Deutsche Bank-DBDaily Weak US bond auction; UK CPI beats; DBs Hooper on ...-115538255

T2se3r0Ot6kwoPaT2se3r0Ot6kwoPaDistributed on: 21/05/2025 22:16:06 GMTDistributed on: 21/05/2025 22:16:06 GMT22 May 2025Deutsche BankResearch Global Economics DBDaily Date Weak US bond auction; UK CPI beats; DB's Hooper on US trade deficit Weak US bond auction; UK CPI beats; DB's Hooper on US trade deficitUSA: MBA mortgage applications (May 16): Down 5.2% from May 9.UK: CPI (Apr): Up 1.2% mom/3.5% yoy, above mkt.UK: House price index (Mar): Up 6.4% yoy.JPN: Trade deficit (Apr): At JPY115.8bn.US equities were weaker Wednesday, S&P down 1.6%, US10yr yields rose 11bps to 4.6%, highest since February. Sentiment turned sharply during the afternoon US session following weak demand at a $16bn auction for 20yr government bonds. 30yr US yields lifted to their highest level since October 2023.George Saravelos with a few thoughts following the poor US auction. The most troubling part of the market reaction is that the dollar is weakening at the same time, pointing to a foreign buyers' strike, that make it hard for US equities to stay resilient; the Asia investor base is key, solving the problem is not easy, and only Congress, not the Fed, can do it.A solid beat on UK CPI. Headline up 1.2%mom in April, consensus at 1.0%mom. Core at 3.8%yoy, consensus 3.6%. Services up 5.4%yoy, consensus 4.8%. Two takeaways: the surge in inflation here is likely a death knell for a June BoE rate cut, but unlikely to mean the end of a quarterly cutting cycle. Sanjay Raja with the details.Peter Hooper on Tariffs and the US Trade Deficit. DB's Vice Chair of Research Peter Hooper with a long-form assessment of US tariff policy. Contrary to conventional wisdom, Peter argues that tariffs could actually narrow the trade deficit to some extent: foreign retaliation to aggressive US tariff policy may prove to be more hesitant and muted than in the past, and tariffs have led to dollar depreciation rather than appreciation. A likely more effective and less painful path to trade deficit reduction would be remove all tariffs implemented this year and reduce the US budget deficit.US debt sustainability. Matt Luzzetti shows that the US would need to run a primary budget deficit-to-GDP ratio no larger than 1.2% to keep debt-to-GDP stable over the long-run. A similar calculation last year determined this ratio could have been double that (2.4%), with the deterioration almost entirely driven by the sharp Figure 1: Market summaryEquitiesFX S&P5005844.61-1.6% EURUSD 1.1329-0.09% Stoxx600553.820.0% USDJPY143.590.70% FTSE8786.460.1% GBPUSD 1.34180.04% TOPIX2732.88-0.2% USDCAD 1.38600.14% CSI3003916.380.5% AUDUSD 0.64350.34% VIX20.872.78 NZDUSD 0.59400.54%DebtCommodities UST104.600.11 Oil64.63-1.1% UST24.020.05 Gold3314.960.1% SFR43.830.03 CRB298.570.1% Copper467.200.4%Source : Deutsche Bank, Bloomberg Finance, L.P.Phil OdonaghoeEconomist+61-2-8258-1606Deutsche Bank AG/SydneyIMPORTANT RESEARCH DISCLOSURES AND ANALYST CERTIFICATIONS LOCATED IN APPENDIX 1. UNTIL 19th MARCH