Credit Agricole

Asia overnight

It has been a slow start to the last week of H122 for G10 FX markets, with most of the action taking place in the APAC. The JPY is indeed the marginal outperformer on the day at the time of writing, while on the other side of the spectrum, the Antipodean currencies are trailing. Risk sentiment has nonetheless been fairly supportive, with Asian equity posting gains while equity futures are also broadly flashing green. China’s growth prospects have possibly gained some marginal traction after Shanghai’s leaders declared victory over Covid on Sunday, while financial markets were not spooked by Russia’s technical default on its foreign debt. Meanwhile, oil prices have opened largely unchanged as a potential stepping up of sanctions against Russian energy is reportedly being discussed at the G7.

EUR: Sintra on my mind Focus in the first half of this week will be on the ECB’s three-day central bank symposium that starts today in Sintra, Portugal. On the day, speeches by the ECB’s Francine Lagarde and Francois Villeroy will attract some attention. More evidence that the ECB is committed to containing the Eurozone inflation while shielding the EGB market, can boost the EUR’s safe-haven appeal and prop up EUR/USD at a time when growing recession fears remain the main FX market driver. Moreover, we expect evidence on Friday that the Eurozone inflation continued to accelerate aggressively further in June and thus add to the pressure on the ECB to remove accommodation and thus the EUR’s rate disadvantage.

Citi

European Open

Markets were choppy out of the gates, after S&P 500 posted the strongest day of the year on Friday. Equities were modestly higher in Asia, with HSI and KOSPI doing well in particular. Over in rates, the UST curve bear steepened, while China NDIRS rates pushed higher, hitting YTD highs. USD was a touch softer, while JPY strengthened modestly. KRW opened higher and continued climbing on the back of the global risk rally. Elsewhere, Bloomberg reports that Russia has defaulted on foreign debt for the first time since 1918.

Ahead, we will eye the June Sintra forum as a key avenue for central bank speak. EUR will watch several central bank speakers, while USD will receive capital goods orders data. HKD and MXN will closely watch trade balance figures. Lastly, we flag that CLP and COP will observe local holidays.

What happened in markets?

A choppy start to the week on Monday, following the strongest day of the year for S&P 500 on Friday. S&P eminis trade at +0.2%, after paring an early gain to +0.5%. Our futures desk notes the 3963/3964 point as the first level to watch. Elsewhere in equities, HSI has outperformed +3%, climbing after an open higher. Kospi sits at +2%

G10 currencies have mostly stayed within a tight range to the dollar. The exceptions are AUD and JPY. The former sits 0.4% weaker, while the latter is +0.3% higher. More in the sections below

Rates: UST curve bear steepened on Monday morning, with 2y yields up 1bp and 30y yields up 4bps. Our trader Hideyuki Liu notes that Treasuries are softer to start the weak, with RM selling spanning across the curve from 10s to 30s has had treasuries on the back-foot for most of the session. Markets were jolted lower as equity futures broke above last week highs adding further to the "buy equities, sell bonds" theme, and 10y yields now at 3.16% as the London open nears. Flows were good selling in long-end, while 10y was much more two-way as the curve remains pressured to bear steepen in continuation of last week's pain trade momentum.