Calm Trying To Reassert Itself In The Markets

Notes/Observations

• Calm trying to reassert itself into the markets. base case remains that the trade conflict with China would be settled before it progressed significantly

Asia:

• Bank of Japan (BoJ) April 26-27th Policy Meeting Minutes (2 meetings ago): Many agreed as there was still a long way to go to achieve the price stability target of 2%, it was necessary to maintain the current highly accommodative financial conditions

Europe:

• Franco-German agreement to establish a European fiscal authority; Merkel and Macron found “some common ground” about euro-area reform
• EU Chief Brexit Negotiator Barnier: Still serious divergence on protocols for Irish border in Brexit talks
• France stats agency INSEE raised its 2018 GDP from 1.6% to 1.7%, saw risks from protectionism and a stronger EUR
• Spain Debt Agency (Tesoro): ECB tapering of QE was a benign scenario for the Spanish bond market. Relative lack of turbulence after recent political uncertainty showed nation’s resilience
• Italy Debt Agency (Tesoro) official: Recent short-dated bonds volatility partly due to technical factors. To continue to issue bond market liquidity across all maturity lines
• Portugal Debt Agency (IGCP) chief Casalinho: Contagion has subsided since euro zone debt crisis peak
• PM May stated that could fund her NHS promise without breaking election manifesto pledges by only imposing new taxes after 2022

Energy:

• Weekly API Oil Inventories: Crude: -3M v +0.8M prior

Economic Data:

• (DE) Germany May PPI M/M: 0.5% v 0.4%e; Y/Y: 2.7% v 2.5%e
• (JP) Japan May Convenience Store Sales Y/Y: -1.2% v +0.7% prior
• (SE) Sweden Jun Consumer Confidence: 96.8 v 100.0e; Manufacturing Confidence: 116.1 v 116.0e, Economic Tendency Survey: 108.7 v 108.6 prior
• (TH) Thailand Central Bank (BOT) left its Benchmark Interest Rate unchanged at 1.50%, as expected
• (ZA) South Africa May CPI M/M: 0.2% v 0.4%e; Y/Y: 4.4% v 4.6%e
• (ZA) South Africa May CPI Core M/M: 0.0% v 0.2%e; Y/Y: 4.4% v 4.5%e
• (PH) Philippines Central Bank (BSP) raised its Overnight Borrowing Rate by 25bps to 3.50% (as expected)

Fixed Income Issuance:

• (DK)Denmark sold total DKK2.36B in 2020 and 2027 DGB bonds
• (IN) India sold total INR150B vs. INR150B indicated in 3-month, 6-month and 12-month bills
• (SE) Sweden sold SEK5.0B vs. SEK5.0B indicated in 6-month Bills; Avg Yield: -0.8391% v -0.8233%prior; bid-to-cover: 1.91x v 1.57x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +0.7% at 386.0, FTSE +1.1% at 7687, DAX +0.4% at 12729, CAC-40 +0.3% at 5406, IBEX-35 +1.0% at 9854, FTSE MIB +0.8% at 22270, SMI +0.9% at 8536, S&P 500 Futures +0.3%]
• Market Focal Points/Key Themes: European Indices rebound from recent weakness with the FTSE 100 outperforming once again, trading over 1% higher, while the Dax and the CAC underperform. On the earnings front Berkeley Group trades lower after guiding FY19 profits lower; DSM trades lower after announces new targets to 2021. In the M&A space Recordati trades higher after interest in its pharma unit from CVC, Ceconomy rebounds after acquiring 15% of M.Video, while Engie remains little changed after divesting its stake in Glow for €2.6B. Elsewhere Maersk trades higher after naming former Assa Abloy CFO its new CFO, Remy Cointreau trades lower after an analyst downgrade. Looking ahead notable earner include Winnebago and Actuant.

Movers

• Consumer Discretionary Ceconomy [CEC.DE] +4.2% (Acquires 15% of M.Video, cuts outlook), Remy Cointreau [RCO.FR] -3.1% (Analyst downgrade)
• Industrials Maersk [MAERSKB] +2.5% (New CFO) -Materials BHP [BLT.UK] +1.9% (Private equity firm EMR Capital to acquire Cerro Colorado copper mine in Chile for $230M), DSM [DSM.NL] -2.4% (Sets new financial targets)
• Healthcare [Pihlajalinna [PIHLIS.FI] -6.7% (Cuts outlook), Recordati [REC.IT] +3.2% (CVC said to be in discussions over stake in pharma unit)
• Real Estate [Berkeley Group [BKG.UK] -4.4% (Earnings)

