Notes/Observations
- UK Apr Retail sales data handily beats expectations with higher back-month revisions
- Focus on Italy’s potential govt selection for the Finance Ministry position
Asia:
- North Korea Foreign Ministry Official suggested to North Korea leadership to reconsider US/North Korea summit; future of the summit is entirely up to the US
- China Foreign Min: US should stick to one China policy
- China State Council Member Wang Yi: The US decision to disinvite China from RimPac military exercise not constructive; hoped US would reconsider. Deployments have nothing to do with militarization
- China Premier Li saw ‘huge’ potential for China-Germany cooperation; stronger and more stable Euro benefits China. Hoped for a strong euro currency and to continue to buy euro denominated debt. CNY currency (yuan) internationalization was a long-term process – joint press conference with German Chancellor Merkel
Europe:
- Italy President Mattarella gave PM mandate to Giuseppe Conte to try and form a govt (as expected)
- Spain parliament approved 2018 budget (Vote was 177 to 168) – UK PM May said to ask EU for new Brexit transition to run until 2023 in avoid a hard border with Ireland. This new transition was proposed to cover trade and customs and the govt would follow the period already agreed and scheduled to run until 2020
- PM May reportedly targets to schedule controversial Brexit vote back in Parliament in June (Note: will mean a showdown between the different factions of her Conservative Party)
- German Chancellor Merkel supported the conclusion of the EU-China investment protection agreement. Chinese investment in Germany was appropriate.
- Turkey Central Bank (CBRT) raised Late Liquidity Window (LLW) by 300bps to 16.50% (intra-meeting move). maintains Benchmark Repurchase Rate at 8.00%. Reiterated view that tight stance would be maintained decisively until inflation outlook displays significant improvement
Americas:
- US President Trump confirmed he gave Commerce Dept the order to consider probe on auto imports under Section 232 review (as speculated)
- FOMC Minutes (May 2nd) noted that the Fed Funds Rate could reach the neutral level before too long if rate hikes continued. Officials saw trade and fiscal policies as sources of uncertainty
- Pentagon: US has disinvited China from 2018 rim of the Pacific military exercises as country continues to militarize disputed island
Energy:
- Iran Supreme Leader announced 7 conditions for European nations if they wanted Iran to remain in the nuclear accord. Called on Europe to protect Iran’s oil market against US sanctions by continuing to buy Iranian oil; called for European banks to protect trade with Iran
Economic Data:
- (DE) Germany Q1 Final GDP Q/Q: 0.3% v 0.3%e; Y/Y: 2.3% v 2.3%e; GDP NSA Y/Y: 1.6% v 1.6%e
- (DE) Germany Q1 Private Consumption Q/Q: 0.4% v 0.2%e; Government Spending Q/Q: -0.5% v -0.2%e; Capital Investment Q/Q: 1.7% v 1.1%e; Construction Investment Q/Q: 2.1% v 1.0%e; Domestic Demand Q/Q: 0.4% v 0.4%e; Exports Q/Q: -1.0% v -0.5%e; Imports Q/Q: -1.1% v -0.5%e
- (DE) Germany Jun GfK Consumer Confidence: 10.7 v 10.8e
- (DK) Denmark Apr Retail Sales M/M: 0.2% v 0.1%e; Y/Y: 0.7% v 2.0% prior
- (FI) Finland Apr PPI M/M: 0.4% v 0.7% prior; Y/Y: 3.3% v 3.1% prior
- (FI) Finland Apr Preliminary Retail Sales Volume Y/Y: 0.1% v 2.7% prior
- (FR) France May Business Confidence: 106 v 108e; Manufacturing Confidence: 109 v 108e; Production Outlook Indicator: 15 v 22e; Own-company Production Outlook: 17 v 15 prior
- (CZ) Czech May Business Confidence: 15.6 v 17.2 prior; Consumer Confidence: 11.3 v 10.0 prior, Composite (Consumer & Business) Confidence: 14.7 v 15.8 prior
- (SE) Sweden Apr PPI M/M: 0.6% v 1.2% prior; Y/Y: 4.9% v 4.0% prior
- (SE) Sweden Q1 Total number of Employees Y/Y: 2.4% v 2.4% prior
- (UK) Apr Retail Sales (Ex Auto Fuel) M/M: 1.3% v 0.5%e; Y/Y: 1.5% v 0.1%e
- (UK) Apr Retail Sales (Includes Auto Fuel) M/M: 1.6% v 0.9%e; Y/Y: 1.4% v 0.2%e
Fixed Income Issuance:
- (SE) Sweden sold SEK500M vs. SEK500M indicated in 0.125% I/L 2026 bond; Avg Yield: -1.5372% v -1.277% prior; Bid-to-cover: x v 1.95x prior
SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM
Equities
- Indices [Stoxx50 +0.4% at 3,557, FTSE -0.1% at 7,784, DAX +0.2% at 12,996, CAC-40 +0.5% at 5,591; IBEX-35 +0.6% at 10,082, FTSE MIB +0.9% at 23.14, SMI +.4% at 8,833 , S&P 500 Futures +0.1%]
- Market Focal Points/Key Themes: European stocks opened slightly higher and continued the trend; exception to upward move in indices was the FTSE 100; automotive stocks again in focus, this time negative following Trump considering tariffs; appointment of PM in Italy leads to support in stocks; energy stocks supported by oil price; commodities support materials; upcoming earnings expected in the US session inlcude Hormel Foods, Medtronic and Best Buy
Equities
- Consumer discretionary: Aryzta ARYN.CH -26.7%(results)
- Consumer staples: Tate & Lyle TATE.UK +5.9% (results)
- Financials: Euronext ENX.FR +3.2% (analyst action), Vontobel VONN.CH +0.2% (acquisition)
