Daily Market Outlook, May 30, 2022

Overnight Headlines

Fed carrying $330 bln in unrealized losses on its asset holdings
Speculators cut net long USD bets, EUR longs up, JPY shorts off – CFTC/Reuters
BOJ's Kuroda vows to patiently continue powerful monetary easing • Japan PM Kishida – Not considering changing govt-BoJ joint statement
China bond market sees over CNY5 tln issued in April – Xinhua
Some in Beijing back to work, Shanghai inches closer to ending COVID lockdown
RBNZ chief economist says rate outlook could change with economic indicators
EU fails to agree on Russia oil embargo, to try again Monday before summit
Czech CB Holub says likely to back 75 bp hike in June
Canadian banks shrink bad debt cushion even as economic risks mount
Ukrainian defenders hold out in Donbas city under heavy fire

Asian equity markets are up this morning after sizeable gains in Europe and the US on Friday. Reports of falling numbers of Covid cases in China and the lifting of restrictions may have helped boost sentiment. Talks will continue this week after EU members failed to agree on revised sanctions on Russia that would include a ban on its oil. Bank of Japan Governor Kuroda said that the central bank would continue to support Japan’s economic recovery and that the weakness of the yen was not solely due to loose monetary policy.

There are no economic releases of note in the UK today and it is a holiday in the US. However, there are a few things of interest in the Eurozone. This morning’s May Spanish CPI data and the German numbers early this afternoon may provide clues on tomorrow’s Eurozone data. Expectations are for a small deceleration in Spanish inflation but for further modest rise in Germany. In both cases, however, inflation is expected to be too high for comfort for European Central Bank policymakers.

Also in the Eurozone, May business confidence data for May will be watched for any impact from economic growth and inflation concerns. Consumer confidence in the region seems to have fallen sharply this year. However, the 2022 readings on business confidence have so far been mixed as prints for the industrial sector are down but have been more stable in services. It seems unlikely that today’s updates will change the mindset at the ECB.

ECB policymakers will soon enter their ‘blackout’ period before the 9th June update. Before that, several of them are scheduled to speak today. Recent comments have indicated that next week’s meeting will prepare the way for an interest rate hike in July. However, there will still be interest in any more details about their plans for July and beyond. US Federal Reserve policymaker Waller is also scheduled to talk. His previous comments suggest he strongly supports signals that interest rates will rise by 0.50% in June and July but there will be interest in anything he has to say about what could happen beyond then.

The Lloyds Bank Business Barometer, to be released early Tuesday, will provide additional information on businesses’ trading prospects and their assessment of the economy. It will be interesting to see if business confidence follows the PMI survey lower. It will also be interesting to see if there are signs of any moderation in labour market tightness and wage pressures, which is an important consideration for inflation and the monetary policy outlook given evidence that price rises are broadening out beyond energy and other goods to services.