Peripheral Yields Move Lower In Session Aided By Strong Spainish Auction Results

Notes/Observations

Asia:

• Germany Apr Factory Orders miss expectations
• Trade tension seen ahead of G7 leader summit; speculation that there was no chance that the US and other G7 members could reach common ground
• China May FX Reserves registers its 3rd straight monthly decline
• Spain auction results deemed strong

Asia:

• China Commerce Min (MOFCOM): Some ‘specific’ progress made on just completed trade talks, details in trade talks will US ‘are to be confirmed’; to implement consensus reached in Washington. Reiterated view that did not want trade tensions to escalate. Confirmed talks included in depth discussions on energy and agriculture
• Australia Apr Trade Balance registers its 4th straight surplus (A$1.0B v A$1.0Be)

Europe:

• Italy’s PM Conte government won a 2nd confidence vote, in lower House (as expected)
• Greece said to have delayed a planned bond sale due to concerns about instability in Italy
• UK PM May said to be keeping Brexit supporters in the dark about her backstop plans
• PM May reportedly has compromised with Tory rebels on timing of withdrawal bill hearing; ministers believe Tory rebels will be won over on Customs Union amendment to EU withdraw bill next week. To meet senior ministers in an attempt to resolve tensions over the government’s Brexit “backstop” plan. In the proposal the UK would match EU tariffs temporarily in order to avoid a hard Irish border post-Brexit. It would also outline what would happen should no permanent solution be agreed with the EU before the UK’s 2019 exit

Americas:

• Senate Banking Committee to vote on June 12 on nominations of Richard Clarida for Fed Vice Chair and Michelle Bowman for Fed Governor

Economic Data:

• (NL) Netherlands May CPI M/M: 0.3% v 0.4% prior; Y/Y: 1.7% v 0.9% prior
• (NL) Netherlands May CPI EU Harmonized M/M: 0.4% v 0.6% prior; Y/Y: 1.9% v 1.3%e
• (CH) Swiss May Unemployment Rate: 2.4% v 2.5%e; Unemployment Rate (Seasonally Adj): 2.6% v 2.6%e
• (DE) Germany Apr Factory Orders M/M: -2.5% v +0.8%e; Y/Y: -0.1% v +3.6%e
• (RO) Romania Q1 Preliminary GDP (2nd reading) Q/Q: 0.0% v 0.0% advance; Y/Y: 4.0% v 4.0%e
• (NO) Norway Apr Industrial Production M/M: -1.4% v -0.7% prior; Y/Y: -1.9% v +0.2% prior
• (NO) Norway Apr Manufacturing Production M/M: 1.1% v 0.7%e; Y/Y: 1.3% v 0.9% prior
• (DK) Denmark Apr Industrial Production M/M: +1.2% v -0.4% prior
• (ZA) South Africa May Gross Reserves: $51.2B v $49.4Be; Net Reserves: $42.9B v $43.0Be
• (FI) Finland Apr Preliminary Trade Balance: +€0.1B v -€0.2B prior
• (AU) Australia May Foreign Reserves (AUD): 82.5B v 72.8B prior
• (FR) France Apr Trade Balance: -€5.0B v -€5.1Be
• (FR) France Apr Current Account: -€1.1B v -€0.6B prior
• (ES) Spain Q1 INE House Price Index Q/Q: 1.4 % v 0.9% prior; Y/Y: 6.2% v 7.2% prior
• (CH) Swiss May Foreign Currency Reserves (CHF): 740.9B v 757.2B prior
• (AT) Austria May Wholesale Price Index M/M: 1.4% v 1.3% prior; Y/Y: 5.2% v 2.9% prior
• (MY) Malaysia End-May Foreign Reserves: $108.5B v $109.4B prior
• (UK) May Halifax House Prices M/M: 1.5% v 1.0%e ; 3M/Y: 1.9% v 1.9%e
• (IT) Italy Apr Retail Sales M/M: -0.7% v +0.1%e; Y/Y: -4.6% v +2.9% prior
• (CZ) Czech May International Reserves: $144.9B v $147.5B prior
• UN FAO World Price Index: 176.2 v 173.5 prior
• (CN) China May Foreign Reserves: $3.1106T v $3.107Te (3rd straight monthly decline)
• (IT) Bank of Italy (BOI) May Balance sheet aggregates: Target-2 liabilities €464.7B (record level) v €426.1B prior
• (EU) Euro Zone Q1 Final GDP Q/Q: 0.4% v 0.4%e; Y/Y: 2.5% v 2.5%e
• (EU) Euro Zone Q1 Household Consumption Q/Q: 0.5% v 0.2%e; Govt Expenditure Q/Q: 0.0% v 0.2%e, Gross Fixed Capital Q/Q: 0.5% v 0.7%e
• (GR) Greece Mar Unemployment Rate: 20.1% v 20.6% prior
• (HU) Hungary May YTD Budget Balance (HUF): -1.188T v -1.081T prior
• (SG) Singapore May Foreign Reserves: $287.9 v $287.7B prior

