Notes/Observations
- Global bond rally continued aided by persistent concerns over the US-China trade war and its impact on the world economy (10-year JGB at 3-year lows; Aussy 10-year below RBA rate)
- German May Unemployment Change rose for the 1st time in almost two years (+60K v -8Ke) but labor Agency played down the data as an adjustment
- Some constructive EU data (France Q1 Final GDP revised higher; Italian Confidence beats expectations; Sweden Q1 GDP beat consensus)
Asia:
- China National Development and Reform Commission (NDRC) Spokesperson stated that China would give priority to domestic needs for rare earth, not ruling out using rare earths in trade dispute with US – China PBoC Open Market Operation (OMO) saw its largest injection since Jan 17th (Injected CNY270B in 7-day reverse repos with a net of CNY250B injection)
Europe/Mideast:
- EU’s Juncker stated that EU Leader Summit would not make decision on his successor at the May 28th meeting. Reiterated that there will be no renegotiation of the Brexit withdrawal agreement
- Germany Chancellor Merkel noted that the EU Leader summit on top EU positions was good and harmonious; would like to see EU Commission president candidate settled by June summit
- EU Parliament President Tajani stated that it would take years before EU could reach the point of sanctioning Italy over debt
- Greek government spokesperson: Greek snap elections due to be held July 7th
Americas:
- Treasury Department issued its Semi-annual Current Report which again did not name any major trading partner a currency manipulator (even China). Italy, Ireland, Singapore, Malaysia, Vietnam now on watch list . Monitoring List increased to 9 (from 6) to include China, Germany, Ireland, Italy, Japan, Korea, Malaysia, Singapore, and Vietnam. Switzerland was been removed from the Monitoring List. Treasury lowered 2 of the 3 thresholds used to designate FX manipulators
- Brazil Special Pensions Committee Chair Ramos stated that the Govt did not have 308 votes in the Lower House to pass pension reform; President Bolsonaro had to do much
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
- Indices [Stoxx600 -1.45% at 370.58, FTSE -1.37% at 7,169.25, DAX -1.36% at 11,863.18, CAC-40 -1.86% at 5,213.80, IBEX-35 -1.48% at 9,055.41, FTSE MIB -1.48% at 19,960.50, SMI -1.32% at 9,551.50, S&P 500 Futures -0.66%]
- Market Focal Points/Key Themes: European Indices trade sharply lower, following a weaker session in Asia and lower US index futures. Trade tensions continue to weigh on markets, with US President Trump saying he is not ready for a trade deal with China, and continues to consider tariff raises on Chinese goods following his trip to Japan. On the corporate front shares of Elior decline 6% following earnings and a cut outlook, with Seabird Exploration and Hoegh LNG also declining on earnings. Elekta gains over 16% following a beat on the top and bottom line, with Stobart Group another notable gainer following earnings. Elsewhere Aroundtown and Rocket Internet also gain on earnings. In other news ArcelorMittal declines as the company prepares for further production cuts in Europe and continues to warn on weak market demand. UK Supermarket names Ocado and Tesco are among the decliners following Kantar supermarket data; Casino also falls after announcing it will not pay any dividend for the year, while ProSiebenSat gains following athe acquisition of a 9.6% stake from Mediaset. Looking ahead notable earners include retailers Abercrombie and Fitch and Dick’s Sporting Goods.
Equities
- Consumer discretionary: Elior [ELIOR.FR] -6% (earnings; outlook cut), Ocado Group [OCDO.UK] -3%, Tesco [TSCO.UK] -2% (Kantar sales), Casino Guichard-Perrachon [CO.FR] -3% (pays no dividend)
- Materials: ArcelorMittal [MT.NL] -5% (prepares for further production cuts)
- Healthcare: Elekta [EKTAB.SE] +14.5% (earnings)
- Industrials: Stobart [STOB.UK] +10% (earnings), Knorr-Bremse [KBX.DE] +0.5% (earnings; raises outlook)
- Technology: Prosieben SAT.1 [PSM.DE] +7% (Mediaset to acquire stake), Rocket Internet [RKET.DE] +2.5% (earnings)
- Telecom: Nokia [NOKIA.FI] -2.5%, Ericsson [ERICB.SE] -2% (awarded 5G contracts from Softbank)
Speakers
- ECB Financial Stability Review: Economic recovery had been delayed but not derailed. Weaker growth, trade tensions could hit asset prices. Euro bank profitability to remain low with leveraged loans sector susceptible to weaker earnings.
