Notes/Observations
BOJ Kuroda press conference dampened any expectations of QE exit plans; noted too early to discuss policy exit given weak inflation
Euro Zone May CPI confirmed remained below the ECB target for the 2nd straight month
Overnight
Asia:
Bank of Japan (BOJ) left Interest Rates unchanged at -0.10% (as expected); maintained 10-year JGB Yield Control (YCC) at 0.00% (no set time) and annual pace of asset purchases at ¥80T
Europe:
Eurogroup’s Dijsselbloem: we have achievements on all elements on Greece. Greece will maintain a 3.5% surplus until 2022. Debt relief would be granted after bailout ends with success in 2018
Eurogroup statement noted that Euro Zone Finance Ministers agreed on €8.5B loan to Greece. Ready to implement extensions of the weighted average maturities and further deferral of EFSF interest by between 0-15 years. Debt relief for Greece would be granted after bailout ends with success in 2018
IMF’s Lagarde: To propose approval in principle on Greece; to discuss the Greek accord with the IMF in July. Intended to propose a loan for Greece in the range of $2B; to propose to exec board an approval in principle of a standby arrangement for Greece below $2B. Needed to see more details on Greek debt measures in the weeks ahead; currently, as is, Greek debt was not sustainable
Greek Fin Min Tsakalotos: There was a strong growth package, including launch of a state development bank. The point of this whole exercise was to leave the program next year. Issue of accessing the debt markets is a technical issue; Greece’s return to the debt market to depend on a judgment call; would receive clearance to access debt markets in due course
UK and EU officials reportedly to begin formal Brexit talks on Monday, June 19th, as expected – PM May: time for a Northern Ireland deal is running out; must come to agreement by June 29th
DUP party said not calling for UK to stay in EU single market or customs union as part deal to support Conservative party in Govt; decreases hopes the agreement could lead to a less extreme form of Brexit
Americas:
Special Counsel Mueller was looking into finances and business dealings of Jared Kushner – China US Treasury holding for April rose to its highest level since Oct ($1.092T vs. $1.088T m/m)
Economic Data
(EU) Euro Zone May CPI M/M: -0.1% v -0.1%e; Y/Y (Final Reading): 1.4% v 1.4%e; CPI Core Y/Y (Final reading): 0.9% v 0.9%e
Fixed Income Issuance:
None seen
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
Indices [Stoxx50 +0.6% at 3547, FTSE +0.4% at 7449, DAX +0.5% at 12750, CAC-40 +0.9% at 5266, IBEX-35 +0.7% at 10776 FTSE MIB +0.7% at 20999, SMI +0.9% at 8933, S&P 500 Futures +0.2%]
Market Focal Points/Key Themes European Indices trade higher across the board rebounding from yesterday’s falls, with macro economic news in focus. as well as triple witching Friday. The French CAC outperforms while the UK FTSE under performs following the BoE rate decision and minutes yesterday. On the corporate front UK Supermarket giant Tesco reported better then expected UK LFL sales, whilst group sales lagged, Nestle shares trade higher after talk of possible sale of US confectionery division. Newly listed ALD Automotive and Indorisa Pharma opened for trade today with Indorsia higher by over 20% after spinning off from Actelion.
