Notes/Observations
Steady market tone despite risk-off tone; price action saw little reaction to the UK blast being investigated as a terrorist incident.
Major European Manufacturing PMI handily beat expectations for multi-year highs (France, Germany and Euro Zone all beat estimates)
German IFO hits its highest level since 2011 as German economy shrugs off Brexit and Trump policies
Overnight:
Asia:
Japan May Preliminary PMI Manufacturing saw its 9th consecutive expansion but hit a 6-month low (52.0 v 52.7 prior
China Foreign Min Wang Yi: Called on North Korea to abide by UN Council rules; reiterated view that all parties should exercise restraint
PBOC Advisor Sheng Songcheng: Monetary policy adjustments is a trial and error process; The central bank will not excessively adjust monetary policy
Europe:
UK Manchester Police responded to reports of explosion at Manchester Arena; confirmed almost two dozen dead, over four dozen injured; incident being treated as terrorist incident; govt parties suspend campaigning ahead of June 8th elections
Eurogroup chief Dijsselbloem confirmed had not reached an overall deal on Greece debt as unable to close a gap in views; reiterated view that was very close to an agreement on Greece. Conclusion on Greek debt could be reached on June 15th Eurogroup meeting. IMF was impressed by Greek reforms but will wait for final discussion on debt in June before deciding whether to join bailout
Greece Fin Min Tsakalotos: Had difficult discussion on Greek debt clarity; It was the duty of IMF and EU states to bridge the gap
Americas:
President Trump’s budget said to seek $3.6T in US spending cuts over 10 years; Seeks to sell half of US strategic petroleum reserve (SPR) to raise $16.5B. Forecasted FY17 deficit at $603B and at $440B in FY18. Forecasted 2017 US real GDP growth at 2.3%; 2018 US real GDP growth at 2.4%; 2019 US real GDP growth at 2.7%; Saw 3.0% GDP growth starting in 2021
President Trump said to have made requests in March that Director of National Intelligence Coats and NSA director Rogers deny collusion between his campaign and Russia
S&P maintained Brazil sovereign rating at BB; revised outlook to Watch Negative from Negative
Energy:
Saudi Oil Minister: no final decision on extending output cuts will occur until the OPEC meeting Thursday. New output deal will be similar to the prior and everyone was in agreement on a 9 month extension.
Iraq oil min Al-Luaibi: After meeting with Saudi counterpart, we agreed that production agreement should be extended for 9 months
UAE Energy Min: Supported extension of agreement for another term
Mexico Dep Energy Min: Supported 9-month extension of oil supply cut agreement
Economic Data
(SG) Singapore Apr CPI M/M: -0.3% v -0.1e; Y/Y: 0.4% v 0.5%e; CPI Core Y/Y: 1.7% v 1.5%e
(DE) Germany Q1 Final GDP Q/Q: 0.6% v 0.6%e; Y/Y: 1.7% v 1.7%e; GDP NSA Y/Y: 2.9% v 2.9%e
(DE) Germany Q1 Private Consumption Q/Q: 0.3% v 0.3%e, Government Spending Q/Q: 0.4% v 0.3%e; Capital Investment Q/Q: 1.7% v 1.7%e; Construction Investment Q/Q: 2.3% v 2.5%e, Domestic Demand Q/Q: 0.2% v 0.5%e, Exports Q/Q: 1.3% v 1.5%e; Imports Q/Q: 0.4% v 1.0%e
(CH) Swiss Apr Trade Balance (CHF): 2.0B v 3.0B prior; Real Exports M/M: -2.5% v 1.8% prior; Real Imports M/M: +2.6% v +0.6% prior
(JP) Japan Apr National Dept Store Sales: +0.7 v -0.9% prior; Tokyo Dept Store Sales: -0.8 v -0.2% prior
(FR) France May Business Confidence: 105 v 105e; Manufacturing Confidence: 109 v 108e
(FR) France May Preliminary Manufacturing PMI: 54.0 v 55.2e (8th month of expansion), Services PMI: 58.0 v 56.7e; Composite PMI: 57.6 v 56.6e
(DE) Germany May Preliminary Manufacturing PMI: 59.4 v 58.0e (30th month of expansion and highest since Apr 2011), Services PMI: 55.2 v 55.5e, Composite PMI: 57.3 v 56.6
(SE) Sweden Apr Unemployment Rate: 7.2% v 7.1%e; Unemployment Rate (Seasonally Adj): 6.7% v 6.5%e
(TW) Taiwan Apr Industrial Production Y/Y: -0.6% v +4.2%e
(EU) Euro Zone May Preliminary Manufacturing PMI: 57.0 v 56.5e (46th straight month of growth and highest since April 2011), Services PMI: 56.2 v 56.4e v 56.4 prior, Composite PMI: 56.7e v 56.8 prior
