USD Remains On The Defensive

Notes/Observations

• UK labor data improved despite the recent lockdown; driven by the extension of the government’s furlough scheme.
• USD at multi-month lows against numerous pairs; weakness attributed to the US inflation outlook and the Fed’s dovish reaction of believing its transitory.

Asia:

• Japan Q1 Preliminary GDP Q/Q: -1.3% v -1.2%e; GDP Annualized Q/Q: -5.1% v -4.5%e.
• Japan Econ Min Nishimura noted that Q1 GDP decline due largely to a dip in consumption, largely in services due to the Covid-19 emergency measures.
• Japan Chief Cabinet Sec Kato stated that would aim to restore GDP to pre-covid 9 level before the end of this fiscal year.
• RBA May Minutes reiterated its forward guidance of no rate rise until actual inflation was sustainably within the 2-3% target band with conditions unlikely before 2024.

Coronavirus:

• Total global cases 164.3M (+0.9% d/d); total deaths: 3.40M (+0.9% d/d).
• UK Health Min Hancock: confirmed 2.3K cases of Indian COVID variant in the UK.
• UK MP’s said to be contemplating contingency plans for local lockdowns or delaying the June 21st reopening due to the Indian Covic-19 variant.

Americas:

• Fed’s Kaplan (non-voter; hawkish) saw US GDP at 6.5% in 2021 and unemployment down to 4%; reiterated stance that would be good to start discussing efficacy of Fed’s asset purchases sooner than later.

Energy:

• Colonial Pipeline noted that transports of refined products we back at normal level and fully operational. Added that it would take some time for the supply chain to catch up.

Speakers/Fixed income/FX/Commodities/Erratum

Equities

• Indices [Stoxx600 +0.38% at 443.98, FTSE +0.35% at 7,057.75, DAX +0.32% at 15,445.50, CAC-40 +0.23% at 6,382.14, IBEX-35 +0.38% at 9,190.00, FTSE MIB +0.69% at 25,034.50, SMI -0.01% at 11,134.90, S&P 500 Futures +0.34%].
• Market Focal Points/Key Themes: European indices open higher across the board, but moderated gains later in the session; all sectors start the day in the green; sectors leading to the upside include materials and industrials; while telecom sector underperforms following earnings from Vodafone; Magnit acquires Dixy; Vivendi potentially to sell stake in UMJ; Siemens reportedly considering delisting Siemens Gamesa; Heineken looking to acquire Distell in South Africa; earnings expected during the upcoming session include Home Depot, Baidu and Macy’s.

Equities

• Consumer discretionary: Magnit [MAGN.UK] +3% (acquistion).
• Consumer staples: Imperial Brands [IMB.UK] +2% (earnings).
• Energy: Engie [ENGI.FR] +4% (earnings).
• Financials: Generali [G.IT] +1% (earnings).
• Healthcare: Oxford BioMedica [OXB.UK] +7% (raises outlook).
• Technology: Micro Focus International [MCRO.UK] +7% (trading update).
• Telecom: Vodafone [VOD.UK] -7% (earnings).

Speakers

• ECB’s Villeroy (France) stated that there was no risk of lasting inflation in EU even as the outlook for economic growth improved; monetary policy should remain accommodative. He saw French 2021 GDP growth of at least 5.5%.
• UK govt was said to consider force majeure over Northern Irish protocol.
• German Constitutional Court (BVerfG) said to reject bid to enforce ECB bond-buying program PSPP ruling.
• Poland Central Bank official Sura stated that did not see the grounds for a rate hike and saw the Nov Staff Projects as key for the direction of the rate path.
• Moody’s commented on South Africa and noted that the govt high debt burden was rising; could downgrade sovereign rating if growth remains weak.
• Taiwan Min of Economic Affairs Lee Chih-Kung: 2021 GDP growth still likely to be at least 5.0%.
• Philippines said to cut the 2021 GDP outlook from 6.5-7.5% range to 6.0-7.0%.

Currencies/Fixed Income

• Rebound in equity markets spark an appetite for risk appetite and whittled away at the USD’s safe-haven status. Greenback saw all of its recent gains evaporate from the past week. Dealers also noted that the Fed showed no sign of tightening policy any time soon despite the pickup in inflation.
• EUR/USD moved above the 1.22 level. Dealers were looking ahead to the June 10th ECB monetary policy meeting. The debate has begun whether ECB would maintain the “significantly higher” asset purchase pace under the Pandemic Emergency Purchase Program. Key resistance in pair remains the 1.24 area.
• GBP/USD approached the 1.42 level for 3-month highs as improving UK labor data was being driven by the extension of the government’s furlough scheme.

