Notes/Observations
Euro Zone Apr final CPI confirms improvement in core reading
CBOE Volatility Index rises 10.9% to 11.74 (highest reading since Apr 24th)
Overnight:
Asia:
BOJ Gov Kuroda: Inflation remained far from target; told PM Abe that central bank to continue with current easing policy. No comment about whether talks discussed his reappointment to BOJ.
S&P affirmed Australia AAAsovereign rating; outlook remained negative
Europe:
ECB’s Coeure (France): recent measurable increase in long-term yields has not affected our monetary policy stance
Americas:
President Trump reportedly asked former FBI Director Comey to shut down investigation into National Sec Adviser Flynn, according to memo Comey wrote. Comey said to have created similar memos about every phone call and meeting he had with the president
White House says the President never asked Comey to end the Flynn investigation
Energy:
Weekly API Oil Inventories: Crude: +0.9M v -5.8M prior; first build in 3 weeks
Economic Data
(AT) Austria Apr CPI M/M: 0.2% v 0.6% prior; Y/Y: 2.1% v 1.9% prior
(IT) Italy Mar Total Trade Balance: €5.4B v €1.9B prior; Trade Balance EU: €1.3B v €0.2B prior
(UK) Apr Jobless Claims Change: +19.4K v +25.5K prior; Claimant Count Rate: 2.3% v 2.2% prior
(UK) Mar Average Weekly Earnings 3M/Y/Y: % v 2.4%e; Weekly Earnings (ex Bonus) 3M/Y/Y: % v 2.1%e
(UK) Mar ILO Unemployment Rate 3M/3M: % v 4.7%e
(EU) Euro Zone Apr CPI M/M: 0.4% v 0.4%e; Y/Y (Final reading): 1.9% v 1.9%e; CPI Core Y/Y(Final reading): 1.2% v 1.2%e
Fixed Income Issuance:
(EU) EFSF opened book to sell 16-year bonds via syndicate; guidance seen at +7bps to mid-swaps
(DK) Denmark sold DKK 5.01B in new 2020 bond; Yield -0.34%; bid-to-cover: 2.48x
(IN) India sold total INR140B in 3-month and 6-month Bills (INR80B and INR60B respectively)
(EU) ECB allotted $40M in 8-day USD Liquidity Tender at fixed 1.41% vs $35M prior
(SE) Sweden sold total SEK2.5B in 2022 and 2032 Bonds
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
Indices [Stoxx50 -0.2% at 3271, FTSE flat at 7523, DAX -0.4% at 12753, CAC-40 -0.5% at 5378, IBEX-35 -0.4% at 10937, FTSE MIB -0.6% at 21648, SMI -0.4% at 9088, S&P 500 Futures -0.5%]
Market Focal Points/Key Themes
European Indices have been on the back foot this morning with overnight press speculation that President Trump had asked Former FBI director James Comey to stop the investigation into Michael Flynn.The FTSE 100 is outperforming this morning, with the Italian FTSE MIB the laggard being weighed down by Fiat Chrysler shares on the back of reports the EU will open proceedings against Italy over exhaust emissions. On the earnings front Bouygues shares trading higher after reporting a narrower loss for the year, where as ABN Amro is under pressure following Q1 results. Looking ahead to the US morning, notable earnings due from retailer Target, and American Eagle.
Equities
Consumer discretionary [Coats [COA.UK] +6.8% (Trading update, raises outlook), Ubisoft [UBI.FR] -6.3% (Earnings)
Industrials: [Fiat Chrysler [FCA.IT] -1.5% (Reported investigation in to emissions), Lenzing [LNZ.AT] -13% (B&C sells 3.34M shares for €164.25/shr ), ThyssenKrupp [TKA.DE] +3.8% (TATA Steel UK Pension deal)]
Financials: [Countryside properties [CSP.UK] +1.4% (Earnings), Foxtons [FOXT.UK] -3.4% (trading update), ABN Amro [AABN.NL] -3.0% (Earnings), LLoyds [LLOY.UK] +2.2% (Government divests remaining stake), Flow traders [FLOW.NL] -8.5% (Earnings)]
Utilities: [Suez Environment [SEZ.UK] -1.0% (Capital Increase)]
Energy: [Tullow Oil [TLW.UK] +4.0% (Oil discovery in Kenya)]
Speakers
BOE Agents Summary: Consumer spending growth has moderated in real terms. spending power had been hit by higher prices. Consumer goods price inflation had picked up markedly. Recruitment conditions had tightened a little further, with skills shortages reported in a wider range of activities
EU’s Tusk reiterate in EU Parliament that its stance on Brexit negotiations must be based upon a phased approach; to make guideline more precise when the time comes
EU’s Chief Brexit negotiator Barnier: Wanted to start Brexit vote after June 8th UK vote; no intention to end up with no deal. Sequencing was crucial to success of negotiations; had to settle accounts with UK but no figures set yet for EU demands that UK pay before leaving. Amount depended on methodology and exit date
German Dep Fin Min Spahn: There will be negative side effects unless monetary policy normalizes
Iceland Central Bank Statement noted that inflation outlook had improved for 2017 and 2018 period but had deteriorated further out on the forecast horizon. Scaled down its intervention in the FX market in view of its stronger foreign exchange reserves. Appreciation of the ISK currency (Krona) was considered to reflect economic fundamentals. Prospect of more fiscal easing in 2017 than previously forecasted
China FX Regulator SAFE: April domestic FX demand was more balanced
Currencies
Diverging rate differential starting to take on a new effect.
