ECB poised to cut 25bps into their estimated neutral rate range

EU mid-market update: ECB poised to cut 25bps into their estimated neutral rate range but market sees another cut on horizon; Forward guidance in focus.

Notes/observations

- With ECB decision in focus, recent commentary and inflation data has all but guaranteed a 25bps cut, taking Deposit Rate to 2.00%. ECB previously estimated neutral rate in 1.75-2.25%. Question will be on when next rate cut would come, highly expected to be the last in cycle. Special note that today’s decision is accompanied by quarterly staff projections and new ‘scenario analysis’. Analysts predict no clear guidance for July, as conclusion of 90-day tariff pause and more details on German 2025/26 budget will likely drop before July meeting.

- Narrative fairly unchanged on trade front.

- Musk pivot from Trump admin alliance is worth monitoring, as he posted on X to ‘kill the bill’ (AKA ‘One Big Beautiful Bill’). Reminder that Musk has previously derailed a bipartisan government funding bill in Dec 2024, simply by voicing and highlighting issues on X platform.

- Nonfarm payrolls on Fri under additional scrutiny following JOLTS and ADP. US treasuries have stabilized from Wed.

- European TTF natural gas rose as concern about tightened supply from Norway due to maintence and warmer Asia weather weigh on demand concern.

- Asia closed mixed with KOSPI outperforming +1.5%. EU indices +0.1-0.5%. US futures +0.1-0.2%. Gold +0.1%, DXY 0.0%; Commodity: Brent +0.2%, WTI +0.1%; Crypto: BTC -1.0%, ETH -1.3%.

Asia

- Japan sells ¥800B vs. ¥800B indicatedin 30-year JGB bonds; Avg Yield: 2.9040% v 2.9410% prior; Bid-to-cover: 2.92x v 3.07x prior(2.92x vs 12-month avge 3.39x, weakest demand ratio since 2023).

- Japan Apr Labor Cash Earnings Y/Y: 2.3% v 2.6%e.

- South Korea Q1 Preliminary GDP Q/Q: -0.2% v -0.2% advance; Y/Y: 0.0% v -0.1% advance.

- South Korea Pres Lee Jae-Myung to convene first cabinet meeting today (Thurs) - Yonhap.

- South Korea ruling party Democratic Party (again) proposes Commercial Act revision.

- China reportedly told EV markers to self regulate due to price war heating up.

- China Foreign Ministry: Reiterates no further information on Trump/Xi call; Vice Pres Han Z Zheng to attend UN Ocean meeting in France and also visit Spain.

- China Commerce Ministry (MOFCOM): Vows resolute measures if US does not change course; Will step up policy guidance on auto consumption market.

- China Securities Journal: PBOC may further cut RRR during H2.

- China reportedly expands global income tax crackdown beyond ultra rich.

- Philippines National Stats Agency: Wage hike proposal could have an inflationary impact.

- Geologists discover world’s largest Iron deposit in West Australia; Estimated to be worth ~$6T and potential to impact world's iron production as well as the global economy.

Europe

- NATO Sec Gen Rutte: Reiterates expects to agree on new NATO capability targets today.

- Germany Defense Min Pistorius: Army to build new large units under new NATO targets; Should make clear that Russia is greatest threat to NATO.

- UK Office of National Statistics (ONS): Found errors in CPI and RPI for year to April.

- EU Trade Commissioner Sefcovic: A deep reform of WTO is long overdue.

- Bank of England (BOE) Decision Maker Panel (DMP) May Survey: Firms expect slower price and wage growth, limited impact from US trade policy.

- EU reportedly exempts Ukraine iron and steel from safeguard measures.

Americas

- US Defense Sec Hegseth: NATO allies should commit to 5% spending at Hague Summit; To be an alliance, you have to be combat-ready.

- President Trump signs proclamation on Wed to ban travel from 'some' countries with full travel ban on 12 countries and restrictions on a further 7 countries [no mention of China]; Effective Monday - CBS.

- White House Official: Musk's criticism on the tax bill is one disagreement in an otherwise harmonious relationship.

- Musk said to have lobbied US House leader Johnson to save EV credits in US tax bill - NBC.

- US invokes USMCA mechanism in labor rights probe at Superior Industries factory in Mexico.

Trade

- Japan reportedly to present 'China measures' package in trade talks with US; Also to propose collaboration on rare earth supply chains - Nikkei.

- Australia and EU 'revive' trade talks, to resume 'stalled' talks related to trade agreement - Nikkei Asia.

- Japan Trade Negotiator Akazawa: Still not decided on who to meet in the US.

- IMF Dep MD Gopinath: Trade war a bigger challenge for emerging market central banks than Covid - FT.

- Mexico Econ Min Ebrard: Mexico wants the same deal as the UK on steel tariffs from the US.

Global conflict/tensions

- NATO Sec Gen Rutte: Reiterates expects to agree on new NATO capability targets today.