(DE) Germany May IFO Business Climate: 114.6 v 113.1e (highest level since 2011), Current Assessment: 123.2 v 121.0e, Expectations Survey: 106.5 v 105.4e
(UK) Apr Public Finances (PSNCR): -£15.5B v +£27.7B prior; Public Sector Net Borrowing: £9.6B v £8.0Be, Central Government NCR: -£15.2B v +£18.3B prior, PSNB ex Banking Groups: £10.4B v £8.7Be
(HK) Hong Kong Apr CPI Composite Y/Y: 2.0% v 1.5%e
(NG) Nigeria Q1 GDP Y/Y: -0.5% v +0.3%e
Fixed Income Issuance:
(BE) Belgium Debt Agency (BDA) opened its book to sell EUR-denominated Jun 2037 OLO Bonds via syndicate; guidance seen +10bps to mid-swaps; order book approaching €9.0B
(ID) Indonesia sold total IDR14.0T in 3-month and 9-month Bills; 10-year, 12-year and 20-year Bonds
(SE) Sweden sold SEK10B vs. SEK10B indicated in 3-month bills; Avg Yield: -0.7198% v -0.6892% prior; bid-to-cover: 3.18x v 2.17x prior
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
Indices [Stoxx50 +0.6% at 3598, FTSE +0.2% at 7509, DAX +0.3% at 12660. CAC-40 +0.7% at 5359, IBEX-35 +0.9% at 10885, FTSE MIB +0.6% at 21449, SMI -0.4% at 9049, S&P 500 Futures +0.1%]
Market Focal Points/Key Themes European Indices are trading modestly higher buoyed by stronger PMI and IFO data out of Europe, with the exception of the Swiss SMI which currently trades down over 0.3%. Positive earnings also added to sentiment with shares of Homeserve rising sharply in the UK following earnings which beat forecasts, and Greencore shares also an out performer after reporting first half results. Aveva shares on the other hand down close to 5% following there results. US home builder Toll Brothers reported strong results with a beat on both the top and bottom line. Looking to the US morning, notable earners include Autozone, DSW and Cracker Barrel.
Equities
Consumer discretionary [Greencore [GNC.UK] +6.5% (Earnings), Homeserve [HSV.UK] +14% (Earnings), Entertainment One [ETO.UK] +1.8% (Earnings), Hugo Boss [BOSS.DE] -1.2% (Guidance)]
Industrials: [KWS Saat [KWS.DE] +2.1% (Earnings), Lem Holdings [LEHN.CH] +7% (Earnings)]
Technology: [Aveva [AVV.UK] -5% (Earnings)]
Telecom: [Nokia [NOK1V.FI] +% (Sign patent license and business collaboration agreement with Apple, settle all litigation)
Healthcare: [Genomic Vision [GV.FR] +26% (Collaboration with Astrazeneca)]
Utilities: [Severn Trent [SVT.UK] +0.9% (Earnings)]
Speakers
Norway Central Bank (Norges) Gov Olsen: Central banks were gaining control of deflation but could not count on oil prices rising much above $50-55/barrel
IMF chief Lagarde: Global financial stability continues to improve while global uncertainty remained fairly high
Portugal Fin Min Centeno stated that he expected an agreement on Greece debt at next Eurogroup meeting (**Note: scheduled for Jun 15th). Policies were more important than the next head of ECB
German IFO Economists noted that German companies want to export more as inventories have grown. Q2 GDP growth pointing to 0.6% and neither Brexit or Trump policies have had concrete effect on German economy. France election of Macron was a positive signal and giving a tailwind to EU
Euro Zone bank resolution body (SRB) chief Koenig: Bad loans must be address by EU authorities
Kuwait Oil Min Almarzooq: all agreed on 6 months of extension of cuts, but not everyone is on board for a 9-month extension
Currencies
EUR/USD was near 6-month high initially aided by comments on Monday from German Chancellor Merkel reiterated that larget German surpluses were aided by a weak EUR currency. The region received further impetus as the major European PMI data pointed to accelerating growth and the German May IFO Business Climate survey hit a multi-year high. The strong data giving credence that ECB could soon take steps to begin normalizing its policy. Dealers did note that recent comments from ECB’s Weidmann (Germany) that easy policy was still appropriate at this time dimmed prospect for any change in language in June.
GBP/USD was holding up well despite the terror incident in Manchester UK that killed approx. two dozen and injured dozens more. The pair was holding just below the 1.30 handle. Dealer did not that cable has had three recent failures ahead of 1.3050 option barrier level.