Speakers

• ECB’s Villeroy (France): Net asset purchases should end by Dec with 1st rate hike seen in summer 2019 (in-line with Draghi post rate decision press conference). Monetary policy to remain accommodative. Domestic growth within France remained good, should see unemployment rate fall during the year
• ECB’s Nowotny (Austria) stated that he saw the Euro depreciating against the USD due to differences on FED-ECB policies
• France Fin Min Le Maire stated that the govt to maintain its 2018 GDP growth forecast at 1.8%, no extra spending cuts seen this year
• Leading pro-EU Tory lawmaker Grieve: To vote against the Govt unless a deal is reached on the meaningful vote
• Sweden Think Tank NIER Economic Forecastscut its 2018 GDP from 2.8% to 2.4% and 2019 GDP from 2.1% to 1.9%. Raised 2018 CPIF from 1.8% to 2.0% and 2019 CPIF from 1.8% to 2.0%. It saw the 1st potential rate hike by Riksbank in spring 2019
• German CSU’s Soeder (Prime Minister of Bavaria): Skeptical of Euro proposals made between Chancellor Merkel and France President Macron
• EU said to be on course to complete a pre Brexit UK tax probe this year; which could see UK companies face a tax bill above £1B
• BOJ Dep Gov Amamiya stated that high possibility that strong global growth to continue. Saw improvement in household spending; FY20 growth in Japan could slow on sales tax effect and Capex slowdown
• Thailand Central Bank Policy Statement noted that the vote to keep policy steady was 5-1 (dissenter sought a 25bps hike to 1.75%) . Monetary policy should stay accommodative
• Philippines Central Bank ( Policy Statement reiterated its support for carefully coordinated efforts. Inflation expectations remained elevated with upside risk related to wages and fare hike petition. Inflation to be above target in 2018 and move back within the range in 2019. Govt to implement non-monetary measures to curb CPI
• China Foreign Ministry official reiterated view that prefered dialogue to resolve trade disputes
• Various Oil and Energy officials comment ahead of the OPEC and OPEC+ meetings
• Saudi Crown Prince stated that the oil market fundamentals remained healthy. OPEC to discuss bring more supply to the market
• Russia First Dep Energy Min Teksler: Russia maintained its position for an oil production increase but was ready to discuss any OPEC + proposal. Did expect an agreement in Vienna this week
• Oman Oil Min stated that saw a consensus forming at the Jun 22nd OPEC meeting

Currencies

• FX markets remained aware of potential volatility but for the time being a sense of calm was trying to reassert itself into the markets. Most analysts still believed that their base case scenario remained that the trade conflict with China would be settled before it progressed significantly.
• The USD/JPY was back above the 110 handle with the Nikkei closing higher by over 1%.
• EUR/USD remained below the 1.16 level. Comments on policy divergence by ECB’s Nowotny kept the Euro on the defensive as he saw that he saw the Euro depreciating against the USD due to differences on FED-ECB policies
• GBP/USD was steady in the mid-1.31 area ahead of the House of Commons debate and vote on the “meaningful vote” on Brexit. It appears that PM May has enough voted to ward off any attempt by the Tory rebels to defeat her on this amendment.

Fixed Income

• Bund Futures trade 12 ticks lower at 161.38 as risk assets stabilize. Upside targets 162.25 followed by 162.75, while a return lower targets the 158.75 level.
• Gilt futures trade at 122.90 lower by 12 ticks following the move from US Treasuries. Support continues stands at 121.75 then 120.25, with upside resistance at 123.85 then 124.25.
• Wednesday’s liquidity report showed Monday’s excess liquidity fell from €1.849T to €1.845T. Use of the marginal lending facility fell from €116M to €97M.
• Corporate issuance saw Oneok raise $1.3B in the primary market

Looking Ahead

• (BR) Brazil Jun CNI Industrial Confidence: No est v 55.5 prior
• 05:30 (DE) Germany to sell €1.5 B in 2.5% July 2044 Bunds
• 05:30 (UK DMO to sell £1.25B in new 0.125% Aug 2028 Inflation-links Gilts
• 05:30 (PT) Portugal Debt Agency (IGCP) to sell €1.0-1.25B in 3-month and 12-month Bills
• 05:45 (NL) ECB’s Knot (Netherlands) in Amsterdam
• 06:00 (UK) Jun CBI Industrial Trends Total Orders: +2e v -3 prior; Selling Prices: No est v 19 prior
• 06:00 (IL) Israel Apr Manufacturing Production M/M: No est v 0.3% prior
• 06:00 (PT) Portugal Monthly Economy Survey
• 06:00 (CZ) Czech Republic to sell 2028 and 2033 Bonds
• 06:30 (FR) ECB’s Coeure (France) chairing a panel in Sintra, Portugal
• 06:45 (US) Daily Libor Fixing
• 07:00 (US) MBA Mortgage Applications w/e Jun 15th: No est v -1.5% prior
• 07:00 (RU) Russia to sell RUB10B in Nov 2022 Floating-rate OFZ bonds
• 08:00 (UK) House of Commons likely to begin debate on “meaningful vote”
• 08:05 (UK) Baltic Dry Bulk Index
• 08:30 (US) Q1 Current Account: -$129.0Be v -$128.2B prior
• 09:00 (BE) Belgium Jun Consumer Confidence: No est v 0 prior
• 09:00 (MX) Mexico Q1 Aggregate Supply and Demand: 2.4%e v 3.0% prior
• 09:00 (RU) Russia May Unemployment Rate: 4.9%e v 4.9% prior; Real Disposable Income Y/Y: 5.0%e v 5.7% prior; Real Wages Y/Y: 7.5%e v 7.8% prior
• 09:00 (RU) Russia May Real Retail Sales Y/Y: 2.3%e v 2.4% prior
• 09:30 (EU) ECB chief Draghi, RBA Gov Lowe and Fed Chair Powell speak in Sintra, Portugal
• 09:30 (UK) House of Commons potential vote if Parliament should have a “meaningful vote”
• 10:00 (US) May Existing Home Sales: 5.52Me v 5.45M prior
• 10:30 (US) Weekly DOE Crude Oil Inventories
• 11:00 (CO) Colombia Apr Trade Balance: -$0.4Be v -$0.4B prior; Total Imports: $4.3Be v $3.9BV prior
• 12:00 (CA) Canada to sell 10-year notes
• 15:00 (MX) Mexico Citibanamex Survey of Economists
• (BR) Brazil Central Bank (BCB) Interest Rate Decision: Expected to leave Selic Target Rate unchanged at 6.50% (no set time)