globally, the yield-curve for government debt steepened across most markets as worries mount around swelling debt and deficits. The rate for 10-year US Treasuries advanced four basis points to 4.53%, while the yield for gilts with a similar tenure rose six basis points to 4.76%.

“The direction of travel is obviously higher,” Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management, told Bloomberg TV. “At the core of it, fiscal is in question, and it’s not just a US problem, it’s a global problem.”

Meanwhile, Morgan Stanley raised its call on US stocks and Treasuries on expectations that interest-rate cuts will support bonds and boost company earnings. The S&P 500 Index will reach 6,500 by the second quarter of 2026, they wrote. They also see the dollar continuing to weaken as the US’s economic growth premium relative to peers fades. 

“The US dollar has of course lost its luster as the undisputed safe reserve asset,” said Richard Franulovich, head of FX strategy at Westpac Banking Corp. 

In Europe the Stoxx 600 is on course to snap a four-day win streak as it falls 0.6%. Retail, auto, and travel shares are leading declines while utilities outperform as the only sector up in Europe.  major markets are mostly lower with the UK leading and France lagging. UK inflation his a 15-month high. Here are the biggest European movers:

Genfit shares climb as much as 7.6% after the French biotech company said it will receive a €26.5 million milestone payment from Ipsen.

SSE rises as much as 1.9% after the UK utility company cut its five-year spending plan by £3 billion as projects slow amid planning delays, while also releasing full-year results.

Electrolux Professional rallies as much as 8.5% to its highest level since March 26 after Handelsbanken upgraded its view on the Swedish professional appliances maker to buy from hold, projecting the company will gain market share in the US.

Infineon shares rise as much as 1.8% after the chipmaker said it’s collaborating with Nvidia on a new power delivery infrastructure for AI data centers.

Orion gains as much as 4.9%, hitting a record high after the Finnish drug company says its partner MSD has expanded the development program for opevesostat to now include women’s cancers.

Ypsomed shares rise as much as 6.8% to the highest in more than three months after the drug packaging company forecast sales growth of about 20% for the 2026 fiscal year.

Pharma Mar shares rise as much as 10%, extending their winning streak to a sixth session, after the Spanish drugmaker said it filed a European marketing application for a combination of drugs used in treating a form of lung cancer.

Marks & Spencer shares fall as much as 3.4% after the fallout from a cyberattack overshadowed a robust earnings report.

Currys shares fall as much as 0.8% following today’s trading update, despite the electronics retailer once again boosting its expectations for full-year pretax profit.

SoftwareOne shares fall as much as 5.9% after the Swiss IT service provider posted soft revenues and flagged headwinds from Microsoft’s lower incentives will continue for the rest of the year.

Hornbach Holding shares fall as much as 14%, the most in five months, after the German home improvement firm posted an outlook that analysts at Baader called muted, with adjusted Ebit guidance well below expectations due to salary increases.

Pantheon Resources shares drop as much as 31% to the lowest intraday since Oct. 28 after the oil and gas company said flow testing for its Megrez-1 well in Alaska has completed.

JD Sports shares slide as much as 13%, the most since January, after the British sports retailer said like-for-like sales fell 2% in its fiscal 1Q, driven by a decline in North America.

Earlier in the session, Asian stocks gained amid continued optimism over the possibility for trade deals between the US and various nations. The MSCI Asia Pacific Index rose 0.6% to the highest level since Oct. 7. TSMC, Alibaba and Tencent were among the biggest boosts to the regional benchmark. Key gauges in tech-heavy South Korea and Taiwan advanced at least 1% each, with equities also trading higher in Hong Kong, Australia and India. The MSCI Asian stock gauge is about 1% away from surpassing its late-September high.

