Headlines:Dollar, yen bid across the board on risk-off vibesBitcoin in big trouble as plunge below $30,000 looks to holdNo brakes on the Chinese yuan slide just yetECB’s Kažimír: Ready to hike in JulyECB’s Makhlouf: The era of negative rates is reaching its conclusionUK Q1 preliminary GDP +0.8% vs +1.0% q/q expectedSwitzerland April producer and import prices +1.3% vs +0.8% m/m priorMarkets:JPY leads, AUD and NZD lagEuropean equities lower; S&P 500 futures down 0.4%US 10-year yields down 7 bps to 2.844%Gold down 0.3% to $1,847.43WTI crude down 1.3% to $104.33Bitcoin flat at $28,411It is a risk-off day in markets in general but not without a side dish of drama in the crypto space.The infamous Tether lost its $1 peg today, following suit from Terra’s crash from its own $1 peg this week. That sent cryptocurrencies into a spiral with Bitcoin tumbling to $25,000 levels at one point before steadying a little.Elsewhere, the bout of risk aversion continues to carry on as well. European equities slumped and are down nearly 2% across the board in catching up to Wall Street losses yesterday while US futures are also keeping lower across the board, with tech lagging again.The bond market remains bid for a fourth straight day this week and that is keeping things more interesting but a key implication for currencies is that it is helping to bolster the yen after its freefall since March.USD/JPY is down 1% to 128.60 levels as the yen is the runaway leader in the FX space. The dollar is the other beneficiary from the risk-off mood as it is posting a solid advance across the board as well.EUR/USD is down 0.8% to fresh lows since January 2017, eyeing the 1.0400 level. Meanwhile, GBP/USD dribbled lower to 1.2165 before recovering slightly now to 1.2210 but still down 0.3% on the day.The aussie and kiwi are the laggards in a classic tale of risk aversion today, with AUD/USD falling 0.9% to 0.6875 now – its lowest since June 2020.In the commodities space, oil is also down a little over 1% at around $104 but is arguably still rather resilient. Meanwhile, silver is one of the more notable movers as it is down over 2% and falling below $21 for the first time since July 2020.

It is time to move to end of APP next month or in JulyCurrent level of inflation is concerningRealistic to expect that rates are likely to be in positive territory by early next yearECB continuing on a path towards normalisation of policyFor one of the dovish members to come out with such an angle, I think it is rather evident that there has been a perception shift within the ECB. A rate hike in July seems all but a given now. However, despite the many policymakers calling for the end of negative rates, it may yet be a case of one that is too early to call.

The official goes on to deny rumours of a city-wide lockdown and „quiet-mode management“, adding that there is no need to stock up on food and supplies. We’ll see how things go but for now, China is still nowhere near abandoning their supposed ‚zero covid‘ policy and that remains a tail risk for the global economy.

A look at European indices at the moment:

Eurostoxx -2.3%
Germany DAX -2.2%
UK FTSE -2.2%
France CAC 40 -2.3%
Spain IBEX -1.5%
Italy FTSE MIB -1.7%

It’s looking rough out there though for European stocks, they are in part playing catch up to the sharp decline in Wall Street yesterday. That said, the overall market mood today isn’t looking good either. S&P 500 futures are down 0.7%, Nasdaq futures down 1.1%, and Dow futures down 0.6% currently.
The S&P 500 looks set to seal a break below its 100-week moving average if this keeps up:

He makes mention in a tweet (as per below). Well, all expectations are pointing towards that and markets are also well primed for it at this stage.

