Notes/Observations
SNB leaves policy steady but reiterates concerns about CHF currency (Franc)
UK retail sales miss expectations as accelerating inflation squeezed British wallets
No surprises expected from BOE; to maintain its policy steady
Eurogroup expected to approve Greece 2nd bailout review; works towards achieving a sustainable debt solution
Overnight
Asia:
New Zealand Q1 GDP came in softer-than expected (Q/Q: 0.5% v 0.7%e; Y/Y: 2.5% v 2.7%e
Australia Jun Consumer Inflation Expectation it’s a 6-month low (3.6% v 4.0% prior)
Australia May Employment Change saw its 3rd straight month of increases (+42.0K v +10.0Ke); with Unemployment Rate hitting a 4-year low (5.5% v 5.7%e)
Europe:
UK govt said to plan a ‘very generous’ post-Brexit offer to EU citizens. To guarantee EU nationals living in the UK the same rights as they currently hold. Expected to move cutoff date for citizens’ rights from March 2017 to Brexit day in 2019
Chancellor of Exchequer Hammond to make case at Mansion House speech for a ‘pragmatic Brexit’
German Chancellor Merkel: Europe was ready for Brexit talks; door to Europe was open but decision is up to the British
ECB’s Rimsevics (Latvia): ECB should be predictable and not cause any surprises. Forward guidance was important and did not want to have any surprises
Americas:
FOMC raised Fed Funds target by 25bps to 1.00-1.25% range ( as expected) in a 8-1 vote (Kashkari again dissented). It saw cutting reinvestment beginning in 2017 and expanded on quarterly basis until it reached $30M/month for treasuries and $20B/month in mortgaged-backed securities
Fed chair Yellen Press Conference: noted that it had not seen any evident upward pressure on inflation; Fed credibility had not been impaired; quite essential to have policies to get inflation to target
Special counsel Mueller said to be investigating President Trump for possible obstruction of justice
US Senate voted by 97-2 margin to increase Russia sanctions due to alleged interference in 2016 elections/annexation of Crimea/support from Syria Govt
Economic Data
(SE) Sweden May PES Unemployment Rate: 3.7% v 3.8% prior
(FR) France May Final CPI M/M: 0.0% v 0.1%e; Y/Y: 0.8% v 0.8%e
(FR) France May Final CPI EU Harmonized M/M: 0.0% v 0.0%e; Y/Y: % v 0.9%e, CPI Ex-Tobacco Index: 101.28 v 101.31e
(CH) Swiss May Producer & Import Prices M/M: -0.2% v -0.1%e; Y/Y: 0.1% v 0.2%e
(CH) Swiss National Bank (SNB) left its Deposit Interest Rate unchanged at -0.75% and maintained the 3-Month Libor Range unchanged between -0.25 to -1.25% (as expected)
(IT) Italy May Final CPI (including tobacco) M/M: -0.2% v -0.2% prelim; Y/Y: 1.4% v 1.4% prelim
(IT) Italy May Final CPI EU Harmonized M/M: -0.1% v -0.2% prelim; Y/Y: 1.6% v 1.5%e v 1.5% prelim
(UK) May Retail Sales (Ex Auto Fuel) M/M: -1.6% v -1.0%e; Y/Y: 0.6% v 1.9%e
(UK) May Retail Sales (Inc Auto Fuel) M/M: -1.2% v -0.8%e; Y/Y: 0.9% v 1.6%e
(IT) Italy Apr General Government Debt: €2.270T v €2.260T prior (record high)
(EU) Euro Zone Apr Trade Balance (Seasonally Adj): €19.6B v €22.0Be ; Trade Balance: €17.9B v €28.5Be
Fixed Income Issuance:
(ES) Spain Debt Agency (Tesoro) sold totyal €4.23B vs. €4.0-5.0B indicated range in 2022, 2027, 2032 and 2037 bonds
Sold €1.82B in 0.4% Apr 2022 SPGB; Avg yield: 0.215% v 0.369% prior; Bid-to-cover: 1.41x v 2.18x prior
Sold €1.06B in 1.5% Apr 2027 SPGB; Avg yield: 1.395% v 1.548% prior; Bid-to-cover: 1.78x v 1.43x prior
Sold €690M in 5.75% July 2032 SPGB; Avg Yield 1.925% v 2.116% prior; Bid-to-cover: 1.47x v 1.65x prior
Sold €630M in 4.20% Jan 2037 SPGB; Avg Yield: 2.314% v 2.604% prior; Bid-to-cover: 1.58x v 1.54x prior
(FR) France Debt Agency (AFT) sold total €7.955B vs. €7.0-8.0B indicated range in 2020, 2022 and 2023 Oats (4 tranches)