In FX, the Dollar is selling off this morning pushing the Bloomberg Dollar Spot Index lower 0.5% to the lowest level since May 6, with speculation building of potential currency deals attached to trade negotiations. USDKRW is leading the move lower, falling 130bps as SK Finance Ministry said in response to media reports of US demand for strong Won that their is currently working-level discussions on exchange rates, but details have not been finalized (RTRS). USDCNH is trading a marginal 20bps lower overnight, in part due to a relatively strong (low) CNY fix (7.1937), and Beijing's unlikliness to engage in similar discussions to SK, as Authorities threaten legal action against anyone enforcing Washington’s restrictions on Huawei chips (BBG). Elsewhere, EUR is trading+50bps higher as vols move higher across the curve with 1m trading at 8.7vols, over 0.5vol higher on the day. JPY (+60bps vs USD) is also outperforming despite the move higher in US yields and stabilized JGB back-end. GBP (flat) is undeperforming the broader complex move higher against the USD, given the strong UK inflation data. At face value, our FX Strategists note that today’s report screens as a continuation of a string of more Sterling supportive data, after the firmer growth data in the past two months.

In rates, treasuries bear steepened with 30-year yields up 6bps to 5.02% and 10-year yields up 5bps to 4.53%. Gilts underperformied Treasuries and German peers across the curve, led by the long end of the curve. UK 10-year yields rise ~7 bps to 4.77% after a hotter-than-expected CPI reading in April prompted traders to pare bets on interest-rate cuts by the Bank of England.  Regional European bond yields are higher.

In commodities, oil climbed about 0.7% with Brent above $66 a barrel after CNN reported that new US intelligence suggests Israel is preparing for a potential strike on Iranian nuclear facilities. It wasn’t clear that Israeli leaders had made a final decision to carry out the strikes, the report added. Gold also gained in haven demand, rising $22 to around $3,312/oz.Bitcoin falls 0.6% toward $106,000.

Looking at today's calendar, No US economic data are scheduled, while Fed speaker slate includes Barkin and Bowman at 12:15pm

Market Snapshot

S&P 500 mini -0.6%

Nasdaq 100 mini -0.7%

Russell 2000 mini -0.9%

Stoxx Europe 600 -0.4%

DAX -0.3%, CAC 40 -0.6%

10-year Treasury yield +5 basis points at 4.54%

VIX +0.7 points at 18.79

Bloomberg Dollar Index -0.2% at 1220.15

euro +0.3% at $1.1316

WTI crude +1.7% at $63.11/barrel

Top Overnight News

Republicans in the House are increasingly confident they will be able to strike a reconciliation deal and pass it this week before the Memorial Day recess. Politico

US House Rules panel is "still meeting on the bill after working overnight and no sign of amendment making final changes": Bloomberg

Trump’s administration is debating an executive order that could open the nearly $9tn US retirement market to private capital groups focused on corporate takeovers, property, and other high octane deals. FT

Nvidia’s Jensen Huang has condemned US export controls designed to limit China’s access to AI chips as a “failure” that spurred Chinese rivals to accelerate development of their own products. FT

White House Director of the Office of Management and Budget Vought said the Moody's downgrade timing was trying to jeopardize the ability to get the budget bill done, although he thinks the budget bill will pass this week and is optimistic.

Trump said the Golden Dome defence shield will include space-based interceptors and should be operational by the end of his term, while he added that Canada said they want to be part of it and said the total cost is about USD 175bln.

US-China tech tensions are flaring again, with Beijing threatening legal action against anyone enforcing Washington’s restrictions on Huawei Technologies Co.’s chips, casting a shadow over a recent trade truce and efforts to sustain dialogue. BBG

Temporary trade truce between US/ China has sparked a knee jerk bounce across China’s ports and factory floors. In the week beginning May 12, when the US and China agreed to sharply reduce tariffs for 90 days, bookings on freighters headed from China to US shores more than doubled from the prior week to about 228,000 TEUs, or twenty-foot equivalent units. BBG

Japan’s exports to the U.S. fell in April for the first time in four months as the effects of higher tariffs started to kick in. Exports to the U.S. dropped 1.8% in April from a year earlier, reflecting weaker demand for cars and other machinery including chip-making machines. WSJ

Japan’s lead tariff negotiator, Ryosei Akazawa, heads to the US on Friday for a third round of talks with his Trump administration counterparts, with a fourth visit this month being considered. Nikkei

