NATGAS: European Gas Rises On Fading Hopes Of Hormuz Reopening To Aid Refilling

• CHINA PBOC CONDUCTS CNY500 MLN VIA 7-DAY REVERSE REPO SAT

US data focus will firmly be on a latest round of inflation updates (CPI Tuesday, PPI Wednesday) after Friday’s nonfarm payrolls report for April ruled out downside risks to the labor leg of the Fed’s dual mandate. 

• Consensus at typing again looks for another strong headline CPI inflation print (0.6% M/M sa) driven by energy prices with limited feedthrough to core inflation (0.3% M/M sa).
• That would however be higher feedthrough to core than was the case in March when headline increased 0.87% M/M and core 0.20% M/M, undershooting elevated expectations.
• Risks could be skewed higher for core with a reversal of a government shutdown distortion which has artificially lowered the core Y/Y rate by circa 0.1pp since October. This upward technical distortion aside, expect focus within core to be on those categories most likely to see price pressures from higher transportation costs.
• Airfares are particularly sensitive with the usual caveat that the PPI series is used for PCE calculations whilst we watch for any offsetting impact from softer hotel prices. On the latter, the accommodation sector saw one of the largest monthly declines in the April payrolls report. Beyond energy spillover, there will also likely be attention on broader core goods inflation after it softened again in March despite tariff related pressures earlier in the year.
• PPI inflation meanwhile will as usual be watched for PCE specific components and broader pipeline pressures, the latter after March’s report was much tamer than expected in the headline aggregates.

• US Treasuries are firmer after the bell, cautious support ahead of the weekend sees TYM6 near flat for the week at 110-23 (+6.5). Perhaps less tied to optimism over US/Iran de-escalation and more that tensions had not increased as a tenuous cease fire continues (despite some on/off sniping by both sides as the Strait of Hormuz remains closed.
• Treasuries pared early support in a soft reaction after Iran state media reported Iran is "PREPARING PLAN FOR 'LEGAL REGIME' OF STRAIT ... STRAIT OF HORMUZ PLAN WILL BECOME PERMANENT LAW: TASNIM" BBG."
• Litte reaction: "Requested by ME" Trump posts on his social media platform - an expected three day ceasefire between Russia and Ukraine: "I am pleased to announce that there will be a THREE DAY CEASEFIRE (May 9th, 10th, and 11th) in the War between Russia and Ukraine.
• The U.Mich consumer survey saw sentiment fall to a fresh record low in the preliminary May reading whilst consumer expectations underwhelmed as they eased back from April’s levels after a swift increase. U.Mich consumer sentiment fell to 48.2 (cons 49.5) in the preliminary May reading from 49.8 in April for a fresh record high.
• Nonfarm payrolls were easily stronger than expected in April as they increased a seasonally adjusted 115k (sa) compared to Bloomberg consensus of 65k and a primary dealer median of 70k. Only one analyst in that primary dealer survey had looked for higher, Jefferies with 135k.
• Cross asset: June WTI contract trades $95.25/bbl last; Bbg US$ index holding near lows (BBDXY -2.67 at 1187.75), Stocks mostly higher: the tech-heavy Nasdaq and SPX emini made new record highs of 7427.75 and 26218.46 respectively, while the DJIA remains well off mid-February record high of 50,512.79.