Asian stock markets largely down after Wall St. carnage, US futures point slightly lower again too
After yesterday’s carnage on Wall St (the S&P500 closed down 4.0% and NASDAQ down 4.7% on disappointing earnings from Target) Asian stock markets inevitably opened sharply lower and largely failed to make much headway thereafter. With no cause for encouragement offered by Japan’s latest economic data, which reported the widest trade deficit in 8 years as exports were restrained by Chinese lockdowns but imports surged on global price pressures magnified by the weak yen, as well as a so-so improvement in machine orders, the TOPIX closed down 1.3%. And the Hang Seng is currently down almost twice as much, led lower by Tencent. But China’s CSI300 reversed an initial loss of some 1½% as expectations mount that the authorities will cut the one-year loan prime rate tomorrow and Shanghai started reopening shopping malls and allowed financial institutions to reopen too. US stock futures are pointing down today and European markets have opened roughly 1% lower too.

USTs and euro area govvies reverse only some of yesterday’s gains
Having rallied yesterday on the growth-scare narrative, so far today USTs are only slightly weaker, seemingly looking for direction. The same is true of euro area govvies ahead of the release at lunchtime of the account of last month’s ECB policy meeting, which is likely to underscore the likelihood of rate take-off in July. And Gilts are a touch weaker at the short end too. In the Asia-Pacific, however, ACGBs inevitably followed yesterday’s shift in USTs, down some 5-8bps across the curve, even as Australia’s unemployment rate dropped to 3.9%, the lowest level since 1974, despite only a modest 4k rise in employment as a decline in the number of part-time workers largely offset a big jump in the number of full-time jobs. Despite the lack of risk appetite, JGBs were only slightly firmer at the long end of the curve, with 30Y yields down a bp to close to 1.00%.

Japan’s trade deficit blew out to the largest for eight years amid a slump in exports and higher prices of imported goods
After yesterday’s GDP release confirmed that Japan’s economy contracted in Q1, today’s data pointed to subdued outlook for Q2 too. Admittedly, the value of exports rose in April for the second successive month (1.0%M/M) to be still 12½% higher than a year earlier. But this was dwarfed by a near-8%M/MM surge in the value of imports, to leave them up 28.2%Y/Y as the value of imported mineral fuels rose a whopping 109%Y/Y on the back of higher prices. As such, the adjusted trade deficit blew out to the largest (¥1.62bn) for more than eight years. When adjusting for price effects the weakness was more striking, with the BoJ’s measure of export volumes down (-6.0%M/M and -4.7%Y/Y) by the most since May 2020. This principally reflected pandemic-related weakness in shipments to China (-22.6%%Y/Y), the largest drop since February 2015 (and the GFC when excluding the months impacted by the timing of the Lunar New Year). And imports from China were down by more than 20%Y/Y too, with the total volume of imports down 9.0%Y/Y. Overall, today’s data suggest that net trade had an extremely weak start to the second quarter and remained a drag on GDP growth.

Machine orders point to subdued recovery in private sector capex in Q2
At face value, Japan’s machine orders numbers in March – a gauge for private sector capex – were more positive, with core orders up 7.1%M/M, the biggest monthly increase since October 2020. This reflected a strong rebound in orders placed by manufacturers (7.1%M/M) and non-manufacturers (11.0%M/M) alike, although the manufacturing data were exaggerated by likely one-off large orders in the non-ferrous metals (72%M/M) and ship building subsectors (70%M/M). Given weakness at the start of the year, orders by non-manufacturers were down more than 8.0%Q/Q in Q1, with total core orders down 3.6%Q/Q. And disappointingly, the Cabinet Office forecasts core orders to decline a further 8.1%Q/Q in Q2, with a more than 12%Q/Q drop in the non-manufacturing sector, suggesting that private sector capex will remain extremely weak for the time being.

ECB account from April policy-setting meeting to be watched for further policy guidance
The main focus in the euro area today will be the ECB’s account from the Governing Council’s 14 April policy meeting. That meeting saw the Governing Council indicate that, while future monetary policy decisions remained data dependent, the ECB’s net asset purchases were still likely to come to an end in Q3. While subsequent commentary has suggested this will occur right at the start of the quarter, the account might well provide further guidance on the extent of support for a first rate hike (and perhaps many more) to follow swiftly thereafter. Certainly, subsequent commentary from Governing Council members – including yesterday’s comments from Finnish Governor Olli Rehn that negative interest rates should end relatively quickly and Spanish Governor Hernandez de Cos (among the most dovish on the Governing Council) that the first hike should occur shortly after net bond-buying terminates – suggests that rate lift-off at the 21 July meeting is odds-on.

UK CBI manufacturing survey to flag challenges amid supply constraints and higher prices
Ahead of next week’s preliminary May PMIs, today’s UK CBI industrial trends survey is expected to paint a fairly bleak picture of conditions in the manufacturing sector amid ongoing concerns surrounding supply constraints and higher input costs. In April, the survey’s output index dropped to the lowest for more than a year, with a moderation in new orders and renewed weakness in overseas demand also reported. And the survey’s total orders index is expected to moderate further in May, reflecting greater pessimism regarding exports as well as concerns related to weakening domestic demand as real incomes decline.

US existing home sales to fall again as elevated inventory, prices and higher mortgage rates weigh
Following yesterday’s softer housing starts numbers, today brings US existing home sales data for April. Amid higher mortgage rates and elevated prices, pending home sales have declined for five consecutive months. And we expect existing home sales to have fallen in April too, for the fourth month out of the past five to their lowest level in almost two years. The Philly Fed business survey, Conference Board’s leading index and weekly jobless claims numbers also due. The Fed’s Kashkari is also due to take part in discussion about the impact of inflation on low-income households.