German ZEW Survey Mixed, UK Jobless Rise By Record Amount

Notes/Observations

• Initial optimism on EU Recovery fund dissipated into realism that the fund still faced hurdles in upcoming “difficult” negotiations
• UK unveiled new post-Brexit global tariff regime – German May ZEW survey painted a mixed picture but optimism prevails

Asia:

• RBA May Minutes reiterated stance that would not increase cash rate until progress was made towards full employment and inflation targets. Policy package was working as expected.
• RBNZ Dep Gov Bascand stated that expected more certainty on virus situation in 3-months time and then re-evaluate whether to do more or take the foot off the pedal. Could extend and expand asset purchase program further

Coronavirus:

• President Trump posted a letter to the World Health Organization (WHO) threatening permanent funding freeze related to the organization

Europe:

• German Chancellor Merkel and France President Macron statement: confirmed a proposal for €500B EU coronavirus recovery fund. The proposal would authorize EU Commission to fund the recovery by borrowing through financial markets in the EU’s name
• German Chancellor Merkel noted that European recovery fund should give grants, not loans to member states

Americas:

• President Trump: I started taking hydroxychloroquine a couple weeks ago; have not been exposed to COVID-19; so far I seem OK

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 -0.63% at 339.42, FTSE -0.27% at 6,032.19, DAX -0.49% at 11,002.55, CAC-40 -0.59% at 4,471.71, IBEX-35 -1.30% at 6,690.00, FTSE MIB -0.88% at 17,247.50, SMI -0.04% at 9,737.00, S&P 500 Futures -0,38%]
• Market Focal Points/Key Themes: European indices open higher across the board but later turned around to trade slightly negative; consumer discretionary and financials better performing sectors; healthcare sector leading among underperformers; reportedly UK set to cut tariffs upon completion of Brexit; earnings expected in the upcoming US session include Home Depot, Walmart and Urban Outfitters

Equities

• Consumer discretionary: DCC [DCC.UK] +5% (earnings)
• Consumer staples: Imperial Brands [IMB.UK] -5% (earnings)
• Industrials: Thyssenkrupp [TKA.DE] +6% (looking for partners), Renew Holdings [RNWH.UK] +12% (earnings), Renault [RNO.FR] -4%, PSA [UG.FR] -5% (EU car registrations)
• Technology: Micro Focus [MCRO.UK] +10% (trading update)

Speakers

• UK Govt said to plan £30B in tariffs cut after Brexit of supply chain goods (**Reminder: UK plans to leave on Dec 31st 2020)
• France Fin Min Le Maire: EU Recovery Fund likely not available until 2021and conceded that fund still faced hurdles in “difficult” negotiations in coming weeks
• German ZEW commented that optimism was growing that there would be an economic turnaround from summer onwards with economic growth expected to pick up pace again in Q4 2020. nly in 2022 would economic output return to the level of 2019
• Norway Central Bank (Norges) Gov Olsen reiterated stance of not envisioning further rate cuts at this time. Inflation expectations appeared to be well anchored. Measures implemented could not prevent the pandemic from having a severe economic impact. Would take time for unemployment to fall back
• Sweden National Debt Office (NDO) updated its borrowings which raised issuance for both 2020 and 2021 period. Raised 2020 Net borrowings from SEK14B to SEK402B and 2021 Net borrowings from SEK14B to SEK76B
• German Association of Chambers of Trade and Industry (DIHK) saw 2020 exports -15% y/y – Indonesia Central Bank (BI) Policy Statement noted that it had space for further rate cuts due to low inflation and need to support GDP growth. To continue to monitor market dynamics
• Indonesia Central Bank (BI) Gov Warjiyo Pre-rate decision press conference noted that the April data showed that economic growth slowdown continued. Saw 2020 growth as below forecasts with 2021 growth rebounding. inflation remained subdued due to low demand. Reiterated view that IDR currency (Rupiah) as undervalued with scope to gain further; to continue interventions
• China govt said to target Australian wine and dairy products due to virus dispute (**Note: Tensions had escalated between the two countries in the aftermath of Australia govt’s calls for an investigation into the origin of Covid-19 virus)

Currencies/Fixed Income

• FX markets saw the USD remain soft against the major pairs
• EUR/USD approached the mid-1.09 area on optimism over the Franco-German recovery plan but well-contained within its 3-month trading range. Mixed- ZEW data did little to sway price action
• GBP/USD was higher and shrugged off a dismal UK Employment Change report
• Initial optimism on EU Recovery fund dissipated into realism that the und still faced hurdles in upcoming “difficult” negotiations. The Italian 10-year BTP saw the yield initially fall by 10bps but retreated following come comments from the France Fin Min that negotiation on fund would be difficult in the weeks ahead.

