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Futures Slide Ahead Of Payrolls And Six Fed Speakers

BY TYLER DURDEN FRIDAY, MAY 06, 2022 - 12:01 PM

The market crash will continue until Biden's approval rating improves.

US futures extended their slide on Friday, signaling continuation of a drop in tech stocks following the Nasdaq 100’s
biggest selloff since September 2020, ahead of today's jobs report (which bulls pray comes in at around minus 1
million to put a premature end to Powell's market-crashing tightening) and ahead of no less than six Fed speakers, as
investors grappled with fears of a stagflationary recession against tightening monetary policy. Nasdaq 100 futures were
0.9% lower and S&P 500 futures traded at session lows, down 0.7% as of 7:30 a.m. EDT as panicked traders sell first
and don't even bother to ask questions. Ten-year U.S. Treasury yield continued to climb, trading at 3.1%, near the
highest since November 2018. The dollar continued its relentless ascent, while cryptos continued to tumble. Perhaps
even more concerning to traders than the jobs report is that six Fed speakers are lined up including Williams, Kashkari,
Bostic, Bullard, Waller and Daly.

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LOGIN Stocks plunged on Thursday, completely erasing their gains from the prior session amid a broad-based selloff in risk
assets. The S&P 500 Index sank 3.6% on Thursday, while the tech-heavy Nasdaq 100 Index plunged 5.1%, its
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biggest decline since September 2020.  Still, some investors say that concerns may be overblown. “Looking back at
CR E AT E NE W ACCO U NT just the past two days, it’s not really all that dramatic,” said Mattias Isakson, head of strategy and allocation at
R E SE T YO U R PASSW O R D Swedbank, adding that indexes were roughly back to where they were compared to before the Fed press conference.
“The overall market outlook hasn’t changed at all: interest rates and inflation worries will continue to create volatility in
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On Friday, shares of US-listed Chinese firms extended losses in premarket trading amid growing concerns about the
country’s economic growth prospects and continued weakness in tech shares. Peloton shares dropped premarket after
the company was said to be considering selling a stake of around 20%. Meanwhile, DoorDash jumped after earnings
Bring TME with you so that there's no
and Tesla gained after planning to boost car production at its Shanghai plant. Here are some more details on the excuse not to be updated on constant
ZERO HEDG E READS biggest premarket movers today: observations and commentary relevant to
YOU.
Tesla (TSLA US) shares gain as much as 1.1% in U.S. premarket trading, leaving them set to bounce back
ACT ING M AN following Thursday’s losses, after the electric-vehicle maker was said to be making plans to boost car production 3 hours ago at 10:20
ALT-M AR K E T at its Shanghai plant as soon as mid-May.
BOMBTHROWER
Shares of U.S.-listed Chinese firms extend losses in premarket trading amid growing concerns about the
country’s economic growth prospects and continued weakness in tech shares. Alibaba (BABA US) -1.9%, Baidu
CAP ITALIST E X P LO IT S (BIDU US) -2.4%, JD.com (JD US) -2%.
CH R IST O P H E B AR R AU D Peloton (PTON US) shares fall as much as 1.7% in U.S. premarket trading after the maker of indoor exercise
D R . H O U SING B U B B LE bikes was said to be considering selling a stake of around 20% as part of a turnaround.
Cloudflare (NET US) shares drop 9.3% in U.S. premarket despite a boosted full-year revenue guidance; analysts
D ANE R IC'S E LLIO T T W AV E S
say the outlook implies a significant deceleration for lead metrics. At least 3 analysts cut their price targets on the
F INANCIAL R E V O LU T IO NIST stock.
F O R E X LIV E Digital Brands Group (DBGI US) shares decline 50% in U.S. premarket trading after pricing an offering of 37.4m
F U ND IST shares at $0.25 apiece, representing a discount of ~50% to Thursday’s close.
DoorDash (DASH US) shares jump as much as 6.9% in U.S. premarket trading, with analysts positive on the
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environment, though some trimmed price targets amid higher investments.
Block Inc. (SQ US) shares rise 7% after 1Q results, with analysts upbeat on demand for the company’s Square