The JPY currency (Yen) befitted from safe-haven flows following the UK terror incident. USD/JPY was softer by 0.2% but holding above the 111 level just ahead of the NY morning.
Fixed Income
Bund futures trade at 160.72 down 20 ticks, approaching the lows from last week’s trading range. Resistance lies near the April 27th high of 162.01 level followed by 163.68. A break of 160.01 support level could see lows target 159.01 followed by 157.50.
Gilt futures trade at 128.39 higher by 3 ticks, slightly reacting from the mixed public finances data. Last week’s rally respected both the 129.00 handle and the 129.14 April 18th high. Price is still consolidating below the 128.51 level and finds key support at the 127.52 support level. An acceleration lower could test the 126.74 region. Resistance stands at noted 128.51 level then 129.14 followed by 132.80.
Tuesday’s liquidity report showed Monday’s excess liquidity dropped lower to €1.627T a decline of €11B from €1.638T prior. Use of the marginal lending facility fell to €212M from €216M prior.
Corporate issuance saw over $20.1B come to market via 8 issues headlined by Becton Dickinson $9.7B in an 8-part senior unsecured note offering and Enel Finance $5B in a 3-part senior note offering
Looking Ahead
(NG) Nigeria Central Bank Interest Rate Decision: Expected to leave Interest Rates unchanged at 14.00%
(UR) Ukraine Apr Industrial Production M/M: No est v 8.9% prior; Y/Y: -2.0%e v -2.7% prior
(IT) Italy Debt Agency (Tesoro) announces upcoming CTZ and Inflation link (BTPei) auction for Fri, May 26th
(AR) Argentina May Consumer Confidence Index: No est v 46.2 prior
05.30 (UK) Weekly John Lewis LFL sales data
05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender
05:30 (HU) Hungary Debt Agency (AKK) to sell 3-month Bills
05:30 (DE) Germany to sell €5.0B in 2019 Schatz
05:30 (UK) DMO to sell £850M in 0.125% I/L 2036 Gilts
06:00 (UK) May CBI Retailing Reported Sales: 10e v 38 prior, Total Distribution: 31e v 44 prior
06:00 (TR) Turkey to sell 6-month Bills
06:45 (US) Daily Libor Fixing
07:30 (TR) Turkey May Real Sector Confidence (Seasonally Adj): 107.1e v 106.3 prior; Real Sector Confidence (unadj): 109e v 111.2 prior
07:30 (TR) Turkey May Capacity Utilization: 75.2%e v 78.4% prior
07:45 (US) Weekly Goldman Economist Chain Store Sales
08:00 (HU) Hungary Central Bank (NBH) Interest Rate Decision: Expected to leave Base Rate unchanged at 0.90%
08:00 (BR) Brazil Mid-May IBGE Inflation IPCA-15 M/M: 0.2%e v 0.1% prior; Y/Y: 3.7%e v 4.4% prior
08:15 (UK) Baltic Dry Bulk Index
08:30 (CA) Canada Mar Wholesale Trade Sales M/M: +1.0%e v -0.2% prior
08:55 (US) Weekly Redbook Sales
09:00 (EU) Weekly ECB Forex Reserves:
09:00 (MX) Mexico Mar Retail Sales M/M: 0.3%e v 2.4% prior; Y/Y: 5.5%e v 3.6% prior
09:00 (US) Fed’s Kashkari (dissenter)
09:00 (HU) Hungary Central Bank Gov Matolcsy post rate decision statement
09:00 (RU) Russia announces weekly OFZ bond auction
09:30 (BR) Brazil Apr Current Account: $1.2Be v $1.4B prior; Foreign Direct Investment (FDI): $5.5Be v $7.1B prior
09:45 (US) May Preliminary Markit Manufacturing PMI: 53.1e v 52.8 prior, Services PMI: 53.3e v 53.1 prior, Composite PMI: No est v 53.2 prior
10:00 (US) Apr New Home Sales: 610Ke v 621K prior
10:00 (US) May Richmond Fed Manufacturing Index: 15e v 20 prior
10:00 (PT) Portugal PM Costa in parliament
11:00 (FR) ECB’s Coeure 9France) on panel in Paris
11:30 (US) Treasury to sell 4-week and 52-week Bills
12:00 (DE) German Chancellor Merkel at event
13:00 (US) Treasury to sell 2-Year Notes
15:00 (AR) Argentina Apr Trade Balance: -$0.1Be v -$0.9B prior
15:00 (AR) Argentina Mar Economic Activity Index (Monthly GDP) M/M: No est v -1.% prior; Y/Y: +1.0%e v -2.2% prior
15:00 (US) Fed’s Kashkari (dissenter)
16:30 (US) Weekly API Oil Inventories
17:00 (US) Fed’s Harker (voter, hawk) in NY
