BOE Keeps Door Open For More Stimulus If Needed, Norges Unexpectedly Cuts Again

Notes/Observations

• Focus on rate decision in Europe
• BOE keeps policy steady and avoid adding to its asset purchases for the time being
• Norway Central Bank (Norges) surprises with another rate cut (3rd since March) to bring the Deposit Rate to 0.00%

Asia:

• China Apr Caixin PMI Services: 44.4 v 50.1e (3rd straight contraction)
• (CN) China Apr Trade Balance: $45.3B v $8.7Be; Exports Y/Y:+3.5% v -11.0e; Imports Y/Y: -14.2% v -10.0%e
• China govt said to be considering option of not setting 2020 GDP numerical target given uncertainty of coronavirus impact at the NPC meeting later this month
• China Premier Li to intensify policy support to keep employment stable and safeguard people’s livelihoods
• Australia Mar Trade Balance (A$): 10.6B v 6.0Be (record high trade surplus) Coronavirus:Total Global cases: 3,755,341 (+2.5%); Total deaths: 263.8K (+2.6%)

Europe:

• ECB said to be divided on response to German Constitutional Court ruling. Officials were considering who should respond, with some suggesting the German Bundesbank should handle the matter, while the Bundesbank apparently wanted the ECB to respond to the German court demand directly
• UK PM Johnson to review current lockdown restrictions with cabinet on Thursday after suggesting some rules could ease on Monday, May 11th

Americas:

• President Trump: Virus outbreak was worst ever attack on the US; worse than Pearl Harbor, worse than World Trade Center
• Sec of State Pompeo reiterates stance that China did not act fast enough over virus outbreak; seen evidence the virus came from a lab in China
• Chile Central Bank (BCCh) left its Overnight Rate Target unchanged at 0.50% (as expected). Committed to keep expansionary monetary conditions for a prolonged period and expand their quantitative easing plan if necessary
• Brazil Central Bank (BCB) cut Selic Rate Target by 75bps to 3.00% (more-than-expected). Saw 1 additional cut at next meeting, not bigger than today’s to counteract the impact of the virus on the economy.

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +0.57% at 336.24, FTSE +0.54% at 5,885.39, DAX +0.80% at 10,691.41, CAC-40 +0.70% at 4,464.20, IBEX-35 +0.57% at 6,710.00, FTSE MIB +1.02% at 17,334.50, SMI +0.15% at 9,586.04, S&P 500 Futures +1.27%]
• Market Focal Points/Key Themes: European indices open higher across the board and traded positive through the session; materials and energy among better performers; underperformers include financials; German IFO said expected unprecedented collapse in production; survey shows French industrial investment to fall by 7% this year; earnings expected in the upcoming US session include Raytheon, Bristol Myers Squibb and Morphosys

Equities

• Consumer discretionary:Zalando [ZAL.DE] +11% (earnings; guidance), AB InBev [ABI.BE] +2% (earnings), Ahold Delhaize [AD.NL] +1.5% (earnings), IAG [IAG.UK] -2% (earnings), Air France-KLM [AF.FR] -3.5% (earnings)
• Materials: ArcelorMittal [MT.NL] +4% (earnings)
• Energy: Equinor [EQNR.NO] +3.5% (earnings), Uniper [UN01.DE] +3% (earnings)
• Industrials: Continental [CON.DE] -1% (earnings), Rolls-Royce [RR.UK] -4% (trading update)
• Telecom: BT Group [BT.A.UK] -7% (earnings), Telefonica [TEF.ES] -1% (earnings; confirms merger of units)

