Global

China, India Likely to be Biggest Shareholders in AIIB. China is likely to hold a 25% -30% stake in the new Asian Infrastructure Investment Bank (AIIB) while India will be the second-biggest shareholder, delegates said on Friday after a three-day meeting of the bank's founding member-nations. AIIB said in a statement that it expected to be operational by the end of the year. It said the meeting in Singapore finalised the articles of agreement, which are expected to be ready for signing by the end of June, but did not give details. In all, Asian countries are expected to own between 72% and 75% of the bank, while European and other nations will own the rest. (Reuters)

Malaysia

Cost-Push from GST Adds Just 0.9 Percentage Points to April Inflation. Consumer price inflation for April, the first month of the new Goods and Services Tax (GST), surprised the market on the downside. Headline inflation for the month was reported at just 1.8% YoY and 0.9% MoM, well below the median estimate of 2.2% YoY and our house estimate of 2.9%. The variance between the actual numbers and our estimate is likely due to us overestimating the quantum of price hikes. We had expected that businesses would take GST implementation as an opportunity to increase or ‘round-up’ prices. However, inflation data demonstrates otherwise. After stripping out other factors affecting inflation, the cost-push effect from GST added just 0.9 percentage points to consumer price inflation in April. (See Economic Viewpoint)

Asia

Bank of Japan Slightly More Upbeat on Economy. The BOJ offered a slightly more upbeat view of the economy on Friday and its governor shrugged off the need for more monetary stimulus, dismissing market concerns that the recovery is too slow to accelerate inflation toward the bank's target. Signalling its confidence the world's third-largest economy is out of the doldrums, the central bank revised up its assessment on private consumption and housing investment - areas hardest hit by last year's sales tax hike. Governor Haruhiko Kuroda said consumption is set to increase as wages rise, keeping Japan on path to hit the BOJ's 2% inflation target around the six months to September 2016. (Reuters)

IMF Says BOJ, Government Overly Optimistic. The International Monetary Fund warned the Bank of Japan will take longer than it expects to hit its inflation target even with more monetary easing, and said "bolder" structural reforms are required to shake off an entrenched deflationary mindset. In a statement after "Article 4" consultations with Japanese policymakers released on Friday, the IMF urged Prime Minister Shinzo Abe to speed up fiscal reform and not rely on "overly optimistic" estimates in fixing the country's finances. The value of the yen on a real, effective basis has broadly stabilized after weakening somewhat during the second half of 2014, it said. (Reuters)

Japan April Exports Rise 8.0% YoY. Japan's exports rose 8.0% in April from a year earlier, up for an eighth straight month, Ministry of Finance data showed on Monday, underlining a gradual pickup in external demand. The rise compares with a 6.4% annual increase seen by economists. It followed an 8.5% year-on-year rise in March. Imports fell 4.2% in the year to April, versus the median estimate for a 1.5% annual decrease. The trade balance came to a deficit of 53.4 billion yen ($439.3 million), versus the median estimate for a 318.9 billion yen deficit. In March the trade balance had marked the first surplus since June 2012. (Reuters)

Thailand Passes First Inheritance Tax to Raise Revenue. Thailand's military government has passed the country's first inheritance tax bill, as part of tax reforms to broaden the tax base and boost revenue in a lackluster economy. The bill, approved by the National Legislative Assembly late on Friday, will require inheritors of assets worth more than 100 million baht ($3 million) to pay tax above that threshold - at 5% for descendants and 10% for others. Finance Minister Sommai Phasee said last week with a tax rate of 5%, the government expected to collect about 3 billion baht per year. (Reuters)

IMF Urges Korea to Cut Rates to Stave Off Deflation Risk. The current slowdown in South Korea's economy could devolve into a protracted bout of deflation, the International Monetary Fund warned on Friday, urging the country's central bank to cut rates. The IMF also said the Korean won remains undervalued, and should be allowed to rise over time. But the immediate risk was that current stalled growth and weak inflation becomes "entrenched" as the country's export dependent economy struggles with weak global demand. The country's poor performance has led businesses to curb investment and caused households engage in "cash hoarding," a situation that may be difficult to reverse unless it is done soon, the IMF said. (Reuters)

Americas

Inflation Closer to Fed’s Goal After Core Prices Advance. The U.S. cost of living excluding what households pay for food and fuel climbed more than forecast in April, indicating inflation is gravitating toward the Federal Reserve’s goal. The core consumer-price index rose 0.3%, the biggest gain since January 2013 and reflecting broad-based increases, a Labor Department report showed Friday. In the last three months, core inflation advanced an annualized 2.6%, the most since August 2011. Including food and fuel, the gauge was up a more moderate 0.1% as prices fell at grocery stores and gas stations. Costs may continue to firm as fuel expenses rebound, apartment rents climb and health-care services become more expensive. Such price pressures should help Fed policy makers gain confidence in their forecast that inflation will move toward a 2% goal. (Bloomberg)

