French confidence indices rebound

• French business and consumer confidence rebounded in May, with the INSEE official statistics agency saying its monthly business climate index jumped to 108 from 96 in April, its highest print since April 2018. The pickup comes as a third national lockdown was lifted, with confidence rebounding across all sectors as non-essential businesses were allowed to reopen on May 19 for the first time since early April. The INSEE's consumer sentiment index rose to 97 points from 95 in April, the highest since March 2020 when the pandemic was in its initial stages. The survey showed households' pessimism about the economic outlook and concerns about unemployment were at their the lowest since the crisis started.
• ECB board member Fabio Panetta said on Wednesday that the European Central Bank should not reduce the pace of asset purchases from next month, joining a growing group of policymakers calling for continued stimulus. With the recovery in the Eurozone well underway, pressure is growing on the ECB to start withdrawing its emergency measures. But several key policymakers have pushed back in recent days, suggesting that any reduction in asset buys after the June 10 policy meeting is highly unlikely. ECB President Christine Lagarde said last week that any talk of tapering was premature, while Greek central bank chief Yannis Stournaras made a similar call on Tuesday. The ECB's EUR 1.85tn PEPP is set to run until the end of March 2022.
• Federal Reserve policymakers have begun to acknowledge they are closer to debating when to pull back some of their crisis support for the US economy. San Francisco Federal Reserve Bank President Mary Daly told CNBC on Tuesday that the Fed is talking about tapering some of the USD 120bn in monthly asset purchases. Her comments were echoed by Vice Chair Richard Clarida who also opened the door to talking about the Fed tapering at some point, in an earlier interview on Tuesday. Those suggestions that talking about tapering could become appropriate is a shift from just a month ago when Chair Jerome Powell said it was not yet time to even contemplate having that conversation. The Fed has promised it won't raise rates until the economy is back to full employment and it sees inflation reach 2% and decisively break that level. However, since the April meeting, two regional Federal Reserve bank presidents have publicly urged that the discussion begin soon, while others have highlighted the risks price increases could spur an inflationary cycle.
• Ratings agency S&P expects the aggregate budget deficit for the GCC to decline to around USD 80bn this year from USD 143bn in 2020 on higher oil prices, reducing the region's borrowing requirements.  S&P noted however that historically, higher oil prices have slowed fiscal reforms.  S&P expects GCC debt issuance to average USD 50bn per year through 2024, down from almost USD 100bn in 2017.

Today’s Economic Data and Events

16:30 US Core Durable Goods Orders (MoM) (Apr) Forecast 0.70%

16:30 US GDP (QoQ) (Q1) Forecast 6.50%

16:30 US Initial Jobless Claims Forecast 425K

18:00 US Pending Home Sales (MoM) (Apr) Forecast 1.10%

Fixed Income

• Treasuries held to a narrow range overnight, spending much of the day gaining before selling off late in the session causing yields to close slightly higher. Yields on the 2yr UST settled at 0.1485%, up less than 1bp, while the 10yr yield moved to 1.5757%, a gain of a bit less than 2bps.
• Randal Quarles, one of the Fed’s vice chairs, said that the FOMC could begin discussing tapering asset purchases over the coming months if economic growth and inflation move higher. He also noted that the Fed’s language around employment was a challenge to interpret in markets as it can’t be reduced to a single observable metric.
• Local currency emerging markets bonds were mixed overnight. Turkish 10yr government bond yields rose 11bps to 17.58% while South African yields were flat as were bond yields in India.
• Mubadala is reportedly in the market for 10yr and 30yr issues with initial pricing around 130bps over midswaps and 3.7% respectively.

FX

• Treasuries held to a narrow range overnight, spending much of the day gaining before selling off late in the session causing yields to close slightly higher. Yields on the 2yr UST settled at 0.1485%, up less than 1bp, while the 10yr yield moved to 1.5757%, a gain of a bit less than 2bps.
• Randal Quarles, one of the Fed’s vice chairs, said that the FOMC could begin discussing tapering asset purchases over the coming months if economic growth and inflation move higher. He also noted that the Fed’s language around employment was a challenge to interpret in markets as it can’t be reduced to a single observable metric.
• Local currency emerging markets bonds were mixed overnight. Turkish 10yr government bond yields rose 11bps to 17.58% while South African yields were flat as were bond yields in India.
• Mubadala is reportedly in the market for 10yr and 30yr issues with initial pricing around 130bps over midswaps and 3.7% respectively.

Equities

• US equities closed moderately higher yesterday, bolstered by dovish statements by Fed officials – albeit with an acknowledgment that the need to start talking about tapering was nearing. The Dow Jones closed flat, but the S&P 500 (0.2%) and the NASDAQ (0.6%) both ended up.
• It was more mixed in Europe, where the FTSE closed down marginally and the CAC up marginally, while the DAX lost -1%.
• Within the region, the DFM gained 1.0% but the ADX gave up some of its recent gains, falling -1.0%. In Egypt, the EGX 30 lost -1.5% yesterday.

Commodities

• Oil prices extended their gains for a fourth day running with Brent futures up 0.32% at USD 68.87/b and WTI settling up 0.21% at USD 66.21/b. Murban again tested lower by 0.15% to USD 67.89/b.
• Data from the EIA reported draw in US commercial crude stocks of 1.7m bbl last week along with draws in gasoline and distillates. Demand rose an additional 684k b/d last week to 19.96m b/d while production remains flat at 11m b/d.

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