and Cash App payment services as the fintech company displays resilience amid a challenging market.
Live Nation (LYV US) shares gained 4% in postmarket trading. Its leading indicators like ticket sales, show
counts and committed sponsorships remain robust, according to Guggenheim analyst Curry Baker. CONTACT INFORMATION +
Opendoor (OPEN US) jumps as much as 16% in U.S. premarket trading after the real estate platform provider
forecast revenue for the second quarter that beat the average analyst estimate. SUGGESTED READING +
Zillow (ZG US) shares decline 6.7% in U.S. premarket trading after underwhelming guidance disappoints
analysts, who believe that rising mortgage rates will cool the U.S. housing market. At least 3 analysts cut their
price targets with one saying he doubts the real-estate technology firm’s ability to achieve its 2025 targets.
According to BofA, the global market selloff has further to run, as every asset class saw outflows in the week prior
to the Federal Reserve’s meeting this week, with real estate posting its biggest outflow on record - $2.2 billion - and
investors piling into safe havens like Treasuries although one wouldn't know it judging by where yields are trading.
“The Fed is attempting to land a B52 bomber on a piece of string and most risk markets still have their fingers
in their ears and their hands over their eyes,” said James Athey, a London-based investment director at abrdn.
“Hope is not a strategy.”
The next key event for markets is Friday’s U.S. jobs report (full preview here), which will be closely watched for signs
that rising wage costs are adding to the inflationary pressures rattling investors. Estimates by economists are looking
for payrolls to expand by 380,000 in April, and the unemployment rate to fall to 3.5%, although whisper numbers are
lower.
A print higher than 500,000 in non-farm payrolls will provoke U.S. dollar buying as equities and bonds sell-off, while
less than 300,000 should see the reverse, says Jeffrey Halley at OANDA. “A sharp divergence, up or down, from the
median forecast, should produce a very binary outcome,” he says. “It’s that sort of market.”
“Any upward pressure on the average hourly earnings could lead to another spike of U.S. yields and therefore add
negative pressure on equities and especially tech stocks,” said Christophe Barraud, chief economist at Market
Securities LLP in Paris.
In Europe, the Stoxx 600 Index followed the Wall Street rout and was set for its worst weekly drop in two months, with
consumer, retail and travel and leisure among the biggest decliners. FTSE MIB posts the smallest decline. Retailers,
consumer products and media are the worst performing sectors. Traders will be watching job data, while Cigna, Dish,
NRG Energy and Under Armour are among companies reporting earnings. Here are the biggest European movers
today:
Grifols rose as much as 9.3%, to the highest since November, after the Spanish maker of pharmaceutical
products derived from blood plasma gave a business update that Citi said supports its buy rating on the stock.
Leonardo rose as much as 4.4% after reporting earnings. Deutsche Bank said 1Q numbers were solid, while
Intesa Sanpaolo said the company delivered “a sound start” to 2022.
S4 Capital shares gained as much as 9.9% after the digital advertising agency released delayed FY results that
showed limited audit adjustments. Revenue was ahead of analyst expectations.
SKF shares advanced, breaking a seven-session declining streak, after Danske Bank upgraded the shares to
buy, saying they “could generate good return in the coming 3-12 months.”
Krones shares surged as much as 11%, the most since October 2019, after the machinery company reported 1Q
Ebitda that beat estimate, with analysts noting scope for upgrades.
Ambu shares dropped as much as 17% after the Danish health care equipment firm cut its outlook.
Handelsbanken says the new guidance may lead to a 30% drop in FY Ebit estimates.
Adidas shares fell more than 6% after the German sportswear maker cut its margin outlook for the year. Analysts
noted the impact of lockdowns in China. Peer Puma also fell.
IAG fell as much as 12%, the most intraday since November. The British Airways parent posted a 1Q operating
loss that Citi analysts said was worse than consensus and their own expectations.
JCDecaux shares slumped as much as 12% after its 2Q organic revenue growth target of more than 15% fell
