Notes/Observations
German GFK Confidence hits fresh 16-year high
Focus shifts from US politics to Fed minutes for clues on rate policy
Overnight:
Asia:
Moody’s cuts China’s sovereign rating from AA3 to A1 (one notch); revised outlook from negative to stable (**Note: 1st cut by first Moody’s since 1989). Expectation that China’s financial strength would erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows.
Japan Upper House approved government’s two nominees for BoJ board (matter now goes to the lower house for confirmation). Nominees are Goushi Kataoka (economist at MUFJ Research and Consulting) and Hitoshi Suzuki (director for Bank of Tokyo-MUFJ) and would replace Kiuchi and Sato (both dissenters) when their respective 5 year terms end of July 23rd
Europe:
PM May: will temporarily increase terror threat level from severe to critical in UK following attack in Manchester; level increase suggests "further attack may be imminent" – ECB’s Coeure (France) reiterated view that European growth was pretty strong; but no need to change policy exit sequencing at this time
Americas:
Fed’s Harker (hawk, FOMC voter): reiterates support for two more rate hikes this year. June rate hike is a "distinct possibility" but downside inflation surprise could delay a move – Canada Foreign Min Freeland: NAFTA talks must be trilateral
Energy:
Weekly API Oil Inventories: Crude: -1.5M v +0.9M prior
UAE Oil Min: delegates still debating whether cut extension will be 6 months or 9 months
Oman Energy Undersecretary: Oman wants some discussion before supporting a 9-month OPEC extension, but not opposed to the idea
Algeria Oil Min Boutarfa: not ruling out deeper oil production cuts or maintaining the cuts longer than 9 months
Norway Q2 Oil Investment Survey raised 2017 exploration spending from NOK18.4B to NOK21.6B
Economic Data
(DE) Germany Apr Jun GfK Consumer Confidence: 10.4 v 10.2e (highest level since 2001)
(NO) Norway Mar AKU Unemployment Rate: 4.5% v 4.3%e
(FI) Finland Apr Unemployment Rate: 10.2% v 9.6% prior
(SE) Sweden May Consumer Confidence: 105.9 v 104.0e; Manufacturing Confidence: 117.0 v 121.0e, Economic Tendency Survey: 111.0 v 111.6e
(CZ) Czech May Business Confidence: 13.9 v 14.3 prior; Consumer Confidence: 6.0 v 6.0 prior
(TH) Thailand Central Bank (BOT) left its Benchmark Interest Rate unchanged at 1.50% (as expected)
(ZA) South Africa Apr CPI M/M: 0.1% v 0.3%e; Y/Y: 5.3% v 5.6%e (annual pace moved back within SARB target range for 1st time in 7 months)
(ZA) South Africa Apr CPI Core M/M: 0.2% v 0.3%e; Y/Y: 4.8% v 4.9%e
Fixed Income Issuance:
(IN) India sold total INR140B vs. INR140B indicated in 3-month and 12-month Bills
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
Indices [Stoxx50 -0.1% at 3593, FTSE +0.2% at 7498, DAX -0.1% at 12643, CAC-40 flat at 5347, IBEX-35 flat at 10916, FTSE MIB -0.2% at 21363, SMI -0.1% at 9055, S&P 500 Futures +0.1%]
Market Focal Points/Key Themes
European indices trade mostly lower across the board with the exception of the FTSE 100 helped by strength in Dixons Carphone following strong LFL sales numbers for the 4th quarter, and Marks and Spencer which reported Adj pretax ahead of consensus but down on the year. However shares of B&Q parent Kingfisher trades lower by over 6% after LFL sales fell for the quarter. Elsewhere in Europe shares of Safran and Zodiac are halted pending an announcement after earlier Safran was exploring options to lower Zodiac offer. Looking head to the US morning, notable earners include Lowe’s, Advanced Autoparts and Chico Fas.
