Global Macro Commentary: May 22: Hawkish Repricing Returns

Research evidence excerpt

Global Macro Commentary: May 22: Hawkish Repricing Returns

UpdateM• The dollar was unchanged against most G10 peers as widening US rate

differentials offset periods of improved risk sentiment tied to geopolitical

optimism (DXY +0.0%). USD/JPY rose to 159.16 (+0.1%) as higher US front-

end yields outweighed intervention concerns, though Japanese officials

reiterated that “all measures” remained available to address excessive FX

volatility. GBP/USD gained 0.1% to 1.34 as gilt yields rallied sharply following

weak UK retail sales data, while EUR/USD edged 0.1% lower to 1.16 despite

improved German business confidence data and softer negotiated wage

growth. USD/CAD rose 0.3% to 1.38 as markets reassessed the divergence

between Fed and BoC policy expectations following softer Canadian inflation

dynamics. SEK continued to outperform on a weekly basis, while NOK lagged

amid volatile oil price action.

• In Japan, April nationwide CPI missed market expectations in the Tokyo

morning, but the initial reaction in sub-10y sectors was limited. As energy-

driven inflation is widely expected ahead, medium- to long-term sectors

cheapened heading into the Tokyo morning session close. Meanwhile, the

super long end continued to outperform on the curve amid improved

sentiment. In the Tokyo afternoon session, short- to medium-term sectors

richened with a rally in JGB futures. As inflation concerns have been well

priced in and April CPI was weak, the current pricing of these sectors may

encourage buying the dips. Ultimately, JGB curve rallied in both edges of the

curve; 2y JGB rallied by 1.0bp to 1.43%, 10y JGB unchanged at 2.76%, 30y JGB

rallied by 1.0bp to 4.01% on a simple yield basis. TONA-OIS rallied in 5-10y

sectors but underperformed JGBs except 10y sector. USD/JPY remained in a