Focus on Thursday's ECB decision and UK Parliamentary elections
Notes/Observations
Whit Monday holiday keeps European participation light (markets closed in Germany, Denmark, Austria, Switzerland and Norway). Bank Holidays in a number of others (France included)
Week’s main focus will be on the ECB and the outcome of the British General election
Major European Services PMI data remains in expansion (Beats: Euro Zone, Germany, Russia; misses: UK; France, Italy)
Oil rises after a Saudi-led alliance cut diplomatic ties with Qatar and moved to close off access to the Gulf country
Overnight
Asia:
China May Caixin PMI Services hits a 4-month high (52.8 v 51.5 prior)
China PBOC deputy Gov Chen Yulu: To maintain a monetary policy that is "neither too tight or too loose"
North Korea fully rejected latest US/UN sanctions; to continue firing missiles and will pursue its nuclear program
US Defense Sec Mattis: North Korea had increased pace of pursuing nuclear weapon; US will take further steps to protect homeland from North Korean threat
Europe:
London armed police responded to incidents on Saturday of vehicle driving into pedestrians at London Bridge and stabbings in Borough Market (7 people were killed and 48 injured in the attacks).
PM May stated after the latest terror incident that "enough was enough"; things needed to change when it came to taking on extremism. Could not defeat ideology through military intervention alone and stressed that there was too much tolerance of extremism in UK; hade disrupted five terror plots since Manchester attack. Election campaigns would resume on Monday
Islamic State claimed responsibility for the attacks in the UK on Saturday
ECB’s Visco (Italy): Italy needed jobs to revive economy, must focus on medium-long term policies
Recent UK election Polls:
Survation/Mail poll on Parliamentary elections: Support for UK Conservatives at 40% (-6 ppt); Labour at 39% (+5 ppt)
Daily Yougov model on upcoming Parliamentary elections; suggests 14-seat majority for PM May but 18 seats short of 326-seat majority. Conservative: 42% (-1) with 308 seats (313 prior poll); Labour: 38% (+2) with 261 seats (257 prior poll) Opinium/Observer: Conservatives 43% (-2); Labour 37% (+2) ComRes: Conservatives 47% (+1); Labour 35% (+1) ORB/Telegraph: Conservatives 45% (+1); Labour 36% (-2) ICM: Conservatives 45% (-1); Labour 34% (+2)
Energy:
Saudi Arabia, UAE, Bahrain, and Egypt said to have cut diplomatic relations with Qatar after leaked tape where Qatari Emir Tamim bin Hamad al-Thani criticized Gulf rhetoric against Iran. Saudi Arabia accused Qatar of supporting "terrorism" and financing "groups" linked to Iran. Planned to shut down Sea, Airspace, Land crossings with Qatar
Economic Data
(IN) India May PMI Services: 52.2 v 50.2 prior (4th month of expansion and highest since Oct), PMI Composite: 52.5 v 51.3 prior
(RU) Russia May PMI Services: 56.3 v 55.6e (16th month of expansion), PMI Composite: 56.0 v 55.3 prior
(SE) Sweden May PMI Services: 57.9 v 60.3 prior
(TR) Turkey May CPI M/M: 0.5% v 0.4%e; Y/Y: 11.7% v 11.7%e; CPI Core Y/Y: 9.4% v 9.6%e
(ZA) South Africa May PMI (Whole Economy: 50.2 v 50.3 prior
(ES) Spain May Services PMI: 57.3 v 57.5e, Composite PMI: 57.2 v 57.1e
(IT) Italy May Services PMI: 55.1 v 55.3e (12th month of expansion), Composite PMI: 55.2 v 55.7e
(FR) France May Final Services PMI: 57.2 v 58.0e (11th month of expansion),, Composite PMI: 56.9 v 57.6e
(DE) Germany May Final Services PMI: 55.4 v 55.2e (confirms 47th month of expansion), Composite PMI: 57.4 v 57.3e
(EU) Euro Zone May Services PMI: 56.3 v 56.2e (confirms 47th month of expansion), Composite PMI: 56.8 v 56.8e
(UK) May Services PMI: 53.8 v 55.0e (10th month of expansion), Composite PMI: 54.4 v 55.5e
Fixed Income Issuance:
None seen
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
Indices [Stoxx50 -0.3% at 3579, FTSE -0.2% at 7530, DAX Closed, CAC-40 -0.6% at 5312, IBEX-35 -0.5% at 10850, FTSE MIB -1.0% at 20724, SMI Closed, S&P 500 Futures -0.1%]
Market Focal Points/Key Themes European Indices trade slightly lower in light trade with German Markets shut for observance of Whit Monday. Reaction to this weekends terror attacks in London are having little impact, although travel and leisure names seeing downside with Easyjet and International Consolidated Airlines down over 1.5%. Elsewhere shares of Sponda is higher by over 20% after its to be acquired by funds managed by Blackstone, whilst Banco Populare is lower after reportedly will meet with the ECB to boost liquidity. Looking ahead looking out for earnings from Jinkosolar as well as Supercom.
