11 May 2022
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German ZEW improves in May

By Edward Bell

  • Markets had to make do with another day short on major data releases, instead focusing on commentary out from Fed officials. The president of the Cleveland Fed, Loretta Mester, said that the Fed wouldn’t rule out “75 forever” in reference to doing even larger hikes to the Fed Funds rate than the 50bps hike the FOMC announced at the start of May. The comments reiterated the Fed’s apparent view that they want to see inflation materially slowing in the second half of the year, rather than conditions that support inflation slowing merely being in place. New York Fed President John Williams though said that the run-down of the Fed’s balance sheet would also help to tighten policy, giving the Fed “a little space” to raise by 50bps at upcoming meetings.
  • The ZEW index of investors confidence in Germany actually increased in May, up to -34.3 from -41, coming in much better than had been expected. However, the gauge is still considerably in negative territory and remains a pessimistic view on expectations for Germany’s economy. Sentiment could deteriorate further, however, should energy flows between the EU and Russia become even more politicized.
  • Factory price inflation in China in April rose by 8% y/y, slightly slower than March numbers but faster than the market had been expecting. China’s near term economic activity remains hampered by the country’s Covid-zero policies that are limiting mobility and movement of goods across the country. CPI inflation rose to 2.1%, up from 1.5% a month earlier and again faster than what the market had been looking for. 
  • Lebanon’s government will provide an update on the status of a potential funding agreement with the IMF later today. The Fund was ready to commit USD 3bn to Lebanon’s economy but the financing was conditional on taking considerable structural reform of public finances and the financial sector, challenges that may be difficult in a still volatile political context.
  • Dubai will restructure Dubai Municipality and the Dubai Land Department to accommodate developments in the Emirate, according to a statement from the Dubai Executive Council chaired by Sheikh Mohammed bin Rashid al Maktoum, ruler of Dubai and prime minister of the UAE. The council also introduced measures to arbitrate in the disputes within family businesses and will outline plans for the re-development of several areas in Dubai to improve quality of life for nationals. The announcements follow a UAE-wide decision to provide unemployment insurance to citizens and to introduce further Emiratisation targets.

Today’s Economic Data and Events

16:30 US CPI y/y April: forecast 8.1%

Fixed Income

  • Treasury markets went through some choppy trading as investors float between risk-aversion and an interpretation of the Fed as being still somewhat dovish, even as it carries out considerable tightening of monetary policy. Yields on the 2yr UST moved in a range of as much as 10bps before settling up a bit less than 2bps at 2.6124%. On the 10yr yields dropped 4bps on the day to close at 2.9908%.
  • Bond markets were generally stronger across Europe with the 10yr bund yields down almost 10bps at 0.996% while the similar maturity gilt yield dropped almost 11bps to 1.845%.
  • Emerging market bonds closed mixed overnight with yields on South African bonds up 3bps at 10.575% while Indian yields on the 10yr dropped 15bps to 7.311%.


  • Currency markets swung again toward the dollar ahead of the release of today’s US inflation numbers. The broad DXY index rose 0.26% to 103.92 with EURUSD providing much of the gains. The single currency fell 0.3% to 1.0529 while USDJPY pushed higher again, closing up 0.12% at 130.45. Sterling remains under substantial pressure following the market’s disappointment in the Bank of England; GBPUSD closed down another 01.3% last night to 1.2316.
  • In commodity currencies USDCAD managed to hold the line but still ultimately moved against the loonie. The pair closed up 0.12% at 1.3027 while AUDUSD dropped 0.2% to 0.6938 and NZDUSD fell 0.5% to 0.629.


  • Global equity markets saw some respite yesterday after the rout of the past several sessions, although the modest gains were far from sufficient to recoup recent losses and the major indices remain far off their recent highs. A case in point is the NASDAQ – particularly exposed to the global monetary tightening trend given the preponderance of growth stocks it holds, the index is still down -25.0% ytd despite adding 1.0% yesterday. The S&P 500 gained 0.3% while the Dow Jones dropped -0.3%.
  • In Europe, the DAX was the notable gainer, adding 1.2% yesterday, but it remains down -14.8% ytd, just like the CAC which saw a more modest gain of 0.5% yesterday. The FTSE 100 lagged with a 0.4% gain but it is a notable global outperformer over the year amongst the major markets, down only -1.9% ytd.
  • Locally, the Tadawul lost -2.2%, the ADX -0.9% and the DFM -0.7%. Local equity indices are outperformers this year however, with the three up 19.8%, 16.8% and 12.6% respectively.


  • Oil prices ended the day lower with Brent down 3.3% at USD 102.46/b and WTI giving up 3.2% to USD 99.76/b. Commentary from the energy ministers of both Saudi Arabia and the UAE cautioned that there was not enough spare capacity in the market to deal with an eventual full return to normal economic activity following the pandemic. Suhail al Mazrouei, the UAE’s energy minister, said that oil markets for now look balanced and there was no need for the OPEC+ alliance to increase output at a faster pace.
  • The EIA lowered its forecast for US oil production this year to 11.9m b/d, down from 12.01m b/d previously and also lowered the projections for 2023 to 12.85m b/d. High costs will challenge growth plans in the US while a focus on profitability will also limit how much capex is made in the shale patch.

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Written By

Edward Bell Head of Market Economics

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