Notes/Observations
Euro Zone May CPI remains below ECB target for the 2nd straight month; gives credibility for current ECB policy stanc
European Unemployment continues its improving trend (Italy and Euro Zone beat; Germany situations improves)
German Retail Sales disappoint in Apr
YouGov survey pointing to a hung parliament
EU Commission proposal to securitize EMU government debt. Effectively they propose packaging different countries’ national debt into a new asset
Overnight
Asia:
Moody’s saw GDP growth for G20 countries at 3.1% for 2017 and 2018 (vs 2.6% in 2016)
(UK) May BRC Shop Price Index Y/Y: -0.3%e v -0.5% prior; Llyods Business Barometer saw its sharpest fall since December 2008 (27 v 47 prior)
(JP) Japan Apr Preliminary Industrial Production missed expectations but its monthly pace rose at its fastest level since June 2011 M/M: 4.0% v 4.2%e; Y/Y: 5.7% v 6.1%e
(CN) China May Manufacturing PMI (Govt Official) registered its 10th month of expansion but a 7-month low (51.2 v 51.0e)
Europe:
EU Commission paper proposes packaging different countries’ debt into new sovereign bond-backed securities; Euro Zone might need to issue collective debt and run a joint budget (**Note: paper is not a blueprint and presenting ideas). Also studying different options for how to directly tie EU funding to countries’ willingness to follow sound economic policies
YouGov/Times general election poll: UK Conservative Party would fall short of outright majority by 16 seats. Conservative 310 (of the 326 seats needed for majority). Labour 257 seats seen.
UK May GFK Consumer Confidence: -5 v -8e
UK May BRC Shop Price Index Y/Y: -0.4% v -0.3%e (smallest decline since Nov 2013)
Americas:
Fed’s Brainard (dove, voter): Another US rate hike is likely appropriate soon; expects to begin shrinking bond portfolio before too long, perhaps this year; soft inflation is a source of concern
Economic Data
(JP) Japan Apr Annualized Housing Starts: 1.004M v 970Ke; Y/Y: +1.9% v -1.5%e
(JP) Japan May Small Business Confidence: 48.9 v 48.6 prior (2nd straight contraction)
(DE) Germany Apr Retail Sales (miss) M/M: -0.2% v +0.3%e; Y/Y: -0.9% v +2.2%e
(FR) France May Preliminary CPI M/M: 0.1% v 0.1%e; Y/Y: 0.8% v 0.9%e
(FR) France May Preliminary CPI EU Harmonized M/M: 0.0% v 0.1%e; Y/Y: 0.9% v 1.1%e
(AT) Austria Q1 Final GDP Q/Q: 0.6% v 0.5% prelim; Y/Y: 2.3% v 2.0% prelim
(TR) Turkey Apr Trade Balance: -$5.0B v -$4.9Be
(DK) Denmark Q1 Preliminary GDP Q/Q: 0.6% v 0.3%e; Y/Y: 2.2% v 2.3% prior
(DE) Germany May Unemployment Change: -9K v -15Ke; Unemployment Rate: 5.7% v 5.7%e (lowest since German unification)
(IT) Italy Apr Preliminary Unemployment Rate: 11.1% v 11.6%e
(CH) Swiss May Credit Suisse Expectations Survey: 30.8 v 22.2 prior
(PL) Poland Q1 Final GDP Q/Q: 1.1% v 1.0% prelim; Y/Y: 4.0% v 4.0% prelim
(UK) Apr Net Consumer Credit: £1.5B v £1.5Be; Net Lending: £2.7B v £3.0Be
(UK) Apr Mortgage Approvals (miss): 64.6K v 66.0Ke (7-month low)
(EU) Euro Zone May CPI Estimate (miss) Y/Y: 1.4% v 1.5%e; CPI Core Y/Y: 0.9% v 1.0%e
(EU) Euro Zone Apr Unemployment Rate (beat): 9.3% v 9.4%e (lowest since 2009)
(IT) Italy May Preliminary CPI (including Tobacco) M/M: -0.2% v -0.2%e; Y/Y: 1.4% v 1.5%e
(IT) Italy May Preliminary CPI EU Harmonized M/M: -0.2% v -0.2%e prior; Y/Y: 1.5% v 1.5%e
Fixed Income Issuance:
(IN) India sold total INR140B vs. INR140B indicated in 3-month and 6-month Bills
(SE) Sweden sold total SEK2.5B vs. SEK2.5B indicared in 2023 and 2026 bonds
(NO) Norway sold NOK3.0B vs. NOK3.0B indicated in 2023 bonds; Avg Yield: 1.13% v 1.52% prior; Bid-to-cover: 3.17x v 1.76x prior