Speakers

• BOE Policy Statement noted that the vote to keep interest rates steady was unanimous (9-0) while maintaining Asset Purchase Target (APT) at £645B was 7-2 with Haskell and Saunders seeking increase QE by £100B. Stood prepared to take further actions as necessary. Inflation to fall below 1.0% level in coming months. Indicators had stabilized at low levels in recent weeks but the balance of risks to economic outlook was to the downside. APT dissenters saw greater scarring without more stimulus
• BOE Gov Bailey post rate decision publication stated that BOE was not out of tools and prepared to provide more stimulus if needed. Had another meeting before getting anywhere near completion of the QE bond buying program. Policy would have to respond if there was a 2nd wave of infection. Govt support programs should reduce economy scarring
• BOE interim Financial Stability Report noted that the banking sector had the financial strength to withstand the coronavirus pandemic. Stress test that showed lenders could face £80B of credit losses by the end of next year and had enough capital to absorb losses
• ECB chief Lagarde in the annual report reiterates General Council stance that ECB would do everything within its mandate to fight crisis
• ECB’s De Guindos (Spain) spoke in EU parliament and reiterates that COVID-19 pandemic posed a severe economic challenge to the euro area. ECB was constantly monitoring the situation and prepared to re-calibrate instruments. Inflation would likely to fall much further in the coming months. ECB was under the jurisdiction of European Court of Justice and ECB decisions did take into account proportionality
• Norway Central Bank (Norges) Policy Statement noted that the decision to cut rates was unanimous. Deposit Rate likely to stay at current level for some time as it did not envision more cuts. Low rates could not stop coronavirus from having a substantial impact on economy but could help dampen the downturn. Norges extended its extraordinary F-loans until end of Aug
• Norway Central Bank (Norges) Gov Olsen post rate decision press conference noted that it would take time for output to return to pre-crisis levels. Rate cut to help reduce the impact of the downturn. Lots of uncertainty regarding impact of negative rate. Remained focus on achieving inflation target over time
• German VDMA Engineering association: Mar production orders -9% y/y. Full impact of coronavirus crisis would only be apparent in coming months
• Philippines Central Bank (BSP) Gov Diokno reiterated view that expected 2020 GDP to contract. Impact of 2020 interest rate and RRR cuts were slowly being felt
• China and US trade chiefs could hold a phone call as soon as next week regarding progress on implementation of the phase-1 trade deal
• China Commerce Ministry (MOFCOM) spokesperson Gao Feng: China’s trade still faced big downward pressure
• China Foreign Ministry Spokesman Hua Chunying: US’s Pompeo using one lie to cover up another

Currencies/Fixed Income

• FX market action was on those currencies that had rate decision.
• GBP moved higher after BOE kept its interest rates and QE bond buying program unchaged. The pound getting a relief rally as the BOE did not increase its asset purchases. GBP/USD off its best levels by mid session but higher by 0.25 at 1.2365.
• NOK currency (Krona) weakened after a surprise rate cut by Norway Central Bank to help its oil-reliant economy recover from the dual shock of the collapse in crude prices and the pandemic. EUR/NOK popped up to test 11.16 as a result. NOK off its worst level as Norges forward guidance seen rates holding steady for some period.

Economic Data

• (CH) Swiss Apr Unemployment Rate: 3.3% v 3.4%e; Unemployment Rate (Seasonally Adj): 3.3% v 3.4%e
• (UK) Bank of England Bank (BOE) left Interest Rates unchanged at 0.10% and maintain Asset Purchase Target at £625B (as expected)
• (DE) German Mar Industrial Production M/M: -9.2% v -7.4%e; Y/Y: -11.6% v -8.9%e
• (RU) Russia Apr PMI Services: 12.2 v 28.0e; PMI Composite: 13.9 v 39.5 prior
• (DK) Denmark Mar Industrial Production M/M: -0.4% v +2.% prior
• (AU) Australia Apr Foreign Reserves: A$63.2B v A$90.6B prior
• (FR) France Mar Industrial Production M/M: -16.2% v -13.4%e; Y/Y: -17.3% v -11.1%e
• (FR) France Mar Manufacturing Production M/M: -18.2% v -16.0%e; Y/Y: -19.3% v -1.7% prior
• (FR) France Mar Trade Balance: -€3.3B v -€5.0B prior
• (FR) France Mar Current Account Balance: -€3.3B v -€3.8B prior
• (FR) France Q1 Preliminary Private Sector Payrolls Q/Q: -2.3% v -0.5%e
• (CH) Swiss Apr Foreign Currency Reserves (CHF): 799.9B v 763.4B prior
• (AT) Austria Apr Wholesale Price Index M/M: -1.7% v -3.2% prior; Y/Y: -6.9% v -4.7% prior
• (CZ) Czech Mar National Trade Balance (CZK): 14.5Be v 22.4B prior
• (CZ) Czech Mar Industrial Output Y/Y: -10.8% v -13.6%e; Construction Output Y/Y: -2.3% v 5.3% prior
• (HU) Hungary Mar Industrial Production M/M: -10.4% v -0.1% prior; Y/Y: -10.0% v -7.4%e
• (DE) Germany Apr Construction PMI: 31.9 v 42.0 prior
• (NO) Norway Central Bank (Norges) cut the Deposit Rate by 25bps to 0.00% (as expected)
• (IT) Italy Mar Retail Sales M/M: -21.3% v -15.0%e; Y/Y: -19.5% v +6.1% prior
• (CZ) Czech Apr International Reserves: $145.7B v $144.9B prior
• UN FAO World Food Price Index: 165.5 v 172.2 prior; Y/Y: -3.4% v -4.3% prior
• China Apr Foreign Reserves: $3.092T v $3.056Te
• (GR) Greece Feb Unemployment Rate: 16.1% v 16.4% prior
• (IS) Iceland Apr Preliminary Trade Balance (ISK): -0.8B v -8.0B prior
• (IS) Iceland Q1 Unemployment Rate: 3.6% v 3.3% prior
• (CY) Cyprus Apr CPI M/M: -1.5% v +0.1% prior; Y/Y: -1.2% v +0.7% prior

