Notes/Observations
- UK election results in a hung Parliament; PM May’s gamble to enlarge the Conservatives majority fails
- Coalition with Northern Ireland’s Democratic Unionist Party (DUP) could deliver the Conservatives the votes they need to pass legislation; DUP said to back PM May (no formal agreement in place)
Overnight
Asia:
- China May CPI in-line with expectations and at a 4-month high (Y/Y: 1.5% v 1.5%e)
- BOJ’s Kuroda: Japan is no longer experiencing deflation; long way to go until Japan price stability target is achieved UK Results (646 seats of 650)
- Conservatives (Tories): 315 seats (-12)
- Labour: 261 seats (+29)
- SNP: 35 seats (-21)
- Liberal Democrats: 12 seats (+4)
- DUP: 10 seats (+2)
Election commentary
- PM May: will not step down as PM; in talks with senior party colleagues about how to form a new government; to visit Buckingham Palace later today – financial press
- Labour Party leader Corbyn (opposition): PM May has lost her mandate; I think that’s enough for her to go
- Liberal Democrat spokesperson Campbell: It’s very difficult to see how the Party could join a coalition
- Democratic Unionist Part (DUP) Donaldson: Would negotiate with the conservatives if they fail to achieve a majority adding that they have a lot of ground
- Democratic Unionist Part (DUP) member Foster: no-one wants to see a hard Brexit; we want a workable plan
- Democratic Unionist Part (DUP) said to consider a ‘confidence and supply’ arrangement to ensure Theresa May has support to keep her in government
- Labour Party Finance spokesperson McDonnell: Will not do a coalition deal; will put ourselves forward to form a minority govt
- Labour Shadow Chancellor John McDonnell: Labour will seek to form a minority government because the Conservative party is not “stable, If they do seek to do a coalition with the DUP… well, pardon the expression but someone used it during the campaign, it is a coalition of chaos
- Germany’s DIW institute: UK election result has turned PM May into a “lame duck” and signals voters’ rejection of her tough stance in the Brexit negotiations.
Americas:
- Former FBI Dir Comey testimony: Trump administration did not ask him to stop Russia election probe; Trump did not specifically order him to let Flynn probe go; took Trump’s comment as a direction, but didn’t obey it My common sense was that Trump was looking to get something in exchange for granting request to stay on the job
- President Trump’s attorney: Comey hearing established that Trump was not being investigated for colluding or attempting to obstruct FBI investigation
Economic Data
- (NO) Norway May CPI M/M: 0.2% v 0.2%e; Y/Y: 2.1% v 2.1%e
- (NO) Norway May CPI Underlying M/M: 0.3% v 0.3%e; Y/Y: 1.6% v 1.6%e
- (DE) Germany Apr Current Account Balance: €15.1B v €24.5Be; Trade Balance: €18.1B v €23.0Be; Exports M/M: +0.9% v +0.3%e; Imports M/M: +1.2% v -0.5%e
- (DE) Germany Q1 Labor Costs Q/Q: No est v 1.5% prior; Y/Y: 2.5% v 2.9% prior
- – (FR) France Apr Industrial Production M/M: -0.5% v +0.2%e; Y/Y: 0.6% v 1.2%e
- (FR) France Apr Manufacturing Production M/M: -1.2% v -0.5%e; Y/Y: 1.1% v 1.8%e
- (CZ) Czech May CPI M/M: +0.2% v -0.1%e; Y/Y: 2.4% v 2.2%e
- (IT) Italy Q1 Unemployment Rate Q/Q: 11.6% v 11.6%e
- (UK) Apr Industrial Production M/M: 0.2% v 0.7%e; Y/Y: -0.8% v -0.3%e
- (UK) Apr Manufacturing Production M/M: 0.2% v 0.8%e; Y/Y: 0.0% v 0.7%
- (UK) Visible Trade Balance: -£10.8B v -£12.0Be; Total Trade Balance: -£2.1B v -£3.5Be; Trade Balance Non EU: -£2.1B v -£3.9B prior
- (UK) BoE/TNS May Inflation Next 12 Month: 2.8% v 2.9% prior
**Fixed Income Issuance:
- (IN) India sold INR150B vs. INR150B indicated in 2024, 2027, 2034 and 2046 bonds
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
**Equities**
Indices [Stoxx50 +0.5% at 3580, FTSE +0.7% at 7499, DAX +0.5% at 12775, CAC-40 +0.6% at 5294 IBEX-35 +0.2% at 10975, FTSE MIB +0.6% at 21165, SMI +0.3% at 8839, S&P 500 Futures +0.2%]
Market Focal Points/Key Themes European Indices trade higher across the board but off the earlier session highs with outperformance in the FTSE benefiting from a 200 pip plus fall in Sterling after a Hung Parliament in the UK Elections. In corporate news L’Oreal announced it was in seclusive talks with Natura in regards to BodyShop, whilst shares of Centrica trade higher after selling Canadian Business in which it will receive £240M. Air France maintains the positive news flow in Airlines after solid May metrics and RealDolmen trades sharply higher following strong Earnings.
