Stocks Rise As China’s President Xi’s Speech Eases Trade Tensions

Notes/Observations

• China President Xi strikes conciliatory tone on trade; makes no reference to possible countermeasures on trade (helped to diffuse tensions)
• European inflation data remains subdued
• US Congressional Budget Office forecasting stronger growth but also significantly wider deficits

Asia:

• China President Xi remarked at Boao conference that China to lower auto and auto product import tariff later this year and open sector to higher foreign ownership; China reform and opening would definitely succeed, world should push for free trade. Cold war mentality was out of place and a zero sum game, isolationism would hit walls

Europe:

• ECB’s Coeure (France): growth outlook did not warrant change in monetary policy stance. Growth in the euro zone was not slowing. Interest rates to remain at their current level for a long time even after asset purchases end. We’ll do what’s needed to bring inflation back to 2%; no need to change the stance now
• ECB’s Praet (Belgium, chief economist): inflation developments have stayed subdued – UK Mar BRC Sales LFL Y/Y: +1.4% v -0.3%e (Note: Easter holiday sales took place in March rather than April)

Americas:

• Fed’s Kaplan (dove, non-voter) reiterated view that base case was three interest rate increases in 2018. Interest rate path likely a little bit flatter in 2019.
• Congressional Budget Office (CBO) Budget and Economic Outlook: US Federal budget deficits will grow substantially over the next few years, then stabilize in 2023. Forecasted $1T budget deficit in 2020 (2 years earlier than previously anticipated)
• President Trump meeting with North Korea Leader Kim to be held in May or early June, hoped to reach a denuclearization deal. US has been in touch with North Korea govt. – President Trump: to make major decisions on Syria in the next 24-48 hours

Economic Data:

• (NL) Netherlands Mar CPI M/M: 0.2% v 0.5% prior; Y/Y: 1.0% v 1.2% prior
• (NL) Netherlands Mar CPI EU Harmonized M/M: 0.2% v 1.1%e; Y/Y: 1.0% v 1.8%e
• DK) Denmark Mar CPI M/M: 0.0% v 0.3%e; Y/Y: 0.5% v 0.8%e
• (DK) Denmark Mar CPI EU Harmonized M/M: 0.0% v 0.3%e; Y/Y: 0.4% v 0.7%e
• (NO) Norway Mar CPI M/M: 0.3% v 0.6%e; Y/Y: 2.2% v 2.4%e
• (NO) Norway Mar CPI Underlying M/M: 0.2% v 0.6%e; Y/Y: 1.2% v 1.4%e
• (NO) Norway Mar PPI including Oil M/M: +0.5% v -2.6% prior; Y/Y: 6.4% v 4.7% prior
• (FI) Finland Feb Industrial Production M/M: -1.2% v +0.1% prior; Y/Y: 3.4% v 4.8% prior
• (JP) Japan Mar Preliminary Machine Tool Orders Y/Y: 28.1% v 39.5% prior
• (FR) France Feb Industrial Production M/M: 1.2% v 1.4%e; Y/Y: 4.0% v 4.3%e
• (FR) France Feb Manufacturing Production M/M: -0.6% v +0.7%e; Y/Y: 2.4% v 4.3%e
• (CZ) Czech Mar CPI M/M: -0.1% v 0.0%e; Y/Y: 1.7% v 1.7%e
• (CZ) Czech Mar Unemployment Rate: 3.5% v 3.5%e
• (HU) Hungary Mar CPI M/M: 0.1% v 0.1%e; Y/Y: 2.0% v 2.1%e
• (SE) Sweden Feb Household Consumption M/M: 0.5% v 0.1% prior; Y/Y: 1.7% v 1.2 % prior
• (IT) Italy Feb Industrial Production M/M: -0.5% v +0.8%e; Y/Y: 2.4% v 7.6% prior; Industrial Production WDA Y/Y: 2.5% v 4.7%e
• (TW) Taiwan Mar CPI Y/Y: 1.6% v 1.7%e; CPI Core Y/Y: 1.5% v 1.3%e, WPI Y/Y: +0.5% v -0.2% prior

Fixed Income Issuance:

• (IE) Ireland Debt Agency (NTMA) opened its book to sell EUR-denominated 15-year bond; guidance seen +5bps to mid-swaps
• (EU) EFSF opened its book to sell €3.0B in 8-year notes; guidance seen -17bps to mid-swaps
• (NL) Netherlands Debt Agency (DSTA) sold €2.005B vs. €1.5-2.5B indicated range in 0% Jan 2024 DSL Bond; Avg Yield: 0.087% v 0.052% prior
• (ID) Indonesia sold total IDR21.85T vs. IDR17T target in 3-month, 12-month Bills, 5-year, 10-year and 15-year Bonds
• (ES) Spain Debt Agency (Tesoro) sold total €1.295B vs. €1.0-2.0B indicated range in 3-month and 9-month Bills
• (AT) Austria Debt Agency (AFFA) sold total €1.0B vs. €1.0B indicated in 2028 and 2037 RAGB bond