short of analyst expectations amid lockdowns in China.
Earlier in the session, Asian stocks were on track for five straight days of losses, as traders questioned whether
the Federal Reserve’s interest rate hike was enough to tackle inflation and Chinese leaders warned against doubting
their Covid-Zero stance. The MSCI Asia Pacific Index declined by as much as 1.8%, poised for its longest losing
streak since January and lowest closing level since July 2020. The broad-based selloff followed steep declines in
U.S. shares overnight, with benchmarks in Australia, Taiwan and Vietnam each declining more than 1.7%.
“Volatility comes from doubts whether the 50 basis-point hike can be enough to curb inflation,” said Lee Han-Young,
chief fund manager at DS Asset Management, a Seoul-based hedge fund.  For market volatility to ease, CPI or other
inflation-related data needs to peak or slow down, he said. “Before that, volatility seems inevitable.” Stock indexes in
Hong Kong and mainland China were the worst performers in the region after the Politburo’s supreme Standing
Committee reaffirmed its support for a lockdown-dependent approach on Thursday. Still, declines in Asia were less
than the rout in U.S. shares, with generally smaller-sized market reactions to the Fed’s policy statement Wednesday.
China’s economic slowdown and regulation of its tech industry are also playing on investors’ minds, with the Hang
Seng Tech Index sliding amid a lack of concrete steps to support the industry.  Overall, tech and financial stocks were
among the biggest drags on the MSCI Asia Pacific Index. The measure is on track to fall about 2.6% this week, the
largest weekly slide since mid-March. Bucking the regional trend, Japanese equities rose after a three-day holiday.
India’s benchmark stocks index registered its worst weekly decline in more than five months as growing concerns over
higher borrowing costs to curb inflation dented risk sentiment.  The S&P BSE Sensex declined 1.6% to 54,835.58 in
Mumbai on Friday, taking its loss this week to 3.9%, the biggest five-day drop since the period ended Nov. 26. The
NSE Nifty 50 Index slipped 1.6% to 16,411.25.  HDFC Bank Ltd. fell 2.6% and was the biggest drag on the Sensex,
which had 24 of the 30 member stocks trading lower. All but two of 19 sectoral sub-indexes compiled by BSE Ltd. fell,
led by a gauge of realty companies.  The Reserve Bank of India raised its policy rate by 40 basis points in an out-of-
cycle move this week after keeping it at a record-low level of 4% for the past two years.  “This suggests that the scales
of growth versus inflation is tilted towards inflation and can be leading indicator of further rate hikes in FY23,” Shibani
Kurian, head of equity research at Kotak Mahindra Asset Management Co. wrote in a note. She expects market
participants to focus on earnings and commentary on demand and margins from companies.  The U.S. Federal
Reserve and Bank of England also raised rates to tackle rising inflation.     In earnings, of the 24 Nifty 50 firms that
have announced results so far, 17 either met or exceeded analysts’ estimates, while seven missed forecasts. Reliance
Industries Ltd., the nation’s largest company, is scheduled to announce its results Friday. 
In rates, Treasuries extended Thursday’s bear-steepening move, with yields cheaper by 2bp to 4bp across the curve,
amid bigger losses for German bonds after ECB’s Villeroy said above-zero rates are “reasonable” by year-end, and
that there are signs inflation expectations are less anchored. US 10-year yields around 3.09%, cheaper by ~3bp on the
day with 2s10s steeper by ~2.5bp; front-end yields outperform, higher by ~2bp at around 2.72%. Dollar issuance slate
empty so far and expected to be muted because of jobs report; four names priced $7.6b Thursday taking weekly total
above $16b, shy of $20b-$25b expected range. Peripheral spreads eventually tighten slightly to core after 10y
BTP/Bund briefly widening through 200bps
In FX, a gauge of the dollar’s strength was little changed as traders awaited a U.S. jobs report on Friday. Bloomberg
Dollar Spot Index gained 0.2% as traders awaited the U.S. jobs report due on Friday. Ten-year Treasury yields rose 2
basis points to 3.05%. The yen underperformed most G-10 currencies as Japan’s markets reopened following a three-
day holiday. Leveraged funds initiated long dollar-yen positions heading into U.S. payrolls data, according to an Asia-
based FX trader