USD continued to be on the defensive with dealers attributing some attributes regarding rising concerns over Trump, President Trump reportedly asked former FBI Director Comey to shut down investigation into National Sec Adviser Flynn, according to memo Comey wrote. Comey said to have created similar memos about every phone call and meeting he had with the President. A recent spat of softer US economic data also the greenback at bay with the number of Fed rate hikes steady at 3 for 2017. Recent positive data from Europe has started the call for ECB to think about normalizing its monetary policy.
GBP was little phased by April Claimant Count data that rose by over 19K and the Claimant Count Rate ticked higher to 2.3%. The ILO Unemployment rte fell to its lowest level since 1975 with its 4.6% reading.
The JPY currency was firmer as some risk aversion crept back into sentiment. South Korea President Moon says "high possibility" of conflict with North . USD/JPY was softer by 0.5% at 112.50 area
Fixed Income
Bund futures trade at 160.67 up 25 ticks, approaching last week’s high of 160.99. Initial resistance comes from the 161.01 level, while medium –term resistance lies near the April 27th high of 162.01 level followed by 163.68. A break of 160.01 support level could see lows target 159.01 followed by 157.50.
Gilt futures trade at 128.04 higher by 39 ticks, but off the highs of 128.21 after UK jobless claims and unemployment rate came in better than expected. Last week’s rally saw a pause from the continuation of the pullback from the 129.14 April 18th high. Price still finds key support at the 126.41 support level. An acceleration lower could test the 125.80 region. Resistance remains the 128.51 level then 129.14 followed by 132.80.
Wednesday’s liquidity report showed Tuesday’s excess liquidity declined to €1.6510T a drop of €2.6B from €1.6536T prior. Use of the marginal lending facility fell to €191M from €227M prior.
Corporate issuance saw over $11.2B come to market via 7 issues headlined by Morgan Stanley $3.25B in 5-year senior unsecured benchmark bonds, PNC Financial Services Group 3-part US benchmark note offering, and BNP Paribas $1B in 5-year non-preferred bond.
Looking Ahead
(IL) Israel May CPI Forecast: No est v 0.6% prior
(BR) Brazil May CNI Industrial Confidence: No est v 53.1 prior
05:30 (DE) Germany to sell €1.0B in 2.5% July 2044 bunds
05:30 (PT) Portugal Debt Agency (IGCP) to sell 6-month and 12-month bills
06:00 (PT) Portugal Apr PPI M/M: No est v -0.3% prior; Y/Y: No est v 4.0% prior
06:00 (PL) Poland Central Bank (NBP) Interest Rate Decision: Expected to leave Base Rate unchanged at 1.50%
06:00 (RU) Russia weekly OFZ bond auction ; to sell combined RUB50B in 2022 and 2033 OFZ bonds
07:00 (US) MBA Mortgage Applications w/e May 12th: No est v +2.4% prior
07:00 (ZA) South Africa Mar Retail Sales M/M: -0.5%e v +0.8% prior; Y/Y: -1.0%e v -1.7% prior
07:00 (UK) Prime Minister’s Question Time in House of Commons
07:30 (SE) Sweden Central Bank (Riksbank) Floden speech
08:15 (UK) Baltic Dry Bulk Index
08:30 (CA) Canada Mar Manufacturing Sales M/M: +1.3%e v -0.2% prior
09:00 (RU) Russia Q1 Advance GDP Y/Y: 0.4%e v 0.3% prior
09:00 (DE) German Chancellor Merkel at G20 Labor conference in Berlin
10:00 (PL) Poland Central Bank Gov Glapinski to hold post rate decision press conference
10:30 (US) Weekly DOE Crude Oil Inventories
11:10 (US) Former Fed Chair Bernanke at conference
12:00 (DE) German Fin Min Schaeuble