Equities
Consumer discretionary [Dixons Carphone [DC.UK] +4.2% (Q4 update), Kingfisher [KGF.UK] -6.2% (Earnings), Marks and Spencer [MKS.UK] +1.0% (Earnings) , Fiat Chrysler [FCA.IT] -0.8% (DOJ investigation)]
Materials: [Glencore [GLEN.UK] -1% (Makes informal takeover approach to Bunge)]
Industrials: [Babcock International [BAB.UK] -2.2% (Earnings), Vedanta Res [VED.UK] -1.5% (Earnings)]
Technology: [Sunrise Communications [SRCG.CH] +1.5% (Sells Towers to consortium, Raises dividend outlook)]
Energy: [Shell [RDSA.NL] +0.3% (Sells stake in Canadian Natrual Resources for C$4B)]
Speakers
ECB Financial Stability Report: Risks in the euro zone are contained but remain significant and have even increased in some areas over the past six months. Concerns over debt sustainability had risen, while the clean up of the banking sector was slow and the risk of a sudden repricing in bond markets remained significant, potentially leading to major capital losses. Repricing risks in fixed income markets remained significant, There were risks that euro area bond yields could increase abruptly without a simultaneous improvement in growth prospects
ECB’s Praet (Belgium, chief economist) reiterated that economic recovery was becoming more solid and braid-based but underlying inflation remained subdued. June ECB meeting to draw on the latest information and have new projections and updated assessment of risks surrounding the economic outlook
ECB’s Constancio (Portugal): Faster economic growth was good for financial stability. Must be cautious about premature withdrawal of stimulus; would rather err on side of removing stimulus too late than too early
France President Macron to ask Parliament to extend the current State of emergency and prepare new security measures
Sweden Central Bank (Riksbank) Financial Stability Report: Housing prices and household indebtedness are foremost risks and serious threat to stability. Measures were needed to increase household resilience. Higher leverage ratio of over 5% might be appropriate for major Swedish banks from Jan 2018. Necessary that Riksbank has sufficiently large FX reserves if liquidity requirement arose
China state planner NDRC: Chinese companies overall debt risks seen as controllable
Thailand Central Bank Policy Statement noted that decision to keep policy steady was again unanimous as current rate remained accommodative for economy. It reiterated that was ready to use appropriate policy mix. Economic outlook has improved but still subject to risks. Reiterated that THB currency (Baht) moving in-line with regional currencies
Japan Cabinet Office (Govt) Monthly Economic Report for May: reiterated view that domestic economy was continuing a moderate recovery although with a delay in some areas (**Note: 6th month of unchanged assessment)
IEA Head of Oil Atkinson: Almost certain there will be an extension on oil cuts in Vienna at the May 25th OPEC meeting. Saw oil demand rising to 1.3M bpd in 2017 and reiterated its view that if oil producers stay the course, the market would rebalance
Kuwait Oil Min Almarzooq stated that he saw market rebalancing by Q3
Iran Oil Min Zanganeh: OPEC ceiling will continue just not clear on duration of the extension of production cuts
Algeria Oil Min: Almost all countries agree on a 9-month extension of oil cuts
Currencies
USD steady in quiet trading on Wed. Dealers were awaiting the upcoming Federal Reserve minutes later today to see if the language could help to support the greenback.
EUR/USD hovered around just under the 1.12 in the session and consolidated its recent gains. Price action by the market may have become too enthusiastic in speculating about interest rates rising. Dealers has noted that the improved sentiment and growth outlook supported equity inflows in the Euro Area. The EUR was further aided by recent commentary by the German Fin Min Schauble and Chancellor Merkel noting that the EUR was too low for Germany.
GBP/USD still within striking distance of testing alleged option barriers at 1.3050.
USD/JPY probed the 112 area for the early part of the session. Dealers noted that US Treasury yield was supporting the pair (yield climbed several bps overnight). JPY currency also softer after Japan’s Upper House approved government’s two nominees for BoJ board. The nominees would replace current dissenters of Kuroda’s QQE policy
Fixed Income
Bund futures trade at 160.93 up 24 ticks, trading in the middle of last week’s trading range. 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 128.54 higher by 13 ticks and approaching last week’s high of 128.95. Last week’s rally respected both the 129.00 handle and the 129.14 April 18th high. Price is now tentatively above the 128.51 level and finds key support at the 127.52 support level. An acceleration lower could test the 126.74 region. Resistance stands at 129.14 followed by 132.80.
Wednesday’s liquidity report showed Tuesday’s excess liquidity rose to €1.6272T a slight gain of €0.2B from €1.6720T prior. Use of the marginal lending facility fell to €130M from €212M prior.
Corporate issuance saw over $13.1B come to market via 8 issues headlined by JP Morgan $3B in an 2-part deal consisting of 4-year non-call 3-year FRN and a 7.75-year non-call 6.75year fixed-to-floating note and Canadian Natural Resources $3B in a 3-part senior unsecured note offering
Looking Ahead
(CO) Colombia Apr Industrial Confidence: No est v -0.9 prior; Retail Confidence: No est v 18.6 prior
(BR) Brazil May FGV Consumer Confidence: No est v 82.2 prior
05:30 (DE) Germany to sell €3.0B in 0.25% 2027 bunds
06:00 (RU) Russia to sell combined RUB45B in 2019 and 2026 OFZ bonds
06:00 (EU) EU’s Dombrovskis with Moscovici on Greece
06:30 (EU) EU Foreign Min Mogherini in Brussels
06:45 (US) Daily Libor Fixing
07:00 (EU) EU’s Tusk and Juncker with NATO Sec Gen Stoltenberg in Brussels
07:00 (US) MBA Mortgage Applications w/e May 19th: No est v -4.1% prior
07:30 (CL) Chile Central Bank’s Traders Survey – 08:15 (UK) Baltic Dry Bulk Index
08:45 (EU) ECB’s Draghi in Madrid
09:00 (US) Mar FHFA House Price Index M/M: 0.5%e v 0.8% prior; Q/Q: No est v 1.5% prior
09:00 (BE) Belgium May Business Confidence: -0.5e v -0.8 prior
09:00 (BR) Brazil Apr Total Federal Debt (BRL): No est v 3.234T prior
09:00 (CL) Chile Apr PPI M/M: No est v 0.7% prior
10:00 (US) Apr Existing Home Sales: 5.65Me v 5.71M prior
10:00 (CA) Bank of Canada (BOC) Interest Rate Decision: Expected to leave Interest Rates unchanged at 0.50%
10:30 (US) Weekly DOE Crude Oil Inventories
11:30 (US) Treasury to sell 2-Year Floating Rate Notes Reopening
13:00 (US) Treasury to sell 5-Year Notes
14:00 (US) FOMC Minutes from May 3rd Meeting
18:00 (US) Fed’s Kaplan (voter) in Toronto
18:30 (US) Fed’s Kashkari (dissenter)
