WORLDWIDE: HEADLINES 

Japan’s April Factory Output Slumps In Worrying Sign For Economy

Japan’s factories posted a sharp fall in output in April as China’s COVID-19 lockdowns and wider supply disruptions took a heavy toll on manufacturers, clouding the outlook for the trade-reliant economy. 

Separate data showed retail sales posted the largest rise in nearly a year as consumers stepped up spending after the government eased pandemic curbs, withstanding pressure from wider price rises that threaten to hurt demand. 

Factory output dropped 1.3% in April from this previous month, official data showed on Tuesday, on sharp falls in the production of items such as electronic parts and production machinery.  

It was the first fall in three months and much weaker than a 0.2% decline expected by economists in a Reuters poll.  

The data comes a day after Toyota Motor Corp (7203.T), the world’s largest automaker by sales, missed its global production target for April after output fell more than 9% year-on-year. 

Toyota’s output slump last month came after the Japanese carmaker on Friday cut its global production plan for June and signalled the possibility of lowering its full-year output plan of 9.7 million vehicles. 

Full coverage: REUTERS 

U.S. House Price Inflation To Cool As Buyers Sidelined By Higher Rates: Reuters Poll 

Burning U.S. house price inflation will cool to 10%, half its current rate this year, and slow further over the next two as already very expensive homes and climbing mortgage rates sideline more prospective homebuyers, a Reuters poll found. 

Supported by near-zero borrowing costs and a rush by existing homeowners to find more space, average U.S. house prices have soared by over one-third since the pandemic started. But that unexpected boom is petering out already. 

The Federal Reserve has raised its key interest rate by a cumulative 75 basis points since March, with more expected this year and next, pushing up the key 30-year fixed mortgage rate above 5% in April and to its highest in more than a decade. 

The May 10-30 poll of 28 property analysts showed U.S. house prices would rise 10.3% on an average this year based on the Case/Shiller index. That would be half their current pace of around 20%, the fastest since comparable records began in 2001. 

“The rise in home prices has been staggering, and we do expect a significant slowdown going forward, particularly in the wake of a near-doubling of mortgage rates,” said Brad Hunter, head of consultancy Hunter Housing Economics. 

“Young families are already struggling to find a single-family home they can afford, and the increase in mortgage rates will only worsen this problem.” 

Full coverage: REUTERS 

WORLDWIDE: FINANCE/BUSINESS 

Stocks Dip, Bonds Drop As German Surprise Renews Inflation Fears 

Stocks wobbled and bonds fell in Asia, while the dollar rose on Tuesday after a hot inflation reading in Germany heightened nerves about the pace and scale of looming interest rate hikes. 

Rising energy prices added to worry about the persistence of consumer pain. Brent crude futures touched a two-month top of $122.43 a barrel after the European Union vowed to slash imports of Russian oil by year’s end. 

U.S. treasuries slumped on return from Monday’s U.S. holiday, sending the yield of the 10-year bond up nearly 10 basis points (bps) to 2.8405%. 

German bund yields rose 8.1 bps overnight after German consumer prices increased at their fastest pace in half a century, strengthening the case for an outsized European Central Bank interest rate hike in July. 

Eurozone inflation data is due later on Tuesday. 

Chinese Purchasing Managers’ Index (PMI) figures showed another month of contraction in services and manufacturing activity, though at a reduced pace of decline. 

In equities, S&P 500 futures gave up early gains to fall back to flat early in the Asian session, and Nasdaq 100 futures were up 0.4%. MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) snapped a two-day winning streak and dropped 0.2%. Japan’s Nikkei (.N225) fell 0.1%. 

Full coverage: REUTERS 

Euro Edges Down But Set For Largest Monthly Gain In A Year

The euro gave back some of its recent gains on Tuesday, but was still set for its best month in a year as markets reposition in anticipation of interest rate increases in Europe and the possibility of a slower pace of U.S. rate hikes. 

The euro was at $1.0745, down 0.3%, having hit a five-week high of $1.0786 overnight, as German inflation rose to its highest level in nearly half a century in May on the back of soaring energy and food prices. 

This strengthens the case for more aggressive rate rises from the European Central Bank, which is expected to start to raise rates in July for the first time since the pandemic began. 

Eurozone CPI data is due later on Tuesday, and CBA analysts said the German data implied a possibility that this could come in above expectations as well. 

In addition, “There are a number of ECB officials speaking tonight, no doubt talking up the prospects of higher European interest rates,” they said in a note to clients. 

The euro is also set for a 2.2% gain in May, which would be its biggest monthly rise in a year. 

The dollar index was at 101.63, having fallen to a five-week low of 101.29 overnight. The index measures the greenback against six peers with the largest weighting given to the euro. 

Full coverage: REUTERS  

Oil Prices Rise After EU Bans Most Russian Oil Imports 

Oil prices rose on Tuesday after EU agreed to slash oil imports from Russia by the end of 2022, fuelling worries of a tighter market already strained for supply amid rising demand ahead of peak U.S. and European summer driving season. 

Brent crude futures for July, which expires on Tuesday, gained 33 cents to $122 a barrel at 0054 GMT. The more active August contract rose 33 cents to $117.93. 

U.S. West Texas Intermediate (WTI) crude futures were trading at $117.31 a barrel, up $2.24 from Friday’s close. There was no settlement on Monday due to a U.S. public holiday. 

European Union leaders agreed in principle to cut 90% of oil imports from Russia by the end of 2022, resolving a deadlock with Hungary over the bloc’s toughest sanction yet on Moscow since the invasion of Ukraine three months ago. 

However, some experts said oil price gains may be muted as the market had already priced in the supply constraints. 

Almost every EU member was on board with the ban, suggesting the market was “already pricing in EU self-sanction and significantly less Russian oil flowing to Europe this year”, SPI Asset Management Managing Partner Stephen Innes told Reuters. 

Full coverage: REUTERS