Notes/Observations
Oil price weakness morphing into a broader-based risk-off move
PM May’s decision to push ahead with the Queen’s Speech without the agreement on working govt illustrates her commitment to lead the UK even with a minority government
MSCI will include China A shares in Emerging Markets Index; sees adding 222 China A large cap stocks
Overnight
Asia:
Bank of Japan (BOJ) Apr 27th Policy Meeting Minutes noted that most members saw momentum towards price goal not firm enough. No conflict between JGB purchases and market operation guidelines and agreed JGB purchases will fluctuate somewhat under YCC
MSCI to include China A-shares in its indices; opens Chinese mkt to more foreign investors; plans to add 222 China ‘A’ large cap stocks to global emerging market benchmark
Europe:
German Fin Min Schaeuble reportedly urges CDU-CSU party lawmakers to support aid for Greece (**Note: Germany’s Bundestag (lower house of parliament) to debate the latest compromise deal for Greece on Wed, Jun 21st)
France INSEE Stat Agency forecasts France 2017 GDP growth at 1.6% vs. 1.1% y/y (**Note: would be highest level of growth since 2011)
PM May: Need to deliver on Brexit in a way that commands maximum public support; will work with Parliament, Businesses and devolved Govts to ensure smooth and orderly EU exit
UK govt said to be considering a registry of EU citizens living in the UK; to gauge demand for residency applications post Brexit
Reports that PM May to remove unpopular policies from Queen’s Speech; Govt might shelve energy bill price cap
Northern Ireland DUP sources: British govt must give greater focus to negotiations to form a voting bloc; our party cannot be taken for granted by Conservative Party.
Conservative Party source noted that talks with DUP were ongoing; continuing to work towards a confidence and supply arrangement with DUP. Additional press reports that Power share deal between DUP and Tories likely on Thurs, Jun 22nd
Americas:
Fed’s Kaplan (moderate, voter): Wants to keep an open mind on amount of rate hikes this year. Inflation has been notably sluggish; would like to see evidence that weak inflation is transitory
House Speaker Ryan: we are going to fix this nation’s tax code once and for all. will consolidate the existing seven brackets into three, double the standard deduction, and simplify things to the point that you can do your taxes on a form the size of a postcard
Republican Karen Handel beat Jon Ossoff in Georgia Congressional race (53-47%) (**Insight: Georgia was viewed as Democrats best shot at a win; most expensive House race in history)
Brazil federal police said to have found evidence that President Temer received bribes
Energy:
Saudi Arabia King Salman removed Crown Prince Mohammed bin Nayef and replaced him with Deputy Crown Prince Mohammed bin Salman
Weekly API Oil Inventories: Crude: -2.7M v +2.8M prior
Economic Data
(NL) Netherlands Jun Consumer Confidence: 23 v 23 prior
(SE) Sweden Jun Consumer Confidence: 102.5 v 105.0e; Manufacturing Confidence: 119.9 v 115.0e, Economic Tendency Survey: 112.1 v 110.4e
(ZA) South Africa May CPI M/M: 0.3% v 0.2%e; Y/Y: 5.4% v 5.4%e (2nd straight month annual CPI was within the target range of 3.0-6.0%)
(ZA) South Africa May CPI Core M/M:0.1% v 0.1%e; Y/Y: 4.8% v 4.8%e
(UK) May Public Finances (PSNCR): +£13.4B v -£15.2B prior; Public Sector Net Borrowing: £6.0B v £7.0Be
Fixed Income Issuance:
(IN) India sold total INR140B vs. INR140B indicated in 3-month and 12-month Bills (INR80B and INR60B respectively
(DK) Denmark sold total DKK2.25B in 2020 and 2027 bonds
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
Indices [Stoxx 600 -0.6% at 379, FTSE -0.2% at 7459, DAX -0.6% at 12738, CAC-40 -1.0% at 5243, IBEX-35 -0.8% at 10666, FTSE MIB -0.3% at 20745, SMI -0.8% at 8956, S&P 500 Futures -0.4%]
Market Focal Points/Key Themes European Indices trade lower across the board following on from weakness in the US yesterday, with falling Oil prices said to attribute to the negative sentiment. On the corporate front UK based Whitbread trades higher by over 4% after strong LFL sales, whilst Berkeley Group trades higher after strong FY results. Scout 24 trades lower after Deutsche Telekom sold its entire stake in company, while Provident financial trades sharply lower after issuing a profit warning. Looking ahead to the US morning, scheduled earnings include Carmax, Actuant and Winnebago industries.