Fixed Income Issuance

• (ES) Spain Debt Agency (Tesoro) sold total €6.336B vs. €5.5-6.5B indicated range in 2023, 2025, 2027 and 2050 bonds
• Sold €1.296B in 0.00% Apr 2023 SPGB bonds; Avg Yield: 0.036% v 0.266% prior; Bid-to-cover: 2.78x v 2.33x prior
• Sold €1.485B in 0.0% Jan 2025 SGPB bonds; Avg Yield:0.254% v 0.411% prior; Bid-to-cover: 1.83x v 2.35x prior
• Sold €1.80B in 0.0% July 2027 SPGB; Avg yield: 0.620% v 0.473% prior; Bid-to-cover: 1.42x v 1.93x prior
• Sold €1.755B IN 1.00% Oct 2050 SPGB Avg Yield: 1.673% v 1.565% prior; bid-to-cover: 1.17x v 1.17x prior
• (ES) Spain Debt Agency (Tesoro) sold €678M vs. €250-750M indicated range in inflation-linked 0.7% Nov 2033 bonds; Real Yield: +0.380% v -0.621% prior; Bid-to-cover: 1.54x v 1.48x prior
• (FR) France Debt Agency (AFT) sold total €11.07B vs. €9.5-11.5B indicated range in 2028, 2029, 2052 and 2060 bonds
• Sold €3.746B in 0.75% May 2028 Oat; Avg Yield: -0.10% v -0.04% prior; Bid-to-cover: 1.60x v 1.48x prior (Apr 2nd 2020)
• Sold €4.958B in 0.00% Nov 2029 Oat; Avg Yield: 0.03% v 0.04% prior; Bid-to-cover: 2.03x v 2.67x prior (Apr 2nd 2020)
• Sold €1.386B in 0.75% May 2052 Oat; Avg Yield: 0.82% v 0.45% prior; Bid-to-cover: 2.96x v 2.26x prior (Mar 5th 2020)
• Sold €988M in 4.00% Apr 2060 Oat; Avg yield: 0.86% v 0.88% prior; Bid-to-cover: 2.30x v 2.34x prior