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +0.6% at 377.6, FTSE +0.4% at 7221, DAX +1.0% at 12387, CAC-40 +0.7% at 5300, IBEX-35 +0.3% at 9767, FTSE MIB +0.3% at 23120, SMI +0.5% at 8730, S&P 500 Futures +1.1%]
• Market Focal Points/Key Themes: European Indices trade higher across the board being led by the Dax on gains from Bayer and Auto names, as Indices trade higher on higher US futures. Overall sentiment has been helped by comments from China’s President Xi paving the way for China to lower auto and auto product import tariff later this year. On the earnings front Christian Dior and LVMH trade sharply higher after strong results, while Givaudan trades lower after reporting inline results. Sequana is another notable faller after declining profits and a suspension of its dividend, whilst Air France trades over 1% lower after their March metrics and warning on full year profits following the recent strike action. Looking ahead earnings include MSM Industrial and Simply Good Foods.

Movers

• Consumer Discretionary [Givaudan [GIVN.CH] -4.2% (Earnings), Christian Dior [C.FR] +3.8% (Earnings), LVMH [MC.FR] +5.2% (Earnings), Air France [AF.FR] -1.6% (Mar Metrics)]
• Industrials [ Sequana [SEQ.FR] -7% (Earnings), Daimler [DAI.DE] +1.7%,BMW [BMW.DE] +2.5%, Volkswagon [VOW3.DE] +1.9% (China President Xi comments regarding auto tariffs)]
• Healthcare [Bayer [BAYN.DE] +4.1% (Reportedly the US set to approve deal with Monsanto with consessions)]
• Energy [TGS-Nopec Geophsical Company [TGS.NO] +13% (Prelim results)]

Speakers

• BOE’s McCafferty (dissenter): Brexit uncertainty hampering longer-term investment; uncertainty would be a permanent feature in the economic landscape. Must not dilly dally over the next rate hike and saw no labor market slack. He saw modest upside risk to BOE’s Feb wage growth forecasts
• BOE’s Haldane: Policy had not worsened income inequality. No clear shift in wealth
• ECB’s Nowotny (Austria): At an important turning point in monetary policy; must normalize policy not too soon nor too late. Expansion has been strong but unequal one
• ECB’s Villeroy (France) stated that France must address the high level of spending by the govt; French level was higher than average in Euro region
• ECB’s Nouy (SSM member): Still room for improvement in risk appetite framework
• ECB bank supervision official Donnery: NPL loan sale can be part of the solution
• Bank of France maintained its 2018 GDP growth forecast at 1.9%. Domestic economy still needed to increase its growth potential but saw no risk to growth from trade tensions
• Czech Central Bank Gov Rusnok reiterated view that would continue with its tightening
• Russia Central Bank (CBR) Gov Nabiullina: Ready to reduce the RUB currency (Ruble) effect on inflation. Sanctions did effect Russia and needed to adopt to external changes. Took time for markets and economy to get use to sanctions but Russia had a wide range of tools to address the situation
• China-US talks said to have stalled over high-tech issues. US asked China to stop subsidizing high-tech industry. US rejected offer from China to reduce trade deficit by $50B. China said to be considering trade concessions for Europe and Mexico
• IEA’s Atkinson: 2018 oil demand growth seen between 1.4-1.5M bpd. Believed that US was not at peak oil production
• Fed’s Kaplan (dove, non-voter) commented from Beijing that the US economy 2018 GDP growth was seen between 2.50-2.75% and 2019 a tad softer. Business investment should be stronger on tax reform. Had to be gradual and patient in raising rates in light of headwinds

Currencies

• European inflation and growth data both continued to be subdued in the session. CPI data from Netherlands, Hungary and Czech Republic came in below expectations while French Feb Industrial Production missed its consensus view. EUR/USD remains steady in its price action and hold above the 1.23 level and in the mid-range of its 2018 overall trading band.
• GBP was firmer in the session as BOE’s McCafferty (dissenter) saw saw modest upside risk to BOE’s Feb wage growth forecasts. GBP/USD higher by 0.3% at 1.4175 just ahead of the NY morning.
• NOK currency (Krona) was softer after Norway Mar CPI missed expectations. Norges has been stated that the 1st potential rate hike could come after the summer but today inflation data took some momentum from that view.
• Safe haven flows saw some unwind after China President Xi struck a conciliatory tone on trade and made no reference to possible countermeasures on US tariffs. Cyclical currencies like AUD and NZD werer firm as Xi’s remarks helped to reduce trade tensions.
• The RUB currency (Ruble) continued its plunge in the aftermath of fresh US sanctions. The Ruble has lost approx. 7% this week. USD/RUB trading around the mid-62 area