UK inflation runs hot in Apr, w/the headline CPI coming in at +1.2% (vs. the Street +1%), core CPI +3.8% (vs. the Street +3.6%), and services CPI +5.4% (vs. the Street +4.8%). This print sent the pound to a three-year high against the dollar and short-dated gilts to seven-week lows. Traders now see just one more 25-bp cut from the BOE by year end after CPI surged more than expected to 3.5% in April. WSJ, BBG

Oil climbed on a CNN report that US intelligence suggests Israel is preparing for a potential strike on Iranian nuclear facilities. BBG

Morgan Stanley mid-year outlook: turns Overweight on US equities and US Treasuries; expects USD to continue to weaken - expects EUR/USD at 1.25 and USD/JPY at 130 by Q2 2026

Trade/Tariffs

China’s Commerce Ministry said US measures on China's advanced chips are typical of unilateral bullying and protectionism, while it added that US chip measures seriously undermine the stability of the global semiconductor industry chain and supply chain. MOFCOM also stated that the US abuses export controls to contain and suppress China, violating international law and basic norms. Furthermore, it said China urges the US to immediately correct its erroneous practices and to abide by international economic and trade rules and respect other countries' rights to scientific and technological development.

Japan’s Economy Minister Akazawa, who is the country’s top tariff negotiator, is to visit the US for the third time on Friday and a fourth visit to the US this month is also a possibility, according to Nikkei.

A more detailed look at global markets courtesy of Newsquawk

APAC stocks traded with a mild positive bias as the region mostly shrugged off the lacklustre lead from Wall St but with the gains capped in the absence of any major fresh macro drivers and tier-1 data releases. ASX 200 was led by strength in utilities and the commodity-related stocks with gold miners lifted by recent gains in the precious metal. Nikkei 225 faded its opening gains with headwinds from a firmer currency and after mixed Japanese trade data. Hang Seng and Shanghai Comp conformed to the predominantly upbeat mood in the region but with the upside limited in the mainland as frictions lingered after China renewed its criticism against the US for its chip controls and urged the US to immediately correct its erroneous practices.

Top Asian News

South Korea's government will prepare support measures for the biopharmaceutical sector and will prepare additional measures for the auto industry if needed.

European bourses (STOXX 600 -0.3%) opened mostly lower across the board, but sentiment in Europe has picked up a little this morning to display a more mixed picture. European sectors are mostly lower and hold a slight defensive bias. Utilities takes the top spot, benefiting from its defensive status but with sentiment also boosted after post-earning strength in SSE (+1%). Retail is found at the foot of the pile, with JD Sports (-5%) responsible for much of this after the Co. reported a 2% decline in Q1 Sales.

Top European News

ECB's de Guindos says equity valuations are high and credit spreads are out of sync with risk. Says the US downgrade was discounted by markets. EZ bond yields have decoupled from US, and spreads are contained. Markets are complacent but that can change.

ECB FSR: Rapidly shifting geopolitical environment could test euro area financial stability.

UK Deputy PM Rayner sent a secret memo to UK Chancellor Reeves, pushing for a new tax raid on savers, according to The Telegraph. The memo proposed eight tax increases including reinstating the pensions lifetime allowance and changing dividend taxes.

FX

DXY has extended its losing streak into a third session with incremental macro drivers on the light side as the data calendar remains quiet and Fed speak proves to be non-incremental given the uncertainty surrounding the outlook. On the trade front, the deal flow appears to have slowed down and there is unlikely to be much in the way of breakthroughs at the G7 finance ministers meeting this week. Elsewhere, focus is on the fiscal front as Trump attempts to push his "big beautiful bill" through Congress. DXY has slipped onto a 99.0 handle with a session trough at 99.42.

EUR/USD has extended its rally for the week with a current session peak at 1.1352 vs. an opening price on Monday at 1.1172. This week has been a quiet one in terms of Eurozone newsflow with ECB speak not shifting the dial on market pricing with a June cut near-enough fully priced. For now though, EUR remains underpinned by its appeal of being a liquid alternative to the USD, currently holding around 1.1325.