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
Indices [Stoxx50 -0.1% at 3557, FTSE +0.3% at 7549, DAX flat at 12602, CAC-40 -0.2% at 5297, IBEX-35 +0.1% at 10888, FTSE MIB -0.3% at 20865, SMI +0.2% at 9028, S&P 500 Futures +0.1%]
Market Focal Points/Key Themes European indices trade mixed this morning in relatively range bound trade with weakness in Sterling helping the FTSE outperform ahead of the UK elections. In Germany Metro shares are weighing after Q2 results ahead of its planned demerger of the group, whilst a positive trading update from IG Group has helped shares rise over 3.5%. Lamprell shares outperform this morning after announcing a JV in Saudi Arabia, with Ericsson shares higher after Cevian acquired a 5.6% stake. Looking ahead retailers Michael Kors and Vera Bradley set to report in the US as well as Analog devices.
Equities
Consumer discretionary [Metro [MEO.DE] -2.4% (Earnings), Bectle [BC8.DE] +1% (Awarded contract from NATO valued at €45M)]
Industrials: [Telford Homes [TEF.UK] +1.4% (Earnings), Meyer Burger Tech [MBTN.CH] +3.9% (Contract wins)]
Financials: [ IG Group [IGG.UK] +3.4% (Trading update), Commerzbank [CBK.DE] +1.9% (Analyst upgrade)]
Telecom: [Ericsson [ERICB.SE] +4% (Cevian stake)]
Energy: [Lamprell [LAM.UK] +10.3% (JV in Saudi Arabia)]
Speakers
ECB’s Coeure (France) stressed that it was essential that Greek authorities continue to show a serious commitment to the goals set and measures taken. Discussions on medium term debt measures and new IMF program are expected to be concluded in coming weeks. Clarity about debt measures were necessary condition for Greek govt bonds to be potentially eligible under the ECB QE bond buying program. IMF debt sustainability analysis will be important for degree of specificity
ECB’s Visco (Italy) commented from BOI annual meeting that monetary policy stance must be implemented gradually. Public debt was a serious source of vulnerability and must be reduce faster. Italy could reduce its Debt to GDP ratio to under 100% in a decade. Urged the largest banks to improve non-performing loan management
Sweden FSA Stability Report noted that the domestic economy was thriving but the growth situation combined with low interest rates has resulted in high asset prices and rapidly rising household debt
Saudi Oil Min Al-Falih reiterated joint commitment with Russia on stabilizing oil markets
Currencies
GBP currency was expected to become more sensitive to polls in the final week. Recent polls have shown a narrowing of the Conservative’s lead in Parliament. Overnight a YouGov survey was pointing to a hung parliament with Conservative having 310 (of the 326 seats needed for majority) and Labour with 257 seats. GBP/USD was hovering below the 1.28 handle for 5-week lows in quiet month-end trade.
Gold was poised for its first monthly drop since Dec as dealers cited that Fed could again hike rates in June
Fixed Income
Bund futurestrade at 162.22 down 20 ticks, off the session lows following lower than expected euro zone inflation. Resistance lies near the 162.81 level followed by 163.54. A break of the 161.65 support level could see lows target 159.96 followed by 157.50.
Gilt futurestrade at 129.36 lower by 12 ticks, following disappointing Net lending and mortgage approval data. Last week’s rally took out both the 129.00 handle and the 129.14 April 18th high. Price finds key support at the 128.68 support level. An acceleration lower could test the 127.43 region. Resistance stands at 129.75 then 130.28 followed by 132.80.