Fixed Income Issuance:

• (ES) Spain Debt Agency (Tesoro)sold total €2.35B vs.€2.0-3.0B indicated range in 2021, 2023 and 2028 SPGB Bonds
• Sold €718M in 0.05% Jan 2021 SPGB; Avg yield: -0.037% v -0.145% prior, Bid-to-cover: 3.30x v 2.66x prior
• Sold €558M in 0.35% July 2023 SPGB; Avg yield: 0.440% v 0.443%prior; Bid-to-cover: 2.88x v 1.83x prior
• Sold €1.07B in 1.40% Apr 2028 SPGB; Avg yield: 1.406% v 1.370% prior, Bid-to-cover: 2.19x v 2.25x prior
• (ES) Spain Debt Agency (Tesoro) sold €2.17B vs. €1.25-2.25B indicated range in I/L 2023 bonds (SPGBei;Bonoei); Real Yield: -0.792% v -1.578% prior; Bid-to-cover: 1.69x v 2.67x prior
• (FR) France Debt Agency (AFT) sold total €8.997B vs. €8.0-9.0B indicated range in 2028, 2029, 2031 and 2036 Oats
• Sold €3.387B in 0.75% Nov 2028 Oat; Avg Yield: 0.90% v 0.81% prior; Bid-to-cover: 1.92x v 1.88x prior (May 3rd 2018)
• Sold €1.999B in 5.5% Apr 2029 Oat; Avg Yield: 0.86% v 0.60% prior; Bid-to-cover: 2.05x v 1.79x prior (Dec 7th 2017)
• Sold €2.164B in 1.50% May 2031 Oat; Avg Yield 1.08% v 1.01% prior; Bid-to-cover: 1.84x v 1.62x prior (Nov 2nd 2017)
• Sold €1.447B in 1.25% May 2036 Oat; Avg Yield 1.37% v 1.35% prior; Bid-to-cover: 2.14x v 1.90x prior
• (SE) Sweden sold SEK500M in I/L 2027 Bond; Avg Yield: -1.3716% v -1.2300% prior; Bid-to-cover: 1.90x v 2.51x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +0.3% at 388.0, FTSE flat at 7710, DAX +0.2% at 12860, CAC-40 +0.4% at 5481, IBEX-35 +0.9% at 9879, FTSE MIB +0.4% at 21890, SMI +0.5% at 8595, S&P 500 Futures +0.1%]
• Market Focal Points/Key Themes: European Indices trade higher across the board following on from a strong session in Wallstreet overnight, and lower peripheral yields. The FTSE fades earlier gains after an earlier technical glitch meant a delayed opening. Brokers CMC Markets and Plus 500 trade higher after upbeat results and outlook, with Autotrader, RWS and Mitie Group notable risers after earnings and updates. Meanwhile Remy Cointreau trades almost 5% lower after its full year results slightly missed expectations. Shares of Duerr in Germany also outperforms after the company lifted its full year Revenue outlook. Looking ahead notable earners include Conn’s Inc, JM Smucker and Vail resorts.

Movers

• Consumer Discretionary Autotrader [AUTO.UK] +6% (Earnings), Remy Cointreau [RCO.FR] -4.9% (Earnings), Mitie Group [MTO.UK] +5% (Earnings), RWS [RWS.UK] +8.4% (Earnings)]
• Industrials Duerr [DUE.DE] +6% (Lifts outlook)
• Financials Plus 500 [PLUS.UK] +5.8% (Upbeat outlook), CMC Markets [CMCX.UK] +5% (Earnings)

Speakers

• Italy Stats Agency (ISTAT) Monthly Economic Outlook: leading indicators show a slowdown for next months
• Sweden Central Bank (Riksbank) Jochnick: Approaching the time for the 1st rate hike. Needed to see inflation stabilize around the 2% level and slightly higher underlying inflation. He added that need to wait a bit longer with Repo rate hikes
• Greece govt official stated that the gvot was committed to existing fiscal reforms targets under post-bailout surveillance. IMF prefered debt relief measures beyond what the Eurogroup wanted. France proposal to link debt repayments to GDP growth on the table; depended on length that loans are extended after 2022
• Norway Fin Min Jensen: Neutral fiscal stance is appropriate
• IMF on Norway: Higher economic growth in Norway warranted a neutral fiscal stance and central bank should gradually normalize monetary policy. Forecasted Norway’s Mainland 2018 and 2019 GDP growth at 2.5%
• Norway Stats Agency (SSB) Economic Outlook cuts 2018 Mainland GDP from 2.4% to 2.1%and Underlying CPI from 1.7% to 1.6% it
• Russia Central Bank (CBR) Gov Nabiullina: Easy policy was necessary to provide time to enact reforms. Move to neutral policy would mean the end of the rate cut cycle and could raise interest rates if there were risks. Goal was to keep inflation around the 4% target
• Philippines Central Bank (BSP) May Minutes: Rate hike was preemptive to temper CPI and help arrest 2nd round effects
• China FX Regulator SAFE reiterated view that FX reserves to remain stable overall