Long gamma exposure in the major currencies meets a fresh round of demand following the Bank of England’s policy
decision, which is contributing to continued erratic moves in the options space into the U.S. report. Real money and
hedge funds both net USD buyers, according to three Europe-based traders, with demand for USD calls in the likes of
EUR, AUD and MXN.

In commodities, WTI trades within Thursday’s range, adding 1.6% to trade near $110. Spot gold rises roughly $5 to
trade above $1,880/oz. Most base metals trade in the red. Bitcoin continues to slide, and was last trading below
$36,000, after cracking to key support levels yesterday.

Looking at the day ahead now, the main highlight will be the aforementioned US jobs report for April. Other data
releases include German industrial production and Italian retail sales for March. From central banks, we’ll hear from
the ECB’s Villeroy, Nagel, Elderson and Rehn, the Fed’s Williams, Kashkari and Bostic, and the BoE’s Pill and
Tenreyro.

Market Snapshot

S&P 500 futures little changed at 4,140.00

STOXX Europe 600 down 0.9% to 434.26
MXAP down 1.6% to 164.46
MXAPJ down 2.7% to 538.32
Nikkei up 0.7% to 27,003.56
Topix up 0.9% to 1,915.91
Hang Seng Index down 3.8% to 20,001.96
Shanghai Composite down 2.2% to 3,001.56
Sensex down 1.4% to 54,941.03
Australia S&P/ASX 200 down 2.2% to 7,205.64
Kospi down 1.2% to 2,644.51
German 10Y yield little changed at 1.07%
Euro up 0.3% to $1.0570
Brent Futures up 1.3% to $112.39/bbl
Gold spot up 0.1% to $1,879.09
U.S. Dollar Index down 0.31% to 103.43

Top Overnight News from Bloomberg

European Central Bank Governing Council member Francois Villeroy de Galhau said interest rates may be
raised back above zero this year if the euro-zone economy doesn’t suffer another setback.
The European Union has proposed a revision to its Russia oil sanctions ban that would give Hungary and
Slovakia an extra year, until the end of 2024, to comply, according to people familiar with the matter.
China has ordered central government agencies and state-backed corporations to replace foreign- branded
personal computers with domestic alternatives within two years, marking one of Beijing’s most aggressive efforts
so far to eradicate key overseas technology from within its most sensitive organs.
Germany is ready to support eastern European nations in their efforts to wean themselves off Russian energy to
secure broader support for sanctions targeting the country’s oil and gas sector, Chancellor Olaf Scholz said
Thursday
The cost of living in Tokyo rose at the fastest pace in almost three decades in April, as the impact of soaring
energy prices became clearer, an outcome that complicates the Bank of Japan’s messaging on inflation and the
need for continued stimulus
China’s top leaders warned against questioning Xi Jinping’s Covid Zero strategy, as pressure builds to relax virus
curbs and protect the economic growth that has long been a source of Communist Party strength
An escalating selloff in long-end Treasuries pushed yields to fresh multi-year highs Thursday, with the
benchmark 10-year rate closing above 3% for the first time since 2018 as concern over inflation rattled the bond
market
Having plunged by the most on record in offshore trade last month, China’s yuan is now facing the threat of
selling pressure from the nation’s companies
The Federal Reserve will need to raise short-term interest rates to at least 3.5% to bring surging inflation under
control, former Vice Chairman Richard Clarida said
South Korea needs to act preemptively on risk factors while monitoring situations in the economy and markets,
as there are concerns local financial and FX markets will react sensitively according to various factors, Vice
Finance Minister Lee Eog-weon says

A more detailed look at global markets courtesy of Newsquawk

Asia-Pac stocks were mostly lower amid spillover selling from the sharp declines on Wall Street. ASX 200 was
heavily pressured in which the losses in tech led the broad declines across all sectors. Nikkei 225 initially declined on
return from the Golden Week holidays but then pared all its losses as currency weakness persisted with Japan also
planning to introduce tax incentives, as well as ease border measures in June. Hang Seng and Shanghai Comp
conformed to the downbeat mood with tech and property names dragging the Hong Kong benchmark lower, while
China also remained steadfast in its "dynamic COVID clearance" policy.

Top Asian News

Adidas Shares Drop Amid ‘Dialed-Down’ Outlook: Street Wrap

JAL Sees Return to Profit as Japan Moves to Reopen Borders
Food Prices Hold Near Record as Ukraine War Upends Global Trade
Nine in 10 Central Banks Exploring Own Digital Money, BIS Says

European bourses are subdued across the board, Euro Stoxx 50 -1.1%, reacting to the late-doors pressure in
Wall Street. Currently, US futures are modestly softer but relatively tentative overall going into the NFP release and
subsequent Fed speak. US regulatory officials have arrived in China for "late-stage" audit deal talks, according to
Reuters sources. China's auto sales in April are estimated to have plunged 48.1% y-o-y to 1.17 million units, data from
CAAM revealed. The recent Omicron outbreak has disrupted the auto sector, in particular in the Yangtze River Delta
region, according to Global Times.