Brazil Delivers Big Spending Freeze to Regain Credibility. Brazil will freeze 69.9 billion reais ($22.58 billion) worth of spending on investment, education and health programs this year, limiting outlays in a bid to convince investors that President Dilma Rousseff is committed to saving the nation's investment-grade rating. In addition to cutting the budget, Rousseff earlier on Friday raised the income tax for banks, another sign that her government is ready to push ahead with austerity despite stiff political opposition. The budget freeze, which was in line with market expectations, was the largest since Rousseff took office in 2011 and will bring discretionary government spending back to levels of 2012. (Reuters)

Europe

German Business Morale Weakens and Trade Dampens Q1 Growth. German business morale deteriorated slightly in May for the first time in seven months though it remained at a high level overall, a leading survey showed, adding to signs of softening in Europe's largest economy. Munich-based Ifo think tank said its business climate index, based on a monthly survey of 7,000 firms, edged down to 108.5 in May from 108.6 in April. That was slightly above the consensus forecast for 108.3. Separately, first quarter GDP data was confirmed at quarterly growth of 0.3%. A detailed breakdown of first quarter data showed domestic demand contributed 0.5 percentage points to GDP growth while foreign trade subtracted 0.2 percentage points as imports rose almost twice as strongly as exports. (Reuters)

BOE’s Carney Expects U.K. to Close Its Output Gap in Next Year. The U.K. economy should close its economic output gap within the next year, Bank of England Gov. Mark Carney said Friday, adding that much of the recent weakness in inflation is due to food and energy prices. “We think we can close the output gap within the next year,” Mr. Carney said at a conference organized by the European Central Bank. Much of that is because the U.K. economy’s growth potential has slowed, Mr. Carney said. Productivity in the U.K. should pick up pace, Mr. Carney said, but added he doesn’t expect it to return to historical averages any time soon. (The Wall Street Journal)

Greece 'Cannot Afford IMF Repayment' in June. Greece cannot make a repayment to the International Monetary Fund (IMF) due on 5 June as it does not have the money, the interior minister says. "The four instalments for the IMF in June are €1.6bn, this money will not be given and is not there to be given," Nikos Voutsis told Greek TV. Greece has to come to a deal with the IMF and EU to secure the final tranche of its bailout from the institutions. (BBC)

Currencies

Dollar Rallies on U.S. Price Data, Fed's Yellen Rate Talk. The U.S. dollar turned higher on Friday, spurred off early losses after a U.S. inflation report that indicated underlying pressures are building bolstered the case for the U.S. Federal Reserve to raise interest rates later this year. Remarks by Fed Chair Janet Yellen later in the day that a rate increase was on track this year added support for the greenback. The euro fell 0.99% to a session low of $1.10025 on the EBS trading platform. It was the weakest point since April 29. For the week the euro is down 3.83%, its worst performance since September 2011. Against the yen, the dollar climbed 0.45%, to 121.57 yen, a 10-week high. For the week, the dollar is up 1.95% against the Japanese currency, its best weekly tally since early December. (Reuters)

Commodities

Oil Down 2% Ahead of Long U.S. Memorial Day Weekend. Oil fell about 2% on Friday as a rallying dollar and profit-taking ahead of a long U.S. holiday weekend cut short a two-day run-up in crude prices. Worries that fewer U.S. oil rigs were being idled after a broad rebound in crude prices since early April further weighed on sentiment. Drillers cut the number of U.S. oil rigs in operation by just one last week, the strongest sign yet that a nearly six-month slump in activity was ending, data from oil services firm Baker Hughes showed. U.S. crude settled down $1, or 1.7%, at $59.72. It rose 3 cents for the week though, extending weekly gains for a 10th straight week. North Sea Brent oil settled down $1.17, or 1.8%, at $65.37 a barrel. Brent fell 2.1% on the week. (Reuters)

Gold Falls as Yellen Points to Rate Hike, Dollar Jumps. Gold eased on Friday, on course for its first weekly decline in four weeks, after U.S. Federal Reserve Chair Janet Yellen said she expected an interest rate hike this year. The dollar extended gains following the speech, after initially climbing on a stronger-than-expected rise in U.S. core consumer prices in April. Spot gold, higher initially, fell 0.1% to $1,204.72 an ounce by 1900 GMT. It was down 1.6% for the week. Investor sentiment toward gold has turned bearish as prices have fallen from three-month highs reached earlier last week. Silver was down 0.6% at $17.02 an ounce, heading for a 2.6% weekly fall. Platinum dropped 0.9% to $1,141.74 an ounce and palladium fell 0.7% to $783.50 an ounce. (Reuters)