Equities
- Consumer discretionary [Air France [AF.FR] +1.2% (May Metrics), John Menzies [MNZS] -1.8% (DX Group Investigation by the City of London Police), L’Oreal [OR.FR] +0.9% (Enters into exclusive discussions with Natura regarding sale of The Body Shop valued at €1.0B)]
- Industrials: [Airbus [AIR.FR] +1.6% (Media Day)]
- Financials: [Stanley Gibbons [SGI.UK] +15.6% (Confirms takeover approach)]
- Technology: [Realdomen [REA.BE] +5.9% (Earnings)
- Energy: [Centrica [CNA.UK] +1.7%(Partnership to sell Canadian E&P business to a consortium for C$722M in cash)]
Speakers
- PM May to go to Buckingham Palace with backing from Democratic Unionist Part (DUP) party to form govt. Conservatives and DUP will not have a formal coalition
- German Bundesbank raised its 2017 thru 2019 GDP growth forecasts. Raised 2017 GDP growth from 1.8% to 1.9%; 2018 GDP growth from 1.6% to 1.7% and 2019 GDP growth from 1.5% to 1.6%. It did cut its 2018 and 2019 inflation outlook. To just below the ECB target of around 2%.
- ECB’s Weidmann (Germany) noted that a very healthy labor market situation, private consumption, together with general government demand and investment in housing in Germany would ensure an ongoing solid underlying pace
- Bank of France raised its 2017 thru 2019 GDP growth outlook. Raises 2017 GDP growth forecast from 1.3% to 1.4%; 2018 GDP from 1.4% to 1.6% and 2019 GDP from 1.4% to 1.6%
- ECB’s Villeroy (France): noted that the French growth was lagging the Euro Zone. ECB remained active and was becoming more confident. ECB to remain predictable and saw no urgent need to change policy
- ECB’s Nowotny (Austria) noted that ECB inflation forecasts had downside risks. Low inflation despite growth was a global issue. Did not rule out a fall in inflation in 2017 and 2018 if the Euro currency appreciated
- Labour Party leader Corbyn reiterated his call that PM May should resign. Brexit negotiations would have to go ahead without delay. Clear who won the election and was prepared to serve
- Moody’s official Muehlbronner noted that was monitoring UK’s process of forming new government
- Spain Catalan leader Puigdemont: To hold independence vote on Oct 1st with question will be “Do you want Catalonia to be an independent State within a Republican regime?”
- South Korea National Security Advisor: Do not look to change the agreement with US on the THAAD missile defense
Currencies
- FX market focus was on the GBP following the UK election results. GBP/USD began the session testing 7-week lows at 1.2635 before recovering and moving back above the 1.27 handle. The UK election results saw PM May lose her gamble with a hung Parliament and this increased uncertainty about the upcoming Brexit negotiations. Only one month ago the expectation was that the Conservatives would win big, and secure a landslide victory – The USD was slightly firmer against other major pairs in relatively quiet trading with focus on the Fed rate decision next week. The big question if the Fed does hike in June whether it would leave the door open for further monetary tightening in the months to come
- EUR/USD remained on soft footing after Thursday’s ECB meeting and quarterly staff projections. The main focus was on inflation and the trimming of CPI during the ECB forecast horizon.
- The yen did not respond to any safe-have role despite the uncertainty of the UK election. USD/JPY higher by 0.4% and firmly above the 110 level for the time being.
