OVERNIGHT NEWS
# Dollar on the front foot after manufacturing ISM beats forecast in May, FOMC’s Bullard says too early to call peak in inflation. UST 2y +20bp since Monday to 2.66%, OIS curve pricing 141bp Fed tightening by September. S&P futures point to third day of losses. UK closed for jubilee bank holiday.
# Day ahead: US initial jobless claims and ADP employment data, Brazil 1Q GDP. ECB speakers De Cos, Fed’s Logan and Mester. Hungary CB forecast to raise one-week depo rate by 30bp to 6.75%. OPEC+ meets on production quota.
# Switzerland CPI accelerates to 2.9% yoy in May from 2.5% in April, fastest pace since GFC. Core rate accelerates from 2.3% to 2.7%. Goods accelerate to 5.2%yoy, services unchanged at 1.2% yoy. Food +1.8% m/m, housing +0.6% m/m.
# Nikkei -0.25%, EUR 10y IRS unchanged at 1.895%, Brent crude -1.8% to $114.1/b, Gold flat at $1,848/oz.
Fed outlook: OIS curve discounting nearly three 50bp hikes until September
Change of pace
Today’s NY Open is abbreviated and published from Asia – normal coverage will resume on June 07.
The Asian session was relatively muted, with the developments mostly in Europe. An above-consensus CHF inflation print sent CHF up sharply, before it pared some gains. GBP and SEK led G10FX gains, while USD was in the red. Oil prices dipped on the back of an FT report that Saudi Arabia has indicated it is prepared to raise oil production if Russia’s output falls substantially, while equities held steady. Hawkish comments from Deputy Governor Virag, alongside a 30 bp hike to the one-week deposit rate sent HUF significantly higher on the day.
Looking ahead, we expect volumes to be light with GBP on a long weekend starting today. USD will listen to Fedspeak, and await initial jobless & continuing claims prior to NFP on Friday. CAD will eye the Economic Progress Report Speech, which will be closely watched after yesterday’s hawkish messaging. SEK listens to central bank speakers, starting with Jansson, and followed by Ohlsson. BRL eyes GDP figures. Lastly we flag that OPEC+ is likely to stick to a planned 432k bpd increase in oil production in their meet today.
USTs bear-flatten after hawkish BoC, rise in ISM Manufacturing PMI, firm JOLTS report; DXY USD Index has best one-day gain in 3 weeks; BoC hikes 50bp and could “act more forcefully”; Bunds bear-steepen, 30y Bunds at 2015 high; China Caixin Manufacturing PMI rises; US 10y at 2.906% (+6.2bp).
Latin America:
Latam currencies ended the session weaker, pressured by a stronger dollar and subdued risk appetite, though local headlines remained relatively muted. BRL was the region’s main underperformer, depreciating ~1.3% and consolidating at ~4.80. COP was the region’s second worst performing currency, giving back some of its prior-day gains and closing 0.85% weaker, above 3820. In contrast, CLP closed relatively flat as the Finance Ministry announced USD sales would remain discontinued over the month of June. Local rates were pressured by higher US yields, with sharper underperformance across longer-dated tenors. 10y COPxIBR and 10y TIIE closed 14bp and 12bp higher, respectively, while Chilean rates outperformed peers, with 10y CLPxCAM ending the session only 3bp higher.