- ECB’s Rehn (Finland): ECB should review its monetary policy strategy for the medium and long-term but not its mandate. Reiterated that ECB was maintaining an ample degree of stimulus If region faced a recession then was prepared to adjust and use all of our instruments. First ECB rate rise was now further away than it was a few months ago
- ECB’s De Guindos (Spain) reiterated that trade tensions were main risk to growth. Lesson from Italy was to respect fiscal rules; country’s problems stemmed from low growth. On financial stability he noted that low bank profitability was a structural issue and not due to negative rates. Saw small decrease in banking ROE in 2019; ratio was below cost of capital. Implementing countercylical buffers was appropriate in some countries
- Italy PM Conte said to seek support from League leader Salvini on maintaining the current govt coalition
- Italy Dep PM Di Maio (5-Star): To seek an online vote on his role as “political leader” of the Five Star Movement on Thursday, May 30th
- Russia 1st Dep PM stated that had made arguments for both for and against any extension of the OPEC+ oil agreement
- Thailand Palang Pracharat party chief (backed by military): Govt coalition talks are continuing; sees no problems or delays from various blocs
- Monetary Authority of Singapore (MAS) stated that it did not engage in currency manipulation nor use FX rate to achieve current account surplus
- Bank of Korea (BoK) official noted of herd behavior in FX as ‘excessive’; concerns over US/China trade dispute ‘excessive’
- White House NSA Bolton: Very confident that UAE, Saudi and US were all on same page about the priority and risk of an Iran with nuclear weapons. Believed Iran behind[recent] attacks on tankers in the Gulf.
Currencies/Fixed Income
- The theme yesterday was risk off again as we saw the US dollar index futures continue its march higher towards the 98 handle as fears of a global slowdown continue. Unless more bad news comes out about the economy, we will more than likely see the USD index trade sideways as the Fed appeared to be comfortable with where rates were from the last minutes of the FOMC meeting.
- EUR/USD Tensions between the EU and Italy continue to be stressed as Italy made comments about guaranteeing government debt for countries like Italy and Italy’s Salvini saying they will not raise taxes but will reply to the recent EU letter. The Euro continued its slow grind lower as it trends towards the 1.11 handle.
- GBP/USD The cable was lower again yesterday as it traded lower for a 3rd day straight and approaches the 1.26 handle. Comment wise we have seen all participants that are looking to take over for May comment on Brexit with the leaders appearing to be Boris Johnson, Jeremy Hunt and Michael Gove. Unless major comments come out about Brexit, we will likely see the cable trade sideways in between 1.26 and 1.27 as the rest of the week for news is quiet
Economic Data
- (NL) Netherlands May Producer Confidence: 4.7 v 6.7 prior
- (FI) Finland Q1 GDP Q/Q: 0.2% v 0.5%e; Y/Y: 1.2% v 2.2% prior
- (DK) Denmark Q1 Preliminary GDP Q/Q: 0.2% v 0.3%e; Y/Y: 2.2% v 2.6% prior