Headlines:An early shift towards ‚peak inflation‘ on the day?Bond sellers take their foot off the gas pedalECB’s Lagarde: APP should be concluded early in Q3ECB’s Vasle says supports further, faster policy actionECB’s de Guindos: Euro area inflation to remain at 4% to 5% at year-endECB’s Müller: Appropriate to raise rates into positive territory by year-endMore from Villeroy: ECB will start raising rates this summerECB’s Villeroy: Inflation should be back at around 2% in 2024US MBA mortgage applications w.e. 6 May +2.0% vs +2.5% priorGermany April final CPI +7.4% vs +7.4% y/y prelimMarkets:AUD leads, USD lags on the dayEuropean equities higher; S&P 500 futures up 1.2%US 10-year yields down 6.3 bps to 2.930%Gold down 0.8% to $1,851.60WTI crude up 4.2% to $103.90Bitcoin up 1.7% to $31,517The focus on the day is on the US CPI release coming later at 1230 GMT but markets are seemingly running with the idea that we’re settling into the ‚peak inflation‘ narrative already.The dollar dropped while equities and bonds were bid throughout the session. European indices are posting solid gains of around 1.5% to 2.% while 10-year Treasury yields settled below the 3% mark, down 6 bps to 2.93% currently.In FX, the greenback held weaker across the board with AUD/USD up over 1% back above the 0.7000 mark while USD/JPY is down 0.5% to below 130.00 at around 129.70 levels at the moment.The better risk mood is helping with sentiment among commodity currencies, with USD/CAD dragged down 0.5% to 1.2960 – mired between large expiries at 1.2950 and 1.3000 on the day. The loonie is also benefiting from higher oil prices with WTI crude up over 4% to near $104 as Shanghai’s COVID-19 situation saw an improvement, bringing about hope for loosening of restrictions.All eyes now turn towards the inflation data in the US, so let’s see what that has to offer as it will likely set the tone for markets for the remainder of the week as well.

Prior +2.5% Market index 358.9 vs 351.8 prior Purchase index 255.4 vs 244.4 prior Refinancing index 913.6 vs 932.3 prior 30-year mortgage rate 5.53% vs 5.36% prior The average 30-year home loan rate in the US rose to its highest level since 2009 last week to 5.53% but that didn’t quite stop demand for mortgages, as applications ticked higher for a second week running. Despite the improvement in purchases on the week, it still doesn’t take away from the fact that the level is 8% lower than it was in the same week a year ago. The housing market continues to offer mixed signals with house prices still flashing double-digit annual price growth despite mortgage activity falling rather considerably since last year: US dollar

Lindner says that Germany must „find an exit from crisis mode“, noting that it is possible to return to the ‚debt brake‘ next year.But if there’s one thing that we’ve learnt during the pandemic is that fiscal spending knows no bounds and the numbers don’t really matter at the end of the day. If the rest of the world continues to get away with it, Germany might as well too.For some context, the ‚debt brake‘ is meant to work in the sense that Germany’s fiscal deficit should not exceed 0.35% of its GDP but has since been suspended due to the pandemic situation.

Just a couple to take note of for the day, as highlighted in bold.That being for USD/CAD at 1.2950 and 1.3000, which is arguably trapping price action ahead of the US CPI report release later in the day. The key risk event will eventually dictate sentiment and the market will reaction accordingly but for now, the expiries will perhaps play a role in keeping price action more limited.For more information on how to use this data, you may refer to this post here.

The focus on the day ahead of the US CPI report release is whether or not we’ve hit ‚peak inflation‘. In essence, it’s easy to argue that we are likely to see weaker inflation readings in the months ahead and that is perhaps all that markets care about – at least for now.But in the big picture view, I think one needs to make a distinction on what happens to the inflation outlook thereafter. A ‚peak‘ suggests that we are likely to see inflation pressures fall back down and towards central banks‘ 2% target in some pattern (one way or another). However, in all likelihood, we should see inflation hit more of a ‚plateau‘ instead in my view.There’s no easy solutions to the world’s problems in resolving the issues that have caused inflation pressures to skyrocket in the past year. And those issues aren’t going away just yet.While it is plausible to expect less hot inflation numbers moving forward, it doesn’t mean that we will see inflation pressures cool significantly.And that may present itself to be a problem for central banks in the latter stages of the year or early next year perhaps.While it is easy to hike rates when inflation is high and argue that it will eventually come back down to 2% some day, it isn’t so easy when that some day keeps getting pushed back further and further.At some point, policymakers may need to acknowledge that inflation pressures are going to be more persistent and sticky and if they are to try and combat that further, it may require tighter policy for longer. And in the case of the Fed, that could mean guiding the Fed funds rate to a higher terminal rate than expected.So, have we seen peak hawkishness by central banks? Maybe, at least in terms of what is priced in based on ‚peak‘ inflation. But what happens when markets start to turn towards an inflation ‚plateau‘ instead? That is going to be an interesting shift in perspective and pricing.Naturally, economic conditions will also factor into the equation for central bank policy moves but that will challenge their resolve in trying to defeat the inflation monster. I mean if the economy crumbles while inflation is still high with Fed funds rate at 3% or higher, the Fed will arguably have to admit that there has to be a policy mistake somewhere. That’ll be quite the moment.