UK CPI Data In-Line And Remains At Lowest Level In A Year

Notes/Observations

• Packed week for big events but so far it’s hard to argue that anything has gone against the grain (US-NK Summit, US CPI data, UK Parliamentary Vote on Brexit process)
• UK May CPI data in-line; on track to cool faster than BOE forecast
• FOMC meets today, expected to hike by 25bps; focus on Fed Chair Powell press conference

Asia:

• RBA Gov Lowe reiterated no strong case for near term adjustment in monetary policy; next move likely to be up if economic growth was sustained

Europe:

• UK Parliament rejected plan to remove a fixed Brexit date of March 29, 2019 (as expected, in support of govt stance)
• UK’s lower house (Commons) rejected an amendment put forward by the upper house (House of Lords) that would require the government to accept the direction of Parliament in the event that no deal was reached with the EU27 (Note: Under government plan, if parliament rejected the negotiated Brexit deal, government must report back with new strategy within 28 days)
• Italy EU Affairs Min Savona stated that he never asked for Italy to leave the euro; there was no ‘Plan B’

Energy:

• Russia said to have asked for oil cuts rollback for most OPEC+ nations; to propose 1.8M bpd shared quota increase. Planned to leave 1M bpd of involuntary oil reductions intact – Weekly API Oil Inventories: Crude: -0.7M v -2M prior

Economic Data:

• (FI) Finland Apr Final Retail Sales Volume Y/Y: 1.9% v 0.1% prelim
• (ES) Spain May Final CPI M/M: 0.9% v 0.9%e; Y/Y: 2.1% v 2.0%e
• (ES) Spain May Final CPI EU Harmonized M/M: 0.9% v 0.9%e; Y/Y: 2.1% v 2.1%e
• (ES) Spain May CPI Core M/M: 0.4% v 0.8% prior; Y/Y: 1.1% v 1.1%e
• (TR) Turkey Apr Industrial Production M/M: 0.9% v 0.7%e; Y/Y: 6.2% v 6.2%e
• (CH) Swiss May Producer & Import Prices M/M: 0.2% v 0.4% prior; Y/Y: 3.2% v 2.7% prior
• (CH) Swiss Q1 Industrial Output WDA Y/Y: 9.0% v 9.9% prior
• (CZ) Czech Apr Current Account (CZK): 29.3B v 7.5Be
• (UK) May CPI M/M: 0.4%e v 0.4%e; Y/Y: 2.4% v 2.4%e ((matched the lowest annual pace in a year); CPI Core Y/Y: 2.1% v 2.1%e; CPIH Y/Y: 2.3% v 2.3%e
• (UK) May RPI M/M: 0.4% v 0.4%e; Y/Y: 3.3% v 3.4%e, RPI-X (ex-mortgage interest payment) Y/Y: 3.4% v 3.4%e, Retail Price Index: 280.7 v 280.9e
• (UK) May PPI Input M/M: 2.8% v 1.8%e; Y/Y: 9.2% v 7.6%e
• (UK) May PPI Output M/M: 0.4% v 0.3%e; Y/Y: 2.9% v 2.9%e
• (UK) May PPI Output Core M/M: 0.2% v 0.2%e v 0.1% prior; Y/Y: 2.1% v 2.5%e – (UK) Apr ONS House Price Index Y/Y: 3.9% v 4.2% prior
• (IS) Iceland Central Bank (Sedlabanki) left its 7-Day Term Deposit Rate unchanged at 4.25%
• (EU) Euro Zone Apr Industrial Production M/M: -0.9% v -0.7%e; Y/Y: 1.7% v 2.7%e
• (EU) Euro Zone Q1 Employment Q/Q: 0.4% v 0.3% prior; Y/Y: 1.4% v 1.6% prior

Fixed Income Issuance:

• (DK) Denmark sold total DKK400M in 3-month and 6-month Bills
• (IN) India sold total INR150B vs. INR150B indicated in 3-month, 6-month and 12-month bills
• (NO) Norway sold NOK2.0B vs. NOK2.0B indicated in 2% May 2023 Bonds; Avg Yield: 1.41% v 1.19% prior; Bid-to-cover: 2.44x v 1.88x prior
• (SE) Sweden sold SEK1.5B vs. SEK1.5B indicated in 1% 2026 Bond; Avg Yield: 0.4226% v 0.6878% prior; Bid-to-cover: 4.17x v 4.48x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +0.2 at 388.4, FTSE +0.1% at 7713, DAX +0.1% at 12850, CAC-40 +0.3% at 5468, IBEX-35 -0.4% at 9870, FTSE MIB +0.4% at 22194, SMI flat at 8642, S&P 500 Futures +0.1%]
• Market Focal Points/Key Themes: European Indices trade mixed following a mixed US and Asian session overnight. The Spanish Ibex underpeforms being weighed by shares of retail giant Inditex which trades lower after results. Elsewhere retailers Dixons Carphone trades lower after a data breach, Mulberry, Biff and Charles Stanley among other names trading lower following earnings. Connect Group is a notable faller after seeing pretax materially lower than estimates, with Neste and Meyer Burger also trading lower. Looking ahead earnings include BitAuto and Korn/Ferry.

