Talk Of A 2nd Tariff List From US Against China Being Composed

Notes/Observations

• Talk of a 2nd US tariff list of $100B against China dampens risk outlook

Asia:

• BOJ left policy steady (as expected). Kept Interest Rate on Excess Reserves (IOER) Unchanged at -0.10%. Downgraded assessment of CPI (as speculated) and now saw CPI in range of 0.5% to 1.0%

Europe:

• ECB policymakers reportedly at odds over policy statement wording on end of QE and rate hike; some wanted to signal possible rate hike in mid 2019 and others want to keep option open for extension of bond buys
• Bank of France raised its 2018 inflation outlook from 1.6% to 2.0% and cut its 2018 GDP growth outlook from 1.9% to 1.8%
• Leading pro-EU Tory lawmaker Grieve stated that the govt compromise on Brexit meaningful vote was ‘unacceptable’ (Note: Sets the scene for another showdown when the bill returns to parliament during the week of Jun 18th)
• ESM Board approved disbursement of remaining €1.0B for Greece with payment was linked to arrears clearance
• UK PM is expected to announce on Monday, Jun 18th a 3% annual boost to NHS funding as part of multiyear settlement to mark its 70th birthday

Americas:

• Trump administration official stated that President Trump would direct ‘pretty significant action’ on tariffs against China; expected to affect $50B in Chinese products (Note: Treasury Sec Mnuchin argued in meeting against imposing tariffs)

Economic Data:

• (SE) Sweden May Maklarstatistik Housing Prices Y/Y: 1.0% v 0.0% prior
• (NL) Netherlands Apr Retail Sales Y/Y: No est v 3.6% prior
• (PE) Peru Apr Economic Activity Index (monthly GDP) Y/Y: 6.2%e v 3.9% prior
• (PE) Peru May Unemployment Rate: 7.1%e v 7.3% prior
• (EU) EU27 New Car Registrations: 0.8% v 9.6% prior
• (DK) Denmark May PPI M/M: 1.2% v 1.5% prior; Y/Y: 3.9% v 2.8% prior
• (NO) Norway May Trade Balance (NOK): 16.3B v 18.7B prior
• (FI) Finland Apr Current Account: -€0.1B v -€0.1B prior
• (FI) Finland Apr GDP Indicator WDA Y/Y: 1.8% v 4.0% prior
• (AT) Austria May CPI M/M: 0.2% v 0.2% prior; Y/Y: 1.9% v 1.8% prior
• (ES) Spain Q1 Labour Costs Y/Y: 0.7% v 0.7% prior
• (CN) Weekly Shanghai copper inventories (SHFE): 253.0K v 256.2K tons prior
• (RU) Russia Narrow Money Supply w/e Jun 8th: 10.06T v 9.92T prior
• (IT) Italy Apr Industrial Sales M/M: 0.3% v 0.6% prior; Y/Y: 4.0% v 3.3% prior
• (IT) Italy Apr Industrial Orders M/M: -1.3% v +0.3% prior; Y/Y: 6.4 v 2.3% prior
• (IN) India May Trade Balance: -$14.6B v -$14.3Be
• (IT) Italy Apr General Government Debt: €2.312T (record high) v €2.302T prior
• (EU) Euro Zone Apr Trade Balance (Seasonally Adj): €18.1B v €20.0Be; Trade Balance NSA (unadj): €16.7B v €26.9B prior
• (EU) Euro Zone May Final CPI Y/Y: 1.9% v 1.9%e; CPI Core Y/Y: 1.1% v 1.1%e, CPI M/M: 0.5% v 0.5%e
• (EU) Euro Zone Q1 Labour Costs Y/Y: 2.0% v 1.4% prior
• (IT) Italy May Final CPI (includes tobacco) M/M: 0.3% v 0.4% prelim; Y/Y: 1.0% v 1.1% prelim; CPI Index (ex-tobacco): 102.0 v 101.9e
• (IT) Italy May Final CPI EU Harmonized M/M: 0.3% v 0.4% prelim; Y/Y: 1.0% v 1.1%e

Fixed Income Issuance:

• None seen

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx50 -0.1% at 3,530, FTSE -0.5% at 7,723, DAX flat at 13,113, CAC-40 +0.2% at 5,540; IBEX-35 -0.4% at 9,916, FTSE MIB -0.3% at 22,412, SMI +0.2% at 8,671 , S&P 500 Futures -0.4%]
• Market Focal Points/Key Themes: European markets opened mixed and slipped to the downside as the session progressed, following press reports of second China tariff list being considered by White House; personal consumption and autos best performers; financials and energy stocks underperforming; many indices across Asia closed for holiday; upcoming earnings releases expected in the US session include Canadian Goose and PermRock

Equities

• Consumer discretionary: Hennes & Mauritz HMB.SE -4.0% (results), Tesco TSCO.UK +2.2% (results)
• Healthcare: Roche ROG.CH +0.5% (study results), Indivior INDV.UK -16.1% (FDA approval of generic Suboxone)
• Industrials: PostNL PNL.NL +7.6% (government to scale down participation in market), Rolls Royce RR.UK +11.2% (outlook)
• Materials: Umicore UMI.BE +1.5% (analyst action)