- (DK) Denmark Apr Gross Unemployment Rate: 3.7% v 3.7% prior; Unemployment Rate (Seasonally Adj): 3.1% v 3.1% prior
- (NO) Norway Apr Retail Sales (with auto/fuel) M/M: 1.8% v 0.3%e
- (NO) Norway Apr Credit Indicator Growth Y/Y: 5.7% v 5.8%e
- (FR) France Q1 Final GDP Q/Q: 0.3% v 0.3%e; Y/Y: 1.2% v 1.1%e
- (FR) France May Preliminary CPI M/M: 0.2% v 0.3%e; Y/Y: 1.0% v 1.1%e
- (FR) France May Preliminary CPI EU Harmonized M/M: 0.2% v 0.3%e; Y/Y: 1.1% v 1.2%e
- (FR) France Apr PPI M/M: -0.6% v 0.0% prior; Y/Y: 1.2% v 1.9% prior
- (FR) France Apr Consumer Spending M/M: 0.8% v 0.4%e; Y/Y: 1.2% v 0.6%e
- (ES) Spain Mar Total Mortgage Lending Y/Y: 23.2% v 31.2% prior; House Mortgage Approvals Y/Y: 15.8% v 9.2% prior
- (CH) Swiss May KOF Leading Indicator: 94.4 v 96.0e
- (HU) Hungary Apr Unemployment Rate: 3.5% v 3.6%e
- (AT) Austria Q1 Final GDP Q/Q: 0.4% v 0.3% prelim; Y/Y: 1.4% v 1.1% prelim
- (AT) Austria Apr PPI M/M: +0.2% v -0.1% prior; Y/Y: 1.4% v 1.5% prior
- (SE) Sweden Q1 GDP Q/Q: 0.6% v 0.2%e; Y/Y: 2.1% v 1.7%e
- (SE) Sweden Mar Non-Manual Workers Wages Y/Y: 2.5% v 2.4% prior
- (DE) Germany May Unemployment Change: +60K v -8Ke; Unemployment Claims Rate: 5.0% v 4.9%e 4.9% prior
- (IT) Italy May Consumer Confidence Index: 111.8 v 110.0e; Manufacturing Confidence: 102.0 v 100.4e; Economic Sentiment: 100.2 v 98.8 prior
- (CH) Swiss May Credit Suisse Expectations Survey: -14.3 v -7.7 prior
Fixed Income Issuance
- (IN) India sold total INR200B vs. INR200B indicated in 3-month, 6-month and 12-month bills
- (IT) Italy Debt Agency (Tesoro) sold total €6.5B vs. €6.5B indicated in 6-month bills; Avg Yield: -0.048% v -0.028% prior; Bid-to-cover: 1.65x v 1.89x prior
Looking Ahead
- 05:30 (UK) Weekly John Lewis LFL Sales data
- 05:30 (DE) Germany to sell €3.0B in 0.00% Apr 2024 BOBL
- 05:30 (EU) ECB alloment in 3-month LTRO operation
- 05:30 (ZA) South Africa announces details of next bond auction (held on Tuesdays)
- 05:40 (NO) Norway Central Bank (Norges) Gov Olsen
- 06:00 (IE) Ireland Apr Retail Sales Volume M/M: No est v -0.8% prior; Y/Y: No est v 4.9% prior
- 06:00 (CZ) Czech Republic to sell CZK3.0B in 1% 2026 bonds
- 06:00 (RU) Russia OFZ bonds auction
- 06:30 (IS) Iceland to sell Bills
- 06:45 (US) Daily Libor Fixing
- 07:00 (US) MBA Mortgage Applications w/e May 24th: No est v 2.4% prior
- 07:00 (UK) Weekly PM Question Time in House of Commons
- 07:45 (US) Weekly Chain Store Sales
- 08:00 (BR) Brazil Apr PPI Manufacturing M/M: No est v 1.2% prior; Y/Y: No est v 8.1% prior
- 08:00 (UK) Baltic Dry Bulk Index
- 08:55 (US) Weekly Redbook Retail Sales
- 09:00 (BE) Belgium Q1 GDP Q/Q: No est v 0.2% prior; Y/Y: No est v 1.1% prior
- 10:00 (CA) Bank of Canada (BOC) Interest Rate Decision: Expected to leave Interest Rates unchanged at 1.75%
- 10:00 (US) May Richmond Fed Manufacturing Index: 7e v 3 prior
- 11:30 (US) Treasury to sell 2-year Floating Rate Notes
- 13:00 (MX) Mexico Central Bank (Banxico) Quarterly Inflation Report (QIR)
- 13:00 (US) Treasury to sell 7-year notes
- 13:30 (BR) Brazil Apr Total Outstanding Loans (BRL): 3.281Te v 3.267T prior’ M/M: 0.4%e v 0.7% prior; Personal Loan Default: No est v 4.7% prior
- 16:30 (US) Weekly API Oil Inventories