Sold €2.40B in 0.00% Feb 2020 Oat; Avg Yield: -0.48% v -0.45% prior; Bid-to-cover: 2.65x v 2.10x prior
Sold €2.166B in 0.00% May 2022 Oat; Avg yield: -0.22% v -0.12% prior; Bid-to-cover: 1.62x v 1.86x prior
Sold €1.656B in 3.00% Apr 2022 Oat; avg yield: -0.26% v -0.06% prior; Bid-to-cover: 1.91x v 2.44x prior
Sold €1.733B in 4.25% 2023 Oat; Avg Yield: -0.06% v -0.14% prior; Bid-to-cover: 2.00x v 1.95x prior
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
Indices [Stoxx50 -0.8% at 3518, FTSE -0.7% at 7423, DAX -0.6% at 12725, CAC-40 -0.9% at 5197, IBEX-35 -1.2% at 10645, FTSE MIB -0.4% at 20870, SMI -0.4% at 8817, S&P 500 Futures -0.5%]
Market Focal Points/Key Themes European Indices trade lower across the board following on from a rate rise as well as weaker inflation and retail sales figures out of the US. The UK also posted Retail sales which fell short of expectations as rising inflation and falling wage growth weigh. On the corporate front DFS trades sharply lower after the Furniture retailer cut EBITDA guidance, whilst OHL trades higher after OHL Mexico is to be acquired for MXN27/shr. Looking ahead key events include the BoE rate decision at 12BST, whilst in the US, scheduled earnings include Kroger and Bob Evans Farms.
Equities
Consumer discretionary [Poyry [POY1V.FI] +29% (Raised guidance), Majestic Wines [WINES.UK] -2.8% (Earnings), DFS [DFS.UK] -22% (Cuts outlook), Wizz Air [WIZZ.UK] -8% (Placing), Next [NXT.UK] -3% (Analyst Downgrade), H&M [HMB.SE] -3% (May Sales)]
Industrials: [OHL [OHL.ES] +13% (Magenta Infraestructura, IFM Global Infrastructure Fund to acquire OHL Mexico for MXN27/shr)]
Healthcare: [Basilia [BSLN.CH] +6.7% (Licence agreement with Pfizer)]
Speakers
Swiss National Bank (SNB) quarterly policy statement reiterated CHF currency (Franc) remained significantly overvalued and would remain active in FX markets and intervene if necessary . To regularly reassess the need for an adjustment of the countercyclical capital buffer
SNB’s Jordan post rate decision press conference: Inflation remained very low; expansionary monetary policy remained necessary to ensure price stability. Inflation expectations were within the range that was consistent with SNB’s definition of price stability
SNB’s Zurbruegg: To monitor mortgage-market developments and assess the need for any capital-buffer adjustment. More progress needed on bank resolution
SNB’s Maechler: Inflation outlook in major economies were muted
SNB Financial Stability Report saw conditions of Swiss banking sector continuing to improve. Low interest rates carry some risks for financial stability
Greece Econ Min Papadimitriou said to accuse German Fin Min Schaeuble of being "dishonest" by blocking debt relief despite his acknowledgement that Athens has implemented significant reforms
Romania President: To ask ruling coalition to solve internal crisis after Social Democrats party withdrew support for its PM
Currencies
USD maintained a firmer tone in the aftermath of the FOMC rate decision. Markets had priced in a ‘dovish Fed rate hike’. However, a rather upbeat tone on the US economy and path for interest-rate increases remained intact despite recent disappointing economic data
GBP was softer ahead of the BOE rate decision. More weak UK data weighted upon the pound. May UK retail sales data seemed to confirm that accelerating inflation squeezed British wallets. GBP/USD probing the lower end of the 1.27 level just ahead of the NY morning. No surprises expected from the BOE with the vote to keep policy steady expected to remain at 7-1 with Forbes again likely to be the sole dissenter in her last policy meeting.
EUR/USD dipping below the 1.12 level with the move attributed to the more ‘hawkish Fed’ commentary from Thursday.