Fixed Income

• Bund Futures trade 12 ticks lower at 159.34 as Xi speech eases trade tension. Upside targets 159.75, while a return lower targets the158.25 level.
• Gilt futures trade at 122.21 lower by 15 ticks continuing the respect of the 123 handle. Support continues stands at 121.25 then 120.85, with upside resistance at 123.35 then 123.85.
• Tuesday’s liquidity report showed Monday’s excess liquidity rose to €1.865T from €1.864T prior. Use of the marginal lending facility rose from €0M to €404M.
• Corporate issuance saw 5 issuers raised $5.08B in the primary market

Looking Ahead

• (PT) Bank of Portugal Reports Mar ECB financing to Portuguese Banks: No est v €22.0B prior
• (UR) Ukraine Mar CPI M/M: 0.9%e v 0.9% prior; Y/Y: 13.2%e v 14.0% prior
• (AR) Argentina Central Bank (BCRA) Interest Rate Decision: Expected to leave 7-Day Repo Reference rate unchanged at 27.25%
• (MX) Mexico Mar ANTAD Same-store Sales Y/Y: No est v 4.8% prior
• (MX) Mexico Mar Nominal Wages: No est v 5.6% prior
• (SI) Slovenia Debt Agency to sell Bills
• 05.30 (UK) Weekly John Lewis LFL sales data – 05:30 (UK) BOE’s Haldane in Melbourne
• 05:30 (EU) ECB allotment in 7-day Main Financing Tender
• 05:30 (HU) Hungary Debt Agency (AKK) to sell in 3-month Bills
• 05:30 (DE) Germany to sell €500M in 0.1% inflation-linked 2026 bonds (Bundei)
• 05:30 (UK) DMO to sell £2.0B in 1.75% July 2057 Gilts
• 05:30 (BE) Belgium Debt Agency (BDA) to sell €1.4-1.8B in 6-month and 12-month Bills
• 05:30 (ZA) South Africa to sell combined ZAR2.4B in 2030, 2035 and 2048 bonds
• 06:00 (US) Mar NFIB Small Business Optimism: 107.0e v 107.6 prior
• 06:00 (IE) Ireland Feb Industrial Production M/M: No est v -2.6% prior; Y/Y: No est v -2.8% prior
• 06:45 (US) Daily Libor Fixing
• 07:00 (ZA) South Africa Feb Manufacturing Production M/M: +0.5%e v -1.6% prior; Y/Y: 2.1%e v +2.5% prior
• 07:00 (CZ) Czech Central Bank to comment on CPI data
• 07:45 (US) Weekly Goldman Economist Chain Store Sales
• 08:00 (HU) Hungary Central bank (NBH) Mar Minutes
• 08:00 (BR) Brazil Mar IBGE Inflation IPCA M/M: 0.1%e v 0.3% prior; Y/Y: 2.7%e v 2.8% prior
• 08:00 (BR) Brazil CONAB Crop Report
• 08:00 (RU) Russia announces weekly OFZ bond auction
• 08:05 (UK) Baltic Dry Bulk Index
• 08:15 (CA) Canada Mar Housing Starts: 218.0Ke v 229.7K prior
• 08:30 (US) Mar PPI Final Demand M/M: 0.1%e v 0.2% prior; Y/Y: 2.9%e v 2.8% prior
• 08:30 (US) Mar PPI Ex Food and Energy M/M: 0.2%e v 0.2% prior; Y/Y: 2.6%e v 2.5% prior
• 08:30 (US) Mar PPI Ex Food, Energy, Trade M/M: 0.2%e v 0.4% prior; Y/Y: No est v 2.7% prior
• 08:30 (CA) Canada Feb Building Permits M/M: No est v 5.6% prior
• 08:55 (US) Weekly Redbook Sales
• 09:00 (EU) Weekly ECB Forex Reserves
• 09:00 (RU) Russia Q1 Preliminary Current Account: $29.5Be v $13.7B prior
• 09:45 (UK) BOE to buy £1.22B in in APF Gilt purchase operation (over 15-years)
• 10:00 (US) Feb Final Wholesale Inventories M/M: 0.8%e v 1.1% prelim, Wholesale Trade Sales M/M: No est v -1.1% prior
• 11:30 (IT) ECB’s Visco (Italy) in Rome
• 11:30 (US) Treasury to sell 4-Week Bills
• 12:00 (US) DOE Short-Term Crude Outlook
• 12:00 (US) USDA World Agricultural Supply and Demand Estimate (WASDE) Crop Report
• 13:00 (US) Treasury to sell 3-Year Notes
• 16:30 (US) Weekly API Oil Inventories