Economic data

• (FI) Finland Mar GDP Indicator Y/Y: +1.1% v -0.7% prior.
• (UK) Apr Jobless Claims Change: -15.1K v -19.4K prior; Claimant Count Rate: 7.2% v 7.2% prior.
• (UK) Mar Average Weekly Earnings 3M/Y: 4.0% v 4.5%e; Weekly Earnings (ex-bonus) 3M/Y: 4.6% v 4.6%.
• (UK) Mar ILO Unemployment Rate: 4.8% v 4.9%e; Employment Change 3M/3M: +84K v +50Ke.
• (UK) Q1 Preliminary Output Per Hour Y/Y: +1.0% v -0.7% prior.
• (NO) Norway Apr Trade Balance (NOK): 17.0B v 25.4B prior.
• (RO) Romania Q1 Advance GDP Q/Q: 2.8% v 0.1%e; Y/Y: -0.2% v -1.8%e.
• (HU) Hungary Q1 Preliminary GDP Q/Q: +1.9% v -0.1%e; Y/Y: -2.3% v -3.8%e.
• (NL) Netherlands Q1 Preliminary GDP Q/Q: -0.5% v -0.5%e; Y/Y: -2.0% v -2.0%e.
• (NL) Netherlands Mar Trade Balance: €6.5B v €5.1B prior.
• (NL) Netherlands Mar Consumer Spending Y/Y: -0.4% v -10.7% prior.
• (IT) Italy Mar Total Trade Balance: €5.2B v €4.8B prior; Trade Balance EU: €0.4B v €0.6B prior.
• (EU) Euro Zone Q1 Preliminary GDP (2nd reading) Q/Q: -0.6% v -0.6%e; Y/Y: -1.8% v -1.8%e.
• (EU) Euro Zone Q1 Employment Q/Q: -0.3% v +0.4% prior; Y/Y: -2.1% v -1.9% prior.
• (EU) Euro Zone Mar Trade Balance (seasonally adj): €13.0B v €18.7Be; Trade Balance NSA (unadj): €15.8B v €17.7B prior.

Fixed income Issuance

• (EU) European Union opened its book to sell EUR-denominated 8-year and 25-year bond via syndicate.
• (UK) DMO sold £3.25B in 0.125% Jan 2024 Gilts; Avg Yield: 0.184% v 0.150% prior; bid-to-cover: 2.60x v 2.70x prior; Tail: 0.1bps v 0.2bps prior.

Looking Ahead

• (UK) BOE Gov Bailey with members Broadbent and Ramsden in Parliament on QE.
• 05:15 (CH) Switzerland to sell 3-month Bills.
• 05:20 (EU) Daily ECB Liquidity Stats.
• 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills.
• 05:30 (DE) Germany to sell €6.0B in new 0% Jun 2023 Schatz.
• 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO).
• 05:30 (ZA) South Africa to sell combined ZAR3.9B in 2031, 2037 and 2044 bonds.
• 06:00 (IL) Israel Q1 Advance GDP Annualized: 3.2%e v 6.5% prior.
• 06:00 (PT) Portugal Apr PPI M/M: No est v 2.0% prior; Y/Y: No est v 0.7% prior.
• 06:00 (IL) Israel to sell 2023, 2026, 2037 and 2051 bonds.
• 06:30 (UK) DMO to sell £2.25B in 1.25% Oct 2041 Gilts.
• 06:30 (EU) ESM to sell €1.5B in 6-month Bills.
• 06:45 (US) Daily Libor Fixing.
• 07:00 (FI) Finland Govt on EU Recovery Fund and govt confidence vote.
• 07:00 (TR) Turkey to sell Gold Bonds.
• 08:00 (UK) Daily Baltic Dry Bulk Index.
• 08:30 (US) Apr Housing Starts: 1.702Me v 1.739M prior; Building Permits: 1.770Me v 1.759M prior (revised from 1.766M).
• 08:30 (CL) Chile Q1 GDP Q/Q: 3.8%e v 6.8% prior; Y/Y: 0.5%e v 0.0% prior.
• 08:30 (CL) Chile Q1 Current Account Balance: $0.2Be v $0.5B prior.
• 08:55 (US) Weekly Redbook LFL Sales data.
• 09:00 (EU) Weekly ECB Forex Reserves.
• 09:00 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed).
• 09:45 (UK) BOE to buy £1.147B in APF Gilt purchase operation (over 20-years).
• 10:00 (MX) Mexico Weekly International Reserve data.
• 11:05 (US) Fed’s Kaplan on a panel discussion at Atlanta Fed Conference.
• 11:30 (US) Treasury to sell 52-Week Bills.
• 12:00 (RU) Russia Apr PPI M/M: 1.8%e v 3.6% prior; Y/Y: 26.1%e v 16.0% prior.
• 12:00 (CA) Canada to sell 50-year bonds.
• 16:30 (US) Weekly API Oil Inventories.
• 18:45 (NZ) New Zealand Q1 PPI Input Q/Q: No est v 0.0% prior; PPI Output Q/Q: No est v 0.4% prior.
• 20:30 (AU) Australia May Consumer Confidence Index: No est v 118.8 prior.
• 21:00 (AU) Australia to sell 10-year notes.
• 21:30 (AU) Australia Q1 Wage Price Index Q/Q: 0.5%e v 0.6% prior; Y/Y: 1.4%e v 1.4% prior.
• 23:00 (CN) China to sell 2-year and 5-year bonds.
• 23:00 (TH) Thailand to sell 2025 Bond.
• 23:30 (JP) Japan to sell 12-Month Bills.
• 23:35 (JP) Japan to sell 5-year JGB Bonds.