JPY is capitalising on the broadly softer USD with USD/JPY slipping as low as 143.57 overnight before returning to a 144 handle. Focus surrounding Japan remains on the trade front with reporting in the Nikkei noting that Japan’s Economy Minister Akazawa, who is the country’s top tariff negotiator, is to visit the US for the third time on Friday.

GBP is steady vs. the USD following a choppy reaction to UK CPI metrics. The series saw an across-the-board hotter-than-expected outturn with Y/Y CPI rising to 3.5% from 2.6% (exp. 3.3%) and the all-important services component rose to 5.4% from 4.7% (exp. 4.8%). This elicited a surge in Cable to a multi-year high at 1.3468. However, the move ran out of steam given the negative connotations of a stagflationary outlook in the UK.

Mildly diverging fortunes for the antipodeans with AUD firmer vs. the USD and NZD steady. Fresh macro drivers are lacking for both with the payback in AUD likely a by-product of Tuesday's RBA-induced losses.

PBoC set USD/CNY mid-point at 7.1937 vs exp. 7.2133 (Prev. 7.1931).

Fixed Income

USTs started the day on the backfoot, down to a 109-25 base and a few ticks beneath the 109-28+ low from Tuesday. If the move continues, then the 109-20 WTD base is next. The bearish bias has been moderate so far, ahead of an expected floor reading of the US tax/spending bill on Thursday, a 20yr auction this evening in addition to Fed’s Barkin & Bowman.

Bunds are lower marginally underperforming USTs at this moment in time though not to quite the same degree as Gilts, see below. Updates thus far include the ECB FSR, which highlighted that a shifting geopolitical environment could test EZ financial stability. ECB's de Guindos also provided some remarks, but little of note. Into the German 2035 Bund auction the downside has increased taking Bunds to a fresh trough at 129.60 - a decent outing, but had little impact on German paper.

Gilts are the underperformer this morning with downside in excess of 60 ticks at worst. Driven lower by the above, the morning’s hot inflation series and possibly some concession into supply factoring. To recap the data, Services came in at 5.4% Y/Y, eclipsing the BoE’s 5.0% view, and the headline at 3.5% Y/Y, surpassing the BoE’s average forecast for Q2 of 3.4%. In reaction to this, Gilts gapped lower by 41 ticks at the open and have since slipped another 26 to a 90.46 trough, notching a fresh WTD low in the process and lifting the 10yr yield to 4.77%, its highest since early April when 4.79% printed.

Germany sells EUR 3.052bln vs exp. EUR 4bln 2.50% 2035 Bund: b/c 2.4x (prev. 1.4x), average yield 2.66% (prev. 2.47%) & retention 23.7% (prev. 23.80%)

UK's DMO says due to ongoing issues with the Bloomberg terminal, the bidding window for today's 2031 auction has been extended; expects closing time of the auction to be 11:30BST.

Commodities

Crude futures are overall boosted following a CNN report that new intelligence suggested Israel is preparing a possible strike on Iranian nuclear facilities, although it added that it was not clear whether Israeli leaders have made a final decision. Oil prices waned off their best levels during APAC trade amid the cautious risk tone across markets. Aside from that, complex-specific newsflow has been light, WTI resides in a USD 62.20-64.19/bbl range while Brent sits in a USD 65.96-66.63/bbl range.

Spot gold is kept afloat by dollar weakness and amid the ongoing backdrop of trade and geopolitical uncertainty. Spot gold resides in a USD 3,285.34-3,320.84/oz range at the time of writing after topping yesterday's USD 3,295.79/oz high and now eyeing the 12th May peak at USD 3,325.39/oz.

Base metals overall trade mixed whilst copper futures extends on the prior day's intraday rebound after gaining on a softer dollar and as Asian bourses mostly shrugged off the weak handover from US peers. 3M LME copper trades in a USD 9,528.70-9,599.00/t range at the time of writing.

Iraq's Oil Minister says lower oil prices are on the back of rising crude stocks; hopes oil prices will improve in H2'25.