Top European News

EU Plan to Ban Russian Oil Means Windfall for Hungarian Refiner

BNP Paribas Offers Up to EU400m Non-Dilutive Convertible Bonds
ECB’s Villeroy Says Above-Zero Rates ‘Reasonable’ This Year
Sorrell Pledges Changes After S4’s ‘Embarassing’ Results Lag

In FX

ECB officials ramp up hawkish rhetoric to boost Euro; EUR/USD makes round trip to high 1.0580 area from sub-
1.0500.
 Pound continues to flounder as UK election results spell trouble for already under pressure PM Johnson and
Tory Party, Cable under 1.2300 at one stage and EUR/GBP cross over 0.8550.
Buck reverses all and more post-Fed losses pre-payrolls before Euro rebound knocks DXY back below 104.000,
index down to new 103.340 low vs 104.070 peak.
Aussie slumps despite hawkish RBA SOMP, Yen weak regardless of firmer than forecast Tokyo inflation data and
return of Japanese markets from Golden Week; AUD/USD under 0.7100 and USD/JPY over 130.00.
Loonie cushioned by strong crude prices ahead of Canadian LFS, USD/CAD within 1.2814-67 range and close
to 1.29bln option expiries between 1.2835-40.
Swedish Krona rangy after Riksbank minutes highlighting divergent views; EUR/SEK straddling 10.5000.

Fixed Income

EZ debt downed by latest hawkish ECB guidance, Bunds below 152.00 and periphery underperforming.
Gilts hold up better on the 118-00 handle awaiting BoE commentary after super Thursday.
US Treasuries dragged down by Eurozone bonds to an extent, as 10 year T-note pivots 118-00 ahead of NFP.

Commodities

WTI and Brent are bid in an exacerbation of APAC price action although, specific bullish-drivers have been
somewhat sparse.
Much of the focus has been on the potential EU Russian oil import embargo, particularly Hungary's ongoing
opposition and the EU's attempts to appease them.
Brazilian President Bolsonaro said a fresh hike in fuel prices by Petrobras could bankrupt Brazil and urged
Petrobras not to increase fuel prices again, according to Reuters.
PetroChina (0857 HK) says they have no plans to buy discounted Russian oil or gas, according to an executive.
China is to sell 341k tonnes of imported soybeans from state reserve on May 13, according to the trade centre.
Spot gold is bid but has failed to derive much traction above the 100- and 10-DMAs at USD 1883.08/oz and USD
1885.1/oz respectively.

Central Banks

ECB's Villeroy says too weak EUR would go against ECB inflation target; inflation is not only higher but broader;
core inflation is firmly above target. Case for APP beyond June is not obvious. Adds, it is possible to raise rates
into positive territory (i.e. above zero) by year-end.
ECB's Nagel says current inflation too high, confident it can get back to 2% target in the medium-term; adds,
window to act is closing. Is optimistic re. a 2022 move. Does not buy the argument that policy should hold back
because of the economy right now, via FAZ.
ECB's Holzmann said the ECB is planning to raise rates which they will discuss and probably do at the June
meeting, while he added that rates will rise this year, by how much and when, will be discussed intensively in
June, according to Reuters.
ECB's Vasle says appropriate timing to start ECB hikes is "before summer"; inflation is becoming broad-based,
cannot claim that monetary policy cannot curb inflation.
BoE's Pill: says the BoE does not have a forex target or objective; when questioned on what would cause them
to pause (re. hikes), says more evidence of factors becoming more consistent with target(s). If we don't see this,
will have to act further.

