US consumer confidence slips

• US consumer confidence slipped in May, with the Conference Board saying its consumer confidence index dropped just slightly to a reading of 117.2 this month from 117.5 in April. The dip mirrors other sentiment surveys, which are being dragged by worries that rising inflation would weaken consumers' purchasing power. The survey's present situation measure, based on consumers' assessment of current business and labor market conditions, went up to a 14-month high of 144.3 from 131.9 last month. However, the expectations index, based on consumers' short-term outlook for income, business and labour market conditions, fell to 99.1 from 107.9 in April. Consumers' inflation expectations over the next 12 months jumped to 6.5% from 6.2% last month. The so-called labour market differential, derived from data on respondents' views on whether jobs are plentiful or hard to get, was up to a reading of 34.6 in May from 21.6 in April. A labour shortage is subduing job growth in the US, even as nearly 10 million Americans are officially unemployed, and is being partly blamed on generous government unemployment benefits discouraging workers from taking new jobs.
• The US Commerce Department said new home sales dropped 5.9% m/m to a seasonally adjusted annual rate of 863,000 units last month. March's sales pace was revised lower to 917,000 units from the previously reported 1.021 million units. On an annual measure, sales vaulted up 48.3% y/y. Another report, the S&P CoreLogic Case-Shiller house price index rose 13.2% y/y in March, the largest increase since December 2005, after rising 12.0% y/y in February. And a further separate report by the Federal Housing Finance Agency house price index jumped a record 13.9% y/y basis in March after advancing 12.4% y/y in February. The market for new homes in the US is being boosted by near record low inventory levels of previously owned houses and rising demand for more spacious accommodations as millions of Americans continue to work and study from home.
• German business morale hit a two-year high in May with the Ifo business climate index jumping to 99.2, up from April's revised 96.6 and beating a 98.2 forecast as Covid-19 curbs were eased and infections fell. The survey showed that businesses were more satisfied with their current situation and optimistic regarding the coming six months. The reading comes after the economy shrank more than expected in Q1 2021, declining 1.8% q/q and by 3.1% y/y, significantly weaker readings than the euro zone average according to official data out yesterday. The GDP data showed company investments in machinery and equipment fell slightly in the first quarter, while construction activity rose.

Today’s Economic Data and Events

6:00 NZ RBNZ Interest Rate Decision Forecast 0.25%

6:00 NZ RBNZ Rate Statement     

7:00 NZ RBNZ Press Conference                 

18:30 US Crude Oil Inventories

Fixed Income

• US Treasuries ended the session higher despite few fundamental catalysts to send yields lower. An auction of 2yr notes was well received helping to push 2yr yields to 0.1412%, their lowest close since March. On the 10yr, yields fell more than 4bps to 1.5588%. Yields are down more than 10bps in the past week as markets have been buffeted by Fed speakers committed to the transitory inflation narrative.
• Emerging market bonds showed a mixed performance overnight. The largest gains came in South Africa where 10yr government bond yields fell almost 10bps to 9.236%. In India, yields closed nearly unchanged at 5.973% while Turkish yields rose marginally.
• Abu Dhabi sold USD 2bn in a new 7yr issue at 45bps over USTs, substantially tighter than the 70-75bps over where it set initial pricing. The order book was close to USD 7bn.

FX

• The dollar sank against most peers overnight even as yields came lower and equities fell. The DXY index remains just below the 90 level although a substantial move lower would likely need to come in the form of a data driven catalyst.
• EURUSD had a choppy day of trading, moving as high as 1.2266 before closing at 1.2250, up 0.28% for the second day in a row. USDJPY also showed some wide movements, falling to as low as 108.56 and pushing as high as 109.07 in the course of a few hours. All told, JPY closed essentially unchanged. GBPUSD pushed up above 1.42 before selling off sharply in much of the rest of the session and closed nearly unchanged with a downward bias.
• Commodity currency action this morning is dominated by the NZD, up 0.7% at 0.7281 as the market responds to new projections from the RBNZ that rates may move higher in H2 2022. The RBNZ kept policy rates on hold at 0.25% and its asset purchase target at NZD 100bn.

Equities

• Dovish comments by Fed officials have not yet made a lasting impact on equity investors, and all three benchmark US equity indices sold off yesterday. The S&P 500 and the Dow Jones both lost -0.2%, but the NASDAQ managed drop just marginally and close almost flat.
• It was a mixed bag in Europe, where the FTSE 100 lost -0.3% as mining and energy firms were impacted by comments around commodity speculation in China, but the DAX gained 0.2% and the composite STOXX 600 closed flat.
• Within the region, the DFM gained 0.4%, the ADX 0.3% and the EGX 30 lost -2.1%.

Commodities

• Oil prices extended their gains although the rally looks to be running out of steam. Brent futures added almost 0.3% to close at USD 68.56/b while WTI was virtually unchanged at USD 66.07/b, but with a slight upward bias. Murban futures though were lower by 1.3% at USD 67.99/b.
• The weaker performance in Murban is likely down to markets pricing in a looser AG market in coming months in anticipation of negotiations around Iran’s nuclear programme succeeding and allowing the country to add volumes back to market.
• Data from the API showed a modest drop in US crude inventories while gasoline stockpiles fell nearly 2m bbl last week and distillates were lower by 5m bbl. EIA data will be released later this evening.
• Gold prices have benefitted from the wobble in risk assets lately and dovish tones from the Federal Reserve. Gold prices rosed almost 1% overnight to USD 1,899/troy oz and have pushed above USD 1,900/troy oz for the first time since January in early trade today.

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