US Private Inventory Data (bbls): Crude +2.5mln (exp. -1.3mln), Distillates -1.4mln (exp. -1.4mln), Gasoline -3.2mln (exp. -0.5mln), Cushing -0.4mln.

Geopolitics: Middle East

New intelligence suggested that Israel is preparing a possible strike on Iranian nuclear facilities, according to US officials cited by CNN although the report added it was not clear whether Israeli leaders have made a final decision.

Iranian Foreign Minister says "We are considering whether or not to participate in the next round of negotiations with US. We are still examining whether productive talks can take place on that date", via Iran Nuances.

UK is reportedly considering sanctions against Israeli far-right ministers, via FT citing sources; discussions are over an asset ban and travel freeze on Finance Minister Smotrich and Security Minister Ben-Gvir.

Geopolitics: India-Pakistan

Pakistani army says "Indian terror proxies" used by India to attack a school bus in southwest Pakistan.

Geopolitics: Ukraine

Ukraine's Finance Minister Marchenko said G7 ministers will discuss all necessary and critical issues related to Ukraine's reconstruction, while he will reiterate the need for stronger sanctions on Russia.

US President Trump said he is not worried about reports of a Russian military buildup along Finland.

US Event Calendar

7:00 am: May 16 MBA Mortgage Applications -5.1%, prior 1.1%

Central Banks Speakers

12:15 pm: Fed’s Barkin, Bowman Participate in Fed Listens

DB's Jim Reid concludes the overnight wrap

US fiscal matters have dominated again over the last 24 hours, as investors continue to grapple with what the long-term unsustainable nature of US debt means in the near term. After a complete round trip back to pre-downgrade levels on Monday, yesterday saw the 30yr Treasury yield (+6.7bps) moving up to 4.97%, whilst the S&P 500 (-0.39%) ended a run of 6 consecutive gains. And notably, those moves weren’t just confined to the US, with Japan’s long-end yields surging after weak demand at an auction, pushing their 30yr yield (+12.1bps) up to 3.082% - a near 25-year high. They are another +8.9bps higher this morning.

Interestingly, in the flash poll I asked yesterday on how the US deficit issue would ultimately resolve itself, a majority (54%) reckoned that politicians would be forced to rein it in over the next decade due to some sort of crisis or economic event. Another 26% expected some sort of monetisation via fresh QE, whilst 15% felt the market would continue to take large deficits in its stride. 5% of you were even more optimistic, thinking that strong economic growth in the year ahead will prevent deficits hitting those levels that have been widely forecast.

When it comes to the near term, all eyes are now on the tax bill that the Trump administration are seeking to pass through Congress, as the final agreement will go a long way to determining how big the US deficit becomes in the years ahead. There wasn’t a huge amount of newsflow on that yesterday, but President Trump did go to Capitol Hill as he sought to persuade Republicans to pass the bill. Currently, one of the issues is that Republicans from higher-tax states want a boost in the state and local tax (SALT) deduction, and several have threatened to vote against a bill that doesn’t have a big enough increase in the SALT cap. For instance, Mike Lawler of New York said that “As it stands right now, I do not support the bill”. Another concern is about the debt impact, such as from Thomas Massie of Kentucky. Trump reiterated that he was opposed to deeper cuts to Medicaid that have been advocated by some of the fiscal hawkish Republicans. The overarching issue is that Republicans have an incredibly narrow majority in the House of Representatives. The chamber is currently split 220-213 to the Republicans, meaning it would only take four votes against (along with the Democrats) to sink any bill.

In terms of the market reaction, it was a more difficult day for US assets, with the S&P 500 (-0.39%) finally losing ground after 6 consecutive gains. Once again, it was tech stocks that lagged, with the Magnificent 7 (-0.62%) underperforming the S&P for a 4th consecutive session. Tesla (+0.51%) was the only of the Mag-7 to advance as Musk said he is committed to leading the company for the next five years. The equity decline was also pretty broad with two-thirds of S&P 500 constituents lower on the day, though there were gains from the more defensive sectors, including utilities (+0.29%) and consumer staples (+0.27%).