Market Snapshot

08:30: April Change in Nonfarm Payrolls, est. 380,000, prior 431,000

April Change in Private Payrolls, est. 378,000, prior 426,000
April Change in Manufact. Payrolls, est. 35,000, prior 38,000
April Unemployment Rate, est. 3.5%, prior 3.6%
April Underemployment Rate, prior 6.9%
April Labor Force Participation Rate, est. 62.5%, prior 62.4%
April Average Hourly Earnings YoY, est. 5.5%, prior 5.6%
April Average Weekly Hours All Emplo, est. 34.7, prior 34.6
April Average Hourly Earnings MoM, est. 0.4%, prior 0.4%
15:00: March Consumer Credit, est. $25b, prior $41.8b

Fed Speakers

09:15: Fed’s Williams Gives Opening Remarks

11:00: Fed’s Kashkari Takes Part in Moderated Discussion
15:00: Fed’s Bostic Gives Commencement Address at Georgia Tech
19:15: Fed’s Bullard and Waller Speak on Hoover Institute Panel
20:00: Fed’s Daly Gives Commencement Speech

DB's Jim Reid concludes the overnight wrap

What’s dangerous about yesterday’s huge market slump is that there must be an element of doubting the ability of
there to be an effective "Fed Put" in this cycle following a 30-40 year period where the central bank has almost always
been able to come to the market's rescue. As we know, Wednesday saw a strong post-FOMC rally (S&P 500 +2.99%)
on a belief that the Fed would be relatively measured in their tightening cycle after Chair Powell pushed back against
75bp hikes. However in a remarkable turnaround yesterday (S&P 500 -3.56%) the only conclusion you can draw is that
the market quickly realised that the Fed really aren't going to be able to control this cycle very easily.

As you know our view is that the Fed won't be able to achieve a soft landing and that a recession is coming. This was
something we dwelt on in our recent “What’s in the Tails?” piece (link here), where we expressed surprise that our call
for a US recession in late-2023 was the outlier rather than the consensus given how far inflation is from target and the
tightness of the US labour market right now (more today on this in the payrolls report).

I can't help but think that a great deal of the reaction yesterday was the appreciation that whilst the Fed can make
soothing pronouncements, they are starting from an extraordinary difficult starting point, and with limited flexibility to
respond to market or economy concerns whilst they fight inflation.

The Bank of England couldn't have helped either, as they became the first major central bank to forecast a contraction
in 2023 alongside double-digit inflation later this year.

In terms of the moves themselves, US Treasury yields soared to fresh highs for this cycle at the long end, with those
on 10yr Treasuries up +10.2bps at 3.04%, after a volatile day that saw 10yr yields increase as much as +17.2bps to
3.11% intra-day, meaning the 10yr range since the FOMC has been +21bps wide. Yesterday’s increase was driven
entirely by real yields, which snapped back up by +12.2bps to 0.18%, thus closing at their highest levels since the
Covid-related tumult in March 2020. Real yields were also as much as +17.2bps higher intraday, showing they were a
large component of yesterday’s volatility. The rise in yields came as investors retraced some of their expectations from
the previous day about a shallower pace of monetary tightening, raising the expected rate at the Fed’s December
meeting by +5.0bps. And there was further evidence that the Fed’s tightening cycle is already having an effect on the
real economy, with Freddie Mac reporting that the average rate for a 30-year mortgage had risen to 5.27%, which is
the highest its been since 2009. It also marks a +231bp increase over the last year, which is the largest annual
increase in mortgage rates since 1982. Those trends have continued this morning, with yields on 10yr USTs up
+1.9bps to 3.06%, and the policy rate priced for December’s meeting up a further +1.3bps.
With yields bouncing higher, US equities were hammered once again with the more interest-sensitive tech stocks
leading the way. As mentioned at the top, the S&P 500 fell back by -3.56%, which would be more newsworthy were it
not for the fact that Friday’s -3.63% decline was even larger! Tech and mega-cap stocks really bore the brunt of the
sell-off, as the NASDAQ slumped -4.99%, the largest since June 2020, and the FANG+ index fell -6.43%, the largest
since September 2020, with all those indices ending a run of 3 consecutive advances. The sharp turnaround sent the
VIX +6.07pts higher, and back above 30 at 31.49. It was a somewhat better picture in Europe, but that reflected the
fact they hadn’t participated in the massive US rally after the Fed. However the major indices lost ground continuously
through the day, with the STOXX 600 erasing an initial gain of +1.84% immediately after the open to end the day
-0.70% lower.