- Reportedly US is redirecting critical antidrone system from Ukraine to US forces in the Middle East, in a sign of fading support for Ukraine's defense - WSJ.

- Pres Trump said to be stopping the TSA 'Quiet Skies' anti-terror watchlist program.

- North Korea leader Kim met with Russia's top security official Shoigu - North Korea state media.

Energy

- Iraq Oil Ministry: Oil exports loss is due to failure to receive and export oil produced in the Kurdistan region and being forced to reduce production in compliance with the OPEC quota.

- New Zealand Minister of Energy Jones: NZ gas reserves 'declining faster than forecast'.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.4% at 553, FTSE +0.1% at 8813, DAX +0.4% at 24365, CAC-40 +0.4% at 7831, IBEX-35 +0.2% at 14118, FTSE MIB +0.5% at 3936, SMI +0.4% at 12350, S&P 500 Futures +0.1%].

Market focal points/key themes: European indices opened mixed but took on a decided positive bias through the early part of the session; German factory orders surprised to the upside, potentially supporting risk appetite; among sectors leading the way higher are technology and materials; lagging sectors include utilities and consumer discretionary; Mitie to acquire Marlowe; Hanwha to divest its EutelSat stake; reportedly L’Oreal near deal to acquire Medik8; focus on ECB rate decision later in the day; earnings expected in the upcoming Americas session include Ciena, Brown-Forman and Cracker Barrel.

Equities

- Consumer discretionary: Wizz Air [WIZZ.UK] -2.5% (results), Mitie [MTO.UK] -0.5% (results, acquisition).

- Financials: Wise [WISE.UK] +3.5-4.0% (results).

- Healthcare: Bayer [BAYN.DE] +3.5% (analyst upgrade).

- Industrials: Kongsberg Gruppen [KOG.NO] +1.0-1.5% (Germany selects co's joint strike missile).

- Technology: Marlowe [MRL.UK] +18.0-18.5% (to be acquired by Mitie).

Speakers

- Fed's Kashkari (non-voter): Still not all the way back to 2% inflation target - CNN interview.

- Czech Central Bank (CNB) Seidler favors leaving rates unchanged in June.

Economic data

- (IS) Iceland Q1 Current Account (ISK): -59.5B v -89.8B prior.

- (CY) Cyprus May CPI M/M: 0.2% v 0.1% prior; Y/Y: -0.2% v 0.2% prior.

- (GR) Greece Q1 Unemployment Rate: 10.4% v 9.5% prior.

- (ZA) South Africa Q1 Current Account (ZAR): -36B v -50Be; Current Account to GDP Ratio: -0.5% v -0.7%e.

- (EU) Euro Zone Apr PPI M/M: -2.2% v -2.1%e; Y/Y: 0.7% v 1.1%e.

- (TW) Taiwan May Foreign Reserves: $592.9B v $582.8B prior.

- (IT) Italy Apr Retail Sales M/M: 0.7% v 0.4%e; Y/Y: +3.7% v -2.8% prior.

- (TW) Taiwan May CPI Y/Y: 1.6% v 1.8%e; CPI Core Y/Y: 1.6% v 1.7%e; PPI Y/Y: -4.3% v 0.6% prior.

- (UK) May New Car Registrations Y/Y: +1.6% v -10.4% prior.

- (DE) Germany May Construction PMI: 44.4 v 45.1 prior.

- (AT) Austria May Wholesale Price Index M/M: -0.3% v -0.4% prior; Y/Y: -0.5% v -1.0% prior.

- (CH) Swiss May Unemployment Rate: 2.8% v 2.8%e (late release); Unemployment Rate (seasonally adj): 2.9% v 2.8%e.

- (SE) Sweden May Preliminary CPI M/M: 0.0% v 0.2%e; Y/Y: 0.2% v 0.4%e; CPIF M/M: 0.1% v 0.3%e; Y/Y: 2.3% v 2.5%e; CPIF (ex-energy) M/M: 0.2% v 0.3%e; Y/Y: 2.5% v 2.6%e.

- (DE) Germany Apr Factory Orders M/M: +0.6% v -1.5%e; Y/Y: 4.8% v 3.9%e.

- (SG) Singapore Apr Retail Sales M/M: +0.3% v -2.7% prior; Y/Y: 0.3% v 1.7%e.

Fixed income issuance

- France Debt Agency (AFT) sells total €11.999B vs. €10.0-12.0B indicated range in 2035, 2036 and 2056 bonds.

- Spain Debt Agency (TESORO) sells total €5.488B vs. €4.5-5.5B indicated range in 2028, 2030 and 2032 SPGB bonds.

- Spain Debt Agency (Tesoro) sells €536M vs. €250-750M indicated range in 2.05% Nov 2039 inflation-linked bonds (SPGBei); Real Yield: 1.678% v 1.536% prior; Bid-to-cover: 2.00x v 1.99x prior (Jan 9th 2025).