Movers

• Consumer Discretionary Inditex [ITX.UK] -1.1% (Earnings), Connect Group [CNCT.UK] -46% (Profit warning), Mulberry [MUL.UK] -1.9% (Earnings), Dixons Carphone [DC.UK] -3.2% (Data breach), Biffa [BIFF.UK] -3.2% (Earnings)
• Financials Charles Stanley [CAY.UK] -2.6% (Earnings, Management change)
• Technology Meyer Burger Tech [MBTN.CH] -6% (Alleged accounting irregularities)
• Energy Neste [NESTE.FI] -3.6% (Finnish Gov sells shares)
• Utilities Acea [ACE.IT] -1.4% (Chairman arrested)

Speakers

• Italy Fin Min Tria said to seek avoiding a VAT hike
• Italy Interior Min Salvini (also Dep PM): Govt will begin flat tax changes in 2018 and dismantle pension reform piece by piece
• Sweden Central Bank (Riksbank) Business Survey: Economic upswing was continuing with plenty of demand all over. Demand was strong in all sectors but some unease over housing market developments
• German Institute for Economic Research (DIW) cut its German 2018 GDP growth forecast from 2.2% to 1.9%
• Russia Energy Min Novak: Domestic market to stabilize if oil price declined to $70/barrel (**Reminder: On Jun 12th reports circulated that Russia would ask for oil cuts rollback for most OPEC+ nations)
• IEA Monthly Oil Report noted that economic environment for 2018 and 2019 remained supportive for oil demand but risks were increasing. World economy was feeling some pain with higher oil prices. Iran and Venezuela oil production could slump by 30% but OPEC members could raise output in short order by 1.1M bpd to cover losses elsewhere

Currencies

• Dealers noted that the FOMC meeting was the main risk event in the session. With a rate hike almost fully priced by the markets, price action would most likely be driven by potential changes in rate guidance. USD could rally further if the FOMC signaled that real yields were likely to rise materially from here
• GBP/USD was softer ahead of key inflation data with political uncertainties remaining for PM May’s Brexit strategy as she continues to ward off a revolt from pro-European lawmakers on her legislation. UK May CPI data was in-line at 1-year lows with analysts noting that it was on track to cool faster than BOE expected
• USD/JPY was higher for the 3rd straight session to approach the 110.70 area as a 25bps rate increase by the Fed was almost a given.

Fixed Income

• Bund Futures trade 42 ticks lower at 159.43 as Eurozone bond markets await the ECB’s meeting on Thursday, with potentially some hints at the exit strategy from asset purchases and at the timing and path of interest rate increases. Upside targets 161.75 followed by 162.50, while a return lower targets the 158.75 level.
• Gilt futures trade at 122.14 higher by 40 ticks as UK inflation is on track to cool faster than BOE expects. Support continues stands at 120.75 then 119.25, with upside resistance at 122.85 then 123.35.
• Wednesday’s liquidity report showed Tuesday’s excess liquidity fell from €1.910T to €1.905T. Use of the marginal lending facility decreased from €231M to €43M.
• Corporate issuance continues to see companies rush sell bonds to try to outrun potential market turmoil that could come when central banks tighten policies. Corporations have already issued $34B of high-grade debt this month.

Looking Ahead

• (IT) Italy Debt Agency (Tesoro) to sell 2021, 2025 and 2046 and 2048 BTP Bonds
• 05:30 (DE) Germany to sell €2.0B in 0.5% Feb 2028 Bunds
• 05:30 (PT) Portugal Debt Agency (IGCP) to sell €0.75-1.0B in 2023 and 2028 OT bonds
• 06:00 (IE) Ireland Apr Property Prices M/M: No est v 0.7% prior; Y/Y: No est v 12.7% prior
• 06:00 (IL) Israel May Trade Balance: No est v -$2.3B prior
• 06:00 (ZA) South Africa Q2 BER Business Confidence: No est v 45 prior
• 06:00 (CZ) Czech Republic to sell 2022 and 2030 bonds
• 06:45 (US) Daily Libor Fixing
• 07:00 (RU) Russia to sell in OFZ bonds (2 tranches)
• 07:00 (US) MBA Mortgage Applications w/e Jun 8th: No est v 4.1% prior
• 07:00 (ZA) South Africa Apr Retail Sales M/M: 0.6%e v 0.0% prior; Y/Y: 4.4%e v 4.8% prior
• 08:00 (PL) Poland Apr Current Account: -€0.4Be v -€1.0B prior; Trade Balance: -€0.1Be v -€0.3B prior; Exports: €17.3Be v €18.1B prior; Imports: €17.3Be v €18.4B prior
• 08:00 (IS) Iceland May Unemployment Rate: No est v 2.3% prior
• 08:00 (BR) Brazil Apr Retail Sales M/M: 0.6%e v 0.3% prior; Y/Y: -0.5%e v +6.5% prior
• 08:00 (BR) Brazil Apr Broad Retail Sales M/M: 1.4%e v 1.1% prior; Y/Y: 8.3%e v 7.8% prior
• 08:05 (UK) Baltic Dry Bulk Index
• 08:30 (CA) Canada May Teranet/National Bank HPI M/M: No est v 0.2% prior; Y/Y: No est v 5.6% prior; HPI Index: No est v 219.49 prior
• 08:30 (US) May PPI Final Demand M/M: 0.3%e v 0.1% prior; Y/Y: 2.8%e v 2.6% prior
• 08:30 (US) May PPI Ex Food and Energy M/M: 0.2%e v 0.2% prior; Y/Y: 2.3%e v 2.3% prior
• 08:30 (US) May PPI Ex Food, Energy, Trade M/M: 0.2%e v 0.1% prior; Y/Y: No est v 2.5% prior
• 10:30 (US) Weekly DOE Crude Oil Inventories
• 12:00 (DE) German Foreign Min Altmaier on global economy
• 14:00 (US) FOMC Rate Decision: Expected to raise target range by 25bps to 1.75-2.00%
• 14:30 (US) Fed Chair Powell post rate decision press conference
• 15:00 (AR) Argentina Q1 Unemployment Rate: 8.5%e v 7.2% prior
• 18:00 (CL) Chile Central Bank (BCCH) Interest Rate Decision: Expected to keep Overnight Rate Target unchanged at 2.50%