Yesterday’s volatility came alongside a fresh round of central bank news, with the Bank of England continuing its
recent series of rate hikes. In terms of the main headlines, they hiked by 25bps as expected to take Bank Rate up to
1%, and 3 of the 9 members on the Committee were even in favour of a larger 50bps move. Nevertheless, the decision
was interpreted in a very dovish light, as two members did not find it appropriate to provide guidance for more rate
hikes going forward, so potentially a three-way split on the committee. Adding to the dovish interpretation, the growth
forecasts produced by the BoE were significantly downgraded, and now see an annual economic contraction occurring
in 2023. Furthermore, they upgraded their inflation forecasts once again, seeing CPI rising further over the rest of
2022, and averaging “slightly over 10% at its peak” in Q4. For more info on the BoE, see our economist’s full reaction
note (link here).

The more downbeat news on the economy led investors to reappraise the likely path of future hikes from the BoE, and
overnight index swaps took out -17bps worth of tightening by the December meeting in response. In turn, sterling was
the worst-performing G10 currency yesterday, with a -2.13% move against the US Dollar, which came as investors
took stock of the potential for a more gradual tightening, as well as the prospect of a UK recession. The developments
also meant that gilts outperformed their counterparts elsewhere in Europe, with the 10yr yield coming down -0.3bps on
the day, a big contrast to those on bunds (+7.3bps), OATs (+7.2bps) and BTPs (+8.3bps) which all moved higher.
These losses were witnessed over on the credit side as well, where the iTraxx Crossover index moved up +19.3bps to
453bps, the highest its been since May 2020.

Those moves higher in Euro Area yields came as the drum beat for an ECB rate hike as soon as July continued, with
Bank of Finland’s Governor Rehn endorsing a hike in July. This is a world away from the situation just after Russia’s
invasion of Ukraine, when there was serious scepticism among many that the ECB would be able to hike at all this
year given the growth shock. But the inflation developments have outweighed that, and overnight index swaps are still
pricing in 89bps worth of hikes this year, enough to take the current -0.5% deposit rate firmly into positive territory.
Remember DB is forecasting +100bps of hikes before year end.

Overnight in Asia, equities have similarly begun the day deep in negative territory, tracking those sharp overnight
losses on Wall Street. Across the region, the Hang Seng (-3.67%) is the largest underperformer with tech firms among
the worst hit. In mainland China, the Shanghai Composite (-2.31%) and CSI 300 (-2.59%) have also seen a large slide
as COVID-19 lockdowns continue to darken the economic outlook and weigh on investor sentiment. There’ve been
further signs they’ll be continuing their zero Covid strategy overnight, with state broadcaster CCTV reporting that the
Politburo’s seven-member Standing Committee reaffirmed their support for the approach. The only place not seeing
large slides overnight are Japanese markets, where the Nikkei is up +0.92%, but that reflects the fact they’ve come
back to trade today after 3 days of holidays. Looking forward, US stock futures are pointing to a stabilization today,
with contracts on the S&P 500 (-0.02%) and NASDAQ 100 (-0.02%) marginally lower.

From the perspective of the major central banks, another negative development over the last 24 hours has been the
continued rise in oil prices, with Brent Crude up another +0.69% yesterday to reach $110.90/bbl. The move was driven
by the news that the US Energy Department would begin the process of replenishing its oil reserves, with a process to
buy 60m barrels in the autumn. That said, prices pared back their gains in the European afternoon as the more
negative risk-off move took hold, with prices declining from an intraday high of $114/bbl at one point. This morning in
Asian trading hours, Brent crude (+0.50%) is extending its gains again, now at $111.46/bbl.

Looking forward now, the main highlight today will likely be the US jobs report for April, which along with next
Wednesday’s CPI reading will help frame the policy debate over the 6 weeks ahead of the next FOMC meeting in mid-
June. In terms of what to expect, our economists think that nonfarm payrolls will have risen by +465k, which in turn will
lower the unemployment rate by a tenth to 3.5%. That would be a significant milestone, since 3.5% was the pre-
pandemic low in the unemployment rate.

On the data side, the US weekly initial jobless claims came in at 200k in the week through April 30 (vs. 180k
expected). Elsewhere, German factory orders fell by a larger-than-expected -4.7% in March (vs. -1.1% expected).

To the day ahead now, and the main highlight will be the aforementioned US jobs report for April. Other data releases
include German industrial production and Italian retail sales for March. From central banks, we’ll hear from the ECB’s
Villeroy, Nagel, Elderson and Rehn, the Fed’s Williams, Kashkari and Bostic, and the BoE’s Pill and Tenreyro.

 10,632  48

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