Meanwhile for Treasuries, longer-dated maturities struggled amidst the fiscal situation, with the 10yr yield (+3.9bps) up to 4.49%, whilst the 30yr yield (+6.7bps) rose to 4.97% as discussed at the top. But there was a stronger performance at the front-end, where the 2yr Treasury yield (-0.5bps) posted a modest decline to 3.97%. At the same time, near-term Fed rate cut expectations continued to dwindle, with pricing of a rate cut by July falling to only 30%, the lowest this has been since the last cut in December. St Louis Fed President Musalem said that “tariffs are likely to dampen economic activity and lead to some further softening of the labor market” but also noted the potential risk posed by elevated inflation expectations. This morning in Asia, 10 and 30yr USTs are another couple of basis points higher with the 30yr hovering just below 5%.

Away from the US debt concerns, European markets saw a clear risk-on move yesterday, with equities posting fresh gains across the continent. In particular, the DAX (+0.42%) hit a fresh all-time high, taking its YTD gains up to +20.73%. Meanwhile, the STOXX 600 (+0.73%) closed in on its own record from early March, ending the day just -1.62% beneath its peak. Elsewhere, that risk-on tone was also evident in sovereign bond markets, where spreads continued to tighten. For instance, the Italian 10yr spread over bunds closed beneath 100bps for the first time since September 2021, at just 99.6bps. And the French spread over bunds also tightened to 65.7bps, the tightest since July, shortly after the legislative election. In absolute terms, that came as yields on 10yr bunds were up +1.8bps, whereas those on OATs (+0.3bps) and BTPs (+0.4bps) saw a smaller increase.

Here in the UK, gilts underperformed their counterparts elsewhere in Europe, with 10yr yields up +3.9bps on the day. That followed comments from BoE chief economist Pill, who said that he saw the recent pace of BoE rate cuts as “too rapid given the balance of risks to price stability we face.” This came as Pill explained his dissenting vote at the latest meeting earlier this month, where he had been one of two MPC members to vote to keep Bank Rate unchanged, while the majority favoured a 25bp cut.

Separately in Canada, their 10yr yields surged by +12.6bps on the day, which came after their latest CPI print was stronger than expected. Although headline inflation eased to +1.7% in April (vs. +1.6% expected), both of the core inflation measures unexpectedly rose, with CPI-median at +3.2% (vs. +2.9% expected), and CPI-trim at +3.1% (vs. +2.8% expected). In turn, that led investors to dial back expectations for a rate cut at the Bank of Canada’s next meeting, which is now only seen as a 28% probability, down from 68% previously.

Asian equity markets are mostly higher this morning but oil prices have surged by around +1.9% (+3.5% earlier in the session), driven by reports from CNN that US intelligence believe that Israel is preparing a strike on Iranian nuclear facilities. The report suggests no final decision has been made. Equities are mostly shrugging this off with the KOSPI (+0.96%) leading the way followed by the CSI (+0.68%), the Hang Seng (+0.54%), and the Shanghai Composite (+0.39%). Elsewhere, the S&P/ASX 200 (+0.56%) is continuing its upward trend, approaching a three-month high after the dovish stance taken by the RBA in yesterday's meeting. Conversely, the Nikkei (-0.24%) is slightly lower after the yield rises and data that showed an unexpected trade deficit in April (more below). S&P 500 (-0.32%) and NASDAQ 100 (-0.35%) futures are edging lower.

Turning back to Japan, export growth (+2.0% y/y) continued to decelerate for the second consecutive month in April as the country grappled with the fallout from tariffs imposed by the US. Imports shrank -2.2% from a year ago, less than the Bloomberg estimates of a -4.2% decline and compared to a downwardly revised increase of +1.8% the previous month. As a result, Japan’s trade balance unexpectedly swung into a deficit of -¥115.8 billion (v/s +¥215.3 billion expected) after two months in the black.

Looking at the day ahead, data releases include the UK CPI release for April. Central bank speakers include ECB Vice President de Guindos, the ECB’s Centeno, Lane and Escriva, and the Fed’s Barkin and Bowman. Finally, earnings releases include TJX and Target

Source link