24 May 2022
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Lagarde signals liftoff

By Daniel Richards

  • ECB President Christine Lagarde has signaled in a blog post that the Eurozone’s central bank will most likely start on its hiking cycle in July and leave negative rates by end-September, implying two hikes of 25bps each at the July and September meetings. The Eurozone has been struggling with multi-decade inflation highs in recent months but has been somewhat behind its central bank peers – the US Federal Reserve in particular – in terms of starting to tighten policy in a meaningful way.
  • Germany’s IFO surveys for May beat expectations, as the headline business climate reading rose to 93.0, up from 91.0 and higher than the consensus prediction of 91.4. Both the current assessment and expectations components were both higher than in April and beat consensus, although they still remain low by historical averages as the German economy comes under pressure from ongoing supply chain disruption and accelerating inflation.
  • Japan’s PMI surveys for May were mixed, with the manufacturing index coming in lower than in April (53.2 compared with 53.5) while the services index rose, hitting 51.7 compared with 50.7. This brought the composite reading in at 51.4, up from 51.1 in April.
  • Visitor numbers to Turkey were up 225.6% y/y in April as the country’s tourism sector continues to recover from the impact of Covid-19 on activity. Over the first four months of the year, numbers were up 173%, with most of those coming from Germany. More concerning data showed that the house price index had gained 110.0% y/y in March, and 9.3% m/m. Turkey is experiencing very high price growth, with CPI inflation hitting 70.0% y/y last month. The central bank is due to hold its rate-setting meeting this week, with no change to the one-week repo from the current 14.0% expected.
  • The World Bank has published its Gulf Economic Update. It forecasts robust growth across the GCC as oil & gas sectors outperform, although its projection of 4.7% growth in the UAE and 7.0% in Saudi Arabia is slower than our forecasts of 5.7% and 7.7% respectively.

Today’s Economic Data and Events

11:15 France manufacturing PMI, May. Forecast: 55.2

11:30 Germany manufacturing PMI, May. Forecast: 53.0

12:00 Eurozone manufacturing PMI, May. Forecast: 54.8

12:30 UK manufacturing PMI, May. Forecast: 55.0

17:45 US manufacturing PMI, May. Forecast: 57.8

18:00 US new home sales, April. Forecast: 750,000

Fixed Income

  • US Treasuries traded moderately weaker by the standard of recent trading days, getting pushed lower thanks to a revival in risk-sentiment somewhat as the US administration considers whether to lift tariffs on goods trade with China. The 2yr UST yield added 4bps to settle at 2.6204% while the 10yr added 7bps to 2.8514%.
  • There was more movement in the European bond markets in response to ECB president Christine Lagarde lining up July as to when the central bank would start to hike rates. Yields on the 2yr Schatz added 7bps to 0.387% with French 2yr yields up by a similar amount. On the 10yr space, bund yields also added 7bps to 1.012% while gilt yields added almost 8bps to 1.968%.
  • The Bank of Israel hiked rates by 40bps to 0.75%, more than the market had been expecting and putting them at their highest level since 2014.


  • The euro soared to open the trading week, benefitting from a risk-on tone in markets and commentary from ECB president Christine Lagarde that rates would start going higher from the July monetary policy meeting. EURUSD added 1.2% to settle at 1.0691 though is edging slightly lower in trade today. The move in EURUSD helped to drag other currencies higher against the dollar with GBPUSD up by 0.9% to 1.2588 while USDJPY was relatively flat.
  • Commodity currencies also got a strong boost with USDCAD down 0.6% in favour of the loonie to settle at 1.2767. AUDUSD added almost 1% to close at 0.7109 while NZDUSD added 1.2% to 0.647.


  • A return of risk-on sentiment saw the major global indices close higher yesterday. In the US, the NASDAQ, the S&P 500 and the Dow Jones added 1.6%, 1.9% and 2.0% respectively. In Europe, the FTSE 100 was the standout winner as it closed 1.7% higher, while the CAC added 1.2% and the DAX 1.4%.
  • In Asia, the Shanghai Composite closed flat earlier in the session, while the Nikkei added 1.0%. However, markets are cautious this morning after more disappointing corporate earnings results from the US yesterday, and Asian markets are trending down once more in early trading.
  • Locally, the Tadawul dropped -0.8% yesterday, while the ADX (-2.2%) and the DFM (-2.5%) also closed lower.


  • Oil prices closed mixed at the start of the week with Brent futures added 0.8% to USD 113.42/b and new month WTI settling flat at USD 110.29/b. An EU-wide ban on Russian oil imports has yet to be approved given some reticence among member states that rely heavily on Russian oil flows though EU leadership will meet again next week to consider the proposal.

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Written By

Daniel Richards Senior Economist

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