Speakers

• ECB’s Nowotny (Austria): Inflation was in-line with ECB target. ECB inflation goal of close to 2% is achieved but added that full policy normalization would take significant time. Policy to remain significantly expansive. The central bank was beginning the normalization process but without setting off taper tantrum in the markets
• ECB’s Coeure (France): Growth in Europe was strong and that inflation was expected to durably converge closer to target. Italy’s economic challenge was not linked to the Euro currency
• German Bundesbank updated its outlook: Domestic economic boom was continuing. Cut its 2018 GDP growth forecast from 2.5% to 2.0% while raising the 2019 GDP growth forecast from 1.7% to 1.9%. Raised the 2018 inflation forecast from 1.6% to 1.8% and maintained 2019 inflation forecast at 1.7%
• BOJ Gov Kuroda post rate decision press conference reiterated view that the domestic economy was expanding moderately while still some distance from the 2% inflation target. Too early to talk about specifics of any policy exit at this time; needed to make best effort to achieve the price target Affirmed its new CPI forecast that inflation was seen rising between 0.5-1% y/y (**Note: prior view was around 1%). Reiterated to adjust policy as needed, taking into account economy, prices, financial conditions to maintain momentum towards 2% price target.
• US said to be nearing completion of a 2nd tariff list comprising of $100B in Chinese goods, subject to same hearing conditions of approx 60 days
• China Foreign Ministry reiterated view that will take appropriate measures if US enacts tariffs. All trade agreements would be called off

Currencies

• Central bank divergence theme evolved in price action over the past two sessions with the combination of a hawkish Fed on Wednesday and a dovish ECB on Thursday. However, talk of a 2nd list of tariffs against China circulated in the session and provided a headwind on risk appetite. The USD pared back earlier gains.
• The EUR/USD opened the EU session lower as dealers continued to assess the ECB statement. The inclusion of calendar based guidance on rates is the first time the ECB had done such a thing and viewed as a material evolution to the policy framework. ECB expected the key ECB interest rates to remain at their present levels at least through the summer of 2019. Also dovish the conditional taper with analysts noting a caveat was QE would still be “subject to incoming data confirming the Governing Council’s medium-term inflation outlook. Global trade jitters help the Euro try to regain the 1.16 handle just ahead of the US morning.
• The JPY reversed its earlier losses on some safe-haven flows on trade jitters with USD/JPY hovering in the mid-110.50 area. The pair was approaching the 111 area before trade concerns prompted some safe-haven buying of the yen currency.

Fixed Income

• Bund Futures trade at 161.24, up 53 ticks ahead as markets digest the ECB actions yesterday. Further upside targets 161.66, while a pullback would target 160.36 then 159.94.
• Gilt futures trade at 122.67 up 22 ticks tracking Bunds and Treasuries higher with resistance seen 122.95 then 123.17. A move back lower sees 121.33.
• Friday’s liquidity report showed Thursday’s excess liquidity fell from €1.903T to €1.887T. Use of the marginal lending facility fell from €99M to €65M.
• Corporate issuance saw a pick up in acitivity with 9 issuers raising $11.9B. For the week ending June 13th High Yield funds saw inflows of $324M compared to $2.42B outflows last week.

Looking Ahead

• 05:30 (PL) Poland to sell Bonds (switch auction)
• 06:00 (IE) Ireland Apr Trade Balance: No est v €4.0B prior
• 06:00 (UK) DMO to sell combined £4.0B in 1-month, 6-month and 12-month Bills (£1.0B, £1.0B and £2.0B respectively)
• 06:30 (RU) Russia Central Bank (CBR) Interest Rate Decision: Analysts split between keeping Key 1-Week Auction Rate unchanged at 7.25% or cut by 25bps to 7.00%
• 06:45 (US) Daily Libor Fixing – 07:00 (IL) Israel May CPI M/M: 0.5%e v 0.4% prior; Y/Y: 0.5%e v 0.4% prior
• 07:00 (BR) Brazil Jun FGV Inflation IGP-10 M/M: 1.7%e v 1.1% prior
• 07:30 (BR) Brazil Apr Economic Activity Index (monthly GDP) M/M: +0.6%e v -0.7% prior; Y/Y: +3.9%e v -0.7% prior
• 07:30 (IN) India Weekly Forex Reserves
• 08:00 (PL) Poland May CPI Core M/M: 0.0%e v 0.5% prior; Y/Y: 0.6%e v 0.6% prior
• 08:00 (RU) Russia Central Bank (CBR) Govr Nabiullina post rate decision press conference
• 08:00 (IN) India announces upcoming bill issuance (held on Wed)
• 08:00 (ES) Spain Debt Agency (Tesoro) announces upcoming issuance
• 08:15 (UK) Baltic Dry Bulk Index
• 08:30 (US) Jun Empire Manufacturing: 18.8e v 20.1 prior
• 08:30 (CA) Canada Apr Int’l Securities Transactions (CAD): No est v 6.2B prior
• 08:30 (CA) Canada Apr Manufacturing Sales M/M: 0.6%e v 1.4% prior
• 09:00 (BE) Belgium Apr Trade Balance: No est v €0.3B prior
• 09:00 (CA) Canada May Existing Home Sales M/M:
• 1.4%e v -2.9% prior
• 09:15 (US) May Industrial Production M/M: 0.2%e v 0.7% prior; Capacity Utilization: 78.1%e v 78.0% prior, Manufacturing Production: 0.0%e v 0.5% prior
• 10:00 (US) Jun Preliminary University of Michigan Confidence: 98.5e v 98.0 prior
• 11:00 (CO) Colombia Apr Industrial Production Y/Y: 5.6%e v -1.4% prior
• 11:00 (CO) Colombia Apr Retail Sales Y/Y: 6.7%e v 5.5% prior
• 11:00 (EU) Potential sovereign ratings after the European close (United Kingdom Sovereign Debt to be rated by Moody’s; Ireland Sovereign Debt to be rated by Fitch)
• 13:00 (US) Weekly Baker Hughes Rig Count data
• 16:00 (US) Apr Total Net TIC Flows: No est v -$38.5B prior; Net Long-term TIC Flows: No est v $61.8B prior