Fixed Income
Bund futurestrade at 165.17 down 23 ticks after topping out at 165.55. Resistance lies near the 165.95 level followed by 166.21. A break of the 164.65 support level could see lows target 163.70 followed by 160.30.
Gilt futures trade at 129.81 lower by 41 ticks, along with other core bonds. The focus remains the BOE Rate decision at 12PM London time. Gilts have been rising steadily since May 9th. Price still finds initial support at the 129.14 level, with key support at the 128.27 support level. An acceleration lower could test the 127.43 region. Resistance lies at the 130.28 level followed by 132.65.
Thursday’s liquidity report showed Wednesday’s excess liquidity fell to €1.6760T a slight gain of €2.5B from €1.6785T prior. Use of the marginal lending facility rose to €180M from €178M prior.
Corporate issuance saw over $500M come to market via 1 issue from Yapi Ve Kredi senior unsecured note offering
Looking Ahead
(ID) Indonesia Central Bank (BI) Interest Rate Decision: Expected to leave Reverse Repo Rate unchanged at 4.75%
(PE) Peru May Unemployment Rate: 7.2%e v 6.8% prior
(PE) Peru Apr Economic Activity (Monthly GDP) Y/Y: 1.0%e v 0.7% prior
(CO) Colombia May Consumer Confidence Index: No est v -12.8 prior
05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month bills
05:30 (HU) Hungary Debt Agency (AKK) to sell Floating Rate Notes
05:30 (IE) Ireland Debt Agency (NTMA) to sell €500M in 12-month Bills
05:50 (FR) France Debt Agency (AFT) to sell €1.0-1.5B in 2025, 2027 and 2047 I/L bonds (Oatei)
06:45 (US) Daily Libor Fixing
07:00 (UK) Bank of England Bank (BOE) Interest Rate Decision: Expected to leave Interest Rates unchanged at 0.25%; maintain Asset Purchase Target (AFT) at £435B
07:00 (TR) Turkey Central Bank (CBRT) Interest Rate Decision: Expected to leave Benchmark Repurchase Rate unchanged at 8.00% (all key rates unchanged)
08:15 (UK) Baltic Dry Bulk Index
08:30 (US) Jun Empire Manufacturing: +5.0e v -1 prior
08:30 (US) Jun Philadelphia Fed Business Outlook: 24.9e v 38.8 prior
08:30 (US) May Import Price Index M/M: -0.1%e v 0.5% prior; Y/Y: 2.9%e v 4.1% prior; Import Price Index (ex-petroleum) M/M: No est v 0.4% prior
08:30 (US) May Export Price M/M: 0.2%e v 0.2% prior; Y/Y: No est v 3.0% prior
08:30 (US) Initial Jobless Claims: 241Ke v 245K prior; Continuing Claims: 1.92Me v 1.917M prior
08:30 (US) Weekly USDA Net Export Sales
09:00 (RU) Russia Gold and Forex Reserve w/e Jun 9th: No est v $406.9B prior
09:00 (BE) Belgium Apr Trade Balance: No est v -€1.5B prior
09:00 (CA) Canada May Existing Home Sales M/M: No est v -1.7% prior
(EU) European Finance Ministers (Eurogroup) meet in Luxembourg
09:15 (US) May Industrial Production M/M: 0.2%e v 1.0% prior; Capacity Utilization: 76.8%e v 76.7% prior, Manufacturing Production: 0.1%e v 1.0% prior
10:00 (US) Jun NAHB Housing Market Index: 70e v 70 prior
10:30 (US) Weekly EIA Natural Gas Inventories
11:30 (IL) Israel May CPI M/M: 0.4%e v 0.2% prior; Y/Y: 0.7%e v 0.7% prior
12:00 (IS) Iceland May International Reserves (ISK): No est v 684B prior
12:00 (CA) Canada to sell 3-Year Bonds
15:00 (CO) Colombia Apr Industrial Production Y/Y: -5.6%e v +4.8% prior
15:00 (CO) Colombia Apr Retail Sales Y/Y: -2.1%e v +1.9% prior
16:00 (US) Apr Total Net TIC Flows: No est v -$0.7B prior; Long-term TIC Flows: No est v $59.8B prior
18:00 (CL) Chile Central Bank (BCCH) Interest Rate Decision: Expected to leave Overnight Rate Target unchanged at 2.50%