Looking Ahead

• (IL) Israel Apr Foreign Currency Balance: No est v 126.0B prior
• 05:30 (ZA) South Africa Apr SACCI Business Confidence: 80.0e v 89.9 prior
• 05:30 (HU) Hungary Debt Agency (AKK) to sell bonds
• 05:30 (PL) Poland to sell PLN3.0-5.0B in Bonds
• 06:00 (UK) DMO to sell £9.0B in 1-month, 3-month and 6-month bills (£1.5B, £3.0B and £4.5B respectively)
• 06:00 (RO) Romania to sell RON400M in 4% 2023 Bonds
• 07:00 (MX) Mexico Apr CPI M/M: -1.0%e v -0.1% prior; Y/Y: 2.1%e v 3.3% prior; CPI Core M/M: 0.3%e v 0.3% prior
• 07:30 (US) Apr Challenger Job Cuts: No est v +222.3K prior; Y/Y: No est v +266.9% prior
• 07:45 (UK) BOE to buy £1.5B in APF Gilt purchase operation (3-7 years)
• 08:00 (UK) Baltic Dary Bulk Index
• 08:00 (PL) Poland Apr Official Reserves: No est v $121.0B prior
• 08:15 (CZ) Czech Central Bank Gov Rusnok post Rate Decision press conference
• 08:30 (US) Initial Jobless Claims: 3.00Me v 3.839M prior; Continuing Claims: 19.80Me v 17.992M prior
• 08:30 (US) Q1 Preliminary Nonfarm Productivity: -5.5%e v +1.2% prior; Unit Labor Costs: 4.5%e v 0.9% prior
• 08:30 (CL) Chile Apr Trade Balance: $1.0Be v $1.2M prior; Total Exports: No est v $5,7B prior; Total Imports: No est v $4.5B prior; Copper Exports: No est v $2.6B prior
• 08:30 (CZ) Czech Central Bank (CNB) Interest Rate Decision: Expected to cut Repurchase Rate by 50bps to 0.50%
• 08:30 (CL) Chile Apr International Reserves: No est v $38.0B prior
• 08:30 (US) Weekly USDA Net Export Sales
• 08:45 (UK) BOE to buy £1.5B in APF Gilt purchase operation (7-20 years)
• 09:00 (RU) Russia Gold and Forex Reserve w/e May 1st: No est v $569.8B prior
• 09:00 (RU) Russia Apr CPI M/M: 0.8%e v 0.6% prior; Y/Y: 3.1%e v 2.65% prior
• 09:00 (RU) Russia Apr CPI Core M/M: 0.7%e v 0.5% prior; Y/Y: 3.1%e v 2.6% prior
• 09:00 (CL) Chile Mar Nominal Wage M/M: No est v -0.1% prior; Y/Y: No est v 4.5% prior
• 09:45 (UK) BOE to buy £1.5B in APF Gilt purchase operation (20+ years)
• 10:00 (CA) Canada Apr Ivey Purchasing Managers Index (Seasonally Adj): No est v 26.0 prior; PMI (unadj): No est v 28.2 prior
• 10:30 (US) Weekly EIA Natural Gas Inventories
• 11:30 (SE) Sweden Central Bank (Riksbank) Dep Gov Floden
• 11:30 (US) Treasury to sell 4-week and 8-week bills
• 15:00 (US) Mar Consumer Credit: $15.0Be v $22.3B prior
• 16:00 (US) Fed’s Harker
• 19:00 (PE) Peru Central Bank (BCRP) Interest Rate Decision: Expected to leave Reference Rate unchanged at 0.25%
• 19:30 (JP) Japan Mar Labor Cash Earnings Y/Y: 0.1%e v 0.7% prior (revised from 1.0%); Real Cash Earnings Y/Y: 0.0%e v 0.2% prior (revised from 0.5%)
• 19:30 (JP) Japan Mar Household Spending Y/Y: -6.5%e v -0.3% prior
• 20:30 (JP) Japan Apr Final PMI Services: No est v 22.8 prelim; PMI Composite: No est v 27.8 prelim
• 21:00 (AU) Australia to sell AUD1.1B in 5.5% 2023 Bonds
• 21:30 (AU) RBA Statement on Monetary Policy
• 23:00 (ID) Indonesia Apr Foreign Reserves: No est v $121.0B prior
• 23:30 (TH) Thailand Apr Consumer Confidence: No est v 50.3 prior; Economic Confidence: No est v 41.6 prior
• 23:30 (JP) Japan to sell 3-Month Bills
• 23:35 (JP) Japan to sell 10-Year CPI Linked Bonds
• 23:35 (CN) China to sell CNY20B in 6-month Bills