Equities
Consumer discretionary [Tesco [TSCO.UK] -0.6% (Q1 update), Nestle [NESN.CH] +1.8% (Reportedly considering strategic options for US confectionery division, including possible sale),SThree [STHR.UK] +3.3% (Earnings)]
Telecom: [Avanti Communication Group [AVN.UK] +47% (Super facility)]
Industrials: [Rolls Royce [RR.UK] +0.9% (Trading update)
Financials: [ Record Plc [REC.UK] +12% (Earnings), SocGen [GLE.FR] +1.4% (ALD Automotive IPO)]
Healthcare: [ Indorsia Pharma [IDIA.CH] +17.5% (Spin off from Actelion)]
Speakers
ECB’s Villeroy (France): Must complete Basel III bank capital requirement discussions. Unilateral deregulation would be a ‘lose-lose’ game with grave consequences
EU’s Moscovici noted that the Greece agreement makes progress on debt management
EU’s Dombrovskis: Finance Ministers continue to work on Non-performing loans (NPLs)
UK Chancellor of Exchequer Hammond: Govt to take pragmatic approach in Brexit negotiations; to find a solution that works. Have set out a very clear desired outcome in planned EU talks but would not give ‘blow-by-blow accounts. Set out to prioritize jobs and growth
Portugal Fin Min Centeno: Govt plan to maintain the cash buffer as it continues to make early repayments of its IMF loan over the next 30 months. To pay €1.0B by end of June as soon as we have the formal authorization from the European institutions
Luxembourg Fin Min Gramegna: Good compromise on Greece from Eurogroup; gives country a bit of buffer with aid payout; Euro Zone gave Greece room to maneuver. Saw good solution for Greece and Europe on debt in coming months
Greece PM Tsipras: Have taken a definitive step to exit crisis
BOJ Gov Kuroda post rate decision press conference reiterated view that to adjust monetary policy as needed to maintain momentum in achieving the 2% price target; still quite a distance to achieve target, only half-way there. Recovery has turned to a moderate expansion. Taking time to end the deflation mindset in Japan. Reiterated that expects prices to rise gradually from here. Rising wages to lead to higher selling and service prices. To conduct bond purchases to achieve yield target; no pre-set idea about the pace of bond buying; amount to be result of yield target. Not appropriate to present specific plan about any exit from stimulus. Hard to give simulations about what will happen to BOJ earnings during exit. Growing talk of a policy exit is due to what’s happening with central banks in the US, Europe
China FX regulator SAFE reiterated that forex supply and demand remained balanced in May
Currencies
USD/JPY was higher above the 111.30 level in the session as the BOJ post rate press conference saw Gov Kuroda note that the BoJ was not planning to release simulations regarding a pullback of its easy-money policies. Some in the market had speculated the central bank could start to float the idea of a possible future exit. Kuroda press conference dampened any expectations of QE exit plans. The yen currency softer as a result. Kuroda noted that growing talk of a policy exit was due to what’s happening with central banks in the both US, Europe.
The EUR/USD retraced its post FOMC losses but remained below the 1.12 level. Euro Zone May CPI confirmed remained below the ECB target for the 2nd straight month
Fixed Income
Bund futurestrade at 164.28 down 30 ticks after a technical break and now are at the lows for June. Resistance lies near the 164.60 level, followed by 165.52. A break of the 163.89 support level could see lows target 162.05 followed by 160.30.
Gilt futurestrade at 128.71 down 22 ticks after extending its declines from Wednesday’s high 130.23. Price fell below 129.14 level and now initial support lies 128.27 level, with key support at the 127.96 support level. An acceleration lower could test the 127.43 region. Resistance lies at the 129.80 level followed by 132.65.
Friday’s liquidity report showed Thursday’s excess liquidity fell to €1.662T a decrease of €14B from €1.676T prior. Use of the marginal lending facility rose to €226M from €180M prior.
Corporate issuancesaw $3B come to market via 1 issues headlined by Brighthouse Financial Inc. -2-part senior unsecured note offering. This week’s issuance is at $14.0B, lower than the analysts’ issuance target to come in around $20B. For the week ending Jun 14th Lipper US fund flows reported IG funds net inflows $2.603B bringing YTD inflows to $64.29B, High yield funds reported outflows of $0.2B bringing YTD outflows to $4.70B.
Looking Ahead
06:00 (IE) Ireland Apr Trade Balance: No est v €5.1B prior
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)
06:30 (RU) Russia Central Bank (CBR) Interest Rate Decision: Majority of analysts expect Russia to cut its Key 1-week Auction Rate by 25bps to 9.00%
06:45 (US) Daily Libor Fixing
07:30 (BR) Brazil Apr Economic Activity (Monthly GDP) M/M: +0.2%e v -0.4% prior; Y/Y: -1.4%e v +1.1% prior
07:30 (IN) India Weekly Forex Reserves
08:00 (IS) Iceland May Unemployment Rate: No est v 2.1% prior
08:00 (BE) Belgium Debt Agency (BDA) announcement of upcoming OLO auction for Mon, Jun 19th
08:15 (UK) Baltic Dry Bulk Index
08:30 (US) May Housing Starts: 1.22Me v 1.172M prior; Building Permits: 1.25Me v 1.2228M prior (revised from 1.229M)
08:30 (CA) Canada Apr Int’l Securities Transactions: No est v C$15.1B prior
10:00 (US) Jun Preliminary University of Michigan Confidence: 97.0e v 97.1 prior
10:00 (US) May Labor Market Conditions Index Change: 3.0e v 3.5 prior
11:00 (EU) Potential sovereign ratings
(PT) Portugal Sovereign Debt to be rated by Fitch
(UK) United Kingdom Sovereign Debt to be rated by DBRS
12:45 (US) Fed’s Kaplan speaks in Dallas
13:00 (US) Weekly Baker Hughes Rig Count Data