Wednesday’s liquidity report showed Tuesday’s excess liquidity fell to €1.6127T a decline of €2.03B from €1.633T prior. Use of the marginal lending facility fell to €148M from €242M prior.
Corporate issuance saw over $3B come to market via 2 issues headlined by EBAY $2.5B in an 4-part deal consisting of floating and fixed rate notes due 2020, 2023 and 2027 and of 4-year non-call 3-year FRN and a 7.75-year non-call 6.75year fixed-to-floating note and First Republic $0.5B 2022 senior notes.
Looking Ahead
(EU) EU to publish Reflection Paper on Completing EMU in Brussels
05:30 (UK) Weekly John Lewis LFL sales data
05:30 (SL) Sri Lanka May CPI Y/Y: No est v 6.9% prior
05:30 (EU) ECB allotment in 3-month LTRO tender
06:00 (PT) Portugal Q1 Final GDP Q/Q: No est v 1.0% prelim; Y/Y: 1.0%e v 2.8% prelim
06:00 (RU) Russia to sell combined RUB40B in 2022 OFZ bonds (2 tranches)
06:45 (US) Daily Libor Fixing – 07:00 (IN) India Mar Fiscal Deficit (INR)
07:00 (US) MBA Mortgage Applications w/e May 26th: No est v 4.4% prior
07:15 (DE) German Chancellor Merkel at conference in Nuremburg
07:45 (US) Weekly Goldman Economist Chain Store Sales
08:00 (IN) India Q1 GDP Y/Y: 7.1%e v 7.0% prior; GVA Y/Y: 6.9%e v 6.6% prior
08:00 (PL) Poland May Preliminary CPI M/M: 0.1%e v 0.3% prior; Y/Y: 2.0%e v 2.0% prior
08:00 (BR) Brazil Apr National Unemployment Rate: 13.8%e v 13.7% prior
08:00 (ZA) South Africa Apr Trade Balance (ZAR): 7.4Be v 11.4B prior
08:00 (US) Fed’s Kaplan (voter) in NY
08:00 (SE) Sweden Central Bank (Riksbank) Dep Gov Skingsley
08:15 (UK) Baltic Dry Bulk Index
08:30 (CA) Canada Mar GDP M/M: 0.2%e v 0.0% prior; Y/Y: 2.9%e v 2.5% prior, Quarterly GDP Annualized: 4.2%e v 2.6% prior
08:30 (DE) ECB’s Lautenschlaeger in Berlin at conference
08:55 (US) Weekly Redbook Sales
09:00 (BE) Belgium Q1 Final GDP Q/Q: No est v 0.5% prelim; Y/Y: No est v 1.5% prelim
09:00 (CL) Chile Apr Unemployment Rate: 6.7%e v 6.6% prior
09:45 (US) May Chicago Purchasing Manager: 57.0e v 58.3 prior
10:00 (US) Apr Pending Home Sales M/M: +0.4%e v -0.8% prior; Y/Y: No est v 0.5% prior
10:00 (MX) Mexico Apr Net Outstanding Loans (MXN): No est v 3.68T prior
11:00 (CO) Colombia Apr Urban Unemployment Rate: 9.9%e v 10.6% prior; National Unemployment Rate: No est v 9.7% prior
12:00 (CA) Canada to sell 30-Year Real Return Bonds
12:30 (EU) EU’s Juncker at event in Berlin
13:00 (NZ) New Zealand May QV House Prices Y/Y: No est v 11.1% prior
13:30 (MX) Mexico Central Bank (Banxico) Quarterly Inflation Report (QIR)
14:00 (US) Federal Reserve Releases Beige Book
15:00 (US) Apr Agriculture Prices Received: No est v 2.4% prior
15:00 (AR) Argentina Apr Industrial Production Y/Y: +1.0%e v -0.4% prior; Construction Activity Y/Y: No est v 10.8% prior
16:00 (BR) Brazil Central Bank (BCB) Interest Rate Decision: Expected to cut Selic Target Rate by 100bps to 10.25%
16:30 (US) Weekly API Oil Inventories