- New Zealand sells total NZ$450M vs. NZ$450M indicated in 2029, 2035 and 2054 bonds.

- Japan sells ¥800B vs. ¥800B indicatedin 30-year JGB bonds; Avg Yield: 2.9040% v 2.9410% prior; Bid-to-cover: 2.92x v 3.07x prior(2.92x vs 12-month avge 3.39x, weakest demand ratio since 2023).

Looking ahead

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month Bills; Avg Yield: % v 6.32% prior; bid-to-cover: x v 1.65x prior (May 22nd 2025) (**Note: bi-monthly issuance).

- 05:40 (UK) BOE 7-day short-term repo operation (STR).

- 06:00 (IE) Ireland Q1 Preliminary GDP Q/Q: No est v 3.2% prior; Y/Y: No est v 13.3% prior.

- 06:00 (IE) Ireland Q1 Preliminary Current Account: No est v €18.2B prior.

- 06:00 (IE) Ireland May Unemployment Rte: No est v 4.1% prior.

- 06:00 (VN) Vietnam Finance Ministry announcement on upcoming bond issuance (held on Wed).

- 07:00 (ZA) South Africa Apr Electricity Production Y/Y: No est v 1.1% prior; Electricity Consumption Y/Y: No est v -1.5% prior.

- 07:00 (UR) Ukraine Central Bank (NBU) Interest Rate Decision: expected to leave Key Rate unchanged at 15.50%.

- 07:30 (US) May Challenger Job Cuts: No est v 105.4K prior Y/Y: No est v 62.7% prior.

- 08:00 (MX) Mexico May Consumer Confidence: 45.7e v 45.3 prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:15 (EU) ECB Interest Rate Decision: Expected to cut Key Rate by 25bps. Expected to cut Deposit Rate by 25bps to 2.00%; Expected to cut Main 7-Day Refinancing Rate by 25bps to 2.15%; Expected to cut Marginal Lending Facility by 25bps to 2.40%.

- 08:30 (US) Q1 Final Nonfarm Productivity: -0.8%e v -0.8% prelim; Unit Labor Costs: 5.7%e v 5.7% prelim.

- 08:30 (US) Initial Jobless Claims: 235Ke v 240K prior; Continuing Claims: 1.91Me v 1.919M prior.

- 08:30 (US) Apr Trade Balance: -$66.1Be v -$140.5B prior.

- 08:30 (CA) Canada Apr Int'l Merchandise Trade: -1.5Be v -0.5B prior.

- 08:30 (US) Weekly USDA Net Export Sales.

- 08:45 (EU) ECB chief Lagarde post rate decision press conference.

- 09:00 (RU) Russia Gold and Forex Reserve w/e May 30th: No est v $678.5B prior.

- 09:00 (CL) Chile Apr Nominal Wage Y/Y: No est v 8.3% prior.

- 10:00 (CA) Canada May Ivey Purchasing Managers Index: No est v 47.9 prior; - PMI (unadj): No est v 52.3 prior.

- 10:00 (BR) Brazil May Vehicle Production: No est v 228.2K prior; Vehicle Sales: No est v 208.7K prior; Vehicle Exports: No est v 46.3K prior.

- 10:30 (US) Weekly EIA Natural Gas Inventories.

- 11:30 (US) Treasury to sell 4-Week and 8-Week Bills.

- 12:00 (US) Fed’s Kugler.

- 12:00 (CA) Canada to sell 5 Year Bonds.

- 12:35 (CA) Bank of Canada (BOC) Dep Gov Kozicki.

- 13:30 (US) Fed’s Harker.

- 14:00 (BR) Brazil May Monthly Trade Balance: $8.3Be v $8.2B prior; Exports: $31.2Be v $30.4B prior; Imports: $22.9Be v $22.3B prior.

- 15:00 (AR) Argentina Apr Industrial Production Y/Y: No est v 5.2% prior; Construction Activity Y/Y: No est v 15.8% prior.

- 19:30 (JP) Japan Apr Household Spending Y/Y: 1.5%e v 2.1% prior.

- 21:00 (PH) Philippines Apr Unemployment Rate: No est v 3.9% prior.

- 22:05 (VN) Vietnam May CPI Y/Y: 3.2%e v 3.1% prior.

- 22:05 (VN) Vietnam May Trade Balance: $0.4Be v $0.6B prior; Exports Y/Y: 14.9%e v 19.8% prior; Imports Y/Y: 16.0%e v 22.9% prior.

- 22:05 (VN) Vietnam May Industrial Production Y/Y: No est v 8.9% prior.

- 22:05 (VN) Vietnam May Retail Sales Y/Y: No est v 11.1% prior.

- 23:30 (JP) Japan to sell 3-Month Bills; Avg Yield: % v 0.4083% prior; bid-to-cover: x v 2.76x prior (May 29th 2025).