Currencies

• The USD was softer against the major pairs with trade tension ahead og G7 cited as a factor as there appeared to be no chance that the US and other G7 members could reach common ground
• EUR/USD continued its move higher as dealers continued the unwind of bearish ECB bets . Market participants believe that the ECB was likely to discuss quantitative easing at its June meeting and could hint when investors should expect its end.
• The USDJPY moved back below the 110 level in the session with dealers citing some uncertainty on trade issues ahead of the G7 leader summit that begins on Friday. On a technical note one analyst noted that the pair has failed to overcome its 200DMA and the 61.8% retracement level of its previous decline and could pave the way for a test lower towards 108 area.

Fixed Income

• Bund Futures trade 35 ticks lower at 159.60 as German 10-year Bund yield rises back to the 0.50 level. Upside targets 161.75 followed by 162.50, while a return lower targets the 159.25 level.
• Gilt futures trade at 123.31 lower by 48 with the September Gilt falling under pressure. Support continues stands at 122.75 then 122.25, with upside resistance at 124.85 then 126.35.
• Thursday’s liquidity report showed Wednesday’s excess liquidity fell from €1.923T to €1.922T. Use of the marginal lending facility increased from €99M to €146M.
• Corporate issuance saw 8 issuers raise $7.2B in the primary market

Looking Ahead

• (IL) Israel May Foreign Currency Balance: No est v $115.4B prior
• 06:00 (IE) Ireland May CPI M/M: No est v -0.2% prior; Y/Y: No est v -0.4% prior
• 06:00 (IE) Ireland May CPI EU Harmonized M/M: No est v -0.2% prior; Y/Y: No est v -0.1% prior
• 06:00 (RO) Romania to sell Bills
• 06:00 (RO) Romania to sell Bonds
• 06:45 (US) Daily Libor Fixing
• 07:00 (TR) Turkey Central Bank (CBRT) Interest Rate Decision: Expected to leave One-Week Repo Rate unchanged at 16.50%; Raise Overnight Lending Rate by 75bps to 18.75%; Raises the Overnight Borrowing Rate by 50bps to 15.50%; Leave the Late Liquidity Window (LLW) unchanged at 19.50%
• 07:00 (ZA) South Africa Apr Manufacturing Production M/M: 0.3%e v 1.3% prior; Y/Y: +1.7%e v -1.3% prior
• 07:00 (BR) Brazil May FGV Inflation IGP-DI M/M: 1.4%e v 0.9% prior; Y/Y: 4.9%e v 3.0% prior
• 08:00 (PL) Poland May Official Reserves: No est v $113.2B prior
• 08:05 (UK) Baltic Dry Bulk Index
• 08:30 (US) Initial Jobless Claims: 221Ke v 221K prior; Continuing Claims: 1.74Me v 1.726M prior
• 08:30 (CL) Chile May Trade Balance: $0.9Be v $1.0B prior; Total Exports: $6.6Be v $6.4B prior; Total Imports: $5.8Be v $5.4B prior; Copper Exports: No est v $3.0B prior
• 08:30 (US) Weekly USDA Net Export Sales
• 09:00 (MX) Mexico May CPI M/M: -0.2%e v -0.3% prior; Y/Y: 4.5%e v 4.6% prior, CPI Core M/M: 0.2%e v 0.2% prior
• 09:00 (CL) Chile Apr Nominal Wage M/M: 0.9%e v 0.6% prior; Y/Y: 3.8%e v 3.7% prior
• 09:00 (RU) Russia Gold and Forex Reserve w/e Jun 1st: No est v $457.2B prior
• 09:00 (RU) Russia May Official Reserve Assets: $458.0Bev $459.9B prior
• 10:30 (CA) Bank of Canada (BOC) Financial System Review (FSR)
• 10:30 (TR) Turkey May Cash Budget Balance (TRY): No est v -12.9B prior
• 10:30 (US) Weekly EIA Natural Gas Inventories
• 11:00 (UK) BOE’s Ramsden in London
• 12:00 (US) Fed Reports Q1 Financial Accounts: Household Change in Net Worth: No est v $2.076T prior
• 15:00 (US) Apr Consumer Credit: $14.0Be v $11.6B prior
• 19:00 (PE) Peru Central Bank (BCRP) Interest Rate Decision: Expected to leave Reference Rate unchanged at 2.75%