- Materials: Petra Diamonds PDL.UK -11.8% (rights offer)
- Telecom: TalkTalk TALK.UK +3.9% (results)
Speakers
- ECB Financial Stability Review: Increased risk taking in markets needs attention. Warned of risks of loose fiscal stance in high-debt countries
- ECB’s Praet (Belgium, chief economist): reiterated view that economic conditions are good despite recent softness
- ECB’s Vasiliauskas (Lithuania): Does not disagree with forecasts of ECB rate hike in six months (**Note: view on the aggressive side)
- Spain PM Rajoy stated that Catalonia direct rule to remain until normal govt was in place
- Italy Five Star said to be considering Luigi Zingales for Finance Minister post (**Note: Seen more in the traditional style (not Euro skeptic). Paolo Savona (euro skeptic) said to remain the Five Star-League choice for that position
- UK govt official refuted speculation of an extended transition period (**Note: referred to reports that PM May said to ask EU for new Brexit transition to run until 2023 in avoid a hard border with Ireland)
- Russia Central Bank (CBR) Gov Nabiullina: Staff forecasts do not see a rate hike. Rates could move higher if domestic borrowings increased. Saw scope to increase sovereign borrowings
- Russia Fin Min Siluanov: Payment in Euros was possible for sanctioned goods
- Russia Energy Min Novak: To discuss gradual oil production recovery at the Jun OPEC/Non-Opec meeting; decision to depend on market situation
- China govt official: EU probe on China steel products huts trade. Hoped EU was cautious in trade restriction measures
Currencies
- The USD consolidated some of its recent strength as bond yields moved lower after the perception of a slightly dovish set of Fed minutes.. Some analysts noted that the greenback might be losing momentum and putting its recent rally on the rocks. Fed minutes indicated that a further rate hike should be expected in June but that the Committee is not in a rush to clearly signal a more hawkish trajectory at this juncture
- EUR/USD was back above the 1.17 handle as markets awaited for more details on the proposed Conte govt in Italy. Focus will be on the selection of a Finance Minister (current speculation is between Luigi Zingales and Paolo Savona). Markets would favor Zingales as being less Euro skeptic.
- The GBP currency (Cable) was firmer in the aftermath of better UK retail sales data. The GBP/USD moved above the 1.34 handle as market shorts were scrambling to cover.
- The TRY current was weaker in the session as participant believed that action taken by the Turkey Central Bank on Wed was viewed as a temporary fix in the overall scheme of things. CBRT only raised the Late Liquidity Window (a toll it has used frequently over the past year) rather than its key Benchmark Rate. USD/TRY tested 4.74 after the central bank action pushed the Lira to 4.55 area (from record lows of 4.93)
Fixed Income
- Bund Futures trade 10 ticks lower at 159.57 as the 10-year yield holds above 0.50%. Upside targets 159.75 followed by 160.50, while a return lower targets the 158.25 level.
- Gilt futures trade at 122.07 lower by 18 ticks following better than expected retail sales data. Support continues stands at 120.85 then 120.25, with upside resistance at 123.35 then 123.85.
- Thursday’s liquidity report showed Wednesday’s excess liquidity stayed rose from €1.837T to €1.838T. Use of the marginal lending facility increased from €128M to €295M.
- Corporate issuance saw 7 deals priced for $19.2B
Looking Ahead
- (UK) Last Day of Commons Session before Whitsun recess
- (AR) Argentina May Consumer Confidence: No est v 40.09 prior
- 05:30 (HU) Hungary Debt Agency (AKK) to sell bonds (3 tranches)
- 05:30 (PL) Poland to sell Bonds – 05:30 (IS) Iceland to sell 6-month Bills
- 05:30 (UK) DMO to sell £1.0B in 0.125%I/L Nov 2036 Gilts
- 06:00 (IL) Israel Mar Manufacturing Production M/M: No est v -3.3% prior
- 06:00 (RO) Romania to sell Bonds – 06:45 (US) Daily Libor Fixing
- 07:00 (UR) Ukraine Central Bank Interest Rate Decision: Expected to leave Key Rate unchanged at 17.00%
- 08:00 (PL) Poland Apr M3 Money Supply M/M: 0.5%e v 0.8% prior; Y/Y: 6.0%e v 5.8% prior
- 08:05 (UK) Baltic Dry Bulk Index
- 08:30 (US) Initial Jobless Claims: 220Ke v 222K prior; Continuing Claims: 1.75Me v 1.707M prior
- 08:30 (US) Weekly USDA Net Export Sales
- 09:00 (US) Mar FHFA House Price Index M/M: 0.6%e v 0.6% prior; Q/Q: 0.7%e v 1.6% prior
- 09:00 (BE) Belgium May Business Confidence: No est v 1.0 prior
- 09:00 (CL) Chile Apr PPI M/M: No est v -0.6% prior
- 09:00 (RU) Russia Gold and Forex Reserve w/e May 18th: No est v $457.7B prior
- 09:00 (ZA) South Africa Central Bank (SARB) Interest Rate Decision: Expected to leave Interest Rates unchanged at 6.50%
- 09:30 (BR) Brazil Apr Current Account: $1.2Be v $0.8B prior; Foreign Direct Investment (FDI): $3.0Be v $6.5B prior
- 10:00 (US) Apr Existing Home Sales: 5.55Me v 5.60M prior
- 10:30 (US) Weekly EIA Natural Gas Inventories
- 11:00 (US) May Kansas City Fed Manufacturing Activity: 20e v 26 prior
- 13:00 (US) Treasury to sell 7-Year Notes