Fixed Income
- Bund futures trade at 164.98 down 10 ticks after the ECB kept its monetary policy unchanged, but changed its forward guidance by removing its easing bias regarding policy rates. Resistance lies near the 165.70 level followed by 167.79. A break of the 162.65 support level could see lows target 159.96 followed by 157.50.
- Gilt futures trade at 129.08 higher by 25 ticks after the early general election resulted in a hung parliament. Gilts are in the middle of this week’s trading range and continue to gravitate towards both the 129.00 handle and the 129.14 April 18th high. Price finds key support at the 128.48 support level. An acceleration lower could test the 127.43 region. Resistance remains the noted 129.00/129.14 region, then 129.75 followed by 130.28.
- Friday’s liquidity report showed Thursday’s deposits dropped rose to €614.9B from €608.4B prior. Use of the marginal lending facility fell to €143M from €257M prior.
- Corporate issuance saw $0.5B come to market via 1 issues headlined by Maxim Integrated Products senior unsecured note offering. This week’s issuance is at $17.05B, lower than the analysts’ issuance target to come in around $25B. For the week ending Jun 7th Lipper US fund flows reported IG funds net inflows $3.73B bringing YTD inflows to $61.69B, High yield funds reported outflows of $0.52B bringing YTD outflows to $4.90B.
Looking Ahead
- PM May post-election speech
- (MX) Mexico May Nominal Wages Y/Y: No est v 3.9% prior
- (PT) Portugal Debt Agency (IGCP) announces upcoming PGB auction for Jun 14th
- 05:30 (PL) Poland to sell Bonds
- 06:00 (UK) DMO to sell combined £3.0B in 1-month, 3-month and 6-month bills (£1.5B, £0.5B and £1.0B respectively)
- 06:00 (PT) Portugal Apr Trade Balance: No est v -€0.8B prior
- 06:45 (US) Daily Libor Fixing
- 07:00 (BR) Brazil Jun IGP-M Inflation (1st Preview): -0.4%e v -0.9% prior
- 07:00 (LT) ECB’s Rimsevics
- 07:00 (CZ) Czech Central Bank comments on CPI data
- 07:30 (IN) India Weekly Forex Reserves
- 07:30 (UK) PM May at Buckingham palace
- 08:00 (UK) May NIESR GDP Estimate: No est v 0.2% prior
- 08:00 (BR) Brazil May IBGE Inflation IPCA M/M: 0.5%e v 0.1% prior; Y/Y: 3.8%e v 4.1% prior
- 08:15 (UK) Baltic Dry Bulk Index
- 08:30 CA) Canada May Net Change in Employment: +15.0Ke v +3.2K prior; Unemployment Rate: 6.6%e v 6.5% prior; Full Time Employment Change: No est v -31.2K; Part Time Employment Change: No est v +34.3K prior; Participation Rate: No est v 65.6% prior
- 08:30 (CA) Canada Q1 Capacity Utilization Rate: 83.5%e v 82.2% prior
- 09:00 (RU) Russia Apr Trade Balance: $8.7Be v $12.6B prior; Exports: $27.4Be v $31.3B prior; Imports: $18.7Be v $18.7B prior
- 09:00 (MX) Mexico Apr Industrial Production M/M: 0.3%e v 0.0% prior; Y/Y: -2.1%e v +3.4% prior; Manufacturing Production Y/Y: -1.0%e v +8.5 prior
- 10:00 (US) Apr Final Wholesale Inventories M/M: -0.3%e v -0.3% prelim; Wholesale Trade Sales M/M: 0.2%e v 0.0% prior
- 11:00 (EU) Potential sovereign rating after European close
- (CZ) Czech Sovereign Debt to be rated by Moody’s – (IT) Italy Sovereign Debt to be rated by Moody’s
- (PL) Poland Sovereign Debt to be rated by DBRS
- 12:00 (US) USDA World Agricultural Supply and Demand Estimates (WASDE) Crop Report
- 13:00 (US) Weekly Baker Hughes Rig Count data
- 13:30 (DE) German Fin Min Schaeuble at CDU party event
- 14:00 (CO) Colombia Central Bank May Minutes