Equities
Consumer discretionary [Ocado [OCDO.UK] +5.2% (First customer for OSP), ICG [IAG.UK] -1.5%, Easyjet [EZJ.UK] -1.8% (London Terror attack)]
Industrials: [Cape [CIU.UK] +1.3% (Contract win, Raised outlook), Royal Mail [RMG.UK] +1.4% (Awarded contracts of sale of two plots on the Nine Elms site for £101M in cash), BBA Aviation [BBA.UK] -1.7% (CEO steps down)]
Financials: [Banco Populare [POP.ES] -8% (To discuss option with ECB for options to boost liquidity), Sponda [SDA1V.FI] +20% (To be acquired for €5.19/shr)]
Speakers
S&P analyst Kraemer: UK sovereign rating depended on Brexit negotiations and not the election outcome
Russia said not to see any cause for alarm from an energy point of view regarding the Qatar diplomatic row
Russia to spend RUB2.1B/day buying FX during Jun 7th thru July 6th period; Expected extra oil/gas revenues of RUB41.2B in June
Indonesia Energy Min Djuraid: To reactivate OPEC membership (as expected)
Currencies
USD consolidated some of its recent losses after declines following the US jobs data last Friday. The USD tested its lowest level since Nov 8th as non-farm payrolls underwhelmed. FX markets seemed to ignore that US unemployment rate was its lowest level in 16 years
The week’s main focus will be on the ECB decision and the outcome of the British General election
EUR/USD softer by 0.2% in quiet trading at 1.1265. Dealers were looking ahead to Thursday’s ECB meeting. The ECB may take out its easing bias when meeting in Tallinn, but Draghi will continue emphasizing inflation downside risks. Analysts were bullish on Europe noting that the Euro currency had become more positively correlated with growth and political uncertainty has diminished
UK election uncertainties have risen with some opinion polls seeing the Conservatives lead narrowing to only around 1-4% points ahead of Labour. GBP/USD was fractionally softer at 1.2875. Softer-than-expected May Serviced PMI data provided some headwinds foe the GBP in the session.
Fixed Income
Bund futures trade at 164.49 down 17 ticks, after improving Chinese Caixin PMI data. Resistance lies near the 165.95 level followed by 167.79. A break of the 162.65 support level could see lows target 159.96 followed by 157.50.
Gilt futures trade at 128.62 lower by 22 ticks, off the lows of the day following disappointing UK PMI Services reading. Last week’s decline fell back below both the 129.00 handle and the 129.14 April 18th high. Price finds key support at the 128.27 support level. An acceleration lower could test the 127.43 region. Resistance remains the noted 129.00/129.14 region, then 129.75 followed by 130.28.
Monday’s liquidity report showed Friday’s excess liquidity dropped lower to €1.656T a decline of €11B from €1.667T prior. Use of the marginal lending facility fell to €262M from €327M prior.
Corporate issuance saw $27.55B issued last week, ahead of last week’s forecast of $20B. For the week ahead, analysts eye issuance to come in around $25B.
In Euro denominated issuance €28.27B came to market last week.
Looking Ahead
06:45 (US) Daily Libor Fixing – 07:00 (IN) India announces details of upcoming bond sale (held on Fridays)
07:25 (BR) Brazil Central Bank Weekly Economists Survey
08:00 (ES) Spain Debt Agency (Tesoro) announces size of upcoming auctions
08:30 (CH) Swiss Government question time in Parliament
08:15 (UK) Baltic Dry Bulk Index
08:30 (US) Q1 Final Nonfarm Productivity: -0.2%e v -0.6% prelim; Labor Cost: 2.5%e v 3.0% prelim
08:30 (CL) Chile Apr Economic Activity Index (monthly GDP) M/M: +0.2%e v -0.2% prior; Y/Y: 0.9%e v 0.2% prior
08:50 (FR) France Debt Agency (AFT) to sell combined €5.0-6.2B in 3-month, 6-month. 9-month and 12-month BTF Bills
09:00 (BR) Brazil May PMI Services: No est v 50.3 prior, PMI Composite: No est v 50.4 prior
09:00 (MX) Mexico May Consumer Confidence: No est v 83.8 prior
09:00 (MX) Mexico Mar Gross Fixed Investment: No est v -3.1% prior
09:30 (EU) ECB announces Covered-Bond Purchases
09:35 (EU) ECB calls for bids in 7-Day Main Refinancing Tender
09:45 (US) May Final Markit Services PMI: No est v 54.0 prelim, Composite PMI: No est v 53.9 prelim
10:00 (US) May ISM Non-Manufacturing Composite: 57.0e v 57.5 prior
10:00 (US) Apr Factory Orders: -0.2%e v +0.2% prior; Factory Orders (Ex Transportation): No est v -0.3% prior
10:00 (US) Apr Final Durable Goods Orders: No est v -0.7%prelim; Durables Ex Transportation: No est v -0.4% prelim, Capital Goods Orders (Non-defense ex aircraft): No est v 0.0% prelim, Capital Goods Shipments (Non-defense/ex-aircraft): No est v -0.1% prelim, Durables Ex-Defense: No est v -0.8% prelim
10:00 (SE) Sweden Central Bank (Riksbank) Jochnick
11:30 (PT) Portugal Central Bank Gov Costa in Parliament
11:30 (US) Treasury to sell 3-Month and 6-month Bills
20:00 (CO) Colombia May CPI M/M: 0.3%e v 0.5% prior; Y/Y: 4.5%e v 4.7% prior, CPI Core M/M: No est v 0.6% prior, Y/Y: No est v 5.6% prior