Economic Data

• (EU) EU27 Apr New Car Registrations: -76.3 v -55.1% prior (4th straight monthly decline and record low)
• (UK) Apr Jobless Claims Change: +856.5 v +5.4K prior (most on record); Claimant Count Rate: 5.8% v 3.5% prior
• (UK) Mar Average Weekly Earnings 3M/Y: 2.4% v 2.7%e; Weekly Earnings (ex-bonus) 3M/Y: 2.7% v 2.6%e
• (UK) Mar ILO Unemployment Rate: 3.9% v 4.3%e; Employment Change 3M/3M: +210K v +30KeKe
• (ID) Indonesia Central Bank (BI) left the 7-Day Reverse Repo Rate unchanged at 4.50% (not expected)
• (ES) Spain Mar Trade Balance: -€2.0B v -€2.1B prior
• (HK) Hong Kong Apr Unemployment Rate: % v 4.6%e
• (DE) Germany May ZEW Current Situation Survey: -93.5 v -86.6e; Expectations Survey: 51.0 v 30.0e
• (EU) Euro Zone May ZEW Expectations Survey: 46.0 v 25.2 prior
• (EU) Euro Zone Mar Construction Output M/M: -14.1% v -0.5% prior; Y/Y: -15.4% v +0.2% prior

Fixed Income Issuance

• (BE) Belgium Debt Agency (BDA) opened book to sell $1.0B in 10-year bonds; guidance seen +37bps to mid-swaps
• (UK) DMO opened its book to sell 0.5% Oct 2061 Gilt; guidance seen 0 (flat) to +0.5bps to Jan 2060 Gilt
• (RO) Romania to sell EUR-denominated 5-year and 10-year bonds

Looking Ahead

• (IT) 2nd day of BTP Italia issuance
• 05:30 (ZA) South Africa Feb Total Mining Production M/M: -0.6%e v +6.0% prior; Y/Y: 4.8%e v 7.5% prior; Gold Productions: No est v 4.9% prior; Platinum Production: No est v 10.2% prior
• 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills
• 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO)
• 05:30 (ZA) South Africa to sell combined ZAR6.1B in 2023, 2030 and 2035 bonds
• 05:40 (UK) BOE weekly allotment in 6-month GBP-enhanced liquidity repo operation (ILTR)
• 06:00 (PT)) Portugal Apr PPI M/M: No est v -0.4% prior; Y/Y: No est v -3.4% prior
• 06:30 (EU) ESM to sell €2.0B in 6-month bills
• 06:30 (EU) ECB allotment in weekly fixed-rate 3-month LTRO operation (prior €6.8B with 52 bids recd)
• 06:45 (US) Daily Libor Fixing
• 07:00 (ZA) South Africa Mar Manufacturing Production M/M: -0.9%e v +2.5% prior; Y/Y: -2.1%e v -2.0% prior
• 07:00 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed)
• 07:45 (US) Goldman Economist Chain Store Sales
• 07:45 (UK) BOE to buy £1.5B in APF Gilt purchase operation (3-7 years) ; bid-to-cover: x
• 08:00 (UK) Daily Baltic Dry Bulk Index
• 08:30 (US) Apr Housing Starts: 900Ke v 1.216M prior; Building Permits: 1.00Me v 1.350M prior (revised from 1.353M)
• 08:45 (UK) BOE to buy £1.5B in APF Gilt purchase operation (7-20 years); bid-to-cover: x
• 08:55 (US) Weekly Redbook LFL Sales data
• 09:00 (RU) Russia Q1 Advance GDP Y/Y: 1.8%e v 2.1% prior
• 09:00 (EU) Weekly ECB Forex Reserves
• 09:45 (UK) BOE to buy £1.5B in APF Gilt purchase operation (20+ years)
• 10:00 (US) Fed Chief Powell with Treasury Sec Mnuchin
• 10:00 (US) Fed Kashkari (dove)
• 10:00 (IE) ECB’s Lane (Ireland, chief economist) webinar
• 11:30 (US) Treasury to sell 52-Week Bills
• 14:00 (US) Fed Rosengren (hawk)
• 16:30 (US) Weekly API Oil Inventories
• 18:45 (NZ) New Zealand Apr Food Prices M/M: No est v 0.7% prior
• 19:50 (JP) Japan Q1 Housing Loans Y/Y: No est v 2.8% prior
• 19:50 (JP) Japan Mar Core Machine Orders M/M: -6.7%e v 2.3% prior; Y/Y: -8.9%e v -2.4% prior
• 20:30 (AU) Australia Apr Westpac Leading Index M/M: No est v -0.8% prior
• 21:00 (AU) Australia Apr Skilled Vacancies M/M: No est v -5.3% prior
• 21:30 (CN) China PBoC Monthly LPR Fixing: Expected to be unchanged: Current 1-Year Loan Prime Rate at 3.85%; Current 5-Year Loan Prime Rate at 4.65%
• 21:30 (KR) South Korea Central Bank to sell KRW 2.3T in 2-Year Bond
• 23:00 (CN) China to sell 1-year and 10-year Upsized Government Bonds
• 23:00 (KR) South Korea Q1 Household Credit: No est v KR1600.1T prior
• 23:30 (HK) Hong Kong to sell 2-Year notes
• 23:35 (JP) Japan to sell 20-Year JGB Bonds