Equities
Consumer discretionary [Whitbread [WTB.UK] +4.5% (Trading update), Scout24 [G24.DE] -3.3% (Deutsche telekom places shares), Hornby [HRN.UK] +11.2% (Earnings), SAS [SAS.SE] -3% (Earnings)]
Real Estate: [Berkeley Group [BKG.UK] +2.8% (FY Results)]
Healthcare: [Shire Pharm [SHP.UK[ +1.5%(FDA approval for Mydayis)]
Energy: [Centrica [CNA.UK] +2.0 (Divestment)]
Financial [Provident Financial [PFG.UK] -16% (profit warnings)]
Speakers
ECB published details of corporate bond purchases and noted it had purchased 950 securities from around 200 groups. 12% of CSPP holdings were purchased at negative yields but above the Deposit Rate (**Note: currently at -0.40%) and 55% of corporate bonds had been either German or French paper
BOE agent Q2 survey noted that the moderate underlying growth in activity had continued overall. Direct impact of the fall in sterling on cost inflation for manufacturers’ raw materials had eased, but increased costs continued to pass through supply chains into retail prices.
Italy PM Gentiloni – commented in Parliament ahead of EU Leader Summit that Italy sought clarity in Brexit negotiations and was neither for a hard or soft Brexit. Believed that UK is not in a strong position at the start of the negotiations
EU Commission paper said to note that Greece needs additional debt relief to regain trust of investors even though it will have €9B in cash buffer after it exits from bailout program
Finland Finance Ministry updated economic forecasts which raised both 2017 and 2018 growth outlook. Raised 2017 GDP growth from 1.2% to 2.4% and raised 2018 GDP growth from 1.0% to 1.6%
Czech Central Bank Gov Rusnok noted that the continuing strengthening of CZK currency (Koruna) could be reason for slower raising of rates. Rate hike in Q3 was not likely
BOJ Gov Kuroda reiterated BOJ still had long way to go before achieving the 2% price target; price momentum warranted close attention. Reiterated view that was appropriate to continue with strong easing. Yield curve has been moving in line with BOJ’s market operation
China Foreign Ministry spokesperson Geng Shuang: Govt efforts on Korean Peninsula is unrelenting; not motivated by external pressure
Currencies
Major FX pairs were generally range-bound in quiet trading as traders noted that there was little important economic data. EUR/USD was steady at 1.1135 area
The GBP currency remained wobbly in the aftermath of dovish rhetoric by BOE Gov Carney on Tuesday. The GBP/USD hovered around the 1.26 level. Focus turns to the Queen’s Speech which is delivered by the UK PM and outlines the legislative agenda for the parliamentary session
Commodity currency complex pressured by oil price. CAD, NOK and RUB were all softer in the session as oil prices maintained its soft footing. Oil prices held near multi-month lows on Wednesday as investors discounted evidence of strong compliance by OPEC and non-OPEC oil producers with a deal to cut global output.
Fixed Income
Bund futurestrade at 165.15 up 15 ticks, as European stocks slide as oil falls into bear market territory. Resistance lies near the 165.52 level, followed by 166.21. A break of the 163.89 support level could see lows target 162.05 followed by 160.30.
Gilt futures trade at 129.64 up 17 ticks with the focus on BOE’s Haldane speech due at 12pm London and the Queen’s speech, which provide insight on PM May’s objectives at 11:30am London. Price is approaching the higher third portion of the June trading range. If price becomes bearish and drops below the noted 129.14 level, initial support lies at the 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.
Wednesday’s liquidity report showed Tuesday’s excess liquidity fell to €1.6096T a drop of €25.4B from €1.6350T prior. Use of the marginal lending facility rose to €380M from €338M prior.
Corporate issuance saw over $1.5B come to market via 2 issues headlined by Federal Realty Investment Trust $400M 2-part senior unsecured note offering and Jackson National Life Global Funding $1.1B 3-part FRN FA-backed notes
Looking Ahead
(DE) Germany’s Bundestag (lower house of parliament) to debate the latest compromise deal for Greece
(FR) France govt announcement on composition of the new govt post-election
(BR) Brazil Jun CNI Industrial Confidence: No est v 53.7 prior
05:30 (SL) Sri Lanka National CPI Y/Y: No est v 8.4% prior
05:30 (DE) Germany to sell €1.0B in 2.5% 2044 Bunds
05:30 (PT) Portugal Debt Agency (IGCP) to sell €1.0-1.25B in 6-month and 12-month Bills
06:00 (IL) Israel Apr Manufacturing Production M/M: No est v 2.5% prior
06:00 (RU) Russia to sell combined RUB30B in 2022 and 2024 OFZ bonds
06:15 (UK) Queen’s speech in Parliament
06:45 (US) Daily Libor Fixing
07:00 (US) MBA Mortgage Applications w/e Jun 16th: No est v 2.8% prior
07:00 BOE’s Haldane (chief economist)
08:15 (UK) Baltic Dry Bulk Index
10:00 (US) May Existing Home Sales: 5.55Me v 5.57Me
10:00 (DE) German Chancellor Merkel with Finland PM Siplia in Berlin
10:30 (US) Weekly DOE Crude Oil Inventories
12:00 (CA) Canada to sell 10-Year Bonds
15:00 (AR) Argentina Q1 GDP Q/Q: No est v 0.5% prior; Y/Y: +0.1%e v -2.1% prior
17:00 (NZ) New Zealand Central Bank (RBNZ) Interest Rate Decision: Expected to leave Official Cash Rate (OCR) unchanged at 1.75%
